FY2024 outlook

The major risks we warned about throughout

FY2023 have begun to materialize at the be-
ginning of FY2024. On July 18, 2023, Russia
unilaterally decided not to renew the Grain
Deal, which had significant and detrimental ef-
fects on the Group's export capacity. The
available alternatives to sea-based trade re-
main constrained in terms of capacity and are
notably more costly from a logistics perspec-
tive, thereby exerting adverse pressure on our
operational profitability. Neighboring EU mar-
kets with shorter logistics routes have imposed
restrictions on the export of Ukrainian agricul-
tural products, prohibiting us from selling
there. As a result, our exports substantially
dropped in Q1 FY2024. Only in late Septem-
ber 2023 some hope appeared, as the Ukrain-
ian Navy arranged a temporary corridor for
vessels leaving Black Sea ports. Amid threats,
first vessels started to use a new shipping
route in an attempt to revive sea-borne grain
export to overcome the Russian blockade. It is
not clear, however, how sustainable such a
new route would be and what could be its ca-
pacities. The ability to export via Ukrainian
Black Sea ports is vital for maintaining the
Group’s profitability in FY2024. While we
managed to secure transshipment capacities
to export 100 thousand tons of sunflower oil,
100 thousand tons of sunflower meal, and 100
thousand tons of grain per month via channels
other than the Black Sea, the logistic costs of
such operations remain adversely high. While
sunflower oil export margin may have the ca-
pacity to absorb such costs, this is not the case
for grain.
In FY2023, we were lucky that our core asset
base has not suffered material damages from
Russian attacks, except for two oilseed pro-
cessing plants in the Kharkiv region and two
silos. Unfortunately, since 19 July 2023,
imme-
diately following its withdrawal from the Grain
Deal, the Russian terrorist regime launched
regular drone and missile attacks on
Ukrainian port infrastructure. Initially, these
attacks targeted deep-water Black Sea ports,
inflicting significant damage to the Group's
port assets, but subsequent strikes extended
to the Danube ports of Reni and Izmail, im-
pacting assets either under Kernel's control or
providing essential services to the Group.
These attacks resulted in substantial destruc-
tion to grain and sunflower oil storage
facilities,
intake capacities, and loading equipment. Fur-
thermore, a significant missile strike hit one of
FY2024 outlook
The major risks we warned about throughout
FY2023 have begun to materialize at the be-
ginning of FY2024. On July 18, 2023, Russia
unilaterally decided not to renew the Grain
Deal, which had significant and detrimental ef-
fects on the Group's export capacity. The
available alternatives to sea-based trade re-
main constrained in terms of capacity and are
notably more costly from a logistics perspec-
tive, thereby exerting adverse pressure on our
operational profitability. Neighboring EU mar-
kets with shorter logistics routes have imposed
restrictions on the export of Ukrainian agricul-
tural products, prohibiting us from selling
there. As a result, our exports substantially
dropped in Q1 FY2024. Only in late Septem-
ber 2023 some hope appeared, as the Ukrain-
ian Navy arranged a temporary corridor for
vessels leaving Black Sea ports. Amid threats,
first vessels started to use a new shipping
route in an attempt to revive sea-borne grain
export to overcome the Russian blockade. It is
not clear, however, how sustainable such a
new route would be and what could be its ca-
pacities. The ability to export via Ukrainian
Black Sea ports is vital for maintaining the
Group’s profitability in FY2024. While we
managed to secure transshipment capacities
to export 100 thousand tons of sunflower oil,
100 thousand tons of sunflower meal, and 100
thousand tons of grain per month via channels
other than the Black Sea, the logistic costs of
such operations remain adversely high. While
sunflower oil export margin may have the ca-
pacity to absorb such costs, this is not the case
for grain.
In FY2023, we were lucky that our core asset
base has not suffered material damages from
Russian attacks, except for two oilseed pro-
cessing plants in the Kharkiv region and two
silos. Unfortunately, since 19 July 2023,
imme-
diately following its withdrawal from the Grain
Deal, the Russian terrorist regime launched
regular drone and missile attacks on
Ukrainian port infrastructure. Initially, these
attacks targeted deep-water Black Sea ports,
inflicting significant damage to the Group's
port assets, but subsequent strikes extended
to the Danube ports of Reni and Izmail, im-
pacting assets either under Kernel's control or
providing essential services to the Group.
