Kernel EBITDA declines 16% in 2QFY20

Ukraine’s largest sunflower oil producer Kernel (KER
PW, KERPW) generated EBITDA of USD 109 mln in 2QFY20 (September-December 2019),
a 15.5% yoy decline and a 1.9% qoq increase, according to its financial report
published on Feb. 28.

The company’s key segment, oilseed processing,
generated EBITDA of USD 39 mln in 2QFY20, flat yoy and a 69.6% qoq jump. The
company’s EBITDA per ton of oil rose 8.7% yoy to USD 113, or a 52.7% surge qoq
in 2QFY20. Its infrastructure and trading segment EBITDA rose 52.5% yoy (and a
74.3% qoq jump) to USD 61 mln, while the company’s farming segment EBITDA
declined 69.4% yoy (and a 67.2% qoq decrease) to USD 19 mln in 2QFY20.

Kernel’s revenue slid 8.9% yoy to USD 1,016 mln (or
20.0% more qoq) in 2QFY20. Its oilseed processing segment revenue decreased
3.9% yoy (or 23.3% growth qoq) to USD 365 mln in 2QFY20 and its infrastructure and
trading segment revenue decreased 0.9% yoy (or 25.3% more qoq) to USD 866 mln
in 2QFY20. Its farming segment generated USD 188 mln of revenue in 2QFY20,
which is 10.9% less yoy and 39.3% more qoq.

In 1HFY20, the company’s revenue decreased 16.4% yoy to
USD 1,863 mln and its total EBITDA slid 6.5% yoy to USD 216 mln. The company’s
net debt reached USD 1,644 mln on Dec. 31 (vs. USD 875 mln a year ago) and its
net debt-to-LTM EBITDA ratio surged to 5.0x from 2.7x a year ago.

Kernel’s profit dropped 37.2% yoy to USD 104.8 mln in
1HFY20. Its operating cash flow before working capital changes decreased 13.7%
yoy to USD 146.5 mln, while its net cash from operating activities was negative
USD 440.2 mln in 1HFY20 vs. negative USD 143.2 mln a year ago.

Andriy Perederey: The
company’s key profit drivers were its infrastructure & trading and oilseed
processing segments, which delivered 84% of total company EBITDA in 1HFY20. The
company’s oil segment EBITDA margin rose to a record high due to a higher
sunflower seed harvest in the last season, which resulted in an excess supply
of seeds on the market. The company’s transshipment capacities increase will
support the infrastructure & trading segment EBITDA in FY2020. On the other
hand, the company’s farming segment will put pressure on the company’s total
2020 EBITDA due to a lower corn harvest in the last season and soft prices for
corn.

As such, we are keeping unchanged our estimate for
total company EBITDA in the range of USD 380-390 mln in FY2020 (vs. USD 346 mln
a year ago). We are also maintaining our neutral view on KERPW bonds.