5 Mar 2024 12:00

Ukraine's Kernel sees net profit drop 36% in Q2 of financial 2024

MOSCOW. March 5 (Interfax) - Kernel, one of Ukraine's largest agribusiness groups, earned a net profit of $133 million in the second quarter of the 2024 financial year (July 2023-June 2024), 36% less than in the same period a year earlier, Ukrainian media reported citing the company's filing on the Warsaw Stock Exchange.

The company reported a net loss of $31 million in the first quarter of financial 2024. The figures for the two quarters demonstrate the volatility of the group's revenue depending on the operating environment, Kernel said.

Consolidated revenue fell 16% year-on-year to $1.044 billion in October-December due to a drop in prices for grain and sunflower oil.

However, revenue jumped 90% from the previous quarter thanks to an increase in exports through Black Sea ports, which were unavailable for operations in July-September 2023.

The net loss from changes in the fair value of biological assets totaled $12 million October-December amid low prices for grain and oil crops, Kernel said. However, the cost of sales dropped 14% year-on-year to $813 million.

As a result, gross profit fell 26% year-on-year but surged 320% quarter-on-quarter to $218 million in the quarter.

Other operating income totalled $41 million, largely thanks to a one-time insurance payment of $33 million for damage to property and interruption of production.

The group also reported a net loss of $9 million due to the write-off of inventories and fixed assets.

The group's EBITDA fell 26% year-on-year to $205 million in the quarter, but this was up tenfold from the previous quarter, reflecting the significant improvement of operating conditions taking into account the accessibility of Black Sea ports for exports.

But despite the improvement of the operating environment, risks remain high, Kernel said. Besides the situation in Ukraine, there are risks related to low world prices for soft commodities, the company said.

The group's oilseeds processing business contributed $76 million to EBITDA in the quarter, 15% more year-on-year and 30% more than in the previous quarter thanks to strong sales of sunflower oil and meal, a seasonally high processing margin and the contribution of renewable energy.

EBITDA in the infrastructure and trading segment quintupled quarter-on-quarter to $37 million thanks to the strong performance of export terminals and the grain trading business following the opening of Ukraine deep-water ports on the Black Sea for export operation, as well as the strong results of trading division Avere.

EBITDA in the farming segment totalled $103 million in the quarter as grain sales accelerated to more than 1 million tonnes.

Investment in property, plant and equipment, including the purchase of a Supramax bulk carrier, totalled $41 million in the quarter. However, due to the withdrawal of deposits totalling $210 million that were previously used as collateral for certain credit facilities, cash flow on investment activities totalled $165 million.

Kernel said its total debt liabilities stood at $995 million at the end of 2023, 39% less than a year earlier. The group repaid more than $600 million on pre-export finance facilities and bilateral credit lines in December given the dramatic improvement of export logistics, the stabilization of the business outlook and sufficient liquidity reserve. This debt includes $181 million owed to the European Investment Bank and European Bank for Reconstruction and Development, and $597 million owed on Eurobonds.

Kernel also reported that it initiated the termination of existing standstill agreements with bondholders, which suspend their right to demand full redemption of bonds, in order to eliminate restrictions on operations and financing. The company will return to the terms laid out in loan agreements with the EIB and EBRD, which call for repayment according to the initially agreed schedule. This will ensure Eurobonds are not classified as a "potential event of default," the company said.

As a result, the group's cash balance shrank 47% quarter-on-quarter to $542 million at the end of December 2023. The net debt decreased by 27% in the quarter to $453 million.

Commodity inventories were almost unchanged quarter-on-quarter at $448 million at the end of December, and almost completely covered the net debt.

In the first half of financial 2024, Kernel's net profit tumbled 72% year-on-year to $102 million and EBITDA fell by half to $223 million, as revenue slumped 16% to $1.59 billion.

Kernel reported a net profit of $299 million for financial 2023, compared to a net loss of $41 million a year earlier. The group's revenue fell 35% to $3.455 billion, while EBITDA jumped 150% to $544 million.

Kernel is one of Ukraine's largest producers of bottled vegetable oil and a major producer and exporter of sunflower oil. The group also cultivates and sells other agricultural products.