Kernel S A : Consolidated Financial Statements for the year ended 30 June 2021

Kernel Holding S.A.

ANNUAL REPORT

For the year ended 30 June 2021

Strategic		Corporate	Financial
Report	Sustainability	Governance	Statements

Kernel is a diversified agricultural business in Ukraine, the largest exporter of agricultural products from the Black Sea region.

We are the world's largest exporter of sunflower oil, the largest grain exporter from Ukraine and the Black Sea region, operator of an extensive agricultural logistics network and the largest producer of grain and oilseeds in Ukraine. In FY2021, we supplied 11 million tons of agricultural products from Ukraine across the world.

01-40

Strategic Report

1. Key Highlights
2. Operating Highlights
3. Chairman's Statement

1. Our Business Model
2. Kernel at a Glance
3. Our Strategy 2026
4. Financial Performance in FY2021

1. Segment Performance

1. Oilseed Processing

1. Infrastructure and Trading

25	Farming
31	Risk Management
37	Alternative Performance Measures

41-87

Sustainability

88-96

Corporate Governance

97-155

Financial Statements

97 Independent Auditor's Report

1. Statement of Management Responsibilities
2. Selected Financial Data
3. Consolidated Statement of Financial Position
4. Consolidated Statement of Profit or Loss
5. Consolidated Statement of Profit or Loss and Other Comprehensive Income
6. Consolidated Statement of Changes in Equity
7. Consolidated Statement of Cash Flows
8. Notes to the Consolidated Financial Statements

1. Corporate Information

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Kernel Holding S.A. Annual Report and Accounts 30 June 2021

1

Strategic		Corporate	Financial
Report	Sustainability	Governance	Statements

Key Highlights

US$ million except ratios and EPS	FY2020	FY2021	y-o-y
Income statement highlights
Revenue	4,107	5,647	38%
EBITDA 1	443	929	+2.1x
Net profit attributable to equity holders of Kernel Holding S.A.	118	513	+4.3x
EBITDA margin	10.8%	16.4%	5.7pp
Net margin	2.9%	9.1%	6.2pp
Earnings per share, US$	1.42	6.10	+4.3x
Cash flow highlights
Operating profit before working capital changes	422	792	88%
Change in working capital	(10)	(186)	+17.9x
Finance costs paid, net	(135)	(127)	(5%)
Income tax paid	(8)	(18)	2.2x
Net cash generated by operating activities	269	461	71%
Net cash used in investing activities	(203)	(206)	2%
Liquidity and credit metrics
Net debt	980	836	(15%)
Readily marketable inventories 2	252	285	13%
Adjusted net debt 3	729	551	(24%)
Shareholders' equity	1,493	1,946	30%
Net debt / EBITDA	2.2x	0.9x	(1.3x)
Adjusted net debt / EBITDA	1.6x	0.6x	(1.1x)
EBITDA / Interest	3.0x	6.6x	3.5x
Non-financial highlights
Number of employees (full-time equivalent) at 30 June	11,928	11,256	(6%)
Rate of recordable work-related injuries, accidents per million worked hours	0.68	0.46	(32%)
Social spending, US$ million	7.7	3.9	(49%)
Greenhouse gas emissions, thousand tons of CO2 equivalent	1,679	1,462	(13%)
Total energy consumption, terajoules	6,998	7,391	6%

Note: Financial year ends 30 June.

1. Hereinafter, EBITDA is calculated as the sum of the profit from operating activities plus amortization and depreciation.
2. Readily marketable inventories are inventories such as corn, wheat, sunflower oil, and other products that could easily be converted into cash due to their commodity characteristics, widely available markets and the international pricing mechanism.
3. Adjusted debt is the sum of short-terminterest-bearing debt, current maturities of long-terminterest-bearing debt, long-terminterest-bearing debt and lease liabilities, less cash and cash equivalents, marketable securities and readily marketable inventories at cost.

Hereinafter differences between totals and sums of the parts are possible due to rounding.

Hereinafter "Kernel", "Group" or "Company" refers to the Kernel Holding S.A. group of companies.

