Untitled

Kernel Holding S.A.

ANNUAL

REPORT

For the year ended 30 June 2023

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Kernel is a diversified vertically

integrated agricultural business,

the leading exporter of agricultural

products from Ukraine.

We are the world’s leading producer and exporter of sunflower oil,

the largest grain exporter from Ukraine, the operator of an exten-

sive agricultural logistics network, and the largest producer of grain

and oilseeds in Ukraine. In FY2023, we supplied 6 million tons of

agricultural products from Ukraine all over the world.

78-87

Corporate Governance

88-151

Financial Statements

Independent Auditor’s Report

Statement of Management Responsibilities

Selected Financial Data

Consolidated Statement of Financial Position

Consolidated Statement of Profit or Loss

Consolidated Statement of Profit or Loss and

Other Comprehensive Income

100

Consolidated Statement of Changes in Equity

101

Consolidated Statement of Cash Flows

102

Notes to the Consolidated Financial Statements

151

Corporate Information

1-44

Strategic Report

Key Highlights

Operating Highlights

Chairman’s Statement

Our Business Model

Kernel at Glance

Strategy 2026

Financial Performance in FY2022

Segment Performance

Oilseed Processing

Infrastructure and Trading

Farming

Risk Management

Alternative Performance Measures

45-77

Sustainability

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Key Highlights

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

USD million except ratios and EPS

FY2022

FY2023

y-o-y

Income statement highlights

Revenue

5,332

3,455

(35%)

EBITDA

220

544

2.5x

Net profit attributable to equity holders of Kernel Holding S.A.

(41)

299

n/a

EBITDA margin

4.1%

15.8%

11.6pp

Net margin

(0.8%)

8.7%

9.4pp

Earnings per share, USD

(0.51)

3.86

n/a

Cash flow highlights

Operating profit before working capital changes

677

753

11%

Change in working capital

(794)

128

n/a

Finance costs paid, net

(119)

(120)

Income tax paid

(70)

(44)

(37%)

Net cash generated by operating activities

(305)

716

n/a

Net cash used in investing activities

(294)

n/a

Liquidity and credit metrics

Net debt

1,488

595

(60%)

Commodity inventories

892

282

(68%)

Adjusted net debt

596

313

(47%)

Shareholders' equity

1,683

1,742

Net debt / EBITDA

6.8x

1.1x

-5.7x

Adjusted net debt

/ EBITDA

2.7x

0.6x

-2.1x

EBITDA / Interest

1.8x

4.4x

+2.6x

Non-financial highlights

Number of employees (full-time equivalent) as of 30 June

10,223

10,733

Rate of recordable work-related injuries, accidents per million worked hours

0.22

0.42

91%

Social spending, USD million

26.3

12.3

(53%)

Greenhouse gas emissions, thousand tons of CO

equivalent

1,264

1056

(17%)

Total energy consumption, terajoules

6,881

8146

18%

Note: The financial year ends on 30 June.

1. Hereinafter, EBITDA is calculated as a sum of the profit from operating activities plus amortization and depreciation.

2. Commodity inventories are inventories such as corn, wheat, sunflower oil, and other products that were easily convertible into cash before the Russian invasion of Ukraine given their commodity

characteristics, widely available markets, and the international pricing mechanism. The Group used to call such inventories “Readily marketable inventories”, but after the beginning of the war in

Ukraine the Group faced difficulties selling such inventories, and therefore such inventories cannot any longer be considered readily marketable.

3. Adjusted debt is the sum of short-term interest-bearing debt, current maturities of long-term interest-bearing debt, long-term interest-bearing debt and lease liabilities, less cash and cash equiva-

lents, and commodity inventories at cost.

4. Excluding employees related to assets held for sale as of the reporting date.

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

Hereinafter “Kernel” or “Group” refers to the Kernel Holding S.A. group of companies, while “the Company” refers to Kernel Holding S.A. as the Group’s parent entity.

This Strategic Report together with the “Sustainability” and “Corporate Governance” sections shall be read and perceived as Directors’ Report for the purposes of the Luxembourg legislation.

……………………………………………………………………

Net debt / EBITDA

2.0x

2.2x

1.0x

6.8x

1.1x

FY2019 FY2020 FY2021 FY2022 FY2023

……………………………………………………………………

EBITDA

USD million

346

443

806

220

544

FY2019 FY2020 FY2021 FY2022 FY2023

……………………………………………………………………

Net cash generated by operating activities

USD million

199

269

460

(305)

716

FY2019 FY2020 FY2021 FY2022 FY2023

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Operating Highlights

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Farming segment EBITDA in FY2023 ap-

peared to be flat y-o-y, but this result includes

the impact of various multi-directional factors.

The Group recognized USD 115 million non-

cash loss from net change in fair value of bio-

logical assets and agricultural produce, mostly

driven by the declining global grain prices. The

business also benefitted from relatively high

sales prices in FY2023, the existence of low-

cost export logistics enabled by the Grain Deal,

and relatively low production cost of carry-over

stocks from the previous season which was

sold during the reported period. Depreciation

of UAH as a functional currency of the Farming

segment against USD substantially reduced

the costs of goods sold, boosting EBITDA.

However, the respective loss on translation dif-

ferences was recognized among the massive

USD 241 other comprehensive loss for the pe-

riod.

The segment's volumes in FY2023 practically

halved as compared to the previous year, due

to export logistics disruptions caused by the

Russia’s full-scale invasion of Ukraine.

However, the margins appeared to be quite

strong, primarily locked by to the infrastructure

and logistic assets in Ukraine during the win-

dow of opportunity to export at low logistic

costs opened by the Blask Sea Grain Initiative.

Avere trading activities had a limited contribu-

tion to segment’s EBITDA. In FY2023, there

were no such massive one-off war-related

losses as those recognized a year ago.

With declining volumes but higher margins,

segment EBITDA in FY2023 reduced by 35%

y-o-y, to USD 154 million.

Infrastructure and Trading

Segment volumes slightly increased y-o-y in

FY2023, following a dramatic decline in the

previous period due to the war in Ukraine. The

Group processed 2.5 million tons of sun-

flower seeds in FY2023, 14% increase y-o-y,

implying 84% capacity utilization. Sunflower oil

sales volumes slightly grew to 1.1 million tons.

Segment EBITDA amounted to USD 270 mil-

lion, driven by relatively high global prices for

sunflower oil, relatively low export logistic

costs enabled by the Grain Deal, supportive

supply-demand balance in Ukraine, and

Group’s investments and efforts to enhance

the sunflower oil export chain. The result also

includes a USD 22 million one-off net gain from

reversals of impairments and write-offs of in-

ventories which occurred in FY2022.

As a result, the EBITDA margin per ton of oil

sold amounted to USD 237, pricing a substan-

tially increased risks related to operations in

Ukraine.

……………………………………………………………………………………….

EBITDA margin

D / hectare

344

163

920

440

609

FY2019 FY2020 FY2021 FY2022 FY2023

………………………………………………………………………………………

EBITDA

D million

182

134

461

219

221

FY2019 FY2020 FY2021 FY2022 FY2023

………………………………………………………………………………………

EBITDA margin

D / ton of sunflower oil sold

100

(73)

237

FY2019 FY2020 FY2021 FY2022 FY2023

Farming

……………………………………………………………………………………

Kernel’s production

of key crops

529

513

501

499

363

3.3

3.1

2.9

3.3

1.8

FY2019 FY2020 FY2021 FY2022 FY2023

Acreage harvested, thousand hectares

Crop production, million tons

Oilseed Processing

………………………………………………………………………………………..

EBITDA

D million

109

152

(70)

270

FY2019 FY2020 FY2021 FY2022 FY2023

……………………………………………………………………………………….

Segment volumes

million

tons

3.2

3.4

3.2

2.2

2.5

1.6

1.5

1.4

1.0

1.1

FY2019 FY2020 FY2021 FY2022 FY2023

Oilseeds processed Sunflower oil sales

……………………………………………………………………………………

Segment volumes

million

tons

6.1

7.9

8.0

3.7

4.6

6.7

8.2

7.3

4.4

4.3

4.2

3.8

4.2

2.8

FY2019 FY2020 FY2021 FY2022 FY2023

Grain export from Ukraine

Export terminal throughput

Inland silos in-take volumes

……………………………………………………………………………………

EBITDA margin

D / ton of grain exported

FY2019 FY2020 FY2021 FY2022 FY2023

total

excl. Avere

………………………………………………………………………………………...

EBITDA

USD million

106

216

359

237

154

FY2019 FY2020 FY2021 FY2022 FY2023

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

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Chairman’s Statement

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Andrii Verevskyi

Chairman of the Board of Directors,

Founder

Dear Stakeholders,

I am honored to present, on behalf of the

Board of Directors of Kernel Holding S.A., an

overview of the Group's performance for the

year ending on 30 June 2023, delving into

risks and challenges for the new season and

touching on the Group’s strategy going for-

ward.

FY2023 highlights

In FY2023, we faced an extraordinarily vola-

tile operating environment, navigating the

challenges of a full-scale war in Ukraine. The

season began with considerable doubt sur-

rounding our export capabilities. Russia

blocked Ukrainian Black Sea ports for exports,

which appeared to be a major obstacle for us

as we relied heavily on this channel for our

sales. Alternative routes were ill-prepared to

accommodate the substantial export volume

lacking the physical capacity, and it was im-

possible to re-orient a company of our size to

new logistics routes. Even high global soft

commodities prices at the beginning of the

season could not cover skyrocketing logistics

costs turning export operations into losses,

forcing us to suspend our export activities. It

became evident that there were no scalable

and economically viable alternatives to

sea-based exports of agricultural products

from Ukraine. Having a stockpile of 2.5 million

tons of grains, oilseeds, sunflower oil, and

meal, valued at nearly USD 900 million, and

with the impending harvest campaign exerting

pressure on our storage capacities, we found

ourselves facing a daunting challenge with no

clear path forward.

Luckily, in August-September 2022, Ukraine

regained access to the Black Sea, thanks to

the Black Sea Grain Initiative (“BSGI” or "Grain

Deal"), a treaty brokered by the United Nations

and Turkey. This agreement aimed to facilitate

the export of grain and other agricultural prod-

ucts from Ukraine via Black Sea ports, specif-

ically Odesa, Chornomorsk, and Pivdennyi.

The BSGI provided a significant relief for our

operations, allowing us to de-stock our inven-

tories. It was not a flawless solution, though,

as Russia persistently disrupted vessel in-

spections, leading to substantial voyage de-

lays and incremental costs associated with

such delays. Several waves of uncertainty,

each time on or around the Grain Deal's expi-

rations in November 2022 and March 2023,

complicated export logistics planning within

the BSGI, but fortunately the Grain Deal was

renewed each time. Despite these challenges,

logistics costs were notably reduced as com-

pared to alternative routes, and with global

prices remaining high enough, we earned

good profit margins during this period, essen-

tially earning almost the entire our annual

profit during this period. More than 90% of the

grain and over 50% of the sunflower oil ex-

ported by Kernel in FY2023 was delivered

through the BSGI.

However, the operating environment mate-

rially deteriorated closer to the end of the

season. Russia’s sabotage of the BSGI led to

a continuous decline in export volumes from

April 2023 until July 2023 when the Grain Deal

was eventually unilaterally terminated by Rus-

sia. What was worse, global prices, which had

been on a consistent downward trajectory

throughout FY2023, reached alarmingly low

levels by the end of the season. Despite the

noticeable increase in throughput capacities of

alternative export channels over the season,

low commodity prices combined with high lo-

gistics costs once again prohibited running

profitable export operations.

In addition to the logistics and pricing issues,

we encountered numerous other challenges in

FY2023. We had to contend with severe

power outages in Ukraine caused by Rus-

sia's attacks on Ukrainian power generation

and distribution infrastructure. These outages

resulted in the temporary suspension of

oilseed processing operations at several of the

Group's plants and caused instability in silo

operations, transportation, and transshipment

activities. Our Farming segment operations

were significantly disrupted, including diffi-

culties with the proper supply of crop inputs

and delayed corn harvesting, which was only

completed in February 2023. We had to aban-

don hope of resuming operations at our two

oilseed processing plants in Kharkiv regions,

as these were severely damaged by regular

Russian strikes, causing us to reallocate the

most valuable equipment to safer places. A to-

tal of 1,478 of our employees joined the Armed

Forces or Territorial Defense units to resist

Russian aggression. Regrettably, 35 of our

employees lost their lives defending Ukraine,

and 87 sustained injuries as of the date of this

report.

Moving to the financials, the Group's EBITDA

in FY2023 rebounded to USD 544 million,

marking a 2.5x y-o-y increase, and a previous

year’s bottom line loss turned into a USD 299

million profit attributable to shareholders in

the current season. In addition, we recognized

a USD 241 million foreign exchange transla-

tion loss due to the depreciation of the Ukrain-

ian hryvnia against the US dollar. Conse-

quently, we closed the year with a total com-

prehensive income of USD 59 million at-

tributable to Kernel Holding S.A. equity hold-

ers. The quarterly dynamics perfectly highlight

the operational volatility experienced through-

out the year: we faced losses in both Q1 and

Q4, but these were offset by the profits gener-

ated during Q2 and Q3. Our net debt as of 30

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Chairman’s Statement continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

June 2023 decreased by 60% y-o-y, reaching

USD 595 million, resulting in a 1.1x net-debt-

to-EBITDA ratio. From the current standpoint,

I would describe this performance as an unex-

pectedly favorable outcome in war-torn

Ukraine largely attributable to a few supportive

factors, primarily the Grain Deal and high

global prices.

Switching now to the performance of each of

our segments.

The Oilseed Processing segment achieved

EBITDA of USD 270 million in the reporting

period, including a one-off gain of USD 22 mil-

lion from reversals of impairments and write-

offs of inventories that occurred in FY2022.

We had the good fortune of benefitting from

relatively high global sunflower oil prices in

combination with the ability to export sunflower

oil via the Black Sea through the BSGI, which

secured extremely good margins for more

than half of sunflower oil sold in FY2023.

Slightly less than half of the Group’s sunflower

oil was exported via channels other than

Ukrainian Black Sea ports, and it is a strong

achievement of our team, which could hardly

be deemed possible when the war started. We

have been investing in infrastructure and logis-

tics assets to facilitate sunflower oil export via

alternative routes. Besides, the sunflower

seed supply-demand balance for FY2023

appeared to be rather supportive, as a large

carry-over stock of oilseeds greatly contrib-

uted to the supply for the season, while a large

number of crushing capacities located on ter-

ritories temporarily occupied by Russia or

nearby the frontline ceased their operations.

Moreover, delays with VAT refunds with po-

tential FX losses, unpredictability of export lo-

gistics capabilities which were regularly dis-

rupted by Russia, unpredictability of our pro-

duction capabilities due to power outages,

risks of product destruction or quality deterio-

ration, lack of proper hedging strategy further

undermined operational environment in

Ukraine enabling crushers to pass over these

risks to farmers. As a result, healthy oilseed

processing margins secured profitable

Oilseed Processing segment operations in

FY2023, as compared to the lossmaking pre-

vious period.

EBITDA of the Infrastructure and Trading

segment in FY2023 totaled USD 154 million,

down 35% y-o-y from USD 237 million of the

previous year's result. To better understand

the performance, it shall be flagged that last

year's result included a USD 82 million one-off

war-related losses and a very strong USD 134

million contribution from Avere trading activi-

ties. But in FY2023, the Avere team was more

conservative in risk-taking and delivered much

lower EBITDA. The results of the grain export

value chain in Ukraine were very volatile:

from losses in Q1 to profits in Q2-Q3, and to

losses again in Q4. Such volatility stemmed

from the business environment, mostly com-

prising our availability to export grain via the

Black Sea ports of Ukraine and the declining

global grain prices throughout FY2023

squeezing margins. Besides, we had no such

heavy one-off war-related losses in FY2023 as

those recognized a year ago. The results of

the trading business clearly demonstrate that

there is no alternative to the Black Sea exports

to sustain profitable operations.

Grain infrastructure and logistics assets saw a

surge in demand in Ukraine during the period

the Grain Deal was functioning. Market play-

ers rushed to export as much agricultural

goods as possible through Black Sea ports

spiking demand for grain railcars. Despite

lower intake volumes, our silo business

EBITDA slightly increased, primarily due to

higher demand for storage and other silo ser-

vices, coupled with reduced natural gas costs

for grain drying. Our export terminals' EBITDA

experienced a reduction, largely attributable to

lower throughput volumes while overall grain

origination was loss-making in FY2023.

The Group’s Farming segment contributed

USD 221 million EBITDA in FY2023, flat y-o-

y. It includes USD 115 million non-cash loss

from net change in fair value of biological as-

sets and agricultural produce, primarily driven

by the decline in global grain prices. Adjusted

for that, segment EBITDA in the reporting pe-

riod reached USD 336 million. While looking

strong at first glance, this result deserves to be

examined in more detail in order to make

proper conclusions. First of all, we benefited

from relatively high global grain and

oilseeds prices. Despite such prices being in

a downward trend for the whole year, we man-

aged to secure relatively good levels. Sec-

ondly, the Grain Deal was of huge tailwind to

us allowing to export goods via Black Sea

ports at materially lower logistics costs as

compared to alternative logistics channels. Fi-

nally, in FY2023 we have been actively selling

the carry-over stock from FY2022, meaning

the harvest of calendar year 2021, and a large

part of the associated costs of such harvest

were incurred back in 2020 and accounted in

UAH as a functional currency of Group’s farm-

ing entities. Brought forward costs of such

stock were relatively low and further re-

duced by the depreciation of UAH against

USD in 2022 translating into the accounting

recognition of solid profits on such sales by the

Group. Sales of 2022 crops were not so prof-

itable and still over 700 thousand tons of corn

and wheat remained unsold as of 30 June

2023. While UAH depreciation substantially

reduced the farming cost base when

translating results to USD and contributed to

the strong accounting EBITDA reported, the

respective forex translation negative result

was reported as a part of USD 241 million

other comprehensive loss for the period.

In light of the significant uncertainties and risks

facing the Group's future, the Board of Direc-

tors has decided to recommend shareholders

not distribute dividends for the financial year

ending on 30 June 2023.

M&A update

In FY2023, we were quite active on the M&A

side, mostly to fortify our sunflower oil export

value chain which was our major profit driver

during the reported period.

In December 2022, leveraging the existence of

the grain corridor, we acquired an edible oil

transshipment terminal in the port of

Pivdennyi, applying the enterprise value of

USD 19.8 million. Given that Mykolaiv, the

largest pre-war port exporting sunflower oil, re-

mained blocked for export activities, the de-

mand for transshipment services in other ports

spiked with the Grain Deal in place. The acqui-

sition allowed us to have our own transship-

ment facility and was a strategic move that sig-

nificantly contributed to our sunflower oil ex-

port volumes in FY2023.

Recognizing the eventual expiration of the

Grain Deal, we then shifted our focus to assets

along the Danube River. In February 2023, we

acquired a small grain terminal in Ukraine's

Reni port, equipped with flat warehouses of-

fering a one-time storage capacity of 12,000

tons. In July 2023, we entered into an agree-

ment to acquire 100% of corporate rights in

Reni-Oil LLC, a sunflower oil transshipment

terminal in the Reni port, for USD 24.75 mil-

lion. This terminal stands out as the sole facil-

ity among Ukrainian Danube River ports with

the proper intake, storage, and off-loading ca-

pacities, ensuring uninterrupted sunflower oil

exports even in the event of Black Sea port

blockades. The deal is expected to be finalized

by 31 December 2023.

Finally, in July 2023, we acquired assets for

the transshipment of vegetable oils at the

Chornomorsk port for USD 19.4 million. In

case Ukrainian Black Sea ports remain

blocked, these assets are poised to serve as a

vital sunflower oil storage and accumulation

hub: we will use them to receive sunflower oil

via rail, accumulate it in storage, and then re-

direct

the product by trucks to the Danube

River ports, effectively reducing logistics costs

for alternative export routes. The one-time

sunflower oil storage capacity of 105 thousand

tons enables us to maintain our crushing

plants' operations during transportation

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Chairman’s Statement continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

disruptions, a challenge experienced in

FY2022-FY2023. Should Ukrainian Black Sea

ports become accessible, these assets will

serve as our central deep-water transshipment

base on the Black Sea for the sunflower oil we

export.

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

our largest in-land silos located in the Khmel-

nytskyi region. The current preliminary as-

sessment of the required capital expenditure

for the restoration and rehabilitation of equip-

ment 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 trans-

shipment 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 declin-

ing to very low levels in Q1 FY2024, and un-

der 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 har-

vest (crop 2023) in presented accounts, mean-

ing, in simple words, that anticipated proceeds

from sales of crop 2023 are not enough to

cover the incurred production and selling ex-

penses related to such crop. Under such cir-

cumstances, there are not many options for

how to act. It is either to maintain a long posi-

tion 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 Rus-

sians. 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 sev-

eral notable, longer-term consequences for

agribusiness in the region. Firstly, Ukraine is

losing its longer-term crop production po-

tential. Approximately 18% of Ukrainian terri-

tory 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 agri-

cultural operations on these lands. Further-

more, it's unclear how quickly farmers from

these territories will be able to resume culti-

vation, 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 re-

strictions and Ukraine's unreliable trade

partner status, we are unable to build a sub-

stantial trade program backlog, allowing Rus-

sia to capture these markets.

Thirdly, Ukraine's alteration of its crop mix

structure for the 2022 and 2023 seasons in fa-

vor 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 deci-

sion 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 fu-

ture.

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 commission-

ing of the Group’s fifth co-generation heat

and power facility at the Prydniprovskyi oil

extraction plant in November 2023 will defi-

nitely contribute to our resilience to this risk.

Nevertheless, the extent to which we can with-

stand these challenges will be heavily contin-

gent on the magnitude of potential damages

suffered. In the most severe scenarios, our op-

erations 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 emer-

gency conditions without any ability to plan

long-term, some pillars of the strategy are be-

ing executed. In spring 2024, we plan to com-

mission 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.

Sustainability progress

In FY2023 we demonstrated strong results in

developing the system of climate corporate

governance. We improved our Carbon Disclo-

sure Project (CDP) score by two points, from

D to B, becoming the only company in Ukraine

with such a high rating. We successfully com-

pleted the “Climate Corporate Governance

and Low-Carbon Pathway” project in

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Chairman’s Statement continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

partnership with EBRD and EY which resulted

in an action plan for further improvements in

our climate-risk management process, imple-

mentation of business opportunities associ-

ated with low-carbon development, methodo-

logical advancements in the operational ac-

counting of GHG emissions, etc. These direc-

tions of work in low-carbon development were

included in our strategic targets for FY2024.

Our main priority in strengthening social capi-

tal remained the support of the Armed Forces

of Ukraine and the society. In FY2023 we di-

rected a total of USD 12 million on body armor

and military equipment, as well as humanitar-

ian aid. Our purpose of building a long-term

value, while remaining resilient in times of ex-

treme challenges, remains aligned with the UN

Global Compact Ten Principles.

Company’s delisting from the

Warsaw Stock Exchange

Namsen Limited being the largest shareholder

of Kernel, took the initiative to propose the

delisting of the Company from the Warsaw

Stock Exchange. After careful consideration, I

firmly believe that maintaining the listing no

longer holds strategic significance for Kernel.

The compelling arguments were presented to

the Board of Directors, leading to several

rounds of robust debate and scrutiny.

After thorough deliberation and discussions,

the Board ultimately reached a consensus that

delisting would serve the best interests of the

Company and approved this course of action.

Following the completion of the take-private

tender offer by Namsen Limited, the Company

submitted an application to the Polish Finan-

cial Supervision Authority for approval of the

delisting. As of the date of this report, the de-

cision of the regulator is pending.

Share capital increase and debt facili-

ties

For the third time since the start of the full-

scale invasion of Ukraine by Russia, we had to

launch negotiations with our institutional cred-

itors to seek a loan portfolio maturity exten-

sion. As part of this restructuring process, Ker-

nel creditors required an essential equity injec-

tion of USD 60 million to bolster liquidity and

reduce indebtedness.

The capital raise was done in early September

2023 allowing the Company to meet the cred-

itors' condition and fortify the financial position

during these exceptionally challenging times.

Consequently, we successfully completed the

restructuring of our debt portfolio, obtaining

necessary waivers till 30 June 2024 for credit

facilities with total outstanding balances of

USD 778 million. In the face of the continued

and growing risks to the Group’s operating

model, management of our liquidity and debt

portfolio will remain the Group’s top priorities

in the near term, and we will look for opportu-

nities to deleverage our business where ap-

propriate.

Changes in the Executive Manage-

ment Team

Our long-standing leaders, Anastasiia Usa-

chova, CFO, and Viktoriia Lukianenko, Chief

Legal Officer, who have been foundational to

Kernel's success have shifted their focus away

from daily management responsibilities to en-

gage in other strategic Group projects while

retaining their roles as Company directors. On

behalf of the Board, I want to express our sin-

cere gratitude to them for their significant con-

tributions in guiding Kernel to its current posi-

tion as a market leader. In parallel, we wel-

come new members to our team. Sergiy

Volkov joined Kernel as our new CFO and Ar-

tem Filipyev spearheads the legal function of

the Group. We wish them success and inspi-

ration in their roles as they contribute to the

ongoing transformation of their respective divi-

sions. These changes exemplify our commit-

ment to maintaining a dynamic, vibrant, and

capable leadership team to safeguard Kernel.

On behalf of the Board of Directors, I wish to

convey our heartfelt appreciation to all our

stakeholders for their unwavering support. We

are deeply grateful to the entire Kernel team

for their dedication and hard work in guiding

the Group through these challenging times

and wish them to stay safe and strong. Our

thanks also extend to the international com-

munity for their assistance to Ukraine in facing

Russian aggression. We reserve a special and

profound appreciation for the courageous he-

roic defenders of Ukraine—men and women

who valiantly protect our nation and its people.

Andrii Verevskyi

Chairman of the Board of

Directors, Founder

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Our Business Model

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Oilseed Processing segment

• Leading sunflower oil producer (~5% of global production) and exporter (~8% of global exports);

• Leading bottled sunflower oil producer and marketer in Ukraine;

• 3.0 million tons annual sunflower seed processing capacity;

1.0m new capacity will be added in the H2 FY2024;

• Producer of renewable energy from biomass;

Infrastructure and Trading segment

• Leading grain exporter from Ukraine with 8% of country’s total grain export in FY2023;

• Leading grain export terminal operator with total annual capacity to transship 10.9 million tons of soft commodities;

• #1 private inland grain silo network in Ukraine with 2.2 million tons of one-time grain storage capacity;

• #1 private grain railcar fleet in Ukraine (3.4 thousand of accessible own railcars);

•

Avere proprietary trading activities;

Farming segment

• Leading producer in Ukraine operating 359 thousand hectares of leasehold farmland;

• Modern large-scale machinery, sustainable agronomic practices, cluster management system and export-oriented

crop mix;

• Nearly 100% of sales volumes flows through our Infrastructure and Trading and Oilseed Processing segments,

earning incremental profits.

Topping industry league tables in all segments

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Kernel at Glance

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Note 1 Oilseed processing plants which were occupied by Russia during Feb 24th - Sep 13th, 2022. As of October 2023, plants remain inaccessible.

…………………………………………………

…………………………………………………………………………………………………………………………………………………………………………………..

Segment results

summary

Revenue, USD million

EBITDA, USD million

Volume, thousand tons

EBITDA margin, USD/t

FY2022

FY2023

y-o-y

FY2022

FY2023

y-o-y

FY2022

FY2023

y-o-y

FY2022

FY2023

y-o-y

Oilseed Processing

1,681

1,908

13%

(70)

270

n/a

967

1,139

18%

(73)

237

n/a

Infrastructure and Trading

4,535

2,602

(43%)

237

154

(35%)

7,969

3,705

(54%)

40%

Farming

635

695

219

221

3,268

1,849

(43%)

440

609

39%

Unallocated corporate expenses

(166)

(101)

(39%)

Reconciliation

(1,519)

(1,750)

15%

Total

5,332

3,455

(35%)

220

544

2.5x

Note

2 Physical grain volumes exported from Ukraine (ex. Avere) for Infrastructure and Trading; harvest of grain and oilseeds in the Farming segment.

Note

3 USD per ton of vegetable oil sold for Oilseed Processing; USD per ton of grain exported (ex. Avere volumes) for Infrastructure and Trading; USD per hectare for Farming.

Oilseed processing plants

Inaccessible plants

Grain silos

Damaged grain silos

Export terminals

Leasehold f armland bank

Refining and bottling f acilities

Co-generation heat and power f acilities

Assets under construction

/modernization

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Our Strategy 2026

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Owing to the war, Kernel needs to temporarily set aside its growth strategy and operate in survival

mode. Considering the uncertainty of the future availability of the maritime exports, as well as the business

environment in Ukraine, the Group had to put on hold its strategic initiatives and will revise its long-term

strategy once the degree of the uncertainty dwindles.

Prior to the war, the Kernel’s Strategic approach was as follows:

•

6 million tons of oilseed pro-

cessing annually with 35% orig-

inated via captive supplies

•

15 million tons of grain export

from Ukraine annually with 50%

originated via captive supplies

•

4 million tons of in-house pro-

duction annually on 0.7 million

hectares of farmland under own

operations

Infrastructure and Trading

Farming

Oilseed Processing

•

Contributing to relevant UN Sustainable Development Goals

• Supporting the objectives of the European Green Deal through rigorous climate action

• Acting as a sustainable farming ambassador in Ukraine through dissemination of resource-efficient, environ-

mentally, and socially responsible production practices among our partners in supply chains

• Providing fair and safe working conditions, proper resources, environment for learning, and equal opportunities

for self-realization to remain the ethical employer of choice

• Actively contributing to the improvement of local communities’ well-being

Strategic targets

Sustainability approach

We aim to sustainably increase the scale and efficiency of our low-cost business system to export annually 20

million tons of soft commodities from Ukraine by strategic acquisitions, fostering loyal relations with local farmers,

and constant development of our people.

