Kernel report Q3 2014

My Ukrainian logistics and agricultural company arrived with their Q3 report for 2014. It had an uplifting beat to it but in my eyes things are not fine and even though they clearly say that all their operational units are not in the parts where people are fighting it still will have a large impact on them. So what was then in the report? The full version of the Kernel Q3 2014 report.

First let us take a look at the highlights as mentioned by them. Revenues are up according to Q3 2013, they have sold and produced more grain but they are still carrying losses. Due to devaluation of the Ukrainian hryvnya by almost 30% they carry a loss for the time being but expect to have a long term gain since their sales are of sunflower oil, grain etc. are based on world prices in USD.

The financial highlights are not that a big joy to me as a shareholder and especially since I tend to look less on the specific quarter and more on the running year so yes they had a revenue wise good quarter but for the running 9 months they are down by over -12% in sales and they are making a loss.

When we look at the sales volume that they have made we see that the grain are up significantly for the quarter and more importantly for the 9 months with 50%. Both the bulk and the bottled sunflower oil is down for the 9 months and this is their cash cow with the large margin that when volumes there drop the revenue and more importantly the earnings fall apart.

Finally I want to take a look at the segments in terms of revenue and there we can see that the trend is very much the same. The loss comes from the decreased sunflower sales and even though the grain production and sales are increasing quarter by quarter they have still not managed to either make a profit or start to cover for any decreases in the sunflower oil sales.

Conclusion: I will of course keep my shares. I read a new release that the Dutch ING bank (the polish daughter) have stepped in as a shareholder with 5% of the shares in Kernel. I assume that is the reason for the latest share price increase. I am currently happy with the size of this position and I will not increase it any further for the time being. This is the previous contrarian analysis of Kernel 2013.