……………………………………………………………………

EBITDA

US$ million

				929
			443
319		346
	223
FY2017	FY2018	FY2019	FY2020	FY2021

……………………………………………………………………

……………………………………………………………………

Net cash generated by operating activities

Net debt / EBITDA

US$ million

2.8x

461

2.0x

2.2x

1.6x

269

199

0.9x

77

82

FY2017

FY2018

FY2019

FY2020

FY2021

FY2017

FY2018

FY2019

FY2020

FY2021

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Strategic		Corporate	Financial
Report	Sustainability	Governance	Statements

Operating Highlights

Oilseed Processing		Infrastructure and Trading
……………………………………………………………………………………….	……………………………………………………………………………………
Segment volumes	Segment volumes
million tons	million tons

								7.9	8.0
	3.1	3.2	3.4	3.2					8.2
3.0				6.1
					5.1			6.7
						4.6
		1.6	1.5			4.0
1.2	1.4	1.4
		4.5
				4.1	4.3	4.2

					3.3	3.3			3.8
FY2017	FY2018	FY2019	FY2020	FY2021	FY2017	FY2018	FY2019	FY2020	FY2021
Oilseeds processed	Sunflower oil sales		Grain export from Ukraine
	Export terminal throughput
						Inland silos in-take volumes
………………………………………………………………………………………	……………………………………………………………………………………
EBITDA margin				EBITDA margin
US$ / ton of sunflower oil sold			US$ / ton of grain exported
			100			total			62
83		67				excl. Avere
	54
			41		26		27
				22	21

		14
21	17	23

	FY2017	FY2018	FY2019	FY2020	FY2021		FY2017	FY2018	FY2019	FY2020	FY2021
………………………………………………………………………………………..	………………………………………………………………………………………...
EBITDA1						EBITDA1
US$ millions						US$ millions
											496
				152
100		109							216
77
				56
						110	101	106

Farming

……………………………………………………………………………………

Kernel's production of key crops

				3.3	3.1
					2.9
			2.5
2.1
			596	529	513	501
385
FY2017	FY2018	FY2019	FY2020	FY2021
			Acreage harvested, thousand hectares
			Crop production, million tons

……………………………………………………………………………………….

EBITDA margin

US$ / ha

	incl. IFRS16 effect		920
	excl. IFRS16 effect
				793
378		344
		262
	149		163
FY2017	FY2018	FY2019	FY2020	FY2021

………………………………………………………………………………………

EBITDA1

US$ millions

IFRS16 effect			461
				63
146	182
134	397
89
		51
		83

FY2017 FY2018 FY2019 FY2020 FY2021

We processed 3.2 million tons of sunflower seeds in FY2021, down 7% y-o-ydue to low harvest of sunflower seeds in Ukraine, implying 87% crushing capacity utilization (including tolling on third-party-ownedcrushing plant). Sunflower oil sales volumes reduced to 1.4 million tons, in line with production volume de- crease.

EBITDA margin per ton of oil sold plummeted by 59% y-o-y,to US$ 41, due to:

• intense competition for sunflower seeds given the poor harvest in FY2021;
• one-offtrading loss on position recog- nized in the Q4 FY2021; and
• one-offloss due to several farmers' de- faults under forward agreements to supply sunflower seeds to Kernel at pre-determined fixed price.

As a result, segment generated EBITDA of US$ 56 million in FY2021, down 62% y-o-y.

FY2017 FY2018 FY2019 FY2020 FY2021

Astounding segment performance in FY2021 driven by trading profits:

• Avere delivered outstanding US$ 385 mil- lion EBITDA, skillfully exploiting the volatility prevailing on the soft commodity markets.
• Grain export value chain in Ukraine reached stronger y-o-ygrain export and terminal transshipment volumes, including first full- year contribution from recently constructed grain handling facility in Chornomorsk port…
• …but suffered from lower trading and infra- structure margins, given that weak grain harvest in Ukraine stipulated 19% y-o-y de- cline in the volume grain export from Ukraine.

Total segment EBITDA amounted to US$ 496 million in FY2021, a 2.3x growth y-o-y.

FY2017 FY2018 FY2019 FY2020 FY2021

Similar to Ukraine's trends, crop yields in our Farming segment declined y-o-y to below-normal level, resulting in lower crop harvest size.

On the contrary, grain and oilseeds price surge pushed farming profits to all-time highs, resulting in US$ 461 million segment EBITDA in FY2021, or US$ 920 EBITDA generated per hectare cultivated. This result also includes US$ 133 million net gain from revaluation of biological assets, mostly attributable to the next season crop, as accounted under IAS 41 standard.

1 Here and further segment EBITDA is provided before unallocated corporate expenses.

www.kernel.ua	Kernel Holding S.A. Annual Report and Accounts 30 June 2021		3

Strategic		Corporate	Financial
Report	Sustainability	Governance	Statements

Chairman's Statement

Dear Shareholders,

On behalf of the Board of Directors of Kernel Holding S.A., it is my pleasure to present the Group performance for the year ended 30 June 2021, summarize the execution of our Strategy 2021, announce a new Strategy 2026, and present our approach to the capital allocation going forward.