Scale increase

• Acquisition via M&A / asset lease / tolling:

− 1.5 million tons of sunflower seed processing

− 5.0 million tons of grain transshipment capacity

− 0.2 million hectares of farmland

• Upscale of CRM and market intelligence system

• Further expansion of the Open Agribusiness project

Strategic initiatives

Efficiency enhancement

• Processes automation and digitalization

• Labor productivity gains

• Adoption of innovative solutions in farming

• Electronic document flow

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Financial Performance in FY2023

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

FY2023 was a notably challenging year for Kernel,

but it also proved to be a rewarding one. The

Group achieved an EBITDA of USD 544 million and

a net profit attributable to the Company's sharehold-

ers of USD 299 million. However, it incurred a sig-

nificant other comprehensive loss of USD 241 mil-

lion due to translation differences caused by the de-

preciation of the Ukrainian hryvnia against the US

dollar. Consequently, the Group generated USD 59

million of total comprehensive income attributable to

the equity holders of Kernel Holding S.A. for the

twelve months ending on 30 June 2023.

Our results could have been significantly worse con-

sidering the way the year began. We commenced

the season with USD 1.9 billion in outstanding debt

and USD 0.9 billion worth of commodity inventories,

with limited clarity on how to export this stock due to

Russia's blockade of Ukrainian Black Sea ports as

part of its full-scale invasion of Ukraine. However,

we inherited a relatively good liquidity position from

a strong pre-war performance, which allowed us not

to be in a rush when selling goods with high logistic

costs and lock losses, but rather hold back exports

waiting for more favorable terms.

Luckily, the spiking soft commodity prices, coin-

ciding with the Grain Deal enabled in August 2022

and sustained for most of the season implying rela-

tively low export logistics costs, allowed us to sub-

stantially de-stock and capture decent margins

along our export value chain. With our world-class

export and logistics infrastructure we strongly capi-

talized on the opportunity, delivering over 90% of

grain and more than 50% of sunflower oil exports

via deep-water Black Sea ports of Ukraine.

Profitable sales and working capital release allowed

us to generate USD 716 million of cash from opera-

tions in FY2023 and decrease net debt of the Group.

Net debt reduced by 60%, to USD 595 million as of

30 June 2023, of which USD 282 million are covered

by commodity inventories. In October 2023, we

completed the third-during-a-wartime restructuring

of our credit portfolio for the total amount of USD

778 million.

It was not an easy walk, though. Twice in FY2023,

we faced huge risks of the Grain Deal not being ex-

tended, but fortunately, the continuation happened

each time until the initiative was terminated in July

2023. We sustained extensive power outages and

blackouts caused by Russia’s terroristic attacks on

Ukraine’s civil energy infrastructure. We coped with

numerous business disruptions in our farming busi-

ness. We tried many options to export grain from

Ukraine via channels other than the Black Sea until

we learned that there are no sustainable and eco-

nomically viable alternatives. Exporting via Danube

River ports appeared to be the least harmful option,

and we secured some transshipment capacities in

that region.

The new season opened with a rather grim atmos-

phere: Grain Deal was terminated (and the Black

Sea became blocked for our exports once again),

global prices reached dramatically low levels, and

Russia started regular air attacks on Ukrainian civil

ports, both at the Black Sea and on the Danube

River, causing significant damages up to date for

our operations. While in late September a new so-

lution for exports via Black Sea ports appeared, it is

yet to be tested, and it is not clear how sustainable

it is.

Revenue

USD 3,455 million

-35% y-o-y

EBITDA

USD 544 million

2.5x growth y-o-y

Solid results rewarding for high-risk environment

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Financial Performance in FY2023 continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Income statement highlights

The revenue of the Group in FY2023 reduced

by 35% y-o-y, to USD 3,455 million, mostly

due to lower grain export volumes given the

restricted export logistics capabilities.

Driven by a decline in crop prices over the re-

porting period, net change in the fair value

of biological assets and agricultural pro-

duce resulted in a USD 115 million loss in

FY2023. This component includes a gain from

revaluing crops in the fields to fair value less

costs to sell as of 30 June 2023 and expensing

the respective gain booked a year earlier.

While expensing the previously recognized

gain attributable to grain and oilseeds sold, we

have not recognized a usual gain for next har-

vest crops, but, on the contrary, were forced

to book losses for the first time in our history,

as expected future proceeds from sales of

crop 2023 do not allow to cover capitalized ex-

penses related to such crop as of 30 June

2023.

Cost of sales in FY2023 contracted by 42%

y-o-y, to USD 2,704 million. While the cost of

goods for resale and raw materials used

dropped even more, by 53% y-o-y driven by

low grain export volumes, shipping and han-

dling costs actually increased by 63% y-o-y,

reflecting much more expensive export logis-

tics together with a shift from FOB to CIF sales

for the majority of our goods sold.

Consequently, the gross profit for the period

contracted by 2% y-o-y, totaling USD 636 mil-

lion.

Other operating income settled at USD 54

million, comprising primarily gains on the sale

of hard currency, a part of the reimbursement

received under political violence insurance

triggered by the war in Ukraine, and stock

take.

Other operating expenses amounted to

USD 35 million, down 22% y-o-y, comprising

USD 24 million dispatch and other fines (due

to extended waiting times during the loading

and unloading of vessels in ports given the in-

stability of shipments within the BSGI), and

USD 11 million loss on Group’s operations

with securities and derivatives.

General, administrative, and selling ex-

penses in FY2023 fell by 11% y-o-y, to USD

205 million, mostly driven by lower payroll and

payroll-related costs.

Additionally, the Group booked USD 4 million

net reversal of losses in financial assets rec-

ognized in previous periods, primarily related

to provisions created under the Group’s ac-

counts receivable.

Kernel also recognized net loss on impair-

ment of assets of USD 15 million in FY2023,

as compared to USD 317 million respective

loss in the same period of the previous year.

This year's result is primarily a combination of

USD 30 million reversal of previously created

inventory allowances and write-offs (mostly at-

tributable to the Oilseed Processing segment),

USD 7 million new allowances and write-offs

of inventories, and Group’s grain railcars

blocked on the territories temporarily occupied

by Russia, USD 9 million allowance for VAT

refund, and USD 26 million impairment of as-

sets held for sale.

Subsequently, operating profit reached USD

439 million, up 4.8x y-o-y.

Despite a decrease in interest-bearing debt

balances, finance costs in FY2023 increased

by 17% y-o-y, reaching USD 153 million. This

rise was primarily due to a substantial growth

of LIBOR/SOFR benchmarks used to calcu-

late interest rates. Finance income in

FY2023 nearly tripled y-o-y, amounting to

USD 31 million, as a result of allocating extra

liquidity balances into interest-bearing instru-

ments. The net finance costs remained al-

most unchanged y-o-y, standing at USD 122

million for FY2023.

Net foreign exchange gain in the reporting

period amounted to USD 63 million, owing to

the depreciation of Ukrainian hryvnia against

the USD in July 2022 and the respective reval-

uation of intra-group balances.

Other expenses, net, amounted to USD 12

million, a 53% decline y-o-y, comprising USD

12 million of charity expenses, USD 3 million

of fines and penalties, and reflecting also a

USD 4 million gain on disposal of subsidiaries

(the Group completed disposal of two silos in

FY2023 and recognized the respective gain).

With the USD 368 million profit before in-

come tax generated, the Group recognized

corporate income tax expenses of USD 69

million in FY2023 and ended the year with

USD 299 million net profit attributable to

shareholders of Kernel Holding S.A. Fi-

nally, accounting for USD 241 million of ex-

change translation differences occurring due

to the depreciation of UAH against USD in July

…………………………………………………………………………

Kernel’s EBITDA split by segments

D million

(51)

(59)

(65)

(166)

(101)

182

134

461

219

221

106

216

359

237

154

109

152

(70)

270

346

443

806

220

544

FY2019 FY2020 FY2021 FY2022 FY2023

Oilseed Processing

Infrastructure and Trading

Farming

Unallocated corporate expenses

Total EBITDA

………………………………………………………………………………………………………………………………………………………….

Income statement highlights

D million

FY2022

FY2023

y-o-y

Revenue

5,332

3,455

(35%)

Net IAS 41 gain

(115)

n/a

Cost of sales

(4,692)

(2,704)

(42%)

Gross profit

652

636

(2%)

Other operating income

(16%)

Other operating expenses

(45)

(35)

(22%)

Net impairment losses on financial assets

(33)

n/a

Loss on impairment of assets

(317)

(15)

(95%)

General, administrative and selling expenses

(230)

(205)

(11%)

Operating profit

439

4.8x

Finance costs, net

(119)

(122)

Foreign exchange gain(loss), net

6.2x

Other (expenses), net

(25)

(12)

(53%)

Profit / (loss) before income tax

(43)

368

n/a

Income tax (expenses) / benefit

(69)

n/a

Profit / (loss) for the period

(41)

299

n/a

Attributable to equity holders of Kernel Holding S.A.

(41)

299

n/a

Non-controlling interest

0.4

(0.4)

n/a

EBITDA

220

544

2.5x

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Financial Performance in FY2023 continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

2022, the Group ended FY2023 with USD 59

million of total comprehensive income at-

tributable to shareholders of the Company,

up from USD 103 million loss a year ago.

Considering significant uncertainties and risks

facing the Group's future and the presence of

restrictive covenants in the additional agree-

ments already signed with the lenders, the

Board of Directors recommended the general

meeting of shareholders to declare a dividend

at nil for the year ended on 30 June 2023.

Cash flow highlights

In FY2023, Kernel generated operating profit

before working capital changes of USD 753

million, an 11% increase y-o-y. Such an all-

time-high result reflects the strong profitability

of the Group’s operations stemming from

open Black Sea ports for agricultural exports

for a large part of the season and relatively

high global soft commodity prices that pre-

vailed for much of FY2023.

Working capital changes resulted in a USD

128 million cash inflow in FY2023, driven

mostly by a decrease in inventories, while

most material outflows happened due to

changes in trade receivable and other finan-

cial assets.

Interest paid in FY2023 amounted to USD

148 million, up 14% y-o-y, while interest re-

ceived achieved USD 28 million. Accounting

also for USD 44 million income tax paid, Ker-

nel ended up with USD 716 million of cash

generated by operating activities.

Net cash generated from investing activi-

ties totaled USD 10 million in FY2023, primar-

ily comprising USD 123 million proceeds from

Commodity inventories are inventories such as corn, wheat, sunflower oil, and other products that were easily convertible into cash before the Russian invasion of Ukraine

given their commodity characteristics, widely available markets and the international pricing mechanism. The Group used to call such inventories as “Readily marketable

inventories”, but after the beginning of the war in Ukraine the Group faced difficulties selling such inventories, and therefore such inventories cannot any longer be considered

as readily marketable.

the disposal of intangible and other non-cur-

rent assets (primarily conversion of crypto as-

sets into cash), USD 90 million proceeds from

the disposal of subsidiaries (a part of the con-

sideration received for the divestment of se-

lected farming entities), USD 77 million pur-

chase of PP&E as a maintenance and expan-

sion CapEx, USD 123 million placement of

pledge deposit (as described below), as well

as some other items.

Within the financing activities, the Group re-

paid USD 248 million of borrowings, while rais-

ing USD 55 million of funds at local banks in

Ukraine. Over the reported period, the

Group’s cash position increased by USD 507

million.

Debt overview

The Group’s debt liabilities reduced by 14%

over FY2023, to USD 1,672 million as of 30

June 2023. The reduction was driven by the

repayment of bank debt via a cash sweep

mechanism and the devaluation of loan and

lease balances denominated in Ukrainian

hryvnia.

Because the Group did not have an uncondi-

tional right to defer settlement for 12 months

or longer concerning its bank facilities as of 30

June 2023, all the Group’s debt liabilities were

reclassified as short-term as of 30 June 2023.

Notwithstanding such classification, manage-

ment notes that, given the effective waivers

from banks that were in place as of 30 June

2023, cross-acceleration events of default un-

der the bonds were not triggered as of such

date, and the Group remained otherwise in full

compliance with the terms of its bonds.

The Group’s cash position more than

doubled during FY2023, reaching USD 954

million as of 30 June 2023. Besides, the Group

had USD 123 million as a cash deposit

pledged as collateral for certain credit facili-

ties. While not being treated in reporting as

cash available to the Group, such deposit is

treated as cash for the purposes of calculating

credit metrics.

Consequently, the Group’s net debt faced a

60% reduction over FY2023, to USD 595 mil-

lion as of 30 June 2023.

The commodity inventories

balance as of

30 June 2023 totaled USD 282 million, down

68% y-o-y, covering 47% of net debt outstand-

ing. The decline is driven by the reduction of

inventory volumes (mainly sunflower seeds

and grain), as well as reduced cost per ton of

inventory reflecting a substantial global com-

modity price decline in FY2023. The commod-

ity inventories accounted for 83% of all

………………………………………………………………………………………………………………………………………...................

Liquidity positions and credit metrics

USD million, except ratios

30 June 2022

30 June 2023

y-o-y

Short-term interest-bearing debt

1,101

878

(20%)

Lease liabilities

240

198

(17%)

Eurobonds

595

596

Debt liabilities

1,935

1,672

(14%)

Cash and cash equivalents

448

1,077

2.4x

Net debt

1,488

595

(60%)

Commodity inventories

892

282

(68%)

of which sunflower oil and meal

207

118

(43%)

Sunflower seeds

325

(92%)

Grains and other commodity inventories

360

138

(62%)

Adjusted net debt

596

313

(47%)

Shareholders’ equity

1,683

1,742

Net debt / EBITDA

6.8x

1.1x

-5.7x

Adjusted net debt / EBITDA

2.7x

0.6x

-2.1x

EBITDA / Interest

1.8x

4.4x

+2.6x

………………………………………………………………………

Kernel Eurobonds mid

-YTM

Source: Bloomberg

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

110%

Oct 21

Dec 21

Feb 22

Apr 22

Jun 22

Aug 22

Oct 22

Dec 22

Feb 23

Apr 23

Jun 23

Aug 23

Oct 23

2024 6.5% bond

2027 6.75% bond

………………………………………………………………………

Working capital and debt position

D billion

“Working

Capital”, “Net Debt” and “Commodity in-

ventories”

definitions as described in section

Alterna-

tive Performance

Measures.

0.0

0.5

1.0

1.5

2.0

2.5

FY2019 FY2020 FY2021 FY2022 FY2023

Working Capital

Net Debt

Commodity inventories

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Financial Performance in FY2023 continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

inventories as of 30 June 2023. Throughout

FY2023, the value of the commodity

inventories was reduced by USD 40 million of

inventory-related losses: the reduction of the

net realizable value of inventories below cost,

allowance for inventories and write-offs of

inventories, but accounting also for a gain

from the reversal of the losses on previously

impaired assets.

The net debt adjusted for commodity inven-

tories settled at USD 313 million as of FY2023

end, down 47% over the reported period.

The key leverage metrics as of 30 June 2023

improved to 1.1x Net debt / EBITDA, 0.6x Ad-

justed net debt / EBITDA, and 4.4x EBITDA /

interest coverage, driven by strong EBITDA

generated for FY2023.

In March 2023, S&P upgraded Kernel’s rat-

ing to “CC” from “SD”. Additionally, in June

2023, Fitch affirmed Kernel’s credit rating at

CC.

To maintain liquidity and manage the uncer-

tainty, the Group decided to continue waiver

and standstill arrangements with the lenders

and entered into new negotiations with the

Lenders in May 2023 in respect of the com-

mercial terms for the new standstill period till

30 June 2024. As a result and as of the date

of issue of this report, the Group obtained

waivers for the pre-war borrowings of USD

778 million to defer repayment and waiving of

the debt covenants and some other conditions

by 30 June 2024.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Oilseed Processing

Strategic

Report

Sustainability

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Amidst export logistics disruptions caused by Rus-

sia’s invasion of Ukraine, Oilseed Processing ap-

peared to be the most resilient our segment in fac-

ing these challenges. Export logistics of liquid goods

is easier than logistics of grain in bulk, volumes to

move are lower, and margins for this higher added

value product leave some space for extra logistic

costs.

Even with Black Sea ports being closed, the crush-

ing business remained profitable, thanks to high

global sunflower oil prices. The Grain Deal greatly

contributed to segment performance by opening

Ukrainian Black Sea ports for export and reducing

logistics costs, especially as prices were declining

throughout the season. Segment EBITDA in

FY2023 amounted to USD 270 million, as compared

to USD 70 million loss at the EBITDA level a year

ago.

Building on this, the Group decided to complete the

construction of the largest oilseed processing

plant in Ukraine, which had been 80% ready before

the war. The construction was temporarily post-

poned in 2022 due to uncertainties in the business

outlook. However, with the increased confidence

gained, resuming the project was seen as a proper

strategic move.

Besides, we strengthened our sunflower oil ex-

port logistics by acquiring transshipment facilities

in the ports of Pivdennyi, Chornomorsk, and Reni (in

the process of completion). Historically, the Group

had relied on third-party facilities for sunflower oil

transshipment. These acquisitions expanded the

export value chain and diversified the load points in

the ports, which is especially significant given Rus-

sia's intensified ongoing attacks on Ukrainian civil

port infrastructure since July 2023.

Moreover, we took a significant stride forward along

our value chain by purchasing our first tanker for

transporting sunflower oil via rivers and seas.

This acquisition affords us much-needed flexibility in

securing our export logistics.

All these endeavors increase the resilience of our

Oilseed Processing segment in view of potential ex-

port logistics disruptions, given that the war in

Ukraine is dragging on.

The Oilseed Processing segment is expected to re-

main the primary profit driver for the Group in

FY2024. However, there are potential challenges to

consider. Global sunflower oil prices have signifi-

cantly declined from the levels seen in FY2023, put-

ting pressure on margins. Additionally, the intensifi-

cation of Russian attacks on Ukrainian port infra-

structure poses risks to export logistics and cargo

loss.

2.6 million tons of

oilseeds processed in

FY2023

EBITDA

(before unallocated head office expenses)

USD 270 million

Revenue

USD 1,908 million

+13% y-o-y

Resilient performance in a turbulent environment

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Oilseed Processing

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Report

Sustainability

Corporate

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Statements

Market overview

Historically, the two key factors were materi-

ally affecting Kernel’s oilseed processing busi-

ness: 1) the sunflower seed supply-demand

balance in Ukraine, which determined the

profit distribution between farmers and

crushers in the country; and 2) the global

sunflower oil prices, impacting the com-

bined earnings of local sunflower seed farm-

ing and processing.

Since Russia’s full-scale invasion of Ukraine

in February 2022, capabilities to export sun-

flower oil and meal via channels other than

Ukrainian Black Sea ports and the cost of such

logistics became a new important factor.

While new export routes have been estab-

lished in FY2023 and there are no longer ca-

pacity restrictions, logistics costs remain an

important factor impacting the business.

Supply-demand balance

Historically, Ukraine's sunflower seed pro-

cessing has been heavily localized, with the

vast majority of sunflower seeds harvested by

local farmers being then processed within the

country. Import-export activities for sunflower

seeds were negligible, and there was minimal

carry-over stock between seasons. However,

this landscape underwent a significant trans-

formation following February 2022. Large vol-

umes of sunflower seeds began to be ex-

ported, culminating in an impressive 2.4 mil-

lion tons exported during FY2023. Further-

more, the sunflower seed supply in FY2023

was influenced by a substantial 4.6 million

tons of carry-in stock, which served as a

buffer to mitigate the adverse effects of a 29%

y-o-y decline in harvest, dropping to 11.9 mil-

lion tons. This decline was primarily due to re-

duced harvested areas, driven by the occu-

pation of the Southeastern regions of Ukraine,

a major sunflower seed-producing area, by

Russia. Additionally, the crop yield faced a

7% y-o-y decline.

Sunflower seed processing capacity in

Ukraine for FY2023 was estimated to be 16.6

million tons (not including the plants on the oc-

cupied territories or those with suspended op-

erations for the whole or part of the season

due to the proximity of the frontline). Some lo-

cal crushers ceased operations having their

facilities either destroyed by military actions or

occupied in southern and eastern regions of

Ukraine and thus being unable to properly op-

erate. Others were not able to utilize their ca-

pacities in the best way due to power outages

or export logistics difficulties.

At the same time, the FY2022 carry-over stock

together with the current season harvest

Source: USDA, September 2023

provided enough feedstock for quite decent

overall crush capacity utilization. It implied a

pretty decent capacity utilization rate for the

crushing industry in Ukraine.

Global sunflower oil prices

Sunflower oil is the fourth-largest consumed

vegetable oil in the world, with a 9.1% mar-

ket share in the 2022/23 season. The largest

consumers and importers are the EU, India,

China, Turkey, Iran, and Iraq, collectively ac-

counting for 76% of the global imports. Mean-

while, Ukraine stands as the leading global

exporter, contributing 37% to the total ex-

ports. Throughout the 2022/23 season,

Ukraine exported 4.9 million tons of sunflower

oil, marking a 9% y-o-y increase

Sunflower oil prices have been falling for al-

most the whole of FY2023 and lost nearly half

of their value, led by improved global supply

coinciding with demand rationing. Price pat-

terns can be segregated at several stages:

• Before FY2023, vegetable oil prices had

risen steadily since mid-2020 and reached

a record peak in spring 2022, being driven

by 1) the global monetary easing that trig-

gered a strong post-COVID recovery; and

2) the Russian invasion of Ukraine.

• Unprecedented price levels eventually tum-

bled in June 2022 triggered by Indonesian

palm oil export resumption that flooded the

market. Accelerated Indonesian exports re-

mained the main bearish factor through

early FY2023, subsequently bolstered by

abundant EU rapeseed harvest and the

Black Sea Grain Initiative finally unblocking

massive Ukrainian oilseeds and sunflower

oil stocks. Generally, good harvests and

abundant supply have kept weighing on the

world prices through the end of the year.

• Meanwhile, global demand for vegetable

oils kept weakening given sluggish eco-

nomic performance, high food inflation,

growing interest rates, and tumbling crude

oil prices. All this added further pressure on

the vegetable oil prices and these factors

are not yet resolved and persisted as an on-

going concern even on the day of publica-

tion of this report.

• However, there were some significant sup-

portive events during FY2023. Vegetable oil

prices revived in Oct-Nov, reacting to the

fast depletion of soybean oil stocks in Ar-

gentina, where an increased incorporation

mandate resulted in a sharp rise in biodiesel

consumption. Similarly, US biodiesel pro-

ducers increased the purchase of Canadian

canola oil in an effort to meet renewable fuel

targets in the US.

• The rest of the season was all-bearish until

the very end of FY2023. Severe drought

across the US soybean belt, followed by

overly dry Canadian canola areas, pushed

the prices up in June-July 2023. Later on,

these crops have largely recovered due to

timely weather improvements. So, these

days the vegetable oils market seems to be

close to equilibrium and looking for direc-

tions.

Sunflower oil of Ukrainian origin was notably

discounted to other origins/oils throughout the

entire FY2023 season given complicated and

uncertain Black Sea logistics, including regu-

lar Russian threats to leave the UN corridor

deal and obstructing the normal performance

of the corridor by the Russian side. Safe and

sustainable export corridors are still impera-

tive for the Ukrainian agricultural industry and

global food security going forward.

………………………………………………………………………...

Sunflower oil and sunflower seed prices

D per ton of unrefined oil sold in bulk

D per ton of sunflower seeds

Source:

APK-Inform

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2,200

Jul 20 Jul 21 Jul 22

Jul 23

Sunflower oil, Rotterdam FOB

Sunflower seed, Ukraine EXW

FY2023

……………………………………………………………………………………

Processing capacities as at FY2023

million tons

Source: Kernel’s estimates

18%

12%

25%

36%

Kernel Multinationals MHP

Local big Local small

16.6

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Oilseed Processing

Strategic

Report

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Statements

Our business model

Market leader in oilseed processing

For the last years, Kernel has been the leading

global sunflower oil producer and exporter, ac-

counting for ~5% of global sunflower oil pro-

duction and ~8% of global sunflower oil ex-

port in FY2023

Asset base

Kernel owns eight oilseed processing plants in

Ukraine with a total annual capacity to process

3.5 million tons of sunflower seeds.

Two of Kernel’s oilseed processing plants,

which were occupied by Russia at the begin-

ning of the war in February 2022, still are not

operational as of the end of the reported pe-

riod, being located very close to the Russian

border and regularly suffering from Russian

air attacks. Adjusting for these facilities, the

Group operates 3.0 million tons of annual

crushing capacity, which corresponds to

17% of the country’s total accessible indus-

trial crushing capacity

The majority of the Group’s crushing facili-

ties are multi-seed, which allows switching to

soybean or rapeseed processing if needed.

These assets can function throughout the

year, requiring only a single month for mainte-

nance, typically scheduled during the sum-

mer.

All the assets are located across the sunflower

seed production belt in Ukraine in close prox-

imity to farmers, ensuring high utilization rates

and profitability, as the low density of

USDA, Kernel analysis.

Source: Group’s estimates.

sunflower seed negatively impacts the eco-

nomics of long-distance seed transportation.

The Group’s crushing plants are modern facil-

ities that are properly maintained and regularly

upgraded, granting Kernel processing cost ad-

vantages over many other players. The scale

also allows benefitting from more efficient us-

age of the Group’s countrywide origination

network and allocation of overheads over

larger volumes.

Since February 2019, Kernel has also owned

a 5.85% stake in ViOil – one of the largest in-

dependent sunflower oil producers in Ukraine,

but disposed of this stake in FY2023, securing

exit at cost, given limited strategic opportuni-

ties related to this asset.

Origination and production

The Group heavily relies on the procurement

of sunflower seeds from other farmers, as the

Group’s Farming segment secured only 13%

of the feedstock processed in FY2023.

The sunflower seed processing yields two ma-

jor products: sunflower oil and meal, which are

exported globally, being transshipped in ports

either via the Group’s Infrastructure and Trad-

ing segment or through third-party terminals.

Sunflower seed husk, a biomass by-product,

is mostly burned in-house to generate steam

for production purposes, but could also be

pelletized and sold to third parties.

Four of the Group’s plants are already

equipped with co-generation heat and power

units, burning all the husk produced and

……………………………………………………………………………………

Sunflower oil sold in bulk destinations FY202

thousand tons

46%

18%

11%

19%

India China Europe Iraq Other

1,041

……………………………………………………………………………………

Bottled sunflower oil destinations FY2023

million liters

46%

35%

Ukraine Europe Middle East

Africa CIS Other

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…

Sunflower seed crushing process

Refining &

bottling

Pressing &

extracting

Dehulling &

filtering

Burning…

Sunflower seeds

(1,000 kg)

Dehulled

kernel

Bottled

sunflower oil

Crude sunflower oil

(440 kg)

Sunflower Meal

(390 kg)

Electricity for sale

(up to 180 kWh)

Husk

(160 kg)

… or

selling

An edible oil rich with Omega

-3 and Omega-

6 acids.

A traditional vegetable oil of choice for many regions

of the world, sunflower oil is used only for culinary

purpose, primarily for salad dressing and frying.

A protein-rich livestock feed, used for compound feed

production for hog, cattle

and poultry industries

across the world.

It is the t

hird most important meal

globally after soybean and rapeseed.

Electricity is sold to the national grid as renewable

energy.

A biomass is used to produce steam and energy on

our plants but can also be pelletized and sold to

third parties

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Oilseed Processing

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Sustainability

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Statements

generating electricity. Such facilities, with a

44.2 MW installed turbine capacity, supply the

electricity generated to the national grid.

state-owned enterprise “Guaranteed Buyer” is

obliged to buy all such renewable energy pro-

duced at the feed-in tariff fixed in EUR by

2030. Some co-generation facilities can also

supply power directly to the crushing plant.

Around 11% of produced crude sunflower oil

was further refined and 7% was bottled on our

Poltava plant in FY2023, granting incremental

margin for such a higher added value product.

Sales

Most sunflower oil produced by Kernel plants

(65% in FY2023) is sold to our Avere subsidi-

ary, applying the arm’s length principle. Avere

then sells it in export countries earning extra

trading margin, which is accounted for in our

Infrastructure and Trading segment. Such in-

tersegment sales comprised almost half of

Oilseed Processing revenue in FY2023. In ad-

dition to marketing sunflower oil produced by

the Group’s plants, Avere also buys sunflower

oil from other producers in Ukraine, building

up the scale in global sunflower oil trading.

Sunflower oil and meal are mostly sold

through forward contracts. The Group had

contractual commitments to sell 158 thou-

sand tons of sunflower oil for USD 149 million

(implying USD 948 per ton sales price) and

129 thousand tons of sunflower meal for USD

44 million (implying USD 339 per ton sales

price) as of 30 June 2023.

Markets and customers

As oilseed processing is an export-oriented

business, over 90% of produced sunflower oil

is exported in bulk, with India, China, Europe,

and Iraq being our key markets. Kernel’s cus-

tomers mainly include processors of soft com-

modities who refine and bottle sunflower oil,

and big international traders. The largest cus-

tomer in FY2023 was the Kaleesuwari Refin-

ery Private Limited in India with a 9% share in

our total bulk oil sales. Other big customers in-

clude Etihad Food Industries, Beijing Grain &

Oil Co., JDI Brokers Sàrl, and Parakh Food &

Oils taking 7%, 5%, 5%, and 4% of our bulk oil

sales volumes, respectively.

In FY2023, 53% of the produced bottled oil

was exported, mostly to Europe, the Middle

East, former CIS, Asia, and Africa both under

the Kernel brands and private labels. The

Group had a 19% share in total refined bottled

sunflower oil exports from Ukraine in FY2023,

supplying products to such international retail

chains as METRO, Auchan, Walmart, Max-

ima, and others.

Source: MPP Consulting 2023

47% of produced bottled oil in FY2023 was

sold in Ukraine to 22 nationwide retailers and

42 regional distributors, comprising 83% and

17% of domestic sales, respectively, under

well-recognized brands “Schedryi Dar” (in

TOP-50 brands in Ukraine

), “Stozhar”, “Chu-

mak”, and others.

Key developments

War impact

Russia’s full-scale invasion of Ukraine and re-

lated business disruptions were still the main

hardships impacting the segment perfor-

mance in FY2023:

• Undermined processing volumes. The

Group discontinued operations on two

oilseed processing plants in the Kharkiv re-

gion with 0.5 million tons annual processing

capacity. These plants were occupied by

Russia in spring 2022 and have not re-

turned to operations due to the proximity to

the hostilities and given the damages suf-

fered. Many employees were relocated and

employed at the other Group’s plants.

