Kernel EBITDA falls 30% in FY2018

Ukraine’s largest sunflower oil producer and grain
trader Kernel (KER PW, KERPW) reported on Oct. 22 its FY2018 EBITDA fell 30.3%
yoy to USD 222.5 mln. The main contributors to the drop were its bulk oil
segment (FY2018 EBITDA declined 23.9% yoy to USD 63.3 mln) and farming (FY2018
EBITDA fell 39.0% yoy to USD 88.7 mln). Grain trading segment EBITDA dropped
22.9% yoy to USD 17.5 mln, bottled sunflower oil segment EBITDA decreased 19.3%
yoy to USD 13.4 mln, export terminal segment EBITDA slid 17.9% yoy to USD 39.1
mln in FY2018, while its silo services segment contributed USD 44.2 mln to the
FY2018 total EBITDA (or 10.5% yoy increase).

The company reported a revenue increase of 10.8% yoy
to USD 2,403 mln, while net income plunged 70.4% yoy to 52.1 mln in FY2018. As
of June 30, 2018, the company’s net debt amounted to USD 622 mln vs. USD 514
mln a year ago. So the company’s net debt/EBITDA ratio was 2.8x as of end-June
vs. 1.6x a year ago.

Kernel reported a decrease of its bulk oil segment’s
EBITDA by 36.6% yoy to USD 48.7/t in FY2018. According to our calculations, the
FY4Q18 EBITDA margin of this segment declined 26.0% qoq to 39.8 USD/t (53.8
USD/t in FY3Q18).

Also, the company reported its FY1Q19 operating
results (July-September) during which sunflower seed crushing volumes dropped
22.8% yoy (or a 49.8% qoq decline) to 418.6 kt. The company’s bulk oil sales
slid 0.3% yoy (or 1.3% increase) to 391.5 kt in 1Q19.

Kernel also disclosed its harvest update with
preliminary crop yields for FY2019. The company expects that its corn yield
will be 9.4 t/ha, or a 40.3% increase yoy, sunflower yield will rise 39.1% yoy
to 3.2 t/ha and soybean yield will advance 66.7% yoy to 3.0 t/ha. The company
based its expectations on the harvest of 25% of its corn, 88% of sunflower seed
and 91% of soybeans. Its wheat has been already harvested, with net yield of
5.2 t/ha, or a 6.1% yoy increase.

Andriy Perederey: Kernel’s
FY2018 EBITDA was below our expected range of USD 260-270 mln (down 15-20% yoy
vs. an actual decline of 30% yoy). Also, the company’s bulk oil segment EBITDA
was lower than our expectations of USD 65.0 mln vs. actual USD 63.3 mln.

Going forward, our preliminary conservative
estimate for bulk sunflower oil EBITDA in FY2019 is USD 67 mln and total
company EBITDA in the range of USD 290-300 mln, based on our expectation of
improving sunflower seed supply and much better crop yields in its farming
segment.