These attacks resulted in substantial destruc-
tion to grain and sunflower oil storage
facilities,
intake capacities, and loading equipment. Fur-
thermore, a significant missile strike hit one of
FY2024 outlook
The major risks we warned about throughout FY2023 have begun to materialize at the
beginning of FY2024. On July 18, 2023, Russia unilaterally decided not to renew the Grain
Deal, which had significant and detrimental effects on the Group's export capacity. The
available alternatives to sea-based trade remain constrained in terms of capacity and are
notably more costly from a logistics perspective, thereby exerting adverse pressure on our
operational profitability. Neighboring EU markets with shorter logistics routes have imposed
restrictions on the export of Ukrainian agricultural products, prohibiting us from selling
there. As a result, our exports substantially dropped in Q1 FY2024. Only in late September
2023 some hope appeared, as the Ukrainian Navy arranged a temporary corridor for vessels
leaving Black Sea ports. Amid threats, first vessels started to use a new shipping route in an
attempt to revive sea-borne grain export to overcome the Russian blockade. It is not clear,
however, how sustainable such a new route would be and what could be its capacities. The
ability to export via Ukrainian Black Sea ports is vital for maintaining the Group’s
profitability in FY2024. While we managed to secure transshipment capacities to export 100
thousand tons of sunflower oil, 100 thousand tons of sunflower meal, and 100 thousand tons
of grain per month via channels other than the Black Sea, the logistic costs of such
operations remain adversely high. While sunflower oil export margin may have the capacity
to absorb such costs, this is not the case for grain.
In FY2023, we were lucky that our core asset base has not suffered material damages from
Russian attacks, except for two oilseed processing plants in the Kharkiv region and two silos.
Unfortunately, since 19 July 2023, immediately following its withdrawal from the Grain
Deal, the Russian terrorist regime launched regular drone and missile attacks on Ukrainian
port infrastructure. Initially, these attacks targeted deep-water Black Sea ports, inflicting
significant damage to the Group's port assets, but subsequent strikes extended to the Danube
ports of Reni and Izmail, impacting assets either under Kernel's control or providing essential
services to the Group. These attacks resulted in substantial destruction to grain and sunflower
oil storage facilities, intake capacities, and loading equipment. Furthermore, a significant
missile strike hit one of our largest in-land silos located in the Khmelnytskyi region. The
current preliminary assessment of the required capital expenditure for the restoration and
rehabilitation of equipment damaged or destroyed in recent attacks indicates a minimum cost
of USD 21 million. The cumulative estimated market value of the commodities lost as a
result of these attacks is approximately USD 11 million. Additionally, the strikes at Danube
ports disrupted transshipment operations and fleet logistics. The risk of destruction or severe
damage to our key assets is one of the most significant for our operations in FY2024.
All of that coincided with global prices declining to very low levels in Q1 FY2024, and under
the assumption that the Black Sea export route remains predominately blocked, implies large
losses to our Farming segment in FY2024. For the first time in our history, we recognized a
USD 27 million loss from changes in the fair value of the upcoming harvest (crop 2023) in
presented accounts, meaning, in simple words, that anticipated proceeds from sales of crop
2023 are not enough to cover the incurred production and selling expenses related to such
crop. Under such circumstances, there are not many options for how to act. It is either to
maintain a long position in the hope prices would rebound along with the resumption of
Black Sea exports or sell now fixing the losses to avoid even larger losses if global prices
soften further and the Black Sea remains under blockage by Russians. For the moment many
farmers in Ukraine are not active sellers, meaning that our Infrastructure and Trading
segment may lack volumes to handle. As for the Oilseed Processing business, there is still
potential for profit even in the current price environment and inflated logistic costs.
The extended war in Ukraine has brought several notable, longer-term consequences for
agribusiness in the region. Firstly, Ukraine is losing its longer-term crop production potential.
Approximately 18% of Ukrainian territory remains temporarily occupied by Russia. These
are south-eastern regions focused on sunflower and wheat production. Once these territories
are liberated and the war is over, substantial areas will need to be de-mined, posing a
significant obstacle to resuming agricultural operations on these lands. Furthermore, it's
unclear how quickly farmers from these territories will be able to resume cultivation, given
the disruptions and damage caused by military activities.
Secondly, Russia with its own agricultural produce is taking over Ukraine's traditional export
markets. Due to export logistics restrictions and Ukraine's unreliable trade partner status, we
are unable to build a substantial trade program backlog, allowing Russia to capture these
markets.