• Utilization of the remaining plants in

FY2023 was negatively impacted by:

− Bottlenecks in export logistics at the

beginning of the season;

− Russia’s attacks on Ukraine’s en-

ergy infrastructure commencing in

October 2022. As a result, the Group

was compelled to temporarily suspend

crushing activities at two of its plants

during November-December 2022. The

co-generation heat and power units on

the remaining four crushing facilities

partially helped to cover the shortage of

electricity from the grid and to function

relatively stable;

− Tough supply of sunflower seeds at

the end of the season, resulting in a

slowdown of processing in Q4 FY2023.

Export logistics disruptions also caused a lack

of storage capacity for sunflower oil, which

almost led to the shutdown of some of our

plants. But storage capacities available at

vegetable oil transshipment terminals the

Group acquired in the ports of Pivdennyi,

Chornomorsk, and Reni together with usage

of third-party storage allowed the Group to

overcome this issue going forward.

During FY2023, we explored various channels

of export of sunflower oil and meal other than

the Black Sea, and ultimately found Danube

River ports in Ukraine as the most appropriate

alternative. We then managed to secure in

that region the necessary transshipment ca-

pacities to cover all our export needs in case

of the Black Sea blockade by Russia, how-

ever, the export logistics cost for such a chan-

nel remains high.

……………………………………………………………………………………

Kernel oilseed processing volumes

thousand tons

419

629

663

482

461

941

951

1,001

985

653

908

941

902

563

744

896

916

617

157

650

3,164

3,436

3,183

2,187

2,508

FY2019 FY2020 FY2021 FY2022 FY2023

Q1 (ends 30 Sep) Q2 (ends 31 Dec)

Q3 (ends 31 Mar) Q4 (ends 30 Jun)

……………………………………………………………………………………

Kernel bottled oil core brands

……………………………………………………………………………………

Kernel bottled oil selected customers

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Oilseed Processing

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Due to the inability to resume operations at the

Group's two crushing plants in the Kharkiv re-

gion, the Group has been relocating some of

the most valuable equipment from these

plants to other Group facilities. Luckily, there

were no damages to six plants in operation in

FY2023.

With the uncertainties in export logistics pre-

vailing at the beginning of FY2023, our crush-

ing plants provided processing services to

third parties, crushing in total 75 thousand

tons of sunflower seeds via tolling agree-

ments. When providing tolling services, the

Group obtains a tolling fee but is not entitled

to the regular crushing margin.

In FY2023, the headcount in the Oilseed

Processing segment increased by 10% y-o-

y, reflecting the staff hiring for the Group’s new

crushing plant which is being constructed in

Western Ukraine. No war-related staff cuts

were introduced during FY2023.

Strengthening the logistics chain

The Black Sea Grain Initiative enacted in Q1

FY2023 allowed to resumption of export activ-

ities through the Ukrainian Black Sea ports of

Chornomorsk, Odessa, and Pivdennyi. How-

ever, the port of Mykolaiv, which accounted for

nearly half of Ukraine’s pre-war seaborn veg-

etable oil exports, remained blocked. With

most of the sunflower oil export volumes flow-

ing in the direction of Pivdennyi and Chorno-

morsk ports, the competition for available

transshipment capacities there significantly in-

creased. Given that and the strategic im-

portance of the export of sunflower oil for Ker-

nel, the Group acquired a vegetable oil trans-

shipment facility in the ports of Pivdennyi. This

strategic move was pivotal for us, as it pro-

vided a new avenue for exporting sunflower

oil, particularly crucial when the historically

significant route through Mykolaiv ports be-

came blocked.

After the reporting date, the Group acquired

vegetable oil storage and transshipment as-

sets in the port of Chornomorsk and also en-

tered into an agreement to acquire the vege-

table oil transshipment terminal in the Reni

port.

While all these assets will belong to the

Group’s Infrastructure and Trading segment,

these facilities are important for the proper

functioning of Kernel’s sunflower oil export

value chain.

Performance overview

In FY2023, Kernel’s oilseed processing

Does not include 75 thousand tons of oilseeds processed by Kernel plants in FY2023 via tolling agreements.

volumes amounted to 2.5 million tons

, up

15% y-o-y primarily due to a low comparison

base, as most of our plants were out of oper-

ation in March-June of FY2022 due to active

war actions in Ukraine and disrupted export lo-

gistics. It resulted in an 84% utilization rate of

available capacities in operation for 12 months

ending 30 June 2023. Trying to improve ca-

pacity utilization, the Group processed 75

thousand tons of oilseeds via a tolling agree-

ment throughout the reporting period, but the

margin on that was well below our average

crushing margin generated in FY2023. The

Group has not processed other oilseeds than

sunflower during the reported period. The

market share of Kernel in Ukraine’s sun-

flower seed crushing is estimated by the

Company at 21%, slightly up from 20% in

FY2022.

Edible oil sales in FY2023 amounted to 1.1

million tons, up 14% y-o-y and mirroring the

growth in processing volumes. Of that, bottled

sunflower oil sales amounted to 86 thousand

tons, down 26% y-o-y, as the Group put out of

operation the refining and bottling capacities

at the Prykolotne plant in Kharkiv region.

In addition to the sales of edible oil, the Group

also sold 946 thousand tons of sunflower

meal, another product resulting from the sun-

flower seed crushing process. While sun-

flower meal is less costly than sunflower oil, its

sales are crucial for capturing the entire crush-

ing margin and preventing the accumulation of

stockpiles, which could lead to the cessation

of crushing plant operations. Ensuring smooth

sales is essential, particularly considering the

relatively short shelf life of sunflower meal.

With a substantial volume of sunflower meal

to be sold, it took the lead over the Group's

grain in competition for the limited throughput

capacity of export channels in FY2023. This

prioritization was justified, considering the sig-

nificantly higher margins in the oilseed pro-

cessing business compared to grain exports.

Segment EBITDA in FY2023 appeared to be

the record one in the Group’s history, peaking

at USD 270 million, as compared to the USD

70 million loss at the EBITDA level for FY2022

which included heavy USD 185 million one-ff

war-related losses. FY2023 EBITDA also

includes USD 22 million one-off net gain from

reversals of impairments and write-offs of in-

ventories which occurred in FY2022.

EBITDA per ton of oil sold in FY2023 spiked

to USD 237, the highest since 2009. Strong

performance in the reporting period could be

attributable to several factors working in con-

cert, such as:

• The existence of the Black Sea Grain Initi-

ative which was instrumental in enabling

the export of over half of the Group's sun-

flower oil via Ukrainian Black Sea ports in

FY2023, all at a low logistic cost.

• Global sunflower oil prices, while experi-

encing a consistent decline throughout

FY2023, remained relatively high when

compared to historical levels, allowing to

absorb the elevated logistic costs associ-

ated with exporting through channels other

than Ukrainian Black Sea ports;

• Investments and strong efforts of the team

to establish alternative export channels;

• A rather supportive sunflower seed sup-

ply-demand balance in Ukraine for

FY2023;

• Pricing of substantially increased risks

related to operations in Ukraine in FY2023:

− risks related to VAT refund for ex-

porters in Ukraine: 1) probable gov-

ernment defaults on such refunds due

to the war in Ukraine; 2) large delays

with the VAT reimbursement prevailing

on the market, which dilutes the work-

ing capital for crushers and increases

exposure to potential FX losses (as

VAT outstanding is denominated in

Ukrainian hryvnia);

……………………………………………………………………………………

Oilseed Processing segment EBITDA

109

152

(70)

270

100

(73)

237

FY2019 FY2020 FY2021 FY2022 FY2023

USD million USD / ton of oil sold

…………………………………………………

……………………………………………………………………………………………

Oilseed Processing segment performance

FY2022 FY2023 y-o-y

Oilseeds processed

thousand tons

2,187

2,502

14%

Sunflower oil sales

thousand tons

967

1,139

18%

Revenue

USD million

1,681

1,908

13%

EBITDA

USD million

(70)

270

n/a

EBITDA per ton of oil sold

USD / ton

(73)

237

n/a

EBITDA margin

% of revenue

(4.2%)

14.2%

n/a

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Oilseed Processing

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− unpredictability of export logistics

implying the potential for growing logis-

tics costs and higher exposure to goods

quality deterioration risks;

− general business continuity risks in

Ukraine due to ongoing war;

− lack of proper hedging strategy. In

previous seasons, a regular way to run

a crushing business was to lock the

margin by buying sunflower seeds and

selling sunflower oil approximately sim-

ultaneously. In the current season,

crushers need to take substantial long

positions, increasing business vulner-

ability to global price declines;

− Proceeds from sales of renewable

energy, which becomes a material ad-

dition to the segment’s earnings and

serves as a return on our historic invest-

ments in the construction of co-genera-

tion heat and power facilities adjacent

to the Group’s crushing plants.

When considered together, these factors

formed a potent synergy that propelled the

Group's performance. However, the potential

of this combination diminished as we ap-

proached the end of the season, and it's un-

likely to be achievable in FY2024.

FY2024 outlook

Due to obvious limitations, we are unable to

offer any guidance for the upcoming season.

However, we would like to emphasize key per-

formance drivers to monitor in FY2024.

Export capabilities

The status of Ukrainian Black Sea ports for ag-

ricultural product exports remains uncertain,

although recent developments offer some op-

timism. Nevertheless, the Group has proac-

tively secured ample export capabilities for

sunflower oil and meal, even in the event of

potential Black Sea port blockades. In such a

scenario, we anticipate higher logistic costs

but believe that prevailing oilseed processing

margins will help absorb these expenses.

However, shortly after the termination of the

Grain Deal, Russia resumed attacks on

Ukraine's civil port infrastructure, resulting in

damage to assets in Danube ports engaged in

the transshipment of the Group's sunflower oil

and meal. While the impact of these attacks

has been manageable so far, there remains a

significant risk that further destruction could

be more severe, potentially posing a threat to

our export capabilities.

Supply-demand balance

Sunflower seed supply in Ukraine

We estimate that the 2023 sunflower seed

harvest in Ukraine will reach 14.2 million tons,

up 19% y-o-y. Ukrainian farmers shifted to

sunflower from corn as sunflower cultivation

requires fewer fertilizers, less natural gas for

crop drying, and places less strain on storage

and logistics infrastructure due to its lower

crop yield per hectare. This transition had a

positive impact on the 2023 oilseed harvest.

However, with a low carry-in stock for

FY2024, the supply of sunflower seeds in the

market will only see a modest increase of 2-

3% year-over-year compared to the previous

season when a substantial 2.1 million tons

carry-in balance significantly bolstered oilseed

supply. A key question is the extent of sun-

flower seed exports, as aggressive export ac-

tivities might diminish the available stock for

crushing.

At the beginning of the FY2024 season, we al-

ready faced a deficit of sunflower seeds. As

of 30 June 2023, we had only 67 thousand

tons of sunflower seeds in stock – the lowest

amount since FY2016 for that part of the sea-

son. Consequently, two of our oil extraction

plants switched to rapeseed processing in Q1

FY2024, crushing in total 113 thousand tons

of rapeseed.

It shall be flagged, however, that many farm-

ers in Ukraine, including the Group’s own

farming business, substantially deviated from

normal crop rotation practices for harvests of

2022 and 2023 in favor of a higher share of

sunflower in crop acreage, as sunflower

granted profitability even in case of the most

severe scenarios. But the practice of keeping

the share of sunflower in the crop mix high is

not sustainable, and already in 2024 farmers

will need to significantly reduce the acreages

under sunflower – otherwise crop yields will be

negatively impacted due to the spread of pests

and diseases.

Oilseed processing capacities

The Group entered the FY2024 season with 6

crushing plants in operation having in total 3

million tons of annual sunflower seed pro-

cessing capacity. Re-integration of the other 2

plants in the Kharkiv region does not seem

feasible in the near future.

In addition, we are on track to commission our

new state-of-the-art crushing plant in the

Khmelnytskyi region in spring 2024. This facil-

ity will possess an annual processing capacity

of 1 million tons of sunflower seeds, making it

the largest of its kind in Ukraine. Despite fac-

ing over a year of construction delays due to

Russia’s full-scale invasion of Ukraine, our

management made a strategic decision in

2023 to see the project through to completion.

Several factors underpinned this decision:

• Resilient profitability: our Oilseed Pro-

cessing business has demonstrated robust

margins during the wartime conditions in

Ukraine and is anticipated to remain a key

profit driver for FY2024. Ukrainian farmers

are expected to increase their sunflower

seed production, providing a substantial

supply base. Additionally, the current global

prices for sunflower oil and meal offer the

opportunity to absorb high export logistics

costs, leaving also room for profit for crush-

ers and farmers.

• Substantial investment progress: at the

time of this decision, the Group had already

invested USD 230 million out of a total of

USD 278 million. The facility was nearly

80% staffed, showcasing significant pro-

gress in its development.

The plant will be equipped with a co-genera-

tion heat and power unit having 22.5MW elec-

tricity generation capacity. This capability is of

paramount importance, especially considering

the potential for power outages in Ukraine.

…………………………………………………………………………………………………………………………………………………

Construction site of Kernel new oil-extraction plant in Western Ukraine, August 2023

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As a result, the Group is likely to end the sea-

son with 4 million tons of sunflower seed

crushing capacity per annum.

We will try to keep the capacity utilization of

our plants as high as possible, but it will re-

quire a sizable amount of working capital to be

deployed.

Other profit drivers

In November 2023, we aim to commission

our fifth co-generation heat and power

(“CHP”) facility with 21 MW installed electric-

ity generation capacity. The project undenia-

bly holds strategic significance for us, as it bol-

sters energy security for both our business

and Ukraine. The sixth CHP unit, a 6 MW fa-

cility at our Vovchansk plant, may not be put

into operation in the foreseeable future due to

the asset’s proximity to the Russian border.

The commissioning of the seventh CHP unit,

a 22.5 MW unit at our new plant in the Khmel-

nytskyi region, is expected to take place in

spring 2024.

Power outages

It is very likely that Russian attacks on

Ukrainian energy infrastructure which

heavily impacted Ukraine’s energy system in

FY2023 will repeat in FY2024. While the

Group is generally better prepared for such a

scenario than in FY2023 and our renewable

energy investments allow us to partially miti-

gate risks of blackouts, the severity of the pos-

sible impact is hardly predictable.

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The Infrastructure and Trading segment has come

through one of the most turbulent seasons ever.

With its full-scale invasion of Ukraine, Russia has

also impeded Ukraine's agricultural sea-bound ex-

ports, leaving the Group without channels to export

produce.

We entered the season with the largest-ever carry-

over stock of grain of 1.8 million tons. Accounting

for procurement of 1 million tons, export of 3.7 mil-

lion tons, and crop of our own farming business, we

ended the season with 1.1 million tons of grain in-

ventories, substantially reducing pressure on our

infrastructure. Our grain export volumes in FY2023

were reduced twofold, and grain procurement from

third parties reduced 7x y-o-y.

The EBITDA of the segment in FY2023 remained

robust, totaling USD 154 million. This strong perfor-

mance was primarily attributed to the infrastructure

and logistics assets in Ukraine, especially during

the active phase of grain exports facilitated by the

Black Sea Grain Initiative (BSGI). The Grain Deal

played a pivotal role in securing the EBITDA of this

segment, considering that 90% of the Group's grain

exports were executed within the framework of the

Grain Deal.

The financial performance of this segment was

marked by significant volatility. Periods when the

grain corridor faced disruptions resulted in losses,

particularly in Q4 FY2023. Conversely, quarters

characterized by the smooth operation of the Grain

Deal substantially contributed to the segment's

overall performance for the entire fiscal year.

The majority of the Group's investment efforts were

concentrated on enhancing infrastructure and logis-

tics assets. These investments included the acquisi-

tion of transportation assets such as vessels, con-

tainers, flat railcars, and trucks, as well as the acqui-

sition of transshipment facilities for grain and edible

oil.

The next season brings new challenges. The Grain

Deal is over, and we faced a significant decline in

export volumes in Q1 FY2024. Assuming the Black

Sea is closed for our exports, the outlook for the seg-

ment is blurry. However, some hope remains, as re-

cently Ukrainian military introduced temporary

routes towards the ports of Odesa regions. The ca-

pability of this path is yet to be proved.

Russian attacks against Ukraine’s port infrastructure

continue on a regular basis and exacerbate con-

cerns about the performance next year.

Exported 3.7 million

tons of grains from

Ukraine in FY2023

EBITDA

(before unallocated head office expenses)

USD 154 million

-35% y-o-y

Tumultuous period with remarkable instability

Revenue

USD 2,602 million

-43% y-o-y

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Market overview

The key market factors important to follow for

the Infrastructure and Trading segment perfor-

mance include the availability of the Ukrainian

Black Sea ports for export operations and the

dynamics of global grain prices. Other factors

include the harvest of grains in Ukraine, com-

petition among grain traders in Ukraine, and

competition among grain infrastructure as-

sets, to name a few.

Black Sea Grain Initiative

BSGI was paramount for the export of agricul-

tural produce from Ukraine in FY2023. Signed

in July 2023, it secured the export of 54% of

total Ukraine’s export of grain during the sea-

son, 27% of vegetable oils, and 38% of oilseed

meals, even though the functioning of the cor-

ridor was less than flawless. For more detailed

information, please refer to the next page.

Grain harvest in Ukraine

In FY2023, Ukrainian farmers harvested 55

million tons

of grain, down by 36% y-o-y.

The acreage under grains, namely: corn,

wheat, and barley decreased from 15 to 11

million hectares due to a large part of Ukrain-

ian territories being temporarily occupied by

Russia, as well as a substantial portion of land

remaining inaccessible due to active military

actions taking place.

At the same time, record carry-over stock from

the previous season kept the grain supply in

Ukraine at a strong 71 million tons, 19% down

y-o-y.

Despite the continued war and low harvest, in

FY2023 the grain exports from Ukraine were

relatively stable compared to the previous

years and amounted to 48 million tons, a slight

decline of 4% y-o-y. Ukraine became the

fourth-largest exporter globally in the 2022/23

season after the USA, Brazil, and Russia, and

kept a 9.7% market share in global grain

trade

Competition among grain traders

The disruption of Ukraine's traditional grain

export channels, the expansion of exports

through alternative routes, and the implemen-

tation of the Black Sea Grain Initiative with its

specific vessel allocation system have led to a

significant rise in competition among grain

traders. Many new, smaller players have en-

tered the grain export market. As a result, the

market share of Kernel and other big multina-

tional trade houses like Louis Dreyfus, Cargill,

ADM, and COFCO, significantly reduced. In

this competitive landscape, Kernel leverages

its extensive infrastructure network and

Three key grains: corn, wheat, and barley. Source: Company estimates as of October 2023.

Three key grains: corn, wheat, and barley. Source: USDA, as of October 2023.

logistical assets to maintain a competitive

edge.

Global grain prices

The evolution of global grain prices in FY2023

was determined by the following factors:

• After being at a record high for a few months

following the sudden onset of the Russian

war, global grain markets finally witnessed

a sharp decline in late June-July of 2022.

Both wheat and corn retreated greatly from

the previous values yet remained at histori-

cally high levels. Wheat prices took the lead

in the plunge, reacting to record Russian

yields and exports. Other bearish factors in-

cluded Ukraine’s regained access to the

Black Sea via BSGI, Northern hemisphere

harvest pressure, quantitative tightening re-

sulting in stronger USD, fears of global re-

cession, and massive arrival of South

American corn harvest to the global market-

place.

• Around Aug-Sep 2022, grain prices have

somewhat rebounded in response to dry

growing conditions in the EU and North

America, followed by major drought in Ar-

gentina. On top of that, Russia started to

blackmail the world threatening to quit the

BSGI. Such regular threats and deliberate

disruptions of the corridor’s proper function-

ing will continue to be a bullish factor

through the end of the season until the ac-

tual Russian withdrawal from the deal in

July 2023.

• The next bearish phase started in October

2022 and generally prevailed for many

months, all the way through the end of May

2022. The main drivers were Black Sea

Grain deal renewals and relatively good

performance, record Russian exports, rec-

ord high Australian crop came to light, huge

Safrinha crop looming, big enough to offset

drought losses in Argentina, and finally

good prospects for the new 2023 wheat and

corn harvest in the Northern hemisphere.

Moreover, the other long-standing bearish

fundamentals retained their relevance -

global monetary tightening in an attempt to

curb inflation, slowing the world economy,

sluggish consumer demand globally, and

concerns about Chinese buying capacity in

particular.

• At the end of FY2023, grain prices were set

to decline yet further given ample supply

and uncertain demand, but here came the

weather - the US Midwest faced severe

drought, dry conditions in Canada and parts

of the EU and Russia set prices on the rise

in late May-first half of June 2023. However,

it did not last long, as timely rains and

larger-than-expected corn acreage in the

US brought a bearish tone back to the mar-

ket at the end of June 2023.

………………………………………………………………………

Top

-10 grain exporters from Ukraine in

FY20

% of total grain export

Source:

STARK, Kernel

Kernel

Louis Dreyfus

Cargill

Nibulon

ADM

Agroprosperis

Cofco

Viterra

Ukrlandfarming

Olam Ukraine

………………………………………………………………………

Grain exports from Ukraine by

transport in

FY2023

thousand tons

Source:

Agrochart, Kernel

54%

25%

16%

Deepsea River Railways Auto

47.6

…………………………………………………………………………………………………………………

Average grain railcars lease costs in Ukraine

USD per day

35.9

30.0

14.2

41.4

53.5

FY2019 FY2020 FY2021 FY2022 FY2023

………………………………………………………………………

Corn and wheat prices, FOB Constanta

USD per ton

Source:

Agricensus, Kernel

100

200

300

400

Corn Wheat

FY2021

FY2022 FY2023

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All in all, it has been a challenging year for the

global food industry, but more so for Ukrainian

farmers and exporters who were particularly

hard-hit.

Grain railcars business

Grain railcars remained in large demand in

FY2023, driven by increased exports by rail-

ways (11.5 million tons of grain, vegetable oils,

and meals) and the Grain Deal granting a win-

dow of opportunity to export via the Black Sea

and the respective delivery of grain by railcars

to ports.

Our business model

The Infrastructure and Trading segment en-

compasses multiple interconnected business

units that form a supply chain bridging Ukrain-

ian farmers with global markets. These units

include silo services, transportation and logis-

tics assets, export terminals in ports, vessels,

grain origination and export operations in

Ukraine, as well as Avere operations (offshore

physical and proprietary trading).

Grain export business

Kernel is the leading grain exporter from

the Black Sea region and stands as the larg-

est grain exporter from Ukraine. The Group is

involved in purchasing grain from local grower

partners (including its own Farming segment)

and exporting it from Ukraine, navigating in

this low-margin business by effectively com-

bining the following components:

• Experienced procurement team with

country-wide presence and deep under-

standing of local trends and regional pecu-

liarities;

• First-hand access to the unique in Ukraine

own infrastructure – the largest private

silo network, the largest private fleet of grain

railcars, as well as the largest deep-water

grain transshipment capacity in ports;

• Prudent risk management: locking up the

margins by selling grain through forward

contracts in a similar time frame as purchas-

ing it from farmers on the spot market

;

• Client-friendly approach allows Kernel to

positively differentiate relationships with

farmers managing it through the centralized

CRM system IBuyMore and supporting

them with numerous value-added initia-

tives:

− Kernel used to be one of the largest

providers of pre-crop financing to

farmers in Ukraine, with loan amounts

reaching USD 120 million at peak. How-

ever, due to various business re-

strictions and implied risks caused by

Russia’s full-scale invasion of Ukraine,

the Group does not maintain such activ-

ities any longer.

Deviations from such approach may appear during the business disruptions caused by the war in Ukraine.

− With the Open Agribusiness initiative,

the Group shares know-how and pro-

vides various services to third-party

farmers operating on a total of 168

thousand hectares of land.

− Kernel provides advanced IT solutions

to the suppliers, including an electronic

document flow system that simplifies

paperwork for farmers and accelerates

deals execution, as well as the

Transithub virtual truck navigation solu-

tion for providers of grain and oilseeds

logistics.

More than 67% of the grain exported from

Ukraine in FY2023 was sold on the CFR/CIF

basis when Kernel also organized transporta-

tion of goods by sea to the port of destination.

FOB sales amounted to 26% of the Group’s

export volumes in the reported period.

In FY2023, Kernel exported 1.6 million tons

of ISCC-compliant corn, which is used for bi-

oethanol production and grants a price pre-

mium over conventional corn, as ISCC certifi-

cation confirms that corn was produced in an

environmentally and socially sustainable way.

Silo services

We operate the largest private inland silo

network in Ukraine, which includes 28 silos

with a combined grain storage capacity of 2.2

million tons. On top of that, we also have avail-

able 0.3 million tons flexi bags storage capac-

ity for the FY2023 season. The assets network

includes highly productive storages capable of

loading shuttle trains (54 railcars) in one day,

but also smaller and less efficient floor-type si-

los.

Situated strategically throughout Ukraine's pri-

mary grain-producing regions, these silos of-

fer a full suite of services, including grain in-

take, drying, cleaning, storage, and off-loading

services to both our Farming segment and

third-party farmers across the country. Grain

intake at the silos commences with wheat in

July and concludes with corn in December, al-

lowing them to achieve a seasonal turnover

exceeding 1.0x their storage capacity.

In addition to its standard services, Kernel's

silo network plays a crucial role as an origi-

nation tool. It allows the procurement team to

acquire grain and sunflower seeds from farm-

ers within a 100-kilometer radius, establishing

the Group as the preferred choice for farmers.

This widespread network of inland silos also

fosters strong relationships with farmers and

offers enhanced insights into the Ukrainian

grain supply.

Transportation and logistics assets

The Group operates numerous transportation

and logistics assets that are used for inland lo-

gistics (by rail or road) when exporting grain,

sunflower oil, and meal from Ukraine.

Assets used for railway logistics include:

• Grain railcars. Kernel is the largest private

operator of grain railcars in Ukraine, with an

11% market share of the total grain hoppers

fleet in Ukraine. The Group owns 3.4 thou-

sand railcars used to deliver grain from both

Kernel-owned silos and those operated by

other entities' silos to the grain transship-

ment terminals in the ports. Ownership of

the railcars allows Kernel to save on lease

payments, though still paying for the usage

of railway traction and infrastructure. Since

the beginning of the war in Ukraine, 8% of

the Group’s wagons have remained stuck in

the territories temporarily occupied by Rus-

sia. The remaining railcars serve as a huge

support when utilizing the railway export

routes.

• Specialized containers. The Group owns

100 specialized railway containers de-

signed for the transportation of grain and

sunflower meal via container flatcars, as

well as 400 railway tank containers for the

transportation of sunflower oil via container

flatcars.

• Rail flatcars in the amount of 99 units to

transport containers by railways;

• Railway tanks for sunflower oil transporta-

tion in the amount of 77 units.

In addition, Kernel owns and operates a fleet

of vehicles, including 22 tanker trucks for

transporting sunflower oil and 81 trucks with

trailers for grain transportation.

Export terminals

Kernel is one of the largest port operators

in Ukraine. The Group’s infrastructure in op-

erations includes:

• TransBulkTerminal in the deep-water port

of Chornomorsk – the largest grain trans-

shipment facility in Ukraine, allowing the

…………………………………………………………………………………………………………………

Kernel grain export from Ukraine destinations

illion tons

43%

42%

12%

Asia Europe Middle East Africa Other

3.7

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Group to handle 10 million tons of grain per

annum. It is capable of servicing over-Pan-

amax-sized vessels with a deadweight of up

to 100,000 tons and maximum loading at

berths of up to 80,000 tons.

• OilExportTerminal in the deep-water port

of Pivdennyi – a vegetable oil transship-

ment terminal with a capacity to transship

0.5 million tons of sunflower oil per annum.

The asset was acquired by the Group in

FY2023

• Danube Prom Agro terminal in the river

port of Reni, allowing to export of 0.4 million

tons of grain/sunflower meal per annum.

The Group acquired this asset in FY2023.

Furthermore, in Q1 FY2024 the Group ac-

quired through a bankruptcy proceeding se-

lected assets of the vegetable oil trans-

shipment terminal in the Chornomorsk

port. The facility is currently not operational,

and additional investments and preparations

are required to bring it to full functionality.

Finally, in Q1 FY2024 the Group agreed to ac-

quire the Reni-Oil sunflower oil transship-

ment terminal in the port of Reni on the

Danube River with a capacity to transship 700

thousand tons of sunflower oil per annum.

Kernel’s terminals transship mainly grain

(77% of total throughput in FY2023), but also

sunflower meal, sunflower oil, and sunflower

husk.

Vessels

As a new business line added in FY2023, the

Group owns and operates bulk carrier “Ene-

ida” with grain cargo capacity of 44 thousand

tons and tanker “Mavka” with sunflower oil

cargo capacity of 12.5 thousand tons.

Exercising complete control over the entire

value chain (from silos to railcars to port termi-

nals and vessels) allows us to improve the

efficiency and reduce costs of export logistics.

Avere operations

Avere is a research and knowledge platform

founded in FY2018 and headquartered in

Switzerland, with representative offices in the

USA, Singapore, and China. Avere employs a

highly skilled team of 32 professionals special-

izing in research, trading, and execution. Lev-

eraging its expertise, Avere engages in mer-

chandising and proprietary trading of grains,

oilseeds, and related commodities in key

global markets.

Avere financial results might be quite volatile

because of its trading nature. Market risk

taken by Avere is managed by various tools,

including monitoring and restricting such met-

rics as:

• Drawdown (difference in value from the

most recent peak to the most recent trough

in the market); and

• Value-at-risk (a maximum potential loss

over one day with 95% confidence).

Key developments

Russia’s full-scale invasion of Ukraine blocked

Ukrainian Black Sea ports, our usual export

route, for export operations. Throughout

FY2023, the Group was in search of alterna-

tive export routes. After testing many options,

it became obvious that there is no viable al-

ternative to deep-water ports of the Black

Sea. The next best option is the Ukrainian

Danube River ports of Reni and Izmail, but the

capacity there is limited, and logistics costs

are much higher. Export via railcars or trucks

to the EU or transiting the EU to other destina-

tions is even more expensive and lacks capac-

ity.

With the BSGI granting some relief, our grain

export volumes substantially recovered,

but still were well below pre-war levels due

to constant Russia’s sabotage of vessels’ in-

spection, as the Russian navy was authorized

to conduct weapons inspections on vessels at

the Bosphorus Strait, located at the gateway

to the Black Sea. Before the war, our monthly

export volumes peaked at 1.2 million tons, uti-

lizing our world-class deep-water port infra-

structure. With the Grain Deal in place, the

maximum reached was 50% lower, only 0.6

million tons per month.

