In October-December Kernel exported 1.5M tons of grains - operating report

29 January 2023

Kernel operating activity significantly improved vs. previous quarter - the company increased volume of sunseeds crush, grains and sunflower oil export.

Kernel's total grain exports during October-December amounted to 1.5 million tons, which is 56% lower than the record figure of the previous year, but twice as much as in the previous quarter. The reason for such dynamics is the opening of grain corridors for the export of Ukrainian agricultural products in August.

Kernel's share in the total Ukrainian export of grain during the reporting period was 11% (in total, during October-December, Ukraine exported a little more than 14 million tons of grain).

Regarding sunflower processing, we note the negative impact of blackouts in Ukraine, starting from November. As a result, Kernel was forced to shut down two of its six oilseeds crushing plants. Accordingly, the total volume of processing in the reporting quarter amounted to 653,000 tons - only 40% more than in the previous quarter.

Sunflower Oil sales were quite active - the volume of oil sales amounted to 345,000 tons, +71% compared to the previous quarter and -17% compared to the corresponding quarter of the previous year.

taking into account all the circumstances, we consider Kernel's operating performance in October-December as quite acceptable.

Q2 FY2023* Q1 FY2023 Change, % Q2 FY2022
Grains export, kmt 1 522 732 +108% 3 483
Oilseeds crush, kmt 653 461 +42% 985
Oil sales, kmt 345 202 +71% 417
*-financial year of the company starts in July and finishes in June, Q2 - October-December

In its report, the company complains about the slowdown in exports due to complications with the inspection of Ukrainian vessels in Turkey. In addition we note two another important points.

The first - during August-December, Kernel exported almost all grains stock which was on hand at the beginning of the full-scale Russian aggression, so going forward the company will be more aggressive in its purchases of grain and sunflower (while exporting its own harvest).

The second - with the current prices for grain in Ukraine, indicated in the reporting of the yields of the main crops in Kernel, and the volumes of trading business indicated above, we expect good financial performance of the company in the reporting period.

Grains growing segment

Updated yield figures in the current season: corn - 8.5 t/ha (as of the date of the report, the company harvested about 87% of planned areas), sunflower - 2.5 t/ha, wheat - 4.5 t/ha. According to our expectations, total operating profit before depreciation (EBITDA) in grains growing segment, based on current internal grain prices in Ukraine, in the 2022/23 season could be around $100 million. We should see some of this profit in Kernel's financials for Q2 FY2023.

Oilseeds crush

As the processing margin in Ukraine still remains at a fairly high level, we expect that the EBITDA direction in September-December will be $50-60 million.

Trading and infrastructure

It is difficult to estimate the potential result of Avere, but taking into account the fairly high margin of traders when exporting grain from Ukraine, the EBITDA of this direction (taking into account the port infrastructure) in the reporting period, according to our estimates, will be at least $70-80 million.

Due to the relatively high export figures, the company's liquidity situation should also improve significantly, while Kernel certainly remained interested in extending the current credit agreements to finance the rather profitable purchase of grain and oilseeds, as well as taking into account the existing uncertainty with the grain corridors (current agreements between the parties emerge in mid-March).

Because of this we consider as positive for the company the fact that it extended maturity of its working capital loans from main financing institutions till June'23.

Another interesting piece of news is that Kernel announced the purchase (reportedly from Risoil) of an oil terminal in the Port of Pivdenny with a total oil storage capacity of about 50,000 tons.