Kernel reports 1st quarterly loss in its history, downgrades FY outlook again

Grain trader and top Ukrainian sunflower oil producer Kernel (KER PW) reported on May 31 weak financial results for 3QFY13 (Jan-Mar 2013). The company’s revenue remained flat yoy at USD 598 mln, while EBITDA fell 30% yoy to USD 43.6 mln. Its operating cash flow (before working capital changes) followed the same path as EBITDA, amounting to USD 678 mln in the quarter. The company reported its first quarterly net loss in its history: USD 5.0 mln.

Inventories amounted to USD 802 mln, 36% higher yoy, which was balanced by nearly the same growth in debt: +29% yoy to USD 1,044 mln. The increased financial leverage inflated Kernel’s financial costs 35% yoy to USD 23 mln in the quarter. The company’s net debt/LTM EBITDA inflated to 3.0x vs. 2.5x a year before.

For 9MFY12, the company’s revenue was USD 2,072 mln (+30% yoy), EBITDA was USD 201.5 mln (-5% yoy) and profit totaled USD 64.1 mln (halved yoy).

In a separate note, Kernel downgraded its FY13 EBITDA outlook to USD 310 mln (vs. USD 322 mln in FY12 and USD 350 mln as guided earlier for this year). The company did not provide new guidance on its revenue (it earlier guided USD 2,800 mln, +30% yoy) and net income (earlier guided “slightly below” USD 200 mln).

Alexander Paraschiy: While the poor results for the quarter were broadly expected (as the company revealed weak quarterly trade numbers a month ago), the result still surprised on the negative side. Based on the company’s guided EBITDA for 2013, we estimate its bottom line for the year will amount to USD 115 mln (down 45% yoy), unless it reports some gains from recent acquisitions and disposals.

A negative reaction in Warsaw to this news looks unavoidable, with it already happening after Kernel’s previous quarterly updates. We believe the possible weakness would create a new entry point for the company which remains fundamentally strong, and has all chances to demonstrate a turnaround in financials in the next season, mainly on better farming practices and a larger land bank.