Ukraine's Kernel agro-holding posts 44% decline in net profit in 2024 fiscal year

MOSCOW. Oct 29 (Interfax) - Kernel, one of Ukraine's largest agricultural holdings, posted $168 million net profit in the 2024 fiscal year (July 2023 - June 2024), down 44% from the 2023 fiscal year, Ukrainian media said, citing the company's annual report.

"In terms of financial performance, the group's EBITDA decreased by 30% in the 2024 fiscal year, compared to the previous year and amounted to $381 million, mainly due to the depreciation of oilseed processing plants, port facilities and other assets by $229 million, which reflects the expected decline in productivity and increased risks," Chairman of the Board of Directors, majority shareholder Andrei Verevsky said in the document.

Basic indicators remained relatively stable after the adjustment: profitability decreased due to low grain and vegetable oil prices, but this was partially compensated by an increase in sales volumes due to investments in export infrastructure, the document said.

"Foreign exchange losses of $97 million, caused by the depreciation of the Ukrainian hryvnia against the U.S. dollar, resulted in total aggregate income attributable to the company's shareholders amounting to $63 million, up 7% from the year before, " Kernel noted.

The report said the Board of Directors proposed that zero dividends be paid after the 2024 fiscal year.

The agro-holding revenue for the past fiscal year increased by 4% to $3.581 billion, net cash flow from operating activities decreased by 34% to $472 million, and capital investments increased by 57% to $158.8 million.

Due to the reduction in net debt by almost an order of magnitude - from $313 million to $34 million, the Net Debt/EBITDA ratio improved from 1.1x to 0.7x, it said.

"The new season, same as the three previous ones, will be largely determined by geopolitics and risks associated with the crisis, which will have a significant impact on Kernel: our business still largely depends on the Black Sea as the main export channel. Any disruptions in the operation of this corridor can seriously affect our operations, which is what we observed during some periods of 2022-2024," Verevsky said, speaking about the forecast for the 2025 fiscal year.

The company has developed alternative export options, they are not a sufficient substitute if this risk emerges, he said.

Another challenge to be faced in the 2025 fiscal year, which did not exist in the two previous seasons, is a significant restriction of grain supplies in Ukraine due to a smaller harvest and limited carryover stocks, Verevsky said. Summer heat has seriously affected the yield of sunflower and corn - two of the most important crops for Kernel, and the sunflower harvest is expected to decrease by 17%, or 2.5 million tonnes year-on-year to 12.1 million tonnes.

"The reduction happens when extraction capacity will reach a record 20 million tonnes per year in 2025, which will lead to an unprecedented gap of 8 million tonnes between extraction capacity and the available sunflower crop," he said.

The gap would be even more severe than the last major deficit of this kind, which was observed in the 2021 fiscal year, when Kernel's oilseed crushing segment provided EBITDA of only $37 per tonne of oil sold, Verevsky said.

He added that the corn harvest is expected to decrease to 6.5 million tonnes, down 21% year-on-year, due to summer heat. Such a low harvest is expected to impact the capacity utilization and margins across the grain export chain.

In his words, the problems are aggravated by the unfavorable global situation, when other major grain-producing regions have large harvests, leading to potentially low prices.

Kernel is the world's largest exporter of sunflower oil and one of the largest producers and sellers of bottled oil in Ukraine. In addition, it cultivates and sells agricultural crops.

Kernel's net profit stood at $299 million in the 2023 fiscal year, versus a net loss of $41 million in the year before. The agricultural holding's revenue decreased by 35% to $3.455 billion in the 2023 fiscal year, while EBITDA increased 2.5 times to $544 million.

Over the first nine months of the 2024 fiscal year, the agricultural holding reduced its net profit by 53% to $204 million, while revenue decreased by 4% to $2.595 billion, and its EBITDA decreased by 36% to $384 million.