Tuesday, February 14, 2017

Kernel annual report 2016


Kernel, 2016, front page

There has been some major share price movements in Kernel lately since the Polish retirements funds and what have you seem to have discovered Kernel. These are the moments when you regret that you sold off parts of the company but even so I must keep my head on straight and realise the risk of owning companies that are pretty much operating in a war zone. 

The report in full can be found here and all material is taken from it. For the previous annual report please see Kernel annual report 2015 and to find out more concerning Kernel please visit analysis of Kernel 2015.

The revenue dropped dramatically, from my point of view, however the earnings are in the end very decent due to increased dollar valuation in which they sell many of their crops while many of their costs are in Ukraine Hryvnia.


Kernel, 2016, financial statement

There are some annoying question marks in the company... Compared to 2015 they significantly increased the valuation of their crops. To my knowledge the valuation of many crops have not increased significantly from July 2015 to July 2016 so why do they decide to push up the valuation of that? Yes, their costs to recover those assets will be less... I can agree on that but that should not influence the value of the biological asset.
They have have give them selves stock options in the size of 3.8% of the total shares. Is the CEO and founder planning to retake the company via stock options to himself?
They have now hired a BA guy that will most likely fool around with currency and crops hedging. I do not really see how that will end well.

Conclusion: Kernel is doing well on the paper which to a very large extent comes a very strong dollar and crops having world market prices in USD. The managers seems to want to create a cosy little environment for themselves and the amount of stock options are, in my opinion an outrage. This is a company that pretends to make money and it is not a little start-up that needs to tie extremely skilled people to them via the hand out of shares because the salaries are so bad. For this reason I am currently cautious. I will remain shareholder for now but it might change quickly.

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