Company Profile

Highlights

Figure 1. Public offerings Kernel`s IPO and SPOs on the WSE

Kernel Holding S.A. is one of the leading agricultural companies in the Black Sea region. Kernel Holding S.A. is a public limited company incorporated under the laws of Luxembourg. Production assets, infrastructure and logistics of the holding are located on the territory of Ukraine. Furthermore, there are plants and terminals in Russia. Several controlling enterprises and traders that are members of the holding, are registered in Netherlands, Switzerland, British Virgin Islands, Cyprus. In November 2007 Kernel was listed on the Warsaw Stock Exchange which resulted in offering 16 671 000 new shares and attracting USD 160 MLN. During 2008-2011 the company placed SPO worth USD 304 MLN. (see Figure 1). Andrii Verevskiy, owner of Namsen Ltd., is a founder of the company. The structure of shareholders is represented in Figure 2.

Source: Company data

Figure 2. Shareholding Structure Kernel`s shareholders, 2012

From a private company to a vertically-integrated holding. Kernel started its activitiy in 1995 as an exporter of Ukrainian agricultural products. In the early stages the company provided transport services of delivering goods to seaports and sold agricultural products to the world’s traders. Eventually Kernel began to purchase grain elevators. Thus, in 2002 a first oil extraction plant was bought in Poltava (Ukraine). Afterward expansion of activities was carried out by acquiring production assets in the oil industry, elevators and seaport terminals, and by simultaneous constant increase in the land bank. In 2011the company obtained sugar business and entered the Russian market by acquiring Russkie Masla Group and the Taman terminal through a 50%-50% joint venture with Renaisco BV, a subsidiary of Glencore International PLC. Therefore, expansion performed by acquisitions of manufacturing companies provided Kernel with an opportunity to complete creation of a large-scale production and logistics chain in the Ukrainian agricultural market and to become one of the largest holdings in the Black Sea region.

Main activities of Kernel Holding S.A. are represented by 3 businesses that generated USD 2 157.4 MLN revenue in 2012 FY (see Figures 3 and 4). The holding formed a complete production chain for its key industry – bulk oil. Kernel’s essential business segments are as follows:

Figure 3. Revenue Breakdown Structure by segments, 2012FY

Source: Company data

1. Farming and purchase of raw materials. According to the data of FY2012 Kernel is an owner of large-scale sown land bank that totals 248 562 hectares. This land bank is used by the company for growing crops, namely wheat, soybeans, sunflower, maize, sugar beets, barley, rapeseed, and is used for further processing of raw materials and trading. The holding’s crop yield exceeds the country’s average figures not taking into account crop yield of sugar beets. Manufacturing crops with different sowing and harvest seasons brings the company an opportunity to spread its income and outgoings throughout the whole year to avoid their significant concentration. Moreover, Kernel buys 78% of the total amount of grains from more than 2000 across the country.

2A. Sunflower oil production. Own production and purchase of sunflower (6% and 94% correspondingly) forms a raw material base for oil production (bulk oil and bottled oil) that is carried out by 7 plants in Ukraine and 3 plants in Russia with overall crushing capacities of 3.0 MMY per annum. The holding produces 7.2% of the world’s sunflower oil output. Furthermore, the company produces one third of Ukrainian consumption of bottled oil under the three brands (Chumak Zolota, Schedryi Dar, Stozhar) and private labels

2B. Sugar production accompanied by further domestic sales, is provided by 4 plants that were acquired in 2011. Kernel’s market share in Ukraine equals to 7%. Nevertheless Kernel’s low crop yield of sugar beets (17.4% below the country’s average) and small profitability comparing to other business segments explain the company’s current attempts to sell sugar production.

3А. Silos and logistics. Kernel has the largest private elevator network with a total capacity of 2.5 MMT (7.1% of the country’s capacities). Elevators are located next to railroads and are used for own needs and for farmers (2/3 and 1/3 of the volume of services correspondingly). In addition, Kernel possesses 2 terminals in Ukraine and newly bought one in Russia in 2012. The terminals with annual capacities of 6.0 MMT are situated on the Black Sea and satisfy own export needs of grains and sunflower oil.

Figure 4. Kernel in Ukraine Ranking in agriculture, 2012FY areholding Structure Kernel`s shareholders, 2012

Source: Company data

3В. Product sales. Kernel sells its production on the domestic (15%) and foreign (85%) markets. Indeed, the holding was a third largest exporter of grains in FY2012 that provided 8% of exports. The biggest bulk oil producers in the Black Sea region. Kernel exports grains and sunflower oil to Egypt, India, Turkey, EU etc. Regional distributors and national trade network provide 56% and 44% of bottled oil sales on the domestic market correspondingly. Sugar is sold in B2B segment.

Segment	Market share	Rank
Bulk oil	24,2%	#1
Bottled oil	32%	#1
Land bank	n/d	#3
Grain export	8%	#3
Source: Company data, KNU estimates Sugar	6,9%	#4

The company’s strategy stipulates the following expansion of its activities, namely: extensive expansion – growth of land bank up to 400-450 ths. ha accompanied by building and acquiring new plants, elevators and terminals (planned CapEx in Ukraine amounts to USD 300-350 MLN, in Russia – USD 350-400 MLN); intensive expansion – implementation of modern technologies and abidance by operational discipline to provide efficiency of each element of the production chain.

Kernel’s social responsibility is aimed at:

1. Environment protection as a result of using mini-till and no-till farming technology to reduce land erosion and to preserve land humidity; generating green energy from sunflower husks (83 MLN m3 of natural gas was saved in FY2012); using present-day harvesters to save 7-10% of sunflower seed; waste water treatment during storage and transshipment.

2. Support to agricultural regions where Kernel operates by assisting schools and local communities, creating new workplaces (1050 workplaces in FY2012). Direct donations stood at USD 0.6 MLN in FY2012.

3. Employer’s responsibility: Kernel employs about 17000 people and conduct different staff training programs. Thus, USD 173 MLN were invested in training in FY2012.