23 April 2023

The largest Ukrainian agricultural holding has published its operating report for the first quarter of 2023 - sunflower crush has increased, grain exports are falling.

	Q3 FY2023*	Q3 FY2022	Change, %	Q2 FY2023
Grains export, kmt	824	2136	-61%	1522
Sunseeds crush, kmt	744	563	32%	653
Sunoil sales, kmt	273	269	1%	345

*-the financial year of the company begins in July and ends in June, the 3rd quarter - January-March

In sunflower processing segment, the situation remains good for Kernel.

In the first quarter of 2023, the volume of oilseed processing amounted to 744,000 tons, 32% more than last year. In March 2022, after russian full-scale invasion, the Kernel plants were already stopped, on the other hand, in January-February of the last year, processing volumes were close to maximum in terms of total production capacity.

In the reporting quarter, six of the group's eight processing enterprises were operating (except for two plants located in the Kharkiv region, relatively close to the active war zone). Production capacities utilization rate was at a high level (here we note significant improvement of the situation with electricity supply vs. previous quarter).

Compared to the previous quarter, the volume of sunflower processing increased by 14%. In total, since the beginning of the financial year (July 2022), Kernel sunflower crushing plants have processed 1.8 million tons of oilseeds (-8% compared to the corresponding period of the previous year).

Sales of sunflower oil in the first quarter of 2023 amounted to 273,000 tons, which is less than the previous quarter (345,000 tons), but flat y-o-y.

In our opinion, quite good financial results of the segment can be expected, since, according to our estimates, the profitability of sunflower processing in the reporting period still remained at a fairly good level. Indirect evidence of this is Ukrainian export of sunflower seeds figure – sunseeds export can only take place if the processing margin is relatively high).

In the previous quarter, Kernel's margin per 1t of sunflower oil was about $180, so even assuming its slight decrease, the segment's EBITDA in the first quarter of 2023 is expected to be at least $40-45 million.

In the grain export segment situation for Kernel was much worse. During the reporting quarter, Kernel exported only 824,000 tonnes, 61% less than last year and 46% less than the previous quarter.

The group explains such dynamics by the problems with the functioning of the grain corridor, namely the principle of quota distribution within the corridor, which is not favorable for the largest exporters who maximize the turnover of their port terminals.

Under current circumstances, Kernel has clear priority to export the grain grown by own farming division as well as to maximize oil and meal exports (as sunseeds crushing margins are higher than grains origination and export margins).

In any case, we note that Kernel is losing its position as the largest Ukrainian grain exporter. If earlier (not taking into account the period when Ukrainian ports were blocked), Kernel was the clear number one player among Ukrainian exporters with a significant gap from other companies, in the reporting period the situation has changed - Nibulon has increased volumes, LDC is very active in Ukrainian grains export as well, so in some months of the current season , according to our estimates, Kernel was losing its status as the number one exporter of Ukrainian grain (the market share during January-March was only 5.5%).

According to our estimates, a significant share in the structure of Astarta's sugar sales is exports - the company is one of the largest exporters of sugar in the country, while in the current season Ukrainian sugar exports have shown significant growth.

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