Neto Malinda in the First Quarter: Sales Jump, Customers and Dividends Still Pull Cash

Neto Malinda opened 2026 with a quarter that gives only a partial answer to the issue left open at the end of 2025: the business keeps selling more, but growth still needs a heavy balance sheet. Revenue rose 20.5% and net profit increased 13%, yet this is not clean evidence of better business quality, because pre-tax profit declined, gross margin fell to 12.4%, and the higher net profit also benefited from lower tax expenses after the comparable quarter included an unusual tax provision. Inventory did fall by NIS 82 million, which is positive relative to the year-end 2025 problem, but cash did not come back into the company: customers and receivables rose by NIS 324 million, operating cash flow was negative NIS 143 million, and the gap was funded almost entirely by short-term bank credit. The read becomes less comfortable because the company keeps declaring dividends after a cash-consuming quarter, while also approving after the balance-sheet date a material increase in the purchase limit from Tal Hal Yiska. The quarter is therefore not a full recovery story. It shows where progress is real and where proof still needs to arrive: customer collection, better trade margins, lower short-term credit and supplier concentration that does not become a new governance friction.

Sales Jumped, but Each Shekel of Sales Left Less Profit

The company is a food manufacturer and distributor whose economics come from three engines: group factories, imports and the local market. In the first quarter, imports were the most visible growth engine, but they also show the problem most clearly: revenue grew fast, segment profit fell, and the segment margin contracted.

This is why the quarter is weaker than the sales line suggests. Group revenue reached NIS 1.57 billion, but operating profit after other income and expenses fell to NIS 85.9 million from NIS 91.7 million in the comparable quarter. Gross margin declined to 12.4%, from 14.1% in the comparable quarter and 13.5% for full-year 2025. Management attributes the margin pressure to a point deterioration in trade prices, but even if the explanation is temporary, the investor implication is clear: sales volume grew before the margin proved it could hold.

The comparison base also needs care. Passover fell in early April, and most of the holiday-related sales were included in the first quarter. That means the quarter's sales pace should not be treated automatically as a normal 2026 run rate. The caution is reinforced by the fact that pre-tax profit fell to NIS 84.4 million from NIS 86.8 million, despite the revenue jump. Net profit increased to NIS 64.5 million mainly because tax expenses were lower, while the comparable quarter included a roughly NIS 9 million provision related to the closing of tax assessments at a subsidiary.

Working Capital Did Not Release Cash, It Shifted From Inventory to Customers

The previous analysis of 2025 cash conversion focused on inventory, goods in transit, customers and short-term bank credit. The current quarter closes only one part of that issue: inventory fell to NIS 684.3 million from year-end 2025, a decline of NIS 82.0 million. That is a move in the right direction, but it did not release net cash because the customer balance alone rose to NIS 1.53 billion, and customers plus other receivables pulled NIS 324.1 million from cash flow.

This is the key breakdown of the quarter. The business produced accounting profit, but before external funding it still consumed cash. On an all-in cash flexibility basis, after the period's actual cash uses, operating cash flow was negative NIS 143.3 million, net investing cash used another NIS 8.2 million, and lease principal repayment used NIS 2.7 million. Before new bank credit and before dividends paid or declared after the balance-sheet date, the activity required roughly NIS 154 million. Against that, the company drew NIS 142.1 million of net short-term bank credit.

The point is not that the company is under survival pressure. Equity still represents about 61% of the balance sheet, non-current liabilities barely changed, and short interest at 0.59% of float on May 20, 2026 does not point to unusual technical pressure in the share. The yellow flag is different: if sales keep growing through customer credit, the bank remains part of the growth mechanism, not merely a temporary backstop.

Dividends and Tal Hal Make the Recovery Story Less Clean

The quarter was weak in cash terms, yet on March 30, 2026 the board declared a NIS 25 million cash dividend, including NIS 1.3 million for subsidiaries that hold company shares. After the balance-sheet date, on the same date the financial statements were approved, another dividend of the same amount and structure was declared. At the accounting profit level, the company can cover the distribution. At the cash level, the picture is less comfortable: the first distribution was paid after a quarter with negative operating cash flow, and the second arrives before the statements show that customer balances have turned back into cash.

The second post-period event is just as important for coverage continuity. The previous analysis of Tal Hal marked the marketing agreement as an area that requires both governance and economic monitoring. On May 18, 2026 the general meeting approved an update to the purchase limit, so that purchases of regular-kosher poultry from Tal Hal Yiska may reach up to 95% of the company's annual regular-kosher poultry purchases, with no change to the other terms of the marketing agreement. This does not prove that the agreement hurts profitability, and the quarterly statements do not provide enough detail to isolate its contribution. Still, the higher limit leaves an anchor supplier at the center of the story, just as the local market remains one of the company's three large revenue engines.

The security situation adds uncertainty, but it is not the edge of the quarter. The company maintained operating continuity with customers and suppliers and did not identify a material hit to results as of the reporting date. It is therefore mainly a background condition. If disruptions worsen, they could affect supply chains and demand, but the current quarter is still being measured mainly through trade prices, customer credit and dividends.

The Rest of the Year Depends on Collection, Margin and Purchase Terms

The first quarter leaves a mixed but clear conclusion: the company entered 2026 with strong demand and high activity levels, but it has not yet shown that growth can exist without drawing more short-term credit. Real improvement will come when customer balances start to fall, gross margin moves back toward 2025 levels, and short-term bank credit is not needed to finance every jump in sales. If that happens, 2025 and the first quarter of 2026 will look like a transitional funding period. If customers keep growing faster than sales and margins remain lower, the market will see a business that sells more but converts sales into cash less effectively.

The near-term read is likely to move around three numbers: customer balances, gross margin and short-term bank credit. Alongside them sits the capital-allocation issue: two NIS 25 million dividend declarations in a short period signal confidence, but they need cash support, not only accounting profit. The active bottleneck is not demand. It is the ability to collect from customers quickly enough without giving up margin and without increasing dependence on suppliers and bank credit.