Ukraine's Kernel closes financial 2023 with profit but not planning dividends

MOSCOW. Oct 31 (Interfax) - Kernel, one of Ukraine's largest agribusiness groups, earned a net profit of $299 million in the 2023 financial year (July 2022-June 2023), compared to a net loss of $41 million a year earlier.

"However, it incurred a significant other comprehensive loss of $241 million due to translation differences caused by the depreciation of the Ukrainian hryvnia against the US dollar. Consequently, the Group generated $59 million of total comprehensive income attributable to the equity holders of Kernel Holding S.A. for the twelve months ending on 30 June 2023," Ukrainian media reported, citing the group's annual report, posted on its website.

The group's revenue fell 35% to $3.455 billion in financial 2023, while EBITDA jumped 150% to $544 million.

However, "considering significant uncertainties and risks facing the group's future," Kernel's board of directors has recommended shareholders waive dividends for the year ended on June 30, 2023, the report said.

Oilseed processing accounted for the largest share of EBITDA, generating $270 million, compared to a negative contribution of $70 million a year earlier, Kernel chairman and majority shareholder Andrei Verevsky said. The infrastructure and trade segment accounted for $154 million of EBITDA and crop farming generated $221 million, compared to respectively $237 million and $219 million a year earlier.

"The quarterly dynamics perfectly highlight the operational volatility experienced throughout the year: we faced losses in both Q1 and Q4, but these were offset by the profits generated during Q2 and Q3," Verevsky said.

The company reduced its net debt by 60% to $595 million as of June 30, and the net debt/EBITDA ratio shrank by more than 80% to 1.1.

Kernel said it processed 2.5 million tonnes of sunflower seeds in FY2023 and produced 1.1 million tonnes of oil, up from respectively 2.2 million tonnes and 1 million tonnes a year earlier. However, the harvest fell to 1.8 million tonnes from 3.3 million tonnes as the crop area shrank to 363,000 hectares from 499,000 hectares.

The group's export exports plunged to 3.7 million tonnes from 8 million tonnes, cargo handling at export terminals fell to 4.4 million tonnes from 7.3 million tonnes, and storage at domestic elevators decreased to 2.8 million tonnes from 4.2 million tonnes.

Verevsky said the "major risks we warned about throughout FY2023 have begun to materialize at the beginning of FY2024," when the Black Sea grain export deal ended and some Ukrainian port infrastructure was destroyed.

"The available alternatives to sea-based trade remain constrained in terms of capacity and are notably more costly from a logistics perspective, thereby exerting adverse pressure on our operational profitability," Verevsky said, adding that the group's exports fell significantly in the first quarter of FY2024.

"The ability to export via Ukrainian Black Sea ports is vital for maintaining the Group's profitability in FY2024. While we managed to secure transshipment capacities to export 100,000 tonnes of sunflower oil, 100,000 tonnes of sunflower meal, and 100,000 tonnes of grain per month via channels other than the Black Sea, the logistic costs of such operations remain adversely high," Verevsky said.

While the sunflower oil export margin may be able to absorb such costs, this is not the case for grain, he said.

"The risk of destruction or severe damage to our key assets is one of the most significant for our operations in FY2024. All of that coincided with global prices declining to very low levels in Q1 FY2024, and under the assumption that the Black Sea export route remains predominately blocked, implies large losses to our Farming segment in FY2024," Verevsky said.

He said that for the first time in Kernel's history it recognized a $27 million loss from changes in the fair value of the upcoming harvest in presented accounts, "meaning, in simple words, that anticipated proceeds from sales of crop 2023 are not enough to cover the incurred production and selling expenses related to such crop."

He also said that Ukraine's alteration of its crop mix structure for the 2022 and 2023 seasons in favor of oilseed crops brings high risks of pests and diseases spreading, materially undermining the future crop yield potential across the whole crop mix.

"To avoid that, a significant reduction in oilseed acreage during the next several years will be required to normalize the crop structure. We are likely to make such a decision for our own farming business, and I do not exclude that other farmers will follow the same pattern. It may have a negative impact on the supply of sunflower seeds in the near future," Verevsky said.

For the first nine months of FY2023, Kernel reported net profit up 36% to $437 million and EBITDA up 7%, while revenue fell 45% to $2.715 billion.

Kernel, which had paid dividends of $0.25 per share annually since 2014, increased dividends to $0.42 per share in 2020 and to $0.44 in 2021. However, the company stopped paying dividends altogether after the start of the conflict in Ukraine.

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.