Israel Ports in the First Quarter: Usage Fees and Finance Income Explain the Profit Jump

The first quarter of Israel Ports looks much stronger than the comparable quarter: revenue rose 12%, operating profit jumped 73%, and net profit reached NIS 97.4 million versus NIS 37.1 million a year earlier. But this is not just a clean rebound in port activity. A meaningful part of the improvement sits in usage fees, where the 2025 comparison base was weakened by a retroactive calculation that reduced operator revenue, and in the move from net finance expense to net finance income. Cash flow is stronger than accounting profit, with NIS 268.8 million from operating activity and a higher cash and deposit balance, so the credit picture remains comfortable. Still, the company is not an equity growth story, but a government-owned bond issuer whose economics run through regulation, contracts, infrastructure investment, and pension obligations. Reading the quarter only through net profit overstates how clean the improvement is. The next few quarters need to prove that activity and revenue growth can continue without an easy comparison base, that liquidity remains high against development spending, and that the pension surplus and Ashdod framework stay background issues rather than the center of the report.

Company Background

Israel Ports is Israel's port development and asset company, fully owned by the state. It has no traded equity, so the relevant market lens is not an earnings multiple or equity value, but cash-flow quality, debt structure, and the ability to fund long-term port development without weakening the bond profile. The group has one operating segment: management, maintenance, and development of port infrastructure, and marine traffic services in the Haifa and Ashdod ports.

This is not a standard product business. The company operates essential infrastructure and collects revenue through orders, agreements, and port-asset usage rights. Its main revenue sources are infrastructure fees, usage fees, port services, anchorage and marine-service fees, and land-use rights. Economically, this is a regulated infrastructure cash-flow machine: revenue is relatively stable and partly indexed, expenses include heavy depreciation and maintenance, and the debt stack is long-term and CPI-linked.

The previous annual Deep TASE article on the company, published after the 2025 statements, flagged three checkpoints: how much of port growth remains inside the company after the revenue-sharing mechanisms with port companies, whether liquidity can stay strong against a heavy development plan, and whether the pension surplus continues to support rather than pressure the balance sheet. The first quarter gives a partial answer. Liquidity and activity look better, but revenue-sharing mechanisms, the comparison base, and pension sensitivity still define the quality of the numbers.

Usage Fees Carried Growth, But Not Every Shekel Stays Inside the Company

Revenue growth was broad, but not uniform in quality. Service revenue rose to NIS 341.9 million from NIS 306.4 million, an increase of NIS 35.5 million. Usage fees alone contributed NIS 20.5 million of that increase and rose 24%. That is the key source of growth, but it is also the line that needs the most careful reading: the increase reflected higher cargo movement, roughly 1.7% tariff indexation, regulatory effects, and the fact that the comparable quarter included an updated calculation that retroactively reduced operator revenue.

The table explains why this is not only a story of more port activity. Revenue influenced by vessel calls and cargo volumes rose about 11% year over year, but fell about 2% versus the fourth quarter of 2025. That small line matters because it prevents over-reading the quarter: against 2025 there is clear improvement, but against the previous quarter there is not yet a clean acceleration.

The sharing mechanisms also stayed central. The company transferred NIS 33.1 million to Ashdod Port Company and NIS 9.5 million to Haifa Port Company, almost unchanged from the comparable quarter in total. The prior Ashdod model article showed why this matters: in certain assets and revenue layers, the operating headline does not equal the company's retention rate. The first quarter does not change that conclusion. It does show that higher usage fees can lift revenue, but the quality of growth still depends on which revenue layers remain fully inside the company and which continue to be shared with port operators.

Profit Jumped More Than Activity

Operating profit rose to NIS 99.7 million from NIS 57.6 million, a real improvement. Total expenses declined slightly, mainly because general and administrative expenses fell. The comparable quarter included a doubtful-debt provision related to a customer balance and an effect from a partial settlement of an employee-termination benefit. That means the operating improvement also needs some normalization: it is not only higher revenue, but also less pressure from an expense line that was less clean last year.

