As expected Fitch upgraded Kernel Holding credit rating to B+

22 February 2017

Upgrade followed successful Eurobonds placement by the largest Ukrainian sunflower oil producer, so that debt maturity profile of the company is to be largely improved.

Fitch noted strong performance of Kernel during last two years and export-oriented structure of its business (the share of export in total proceeds is above 90%).

Agency analysts also estimate that after relatively stable financial results in financial year 2016-2017 (vs. previous one), EBITDA of the company can decline to USD 250-260M in FY2018 (due to higher crop-growing crops and more conservative yields assumptions for the farming division).

Our base case view is slightly more positive as we see EBITDA at about USD 300M as fully sustainable for Kernel (composed of USD 100M for Farming direction (vs. current season estimations of USD 160-170M), USD 100M Oilseeds crushing (with about 8-9% EBITDA margin) and remaining USD 100M for Grains trading, silo and port terminals operations). Financial results of different business directions of Kernel during last years look as follows:

USD mln Q1 2017 Q1 2016 .. FY2016 FY2015 FY2014
Oilseeds crushing
Sales 176 190 1 134 1 214 1 211
EBITDA 12.6 25.9 128.8 213.1 177.8
EBITDA margin, % 7% 14% 11% 18% 15%
Grains trading
Sales 200 176 822 1 053 1 053
EBITDA 4.3 10.4 46.3 59.4 59.4
EBITDA margin, % 2.2% 5.9% 5.6% 5.6% 5.6%
Farming
Sales 146 56 358 310 290
EBITDA 77.7 16.0 146.0 97.9 -44.3
EBITDA margin, % 53.1% 28.5% 40.8% 31.5% -15.3%
Export terminals
Sales 12.4 9.2 57.3 55.3 45.5
EBITDA 10.5 5.5 37.5 36.8 27.3
EBITDA margin, % 84.7% 60.0% 65.4% 66.5% 60.0%
Silo
Sales 10.5 8.5 38.2 42.4 74.5
EBITDA 7.1 5.1 23.4 18.3 39.2
EBITDA margin, % 67.6% 60.0% 61.3% 43.2% 52.6%

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