Kernel EBITDA drops 36% yoy in 1QFY18

Ukraine’s largest sunflower oil producer Kernel (KER
PW, KERPW) reported EBITDA of USD 46.1 mln in 1QFY18, a 36.3% yoy drop and
22.7% qoq rise, according to its financial statements published on Nov. 27.
Kernel’s key segment, bulk oil production, generated EBITDA of USD 16.8 mln (a
58.5% yoy jump and almost flat qoq), while its bottled sunflower oil segment
contributed USD 4.2 mln to EBITDA (a 2.1x surge yoy and 16% qoq drop). The
company’s farming segment contributed USD 13.7 mln to 1QFY18 EBITDA, or a 1.5%
increase yoy and 1.6x increase qoq.

Kernel updated the results of its farming campaign.
The yields of its old land bank (before the acquisitions it made in 2017) fell
12.8% yoy on average (corn yields dropped 20.2% yoy to 7.1 t/ha, sunflower
seeds decreased 10% yoy to 5.3 t/ha, soybeans – 29.6% yoy to 1.9 t/ha).

The 1QFY18 EBITDA of the company’s grain trading
segment plunged 65.1% yoy to USD 1.5 mln, implying a low 1% EBITDA margin. Its
silo services segment contributed USD 8.2 ml to 1QFY18 EBITDA, or a 15.5% yoy
increase, while export terminal services EBITDA dropped 18.1% yoy to USD 8.6
mln.

The company’s net profit fell 64.5% yoy to USD 22.8
mln in 1QFY18. The company’s net debt was USD 110.6 mln at Sept. 30 vs.
negative USD 76.1 mln a year ago and its net debt/LTM EBITDA ratio stood at
1.7x as of end-September.

Andriy Perederey: Kernel’s
EBITDA decreased yoy due to lower IAS41 gains (USD 2.8 mln in 1QFY18 vs. USD
33.4 mln in 1QFY17). Also, the key drivers of the company’s 1QFY18 EBITDA was
its sunflower oil segment, which was driven by higher sold volumes. Bulk oil
sales jumped 2.3x yoy and bottled oil sales rose 53.2% yoy, while bulk oil
EBITDA decreased to USD 42.8/t, or -32.5% yoy. That implies a crushing margin
of USD 49/t in its bulk sunflower segment, or 26% less yoy.

Kernel’s farming segment showed weaker results yoy due
to poor weather conditions against the backdrop of a significant boost in its total
land bank. The yield of its acquired land bank is lower by about 39% yoy on
average vs. Kernel’s yield a year ago and 25.8% weaker than Kernel’s yield this
year. On other hand, the yield of its acquired land bank is 3% higher than the
Ukrainian average (3.2 t/ha vs 3.1 t/ha).

Based on the weaker margin in its sunflower
segment, we are downgrading our FY2018 EBITDA estimate to USD 280-310 mln.