At the start of the season, there was a physical

shortage of agriculture export capacity

through channels other than the Black Sea

ports of Ukraine. However, as the season pro-

gressed, export capacities expanded signifi-

cantly. Danube River ports achieved a

monthly throughput of 2.5 million tons, rail

transport exports peaked at 1.5 million tons,

and a maximum of 0.7 million tons were ex-

ported via trucks. Despite these substantial

capacity enhancements, a season-long de-

cline in global prices led to price levels that

made achieving profitable sales extremely

challenging, especially in light of the persis-

tently high logistic costs.

Due to limited export capabilities, a surplus of

carry-over stock, and a significant grain har-

vest from our own Farming segment,

First vessels added to the Group’s asset portfolio

“Eneida”

• bulk carrier with a grain cargo capacity of 44 thousand tons

“Mavka”

• tanker with sunflower oil cargo capacity of 12.5 thousand tons

…………………………………………………………………………

Kernel grain export from Ukraine

illion tons

6.1

7.9

8.0

3.7

FY2019 FY2020 FY2021 FY2022 FY2023

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substantially reduced the grain procure-

ment activities in FY2023. Throughout the

reporting period, we procured only 1.0 million

tons of grain from other farmers, a substantial

reduction compared to the 7.1 million tons pur-

chased in FY2022.

Fortunately, our grain export infrastructure re-

mained largely intact in FY2023. The only ex-

ception was the Group's silo with 50 thousand

tons of grain storage capacity in Huliaipole,

Zaporizhzhia region, which sustained initial

damage at the onset of the conflict and was

ultimately destroyed during FY2023 due to on-

going military activities in that region.

The headcount of the segment increased

2% y-o-y, to 2, 741 employees as of 30 June

2023. The new hires are mostly associated

with the additional employees required for the

Group’s pioneering of the alternative export

routes.

Asset base optimization

In FY2023, the Group completed the disposal

of two floor-type grain storages which had

started in FY2021. The cash consideration re-

ceived amounted to USD 4 million. Addition-

ally, the Group is in the process of disposal of

one additional floor-type grain silo with 50

thousand tons of grain storage capacity.

Fleet investments

Due to the disruptions in grain and sunflower

oil export logistics caused by the war in

Ukraine, the Group recognized a pressing

need for its fleet to facilitate these commodi-

ties' exports. Early in FY2023, the Group ac-

quired two used vessels: one capable of car-

rying 12.5 thousand tons of sunflower oil and

the other with a grain cargo capacity of 44

thousand tons. This strategic acquisition, to-

taling USD 17.8 million, significantly improved

the efficiency of the Group's export value

chain. Encouraged by the synergies gained

from this investment, Kernel is actively explor-

ing further opportunities related to sea ves-

sels.

At the beginning of FY2024, the Group also

secured two oil tanker convoys (9,800 tons in

total) and is considering further fleet invest-

ments. Additionally, the Group invests in se-

curing the availability of river barges.

Strengthening the asset base

In February 2023, Kernel acquired a Danube

Prom Agro grain terminal in the Reni port of

Ukraine. The facility has flat warehouses with

a one-time storage capacity of 12,000 tons,

and the acquisition is part of Kernel's strategy

to secure backup options in case the Black

Sea ports become inaccessible. The Group in-

tends to keep investing in its operations in the

Reni port to expand the transshipment capac-

ity, and such investments will be leveraged by

the Agricultural Resilience Initiative of the

USAID which agreed to procure and supply

the equipment needed for such expansion.

Furthermore, the Group initiated a project to

construct a new grain and sunflower oil trans-

shipment terminal in Reni, securing the land

plot, preparing the project, and contracting

some of the equipment required. However, in

light of renewed Russian attacks on the Dan-

ube River port infrastructure at the outset of

FY2024, the Group decided to postpone the

facility's construction. The assessment indi-

cated that the risks of newly constructed stor-

age capacities being vulnerable to Russian air

attacks were unacceptably high, leading to the

suspension of the project.

In December 2022, Kernel completed the

acquisition of a 100% stake in an edible oil

transshipment terminal located in the Black

Sea port of Pivdennyi in the Odesa region,

having a one-time storage capacity of 49.4

thousand tons of sunflower oil. The transac-

tion implied an enterprise value of USD 19.8

million. This acquisition is of strategic im-

portance to Kernel because it provides the

Group with a new channel of export of sun-

flower oil while the historically largest route

through ports in the Mykolaiv region is cur-

rently unavailable.

Once it became obvious that the Grain Deal

would not be extended, we understood the ur-

gent need to secure sunflower oil transship-

ment capacity via the Danube River. As such,

after the reporting date, we agreed to acquire

100% of corporate rights in Reni-Oil LLC, a

sunflower oil transshipment terminal with

15 thousand tons of one-time sunflower oil

…………………………………………………………………………………………………………………………………………………

Acquired sunflower oil transshipment terminal in the port of Pivdennyi

…………………………………………………………………………………………………………………………………………………

Acquired sunflower oil storage and transshipment assets in the port of Chornomorsk

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storage in the Reni port for USD 24.75 million.

It is the only terminal with proper intake, stor-

age, and off-loading capacities among Ukrain-

ian Danube River ports, allowing to export of

sunflower oil even in case of the blockade of

the Black Sea ports. The deal is expected to

be completed by 31 December 2023.

Additionally, to improve the resilience of its

oilseed processing business which has been

the Group’s major earnings driver recently, the

Group acquired assets used in the trans-

shipment of vegetable oils in the port of

Chornomorsk for USD 19.4 million. In case

Ukrainian Black Sea ports remain blocked, the

Group intends to use such assets as an im-

portant storage and transshipment hub to re-

ceive the sunflower oil by railway, accumulate

it in storage, and then redirect sunflower oil by

trucks to the Danube River port, thus reducing

the logistics costs of the alternative export

route. One-time sunflower oil storage of 105

thousand tons allows the Group not to stop

crushing plants during transportation disrup-

tions, as heavily experienced in FY2022-

FY2023, and smooth down the logistics. In

case Ukrainian Black Sea ports are un-

blocked, the assets will be used as a core

deep-water transshipment base on the Black

Sea for sunflower oil exported by the Group.

Historically, the terminal was inactive and not

adequately maintained for an extended pe-

riod, so it will take some time to make it fully

functional.

Performance overview

The Infrastructure and Trading segment

achieved favorable results in FY2023 despite

the challenges posed by the war in Ukraine.

These outcomes primarily hinge on the acces-

sibility of the Black Sea for grain export, the

extensive infrastructure and logistics assets

held by the Group, and the dedicated efforts

of our team.

Operational performance

In FY2023, the Group exported 3.7 million

tons of grain from Ukraine, a 54% y-o-y de-

cline because of logistical issues spawned by

Russia’s war on Ukraine. The limited through-

put capacity of the BSGI, combined with the

Group's priority to export sunflower meal, a

product of more profitable oilseed processing

operations, does not allow Kernel to export

more grain when the Black Sea was open for

exports. And high logistic costs associated

with exporting through channels other than the

Black Sea, along with declining global prices,

forced the Group to minimize loss-making

shipments via alternative export channels.

As a result, only up to 10% of Kernel's export

Source: Kernel analysis

volume left Ukraine via channels other than

the Black Sea in FY2023, while over 90% was

exported via the Group's TransBulkTerminal

within the BSGI, underscoring the pivotal role

of Grain Deal in maintaining the Group's finan-

cial standing.

Corn comprised 77% of exported volumes,

wheat – 17%, and the remaining percentage

standing for barley and other crops. The

Group’s own Farming segment produced al-

most half of the grain Kernel exported in

FY2023. Given disruptions in export logistics

and many new small players entering the mar-

ket, Kernel’s market share in grain export

has contracted, reaching 8% for FY2023, as

compared to 16% in the previous season

. In

FY2023, the Group kept 10% of all corn ex-

ported from Ukraine, 4% of wheat, and 5% of

barley

. Despite substantially losing market

share, Kernel retained its position as the larg-

est grain exporter from Ukraine.

During the reported period, Kernel trans-

shipped 4.4 million tons of goods (grain,

sunflower meal, oil, and husk) through its port

facilities, down by 39% y-o-y. The decline is

mainly attributed to the disruptions of opera-

tions of Ukrainian Black Sea ports due to the

war in Ukraine.

The volume of grain received in inland silos

has amounted to 2.8 million tons, 32% down

y-o-y, reflecting lower crop size in 2022 as

compared to the 2021 year and large carry-

over stock from the previous season.

Financial results

Segment EBITDA in FY2023 amounted to

USD 154 million, down 35% y-o-y. The decline

is mostly driven by virtually no contribution

from Avere trading activities in FY2023, as

compared to USD 134 million Avere EBITDA

generated in FY2022. As such, practically all

segment EBITDA in the reporting year was

generated by infrastructure businesses in

Ukraine:

• Strong EBITDA of the railcars business

line. With the Grain Deal in place and the

constant risk of its termination, all players in

Ukraine pushed hard trying to export as

much as possible during this window of

opportunity. Consequently, lease rates for

grain railcars in Ukraine reached record

highs, practically doubling the EBITDA of

for Group’s grain railcars business in

FY2023 as compared to the previous pe-

riod.

• Higher y-o-y contribution from silo busi-

ness line despite much lower grain intake

volume, driven by:

− higher proceeds from storage services

given large carry-over stock from

FY2022;

− overall market tariffs increase for silo

services;

− more grain drying services provided

and lower cost of natural gas used for

drying services.

• EBITDA of the export terminals business

line reduced y-o-y primarily due to lower

transshipment volumes but still remained a

substantial contribution to the segment’s

earnings.

• Origination margin in Ukraine in FY2023

resulted in a small loss at the EBITDA level

but was hugely volatile over the season.

Loss in the first quarter (when the Black Sea

was closed or not fully functional yet) turned

into profits in the second and third quarters

(as we benefited from cheap logistics when

exporting goods from Ukraine via the Black

Sea Grain Initiative) and then turned again

into a substantial loss in the last quarter

when low global prices and constraints of

exporting via Grain Deal took a toll.

• Various one-off factors resulted in a USD

8 million loss on the EBITDA level, including

USD 8.5 million allowance for VAT created,

USD 1.4 million write-offs of railcars which

remain blocked on territories temporarily

occupied by Russia, partially compensated

…………………………………………………………………………

nfrastructure and Trading segment EBITDA

D million

106

216

359

237

154

FY2019 FY2020 FY2021 FY2022 FY2023

…………………………………………………………………………………………………………………………………………………………

Infrastructure and Trading segment performance

FY2022

FY2023

y-o-y

Grain export volumes

thousand tons

7,969

3,705

(54%)

Export terminal's throughput (Ukraine)

thousand tons

7,269

4,433

(39%)

Grain received in inland silos

thousand tons

4,185

2,825

(32%)

Revenue

USD million

4,535

2,602

(43%)

EBITDA

USD million

237

154

(35%)

EBITDA margin per ton of grain exported

USD

40%

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by a positive effect from reversal of impair-

ment of inventories recognized in FY2022.

The volatility of the business environment dur-

ing FY2023 was strongly reflected in the quar-

terly results of the segment. When adjusted for

offshore Avere trading activities, the grain ex-

port value chain in Ukraine was loss-mak-

ing in the first and the last quarters of the sea-

son but made good money in the second and

third quarters benefitting from the ability to ex-

port goods via the Black Sea ports of Ukraine.

FY2024 outlook

We identify two key risks for FY2024: the

blockade of the Ukrainian Black Sea ports for

the export of goods and Russian missile at-

tacks on the Group’s infrastructure.

Black Sea ports functioning

On 18 July 2023, Russia unilaterally withdrew

from the BSGI and re-imposed the blockade

of Ukrainian deep-water ports. It negatively

and materially impacted the Group’s export

capabilities as the BSGI was a major channel

for delivering soft commodities to the interna-

tional marketplace. Any alternatives to sea-

borne trade are limited in capacity and more

expensive from a logistics standpoint ad-

versely impacting operating profitability.

However, in late September 2023, the Ukrain-

ian military introduced temporary routes for

commercial navigation of vessels leaving

Black Sea ports. Amid threats, first vessels

started to use a new shipping route that

allowed to revive gran export to circumvent the

Russian blockade. The Group’s own vessel

was among the first which use such a route to

load the grain and deliver it to the export mar-

ket. It is not clear, however, how sustainable

such a new route is and what could be its

throughput capacities. Not so many vessels

left so far using this route. The ability to ex-

port via Ukrainian Black Sea ports is criti-

cal for maintaining the segment’s profita-

bility in FY2024.

Having no low-cost logistics solutions at the

current prevailing low global grain prices will

imply strongly negative margins for farmers in

Ukraine and prevent them from selling goods.

The Group secured capacities in the Ukrain-

ian ports of Reni and Izmail and the Romanian

port of Constanta for monthly export of 100

thousand tons of grain in case the blockade of

Ukrainian Black Sea ports resumes. However,

the profitability of such operations will strongly

depend on the selling prices captured.

The Group entered FY2024 with 1.1 million

tons of grain in stock, down 42% y-o-y, but an

additional 1.3-1.4 million tons of grain and soy-

beans are to be added following the comple-

tion of the harvesting by the Group’s farming

business.

Attacks on the Group’s infrastructure as-

sets

On 19 July 2023, immediately after the termi-

nation of the Black Sea Grain Initiative, Russia

resumed its terrorist air attacks on Ukraine’s

civil port infrastructure. The missile attack on

that day severely damaged the grain export in-

frastructure at the Ukrainian ports of Odesa

and Chornomorsk, including vital Group as-

sets. The attack inflicted considerable harm to

the Group’s storage facilities, intake capaci-

ties, and loading equipment, as well as loss of

commodity inventories.

On 24 July 2023, another missile strike tar-

geted the Reni Port on the Danube River. This

attack caused extensive damage to the port's

infrastructure, specifically affecting the

Group's vegetable oil transshipment terminal.

As a result, 6 thousand tons of storage capac-

ity were lost, railway intake capabilities and

piping equipment were damaged, and nearly

a thousand tons of sunflower oil were spilled

and irretrievably lost.

On 6 August 2023, a significant missile strike

struck one of the Group's largest inland silos

located in the Khmelnytskyi region. This attack

resulted in the complete destruction of 21

thousand tons of storage, as well as truck un-

loading equipment. Additionally, 44 thousand

tons of storage, drying facilities, and adminis-

trative buildings sustained substantial dam-

age.

On 16 August 2023, Russian drones targeted

and inflicted severe damage upon all grain

storage belonging to the Group's grain trans-

shipment terminal in the Reni port. This as-

sault also resulted in the destruction of

Russian a

ttacks on the Group’s infrastructure assets since July 2023

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valuable loading equipment.

On 2 September 2023, Russia once again tar-

geted key Danube port infrastructure in

Ukraine, vital to the operations of the Com-

pany’s subsidiaries involved in sunflower oil

exports from the region. Russian drones in-

flicted damage on various vital assets, includ-

ing storage tanks utilized for the accumulation

of vegetable oil, essential transshipment

equipment (including pipelines), rail-way in-

take capabilities, rail tanks awaiting unloading,

and an administrative building.

On 3 September 2023, Russia also targeted

grain flat storages managed by a port operator

in the Danube region, a key provider of grain

transshipment services to Kernel. This led to

the complete destruction of two flat storages

with a combined storage capacity of 5 thou-

sand tons, while another two flat storages with

the same capacity sustained damage, render-

ing them temporarily unusable for grain accu-

mulation.

On 6 September 2023, another strike oc-

curred, affecting, among other locations, the

Company's assets in the Danube ports. Fortu-

nately, no major damage was reported, alt-

hough the operational activities of these as-

sets were temporarily disrupted.

The current preliminary assessment of the re-

quired capital expenditure for the restoration

and rehabilitation of equipment damaged or

destroyed in recent attacks indicates a mini-

mum cost of USD 21 million. For some in-

stances, the repair process is anticipated to

extend over a period of up to 12 months. The

cumulative estimated market value of the

commodities lost as a result of these attacks

is approximately USD 11 million. Affected

equipment and inventories do not have insur-

ance coverage for unexpected events.

Other risks

It is expected that Russia may recommence

its attacks on Ukraine's energy infrastructure

in the Q2-Q3 FY2024. Although Kernel is now

better equipped to handle such a situation

compared to the previous year, the extent of

possible rolling blackouts and power dis-

ruptions in Ukraine is yet to be felt.

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FY2023 performance

FY2023 proved to be one of the most volatile years

in our history. We began the season with uncertainty

about selling crops in the fields and a surplus from

the previous year. Our typical export routes were

blocked, and alternative options carried high logisti-

cal costs. Amidst these challenges, our ability to

maintain farming operations at our usual scale was

uncertain. Energy and fertilizer expenses were ris-

ing, and the ongoing war in Ukraine disrupted our

usual crop production processes.

Fortunately, in July 2022, the Grain Deal was

signed, opening up Ukrainian Black Sea ports for

agricultural exports at relatively low logistics costs.

It allowed us to avoid the full collapse of grain stor-

age and logistic infrastructure caused by the ap-

proaching harvest in Ukraine. Additionally, we ben-

efited from elevated global grain and oilseeds

prices, which, despite a downward trend in FY2023,

enabled us to secure our highest-ever sale prices

for the Farming segment.

Lastly, we capitalized on the legacy of the previous

season. A significant portion of FY2023 results was

driven by the sale of low-cost carry-over stock from

the 2021 crop, benefiting from a reduced cost base

due to the depreciation of the Ukrainian hryvnia

against the USD. Altogether, we achieved a strong

EBITDA of USD 285 million during the first half of

the season, which then turned into USD 64 million

losses at the EBITDA level in January-June 2023,

reflecting a substantial deterioration of the operating

environment.

With all these factors aligning, the Farming segment

delivered an EBITDA of USD 221 million for the re-

ported period.

FY2024 outlook

The robust performance of the last season has lim-

ited to no impact on the FY2024 outlook. Global

grain prices have declined to levels insufficient to

cover the costly logistics associated with exporting

via Danube River ports or railways toward the EU.

At the same time, the resumption of regular export

operations through Ukrainian Black Sea ports, re-

ducing logistics costs, remains uncertain. In the ab-

sence of significant changes in these factors, the

Group is likely to incur losses related to carry-over

stock from FY2022 (comprising over 700 thousand

tons of grain) and the whole volume of the 2023 har-

vest of corn, wheat, and sunflower.

These loss-making operations raise significant con-

cerns regarding our approach to the 2024 planting

campaign. While we have completed the planting of

nearly 90 thousand hectares of winter wheat and 14

thousand hectares of rapeseeds, decisions regard-

ing the spring planting campaign are yet to be taken.

Revenue

USD 695 million

+9.4% y-o-y

EBITDA

(before unallocated head office expenses)

USD 221 million

-0.4% y-o-y

Produced 1.8 million

tons of corn, wheat

and sunflower in

FY2023

Repercussions from previous years

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Our business model

Large-scale farming

Kernel is one of the largest crop producers in

Ukraine. As of 30 June 2023, the total area of

leasehold farmlands under Kernel’s opera-

tions amounted to 359 thousand hectares,

including 340 thousand hectares under 2022

crop to be sold, 7 thousand hectares of land

under seeds and crops grown for in-house use

(cattle business), and 12 thousand hectares of

fallow land. In FY2023, we harvested 1.8 mil-

lion tons of corn, wheat, and sunflower

. We

operate in the central and northern regions of

Ukraine with highly fertile “chornozem” black

soils and sufficient precipitation. Our land

bank is divided into five production clusters,

each with a decentralized operational deci-

sion-making structure that enables rapid re-

sponses to external factors. The central office

is responsible for shaping our overall business

strategy, procuring key inputs, and overseeing

operations. A spirit of healthy competition

among these clusters promotes ongoing effi-

ciency enhancements.

Except for 2,823 hectares of irrigated land

used for in-house seed production, all our

farmland is rain-fed, with all the associated

weather risks.

We adhere to a simple crop mix dominated

by corn and sunflower, covering in total of

The FY2023 crop was harvested on an area of 363 thousand hectares, which the Group operated before the divestment of some farming entities in April 2022.

The Group substantially deviated from such an approach in FY2023 and in FY2024, when the share of sunflower seeds in the acreage substantially increased, and

the Group re-introduced soybeans in the crop mix. However, such crop mix is not sustainable, and we will revert to our normal crop rotation practice in 2-3 years.

Under normal conditions. Currently, given the export logistics disruptions caused by Russia’s full-scale invasion of Ukraine, the working capital and crop production

cycles are longer.

80-85% of our farmland bank, and the remain-

ing percentage stands for wheat, rapeseed,

soybean, and other minor crops

The Farming business is characterized by a

long working capital cycle (~18 months

as illustrated in the “FY2023 crop production

cycle” graph below.

Leasehold land operations

Approximately one-quarter of Ukraine's agri-

cultural land is held by the state, municipali-

ties, and state-owned companies. The re-

maining 75% consists of small land parcels,

ranging from 1 to 10 hectares depending on

the region, owned by private individuals who

acquired these rights during the land distribu-

tion process in the 1990s following the col-

lapse of the Soviet Union.

For the past two decades, all farmland in

Ukraine has been subject to a moratorium,

preventing its sale. Initially implemented in

2001, this moratorium has been repeatedly

extended by the parliament, impeding the

growth of the farming sector in Ukraine. Con-

sequently, agricultural producers lease land

from current owners, with new lease agree-

ments since 2015 having a minimum term of

seven years to ensure the stability of farmers'

business operations. The farmland market fi-

nally opened on 1 July 2021, albeit with

several restrictions. The most significant of

these restrictions include:

• Ukrainian citizens are permitted to acquire

agricultural land, but individual ownership is

limited to a maximum of 100 hectares.

• Starting from January 1, 2024, Ukrainian-in-

corporated legal entities will be allowed to

purchase agricultural land, and the owner-

ship cap will increase from 100 hectares to

10,000 hectares for both private individuals

and legal entities.

• Foreign individuals and corporations, as

well as legal entities with foreign sharehold-

ers under the Law of Ukraine, are prohibited

from purchasing land unless a nationwide

…………………………………………………………………

…….

Kernel’s farmland lease rights maturity

as % of total landbank

13%

44%

30%

< 5 years 5-10 10-15 15-20 > 20

years

…………………………………………………………………………………………………………………………………………………………………………………………………………………………………

FY202

3 crop production cycle

FY2022

FY2023

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar-Jun

Corn

Land preparation

Fertilization

Planting

Plant protection

Harvesting

Selling

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar-Jun

Sunflower

Land preparation

Fertilization

Planting

Plant protection

Harvesting

Selling

Jul

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar

Apr

May

Jun

July

Aug

Sep

Oct

Nov

Dec

Jan

Feb

Mar-Jun

Winter wheat

Land preparation

Fertilization

Planting

Plant protection

Harvesting

Selling

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referendum decides otherwise.

Kernel leases all the land under operation,

with lease contracts having an average ma-

turity of 13.1 years. All lease contracts in-

clude the right of first refusal to prolong leases

or to buy the land in case of being allowed to

do so.

We've secured the use of 15,000 hectares of

land through long-term land lease agree-

ments, extending up until the year 2118.

These agreements, known as 'emphyteusis'

leases, involve making a single lump-sum

payment of all rent to the lessor at the agree-

ment's signing. This approach enables us to

ensure the continuity of our operations for an

extended duration, well beyond the scope of

typical farmland lease contracts.

Private individuals own 89% of the landbank

that we lease, and 11% is owned by the state.

Key developments

Divestment of the part of the landbank

In FY2023, we completed the divestment of

a part of our farming business consisting of

leasehold rights for 134 thousand hectares of

farmland, along with the accompanying farm-

ing infrastructure, machinery, and working

capital, with a consolidated net asset value of

USD 210 million as of 3 March 2023 (a date of

completion of the divestment), for a consider-

ation of USD 210 million, to de-risk our busi-

ness model and secure incremental liquidity.

Following the divestment arrangement signed

in April 2022, the Group has received the full

amount of total consideration by July 2023, as

envisaged by the share purchase agreement.

The decision was taken back in April 2022,

keeping in mind the potential outcomes of the

war between Ukraine and Russia and the im-

plications on the Group’s operations going for-

ward. However, the deal was completed only

in March 2023 after the technically long pro-

cess of releasing the entities divested from the

obligors’ group in some of the Group’s bank-

ing lines.

Following the divestment, our landbank was

reduced by 134 thousand hectares to 363

thousand hectares in operation.

The financial results of disposed entities be-

tween 1 July 2022 and 3 March 2023 are ac-

counted for in the EBITDA of the Farming seg-

ment for FY2023.

Harvest 2022 (FY2023)

FY2023 was the first full year of operations in

conditions of the war in Ukraine. The impact

on the Group’s operations was as follows:

• Firstly, the land bank under the Group’s

operations was reduced by 134 thousand

hectares following the divestment of se-

lected farming entities to de-risk Group’s

activities, as described above;

• Secondly, we reduced the sown acreage

in our northern cluster by 28 thousand

hectares, being unable to properly com-

plete the spring sowing campaign there due

to the lack of crop inputs and given that re-

gions were either temporarily occupied or

not properly de-mined after de-occupation.

• Thirdly, we revised our crop acreage

structure for the 2022 crop. We signifi-

cantly reduced the share of corn (from 51%

to 41%), partially in favor of sunflower (an

increase from 31% to 36%) presuming

more attractive economics of oilseed pro-

cessing in Ukraine as compared to grain ex-

port for the period of war in Ukraine, and in-

creased the percentage of land kept as fal-

low to 8% of landbank in operation.

• Finally, we have not managed to apply

our typical crop production technology

facing the local deficit of some crop inputs

and business disruptions caused by difficul-

ties with logistics and mobilization of some

of our employees to the Armed Forces of

Ukraine. Despite all our efforts to mitigate

such factors, the suboptimal farming tech-

nology had a negative impact on our crop

yields.

Due to problems with export logistics and

large carry-in farming stock for the FY2023

season putting pressure on the Group’s grain

storage capacities, and accounting also for

the rainy weather in September 2022, inability

to harvest at night due to the curfew in

Ukraine, deficit of trucks for transportation of

corn from the field to silo, and problems with

silos’ intake caused by electricity outages and

deficit of natural gas to dry corn, the harvest-

ing of corn was complete only in February

2023. In addition, the deficit of conventional

………………………………………………………………………...........................................................................................................................

FY2023 harvest results

Acreage

thousand hectares

Net yield

tons / ha

Harvest size

thousand tons

FY2022

FY2023

y-o-y

FY2022

FY2023

y-o-y

FY2022

FY2023

y-o-y

Corn

255

150

(41%)

9.3

8.8

(5%)

2,360

1,324

(44%)

Sunflower

154

131

(15%)

3.0

2.5

(16%)

469

332

(29%)

Wheat

(46%)

6.1

4.6

(25%)

395

161

(59%)

Other

83%

Total

499

363

(27%)

3,225

1,818

(44%)

Note 1

. 1 ton per hectare equals 15.9 bushels per acre for corn and 14.9 bushels per acre for wheat and soybean.

Note 2

Includes soybean, pea, rapeseed, barley, forage crops and other minor crops, as well as land left fallow for crop rotation purposes.

Note 3

For the three main crops: corn, sunflower and wheat.

……………………………………………………………………

Kernel’s acreage harvested by crops

thousand h

ectares

34%

42%

45%

51%

22%

25%

27%

30%

31%

24%

19%

15%

13%

529

513

501

499

363

FY2019 FY2020 FY2021 FY2022 FY2023

Corn Sunflower Wheat Other

………………………………………………………………………..

Kernel’s production of key crops

thousand tons

2,208

1,975

2,032

2,360

1,324

426

473

449

469

332

508

569

357

395

161

3,142

3,017

2,837

3,225

1,818

FY2019 FY2020 FY2021 FY2022 FY2023

Corn Sunflower Wheat

………………………………………………………………………..

Kernel’s crop yields

tons per hectare

Note 1:

For comparison purposes, yields for FY2018

are provided for Kernel’s initial lands

(prior to land

bank expansion in summer 2017) to avoid the dilu-

tion effect.

7.3

9.8

8.5

8.0

9.3

8.8

5.4

5.1

5.9

4.9

6.1

4.6

2.7

3.2

3.5

3.0

2.5

FY2018

FY2019

FY2020

FY2021

FY2022

FY2023

Ukraine

Corn

Wheat

Sunflower

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Corporate

Governance

Financial

Statements

storage space forced the Group to utilize alter-

native solutions such as flexi bags, with a peak

of 187 thousand tons of grain stored in flexi

bags. Both late harvesting and storage in flexi

bags had a negative impact on the quality of

the grain.

Consequently, the 2022 crop yields declined

for all key crops, as presented in the table

“FY2023 harvest results”, and the crop size

declined by 44% y-o-y.

Sowing of the 2023 crop

The Group has made significant changes to

its crop mix to minimize the acreage under

the most energy-intensive and logistics-heavy

crop, corn, in favor of less energy-intensive

options, such as soybeans and partially winter

wheat:

• Acreage under sunflower reduced to 33%

of total crop mix, at 120 thousand hectares,

down 8% y-o-y, as Kernel reverted to a

more sustainable crop rotation practice.

Nevertheless, sunflower became the larg-

est crop in the Group’s acreage structure for

the first time in the Group’s history, reflect-

ing the importance of this crop for the

Group’s in-house oilseed processing oper-

ations.

• Despite concerns about the export logistics

and considerations to leave as much as 50

thousand hectares fallow for the new sea-

son, the management decided to take risks

and plant 84 thousand hectares of corn,

which is still down 44% y-o-y. From the cur-

rent standpoint, such a decision was not the

best one, as corn is likely to deliver losses

for our farming business in FY2024 under

the “no deep-water ports” scenario.

• The Group also planted 61 thousand hec-

tares of winter wheat, a 75% increase of y-

o-y.

• Kernel re-introduced soybeans into its crop

mix, with 65 thousand hectares sown.

We must acknowledge that our crop mixes in

2022 and 2023, marked by a heavy shift to-

wards oilseeds, were unsustainable, but dic-

tated by business disruptions caused by Rus-

sia's invasion of Ukraine. Prolonged high lev-

els of oilseeds can harm crop yields and prof-

itability. Consequently, we will significantly re-

duce oilseed acreage in 2024-2025, and since

2026 expect to return it to normalized levels.