Thirdly, Ukraine's alteration of its crop mix structure for the 2022 and 2023 seasons in favor
of oilseed crops brings high risks of spread of pests and diseases, materially undermining
the future crop yield potential across the whole crop mix. To avoid that, a significant
reduction in oilseed acreage during the next several years will be required to normalize the
crop structure. We are likely to make such a decision for our own farming business, and I do
not exclude that other farmers will follow the same pattern. It may have a negative impact on
the supply of sunflower seeds in the near future.
We have significantly enhanced our readiness to cope with potential blackouts and power
outages in Ukraine, as Russia is expected to renew its terroristic attacks on Ukraine's civil
energy infrastructure as we are heading to the winter season. The envisaged commissioning
of the Group’s fifth co-generation heat and power facility at the Prydniprovskyi oil
extraction plant in November 2023 will definitely contribute to our resilience to this risk.
Nevertheless, the extent to which we can withstand these challenges will be heavily
contingent on the magnitude of potential damages suffered. In the most severe scenarios, our
operations could be substantially paralyzed.
Update on the Strategy 2026
Just before the outbreak of the full-scale war in Ukraine, we announced our new ambitious
growth Strategy 2026, targeting growth across all business segments. While in its majority
the strategy is put on hold as we live under emergency conditions without any ability to plan
long-term, some pillars of the strategy are being executed. In spring 2024, we plan to
commission the Group’s greenfield crushing plant in the Khmelnytskyi region in Ukraine.
This crushing facility will have the capacity to process up to 1 million tons of sunflower
seeds annually. This asset is of extreme importance now, as it increases our footprint in the
Oilseed Processing segment – a business line that is expected to drive our earnings in
FY2024. Out of USD 279 million total investments, USD 40 million remains to be deployed.

The following key assumptions were made by

manage-
ment:
• no further significant progression of Russian
troops into the territory of Ukraine and
escalation of military actions that could
severely affect the
Group’s assets;
• no critical damages to the Group’s
infrastructure or Ukraine’s critical transport
and energy infrastructure;
• “Grain Corridor” deal or similar arrangement
will be in force since 1 January or 1 July 2024
and will be prolonged further;
• Deep water ports in Ukraine will be closed
until the abovementioned dates and will
continue to operate with significant disruption
afterward,
allowing the Group to export only by
alternative routes, which amounts to roughly
50% capacity utilization;
• postponement of capital expenditures, which
are non-essential for the operations and are not
committed in the contracts;
• pre-war investment loan facilities' principal
amounts will be settled in the amounts not
higher than the initial contractual schedule and
neither of
these lenders will exercise their rights to
request early settlement of the outstanding
borrowings;
• the Group will be able to arrange for
additional financing to refinance existing
indebtedness or extend the repayment
schedules and/or return to
the initial contractual maturity of the existing
loan facilities or bonds issued;
• the shareholders will continue to support the
Group.
The following key assumptions were made by
manage-
ment:
• no further significant progression of Russian
troops into the territory of Ukraine and
escalation of military actions that could
severely affect the
Group’s assets;
• no critical damages to the Group’s
infrastructure or Ukraine’s critical transport
and energy infrastructure;
• “Grain Corridor” deal or similar arrangement
will be in force since 1 January or 1 July 2024
and will be prolonged further;
• Deep water ports in Ukraine will be closed
until the abovementioned dates and will
continue to operate with significant disruption
afterward,
allowing the Group to export only by
alternative routes, which amounts to roughly
50% capacity utilization;
• postponement of capital expenditures, which
are non-essential for the operations and are not
committed in the contracts;
• pre-war investment loan facilities' principal
amounts will be settled in the amounts not
higher than the initial contractual schedule and
neither of
these lenders will exercise their rights to
request early settlement of the outstanding
borrowings;
• the Group will be able to arrange for
additional financing to refinance existing
indebtedness or extend the repayment
schedules and/or return to
the initial contractual maturity of the existing
loan facilities or bonds issued;
• the shareholders will continue to support the
Group.
