Kernel reports poor FY12 financials, weak outlook for FY13

Обзоры по компаниям и отраслям 25.10.2013 Top Ukrainian sunflower oil maker Kernel (KER PW) reported a 35% yoy increase in net revenue to USD 2,797 mln (+35% yoy) in FY2013 ended June 30. The company’s EBITDA fell 10% to USD 288 mln (6% below Bloomberg consensus) and its bottom line almost halved yoy to USD 111 mln (14% below consensus). Kernel Board Chairman Andrey Verevskiy listed two key factors that led to the underperformance in 2013: a lower than initially estimated sunflower seed supply in the season and a dramatic decline in crop prices this summer. Even more discouraging, Verevskiy reported Kernel’s FY2014 EBITDA outlook at USD 250 mln (-13% yoy, 30% below consensus), which he explained by weak soft commodity prices that will cause its farming segment to barely breakeven and a poor expected 1QFY2014 result of its sunflower oil segment as seed stocks have been exhausted and this year’s sunflower harvest was delayed for a few weeks. Yet Verevskiy expects the following quarters will be rather successful for Kernel’s sunflower oil business on boosted harvest. In guiding the EBITDA decline next year, the company plans to decrease investment activity with budgeted CapEx at USD 85 mln (vs. USD 274 mln spent for acquisitions and investments in PP&E in FY2013). Alexander Paraschiy: Kernel’s outlook for the next year is perhaps the most discouraging news from its FY2013 annual report, and we expect market reaction to it will be negative. We believe the company decided this time around to provide a most conservative outlook after it failed to meet its target number that it guided a year ago (USD 350 mln in EBITDA). Since the company’s farming business focused this season on corn, the worst performing agri commodity globally, we expect it could indeed bring zero operating profit to Kernel in FY2014. At the same time, we see a growth potential in profit from sunflower oil and export terminals, which, in the best case scenario, may bring Kernel’s next year EBITDA closer to last year’s level.