Performance overview

Business result in FY2023 was strongly im-

pacted by three factors:

• Global grain and oilseeds prices, despite

declining for the whole of FY2023, re-

mained at a relatively high level. We man-

aged to capture the highest prices in our

history.

• The Black Sea Grain Initiative allowed to

export large part of Farming produce with

relatively low logistics costs.

• Relatively low cost of 2021 crop, which,

as a carry-over stock from the previous sea-

son, was sold throughout FY2023.

As a result, the Farming segment generated

USD 221 million EBITDA in FY2023, un-

changed as compared to the previous year.

This result also includes a USD 115 million

loss from net change in the fair value of bio-

logical assets and agricultural produce, which

included impacts related to three different har-

vests:

• Crop 2021: we expensed a previously rec-

ognized USD 149 million gain together with

the sale of that crop;

• Crop 2022: we recognized gain related to

the whole amount of the 2022 crop through-

out FY2023, but such gain was not fully ex-

pensed during the reported period given

that part of the 2022 harvest remains un-

sold. Net impact resulted in a USD 62 mil-

lion gain in FY2023;

• Crop 2023: for the first time in our history,

we recognized a loss from changes in fair

value of biological assets (USD 27 million),

as discounted expected future proceeds

from sales of crop 2023 do not allow to

cover capitalized expenses related to such

crop as of 30 June 2023.

While looking strong, such a result is to a large

extent driven by the sale of the 2021 harvest.

The Group entered FY2023 with almost 800

thousand tons of corn and sunflower seeds

from the 2021 harvest being unsold. It was a

relatively low-cost product with all the produc-

tion costs incurred before Russia’s full-scale

invasion of Ukraine. To compare, production

costs per ton of corn, sunflower, and wheat of

the 2021 harvest appeared to be 15%, 21%,

and 29% lower than of the 2022 harvest. And

given that such carry-over stock was sold in

FY2023 at relatively high prices and partially

at not-so-expensive logistics (given sales via

the Black Sea Grain Initiative), 2021 harvest

sale appeared to be very profitable, covering

a large portion of FY2023 EBITDA.

The Group also sold 1.5 million tons of 2022

crops but with a low contribution to EBITDA.

Additionally, over 700 thousand tons of corn

and wheat remained unsold as of 30 June

2023, being subject to price risk.

It shall be flagged, that a part of the strong

Farming FY2023 EBITDA is driven by the de-

preciation of UAH (the functional currency of

the Group’s farming entities) against USD in

the 2022 calendar year. It reduced the cost

base of farming produce when translating the

results to the USD as the Group’s presentation

currency.

Finally, a part of the EBITDA is attributable to

the earnings of farming entities between 1 July

2022 and 3 March 2023, when such entities

were divested.

FY2024 outlook

2023 crop size and carry-over stock

For the 2023 harvest, we were very lucky with

the weather, despite the much-increased ex-

posure of crops to various risks related to in-

sufficient application of fertilizers, suboptimal

soil preparation, and a slightly delayed spring

sowing campaign. The Group completed the

harvesting of winter crops. We harvested

60.4 thousand hectares of winter wheat with

the highest-ever wheat net yield of 6.65 tons

per hectare. Rapeseeds harvested at 10 thou-

sand hectares delivered a more moderated

yield of 3.24 tons per hectare.

Concerning spring crops, the harvesting is al-

most completed for sunflowers and soybeans.

For sunflower, we expect to achieve a 2.9 tons

per hectare average net yield at 120 thousand

hectares, and for soybean (a crop that was re-

introduced to our crop mix this year only) we

expect to reach 2.9 tons per hectare net yield

for 65 thousand hectares.

Harvesting of 84 thousand hectares under

corn is currently undergoing, and we expect to

complete it in the second half of November,

reaching crop yields exceeding 9 tons per hec-

tare.

Production costs for the 2023 crop are ex-

pected to be 9% lower y-o-y for corn (mainly

because of the positive impact of UAH depre-

ciation against USD for costs incurred in

UAH), 11% lower for wheat (while cost per

hectare actually increased, strong yield im-

provement led to the reduction of cost per ton),

and flat y-

o-y for sunflower.

Besides that, 675 thousand tons of 2022 crop

corn remain to be sold throughout FY2024.

Major profitability drivers

Farming segment performance in FY2024 will

………………………………………………………………………………………

Profitability dynamics

USD million

602

604

657

635

695

182

134

461

219

221

30%

22%

70%

35%

32%

FY2019 FY2020 FY2021 FY2022 FY2023

Revenue EBITDA

EBITDA margin, %

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Farming

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

strongly depend on 1) the level of global grain

and oilseed prices; and 2) the availability of

Ukrainian Black Sea ports for the export of ag-

ricultural produce.

If the current situation continues, the Farming

segment is expected to incur losses in

FY2024, marking the second time in Kernel's

history and the first time since FY2014. The

Group has already recorded a loss related to

the change in the fair value of biological assets

for the 2023 crop. To avoid further losses, we

may contemplate delaying sales for a certain

period, depending on our storage capacities,

liquidity position, and other operational re-

strictions.

If export via Black Sea ports is not resumed,

meaning logistics costs for export remain high,

the only chance for the Farming segment to

remain profitable will be for global prices to be-

come high enough to cover such high logistic

costs.

Loss-making operations raise significant con-

cerns about the approach to the planting cam-

paign for the 2024 harvest. The Group has

completed the planting of nearly 90 thousand

hectares of winter wheat and 14 thousand

hectares of rapeseeds, but decisions regard-

ing the spring planting campaign are yet to be

taken. It's important to consider that keeping

land fallow also implies costs, with land lease

costs being the largest among them.

We remain long for most of the new harvest

and carry-over stock, unwilling to sell at pre-

vailing prices and lock losses. While providing

an opportunity to avoid losses in case the

Black Sea opens for the export of our grain,

such an approach at the same time increased

the Group’s vulnerability to potential price de-

clines, as our position is unhedged, and to po-

tential losses of goods considering intensified

attacks on port and agri storage infrastructure.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Risk management

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Governance

Financial

Statements

Risk management system

At Kernel Holding S.A., management defines

risk as an event, action, or lack of action,

which can lead to failure to achieve the Com-

pany’s objectives.

Kernel has an evolving system of risk man-

agement aimed at preserving the stability

and solvency of the Company under ex-

treme conditions to secure long-term sus-

tainable value for shareholders.

Based on the Risk Management Policy

(adopted by the Board of Directors in Novem-

ber 2018) and underlying policies and proce-

dures, Kernel monitors and assesses its risk

exposures regularly and takes steps to mini-

mize their impact.

Key roles

The Company’s risk management is realized

by the Board of Directors, Executive Manage-

ment Team, and other management and staff,

starting from the strategy development and

impacting all activities and processes of the

Company. These activities set out to identify

and manage risks, in order to provide reason-

able assurance of the Companies’ goals ac-

complishment. Please see details at Key roles

and duties in the risk management process

chart.

Risk management cycle

The risk management cycle includes five

stages: risk identification; risk assessment and

prioritization; planning risk management ac-

tions; actions implementation; measurement,

control, and monitoring.

Risk categories

The management classifies all risks into five

categories:

1. Strategic (Business)

2. Operational

3. Financial

4. Regulatory

5. Sustainability

The top 10 risks identified for FY2024 include

risks from the Strategic (Business), Opera-

tional, and Financial categories.

………………………………………………………………………………………………………………………………………................

Kernel’s risk identification and mitigation system

………………………………………………………………………………………………………………………………………............

Key roles and duties in the risk management process

CEO

 owner of the risk management

process for the Company as a

whole;



responsible for implementing

the risk management strategy

and functioning of the effective

risk management system.

Board of Directors

Risk Committee of the Executive Management Team

Audit Committee

Assists the Board of Directors in the discharge of its risk man-

agement responsibilities:

 formulating the description of the risks specific to the Com-

pany;

 overseeing adequacy and effectiveness of Kernel’s risk man-

agement system;



reviewing the Company’s policies on risk assessment and

risk management.

 supervise the risk manage-

ment process;

 determine and approve the

level of risk acceptability and

Company’s risk appetite;

 decide on critical and signif-

icant risks;

 review the risk related re-

ports.

 ensure the introduction and implementation of the risk

management policy and procedures;



develop and continuously improve an effective risk

management and monitoring system, spreading the

culture of decision-making in terms of risks, their valu-

ation and likelihood of occurrence;



coordinate roles and participants;



identify, assess, manage and control key risks;



coordinate updating and improvement of the internal

control system.

Internal Audit



assess the adequacy and effectiveness of risk

management processes and internal controls in

operations;



assist Directors on operational risk identification,

assessment and prioritization in operations;



implementation, status monitoring, internal con-

trols and mitigation activities of action plan of op-

erational risks;



assist, advise and consult management in im-

proving the effectiveness of risk management

and internal control systems in operations.

Directors and executives

risk owners within their functional duties



Identification of risks;



Assessment of risks;



Making and implementing deci-

sions on risks mitigating actions.

Risk identification

Risk assessment

and prioritization

Risk

mitigation plan

development

and execution

Monitoring of

plan execution

Risk manage-

ment process

enhancement

Risk management

cycle

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Risk management continued

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Top 10 risks

This section includes a summary of the main

risks that Kernel may face during the normal

course of its business. However:

• this section does not purport to contain an

exhaustive list of the risks faced by Kernel

and Kernel may be significantly affected by

risks that it has not identified or considered

not to be material;

• some risks faced by Kernel, whether they

are mentioned in this section or not, may

arise from external factors beyond Kernel’s

control;

• whereas mitigations are mentioned in this

section, there is no guarantee that such

measures will be effective (in whole or in

part) to remove or reduce the effect of the

risk;

• investors may face other risks when dealing

with Kernel securities (shares and bonds).

As a result of the latest review cycle, the Board

approved the Top 10 risks for the Group for

FY2024 as depicted on the chart below.

For the Group, FY2024 is the third year im-

pacted by the war in Ukraine, and the man-

agement envisages the following key

changes for FY2024 Top 10 risks against

FY2023 Top 10 risks:

• Slightly reduced risk impact and probability

for Logistics disruption, as the Group has

gained expertise in alternative export chan-

nels beyond the Black Sea.

• Increased the risk probability for Loss of

critical infrastructure and Loss of invento-

ries, as the Group’s assets have been un-

der regular Russian shelling since the be-

ginning of FY2024; at the same time, the

risk impact for the last risk reduced, as the

Group tries to minimize the inventory levels

in port assets subject to Russian attacks;

• Increased the risk impact and probability for

Low global soft commodity prices, consider-

ing the recent prices’ evolution and global

S&D outlook for the season;

• Risk impact and probability of Liquidity as-

sociated risks reduced given that Group 1)

agreed on the extension of waivers with

creditors by 30 June 2024; 2) attracted eq-

uity financing; 3) received the whole re-

maining consideration for the sale of farm-

ing entities; and 4) managed to generate

decent cash from operating activities in

FY2023.

• Risk impact and probability for Investment

project management reduced, as the Group

is in the final stage of development of its

greenfield crushing plant in western Ukraine

and CHP projects;

• Human capital risks returned to the top 10

risks, given the protracted war in Ukraine;

• The risk of shortfall of proceeds from sales

of renewable energy was removed from

Top-10 risks, as 1) market energy prices in

Ukraine are converging to the level of feed-

in tariffs; and 2) payments from the Guaran-

teed Buyer have normalized, although a

small portion of the tariff still remains un-

paid.

………………………………………………………………………………………………………………………………………........................................................................................................................

Kernel FY2024 Top 10 risks

Top 10 risks matrix

Risk impact

Risk Probability

Very low Low High Very high

SevereMajorModerateMinor Medium

Medium

Strategic

(Business) risks

Operational

risks

Change

y-o-y

Financial

risks

New

risks

Other risks identified by the Company’s management include (but are not limited to):



Weak harvest in Ukraine;



Failure to maintain the integrity of the leasehold farmland bank;



Fraudulent activities;



A shortfall of proceeds from sales of renewable energy;



Increase in competition;



Sustainability-related risks: non-compliance with environmental standards;

undermined profitability due to more severe environmental require-

ments applicable to farming and oilseed processing related to the implementation of the

European Green Deal; low sustainability rating of Kernel

may increase the cost of capital;



Weak economic growth, either globally or in the Group’s key markets;



Economic policy, political, social, and legal risks and uncertainties in countries other than Ukraine in which Kernel Holding S.A. operates;



Any loss or diminution in the services of Mr. Andrii Verevskyi, Kernel Holding S.A.’s chairman of the Board of Directors;



The risk that changes in the assumptions underlying the carrying value of certain assets, including those occurring as a resu

lt of adverse market

conditions, could result in the impairment of tangible and intangible assets, including goodwill;



The risk of fluctuations in the exchange rate of the Ukrainian hryvnia to the US dollar;



The risk of disruption or limitation of natural gas or electricity supply;



The risk of disruptions in Kernel Holding S.A.’s manufacturing operations;



The risk of product liability claims;



The risk of potential liabilities from investigations, litigation, and fines regarding antitrust matters;



The risk that Kernel Holding S.A.’s governance and compliance processes may fail to prevent regulatory penalties or reputatio

nal harm, both at

operating subsidiaries and in joint ventures; and



The risk that Kernel Holding S.A.’s insurance policies may provide inadequate coverage.

Strategic (Business) risks:

1. Logistics disruption

2. Loss of critical infrastructure

3. Low global soft commodity prices

4. Loss of inventories

Financial risks:

5. Liquidity associated risks

Operational risks:

6. Trade position management issues

7. Credit and counterparty risks

8. Information security and IT

9. Investment projects management

10. Human capital risk

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Kernel FY2024 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors

1. Logistics

disruption:

closed Ukrain-

ian seaports

due to the war;

• Reduction in export volumes of grain, sun-

flower oil, and meal in case of continued dif-

ficulties with the export of agriproducts via

the Ukrainian Black Sea ports (a usual and

most convenient export route for Ukrainian

agricultural products);

• Growing logistics costs (railway in Ukraine

and EU, truck and barges services) caused

by substituting cheap sea freight with more

expensive auto, railway, and river logistics

with multi-modal transshipment. It implies a

negative impact on margins including loss-

making grain export business;

• Increase in the shipment time resulting in

more working capital required; quality deteri-

oration of goods due to long-time multi-

modal transportation.

 In case of Ukrainian Black Sea ports being blocked, focus on trans-

shipments via Ukrainian Danube River ports and railway deliver-

ies to Constanta port in Romania, as other export channels proved

to be not so efficient (higher costs and lower throughput capacities).

The Group acquired/is in the process of acquiring two terminals in

Reni port: a vegetable oil transshipment terminal and a grain / sun-

flower meal transshipment terminal. Additionally, the Group arranged

for a provision of transshipment services with operators in the Izmail

port in Ukraine, and in Constanta port in Romania.

 Capacity expansion. For the facilities under control, the Group un-

dertakes regular capacity expansion initiatives.

 Diversified load points in ports to mitigate risks related to any par-

ticular port. In FY2023, the Group acquired the vegetable oil trans-

shipment terminal in the port of Pivdennyi, and at the beginning of

FY2024 the Group acquired the vegetable oil transshipment terminal

in the port of Chornomorsk. Together with available facilities in the

ports of Reni and Izmail, it allows diversifying load points.

 Fleet investments to support river logistics. In FY2023, the Group

acquired two vessels (a bulker and a tanker) to support the export of

grain/meal and sunflower oil. At the beginning of FY2024, the Group

secured two oil tanker convoys (9,800 tons in total) and considers

further fleet investments. Additionally, the Group invests in securing

the availability of river barges.

2. Loss of

critical

infrastructure

• Undermined earnings generation capac-

ity and additional CapEx required due to

potential loss or damages of critical infra-

structure (export terminals, oil-extraction

plants, key silos) as a result of Russian mis-

sile or drone attacks.

 Diversified asset base located relatively far from the regions of ac-

tive military actions;

 Grain and oil transshipment agreements with third-party export ter-

minals;

 Diversified load points in ports.

3. Low global

soft commod-

ity prices:

grain and

oilseeds

• Undermined profitability of the Group’s

Farming segment (which is always in a nat-

urally long position as a typical upstream

business) in case of low global grain and

oilseeds prices.

• Undermined profitability of the Group’s

Infrastructure and Trading segment, as

low prices do not allow to absorb high logis-

tics costs, and farmers prefer to wait with

sales of grain.

 Hedging grain prices: we use various hedging tools, including CME

corn and soybean futures and options, forward contracts for the Black

Sea origin premium, and direct forward contacts (if available). Physi-

cal delivery forward contracts (if available) are typically used for

shorter duration hedging, normally within six months;

 Longer period of crop sales: under normal conditions, we start sell-

ing next year’s crop as soon as we have the initial understanding of

the next year’s production costs, considering also the entire value

chain margin. But the selling of 2022 and 2023 crops is complicated

by the bottlenecks in export logistics;

 Partial flexibility in determining the timing of sale of own crop,

allowing to avoid sales during extremely low-price periods;

 Deep analysis of global soft commodity fundamentals: Avere re-

search and trading unit provides insights into the global soft commod-

ity market, guiding the selection of proper timing and pricing of our

hedging operations.

3. Low global

soft commod-

ity prices: sun-

flower oil

• Compressed margins in the Oilseed Pro-

cessing segment: low prices for sunflower

oil reduce combined earnings shared by

farmers and crushers in Ukraine in the short

term and discourage farmers from expand-

ing acreage under sunflower in the long

term.



Active procurements of sunflower seeds at the beginning of the

season (when a huge post-harvest supply of sunflower seeds allows

for negotiating more attractive prices) to partially mitigate long-term

sunflower oil price weakness;

 Careful sales management during the season to mitigate seasonal

price declines.

4. Loss of

inventories

• Deterioration of the quality of inventories

(grains, oilseeds, sunflower oil, and meal)

being:

o stored for an excessively long time (in-

cluding storage in flexy bags) with inad-

equate quality maintenance; or



Expanding Group’s export capacities via alternative routes;

 Regular inventory inspection of the commodities stored in the third-

party-owned silos;

 Investments into additional storage capacities (including plastic

silo bags); signing of long-term contracts with third-party storage ser-

vice providers.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Kernel FY2024 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors

o transported via new routes with untested

quality controls; or

o a result of late winter corn harvesting

due to the deficit of grain silo storage ca-

pacity.

• Physical loss of Group’s inventories due

to Russian missile or drone attacks;



Diversified load points in ports

 Minimizing onsite storage in ports in favor of direct loading.

5. Liquidity

associated

risks

• Lack of liquidity to properly service the

outstanding debt



potential business dis-

ruptions caused by creditors in case of hos-

tile actions undertaken, and limited access to

additional credit sources;

• Difficulties with securing working capital fi-

nancing for farming and oilseed origination

 suboptimal crop production technology

applied in the Farming segment; lost profit in

the Oilseed Processing segment;

• Cash management restrictions imposed

by the National Bank of Ukraine  1) diffi-

culties with serving debt outside Ukraine,

including upcoming Eurobonds 2024 ma-

turity; 2) excessive UAH liquidity in Ukraine

implying higher devaluation risks;

• Inability to fund CapEx required 1) to en-

sure grain export via alternative export chan-

nels; and 2) to repair/restore assets that suf-

fered from shelling.



Negotiating with state-owned banks in Ukraine on securing addi-

tional credit lines;

 Discovering options for new working capital and long-term financing

to be provided by International Financial Institutions;

 Perfect Group’s credit history allowed to obtain waivers for principal

repayments up to 30 June 2023 as further extended till 30 September

2023 for all bank loans maturing in due time together with a cash-

sweep mechanism introduced for all pre-war facilities; new waivers

for postponement of principal repayments for full FY2024 were sub-

mitted to the lenders in May 2023 with negotiation process to be held

since then. As of the date of publication of this report, the Group ob-

tained waivers to extend the terms of repayment of the principal of

USD 778 million with the lenders and waive the debt covenants and

some other conditions by 30 June 2024. The Group will continue to

service its debt liabilities through an extended cash-sweep mecha-

nism and has permission to raise new debt needed for working capital

and CapEx financing;

 Upon the creditors’ request, the Company raised USD 60 million of

equity capital in September 2023;

 By August 2023, the Group had fully received USD 210 million in

proceeds from the divestment of selected farming entities, sig-

nificantly bolstering its liquidity.

6. Trade posi-

tion manage-

ment issues

• Losses arising from the Group’s trade po-

sition mismanagement. For example, an

open position in sunflower oil may have an

adverse effect on the Company’s earnings in

case of significant movements in sunflower

oil prices;

• Losses arising from Avere trading busi-

ness.



Trade position control system:

o maximum limits on the position (long / short) with daily control.

Separate limits for various goods (e.g., for sunflower oil produced

from own seeds, sunflower oil produced from purchased seeds,

and sunflower oil purchased from third parties). Specific limits are

set for sunflower seed procurement not covered by sunflower oil

sold. Special approvals are required to exceed the limits.

o a part of positions is controlled by restricting Value at Risk and

drawdown limits with daily monitoring.

o constant monitoring of the impact of changes in market prices on

existing trade positions and improvement of the monitoring sys-

tem.

 The “Balanced book” policy employed by the Company reduces the

impact of the commodities price fluctuations through price and vol-

ume hedging. Such a policy presupposes the arrangement of the for-

ward contracts for the sunflower seed sales, alongside the procure-

ment of the same sunflower seeds from farmers. In such a manner,

the Company reduces the risk exposure by ensuring the sales vol-

umes, as well as locking the selling price. Deviations from the bal-

anced book approach may appear during the business disruptions

caused by the war in Ukraine;

 Centralized contract execution and scheduling of shipments.

7. Credit and

counterparty

risks

• Defaults of third-party farmers under fi-

nancing received from the Group

(including the Open Agribusiness program);

• Losses arising due to the Group’s counter-

parties not performing their trade obliga-

tions.



Constant monitoring of solvency and business performance of the

farmers who received financing from the Group;

 Negotiating with farmers on extending the obligations repayment pe-

riod or agreeing on alternative ways of repayments;

 Active restructuring and claim work against counterparties in de-

fault.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Kernel FY2024 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors

8. Information

security and

• The loss or disclosure of key information

may threaten business operations and de-

velopment of the business;

• Interruption of business processes and

decisions which are dependent on the con-

tinuity of IT applications and infrastructure.

• Leakage of the information stored at assets

currently occupied by Russia;

• Cyber-attacks on the Group’s IT infrastruc-

ture;

• Damage to the Group’s cloud IT infrastruc-

ture occurred due to the military actions in

Ukraine; lack of access to cloud services

provided outside of Ukraine.



The backup data center was relocated to Lviv (Western Ukraine);

 Access to the IT systems is denied at night for developers and

contractors;

 Implemented IT business continuity and data recovery policy;

 Multifactor authentication is being implemented to reduce the risk

of documents, correspondence, and other confidential data leakage;

 Password policy, access control for external users to company IT

systems; Privileged access management solutions.

 Regular testing of IT recovery plan; regular vulnerability testing

from inside and outside;

 Patch management policy – regular installations of critical and se-

curity patches on servers and workstations;

 Special solution to combat the advanced persistent threat (APT) and

0-day virus attacks;

 Implementation of incident and change management processes in the

IT infrastructure;

 Improving the maturity of the access management process by auto-

mating the process of reviewing access rights.

 Regular training and testing of employees for knowledge and com-

pliance with information security rules.

9. Investment

projects man-

agement

• Extra spending beyond budgets. In

FY2024, the Group will be completing the

construction of the largest oilseed pro-

cessing plant in Ukraine, and commissioning

two co-generation heat and power units ad-

jacent to the Group’s crushing plants, after

the conservation of projects since 24 Febru-

ary 2022 when Russia invaded Ukraine. Ad-

ditionally, the Group will invest in repairing

assets that suffered from Russian missile

and drone attacks. In total, the relevant

CapEx in FY2024 is budgeted to amount to

USD 56 million;

• Lost profits due to execution delays caused

by unsafe working conditions on the pro-

jects’ location, associated with active military

actions proceeding in Ukraine and the con-

stant threat of air-missile strikes.



Strong in-house expertise in greenfield projects execution (includ-

ing Bandurka greenfield processing plant; Balyn, Vesnianka, and

Lazirky silos; TransGrainTerminal, etc.) with a dedicated team of ex-

perienced professionals to manage new projects;

 Rigorous project management. All projects are carefully analyzed

and properly documented. Each project is organized by a charter of

the investment project, which defines goals, budget, delivery mile-

stones, schedules, deadlines, project team, definition/evaluation/re-

sponse to the project risks, assessment of the business case, and

feasibility study. In case of necessity, we organize quality control of

project documentation for investment construction projects by an in-

dependent expert company. Technical specifications for new con-

struction projects are evaluated, amended, and approved by all re-

lated business segments;

 Proper oversight including internal cost benchmarking among vari-

ous projects, budget control before signing contracts and making pay-

ments, deep involvement of the investment committee, and supervi-

sion from the strategic committee;

 Conducting open and closed tenders to determine the best offers;

 Involvement of suppliers with high credibility rating;

 Proper GR management to interact with state regulatory / permitting

authorities at the early project stages to minimize delays;



Insurance of construction and assembly works.

10. Human

capital risk

• Disruptions in business and support pro-

cesses due to:

o a shortage of staff in general and the

challenge of replacing key employees

due to the low qualifications of new can-

didates, exacerbated by significant emi-

gration from Ukraine;

o employee conscription for military ser-

vice, a consequence of the protracted

war in Ukraine;

o increased mental stress among remain-

ing employees as a result of the ongoing

and prolonged war in Ukraine.

 Competitive compensation: the level we pay matches or exceeds

the benchmark in our industries. We aim to increase further compen-

sation levels to successfully compete with neighboring countries

along the way. The compensation system is regularly reviewed to

match the Company strategy and HR strategy. We regularly measure

employee satisfaction levels and react to the results;

 Extensive social package:

o Housing repayable loans to young employees in the regions;

o Voluntary medical insurance (full cost coverage for employees and

50% cost coverage for employee’s children);

o Social monetary support in case of employee’s personal life diffi-

culties.

 Talent management, professional development, and education of

our employees. We have numerous education programs with exten-

sive coverage and a system of individual development and career

planning, as well as mental health education (as disclosed in the Sus-

tainability section of the annual report);

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Risk management continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Kernel FY2024 Top-10 risks and mitigating factors

Risk

Possible impact

Mitigating factors



Safe and convenient working conditions. Constant improvement

of working conditions and infrastructure for staff. Remote work and

flexible working hours. Support of employee affinity and networking

groups;

 Effective recruitment: we use various tools and channels to recruit

the best people on the market. We actively work with universities and

the business community and have a separate Kernel Chance program

to develop and solicit new associates;

 Employee involvement through effective KPI system, responsibility

delegation, rewards for operation efficiency improvement, and team-

building events;

 Comprehensive new employees’ adaptation programs;

 Labor productivity improvement through processes automation

and optimization, job versatility, and employee fungibility increase;

 HR brand development, creating a sustainable employer reputation.

Corporate social responsibility strategy.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Alternative Performance Measures

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

To comply with ESMA Directive on Alternative

Performance Measures (“APMs”), Kernel

Holding S.A. (hereinafter “the Group”) pre-

sents this additional disclosure, which en-

hances the comparability, reliability and com-

prehension of its financial information.

The Group presents its results in accordance

with generally accepted accounting principles

(IFRS), but nonetheless, management consid-

ers that certain supplemental non-IFRS

measures, such as

• EBITDA;

• EBITDA margin;

• Segment EBITDA;

• Segment EBITDA margin;

• Investing Cash Flows net of Fixed As-

sets Investments;

• Net Fixed Assets Investments;

• Operating Cash Flows before Working

Capital Changes;

• Free Cash Flows to the Firm;

• Debt Liabilities;

• Net Debt;

• Commodity Inventories;

• Adjusted Net Debt; and

• Adjusted Working Capital;

(together, the ‘Alternative Performance

Measures’) provide investors with a supple-

mental tool to assist in evaluating current busi-

ness performance.

The Group believes the Alternative Perfor-

mance Measures are frequently used by se-

curities analysts, investors, and other parties

interested in evaluating companies in the

Group’s industry. The Alternative Perfor-

mance Measures have limitations as analyti-

cal tools, and investors should not consider

any of them in isolation or any combination of

them together as a substitute for analysis of

the Company’s operating results as reported

under IFRS. Other companies in the industry

may calculate these Alternative Perfor-

mance Measures differently or may use them

for different purposes than Kernel Holding

S.A, limiting their usefulness as comparative

measures. Each of the Alternative Perfor-

mance Measures is defined below.

Before FY2019, the Group used to report such

APMs as Funds from Operations and Free

Cash Flows, but since FY2019 the Group

consider these metrics as not relevant any-

more, being distortive going forward. The first

APM included purchases of property, plant

and equipment distorting the operating cash

generation capacity of the Group given the

current heavy CapEx cycle for the Group. The

second APM included dividends paid, thus

distorting the cash flow available to repay debt

In other documents (e.g. listing particulars) the Group could use the term Adjusted EBITDA, which is calculated as profit before income tax adding back net finance costs,

net foreign exchange gain, net other expenses, share of income/(loss) of joint ventures, and amortization and depreciation, and coming to the same result as EBITDA

and distribute dividends to shareholders. In-

stead, two additional APM’s were introduced

(as defined below): Operating Cash Flows

before Working Capital Changes and Free

Cash Flows to the Firm.

EBITDA and EBITDA margin

The Group uses EBITDA

as a key measure

of operating performance, and it is defined as

profit from operating activities adding back

amortization and depreciation.

The Group defines EBITDA margin as

EBITDA divided by revenue during the re-

ported period.

Kernel Holding S.A. views EBITDA and

EBITDA margin as the key measures of the

Group’s performance. The Group uses

EBITDA and EBITDA margin in its public re-

porting, which is also related to the listing of

Company’s equity on the Warsaw Stock Ex-

change. The Group believes that these

measures better reflect the Group and its sub-

sidiaries’ core operating activities and provide

both management and investors with infor-

mation regarding operating performance,

which is more useful for evaluating the finan-

cial position of the Group and its subsidiaries

than traditional measures, to the exclusion of

external factors unrelated to their perfor-

mance.

