Kernel EBITDA rises 6% yoy in 1QFY20

Ukraine’s largest sunflower oil producer Kernel (KER
PW, KERPW) gained EBITDA of USD 106.5 mln in 1QFY20 (July-September 2019), a
6.0% yoy increase and 75.2% qoq surge, according to its financial report
published on Nov. 27. The company’s key segment, oilseed processing, generated
EBITDA of USD 22 mln, a 37.5% yoy rise and 2.7% qoq decrease in 1QFY20. The
company’s EBITDA per ton of oil rose 85.0% yoy to USD 74.0/t in 1QFY20. Its
infrastructure and trading segment EBITDA decreased 7.9% yoy (or a 3.8x jump
qoq) to USD 35 mln, while the company’s farming segment EBITDA rose 9.4% yoy
(and 16.7% qoq) to USD 58 mln in 1QFY20.

Kernel’s revenue fell 25.8% yoy to USD 846 mln in
1QFY20. The company’s oilseed processing segment revenue declined 17.1% yoy to
USD 296 mln and its infrastructure and trading segment revenue dropped 20.4%
yoy to USD 691 mln in 1QFY20. Its farming segment revenue rose 18.6% yoy to USD
134 mln in 1QFY20.

Kernel’s net profit dropped 21.3% yoy to USD 59.4 mln
in 1QFY20. Its operating cash flow before working capital changes rose 6.5% yoy
to USD 57.6 mln, while its net cash from operating activities was negative USD
85.9 mln vs. negative USD 3.8 mln a year ago.

The company’s net debt reached USD 1,144 mln on Sept.
30 (vs. USD 686 mln a year ago) and its net debt-to-LTM EBITDA ratio surged to
3.3x from 2.5x a year ago.

Andriy Perederey: The
company’s key EBITDA drivers were its farming and oilseed processing segments,
which generated 75% of its total result in 1QFY20. Its oil segment EBITDA
margin rose due to a higher sunflower seed harvest in the last season, which
increased the availability of seeds in the otherwise lean period of
July-September. We expect that the strong national sunflower seed harvest in
the current season will be supportive of the company’s oilseed processing
EBITDA in FY20.

Higher overall crop harvest results in
Ukraine will also be positive for Kernel’s infrastructure and
trading segments, while its lower yoy corn yields will be a restraining factor
for its farming segment EBITDA. So, we are not changing our estimate for total
company EBITDA in the range of USD 380-390 mln in FY2020. We are also
maintaining our neutral view on KERPW bonds.