Thursday 27 November 2014

Kernel report Q1 2015

Kernel, Q1, 2015, front page

This time Kernel arrived with the real first quarter report which does then not only contain volumes of sold products but instead it contains the revenue in USD. The amount of shares bought and sold in Kernel is low but still the share price jumped up by over 7% on the day of reporting. Was there then anything of interest in it?

For the online published report please click here and for my previous summary please see Kernel annual report 2014.

Opening the document and looking at the first thing then I directly got excited! They have managed to increase the revenue by 40% to 579 million USD and from that earnings in the size of 23 million USD which is then 0.29 USD per share and in my opinion an excellent result!

Kernel, Q1, 2015, key figures

Reading further and we end up with the segment results and there pretty much all of them have been busy with an almost 200% increase in the sales of the bulk sunflower oil. Sure Q1 2014 was a very bad quarter but still things are looking better. Also the grain segment has done a good job and increased the revenue with 25%. It is indeed excellent to see that the two biggest segments have made such improvements. Still both Bottled as well as Farming is down by over -20% so that is a bit of a cloud in the sky. They also have a pretty large post of Sugar and discontinued since that is a 20 million revenue that should be connected to low costs... which then minimise the happy, happy joy feeling from the 23 million net profit that was mentioned in the key figures table.

Kernel, Q1, 2015, segment results

The final thing that I looked at made me even less happy. I had started to expect benefits coming from the devaluation of the Ukrainian hryvnia due to the management saying so but also due to my own assumptions. This is obviously not the case as can be seen below with -33 million coming from exchange difference which in the end gives us a quarter result of -11 million USD.

Kernel, Q1, 2015, profit and loss

Conclusion: What I directly thought was an excellent report ended up leaving me with a somewhat bitter taste in my mouth. I do not think that I can stop it but it is clear that I should not in any way think macro concerning anything and especially not currency effects. Most large companies are hedging currency effects but a small company such as Kernel are not working with such tools and probably also should not do so. I did not buy Kernel due to any potential currency gains so I should probably go back to just looking at the company as they are. They are doing better and I will remain as a shareholder.

To find out more about Kernel please click on analysis of Kernel 2014.

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