Kernel cuts profit hopes, blaming hryvnia's plunge

Kernel Holding, unveiling a $44.8m hit from the devaluation of the hryvnia, cut its forecast for full-year earnings even though its grain export arm defied the Ukraine crisis to achieve bumper profits

The sunflowers-to-silos group cut to $170m, from $250m, its forecast for earnings before interest, taxation, depreciation and amortisation (ebitda) in the year to the end of June.

The group cited the "sharp devaluation of Ukrainian currency", which during the January-to-March quarter, as the Ukraine crisis unfolded, tumbled 27% against the dollar, handing the group a "currency devaluation loss" of $44.8m.

This amount reflects a Ukraine government system, reinstated in January, of refunding VAT paid on inputs needed to produce grain exports, but which sees delays in the repayments, hurting their value at a time of a tumbling hryvnia to a group such as Kernel which report in dollars.

Devaluation upside

The loss helped broaden to $25.1m Kernel's after-tax loss for the January-to-March period, from $3.4m a year before, despite a 13.0% rise to $675.0m in revenues.

However, the group's shares, which are listed in Warsaw, rose 1.6% to 28.00 zloty in morning deals nonetheless, as it flagged benefits to come from the weakened hryvnia.

"The company's export business model benefits from the Ukrainian hryvnia devaluation, primarily in [administration] and the farming segment's costs," the group said.

The benefits, while expected to kick in "gradually", are "expected to fully offset the losses from the VAT revaluation within 9-12 months".

'Actively sold corn'

Kernel also flagged a boost from the reinstatement of VAT refunds, which it said had been a major factor in Ukraine's continued strong performance in grain handling, despite the fall in the hrynvia, which should act as a deterrent to sell assets, such as crops, denominated in dollars.

"Farmers actively [sold] corn as the government renewed refunds of the VAT on corn exports which increased farm-level prices," the group said, revealing a doubling to 1.3m tonnes in sales volumes, including the contribution from its smaller Russian operations.

In exports, terminal throughput rose 66% year on year to 1.0m tonnes, "on higher grain exports through both Ukrainian and Russian facilities".

Ebitda also rose in sunflower oil, by 13.5% to $6.6m, thanks to an improved Ukraine crop last year which allowed Kernel to run its crushing operations close to capacity, while depressing raw material costs too.

The group's farming operation bucked the positive trend, widening its ebitda loss to $21.5m from 3.5m the year before, although this reflected the accounting treatment of fair value charges for its crops, grown over more than 360,000 hectares.

The group said that its crops were "all… reported to be in good condition". Separately, fellow Black Sea farm operator Trigon Agri reported good crop condition too.

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