Kernel EBITDA falls 8% yoy in FY2017
23 October 2017
Ukraine’s largest sunflower oil producer and grain trader Kernel (KER PW, KERPW) reported on Oct. 23 its FY2017 EBITDA fell 7.8% yoy to USD 319.2 mln. The main contributors to the drop were its bulk oil segment (FY2017 EBITDA slid 26.4% yoy to USD 83.2 mln) and grain trading (FY2017 EBITDA plunged 51.0% yoy to USD 22.7 mln). On the other hand, silo services surged 70.9% yoy to USD 40.0 mln and export terminals grew 27.3% yoy to USD 47.6 mln.
Overall FY2017 revenue increased 9.1% yoy to USD 2,169 mln. As of June 30, 2017, the company’s net debt amounted to USD 496 mln (from USD 283 mln a year ago), whereas the net debt/EBITDA ratio was 1.6x (vs. 0.8x a year ago).
The company reported that its bulk oil segment’s EBITDA margin dropped from USD 115 per ton in FY2016 to USD 77 per ton in FY2017. According to our calculations, the 4QFY17 EBITDA margin of this segment amounted to USD 60 per ton compared to USD 88.8 per ton in 3QFY17. The company attributed the squeeze in its crushing margins to a widening supply and demand gap in Ukraine.
The company also provided the operations update for 1QFY18. Notably, the bulk sunflower sales volume jumped 39.5% qoq to 393 kt due to released inventories.
Kernel also disclosed its harvest update for FY2018. At its old land bank (prior to its recent acquisitions), Kernel foresees net yield decreases for all its major crops, including corn (from 8.9 to 7.3 t/ha), wheat (from 5.8 to 5.4 t/ha) and sunflower (from 3.0 to 2.8 t/ha). Regarding its recently acquired 200K ha, Kernel expects to use FY2018 to bring the low as-is crop yields to its higher internal standards. That implies the company sees the FY2018 crop yields at the acquired assets to amount to 5.4 t/ha for corn, 4.3 t/ha for wheat, and 1.8 t/ha for sunflower. Kernel also presented its vision for becoming a USD 500 mln-EBITDA company by FY2021. It projects the largest EBITDA growth in its bulk sunflower segment (from USD 83 mln in FY2017 to USD 176 mln in FY2021) and in its terminals segment (from USD 48 mln in FY2017 to USD 90 mln in FY2021). In contrast, the farming segment’s EBITDA will increase by only USD 7 mln, from USD 144 mln in FY2017 to USD 151 mln in FY2021.
Dmytro Khoroshun: The FY2017 EBITDA result is below our expected range of USD 325-335 mln. Meanwhile, the company didn’t provide its FY2018 performance guidance. Our preliminary conservative estimate is EBITDA of USD 330-340 mln, or 3%-7% yoy growth. The expected drop of the per-hectare profitability of the farming segment should be compensated by an increase in its bulk sunflower segment, the sales volume of which we expect to reach 1.35-1.40 mmt due to both oilseed crushing volumes rising to 3.2 mmt and accumulated inventories being released. We remain bullish on Kernel stock and neutral on its bond.