EBITDA and EBITDA margin have limitations

as analytical tools, and investors should not

consider these measures in isolation or in any

combination with Non-IFRS Measures as a

substitute for analysis if the Group’s operating

results as reported under IFRS. Some of these

limitations are as follows:

• EBITDA and EBITDA margin do not reflect

the impact of finance costs, significance of

which reflects macroeconomic conditions

and have little effect on the Group’s operat-

ing performance;

• EBITDA and EBITDA margin do not reflect

the impact of taxes on the Group’s operat-

ing performance;

• EBITDA and EBITDA margin do not reflect

the impact of depreciation and amortization

on the Group’s performance. The assets of

the Group, which are being depreciated

and/or amortized, will need to be replaced

in the future and such depreciation and

amortization expenses may approximate

the cost of replacing these assets in the fu-

ture. By excluding this expense from

EBITDA and EBITDA margin, such

measures do not reflect the Group’s future

cash requirements for these replacements;

• EBITDA and EBITDA margin do not reflect

the impact of share of income / loss of joint

ventures, which are accounted under equity

method;

• EBITDA and EBITDA margin do not reflect

the impact of foreign exchange gain/(loss),

which the Group does not consider to be

part of its core operating performance be-

cause the main difference arises on trans-

actions between entities of the Group with

different functional currencies;

• EBITDA and EBITDA margin do not reflect

the impact of other expenses; as such ex-

penses are not a part of Group’s core oper-

ations.

…………………………………………………………………………………………………………………………………………………...

econciliation of profit from operating activities to EBITDA and EBITDA margin:

in thousand USD except the margin

FY2022

FY2023

Profit from operating activities

90,667

439,460

add back:

Amortization and depreciation

129,676

104,786

EBITDA

220,343

544,246

Revenue

5,331,545

3,455,121

EBITDA margin

4.1%

15.8%

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Alternative Performance Measures continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Segment EBITDA and Segment

EBITDA margin

The Group uses Segment EBITDA and Seg-

ment EBITDA margin as the key measures of

segment operating performance. The Group

defines Segment EBITDA as profit/(loss) from

operating activities adding back amortization

and depreciation.

The Group defines Segment EBITDA margin

as Segment EBITDA divided by the segment

revenue during the reporting period.

Investing Cash Flows net of

Fixed Assets Investmnets

The Group uses Investing Cash Flows less

Net Fixed Assets Investments as a measure

of its expenditures on investments other than

property plant and equipment and it is defined

as net cash used in investing activities adding

back:

• purchase of property, plant and equipment;

• proceeds from disposal of property, plant

and equipment.

Net Fixed Assets Investments

The Group uses Net Fixed Assets Invest-

ments as a measure of its expenditures on

fixed assets maintenance and it is defined as

net cash used in investing activities less In-

vesting Cash Flows net of Fixed Assets In-

vestments or alternatively may be calculated

as cash used for purchase of property, plant

and equipment less proceeds from disposal of

property, plant and equipment.

Operating Cash Flows before

Working Capital Changes

The Group uses Operating Cash Flows as a

measure of the cash generation of its core

business operations and it is defined as net

cash generated by operating activities less

changes in working capital, including:

• change in trade receivables and other finan-

cial assets;

• change in prepayments and other current

assets;

• change in restricted cash balance;

• change in taxes recoverable and prepaid;

• change in biological assets;

• change in inventories;

• change in trade accounts payable; and

• change in advances from customers and

other current liabilities.

…………………………………………………………………………………………………………………………………………………...

Calculation of Segment

EBITDA and Segment EBITDA margin:

in thousand USD

FY2022

FY2023

Oilseed Processing

Profit from operating activities

(101,668)

240,693

plus Amortization and depreciation

31,384

29,651

Segment EBITDA

(70,284)

270,344

Segment revenue

1,681,004

1,907,681

Segment EBITDA margin

-4%

14%

Trading and Infrastructure

Profit from operating activities

213,161

129,149

plus Amortization and depreciation

23,593

24,608

Segment EBITDA

236,754

153,757

Segment revenue

4,534,606

2,601,847

Segment EBITDA margin

Farming

Profit from operating activities

147,214

174,059

plus Amortization and depreciation

72,192

47,068

Segment EBITDA

219,406

221,127

Segment revenue

635,223

695,155

Segment EBITDA margin

35%

32%

Other

Loss from operating activities

(168,040)

(104,441)

plus Amortization and depreciation

2,507

3,459

Segment EBITDA

(165,533)

(100,982)

…………………………………………………………………………………………………………………………………………………...

Reconciliation of

net cash used in investing activities to Net Fixed Assets Investments:

in thousand USD

FY2022

FY2023

Purchase of property, plant and equipment

(119,678)

(77,093)

Proceeds from disposal of property, plant and equipment

5,876

2,720

Net Fixed Assets Investments

(113,802)

(74,373)

…………………………………………………………………………………………………………………………………………………...

Reconciliation of

net cash used in investing activities to Investing Cash Flows

net of Fixed

Assets Investments

in thousand USD

FY2022

FY2023

Net cash used in investing activities

(293,689)

9,576

Adding back:

Purchase of property, plant and equipment

(119,678)

(77,093)

Proceeds from disposal of property, plant and equipment

5,876

2,720

Investing Cash Flows net of Fixed Assets Investments

(179,887)

83,949

…………………………………………………………………………………………………………………………………………………...

Reconciliation of n

et cash generated by operating activities to

Operating Cash Flows before

Working Capital Changes

in thousand USD

FY2022

FY2023

Net cash generated by operating activities

(305,464)

716,132

Less:

Changes in working capital, including:

(793,842)

127,633

Change in trade receivables and other financial assets

232,076

(443,226)

Change in prepayments and other current assets

(58,369)

(70,235)

Change in restricted cash balance

Change in taxes recoverable and prepaid

(58,918)

2,733

Change in biological assets

141,024

73,662

Change in inventories

(937,306)

508,182

Change in trade accounts payable

15,126

1,063

Change in advances from customers and other current liabili-

ties

(127,507) 55,396

Operating Cash Flows before Working Capital Changes

488,378

588,499

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Alternative Performance Measures continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Free Cash Flows to the Firm

The Group uses Free Cash Flows to the Firm

as a measure of the cash generation of its core

business operations and it is defined as the

sum of net cash generated by the operating ac-

tivities and the net cash used in investing activ-

ities.

Commodity Inventories

The Group uses Commodity Inventories

(hereinafter ‘CI’), as an additional measure of its

liquidity, which the Group uses to provide a sup-

plemental tool to assist in evaluating current

business performance and in calculating credit

ratios under certain of the Group’s financing ar-

rangements. The Group defines CI as agricul-

tural inventories, such as corn, wheat, sun-

flower oil, and other products that were easily

convertible into cash before the Russian inva-

sion of Ukraine given their commodity charac-

teristics, widely available markets and the inter-

national pricing mechanism. The Group used to

call such inventories as “Readily marketable

inventories”, but after the beginning of the war

in Ukraine the Group faced difficulties with sell-

ing such inventories, and therefore such inven-

tories cannot be considered as readily market-

able any longer.

Debt Liabilities

The Group uses three metrics as the measure

of its leverage and indebtedness, which con-

sists of Debt Liabilities, Net Debt and Ad-

justed Net Debt. The Group defines Debt Li-

abilities as the sum of:

• bonds issued;

• current bond issued

• interest on bonds issued;

• long-term borrowings;

• current portion of long-term borrowings;

• short-term borrowings;

• lease liabilities and

• current portion of lease liabilities.

The Group defines Net Debt as Debt Liabili-

ties less cash and cash equivalents and cash

deposits pledged under credit facilities. Fi-

nally, the Group defines Adjusted Net Debt,

as Net Debt less commodity inventories.

Adjusted Working Capital

The Group uses Adjusted Working Capital

as a measure of its efficiency and short-term

liquidity and which is defined as current assets

(excluding cash and cash equivalents, and as-

sets classified as held for sale) less current li-

abilities (excluding the short-term borrowings,

the current portion of long-term borrowings,

current portion of lease liabilities, the current

bond issued, the interest on bonds issued, and

liabilities associated with assets classified as

held for sale).

…………………………………………………………………………………………………………………………………………………...

The following table shows the Group’s key inventories considered eligible for

by type and the

amounts of such inventory that the Group treats as

CI as in the periods indicated:

in thousand USD

As of 30

June 2022

As of 30

June 2023

Sunflower oil & meal

207,047

117,971

Sunflower seed

324,974

25,627

Grains

358,229

137,092

Other

63,673

60,853

Total

953,922

341,543

of which: Commodity Inventories

891,718

281,855

…………………………………………………………………………………………………………………………………………………...

alculation of Debt Liabilities, Net and Adjusted Net Debts as on the dates indicated:

in thousand USD

As of 30

June 2022

As of 30

June 2023

Bonds issued

Current bonds issued

595,038

596,211

Interest on bonds issued

7,612

Long-term borrowings

Current portion of long-term borrowings

Short-term borrowings

1,093,087

869,933

Lease liabilities

200,441

166,735

Current portion of lease liability

39,111

31,160

Debt Liabilities

1,935,289

1,671,651

less: cash and cash equivalents

447,625

954,103

Net Debt

1,487,664

717,548

less: commodity inventories

891,718

281,855

Adjusted Net Debt

595,946

435,693

…………………………………………………………………………………………………………………………………………………...

econciliation of total current assets to Adjusted Working Capital as at the dates indicated:

in thousand USD

As of 30

June 2022

As of 30

June 2023

Total current assets

2,523,156

2,442,102

less:

Cash and cash equivalents

447,625

954,103

Assets classified as held for sale

287,068

Total current liabilities

2,238,186

1,898,804

add back:

Short-term borrowings

1,093,087

869,933

Current portion of long-term borrowings

Current portion of lease liabilities

39,111

31,160

Current bonds issued

595,038

596,211

Interest on bonds issued

7,612

Liabilities associated with assets classified as held for sale

116,848

Adjusted Working Capital

1,401,973

1,094,111

…………………………………………………………………………………………………………………………………………………...

Calculation of

Free Cash Flows to the Firm:

in thousand USD

FY2022

FY2023

Net cash generated by operating activities

(305,464)

716,132

Net cash used in investing activities

(293,689)

9,576

Free Cash Flows to the Firm

(599,153)

725,708

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Alternative Performance Measures continued

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The Management believes that these APMs assist in providing additional useful information on the underlying trends, performance and position of

the Group. APMs are used by the Management for performance analysis, planning, reporting and incentive setting purposes. The

measures a

also used in discussions with the investors, investment analyst community and credit rating agencies.

APM

Calculation

Why APM is the most important for management

EBITDA

Profit from operating activities adding back amortization

and depreciation.

EBITDA is the main metric used by the management of the Group

to measure operating performance. It is also widely used by in-

vestors when evaluating businesses, and by rating agencies and

creditors to evaluate the leverage.

EBITDA margin

EBITDA divided by revenue during the reported period.

EBITDA margin is a metric widely used to measure profitability

of Group's operations.

Segment EBITDA

Segment profit from operating activities adding back

amortization and depreciation.

EBITDA is the main metric used by management of the Group to

measure segment operating performance.

Segment EBITDA

margin

Segment EBITDA divided by segment revenue during

the reporting period.

Segment EBITDA margin is the metric widely used to measure

profitability of Group's segment operations.

Investing Cash

Flows net of

Fixed Assets In-

vestments

Net cash used in investing activities adding back pur-

chase of property, plant and equipment, and

proceeds

from disposal of property, plant and equipment.

As the Group has grown and developed through acquisitions, this

APM helps to monitor the M&A and other investing activities of

the Group.

Net Fixed Assets

Investments

Net cash used in investing activities less Investing

Cash Flows net of Fixed Assets Investments.

The Group is executing a solid investment program, and fixed as-

sets investment is an important measure to monitor capital ex-

penditure as a part of the execution of investment program.

Operating Cash

Flows before

Working Capital

Changes

Net cash generated by operating activities less changes

in working capital activities, including:

• change in trade receivables and other financial as-

sets;

• change in prepayments and other current assets;

• change in restricted cash balance;

• change in taxes recoverable and prepaid;

• change in biological assets;

• change in inventories;

• change in trade accounts payable; and

• change in advances from customers and other cur-

rent liabilities.

The Group uses this APM as a pre-working capital measure that

reflects Group’s

ability to generate cash for investment, debt ser-

vicing and distributions to shareholders.

Free Cash Flows

to the Firm

Sum of net cash generated by operating activities and

net cash used in investing activities.

The Group uses this APM as it reflects the cash generating capa-

bility of the Group to repay debt

and distribute dividends to share-

holders.

Commodity

Inventories

Agricultural inventories, such as corn, wheat, barley,

soybean, sunflower seed, meal and oil.

The Group uses this APM as an additional measure of its liquidity,

which the Group uses to provide a supplemental tool to assist

management and investors in evaluating current business perfor-

mance and in calculating credit ratios under certain of the Group’s

financing arrangements.

Debt Liabilities

Sum of bonds issued, current bonds issued, interest on

bonds issued, long-term borrowings

, current portion of

long-term borrowings, short-term borrowings; lease lia-

bilities and current portion of lease liabilities.

The Group uses this APM, as it is a useful measure of the lever-

age of the Group, which is widely used by credit investors and

rating agencies.

Net Debt

Debt Liabilities less cash and cash equivalents and

cash deposits pledged under credit facilities.

The Group uses this APM, as it is a useful measure of the lever-

age of the Group, which is widely used by credit and equity

inves-

tors and rating agencies.

Adjusted Net Debt

Net Debt less commodity inventories.

The Group uses this APM as a supplemental measure of the

Group’s liquidity, which shows the amount of Debt Liabilities

not

covered by cash and commodity inventories.

Adjusted

Working

Capital

Current assets (excluding cash and cash equivalents,

and assets classified as held for sale) less current lia-

bilities (excluding short-

term borrowings, current portion

of long-term borrowings, current portion of lease liabili-

ties, current bonds issued, interest on bonds issued

and l

iabilities associated with assets classified as held

for sale).

The indicator of working capital is important for the Group, as the

Group is

involved in trading and processing activities and hold

large volumes of inventories on the balance. The Group

also in-

vests in business expansion, which needs working capital invest-

ments to increase efficiency. It is useful for users and investors

because it measures both a Group’s efficiency and its short-

term

financial health. It also helps management to keep a business op-

erating smoothly and meet all its financial obligation within the

coming year.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Sustainability

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

FY2023 performance

For the first time, tasks on climate corporate govern-

ance, including materialization of decarbonization

business opportunities, were included in Kernel’s

annual strategic targets for FY2024. This develop-

ment can be considered one of the key achieve-

ments of the company’s sustainability function in

FY2023 as we are starting to see clear indications

that ESG principles can serve as a strong contribu-

tor to the long-term capitalization of business.

In FY2023 we improved our Carbon Disclosure

Project (CDP) rating from D to B, becoming the

only company in Ukraine with such a high rating. We

finalized our EBRD-financed “Climate corporate

governance and low-carbon pathway” project;

the outcomes of the project will form the basis of

Kernel’s climate action plan. We started working on

the development and integration of operational

accounting of GHG emissions from farming oper-

ations across individual fields to ensure traceability

of our commodities' carbon footprint across the

whole production chain.

Support of our employees and the Armed Forces of

Ukraine remained at the center of our social capital

values. In FY2023, we directed a total of USD 12

million of material support to the army and humani-

tarian aid. We also launched an adaptation program

for veterans with the primary focus on the com-

pany’s employees who were demobilized and going

back to civilian life. The program seeks to help vet-

erans in their self-realization while also recognizing

their unique perspectives on the strategic develop-

ment of business.

Sustainable agribusiness as a paradigm of long-term

capitalization

Our values and purpose that help us manage ESG risks and opportunities in agriculture sector in Ukraine

…………………………………………………………………..………………………………………………………..…..…..…..…..…..…..…..….

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Sustainability: Key highlights

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

ESG Topics Key indicators in FY2023

ENVIRONMENTAL

CAPITAL

Contribution to SDGs:

Energy management

• 8,145 TJ – total electricity consumption

• 2,059 MJ/t – energy intensity of sunflower seed processing

in FY2023

• 64.3 MJ/t-% – energy intensity of drying grain

• 627.3 MJ/t – energy intensity

Water and effluent man-

agement

• 4,740 ML – the total volume of water withdrawn

• 871 ML – total volume of water discharged

Waste management

• 213,238 tons – total volume of waste generated

• 195,036 tons – total volume of treated waste

Biodiversity management

• 22 thousand ha of cover crops. Ongoing implementation of

the research program on the efficiency of different types of

cover crops

CLIMATE ACTION

Contribution to SDGs:

TCFD aligned disclosure

•

1,056

thousand tCO2e – total Scope 1 GHG emissions, ex-

cluding 348.9 thousand tCO2 of biogenic emissions

• 84.1 thousand tCO2e – total Scope 2 GHG emissions (loca-

tion-based)

• 138 thousand tCO2e – total Scope 2 GHG emissions (mar-

ket-based)

•

1,884 thousand tCO2e – total Scope 3 GHG emissions

Investment rating on

climate performance

• Improved CDP rating (Carbon Disclosure Project) by two po-

sitions – from D to B, making Kernel the only company in

Ukraine with such a rating

HUMAN CAPITAL

Contribution to SDGs:

Employment

•

10,733

– total number of employees

• 2,711 – total number of new hires

• 2,163 – total number of employee turnover

• 1

place in the agriculture sector and 2

place among all com-

panies in the national rating of employers

• Top-25 companies with adaptation programs for veterans ac-

cording to Forbes Ukraine

• HR Team of the Year, 8

Annual HR Brilliance Awards

(United Kingdom)

Training and career

advancement

• 207,596– total number of training hours

• 1,647 – total number of employees, receiving regular perfor-

mance and career reviews

Occupational health and

safety

•

– total number of recordable work-related injuries

•

0.42 – lost time injury frequency rate

Human rights, diversity,

and inclusion

• Launched an adaptation program for veterans, aimed to re-

integrate demobilized employees back into civilian life and the

company’s activities

SOCIAL CAPITAL

Contribution to SDGs:

Economic performance

• USD 3,394 million – Direct economic value generated

•

USD 3,026 million – Total economic value distributed

• Disclosure in line with the EU Taxonomy

Support of local communi-

ties and society as a whole

• USD 12 million – total contributions towards support of

the Ukrainian Army and humanitarian aid during military time.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: Environmental capital

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Report

Sustainability

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Governance

Financial

Statements

ENVIRONMENTAL CAPITAL

Energy management

Our management approach to energy re-

sources and efficiency

Consumption of energy resources is one of

the most material indicators of our operational

activities. We constantly research and inte-

grate various approaches towards the im-

provement of our energy efficiency, which in

turn reduces our contribution to the national

volume of GHG emissions. In addition, given

our potential to be the largest producer of elec-

tricity from biomass in Ukraine, we seek to be

a role model in the regional agriculture market

in driving energy saving and climate actions.

Our management approach towards energy

resources and energy efficiency is rooted in

the corporate Code of Conduct and Environ-

mental protection policy. There are energy

managers within each business segment, who

are responsible for overseeing Kernel’s en-

ergy-related operations and integrating en-

ergy efficiency measures. Indeed, the team of

nine specialists (Energy Management Ser-

vice) covers Oilseed Processing and Infra-

structure and Trading; in addition, there are

engineers on production sites, providing tech-

nical support for the energy system. Energy

efficiency issues in the Farming segment,

namely efficient use of fuel by agricultural ma-

chinery, are managed by the Engineering ser-

vice; it is also responsible for exploring and

testing new technologies and machines, that

can help decrease fuel consumption.

Our energy management performance

In FY2023, the overall consumption of energy

remained at about the same level as the pre-

vious year as the company’s two oilseed pro-

cessing plants remained inactive.

Our Oilseed Processing segment is the main

consumer of electricity, and its most significant

energy-intensive technological processes in-

clude drying of raw materials, wet heat treat-

ment of raw materials, cooling, oil treatment by

steam and cooling, drying and cooling of

meals, steam condensation, and heat recov-

ery processes. Natural gas is mostly con-

sumed by Infrastructure and Trading, partic-

ularly by silos, as it is used in grain drying op-

erations, whereas the most energy-intensive

processes are purification and drying of pro-

duction, handling, and shipment of raw mate-

rials and storage. With regards to the Farming

segment, it predominantly uses liquid fuel,

such as diesel and petroleum, in agricultural

machinery.

Commissioning of the co-generation heat and power facility at Vovchansk oil-extraction plant is postponed for the unforeseen period.

For the last two seasons, the Group underinvests in the maintenance and upgrade of the machinery and equipment in the Farming segment, caused by the uncer-

tainties with the export of agricultural products due to Russia’s full-scale invasion of Ukraine.

Over the reporting period, the Group produced

and sold to the national energy grid a total of

632 terajoules of electricity, produced from bi-

omass by four combined heat and power

plants (CHP), namely those operating at Kro-

pyvnytskyi, Poltava, Bandurka, and ‘Ukrainian

Black Sea Industry’ oil extraction plants

(OEP). A particular value of our ‘green’ elec-

tricity is that we do not produce biomass sep-

arately to be combusted on our CHPs but ra-

ther use sunflower seed husk, which is a side

product of the main operational activity and is

approved as a feedstock for advanced biofu-

els by Annex IX.A. of RED II EU Directive.

These CHPs are a part of our USD 248 million

investment project; the latter aimed to result in

a total of seven CHPs with a total installed

electric capacity of 94MW, making Kernel the

largest in Ukraine producer of electricity from

biomass

In addition to selling electricity to the national

energy grid, it is also used for our own needs,

mainly for the production of steam on our

OEPs. For that reason, in FY2023, approxi-

mately 98% of the total volume of heat energy

consumed by Kernel’s Oilseed Processing di-

vision was renewable, demonstrating a great

potential for our oil extraction operations to be-

come net zero in the future. Our efforts to im-

prove energy efficiency within the Oilseed

Processing segment are focused primarily on

the optimization of steam usage in operations.

In our Farming segment, our energy effi-

ciency approaches target our agriculture ma-

chinery fleet. We constantly research the mar-

ket and development projects of major global

producers of agriculture machines and up-

grade our machines every 5-6 years

to re-

place them with more efficient options in terms

of fuel consumption.

In addition, our existing machines, especially

fuel-intensive ones, are equipped with GPS

trackers and a remote system for monitoring

fuel consumption. These help us to optimize

the usage of fuel and decrease the fuel inten-

sity of standard operations. For example, the

operation of deep loosening with mineral ferti-

lizers application executed by a machine using

an RTK-guided autopilot system, which allows

to avoid overlaps in application, saving around

4.2% of both fuel and fertilizers. Overall, Ker-

nel invests a significant resource in the devel-

opment of its agriculture innovation solutions

with the Digital Agribusiness system and ap-

plication of AI to increase production effi-

ciency. The company regularly collects and

analyses data, both with agriculture machinery

and remote sensing technology, on

agrochemical and weather conditions from in-

dividual field plots. The long-term goal of such

a process is to operate based on a highly gran-

ulated understanding of soil characteristics

and potential within every field, which allows

us to apply a tailored set of practices and pre-

cise amounts of fertilizers or pesticides. Such

an approach helps to achieve higher produc-

tivity with minimum destruction of natural cap-

ital. In FY2023, Kernel started testing such an

approach of a tailored combination of prac-

tices on a pilot set of fields.

Drone sprayers allow to reduce die-

sel consumption by 1.5-

2.5 liters per

hectare

RTK-guided autopilot system saves

4.2% of fuel and fertilizer avoiding

application overlaps

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: Environmental capital

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Report

Sustainability

Corporate

Governance

Financial

Statements

Water and effluent management

Our management approach to water re-

sources and efficiency

We constantly improve our approaches to-

wards rational water consumption and treat-

ment of wastewater, aiming to both increase

water use efficiency and decrease our impact

on the environment. Our approach is embed-

ded in the Environmental protection policy.

Kernel undertakes water withdrawal in line

with valid ‘Special water use’ permits, being

fully compliant with the national legislation.

Kernel closely monitors operations in areas

with water stress. Our water use accounting

system includes information on assets' loca-

tion in terms of water stress zones: three of our

oil extraction plants withdraw water in areas

with high water stress, and three plants oper-

ate in areas with medium water stress. In ad-

dition, we undertake strict measures to pre-

vent water contamination from our operations,

the highest risk of which is associated with

farming activities. Specifically, we ensure the

precise application of fertilizers and pesticides

to the soil, allowing us to control the risk of

their runoff to water bodies; in addition, we do

not have farming and manure management

operations in the protection buffer zones of

water bodies.

Our water management performance

In the Oilseed Processing segment water is

used primarily for technical purposes, namely

production of steam, and domestic needs.

Each of our OEPs has an emergency water

reserve, used in case of fire, and five of our

plants have stormwater collection systems to

prevent contamination of soil and groundwater

with oil residue and solid particles. The col-

lected stormwater is not used in the production

processes, due to food safety requirements

limitations.

For our crop production operations natural

precipitations are the main source of water,

and less than 1% of our landbank is irrigated.

For that reason, irrigation purposes account

for the largest share of the total volume of wa-

ter used by the Farming segment. We apply

advanced monitoring techniques to accurately

identify the water needs of our crops and ex-

ploit the modern pumping and distribution

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..………….

Key energy management indicators

FY2021

FY2022

FY2023

Energy consumption, terajoules

Non-renewable fuel consumed

3,165.0

2,915.1

2,798.2

Natural gas

1,373.1

1,578.8

1,206.8

Oilseed Processing

321.9

149.1

112.0

Infrastructure and Trading

1,007.3

1,394.9

1,031.8

Farming

44.0

34.7

63.0

Other

Diesel

1,643.5

1,247.3

1,495.2

Oilseed Processing

10.4

8.2

3.6

Infrastructure and Trading

18.5

34.6

50.3

Farming

1,528.4

1,198.3

1,433.3

Other

86.3

6.2

7.9

Petroleum

58.1

39.7

46.1

Oilseed Processing

2.0

1.2

0.6

Infrastructure and Trading

5.6

4.5

4.2

Farming

39.6

25.8

40.6

Other

10.9

8.2

0.7

LNG

90.2

49.3

50.2

Oilseed Processing

0.6

0.3

0.2

Infrastructure and Trading

3.1

2.5

1.7

Farming

84.9

45.3

48.2

Other

1.7

1.2

Renewable fuel consumed (sunflower seed husk)

3,557.6

3,551.5

5,189.2

Electricity

894.3

736.4

789.4

Oilseed Processing

668.6

512.3

617.4

Infrastructure and Trading

152.4

171.9

127.3

Farming

69.6

49.7

44.8

Other

3.6

2.5

Heating

3.1

0.9

0.2

Oilseed Processing

Infrastructure and Trading

1.9

Farming

0.1

0.2

Other

1.1

0.7

Electricity sold to the grid

160,5

322,5

631.7

Total energy consumption

7,459.5

6,881.4

8,145.7

Oilseed processing

4,400.1

3,900.1

5,291.3

Infrastructure and Trading

1,188.9

1,608.6

1,215.3

Farming

1,766.6

1,353.9

1,630.1

Other

104.0

18.8

8.7

Energy intensity indicators, megajoules,

Energy consumed per ton of sunflower seed crushed

1,425.6

1,966.6

2,058.7

Energy consumed per ton-% of grain dried

57.8

57.3

64.3

Energy consumed per ton of harvested grain

589.5

398.4

627.3

Note 1

: Any discrepancies between data in this and previous reports (FY2022 and FY2021

) are associated with clarifications of raw data and alignment of conversion

factors.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: Environmental capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

equipment, allowing minimal technical losses

of water. Kernel’s irrigation experts have been

actively involved in the working group, coordi-

nated by the Ministry of Agriculture Policy of

Ukraine, aimed at developing the foundation

for the implementation of the Law of Ukraine

“On the organization of water users and stim-

ulation of hydro-technical melioration of land”,

adopted in March 2022. The Law provides for

the establishment of water use organiza-

tions (WOUs), aiming to drive the develop-

ment of irrigation systems in Ukraine and

make them accessible for farmers. In FY2023,

one WUO has been successfully established

under the coordination of Kernel’s experts and

another one is undergoing a relevant prepara-

tional process. In the Farming division, water

is also used for animal husbandry and techno-

logical purposes, such as dilution and applica-

tion of crop protection chemicals and fertiliz-

ers. In the case of animal husbandry, we re-

duce water usage by applying a dry method of

removing manure from cowsheds, using con-

veyor scrapers. We also constantly test and

integrate approaches to reduce water use in

the process of agrochemical application.

In addition to the water-saving measures on

the operational level, Kernel invests in techno-

logical solutions that allow to increase water

use efficiency in the long-term perspective. On

our Bandurka and Black Sea Industry CHPs,

we exploit dry cooling systems, which are

three times more expensive in comparison to

traditional wet cooling systems but allow us to

save up to 320 megaliters of water annually.

Our management approach to

wastewater treatment

All wastewater generated during operations,

undergoes treatment before being discharged

to water bodies. Three oil extraction plants op-

erate full-cycle water treatment systems,

which provide biological, physical, and chemi-

cal purification.

In FY2023, we purified 125.1 megaliters of

wastewater on our water treatment system, of

which 98.1 megaliters underwent physical-

chemical and biological treatments, and 27.1

megaliters were treated through dissolved air

flotation. If an oil extraction plant is connected

to a municipal wastewater treatment plant

(WWTP), wastewater is pre-treated on the site

to meet the requirements of a WWTP and is

directed at a proper external treatment. The

quality of treated wastewater is monitored by

our laboratories, which analyze water samples

in line with the Ukrainian national regulation on

maximum permissible discharges of pollu-

tants, maximum levels of which are specified

in a “Special water use” permit.

Such permits set limitations to volumes of

withdrawn water and/or on volumes and qual-

ity of effluents based on surveys that define

hydrological conditions, baseline water qual-

ity, and assimilation capacity of a water body.

The permitting authority uses information on

water use within a watershed or aquifer to set

permit conditions in a way that balances the

interests of all users and keeps cumulative

pollution levels within the national water qual-

ity standards. The regulatory requirements

were the only criteria for setting permit condi-

tions that define the quality of our effluents.

Parameters of wastewater, controlled during

laboratory testing, include eight substances,

as well as biological (five-day) and chemical

demands of oxygen. In FY2023, there were no

incidents of non-compliance with quality re-

quirements of wastewater quality.

