Gaon Holdings in the First Quarter: Receivables and Supplier Credit Funded Debt Repayment Before Series D

Gaon Holdings gave the first answer to a question left open after 2025: whether group profit can turn into cash before the parent needs another financing move or asset monetization. At the group level, the first-quarter answer is positive. Net profit of NIS 10.3 million barely moved versus the comparable quarter, but operating cash flow jumped to NIS 60.5 million, mainly because receivables fell and suppliers funded more of the activity. That improvement allowed the group to repay short-term credit, reduce working-capital pressure, and increase cash, a real change from a year in which inventory, receivables, and investments absorbed a large part of profit. At the parent level, about NIS 6.4 million of Series D bonds were converted into shares after the balance date, making the June 2026 repayment smaller and more manageable. 2027 still relies on NIS 30 million of dividends, loan repayments, or asset monetization from below. At the same time, the development, planning, and execution arm won another Ramat Gan project worth about NIS 62 million, while the segment result moved to a NIS 0.7 million loss in the quarter. The quarter therefore proves operating cash release, while reminding investors that shareholder value depends on parent-level access to cash and on new projects producing profit, not only revenue.

Lower Receivables and Supplier Credit Returned Cash to the Group

The group operates across industry, distribution, and a development, planning, and execution arm. The industrial business manufactures and markets steel pipes, plastic pipes, valves, and ball valves for water, fuel, and gas infrastructure and for systems inside buildings. Distribution sells products for infrastructure, plumbing, fire protection, electricity, bathrooms, kitchens, irrigation, and gardening. The execution arm works through tenders and contracting projects, mainly for government, municipal, water-corporation, and agricultural customers.

This model creates profit through margins and activity volume, but consumes cash through inventory, customer credit, and supplier terms. Above it sits the parent company, which owns 68.4% of Gaon Group and must fund bonds, solo expenses, and repayments through cash, dividends, refinancing, or monetizing part of its holding. That is why the first quarter matters more than net profit itself. Revenue rose 4.4% to NIS 191.0 million, gross profit rose 7.0% to NIS 45.8 million, and operating profit was almost unchanged at NIS 20.1 million. The insight is in the cash flow.

Operating cash flow was NIS 60.5 million, versus NIS 2.7 million in the comparable quarter. Lower receivables contributed NIS 20.3 million, higher supplier balances contributed NIS 17.7 million, and inventory increased by NIS 2.1 million. The group collected cash from customers, paid suppliers more slowly or received wider supplier credit, and used that cash to repay short-term debt.

The right test here is all-in cash flexibility after actual uses of cash. After NIS 60.5 million from operations, the group used a net NIS 3.9 million in investing activity, and financing activity used NIS 32.4 million. The financing line included NIS 24.9 million of short-term credit repayment, NIS 4.4 million of long-term loan repayment, and NIS 2.9 million of lease principal repayment. After a negative NIS 1.2 million currency effect, group cash increased by NIS 23.0 million.

This improvement closes part of the questions raised in the 2025 annual analysis and in the follow-up on inventory and receivables. At the end of 2025, inventory was NIS 278.4 million and receivables were NIS 248.9 million. At the end of March 2026, inventory was almost unchanged at NIS 280.6 million, but receivables fell to NIS 228.5 million and short-term credit fell from NIS 258.6 million to NIS 233.8 million. In a quarter in which March sales were hurt by Operation Roaring Lion, lower receivables can also reflect sales timing and credit terms. Still, the group showed that profit can reach the cash account when receivables decline and suppliers fund more of the cycle.

Series D Conversion Reduces June Pressure, 2027 Needs Gaon Group Cash

At the parent level, the quarter reduces near-term pressure, not structural dependence. The parent had NIS 14.7 million of solo cash at the end of March, versus NIS 18.2 million of short-term liabilities. After the balance date and through approval of the financial statements, about NIS 6.4 million of Series D bonds were converted into shares, reducing the remaining Series D balance at approval date to about NIS 9.1 million. The company also has a NIS 15 million bank credit line through March 2027, secured by about 6% of Gaon Group shares.

