21 October 2014
Ukraine’s leading sunflower oil producer Kernel (KER PW) reported its financial year 2014 revenue declined 14% yoy to USD 2,393 mln, attributing most of the drop to its core segment, sunflower oil processing, as part of its results for FY14 and 1QFY2015 released on Oct. 21. The company’s full-year EBITDA amounted to USD 233 mln, which was 23% worse yoy but 28% better than consensus. The company posted a USD 107 mln net loss in the year, which was mostly a result of USD 99 mln in foreign exchange losses, USD 18 mln in losses of ForEx derivatives and USD 8 mln in losses from the sale of one of its Russian oil crushing plants.
While the company managed to keep flat yoy the total volume of sunflower seeds processing at about 2.3 mmt, its total revenue from sales of sunflower oil decreased 29% yoy to USD 1,211 mln. The decline was attributed to a correction in oil prices as well as smaller volumes of oil sold: down 12% yoy, mainly due to the weak results of 1QFY14 when the company’s production capacities were poorly loaded. Its capacity load improved since 2QFY14 due to an ample supply of seeds from the new record-high harvest in Ukraine (11.1 mmt last season). Excess supply enabled the company to improve its profitability from its sunflower oil segment and demonstrate record-high EBITDA for 2Q-4Q of its financial year of USD 173 mln. Annual EBITDA in the segment resulted at USD 178 mln, being still 11% slimmer yoy.
In financial year 2015, the company plans to crush 2.4-2.5 mmt of its sunflower oil, despite an expected decline in total sunflower harvest this season to 10 mmt. Kernel is going to benefit from its better readiness to purchase sunflower seeds, as compared to peers, as well as decrease in demand for seeds in Ukraine due the idling of some of its processing capacities located in war-torn Donbas to increase its market share in sunflower processing. In 1Q FY15, the company crushed 0.5 mmt of its sunflower seeds, 2.2x better than in 1QFY14 but less than for the rest of the three quarters of the last financial year (about 0.7 mmt each).
The company’s grain trading and silo segments posted spectacular growth in FY2014 due to record-high grain harvests in both Ukraine and Russia last season. Kernel sold 2.4 mmt in grains, 40% more yoy, while its revenue from grain trading, port and silo services increased 10% yoy to USD 1,174 mln. EBITDA in these segments increased 2.1x yoy to USD 126 mln. In the next year, Kernel plans to export 4.5–5.0 mmt of grains. In 1QFY15, volumes of grain sold increased 38% yoy to 1.22 mmt.
Expectedly weak was Kernel’s farming segment, which generated USD 44 mln in negative EBITDA for the year (down from positive USD 68 mln EBITDA in FY 2013), due to low yields of crops that the company suffered last farming season, as well as weak prices. Last year, the company changed its leadership in its farming division and performed a significant review of operations, and this season it posted a significant improvement in crop yields: 32% better yoy for soybean, 25% better for wheat and 20% better for sunflower. Corn yields, having been collected from 53% of its planned area, so far are currently 31% better yoy.
Kernel’s total debt remained broadly unchanged yoy at USD 749 mln, and its net debt increased 4% yoy to USD 684 mln, as of end-June 2014. The company estimates its net debt/EBITDA at 3.1x as of end-June (vs. 2.3x a year before). Its adjusted net debt/EBITDA (with net debt deducted by readily marketable securities) amounted to 2.0x as of end-June, vs. 1.7x a year before. The company’s cash generated from operations declined 54% yoy to USD 195 mln, while its cash flow spent for investments dropped 3x yoy to USD 83 mln in FY14. In the coming financial year, the company is planning to use USD 55 mln for CapEx, mainly for maintenance. Kernel plans to pay USD 0.25 in DPS for the results of financial year, to yield about 4%.
Alexander Paraschiy: The company’s EBITDA metrics for financial year 2014 turned out to be almost USD 50 mln better than the company’s guidance and consensus forecast, mainly because the company reclassified its ForEx losses on VAT recoverable from operating costs (as of 9MFY14) to non-operating costs (as of FY2014). The respective ForEx losses amounted to USD 45 mln in 9M and USD 54 mln in FY 2014. Adjusted for reclassification, the company’s EBITDA for 2014 is broadly in line with its guidance and Bloomberg consensus.
The next year should be much stronger for the company based on a low comparison base (as 1QFY14 was “lost” by Kernel), less competition in sunflower seeds procurement in Ukraine (owing to idling Donbas), as well as the improved performance of the company’s farming segment this fall.