Afcon Holdings in the First Quarter: Infrastructure Orders Lift Backlog and EPC Margin Carries Profit
Afcon Holdings opened 2026 with revenue down 4.8% and net profit up 82%, mainly because EPC and construction profitability improved sharply. Backlog rose to about NIS 2.48 billion, and the key test is how much of it becomes revenue, advances and cash after debt repayment and dividends.
Afcon Holdings opened 2026 with a quarter that reinforces last year's read: the company is no longer measured mainly by revenue volume, but by project quality, working capital and the ability to convert backlog into cash. Revenue declined to NIS 395.3 million, while operating profit rose to NIS 37.4 million and net profit rose to NIS 25.0 million. The gap came mainly from EPC systems and construction, where revenue fell and operating profit jumped because of a better project mix. Backlog rose to about NIS 2.48 billion and adds visibility, with orders in substations, battery storage, a government project and data centers. Part of that backlog starts contributing only in 2027, so the profit improvement still needs to pass through execution, advances and collection. Operating cash flow turned positive, but all-in cash flexibility after the quarter's actual cash uses is less wide, because the company repaid debt, cash declined and the NIS 50 million dividend was paid after the balance-sheet date.
The Company Is No Longer Only A Volume Story
The group operates in control and technologies, trade, EPC systems and construction, multimedia and communications, and renewable energy. This is an execution and integration company with an energy layer, more than a passive holding company. The sector question is therefore not how large the revenue base is. It is backlog quality, which projects carry margin, and what happens to working capital while the company grows.
The previous annual analysis framed the checkpoint as whether the 2025 revenue decline concealed a move toward higher-quality activity. The first quarter gives a partial answer. Profitability rose while revenue declined, supporting the quality side. At the same time, the improvement is still too concentrated in EPC systems and construction and in one project for an international high-tech company that is nearing its final stages after the project was frozen.
| Segment | Q1 2026 Revenue | Change vs Q1 2025 | Q1 2026 Operating Profit | Operating Margin | Analytical Read |
|---|---|---|---|---|---|
| Control and technologies | NIS 108.5m | -9.6% | NIS 9.7m | 9.0% | Lower revenue, stable margin |
| Trade | NIS 65.1m | +16.9% | NIS 9.5m | 14.6% | Growth, also from IMS consolidation |
| EPC systems and construction | NIS 155.8m | -19.9% | NIS 14.6m | 9.4% | Less revenue, much more profit |
| Multimedia and communications | NIS 75.3m | +11.2% | NIS 5.0m | 6.6% | Growth with similar margin |
| Renewable energy | NIS 0.4m | Not material | NIS -3.5m | Not relevant | Still an investment and loss layer |
The key line in the table is EPC systems and construction: revenue fell from NIS 194.6 million to NIS 155.8 million, while operating profit rose from NIS 3.4 million to NIS 14.6 million. The company is reducing volume-driven civil engineering and construction work, while benefiting from improvement in the high-tech project. That contribution can be high quality, but it is not a repeatable base until the segment shows a similar margin in new projects.
Backlog Grew Before Its Profit Was Proven
Backlog rose to about NIS 2.48 billion, from about NIS 2.07 billion at the end of 2025, a 19.9% increase in three months. In a project company, large backlog adds visibility only when it comes with reasonable margins, supportive payment terms and advances that hold working capital in place.
The largest order is a substation project for about NIS 310 million. It adds weight to backlog, but execution is expected to last about two years from receipt of a notice to proceed expected in the first quarter of 2027, and the customer has the right to stop work before completion under the agreement. Its economic value is therefore mainly visibility for 2027 and beyond, not immediate 2026 profit.
Alongside it are shorter-cycle orders: building rehabilitation for a government body of about NIS 46 million, bringing total work in that building to about NIS 80 million; an additional NIS 58 million scope in a multimedia and communications project; a battery-storage equipment supply order for about 45 MW of connections, with about $24 million of equipment consideration; and additional data-center work that brings the joint venture's project scope to about NIS 63 million, in a 10 MW project.
This backlog shifts the center of gravity for 2026. Some of it can support the second half of the year, mainly storage and change orders. Another part mainly extends visibility. The next proof point is not another backlog announcement, but the combination of revenue recognition, advances, collection and profit margins that do not pull the company back into large low-margin projects.
Operating Cash Flow Improved, Post-Debt Cash Is Less Wide
Operating cash flow was NIS 54.8 million, compared with negative NIS 26.8 million in the comparable quarter. It benefited from an NIS 8.8 million decline in customers and contract assets, an NIS 3.0 million decline in inventory and a NIS 21.8 million increase in advances from customers. A NIS 19.0 million decline in suppliers and an NIS 18.0 million increase in receivables offset part of the improvement.
When the issue is financing flexibility, the right frame is all-in cash flexibility after actual cash uses. Operating cash flow of NIS 54.8 million and NIS 15.7 million from investing activities did not cover negative financing cash flow of NIS 104.0 million. That included about NIS 53.5 million of bond repayment, a NIS 30.5 million decline in short-term credit, NIS 9.6 million of lease repayments and NIS 4.7 million of dividends to non-controlling interests. Cash declined from NIS 282.6 million to NIS 248.9 million before the NIS 50 million dividend paid in April.
The debt structure remains relatively comfortable. Net financial debt was about NIS 335.4 million, of which about NIS 107.1 million was non-recourse and about NIS 228.3 million was without non-recourse treatment. At the bank layer, after offsetting cash and deposits, the group had a net surplus of about NIS 31.6 million, while institutional debt is the main debt layer at about NIS 367.0 million. Covenants are distant: equity was about NIS 658 million versus a NIS 280 million threshold for Series D, and equity attributable to shareholders was about NIS 630 million versus a NIS 330 million threshold for Series E. S&P Maalot also revised the outlook to positive and affirmed the ilA- rating.
The Next Quarter Checkpoints
Three events now have a clearer framework. In the assisted-living project, after the customer filed a claim for about NIS 57 million and guarantees were forfeited, the company filed a statement of defense and third-party notice on April 26, 2026, and also filed a counterclaim of about NIS 162 million. This is not a cash source today, because the effect of the claims still cannot be estimated, but it changes the event from only a possible loss into a potential recovery path as well.
In the Sirin Gilboa wind farms, the company reached an agreement with the lenders to defer the availability-target date to September 2027, and a temporary reduction was agreed in the project waterfall for payments to the O&M contractor through the end of 2027. After the focused wind-farm analysis, the quarter says the event received time and a framework, not that the operating issue is resolved. The sale of the 50% holding in the student-dormitories project for NIS 15 million adds a small clean-up move, because the company was released from its shareholder commitments to the dedicated project company and financing bank, while its obligations as the executing contractor remain.
The current conclusion is cautiously positive. The company is proving better profitability and cash flow than revenue alone would imply, and new backlog creates a broader work path for the coming years. The counter-thesis is that the improvement may still be favorable project timing: an unusual EPC project, convenient working-capital timing and backlog that has not yet proven recurring margins. The next two to four quarters need to show whether EPC margins hold, whether advances and collection support the new backlog, and whether assisted living and wind farms stop distorting the cash and financing read.
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