Kernel reports weak 1QFY14 results

Ukraine’s grain and sunflower oil producer Kernel (KER PW) reported a 23% yoy drop in net revenue (USD 412.9 mln) and 25x yoy plunge in its EBITDA to USD 3.0 mln in 1QFY14 (July-September 2013). All the company’s segments showed declines in profit, except grain trading (which improved mainly on the company’s better Russian subsegment volumes). EBITDA in the company’s core segments, bulk and bottled oil, declined 10x to USD 4.5 mln, mainly caused by more than halved volumes of sunflower crushing (as stockpiles were low and the new harvest was delayed this season). The company’s farming segment, which usually contributed a lot to Kernel’s operating profit in the first quarter, generated negative EBITDA (USD -6.4mln vs. USD 25.9 mln a year before), which was caused by a decline in prices for most crops and resulted in negative non-cash losses from harvest revaluation. The company’s bottom line for the quarter was a USD 34.7 mln loss (vs. a USD 37.6 mln profit a year before). Kernel’s operating cash flow before working capital was USD 11.9 mln in the quarter (down 7.7x yoy), much better than its EBITDA as it did not account for crop revaluation losses. On top of that, Kernel’s EBITDA was negatively affected by the disposal of the Orzhytsia sugar plant in September. The company stated it had received just USD 5.1 mln for the plant from Astarta, while the media earlier estimated this deal at USD 10-12 mln. Kernel decreased its interest bearing debt 25% yoy to USD 789.5 mln (still +8% qoq) and sliced its net debt 22% yoy to USD 711.8 mln (+9% qoq). Its Net Debt / LTM EBITDA reached 3.3x, vs. 2.3x in FY2013. Alexander Paraschiy: The weak financial result for the first quarter was expected (refer to our news of October 18), but perhaps not that deep. The company seems to have properly reacted on the worsened trading conditions – its leverage, which traditionally jumped in the first quarter, was almost unchanged qoq and was lower yoy. The 1Q results are not indicative for the coming year: as soon as the sunflower harvest will catch up in Ukraine in the current quarter (harvesting was delayed because of heavy rains) and the overall harvest improves for the entire season, we expect significant improvement in Kernel’s food oil segment in the following quarters. Its farming segment seems to be the main risk for the coming quarters as soft commodity prices remain weak. Yet for the moment, we believe the company has a chance to deliver its FY14 EBITDA guidance of USD 250 mln.

Источник: Конкорд Капитал