The following key assumptions were made by management:
 no further significant progression of Russian troops into the territory of Ukraine and
escalation of military actions that could severely affect the Group’s assets;
 no critical damages to the Group’s infrastructure or Ukraine’s critical transport and
energy infrastructure;
 “Grain Corridor” deal or similar arrangement will be in force since 1 January or 1
July 2024 and will be prolonged further;
 Deep water ports in Ukraine will be closed until the abovementioned dates and will
continue to operate with significant disruption afterward, allowing the Group to
export only by alternative routes, which amounts to roughly 50% capacity utilization;
 postponement of capital expenditures, which are non-essential for the operations and
are not committed in the contracts;
  pre-war investment loan facilities' principal amounts will be settled in the amounts not
higher than the initial contractual schedule and neither of these lenders will exercise
their rights to request early settlement of the outstanding borrowings;
 the Group will be able to arrange for additional financing to refinance existing
indebtedness or extend the repayment schedules and/or return to the initial contractual
maturity of the existing loan facilities or bonds issued;
 the shareholders will continue to support the Group.

FY2024 outlook
The major risks we warned about throughout
FY2023 have begun to materialize at the be-
ginning of FY2024. On July 18, 2023, Russia
unilaterally decided not to renew the Grain
Deal, which had significant and detrimental ef-
fects on the Group's export capacity. The
available alternatives to sea-based trade re-
main constrained in terms of capacity and are
notably more costly from a logistics perspec-
tive, thereby exerting adverse pressure on our
operational profitability. Neighboring EU mar-
kets with shorter logistics routes have imposed
restrictions on the export of Ukrainian agricul-
tural products, prohibiting us from selling
there. As a result, our exports substantially
dropped in Q1 FY2024. Only in late Septem-
ber 2023 some hope appeared, as the Ukrain-
ian Navy arranged a temporary corridor for
vessels leaving Black Sea ports. Amid threats,
first vessels started to use a new shipping
route in an attempt to revive sea-borne grain
export to overcome the Russian blockade. It is
not clear, however, how sustainable such a
new route would be and what could be its ca-
pacities. The ability to export via Ukrainian
Black Sea ports is vital for maintaining the
Group’s profitability in FY2024. While we
managed to secure transshipment capacities
to export 100 thousand tons of sunflower oil,
100 thousand tons of sunflower meal, and 100
thousand tons of grain per month via channels
other than the Black Sea, the logistic costs of
such operations remain adversely high. While
sunflower oil export margin may have the ca-
pacity to absorb such costs, this is not the case
for grain.
In FY2023, we were lucky that our core asset
base has not suffered material damages from
Russian attacks, except for two oilseed pro-
cessing plants in the Kharkiv region and two
silos. Unfortunately, since 19 July 2023,
imme-
diately following its withdrawal from the Grain
Deal, the Russian terrorist regime launched
regular drone and missile attacks on
Ukrainian port infrastructure. Initially, these
attacks targeted deep-water Black Sea ports,
inflicting significant damage to the Group's
port assets, but subsequent strikes extended
to the Danube ports of Reni and Izmail, im-
pacting assets either under Kernel's control or
providing essential services to the Group.
These attacks resulted in substantial destruc-
tion to grain and sunflower oil storage
facilities,
intake capacities, and loading equipment. Fur-
thermore, a significant missile strike hit one of
FY2024 outlook The major risks we warned about throughout FY2023 have begun to
materialize at the beginning of FY2024. On July 18, 2023, Russia unilaterally decided not to
renew the Grain Deal, which had significant and detrimental effects on the Group's export
capacity. The available alternatives to sea-based trade remain constrained in terms of
capacity and are notably more costly from a logistics perspective, thereby exerting adverse
pressure on our operational profitability. Neighboring EU markets with shorter logistics
routes have imposed restrictions on the export of Ukrainian agricultural products,
prohibiting us from selling there. As a result, our exports substantially dropped in Q1
FY2024. Only in late September 2023 some hope appeared, as the Ukrainian Navy arranged
a temporary corridor for vessels leaving Black Sea ports. Amid threats, first vessels started to
use a new shipping route in an attempt to revive sea-borne grain export to overcome the
Russian blockade. It is not clear, however, how sustainable such a new route would be and
what could be its capacities. The ability to export via Ukrainian Black Sea ports is vital for
maintaining the Group’s profitability in FY2024. While we managed to secure transshipment
capacities to export 100 thousand tons of sunflower oil, 100 thousand tons of sunflower
meal, and 100 thousand tons of grain per month via channels other than the Black Sea, the
logistic costs of such operations remain adversely high. While sunflower oil export margin
may have the capacity to absorb such costs, this is not the case for grain