Shares in Kernel Holdings eased after the sunflowers-to-silos
group ditched hopes of a return to profits growth, citing the impact of 2012's disappointing Ukraine havests, which had slashed profits in its farming operations, and fostered "strong competition" among grain merchants.
The Ukraine-based group, which accelerated its expansion
into Russia in October through a ports tie-up with Glencore, lowered to $200m,
from $215m, its guidance for earnings in the year to the end of June.
Earnings at that level would represent a second successive
year of decline, and come in below the $226m expected by analysts.
The downgrade came despite better hopes for revenues, which
Kernel forecast reaching $2.8bn, $400m more than had been forecast, and ahead
of market expectations.
Change of strategy
However, the group revealed that margins in bulk edible oils
division, its top revenue source, had eased in the July-to-December half, the
first half of Kernel's financial year, "due to a lower sunflower seed harvest",
although a shorter maintenance period fostered a 74% jump in the unit's sales.
In the grains business, the second biggest division by
revenue, the ebitda (earnings before interest, tax, depreciation and
amortisation) margin dropped to 2.7%, below a historical target of 6-8%, as it
rejigged its aim towards prioritising quantity over the quality of business.
"This season, facing continuously strong competition for the
volumes in Ukraine and margins being under pressure, we have moved our focus to
the volumes," Kernel said.
A disappointing harvest, which saw wheat volumes drop nearly
30%, has curtailed Ukraine's export potential for many grains, increasing
rivalry for what volumes there are.
However, separately on Friday, Ukraine's Agrarian Federation said that Ukraine wheat exports could restart in April, estimating that 2m tonnes was available to ship, on top fo the 6.1m tonnes already exported in 2012-13 before government moves to quell trade.
'Lower autumn crop
Last year's poor harvest was also blamed for a halving in
ebitda at the farming business, which fell into the red in the October-to-December
quarter, blamed largely on "lower autumn crop yields [that] came in below
"Our performance reflects unfavourable weather conditions
and the prolonged integration of the newly-added landbank," said Kernel, which
in April bought two farming businesses with a combined 119,000 hectares of
The group was "gradually implementing the new management
structure and strengthening management control" in the farming business, while
revamping the land portfolio to get shot of farms in areas with riskier
climates, a strategy also being followed by peers such as Alpcot Agro.
Group ebitda for the half year rose 6.1% to $157.7m, helped
by a tripling in the contribution from export terminals.
But, with finance costs swollen by last year's deals,
earnings dropped 32% to $69.7m.
Net debt near-doubled to $1.19bn over 2012, swollen by
borrowings undertaken to complete the Russian port deal, and by a rise in sugar
inventories, despite Kernel's efforts to run down production "in response to a
prolonged sugar oversupply and depressed market prices" in Ukraine.
Viktor Ivanchyk, the chief executive of Ukraine sugar giant
Astarta, warned on Wednesday that "2012 posed strong challenges to Ukrainian
sugar producers", following a second consecutive season of "overproduction".
"The situation is painful for the sugar industry, but one
which strongly promotes its consolidation and encourages strategic players," Mr
Kernel shares, which are listed in Warsaw, closed 3.8% lower at 62.60 zloty.