24 December 2023

But due to the closed Black Sea deep-sea ports during most of the reporting quarter, the overall financial performance of the Kernel group during July-September 2023 worsened.

Key operating and financial performance figures of the Kernel group for the first quarter of the financial year 2024 (July-September 2023):

	Q1 FY2023	Q1 FY2024
Grains export, kmt	732	203
Oilseeds crush, kmt	461	644
Oil sales, kmt	202	369
Revenue, $ mln	655	546
Total EBITDA, $ mln	168	19
EBITDA oilseeds crush, $ mln	45	58
EBITDA Trading, $ mln	60	6
EBITDA Farming, $ mln	81	-23

*-the financial year of the company begins in July and ends in June, the 4th quarter - April-June

In the reporting quarter, the best operating and financial performance was in oilseeds crush business segment of Kernel.

The total volume of oilseeds processing was 610,000 tons, which was relatively flat q-o-q, but much higher y-o-y (in Q1 2023 volume of oilseeds crush made 461,000 tons). It is interesting that in the reporting period Kernel processed 112,000 tons of rapeseed (such a volume was achieved for the first time in last years).

EBITDA of Kernel's oilseeds processing segment in Q1 FY2024 made $58 million, vs. $45 million in Q1 FY2023 (also for comparison, for the entire pre-war financial year 2021, Kernel earned $51 million in this segment).

According to ShareUAPotential expectations, due to the competition among crushers and the low profitability of Ukrainian farmers in the current season, which encourages them to delay the sale of the crop at current prices, after the growth in September-October, the margin of the segment is to gradually decrease.

In other business segments, Kernel's results are significantly worse compared to oilseeds processing.

As for the grains trading and infrastructure segment, due to the closure of Ukrainian Black Sea ports in July 2023, the volume of grain exports by the company in the reporting period significantly decreased compared to previous periods and amounted to only about 200,000 tons (mainly through the ports of the Danube and Romanian Constanta).

The financial results of the segment were close to zero (EBITDA made $6 million vs. $60 million a year ago). According to our expectations, with the resumption of Ukrainian grain exports through deep-sea Black Sea ports since September-October, the financial results of the direction will improve significantly already in the next reporting period.

The worst results among all the main segments in the reporting period were in the Farming segment. Due to the revaluation of commodity stocks and crops in fields, due to a significant decrease in domestic prices for grain and oilseeds in Ukraine (after the drop of global prices and because of high logistics costs associated with the export of goods by alternative routes), Kernel's EBITDA was negative and amounted to -$23 million.

On the other hand, it should be noted that despite significant savings and reduction of costs related to grains growing, due to favorable weather conditions, in the current year the company achieved near-record yields of the main crops.

Season	2023/2024	2022/2023	2021/2022	2020/2021	2019/2020	2018/2019
Corn
Sown area, ha	84 400	150 000	255 000	255 000	231 000	222 000
Yield, t/ha	10.2	8.8	9.3	8.0	8.5	9.8
Wheat
Sown area, ha	61 100	35 000	64 000	73 000	97 000	100 000
Yield, t/ha	6.7	4.5	6.1	4.9	5.9	5.1
Sunflower
Sown area, ha	119 800	130 600	154 000	149 000	137 000	132 000
Yield, t/ha	2.8	2.5	3.0	3.0	3.5	3.2
Total land, ha	363 000	363 000	500 000	510 000	514 000	550 000

Due to high crop yields, as well as the gradual increase in domestic prices for grains and oilseeds already after the opening of exports through deep-sea ports, we expect that Kernel's Farming segment in FY2024 will be profitable (although the profitability figures will be far from those of the years before the full-scale Russian invasion).

Kernel's total EBITDA in the reporting period made $19 million, net loss comprised $31 million, operating cash flow before changes in working capital was positive and amounted to $53 million. According to our estimates, the group's results will improve already in the next quarter.

The main changes in the company's balance sheet during the reporting period relate to a seasonal increase in inventory (by $146 million), a decrease in VAT receivables (about $80 million), as well as the company's investment activities.

As for the latter, in the reporting period the company spent $72 million on the construction of an oilseeds processing plant in Starokostyantyniv, as well as the purchase of new assets for the storage and transshipment of grain and oil.

Also Kernel received from companies related to its main shareholder Andriy Verevsky, the last tranche of payment for the group's assets sold in the first half of 2022 (as per Kernel - in order to improve the company's liquidity). The amount of the tranche was $91 million.

Additionally, the company received $54 million from the issuance of new shares (due to which the share of Kernel's minority shareholders was diluted, minority shareholders plan to challenge similar actions of the company's management in court). The company emphasizes that this issuance was carried out at the request of creditors as part of the restructuring of the credit portfolio.

As of September 30, 2023, Kernel's total debt is $1.45 billion, with cash of nearly $1.1 billion, and inventory (including the book value of crops) of nearly $600 million.

The overall financial condition of the company, in our opinion, remains quite acceptable.