In FY2023, we successfully finalized a proce-

dure of Environmental Impact Assessment for

the project on renovation of an onsite

wastewater treatment system at Kropyvny-

tskyi oil extraction plant. Modernization of this

system will allow addressing specific parame-

ters of wastewater, including equalization, cor-

rection of pH, reagent flotation and its prepa-

ration for dehydration, as well as mechanical

dehydration of sludge. The expected treat-

ment capacity of 0.15 megaliters/day.

………………………………………………………………………………………………………………………………………….………..…………………………………………………………………………….

Scheme of Kernel’s water management cycle at oil extraction plants

Bottled sun-

flower oil

Husk

(160 kg)

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Sustainability: Environmental capital

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Financial

Statements

Waste management

Our management approach to waste gen-

eration and treatment

Minimization of waste, as well as its proper

treatment, is one of the key indicators of our

operational efficiency. We seek to identify and

implement measures towards the reduction of

the overall volume of waste through the mod-

ernization of technological processes, includ-

ing the reuse of waste across divisions, con-

tributing to the long-term sustainability of our

business, as well as through the establish-

ment of controls over a waste generation,

transportation, and storage.

This approach is enriched in the Environmen-

tal protection policy and Code of Conduct. In

case the generated waste does not have di-

rect application in the production chain, it is

transferred to licensed providers of waste dis-

posal or recycling services selected from the

official list of license holders provided by the

Ministry of Environmental Protection of

Ukraine. The license conditions are set to en-

sure the operator’s capacity for safe handling

of collected waste. The Ministry is responsible

for verification of compliance of licensees’ op-

erations with these conditions. Violation leads

to license revocation.

We expect the same level of responsibility re-

garding waste management from our contrac-

tors working on Kernel’s sites: standard

clauses of our agreements oblige contractors

to control the generation of waste and prevent

the mixing of different types of waste. In line

with such obligation, Kernel may request con-

tractors to provide copies of agreements with

providers of waste disposal and recycling ser-

vices.

………………………………………………………………………………………………………………………………………….………..……………………………………………………………………………..

Key water management indicators

FY2022

FY2023

Total

Areas with water

stress

Total

Areas with water

stress

Water withdrawal, megaliters

3,354.7

818.9

4,739.6

845.8

by source

ground water

1,025.6

628.2

1,401.4

838.4

surface water

1,481.2

8.2

2,529.2

7.5

municipal suppliers (third-party water)

847.8

184.4

809.0

by business segment

Oilseed Processing

1,508.5

777.9

1,666.5

752.3

Infrastructure and Trading

23.5

1.9

29.8

1.87

Farming, incl.:

1,822.7

41.0

3,043.3

93.6

Irrigation

1,454.9

2,518.1

Animal husbandry

166.0

207.6

Water discharge, megaliters

864.4

329.4

870.5

207.6

by types of destination

surface water

259.1

98.1

municipal suppliers (third-party water)

605.3

70.4

772.4

109.5

by business segment

Oilseed Processing

854.4

329.4

860.7

207.6

Infrastructure and Trading

10.0

151.90

Discharge of substances, tons

dry residue (mineralization)

768.9

160.4

406.7

129.7

sulfates

198.2

98.0

96.4

57.3

chlorides

196.2

71.8

88.6

46.4

suspended particles

131.2

16.6

51.1

25.3

fats

12.8

4.2

10.8

8.7

other substances

105.3

79.7

240.3

110.6

………………………………………………………………………………………………………………………………………….………..

Key waste management indicators

tons

FY2022

FY2023

Volume of waste generated

177,133.2

213,237.8

including by class of hazard

1st class

14.5

24.4

2nd class

237.4

246.7

3d class

401.1

167.3

4th class

176,480.2

212,799.4

Volume of treated waste

164,620.2

195,036.3

including by management approach

Sold to 3d parties

99,729.3

38,653.7

Landfilling

9,710.6

15,453.9

Transferred for utilization

883.4

1,569.4

Used at enterprise

54,296.9

139,359.2

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: Environmental capital

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Report

Sustainability

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Financial

Statements

Our waste management performance

In the Farming segment, the waste from op-

erational activities includes:

• Crop residue that is normally left distrib-

uted on the field and might also be incorpo-

rated in soil or mulched. Part of the straw is

used for the purpose of cattle management

as bedding. No crop residue is burned on

the field, as it is strictly forbidden.

• Pesticide packaging is collected sepa-

rately, depending on the class of hazard,

and transferred to a licensed provider of

waste disposal services.

• Manure is the main type of waste from ani-

mal husbandry. After manure is removed

from cowsheds with scrapper conveyors, it

is transported to embanked storages,

where it undergoes natural composting in

piles. All storage is located outside of settle-

ments, in leeward areas; no storage is lo-

cated in close proximity to water protection

buffer zones to avoid contamination. Ma-

nure is mainly applied in fields as organic

fertilizer, and part of it is distributed among

local communities for gardening purposes.

In FY2023, we applied 59 thousand tons of

composted manure mixed with straw as a

fertilizer.

• Cows’ carcasses are disposed of in regis-

tered bio-thermal pits in compliance with the

requirements of the State Veterinary Com-

mittee.

In terms of milk production, this process does

not involve the generation of waste related to

packaging because final products are sold in

bulk.

In the Infrastructure and Trading segment

generation of waste is associated mainly with

the grain purification process and includes:

• Fraction of substandard grain and crop

residue, separated from main products and

used mainly as input for cattle fodder in our

animal husbandry business and is sold to

third parties. In addition, we use crop resi-

due as a fuel on one of our drying installa-

tions for the generation of steam.

The main matter of the Infrastructure and

Trading business, namely grain, is sold in bulk

and does not involve the generation of addi-

tional waste associated with packaging.

In the Oilseed Processing segment, the main

source of waste and co-products is oilseed

crushing in the process of sunflower oil pro-

duction, generating:

• Sunflower seed husk, which is used as a

fuel, partly for satisfying own technological

needs of our oil extraction plants (steam

generation), whereas the major share of the

total volume is used as biomass in electric-

ity production by Kernel’s combined heat

and power plants (CHPs).

• Meal is used as an input for cattle fodder in

our animal husbandry business and is sold

to third parties.

• Sunflower ash, from combustion in the

power generation process, is used as a raw

material for the production of fertilizers. Ash

is valuable for its chemical composition,

namely its high potassium content and lack

of hazardous admixture. Applying ash in

fields allows to return of a part of harvested

nutrients back to the soil.

The main final product in the Oilseed Pro-

cessing business is crude oil sold in bulk for

further processing by customers. The remain-

ing volume of produced oil is refined, bottled,

and packed. The generation of waste associ-

ated with plastic and cardboard packages,

takes place downstream among customers.

Other types of waste occur as the result of op-

erational household activities, such as ma-

chinery maintenance, construction and engi-

neering works, and wastewater treatment.

Biodiversity management

Our management approach to biodiversity

protection

Given the nature of Kernel’s business of oper-

ations, specifically farming activities, we are

strongly committed to both minimizing our

negative impact on biodiversity and undertak-

ing specific measures aimed at conserving

and boosting biodiversity. This approach is re-

flected in our Environmental protection policy.

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..……..…..…..…..….

Scheme of Kernel’s waste management cycle

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Sustainability: Environmental capital

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Report

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The key principle in delivering this commit-

ment is ensuring comprehensive and detailed

monitoring of our farming activities, which we

perform throughout our innovative DigitalAg-

ribusiness ecosystem. We apply IT, AI, and

Big Data solutions to accumulate information

on fields and technological operations, allow-

ing us to improve our practices of precise

farming, strengthen our risk management ap-

proaches, as well as control interactions and

impact on natural ecosystems. We exploit

RTK-guided autopilot agriculture machinery

on all our fields; we collaborate with other

companies, sharing the RTK signal and in-

creasing the area coverage where precise

farming is applied. We also monitor our fields

through remote sensing technologies by

collecting data, such as NDVI

, from satellites,

helicopters, and on-site data collection facili-

ties, which are then synchronized in data-

bases and analyzed with GIS (Geographic In-

formation Systems) programs. Additionally,

these analytical tools are made accessible in

operational activities on the ground: in their

everyday work, our agronomists use tablets

with installed ‘Mobile Agronomist’ scouting

application, making the process of risk as-

sessment and decision-making more effec-

tive. Furthermore, we undertake thorough due

diligence prior to the conclusion of the lease,

which includes evaluation of the physical con-

dition, such as quality of soil and existing veg-

etation, as well as the legal status of the land,

namely ownership rights, registered land use

limitations and legal suitability for farming,

which also includes proximity to conservation

areas. Therefore, we do not operate in the

areas with high biodiversity value, specifi-

cally in (1) protected natural zones as defined

by the national legislation and (2) wildlife and

natural habitats at the 377 Areas of Specified

Conservation Interest (ASCI) that are part of

the Ukrainian zone of the Emerald Network,

established by the Bern Convention.

In addition, our own farming operations and

our suppliers of grain and oilseed are not as-

sociated with deforestation. In Ukraine, the

land bank of forestry and agriculture is gov-

erned by different laws stating that the conver-

sion of forests into agricultural land is prohib-

ited. Furthermore, Ukraine is historically

known for its large territories of agricultural

land (almost 70% of the country’s territories),

which have not been covered by forests over

the last 50 years. Issues of illegal deforesta-

tion in Ukraine are specific to the lands of the

forest fund and are not associated with agri-

cultural activities. In addition to such legisla-

tive limitations, Kernel took a non-deforesta-

tion commitment. We are also committed to

Normalized Difference Vegetation Index quantifies vegetation by measuring the difference between near-infrared (which vegetation strongly reflects) and red light

(which vegetation absorbs). NDVI is a standardized way to measure healthy vegetation – the higher the NDVI, the healthier vegetation.

Rotterdam Convention on the Prior Informed Consent Procedure for Certain Hazardous Chemicals and Pesticides in International Trade

preventing the expansion of arable lands at

the cost of natural habitats and other territories

not intended for farming, both in our own op-

erations and in supply chains.

Our biodiversity management perfor-

mance

Our practical approaches to minimizing the

adverse impacts of our farming operations on

biodiversity include the following:

• Promotion of soil biodiversity. Kernel ac-

tively researches and tests applications of

biological fertilizers, including phosphorus-

and nitrogen-fixing bacteria. We are the first

agriculture company in Ukraine to establish

and run our own microbiological laboratory,

where we closely evaluate the benefits of bi-

ological fertilizers on soil health. We also

use biodestructors, namely bacteria and

fungi, that contribute to maintaining the bio-

diversity of soil while also intensifying the

decomposition of organic crop residues

mulched and left in fields, leading to a sub-

sequent return of nutrients from residue

back to the soil. In addition, biodestructors

have a fungicidal effect, protecting crops

from harmful microorganisms. We have

been applying biodestructors on more than

350,000 hectares for several years.

We are closely researching agriculture tech-

nologies that have a high potential for re-

ducing GHG emissions, associated with

farming operations, and have a positive im-

pact on biodiversity. Approaches such as

reduced tillage, cover, and perennial crops

not only allow to sequestrate carbon, but

also conserve ecosystems of microorgan-

isms in the soil, crop residue, and plant

biomass. In FY2023, Kernel sowed a total

of 22 thousand hectares of cover crops.

• Integrated pest management system.

When undertaking pest control actions to

reduce crop exposure to diseases, we com-

ply with applicable national and interna-

tional regulations. We only use authorized

plant protection products, listed in the State

registry of pesticides and agrochemicals al-

lowed to be used in Ukraine; we also do not

apply chemicals prohibited by the Stock-

holm Convention on Persistent Organic

pollutants and products, listed in Annex

3 of the Rotterdam Convention

. We con-

stantly improve our pest management ap-

proaches by adjusting them in line with leg-

islative changes on pesticides in other

countries. For example, since 2021 we have

been gradually reducing the use of neonico-

tinoid products. In a few years, their appli-

cation will be limited to Thiacloprid and Ac-

etamiprid which are used in certain EU

countries and have lower toxicity for bees

and wild insects. Before using a new sub-

stance on the operational scale, we test it

on our R&D fields (more than 25,000 hec-

tares).

Application of pesticides is performed by

self-propelled spraying machinery,

equipped with a positioning control system

that deactivates sprayers when leaving the

boundaries of an assigned field and pre-

vents doubling and re-application in areas

that were already sprayed. In addition, ma-

chines have automatic remote controls for

weather conditions which accounts for

wind, allowing for minimized off-the-field re-

leases of pesticides.

………………………………………………………………………………………………………………………………………….……….

Map of Kernel’s presence in areas with high biodiversity value in Ukrain

Bottled

sunflower

Husk

(160

kg)

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: Environmental capital

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

• Control of seed quality. For sowing cam-

paigns, Kernel only uses breeds and hy-

brids of seeds, listed in the State Registry of

Plant Species Eligible for Cultivation in

Ukraine, which excludes genetically modi-

fied seeds. All seeds, either produced inter-

nally or sourced from the market, undergo a

thorough examination in Kernel’s accred-

ited laboratory prior to sowing.

• Monitoring soil nutrients. At least once

per crop rotation cycle, we analyze the qual-

ity of soils at our agrochemical laboratory by

taking over 20,000 soil samples (from 30

centimeters depths). Based on the results of

evaluations, we adjust our crop mix plans,

production technology, and fertilization

practices where required. Test-based ap-

proach to the application of fertilizers allows

for maintaining a deficit-free balance of nu-

trients and thus prevents deterioration of the

soil quality.

Monitoring of environmental impacts

and ecological compliance

Our management approach towards regula-

tion of the impacts of our operations on the en-

vironment is built on two pillars, namely (1)

continuous monitoring of key environmental

performance indicators to be aligned with per-

mit requirements and to successfully pass

environmental inspections, and (2) procedure

of environmental impact assessment (EIA)

and strategic environmental assessment

(SEA) in line with the national legislation for

planned activities that pose a high risk of sig-

nificant environmental impacts.

These priorities are reflected in our Code of

Conduct and in Environmental protection pol-

icy provisions which account for EBRD’s

Performance Requirements. We also expect

the same level of responsibility regarding con-

trol of environmental impact from our suppliers

as stated in our Code of interaction with sup-

pliers. Mechanisms of environmental monitor-

ing are practically implemented through a

group-wide environmental management sys-

tem (EMS), which is certified with the ISO

140001 “Environmental management”

standard

. Responsibility for performing envi-

ronmental monitoring and ensuring compli-

ance with relevant legislation lies on the as-

sets-based team of environmental specialists

(11 full-time employees). Given the nature of

our business operations, we are required to

obtain permits for air emissions, water with-

drawal, and discharge of wastewater to water

bodies. The process of obtaining permits is

performed both by Kernel’s team of environ-

mental specialists and by involving external

contractors. In FY2023 Kernel’s assets

obtained a total of 7 new permits, including 3

air emission permits, 3 water withdrawal per-

mits, and 1 permit for subsoil use.

Complying with permit obligations we have de-

veloped monitoring programs to control the

environmental quality of our operations.

These include analysis of air, soil, and water

quality, as well as assessment of levels of

noise and vibration pollution. There were no

inspections of environmental compliance per-

formed by the State environmental inspec-

torate on our assets in FY2023. Such inspec-

tions are forbidden during martial law.

In FY2023, we spent a total of USD 141 thou-

sand on measures associated with mitigation

of environmental impacts and environmental

protection.

Certification ISO 14001 covers key trading company Kernel-Trade, six oil crushing plants, two farming clusters, fifteen silos and one trading terminal

………………………………………………………………………………………………………………………………………….………..

Key environmental monitoring indicators in FY202

Scope of monitoring

# of

checks

# of sites

monitored

# of samples taken

Air quality

141

505

Conditions of emissions permit

Conditions of EIA

171

Areas at boarders with SPA

259

Water quality

135

Ground water

Surface water

Soil quality

Areas of waste storage

Areas at boarders with SPA

Noise pollution

Vibration pollution

177

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: TCFD disclosure

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Sustainability

Corporate

Governance

Financial

Statements

CLIMATE ACTIONS (TCFD

DISCLOSURE)

Governance

Board oversight of climate-related risks

and opportunities

Kernel’s Sustainability Committee of the

Board of Directors is the body responsible for

(1) identifying, prioritizing, and advising the

Board on the company’s strategic activities in

the areas of decarbonization, climate-related

business opportunities, development of envi-

ronmental, social and human capital, and sus-

tainability governance (hereinafter – ‘ESG’)

and sustainable finance; (2) critically review-

ing and considering the ESG Strategy, which

will incorporate SBTi aligned climate targets

and decarbonization pathway; (3) ensuring

the implementation of the ESG Strategy

across business operations; (4) connecting

ESG and climate corporate agendas with Ker-

nel’s business strategy, business objectives

and capital allocation decision.

The Sustainability Board Committee consists

of at least three members, appointed by the

Board of Directors upon proposal of the Nom-

ination and Remuneration Committee; the

Chair of the Committee appoints a secretary,

who is normally a sustainability manager of

the Group. For that reason, the Sustainability

Board Committee acts as an effective link be-

tween the Board of Directors and the Execu-

tive Management Team.

The Sustainability Committee had one meet-

ing during the reporting period, discussing the

following:

• update on various business opportunities

related to the sustainability function and cli-

mate change;

• CDP scoring results and areas for improve-

ment.

At the meeting held in July 2023, the Sustain-

ability Committee discussed business oppor-

tunities related to the sustainability function

and climate change and discussed the EY

summary presentation related to the project

“Climate Corporate Governance and Low-

Carbon Pathway”.

The Audit Committee critically reviews and

prioritizes physical and transition climate risks

as part of its responsibilities to assist the

Board of Directors in delivering its risk man-

agement responsibilities by providing a de-

scription of risks specific to Kernel, oversee-

ing the adequacy and effectiveness of Ker-

nel’s risk management system, and reviewing

the company’s policies on risk assessment

and risk management.

Management’s role in assessing and man-

aging climate-related risks and opportuni-

ties

Kernel seeks to integrate ESG and climate

corporate agendas in the company’s overall

business strategy and operations. For that

reason, the Executive Management Team is

actively engaged in the implementation of

ESG and climate action practices and initia-

tives within their respective functions, that are

considered priority at a specific time. Kernel

plans and prioritizes such initiatives based on

its vision of the role of the company and agri-

culture sector in general in delivering the

goals of the Paris Agreement and our place

within the international climate arena. We

develop our vision based on our understand-

ing of global dynamics in the areas of decar-

bonization and carbon markets, which is com-

plemented by our ongoing dialogue with our

key trade partners, and major global agricul-

ture commodity traders.

The Chief Executive Officer of Kernel plays

a key role in ensuring control over the integra-

tion of ESG and climate corporate agendas in

business operations. CEO is to provide a crit-

ical review and feedback on the development

of Kernel's ESG and climate corporate strat-

egy, including GHG emission reduction tar-

gets, approaches to the development of the

sustainability and climate corporate strategy

across operations, as well as on engagement

in relevant business opportunities related to

decarbonization.

Executive Management Team: At the end of

FY2023, the company developed climate-re-

lated strategic targets for the Executive Man-

agement Team that will be enforced through-

out FY2024, including:

1. Development of the framework for

systematic attraction of sustainable

finance: Chief Financial Officer

2. Research and realization of business

opportunities associated with low-

carbon development: Heads of Trading

3. Integration of operational accounting

of GHG emissions from agriculture

operations: Director of Agribusiness,

Director of IT, Chief Financial Officer

Head of HR department provides overall

support to initiatives that focus on the imple-

mentation of business opportunities associ-

ated with low-carbon development. Among

the specific responsibilities of the Head of the

HR Department is the development of the sys-

tem of climate KPIs for the Executive Manage-

ment Team and their cascading throughout

each corporate function. The head of HR De-

partment is also responsible for communi-

cating the importance and benefits of sustain-

ability practices and climate actions within the

Group and supporting their implementation

from the behavioral perspective. Kernel’s

Head of Sustainability is in direct subordina-

tion to the Head of HR department. Head of

Sustainability is responsible for leading the

development and improvement of Kernel's

sustainability and climate corporate function.

The Risk Committee of the Executive

Management Team is responsible for the

identification, assessment, management, and

control of the key risks, including climate-re-

lated risks.

Strategy

In FY2023, Kernel finalized the "Climate cor-

porate governance and low-carbon pathway"

project in partnership with EBRD, which in-

volved the assessment of climate-related

risks and opportunities (in line with TCFD rec-

ommendations), gap analysis of climate gov-

ernance, feasibility analysis mitigation and ad-

aptation measures.

Building on the results of this project, the com-

pany developed a comprehensive action plan,

which includes actions of an organizational

and investment nature aiming to improve Ker-

nel’s climate corporate governance perfor-

mance. Such actions were developed across

material groups: agribusiness, production, en-

ergy, carbon offsets, production, supply chain,

GHG accounting, risk, strategy, governance,

and sustainable finance. The action plan was

reviewed by the Sustainability committee of

the Board of Directors, prioritizing actions and

reflecting them in respective KPIs for execu-

tive and operational managers. The action

plan will act as a cornerstone of the Group’s

future climate transition strategy and emission

reduction targets aligned with the SBTi FLAG

guidance.

As part of preparing and implementing such

an action plan, the Group is actively evaluat-

ing options for corporate GHG emission re-

duction targets by integrating a detailed oper-

ational accounting system and addressing

business opportunities and risks associated

with the application of low-carbon farming

practices. However, in FY2023 setting targets

in line with the SBTi FLAG was once again

postponed until the next reporting periods due

to high levels of uncertainty regarding the op-

erational boundaries of GHG emissions ac-

counting, crop rotations (which may be altered

depending on export routes), availability of ex-

port routes etc.

Approach to climate risk identification and

management

Kernel's overall approach to managing risks,

including climate physical and transitional

risks, and to evaluating their impact on busi-

ness is governed by the company's Risk Man-

agement Policy and underlying procedures.

The policy reflects a comprehensive risk man-

agement framework developed by Kernel,

which includes a 5-steps risk identification

and mitigation system, namely:

• Risk identification;

• Risk assessment and prioritization;

• Development and execution of risk mitiga-

tion plan;

• Monitoring of plan execution;

• Enhancement of risk management process.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Sustainability: TCFD disclosure

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Report

Sustainability

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Governance

Financial

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The risk management framework operates

five risk categories: strategic (business), op-

erational, financial, regulatory, and sustaina-

bility. In terms of climate-related risks, strate-

gic (business) and operational categories ac-

count for physical climate long-term and

short-term risks, respectively. Transitional cli-

mate risks are covered by the regulatory cat-

egory and sustainability category, covering a

broader group of environmental and social

risks. For the purpose of annual operational

planning, the company re-evaluates and up-

dates the matrix of top-10 risks, which are

then approved by the Board of Directors. The

risk of acute climate events in the production

cycle is embedded in the risk category 'weak

harvest in Ukraine'. The risk of weak harvest

is applied to each business segment of the

company: (1) Kernel's own farming operations

(direct impact); (2) capacity utilization of Ker-

nel's silos and export terminals due to physi-

cal shortage of grain on the market and oil

crushing margins due to limited supply of

oilseeds (indirect impact); (3) export value

chain, because the majority of Kernel's grain

export volumes normally originates from third-

party suppliers.

The risk management process is imple-

mented by the Board of Directors, executive

management, and operational management

on an ongoing basis. Risks of substantial fi-

nancial impact are considered by the Board of

Directors, and other risks are maintained at

the executive management and operational

management levels. Indeed, the executive

management team ensures that all risks are

systematically identified, quantified, moni-

tored, mitigated, and managed daily.

Within the 'Climate change strategy and low-

carbon pathway' project, Kernel works to inte-

grate a more articulated approach to the iden-

tification, evaluation, and management of cli-

mate physical and transition risks in line with

the TCFD recommendations. This includes an

assessment of the impacts of climate-re-

lated risks on the enterprise value.

With regards to climate physical risks, such an

approach involves the regular assessment of

climate change information provided by the

Regional Climate Models (specifically

CMIP6 Projections using SSP 2.6-4.5 and

SSP 8.5 scenarios to inform management de-

cisions) to understand the dynamic of climate

change impact across Kernel's landbank in

the long-term perspective. Relevant parame-

ters of these scenarios are used for stress-

testing Kernel's financial model, allowing it

to evaluate the Group's exposure to long-term

climate change impacts and their monetary in-

terpretation (i.e. impact on EBITDA). Evalua-

tion of transitional climate risks is also to be

reflected in the company's financial model and

accounts for implications of both domestic

and European carbon regulations.

The interconnection between climate physical

and transitional risks is linked to the assump-

tion that SSP 2.6-4.5 scenarios would imply

that carbon regulations will be tightened sig-

nificantly and will strongly affect the Com-

pany’s performance, but the Company will be

less exposed to the physical risks, whereas

SSP 8.5 scenario implies that carbon regula-

tions will be tightened moderately and softly

affect the company’s performance, but in

turns the company will be more exposed to

the physical risks.

Kernel's approaches to the identification, as-

sessment, and management of climate risks

are the following:

• Climate physical risks are evaluated on

the operational level. Kernel's modelling

and monitoring team (consists of experts in

practical application of geographic infor-

mation systems, or GIS) as well as financial

and business analytics undertaking ongo-

ing monitoring of key climatic indicators

(data obtained from the company's own

meteorological stations and satellite data

,which reflects the vegetational response to

weather conditions, such as NDVI indica-

tors) and their interconnections with finan-

cial and business performance. Further-

more, the farming segment holds strategic

sessions twice a year before spring and

winter sowing campaigns where Kernel’s

agricultural experts, building on this analy-

sis, undertake short-term business plan-

ning, profound consultation, and decision-

making on managing acute climate risks

and adaptation practices.

• In terms of chronic climate risks, the mon-

itoring is based on the company's practical

observations and analysis of available

agrometeorological research on changes in

Ukraine's climate zones and yield dynam-

ics. To that end, Kernel's business analysts

undertake a regular analysis of harvest re-

sults of both Kernel and other agriculture

companies in Ukraine and compare these

indicators between geographic regions.

Such exercises help to identify climate pat-

terns and tendencies across the company's

land bank, which are used to make in-

formed long-term strategic decisions re-

garding the geographic location of assets.

Such decisions are made at the level of the

executive management team or at the level

of the Board of Directors if the monetary im-

plication of risk is higher than the estab-

lished substantial strategic impact thresh-

old.

• Identification of climate transitional risks

is undertaken by Kernel's sustainability

manager through the ongoing monitoring of

developments in domestic and EU carbon

regulations. Transitional risks, flagged by

the sustainability manager, are evaluated in

terms of their monetary impact together

with financial and business analytics. It is

then brought up to the executive manage-

ment team or the Board of Directors atten-

tion if the impact of the risk is considered

significant. Evaluation of climate transi-

tional risks is based on analysis of NGFS

(Network for Greening the Financial Sys-

tem) scenarios of carbon prices within EU

ETS and in Ukraine. Analysis of these sce-

narios and financial implication of climate

transitional risks, as well as information on

key drivers of these risks (i.e. develop-

ments in EU and domestic climate regula-

tions), are updated on an annual basis and

approved by the Audit Committee at the

Board of Directors.

Material climate-related risks

Chronic physical risks

For Kernel's operations, chronic physical cli-

mate risks are relevant from the perspective

of long-term strategic impact on the location

of assets. Analysis of the overall dynamic in

the climate system across the territory of

Ukraine demonstrates a gradual shift in the

boundaries of natural zones (woodlands, for-

est-steppe, steppe) towards the northwest.

The shift in climate zones leads to an exten-

sion of land that falls under the category of

risky farming and, therefore, to the increased

price of lease agreements for agricultural land

suitable for growing grain and oilseeds (the

so-called ‘corn belt of Ukraine’).

Assessment and monitoring of dynamics in

climate conditions on Kernel's landbank are

ongoing and involve (1) analysis of meteoro-

logical data obtained from Kernel's meteoro-

logical stations (a total of 51 stations) and sat-

ellite climate change data obtained from GIS

solutions frameworks such as GEOSIS, un-

dertaken by the modelling and monitoring

team, and (2) retrospective analysis of har-

vest from both Kernel's landbank and in

Ukraine in general, made by the team of finan-

cial and business analysts.

For the purpose of ongoing monitoring of

changes in the vegetation and visualization of

climate-related data relevant to the regions of

the company’s operations and potential ex-

pansion, Kernel has a subscription to the pro-

vider of GIS solutions (geographic information

system), GEOSIS Technologies. These solu-

tions allow to consolidate and analyze climate

climate-related data and relevant patterns ob-

tained from satellite images. The cost of the

response to climate chronic physical risks

also includes technical maintenance of Ker-

nel's own agrometeorological stations, IT sup-

port and development of the company’s Digi-

tal Agribusiness program, and maintenance of

the company’s own drones that undertake re-

mote sensing of the landbank.

Acute physical risks

The risk of acute climatic events resulting in

decreased yields is a basic risk for the agricul-

ture business. Within Kernel's risk manage-

ment framework, this risk is reflected in the

risk category 'Weak harvest in Ukraine', which

is normally included in the top-10 company’s

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Sustainability: TCFD disclosure

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

risks list. Likewise, the company's financial

modeling provides for conservative basic as-

sumptions of reduced yields due to impacts of

acute climate impacts. In addition, acute cli-

mate physical risks are also applicable to Ker-

nel's infrastructure since extreme weather

conditions would impact farming business

across the whole country (impact on Kernel's

supply chain and trading operations), leading

to decreased capacity operations of the com-

pany's silos and oil crushing plants.

We perform an evaluation of acute physical

risks based on the Regional Climate Model

(RCM) of climate dynamics on the territory of

Ukraine. RCM collects data on single levels

from a number of experiments, models, do-

mains, resolutions, ensemble members, time

frequencies, and periods computed over sev-

eral regional domains all over the World - par-

ticularly in the CMIP 6 of the Coordinated Re-

gional Climate Downscaling Experiment

(CORDEX) framework. The analysis showed

that the frequency of acute climate events

(droughts) in northern parts of Kernel's land-

bank would increase under the SSP 8.5 sce-

nario in a long-term perspective.

The company’s response to this risk includes

the organization of strategic sessions of the

Farming segment twice a year before the

spring and winter sowing campaign. During

this meeting directors of Kernel’s farming

clusters (cluster is an organizational unit in

Kernel’s landbank and farming operations;

there are a total of 6 clusters), agricultural ex-

perts, as well as business and financial ana-

lytics undertake broad consultations on re-

sults of previous harvest seasons; identify ar-

eas for improvement in agriculture practices;

analyze available data and projections of

weather conditions during the next harvest

season; undertake short-term business plan-

ning, profound consultation and decision-

making on management of climate acute risks

and adaptation practices.