FY2021 highlights

The reported year EBITDA more than doubled year-on-year, reaching US$ 929 million. Net profit attributable to shareholders exceeded half a billion US$, equaling to the combined profits of four previous years. And the financial leverage reduced to 0.9x net-debt-to-EBITDA as of 30 June 2021, the lowest level for the past five years.

	Strong global pricing environment was the ma-
	jor driver for the record financial performance
	of Kernel. Farming segment was a direct ben-
	efiter of surging soft commodity prices while
	upward price volatility translated into forceful
Andrii Verevskyi	trading momentum for Avere. Consequently,
Avere team was instrumental to capture mar-
Chairman of the Board of Directors,	ket moves with perfect precision, delivering
Founder	very strong US$ 385 million trading EBITDA in
	FY2021 while Kernel's management team in
	Ukraine operated in a fundamentally challeng-
	ing low-harvest environment, strengthening
	Kernel's market position, and securing US$
	544 million EBITDA, a large portion of which
	was attributable to farming. No doubt, once soft
	commodity price cycle normalizes, we shall
	see the toll on our earnings especially in the
	farming division.
	Focusing on the segment performance, our
	Oilseed Processing business fell a victim to
	weak sunflower seed supply, which was down
	17% year-on-year, generating only US$ 56 mil-
	lion of EBITDA, down 63% year-on-year. Addi-
	tionally, we faced losses on trading position
	and farmers' default on pre-crop forward con-
	tracts both stipulated by extraordinary price
	volatility for vegetable oils and oilseeds. Fi-
	nally, there was a limited contribution from the
	renewable energy business owing to commis-
	sioning delays. Accordingly, EBITDA margin
	declined to US$ 41 per ton oil sold, a slump of
	59% compared to the previous year.
	Infrastructure and Trading segment EBITDA
	reached US$ 496 million in FY2021, a 2.3x
	growth year-on-year, driven by Avere perfor-
	mance. Grain export value chain in Ukraine se-
	cured US$ 111 million EBITDA, undermined by
	low margins due to poor grain harvest in
	Ukraine. Nevertheless, we strengthened our
	positions as the largest grain exporter from
	Ukraine, delivering 18% of total country's grain
	to international marketplace compared to 14%
	a year ago. The first full-year operation of our
	brand-new grain transshipment terminal in
	Chornomorsk port was instrumental to trans-
	ship 8.2 million tons of soft commodities.

EBITDA of the Farming segment in FY2021 jumped 3.4x year-on-year, to US$ 461 million. The growth is concurrent with the global price rally outweighing the negative impact of lower crop yields.

It was a second year under COVID-19 re- strictions, and I am pleased to note that our flexible and resilient business model quickly adjusted to new challenges. Supply chains and business processes were not interrupted, and we successfully coped with the pandemic spread control.

At the same time some development-related risks materialized this year. We had to increase the CapEx budget for our new crushing plant in western Ukraine and delay the commissioning of our renewable energy projects.

In October-November2020, Kernel successfully completed public liabilities management , improving the Company's debt maturity profile. In the refinancing transaction, the Company tendered US$ 287 million out of US$ 500 million 8.75% 2022 notes outstanding and issued new US$ 300 million 6.75% 7-yearnotes. At the time of the new issue, Kernel was priced ca.115pbs inside of the sovereign curve setting a record in the CEEMEA region.

Farmland market in Ukraine finally opened in July 2021, and by September there were transactions for a total area of 24 thousand hectares, which is very low compared to the total farm land area in Ukraine. Clearly, without further liberalization of the legislative base, we should not expect any acceleration of transactions with freehold rights for the farm land in Ukraine.

Last but not least, in compliance with best corporate governance practices on regular rotation of auditors we selected and appointed PwC as a new auditor of Kernel succeeding Deloitte next year.

Sustainability progress

To strengthen our environmental practices, we initiated a project "Climate Corporate Governance and Low-Carbon Pathway" together with EBRD and EY. A case in point assumes identification of opportunities for us to reduce Ker- nel's carbon footprint, set science-based emissions reduction targets and define a corporate climate strategy. The results are to be presented in the next annual report.

Delivering on our social agenda, we gave US$ 4 million for charity in FY2021, supporting local communities in areas of our operations, and invested US$ 1.4 million to protect our employees from COVID-19 pandemic. Over the reporting year, we reached a record-low number of work-related injuries and launched a voluntary medical insurance program for our employees and their children.

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