Covenants are far away. Solo equity was NIS 262.7 million against a NIS 135 million minimum, solo net financial debt to solo net CAP was 17.04%, consolidated net financial debt to consolidated net CAP was 36.98%, and Series E net debt to collateral was 18.58% against a 50% cap. The problem is therefore not a near covenant breach. The problem is how the parent brings in cash on time without losing too much flexibility around its core asset.

The solo cash-flow forecast explains the gap. In 2026, the credit line covers the near-term gap after partial Series D conversion. In 2027, the forecast sources are already NIS 30 million from dividends from investees, repayment of Gaon Trade loans, or similar moves, against NIS 35.5 million of uses. The list of alternatives also includes equity issuance, debt refinancing, issuing a new secured bond series against Gaon Group shares, selling part of the Gaon Group holding, or monetizing the investment in Shיווק Bוטנים. The value of the Gaon Group holding near the signing date was about NIS 573 million, but parent cash still has to arrive through a financial action or upstream distribution.

Ramat Gan Adds Backlog, the Galvanizing Plant Adds Legal Risk

The additional Ramat Gan win is positive, but it is not enough by itself to change earnings quality. Gaon Agro received notice in February 2026 that it won another Ramat Gan municipality tender for planning, construction, operation, and maintenance of a pneumatic waste-collection system in TAML 1038. Total consideration is expected at about NIS 62 million: about NIS 18 million for planning and construction, about NIS 30 million for building connections, and about NIS 14 million for operation and maintenance for up to 15 years. Payment will follow work progress, and the project will be executed with a Spanish company experienced in the field.

This number connects to the follow-up on Ramat Gan and TMNG: the execution arm is proving that it can win work and build backlog. The segment results remind us that volume is not the only issue. Development, planning, and execution revenue rose to NIS 24.6 million from NIS 20.1 million in the comparable quarter, but the segment result moved from NIS 1.0 million profit to a NIS 0.7 million loss. Industry and distribution, not projects, carried the profit.

The industrial segment increased its result to NIS 24.4 million, and distribution increased its result to NIS 6.0 million. The execution arm received another market proof point, but it has not yet shown that each new backlog shekel comes with a margin that justifies the capital, staffing, and contracting risk. In the coming quarters, the market does not need only another tender win. It needs to see Ramat Gan, TMNG, and the rest of the execution activity begin to add segment profit.

On the industrial side, the Acre galvanizing plant moved from possible visibility to a legal risk that is still hard to quantify. In February 2024, Zinorot Galvanizing signed a binding memorandum with a customer for hot-dip galvanizing services at minimum monthly volumes of 1,200 tons, with prices linked to raw materials. The customer also received an option to lease most of the plant's operating area and equipment for about 7.5 years, for base rent of NIS 500 thousand per month plus VAT. In March 2026, Zinorot Galvanizing announced full cancellation of the memorandum, and in May 2026 the company received a claim and request for interim remedies. The customer is seeking, among other things, an order enforcing the lease agreement it claims was formed, and alternatively monetary relief set for fee purposes at about NIS 53.4 million. At this stage there is no estimate of the claim's prospects, but in a segment where industry is the central profit engine, this is a yellow flag around visibility in galvanizing.

The Next Read Depends on Collection, Dividends, and Execution Margins

The first quarter improves the cash read for Gaon Holdings compared with the end of 2025. Lower receivables, higher supplier balances, and short-term credit repayment are better signs than stable net profit. They show that the group can return cash from operations when timing works in its favor. If receivables remain lower, inventory does not rebuild, and short-term credit does not rise again over the coming quarters, 2025 will look more like a heavy cash-consumption year than a structural problem.

The constraint remains in two layers. The first is the parent company: after partial conversion of Series D, June 2026 looks manageable, but 2027 still requires cash from Gaon Group, refinancing, dividends, or asset sales. The second is the execution arm: Ramat Gan adds visibility, but the segment needs to move from loss to profit for backlog to become a value engine rather than only a revenue engine. The counter-thesis is reasonable: the market may still understate the value of released cash, distant covenants, and new wins. For that view to strengthen, the company needs to show over the next 2 to 4 quarters that receivables and suppliers did not merely fix one quarter, that cash can actually move up to the parent, and that execution projects are beginning to earn money.