Ukraine’s Kernel flags ‘uninspiring’ 2021 outlook, despite buoyant Q1

Kyiv-based Kernel – Ukraine’s largest sunflower oil producer – said its 2021 outlook is “uninspiring” as it foresees significant downside risk after a drought ruined the Black Sea sunseed crop and despite a strong start to its financial year.

Kernel’s EBITDA for its first quarters of the financial year, which started in July, tripled compared with the same three-month period in 2019, reaching $290 million thanks to solid earnings in its oilseed processing unit and trading units.

The oilseed processing unit added 39% to an EBITDA of $31 million during Q1 “on the back of stronger crushing margins driven by growing sunflower oil prices and record high 2019 sunflower seed harvest in Ukraine,” the company said in a report released Friday.

Its trading unit tripled EBITDA to $111 million for the quarter driven by “strong performance” in sunoil and grains trading by its Swiss-based subsidiary Avere as well as accelerated Ukrainian grain exports.

Yet despite the solid start to its 2021 financial year thanks to high carry-over stocks from the previous marketing year, Kernel said its 2021 outlook is “uninspiring” as it expects a tight market situation by the end of the current marketing year.

“We plan to process 3.5 million tons of sunflower seeds, but there are significant downside risks to this target, which may materialize closer to the end of the season due to the relatively weak harvest of sunflower seeds this year in Ukraine,” Kernel said.

“On top of that, concerns come also on the margin side,” Kernel warned.

The company expects the price of Ukrainian sunseed to mirror sunoil prices, which could remain high for the rest of the season, with “slow-selling (by) farmers eroding the margin for crushers in the current season,” it said.

“There are significant risks to end up the season with the margin materially below US$ 100 EBITDA per ton oil sold observed in FY2020.”

Its outlook for the infrastructure and grain trading segment remained positive as expectations that Avere will continued to perform well would offset its “grain export business (which) may underperform this season due to lower margins,” Kernel said.