20 July 2016
Finishing rather tough as for Ukrainian oilseeds crushing industry year with record-high crushing volumes, but decline in sales of main products, the company is rather well-positioned for further development.
Despite total crushing volumes grew in Q4 2016 (FY2016 started in July’15 and finished in June’16) by 5.7% (vs. Q4 2015), so that total crushing volume for financial year made 2.684M tons of SFS (record-high volume for the company), total volume of bulk sunflower oil (SFO) realization in last reporting quarter made just 208.8k tons, by 30% lower than in corresponding period of previous year. Explanation of the company – it rebuilt inventories to accommodate stronger demand for deliveries in Q1 FY2017. On the other side we see inverted price curve with prices for August-September delivery lower than prices for June-July, so that stated strategy is at least questionable. Annual volumes of bulk SFO realization in FY2016 made 983.9k tons, -4% to FY2015, due to this slump in last quarter. Basing on our information, crushing margins on the market remain low (just to remind – crushing margin of Kernel in 9m2016 made just 11.4%, at one of the lowest historical levels).
Volume of Kernel grains sales in Q4 2016 made 744.3k tons, by 6% lower vs. corresponding period of previous financial year, though we see that farmers still had sufficient stocks in the beginning of reporting quarter, which was expected to support volumes of grains realization in Q4. Full FY2016 year grains sales have been at 4.4M tons vs. 4.7M tons a year ago. In general business environment remains challenging for Ukrainian grains traders with a lot of small “grey” traders, “cash” operations on the market and problems for with VAT refund for exporters.
Financial report for the whole FY2016 is to be issued by the company on 24 October 2016. We maintain our view on annual EBITDA of the company to be at USD 350-360M (vs. USD 396M in previous year) or even less. There have been a couple of one-time (and not fully explained) positive EBITDA adjustments in previous quarter (in total amount of approximately USD 30M), so that in Q3 2016 EBITDA was at USD 98.9M (vs. our expectation of USD 60-65M) driving 9m2016 EBITDA up to USD 299.1M, but unless the company will make sizable revaluation of its biological assets, no positive surprises can be expected in Q4, so that EBITDA of last reporting quarter is to be about USD 40-50M.
For the next financial year expectations are more positive, as, first of all Ukrainian sunflower seeds harvest is to increase up to 13-13.5M tons, meaning more ample supply of raw materials and less competition between crushers. So, one can expect new records as for Kernel crushing volumes in FY2017 (current crushing capacities stay at about 3.3M tons per year).