9 March 2023
The largest Ukrainian producer and exporter of grain and sunflower oil has published a financial report for the second quarter of the 2022/23 financial year.
In the reporting quarter, Kernel's revenue amounted to $1.2 billion, which was almost double the figure of the previous quarter, but was 34% less than in the corresponding period of the previous year. The main reason for such dynamics is the general market situation - the grain corridor started working in August 2022.
Comparing with previous year, it should be noted that grain and sunflower oil export in October - December 2021 was record-high for Kernel and for Ukraine as a whole.
The company's total EBITDA in the second quarter of the financial year 2022/23 (October-December) amounted to $277 million, almost flat y-o-y.
Q2 FY2023*
Q1 FY2023
Change, %
Q2 FY2022
Grain export, k tons
1 522
732
+108%
3 483
Oilseeds crush, k tons
653
461
+42%
985
Sunflower oil sales, k tons
345
202
+71%
417
Revenues, $ mln
1 235
655
+89%
1 877
Total EBITDA, $ mln
277
168
+65%
292
EBITDA Oilseeds crush, $ mln
66
45
+47%
60
EBITDA Grain trading, $ mln
62
60
+3%
116
EBITDA Agriculture, $ mln
204
81
2.5x
140
In the segment of sunflower seeds crush, the volume of processing in the reporting quarter amounted to 653 thousand tons, which is 42% more than in the previous quarter, but 34% less than in the same period of the previous year. At the same time, it should be taken into account that in the reporting quarter, six crushing plants worked, while in the previous year - nine. Also, there was negative impact of electric black-outs.
On the other hand, during October-December, the profitability of sunflower seeds crush remained at a high level - $189 per 1t of oil (-15% compared to the previous quarter, but a third more than in October-December 2021).
So despite the decrease in processing volumes, the EBITDA of the segment in the reporting quarter amounted to $66 million ($60 million a year ago), for the first half of the financial year as a whole - $110 million.
As of December 31, 2022, Kernel’s sunflower seeds stocks for processing amounted to about 500,000 tons, 32% less than last year. Taking into account the active export of sunflower seeds in the current season and a significant decrease in the total sunflower harvest in Ukraine in 2022, it can be expected that closer to the end of the season, the margin of sunflower processing will decrease significantly.
In Trading and Infrastructure segment, the results were also quite decent. Since the start of the grain corridor from Ukrainian deep sea ports, the volume of grain exports has increased significantly (during October-December, Kernel exported 1.5 million tons of grain, which is twice as much as in the previous quarter), but it still remains much smaller than last (record-high) year.
The company is less aggressive (compared to previous years) in grains origination from 3rd parties, focusing on obtaining the max profit per 1 ton of grain. As a result, the EBITDA of the segment amounted to $62 million or an average of about $40 per 1 ton of exported grain.
The total segment's EBITDA was almost unchanged compared to last quarter, but decreased compared to last year's ($116 million), reason - strong last year’s results of Kernel's Swiss trading arm, Avere.
As for the profitability of origination in Ukraine, taking into account all the assets Kernel owns – silos, railcars and port terminal, - we expected a higher margin per 1t. On the other hand, there may be a certain redistribution of profitability between different business segments (in favor of Agriculture segment).
According to our expectations, during January - February 2023, the situation with grain exports for Kernel will be similar to the previous quarter - we expect fairly high profitability figures against the background of not very active grains origination from 3rd party farmers (due to uncertainty with the functioning of grain corridors after March, the company may try to export its own crop more quickly).
In the Agriculture segment, the results were better than we expected. In the reporting quarter, EBITDA of the direction amounted to $204 million, though taking into account the yield of the main Kernel crops and the current prices for grain and oilseeds in Ukraine, we expected a result of about $100 million. The main reasons for the better-than-expected result are the impact of the devaluation of the hryvnia on the net cost of crop (in fact, this result is offset by the revaluation of USD-denominated debt), and also (as we noted above), there may be a redistribution of profitability between different segments of business.
In 2022, Kernel's corn yield was 8.8 t/ha (as of the end of February 2023, the company had finished harvesting corn), sunflower - 2.6 t/ha.
During the reporting quarter, Kernel's operating cash flow amounted to $425 million - due to high operating profit, reduced inventory and improved VAT refund situation. The company exited investment in cryptocurrency, as a result, cash flow from investment activities was positive and amounted to $82 million.
There were almost no changes in Kernel's loan portfolio during the reporting quarter (the company agreed with the main creditors to extend working capital loans until 30.06.23), so the positive cash flow led to a significant increase in cash on hand - from $268 million to 09/30/22 to $679 million.
The total debt burden remains significant - excluding land lease obligations, Kernel's loan portfolio is about $1.5 billion. Therefore, increasing the amount of cash, as well as agreements with creditors regarding the extension of debt, are important for the company's short- and medium-term sustainability.
Other important news - new investments in terminals - an oil terminal in Pivdenniy (to replace the facilities in Mykolaiv, through which oil was transshipped before the full-scale invasion), as well as a grain river terminal in Reni (important from the point of view of having a plan B - in case of no grains corridor agreement extension).
In March Kernel is to close the deal with companies related to the main shareholder of Kernel - Andriy Verevskyi - to sell them a part of Kernel's business in the Agriculture segment, as a result of which the company's land bank will decrease from about 500 thousand hectares to 363 thousand hectares.