The finance line moved almost as sharply as the operating line. In the comparable quarter the company recorded net finance expense of NIS 9.8 million, while in the current quarter it recorded net finance income of NIS 24.7 million. The NIS 34.5 million swing explains a large part of the increase in pre-tax profit. The drivers included a change in the fair value of an embedded derivative, a CPI decline that reduced the bondholder liability by about NIS 4 million, higher interest income on deposits, and interest received from the tax authority.

That is critical for bond-market reading. Net profit looks almost 2.6 times the comparable quarter, but not all of the improvement has the same repeatability. Usage-fee and port-activity revenue are part of the company's normal model. Embedded derivative changes, tax-authority interest, and quarterly CPI effects are a less stable earnings base. The quarter is strong, but it should not be annualized mechanically from the NIS 97.4 million net profit line.

Cash Flow Is Strong, And Debt Still Looks Comfortable

The more convincing part of the quarter is cash flow. Operating cash flow was NIS 268.8 million, well above net profit and supportive of the view that the regulated activity continues to generate cash. The positive gap came mainly from NIS 138.2 million of depreciation and amortization, NIS 37.5 million of tax refunds, and relatively moderate working-capital movements.

There are two cash readings to separate. On a normalized operating-cash-generation basis, the business generated far more cash than accounting profit. On an all-in cash flexibility basis, after the period's real cash uses, the company still added cash: NIS 268.8 million of operating cash flow, against NIS 79.6 million used in investing activity and NIS 1.5 million used in financing activity. Cash increased by NIS 187.7 million, while short-term deposits increased by another NIS 9.3 million.

At quarter-end the company had NIS 601.1 million of cash and NIS 1.045 billion of short-term deposits, together about NIS 1.646 billion. That explains why the balance sheet looks calm despite the development plan and the debt. The company also had NIS 550 million of unused credit facilities, expiring between January and March 2027, and pays a 0.15% annual commitment fee on those unused lines.

The bond picture does not show near-term pressure either. The book value of bonds, including current maturities, was about NIS 4.0 billion, and the company complied with all trust-deed terms. Equity as defined in the trust deeds was about NIS 10 billion, far above the NIS 4 billion equity-threshold trigger. Series A is still the nearest debt maturity, with a current maturity of NIS 259.7 million in 2026, but against existing liquidity this is not a pressure point.

Pensions And The Dry-Port Option Keep The Quarter Less Clean

The pension plan surplus remains a meaningful balance-sheet asset, but it declined to NIS 665.2 million from NIS 679.1 million at the end of 2025. The actuarial valuation shows plan assets of NIS 3.129 billion against a pension obligation of NIS 2.464 billion. That is still a comfortable surplus, but the quarter reminds investors why it cannot be treated as free cash: the assets are held in a dedicated framework and are not available to the company's creditors or normal operating needs. This is also why the gap between net profit and comprehensive income matters. Net profit was NIS 97.4 million, but the actuarial effect reduced comprehensive income to NIS 74.7 million. The previous pension article focused on the same gap between a balance-sheet cushion and freely available liquidity, and the current quarter reinforces it without undermining the cushion itself.

The new strategic event is the May 1, 2026 government decision authorizing the company to prepare for dry ports. At this stage the cost is not material, and the company cannot estimate the possible effect on its activity. The dry port is therefore a strategic option, not a current financial line item. The dry-port article framed that option as a possible link in a wider trade corridor, but the current report still lacks location, operating model, budget, and an establishment decision. Ashdod also remains a friction point: a permanent agreement has not yet been signed, and Ashdod Port Company disputes the company's position regarding the applicability of the interim agreement. This is not an immediate liquidity problem, but it is still part of revenue quality.

What The Next Quarters Need To Prove

The first quarter improves the company's position against the checkpoints from the prior year: activity recovered, cash flow is strong, liquidity increased, debt does not create immediate pressure, and the pension plan remains in surplus. But the quality of the profit jump is less clean than the net profit line itself. Usage fees were helped by an easier comparison base, finance income contributed meaningfully, and activity-linked revenue declined slightly versus the fourth quarter. The credit profile looks stronger than the long-term operating thesis. For 2026 to become a stabilization year with a strategic option, the next two or three quarters need to show continued growth in infrastructure and usage fees, preservation of the pension surplus, no deterioration in the Ashdod framework, and dry-port progress beyond the review stage.