Hamat in the First Quarter: Operating Cash Flow Improved as the Rishon LeZion Investment Moved to Short-Term Debt

Hamat opened 2026 with a quarter that separates two things that were bundled together in the annual report: operating resilience in parts of the core business and cash flexibility that still needs tight management. Revenue fell 7.2% to NIS 222.9 million after the March disruption from Operation Shagat HaAri, and net profit fell to NIS 6 million, while gross margin rose to 44.2% and operating cash flow improved to NIS 27.3 million. That cash flow number is good, and it matters, but it did not all stay in the company: the Rishon LeZion property absorbed about NIS 30 million inside total investment cash outflows of NIS 32.1 million, lease principal repayment required another NIS 9.4 million, and the cash balance grew only after a net increase in short-term bank credit. At the same time, retail continued to carry profitability, while the kitchens segment moved back to an operating loss and ceramic sanitaryware manufacturing in Turkey deepened its loss. The quarter therefore strengthens the view that retail is not merely a 2025 rebound, but weakens the idea that the group has already moved into comfortable cash accumulation. Over the next few quarters, the relevant proof points are whether the May recovery, the expected NIS 3 million compensation claim, and the new Rishon LeZion showroom can lift sales without pushing working capital and debt back into tighter territory.

Retail Holds Profit While Kitchens and MCP Drag

The group is a hybrid of import, production, distribution and retail in finishing products for construction and home design. This is not a clean growth-only business. It works through margins, inventory, customer credit, advances, stores and showrooms, so a good quarter has to be tested not only by sales, but by where the profit remains and what cash cost comes with it.

The consolidated number hides a sharp split. Revenue fell by NIS 17.2 million versus the comparable quarter, but retail increased operating profit to NIS 7.2 million despite a 5.8% decline in segment revenue. That is an important proof point because it shows the stores and retail brands are holding margin even in a weaker renovation and construction environment. Wholesale operating profit fell to NIS 9.9 million, kitchens moved from an operating profit of NIS 0.8 million to a loss of NIS 1.8 million, and MCP in Turkey remained a loss source with a NIS 2.9 million operating loss.

The difference from the previous annual read is that the quarter closes some questions and sharpens others. After the annual analysis on the retail rebound and cash position, retail provided a positive validation point: it did not just keep scale, it increased operating profit in a quarter of lower sales. After the analysis of the kitchens segment, the read is weaker: the end of Formex's relationship with a customer is still visible in revenue, and the move back to an operating loss shows the segment has not yet replaced the lost base with similar economics.

Operating Cash Flow Improved, Short-Term Credit Funded Rishon LeZion

The best number in the quarter is operating cash flow: NIS 27.3 million, compared with NIS 13.1 million in the comparable quarter. Part of the improvement came from working capital, mainly lower receivables and higher payables, while inventory rose by NIS 9.6 million. For an importer, distributor and retailer, this is central: profit can look stable, but cash is determined by inventory timing, customer credit and supplier credit.

The right frame here is all-in cash flexibility after actual cash uses, not only normalized cash generation from operations. After NIS 27.3 million of operating cash flow, the group invested NIS 32.1 million, mainly in Rishon LeZion, paid NIS 9.4 million of lease principal, and repaid NIS 8 million of long-term loans. Before increasing short-term credit, that creates a cash gap of about NIS 22.2 million. The rise in cash to NIS 38 million became possible after a NIS 34.6 million increase in short-term bank credit and loans.

This is not an immediate liquidity problem. Net financial debt to adjusted EBITDA stood at about 2.2 versus a covenant ceiling of 5, and tangible equity to tangible balance sheet stood at 31.4% versus a 20% threshold. Short interest is also negligible, with short interest at 0.04% of the float in late May. The yellow flag is different: the company chose to fund part of fixed assets and working capital through short-term bank credit, and the working-capital deficit rose to NIS 58.4 million. Even excluding current lease maturities, the deficit rose to NIS 21.9 million from near balance at the end of 2025.

Rishon LeZion Moved From Synergy Plan to Actual Capital Use

The Rishon LeZion acquisition is the most important finding outside the income statement. In January 2026, the group acquired rights in a commercial property with a gross area of about 1,950 square meters in the Gigis complex in Rishon LeZion for total consideration of about NIS 30 million. The property is expected to serve as a central unified showroom for the group's brands, including Ziv Kitchens and Aloni, and completion, design and adaptation works were not yet finished at the report approval date and are expected to be completed during 2026.

The move can improve retail sales and the synergy between Aloni and Ziv Kitchens, but in this quarter it mostly converted a future capital use into cash that has already gone out. That changes the meaning of the real estate cushion discussed in the 2025 real estate analysis. Beersheva remained valued at NIS 135 million with no quarterly fair-value update, and total investment property remained at NIS 138.4 million. Rishon LeZion, by contrast, is not a liquid fair-value cushion. It is a showroom under preparation, it increases property and equipment, requires adaptation work, and is currently funded through short-term credit.

The business consequence depends on the new showroom's ability to draw sales and gross profit without adding more working capital. If the unified center lifts retail sales and helps kitchens, the move can become an investment that strengthens the platform. If it requires more adaptation, inventory and operating expense before showing clear contribution, it will remain a cash use that narrows financial flexibility over the coming quarters.

Compensation and Weak Segments Set the Next Read

Operation Shagat HaAri is a real explanation for the sales weakness. The March and April restrictions hurt the renovation and construction market, and the company reports a recovery in May. The compensation claim the group intends to file is estimated at about NIS 3 million, and that amount was not included in first-quarter results. If approved, it can offset a meaningful part of the net profit decline versus the comparable quarter.

That money does not fix the two weak operating points. In kitchens, revenue fell to NIS 40.1 million, operating profit moved to a NIS 1.8 million loss, and segment EBITDA fell to NIS 2.3 million from NIS 5.2 million in the comparable quarter. In MCP, total ceramic manufacturing revenue was almost unchanged and the operating loss deepened to NIS 2.9 million. In both cases, one weak month in March is not the full explanation because the segment economics still have not shown a stable profit base.

Duravit also remains in the proof stage: the exclusivity agreement signed in 2025 can support wholesale and the premium product mix, but the first-quarter disclosure does not isolate a financial contribution from it. The first quarter is therefore a partial resilience quarter. Retail supports profit, operating cash flow improved and covenants are distant, while kitchens, MCP and Rishon LeZion leave the improvement dependent on execution and funding. A more positive read requires strong operating cash flow without another jump in short-term credit, initial contribution from Rishon LeZion, and at least operating breakeven in kitchens. A weaker read would come if cash continues to be built through bank credit while the weak segments fail to reduce losses.