Kernel Q2 2016 operational report

20 January 2016

After decline in volume of operations in Q1 2016, the company showed good results in Q2 with especially strong oilseeds crushing volumes following starting of tolling operations on recently bankrupted Kreativ Group (second largest Ukrainian crusher after Kernel).

As a result quarterly crushing volumes reached 915.4k tons vs. 700.4k tons in corresponding period of previous year (+31%) and 417.9k tons in previous quarter. Taking into account declared continuation of operations on Kreativ asset and ample sunflower seeds supply in Ukraine in current marketing year, we expect strong crushing volumes for the rest of financial year of Kernel (we see Kernel as expected potential buyer of at least part of Kreativ assets in case of collateral realization by main lenders of Kreativ Ukrainian state banks). On the other hand profitability of operations is to decrease vs. reported in previous year (just to remind: reported EBITDA margin for crushing operations in Q1 2016 made 13.2% vs. 17.6% in FY2015), mainly because of high base effect (we estimate margin in previous season as not sustainable), also tolling operations are expected to be less profitable vs. ordinary crushing with own assets.

Volume of Kernel grains sales in Q2 2016 made 1322.9k tons, by 6% lower vs. Q2 2015, which is also significantly better than Q1 result (when sales volume dropped by 24% vs. Q1 2015). Basing on presented report dynamics of Russian operations have been better vs. Ukrainian, stated reason slower pace of farmers selling in Ukraine, in addition one should mention rather difficult market environment (with activity of grey traders, which use difference between interbank and cash USD/UAH rates in Ukraine in their favor).

An AGM on 10 December 2015 approved a dividend payout of USD 0.25 per share. The board is due to set up ex and payout dates for the dividend.

Financial report for 1H2016 is to be issued by the company on 26 February 2016.

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Ovostar

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Iron Ore
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