Kernel EBITDA drops 31% yoy in 9MFY18

Ukraine’s largest sunflower oil producer and grain
trader Kernel (KER PW, KERPW) reported its EBITDA dropped 30.7% yoy to USD
196.2 mln in 9MFY18, according to its quarterly earnings released on May 25. The
plunge was driven by its sunflower oil segment, where EBITDA fell 24.9% yoy to
USD 58.5 mln (the EBITDA margin in sunflower oil sold in bulk decreased 36.6%
yoy to USD 52.4/t), and its farming segment, where EBITDA plunged 61.4% yoy to
USD 52.2 mln. On the other hand, the company’s EBITDA in its grain trading
segment more than doubled yoy to USD 44.4 mln and its silo services EBITDA
increased 13.8% yoy to USD 44.2 mln in 9MFY19.

The company’s 9MFY18 revenue decreased 2.7% yoy to USD
1,613 mln, operating profit before working capital changes dropped 30.8% yoy to
USD 185.4 mln and working capital investments fell 23.6% yoy to USD 183.7 mln
in 9MFY18. Net profit plummeted 67.1% yoy to USD 64.0 mln in 9MFY18.

In 3QFY18, Kernel’s EBITDA decreased 9.4% yoy (or 5.2%
qoq) to USD 73.1 mln, driven by a drop in almost all segments, except grain
operation, where EBITDA jumped 6.6x yoy to USD 34.6 mln.

Andriy Perederey: Kernel’s
EBITDA turned out to be 4.4% higher than our expectations
in 9MFY18, though we thought the key drivers would be its farming and oil
segments. Instead, they had depressing results that were offset by positive
results in grain trading, where EBITDA was USD 14.4/t in 3Q18 vs. USD 5.0/t
year ago. Such impressive improvement was driven by Kernel’s new subsidiary
Avere Commodities SA, a Swiss-based trading company (in which it has a 60%
stake) that has the ability to trade financial instruments (including futures).

It is very disappointing that Kernel shifted away
from its main operating segments of sunflower oil production and farming –
where it implemented its main CapEx programs and which contributed stable cash
inflows – to unstable operations with futures. Such operations could make
Kernel’s P&L more volatile.