The response also includes technical ex-

penses to support research and development

centers, which are specifically dedicated

fields where the company tests new farming

practices, including resistant FAO hybrids, in-

hibitors of nitrification, biological destructors,

etc.

Transitional risk: emerging carbon regula-

tion in Ukraine

In the case of Ukraine's carbon tax, it in-

creased from 10 UAH to 30 UAH (approxi-

mately 1 EUR) per tonne of CO2 over 2021.

Although the tax rate did not change in

FY2023, the company expects that the rate of

the carbon tax will continue growing over the

next years to become aligned with an average

price of a tonne of CO2 in the EU (these ex-

pectations are based on Ukraine's

commitment under EU Association Agree-

ment and its candidacy to EU, as well as

Ukraine's possible response to EU CBAM re-

quirements). Kernel evaluates the risk of the

expected growth of carbon tax in the following

years based on the average carbon tax value

in EU member countries (EUR 20-120/tCO2),

which would lead to significant annual ex-

penditures. Ukraine's carbon tax is applicable

to Kernel's combined heat and power plants

that produce electricity from sunflower seed

husk (side product to the oilseed crushing pro-

cess, approved as a feedstock to provide ad-

vanced biofuels as per Annex IX.A. of RED II

Directive). The nature of these risks lies in the

fact that such regulation contradicts Ukraine's

regulation on Monitoring, Verification, and Re-

porting (MRV) and the EU's position on the

combustion of biomass and production of ad-

vanced biofuels GHG emissions from which

are considered to be zero.

With regards to Ukraine's national emission

trading scheme, the key risk for Kernel's is the

significant increase in electricity price, when

ETS is finalized and launched. The assump-

tion of the potential impact of such risk is

based on average wholesale electricity prices

in the EU, which fell to the average of EUR

110/MWh in 2022. To compare, industry elec-

tricity prices in Ukraine in 2022 accounted for

approximately EUR 70/MWh. The company

closely monitors such risks, despite the fact

that the development of Ukraine's ETS is at its

initial stage and is expected to be finalized no

sooner than seven years.

It was evaluated that at the current tax rate,

annual expenditures to cover carbon tax could

account for up to USD 1.4 million per year, as-

suming that all seven plants work to their full-

est capacity (686 GWh per year) generating

538 949,88 tons of CO2. The potential finan-

cial implication is evaluated according to the

NGFS (Network for Greening the Financial

System) climate modeling of the carbon price

dynamic in Ukraine. In FY2023 the company

updated assumptions of carbon price in line

with the new NGFS model for Ukraine (which

was re-scaled to Eastern Europe) “GCAM

5.3+ NGFS”.

In line with updated scenarios, under the SSP

2.6-4.5 scenario carbon price in Ukraine is

projected to increase up to EUR 63.33/tCO2,

and under the SSP 8.5, the price would reach

EUR 1.1/tCO2 by 2030. In the range of poten-

tial financial impact, the minimum figure is the

combined impact of increased carbon tax and

increased price of electricity once the UA ETS

is implemented in 2030 under the SSP 8.5,

whereas the maximum figure – under the SSP

2.6-4.5 scenario.

Kernel actively participates in business asso-

ciations, namely the European Business As-

sociation and American Chamber of

Commerce in Ukraine, where we actively con-

tribute to the development of common busi-

ness positions on different matters (i.e. en-

ergy transition, food-energy balance, as well

as bioenergy and biofuels as integral pillars of

the REPowerEU initiative) and their commu-

nication to the government. Tax on GHG

emissions, generated from biomass combus-

tion is one of the key issues where Kernel

demonstrates a strong position, as the largest

producer of electricity from biomass in

Ukraine.

Transitional risk: emerging carbon regula-

tion in EU (increasing cost of fertilizers)

EU's ‘Fit for 55’ package (under which EU

seeks to cut its emissions by at least 55% be-

fore 2030) includes provisions on the Emis-

sion Trading Scheme, namely the target to re-

duce the emissions by 61% before 2030 and

to reduce the number of free allowances by

4.2% each year. GHG emissions from the pro-

duction of nitric acid, ammonia, and hydrogen

are covered by the EU ETS. Considering that

nitric acid, ammonia, and hydrogen are inter-

mediates in the production of NPK fertilizers,

it is expected that the price of EU-sourced fer-

tilizers will increase following the implementa-

tion of Fit for 55 provisions. In FY2023, less

than 10% of the total volume of nitrogen ferti-

lizers, purchased by Kernel, were made in the

EU.

In FY2023 the company updated assumptions

of a carbon price in line with the new NGFS

model for EU - “REMIND-MAgPIE 3.0-4.4”, as

well as integrated these assumptions into the

renewed financial model. If produced in the

EU, the price of fertilizers would reflect the

price of EU allowances on GHG emissions,

which are projected to increase up to EUR

162.68/tCO2 under the SSP 2.6-4.5 scenario

and to EUR 67.43/tCO2 under the SSP 8.5

scenario by 2030 (according to NGFS climate

data projections). In the case of domestically

produced fertilizers, their price would account

for a projected carbon price in Ukraine: EUR

63.33/tCO2 under SSP 2.6-4.5 scenario and

EUR 1.1/tCO2 under SSP 8.5 scenario by

2030 (according to NGFS climate data projec-

tions). In the range of potential financial im-

pact, the minimum figure is the combined im-

pact of the increased price of carbon allow-

ances under the EU ETS and the UA ETS

once implemented in 2030 under the SSP 8.5,

whereas the maximum figure – under the SSP

2.6-4.5 scenario.

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In FY2023, in response to this risk, Kernel

started proactive interaction with current sup-

pliers of nitrogen fertilizers to collect their data

on the carbon footprint of production and in-

clude it in relevant Scope 3 calculations. In the

long-term perspective, this information would

be applied to optimize the suppliers' portfolio

and to initiate bilateral cooperation toward de-

creasing purchased fertilizers' carbon foot-

print. We expect that access to carbon foot-

print data will be simplified when fertilizer pro-

ducers start disclosing this information under

the CBAM regulations.

Transitional risk: emerging carbon regula-

tion in EU (increasing cost of marine

freight)

EU's Fit for 55 package (under which EU

seeks to cut its emissions by at least 55% be-

fore 2030) provides for the extension of the

Emission Trading Scheme (ETS) and inclu-

sion of emissions from maritime transport,

which would cover all CO2 emissions from

large vessel regardless of the flag they fly. It

is, therefore, expected that the cost of mari-

time freight will increase significantly since it

will also include the cost of ETS emission al-

lowances.

Material climate-related opportunities

In FY2023, Kernel re

-evaluated material categories of business opportunities, associated with emerging decarbonization regulations in the EU,

development of new markets that aim to incentivize companies to reduce emissions and contribute to energy transiti

on, as well as partnerships

to support low

-carbon development of agriculture sector globally.

Product group

Specification

1. Bioenergy

Kernel explores opportunities associated with the production of biofuels, namely biomethane produced from plant-

based feedstock such as silage corn or crop residue. This opportunity stems from the

growing demand for energy

sources both in Ukraine and in the EU (REPowerEU initiative aimed to reduce dependency on R

ussian natural

gas), amid changes in regional energy geopolitics following Russian invasion of Ukraine.

This opportunity is also supported by developments in relevant domestic legislations, which allow injection of bio-

methane in the gas transportation system and provides for establishment of national registry of renewable gas

guarantees of origin (RGGO) for biomethane producers.

Diversification of

financial assets

with sustainabil-

ity- and climate-

linked finance

We aim to effectively access markets of sustainability- and climate-linked finance, both in terms of receiving spe-

cialized interest rates on loans (linked to specific covenants) and project finance. It's understandable that there

are yet no unified rules of suc

h finance, particularly in agriculture sector in Ukraine, and standardized criteria for

investing in nature and social capital.

Therefore,

the company started building focused dialogues with key investors, commercial banks and financial

institutions to develop tailored approaches of attracting different types of sustainable-

and climate finance in an

evidence-based manner.

Kernel seeks to develop a comprehensive sustainable finance framework, building on

the outcomes of the 'Corporate climate governance and low-carbon pathway' project.

The purpose of such framework is to develop evidence-based

quantifiable criteria (covenants) of sustainability and

climate-linked finance, tailored to different types of financial products

and aligned with the company’s overarching

sustainability strategy; and to coordinate them with a pool of potential investors, IFIs, local commercial banks etc.

Voluntary carbon

markets

This opportunity is associated with the access to voluntary carbon markets. The company is currently testing col-

laboration with an accelerator of agriculture-

based carbon offsets; the main purpose of such pilot interaction is to

better understand different

approaches of carbon marketplaces to calculate a baseline, changes in soil carbon

stock due to tillage, crop rotation and application of cover crops for each kind of crops, impact of inhibitors of

nitrification on reduction potential and other technical n

uances of GHG emissions accounting for agriculture sector.

Building on such

observations the company seeks to align its operational accounting of carbon footprint and strat-

egies on realizing this opportunity with the rules of global carbon market mechanism (Article 6.2 and Article 6.4 of

the Paris Agreement). Exploration of carbon offsets markets, goes hand in hand with in-

depth analysis of global

market incentives towards decarbonizing supply chain of agriculture commodities, building relevant dialogue with

reputable international organizations and exchanging knowledge with key trading partners.

Efficiency im-

provement

through carbon

farming practices

The opportunity lies around the system of farming practices that promote accumulation of soil organic carbon,

reduction of GHG emissions from tillage and nitrification, improving soil health and biodiversity. These practices

are commonly referred to as reg

enerative, or carbon, farming which is one of the key pillars of the company’s

corporate climate strategy. We believe that this is a long-

term direction of development, which would have a visible

impact on capitalization, and over the last several years th

is subject has moved from purely theoretical discussion

toward practical consideration during operational planning and testing.

The company is undertaking an ongoing screening of possible channels for comprehensive monetization of carbon

farming practices through its focused engagement with trade partners and other stakeholders (more details in

C12.1d). For now, the performance of

carbon farming practices can be quantified through optimization of nutrition

rates (including through application of inhibitors of nitrification) and, therefore, operational expenses on nitrogen

fertilizers. As of now, the potential impact of such measures

can lead up to 20% lower application of N per hectare;

this figure may vary as the company scales up its regenerative farming practices.

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In FY2023, emissions from downstream

transportation by maritime freight accounted

for 49.8% of the total Scope 3 emissions

(591,657.66 tCO2e).

The cost of freight operations would reflect the

projected price of GHG allowances under the

EU ETS, which would increase up to EUR

162.68/tCO2 under the SSP 2.6-4.5 scenario

and reach EUR 67.43/tCO2 under the SSP

8.5 scenario by 2030 (according to NGFS cli-

mate data projections). In the range of poten-

tial financial impact, the minimum figure re-

flects the impact of the increased price of car-

bon allowances under the EU ETS in 2030 un-

der the SSP 8.5, whereas the maximum figure

– under the SSP 2.6-4.5 scenario.

Metrics and targets

Kernel’s Scope 1, Scope 2, and Scope 3

greenhouse gas (GHG) emissions and

other air emissions

Kernel accounts for GHG emissions, gener-

ated from operational activities in Ukraine.

Emissions are calculated in accordance with

the IPCC Guidelines for National Green-

house Gas Inventories and Greenhouse

Gas Protocol Guidance.

Scope 1 emissions include direct GHG emis-

sions associated with the company's opera-

tions of fossil fuel stationary and mobile

combustion, cattle farming, farmland culti-

vation (soil carbon stock change), and fer-

tilizer application. The company’s total bio-

genic GHG emissions generated from the

combustion of sunflower seed husk and

changes in organic carbon stocks are re-

ported as a separate figure. Emissions asso-

ciated with farming operations are reported in

the financial year, when the agricultural prod-

ucts were harvested, using data on mineral

and organic fertilizers applied during the

growth period in crops.

Scope 2 (location-based) emissions refer to

GHG emissions generated from energy (elec-

tricity and heating) the company supplied. The

average specific emission factor for electricity

production in Ukraine is calculated as the ratio

of total emissions from electricity production in

Ukraine (source: National Inventory Report to

UNFCCC) to energy production itself (source

from Ministry of Energy and Coal Mining).

Scope 2 (market-based) emissions refer to

GHG emissions from energy (electricity and

heating) purchased. Carbon intensity of heat-

ing both location and market-based approach

is the same due to vertically integrated market

and heating monopoly supply. Market-based

carbon intensity of electricity supplied is

higher than the grid average (location-based)

due to a decreased share of low carbon ca-

pacities in the electricity trade portfolio allo-

cated for the relevant supplying contract (data

from Kernel’s electricity supplier) – a signifi-

cant share of nuclear and hydro capacities in

Ukraine are contracted for households by us-

ing special purpose agreements.

Scope 3. To calculate Scope 3 emissions,

Kernel applies methodology, provided by the

GHG Protocol Corporate Value Chain (Scope

3) Accounting and Reporting Standard. We

evaluated all 15 categories of Scope 3 emis-

sions, namely:

• Purchased goods and services: this cate-

gory of emissions includes three material

types of purchased products: (1) purchased

grains, (2) purchased agriculture machin-

ery, and (3) purchased fertilizers. In the

case of emissions associated with the pur-

chased grains, the accounting approach

lies in the application of carbon intensity

factors of Kernel's own crops to the vol-

umes of the purchased grains. In the case

of the emissions associated with purchased

agriculture machinery, a spend-based

method was used, where emission factors

were calculated based on the `carbon in-

tensity of net revenue of machinery produc-

ers (material producers included CNH In-

dustrial, John Deere, MAN, Palfinger). In

the case of the emissions associated with

the production of nitrogen fertilizers pur-

chased by Kernel, the content of nitrogen

was calculated, and a sector average

emission factor was applied (kg CO2e/kg

N).

• Capital goods: in this category, Kernel ac-

counted for the emissions associated with

the production of metal and concrete, used

for the construction of assets. The company

applied material use emission factors for

metal and concrete from the UK Depart-

ment of Environment, Food and Rural Af-

fairs (DEFRA).

• Fuel-and-energy-related activities (not in-

cluded in Scope 1 or 2): to calculate this

category of emissions, Kernel used primary

data on energy consumption and applied

Well-to-tank indicators (Activity A) from

DEFRA; transmission and distribution

losses data for Ukraine (Activity C); as well

as average heat rate of local thermal power

plants (Activity B) to calculate emissions

across three types of activities: Activity A

(39,369.9 tons CO2e), Activity B (20,800.4

tons CO2e), Activity C (9,066.0 tons

CO2e).

• Upstream transportation and distribution:

this category includes the emissions from

the transportation of purchased goods and

internal logistics (i.e. transportation of

grains from fields to silos and from silos to

terminals). The company applied the

Freighting goods emission factors for vans

and HGV from DEFRA. In the case of the

………………………………………………………………………………………………………………………………………….………….

Key GHG emission indicators

thousand tCO2e

FY2021

FY2022

FY2023

Scope 1

1,025.9

1,264.2

1,055.6

by GHG

CO2

291.7

521.5

416.9

CH4

22.0

22.8

23.4

N2O

712.2

719.9

615.2

by business segment

Oilseed processing

19.0

9.1

6.6

Infrastructure and trading

58.4

81.3

62.2

Farming

941.1

1,172.7

986.2

Fuel use

135.5

103.2

124.8

Fertilizers application

697.3

708.6

602.4

Changes in stock of soil carbon

83.9

335.4

232.8

Cattle methane from enteric fermentation

24.4

25.5

26.2

Other

7.4

1.2

0.7

Biogenic (combustion of sunflower husk)

349.5

348.9

509.8

Scope 2 (Location based)

95.5

78.5

84.1

Scope 2 (Market based)

101.3

83.3

137.9

Scope 3

3,078.1

2,775.2

1,188.7

Cat.1. Purchased goods and services

2,538.4

2,415.3

1,186.8

Cat.2. Capital goods

45.6

22.5

4.3

Cat.3. Fuel- and energy-related activities

(not incl. in S.1-2)

66.7

52.4

69.2

Cat.4. Upstream transportation and distri-

bution

17.0

16.8

23.7

Cat.5. Waste generated in operations

5.07

4.99

4.4

Cat.9. Downstream transportation and dis-

tribution

350.8

253.5

591.7

Cat.10. Processing of sold products

47.4

3.1

3.5

Cat.12. End-of-life treatment of sold prod-

ucts

0.5

0.1

0.8

*- Any discrepancies between data in this and previous reports (FY2022 and FY2021) are associated with

clarifications of raw data, alignment of relevant conversion factors and other corrections in calculations.

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spend-based method of emission account-

ing, the emission factors were calculated

based on the carbon intensity of the net rev-

enue of providers of logistics services.

• Waste generation in services: for this cate-

gory, Kernel used primary data on waste

generation and approaches to waste utiliza-

tion, including treatment of wastewater dis-

charged to WWTPs. The company applied

the Waste disposal emission factors from

DEFRA.

• Business travel: This category of emissions

is not material in comparison to the total vol-

ume of Scope 3 GHG emissions. We eval-

uated this category of emissions and con-

cluded that it remains immaterial for Kernel

operations (less than 1 tCO2e).

• Employee commuting: This category of

emissions is not material in comparison to

the total volume of Scope 3 GHG emis-

sions. We evaluated this category of emis-

sions and concluded that it remains imma-

terial for Kernel operations (less than 1

tCO2e).

• Upstream leased assets: Kernel does not

have leased assets within its operations.

• Downstream transportation and distribu-

tion: this category includes the emissions

associated with marine freight of sold prod-

ucts (grain and oil) – from the combustion

of fuel by ships, mostly Panamax class. Re-

spective emission factors from DEFRA for

the burning of marine fuel oil were applied

considering the shipping costs and average

fuel spent share.

• Processing of sold products: this category

includes emissions associated with the re-

fining of sunflower oil. Unrefined sunflower

oil purchased from Kernel typically under-

goes a refining process at the facilities of a

buyer. To calculate such emissions the

company used the average electricity effi-

ciency factor for its own refining process

and applied grid emission factors for each

country where sunflower oil was exported

(The IFI Dataset of Default Grid Factors).

• Use of sold products: Kernel sells final

products, including grains, sunflower oil,

and animal meal. In case the sold products

are used in the energy sector, the sunflower

oil-related biodiesel component of fuel is

considered zero-carbon.

• End-of-life treatment of sold products: this

category includes the emissions associated

with the treatment of the sold waste. Kernel

used primary data on the sold waste and

approaches to its utilization. The relevant

Waste disposal emission factors from

DEFRA were applied. However, this cate-

gory of emissions is not material in compar-

ison to the total volume of Scope 3 emis-

sions.

• Downstream leased assets: This category

of emissions is not relevant to Kernel's busi-

ness, as the company does not provide

leased assets.

• Franchises: this category of emissions is

not relevant to Kernel's business as the

company acts neither as an investor nor

does it have shares in emission-related

portfolios.

• Investments: This category of emissions is

not relevant to Kernel's business as the

company acts neither as an investor nor

does it have shares in emission-related

portfolios.

In FY2023 Kernel started working on the de-

velopment of operational accounting of GHG

emissions from farming operations across

field level, which is the highest level of granu-

larity, for each crop. The end goal is to autom-

atize such accounting by integrating the meth-

odology into existing ERP systems and to en-

sure traceability of the carbon footprint of each

batch of grain (originating from a particular

field) across the value chain. For these pur-

poses the company seeks to ensure minimi-

zation of data uncertainty: calculations of

changes in soil carbon due to tillage are per-

formed using "measure and model" and

"measure and re-measure" approaches

(aligned with the Verified Carbon Standard

methodology, VM0042) that account for avail-

ability of laboratory agrochemical data on soil

organic carbon. The company has already un-

dertaken calculations for a pilot selection of

fields and is currently working on further scal-

ing on the remaining landbank.

The company seeks to monitor field related

carbon footprint of its commodities (in

kgCO2e/t of yield) and operations (in

kgCO2e/ha) from the stage of sowing plan-

ning until harvest. This would allow the com-

pany to better evaluate the overall potential

for decarbonization of farming operations, al-

lowing it to prioritize geographic location and

intensity of low-carbon practices and achieve

reduction of GHG emissions with higher mon-

etary efficacy.

To reduce N2O emissions, Kernel applies dif-

ferentiated mineral fertilization that pre-

vents excessive volumes of nitrogen from

ending up in the atmosphere. Based on the

crop monitoring data, this technique allows to

reduce the portion of fertilizer by 10-15%. The

proper application timing is equally im-

portant. For corn, winter wheat, rapeseed,

and sunflower annual portion of nitrogen is

applied in 2-3 phases.

We apply a stabilized liquid nitrogen

………………………………………………………………………………………………………………………………………….………..

Other significant air emissions

FY2021

FY2022

FY2023

Air pollutants, thousand tones

2.1

2.4

2.40

Carbon oxide

0.9

0.6

0.67

Sulfur dioxide

0.1

0.05

Nitrogen oxides

0.1

0.4

0.42

Solid substances

1.1

1.3

1.26

Ozone-depleting substances, tCO2e

1,377.9

1,364.2

R-407C

105.0

95.8

R-134A

1,195.5

72.9

R-507A

77.4

1,195.5

Hexane, tones

1,259.0

942,5

958.7

………………………………………………………………………………………………………………………………………….…………

Key GHG emissions intensity indicators (Scope 1&2)

FY2021

FY2022

FY2023

GHG emissions per volume of harvested crop,

kg CO2e/ t of yields

Corn

216.6

203.6

201.9

Sunflower

330.0

330.1

336.2

Wheat

257.4

130.8

232.6

Rapeseed

415.9

331.7

335.1

Soybean

338.3

321.7

320.9

GHG emissions per area of sowed crop,

kg CO2e/ ha

Corn

1,722.0

1,887.7

1,765.6

Sunflower

997.0

1,007.9

922.1

Wheat

1,255.2

803.7

1,224.5

Rapeseed

1,253.5

1,318.1

1,139.6

Soybean

416.3

650.9

913.2

GHG emissions per sunflower seeds

processed

kg CO2e/ t of seeds

29.2

32.1

28.2

*- Any discrepancies between data in this and previous reports (FY2022 and FY2021) are associated

with clarifications of raw data, alignment of relevant conversion factors and other corrections in calcula-

tions.

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Financial

Statements

fertilizer (urea-ammonia mixture) in spring to

ensure the minimum time between its applica-

tion and consumption by crops. In autumn we

use only the ammonia-based fertilizer, after

the average daily soil temperature falls below

10°C.

Additionally, we apply nitrification inhibi-

tors, and cultivate cover crops. To limit CO2

emissions, we reduce both specific fuel con-

sumption and mileage of the field machinery

through regular modernization of the fleet

and optimized routing, respectively.

Emission of other significant emissions, such

as air pollutants, are associated with the com-

bustion of sunflower husk at oil extraction

plants and are calculated by the sites' environ-

mental specialists for statutory reporting pur-

poses on a quarterly basis. Calculations are

based on the volumes of combusted husk and

established specific emission factors.

The emissions of hexane are associated with

a solvent used for oil extraction, are strictly

controlled, and are

prevented throughout

transportation, storage and application for

both resource efficiency and safety reasons.

All the equipment contacting hexane at Ker-

nel’s plants follows the EU ATEX Directive

(2014/34/EU ‘Equipment for potentially explo-

sive atmosphere’). The solvent is reused

through multiple extraction cycles.

The emissions of ozone-depleting sub-

stances, namely refrigerants, are associated

with the work of industrial cooling equipment

operated at two oil extraction plants and in the

animal husbandry division.

To prevent dust emissions associated with

grain and oilseed handling, we apply sophisti-

cated design solutions and techniques that

minimize contact of material flows with the

atmosphere. This includes closed-type grain

and oilseed unloading stations, conveyor

lines, and ship-loading machines with ad-

vanced dust control features. Where preven-

tion is not feasible, treatment equipment is ap-

plied.

Our crushing plants operate six electrostatic

precipitators (ESP) for removing PM from

boilers’ flue gases. These highly efficient (95-

98%) filtration devices use electric energy to

generate an electrostatic charge that captures

fine particles. All grain handling installations at

silos and transshipment terminals are

equipped with cyclone filters.

In FY2023 Kernel paid a total of USD 446

thousand in environmental tax, of which USD

401 thousand for CO2 emissions and USD 44

thousand for air-polluting emissions from sta-

tionary sources.

Emission reduction targets

Kernel seeks to establish targets of GHG

emissions per ton of commodity in line with

SBTi FLAG guidelines. As the groundwork for

setting up such targets and baseline, Kernel

is developing an operational accounting of

GHG emissions from agriculture practices

across fields and crops with the end goal of

ensuring traceability of the carbon footprint of

commodities across the whole value chain.

Having such a detailed accounting system in

place would also allow us to account for crop

rotations and associated rotation of different

tillage technologies.

Reduction of GHG emissions from agriculture

practices is achieved with carbon farming

practices, also known as regenerative agricul-

ture, namely reduced tillage, application of ni-

trification inhibitors and introduction of cover

crops to crop rotations. According to prior es-

timations such practices can potentially have

the following emission reduction capacity: (1)

nitrification inhibitors up to 10% reduction, (2)

cover crops up to 31% reduction and (3) re-

duced tillage up to 85% reduction.

The majority of Kernel’s landbank (more than

90%) is already cultivated with reduced tech-

nology; in FY2023 the company increased the

area under cover crops to 22 thousand ha and

increased the application of inhibitors of nitri-

fication.

In terms of oilseed processing operations, the

company may potentially achieve carbon neu-

trality over the following years, given that the

90% of energy consumed by the company's

plants is already low carbon and the rest is re-

lated to Scope 2 electricity consumption

(might be compensated by allocating of the

self-generated renewable electricity for own

operation or supplying external low carbon

electricity by using available market instru-

ments such as Corporate Power Purchase

Agreements, or PPAs).

As per the methodological approach for set-

ting emission reduction targets, Kernel will

rely on the SBTi Forest, Land and Agriculture

(FLAG) guidance. In line with this guidance,

Kernel would seek to set two categories of

emission reduction targets: an absolute target

and specific targets for each key crop. How-

ever, due to the uncertainty resulting from

Russia's invasion of Ukraine and ongoing mil-

itary actions, the company had to postpone

any decision-making on emission reduction

targets until the next two years. Nevertheless,

the company continues to work on research-

ing business opportunities related to the de-

carbonization of its operations and remains

committed to its climate ambitions.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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HUMAN CAPITAL

General employment information

Our management approach to employment

and human resources

Kernel’s approach towards managing human

resources is defined by the Code of Conduct

and is built on four principles, namely (1) in-

volvement as internal entrepreneurship, (2)

partnership and unity of goals (3) mutual re-

spect and trust, and (4) development of hu-

man potential. Our practices are strictly

aligned with the Labor Code of Ukraine and

other relevant national legislatures as well as

the International Labor Organization’s

(ILO) Fundamental Conventions.

We expect the same level of responsibility re-

garding relations with employees throughout

our supply chain: our counterparties are obli-

gated to comply with our Code of interaction

with suppliers, requiring them to ensure fair

and safe working conditions for their employ-

ees and to be compliant with labor legislation.

These requirements are reflected in the rele-

vant provision of a contract signed by counter-

parties.

We are committed to providing our employees

with safe working conditions, strictly adhering

to the regulations of occupational health and

safety and the other relevant requirements; re-

spective working hours; competitive transpar-

ent remuneration and benefits (including all

salary-related taxes and social contributions);

support with childbirth and proper parental

leave. There is an absolute zero tolerance to

any form of forced or compulsory labor or

child labor at Kernel Group.

Remuneration approach and benefits

In FY2023 Kernel’s total payroll accounted for

a total of USD118 million; 162 employees

were receiving minimum wage (66 FTE basis).

Overall, our remuneration is built on three pil-

lars, namely:

1. Base compensation and benefits. The

basic level of Kernel’s remuneration sys-

tem includes:

− salaries and wage-based bonuses, that

match or exceed the benchmark of

other industries. It also includes addi-

tional payments and compensations,

depending on working conditions, as

well as fixed payments in case of retire-

ment and financial support in case of an

employee’s difficult personal circum-

stances. When personnel optimization

takes place resulting in a reduction of

− number of employees, the wage fund is

not reduced correspondingly, but is dis-

tributed among the rest of the team.

− healthcare services, including voluntary

medical insurance for full-time employ-

ees, life insurance for employees, who

………………………………………………………………………………………………………………………………………….……

Key human resources indicators

(

as of June 30, 2023)

FY2021

FY2022

FY2023

Total number of employees

11,256

10,223

10,733

including by geography:

Ukraine

11,208

10,180

10,691

Other countries

including by level:

Managers

936

870

885

Specialists

3,354

3,020

3,110

Workers

6,966

6,333

6,738

including by business segment:

Oilseed Processing

2,253

2,291

2,530

Infrastructure and Trading

2,592

2,679

2,741

Farming

5,609

4,366

4,508

Head office and other

802

887

954

including by age

less than 30 years old

1,686

1,464

1,585

up to 50 years old

6,431

6,271

2,992

more than 50 years old

3,139

2,488

6,156

including by employment contract, by region:

Permanent

10,614

9,647

10,077

Ukraine

10,566

9,604

10,035

Other countries

Seasonal and temporary

642

576

656

Ukraine

642

576

656

Other countries

including by employment contract, by gender:

Permanent

10,614

9,647

10,077

Male

7,750

6,845

Female

2,864

2,768

Seasonal and Temporary

642

576

Male

581

510

Female

including by employment type, by gender:

Full-time

11,162

7,262

10,647

Male

8,279

5,430

Female

2,883

1,832

Part-time

Male

Female

………………………………………………………………………………………………………………………………………….……

Parental leave indicators in FY202

192

164

Employees that were entitled to parental leave

Employees that took parental leave

Employees that returned to work in the

reporting period after parental leave ended

Employees due to return to work after taking

parental leave

Employees that were still employed 12 months

after their return to work

Male Female

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cover insurance costs, and OHS insur-

ance.

− rewards for improvements in produc-

tion, both monetary (such as one-time

monetary incentives for operational ac-

complishments) and non-financial

recognitions.

− other benefits include sponsorship of

educational opportunities and sports

activities, provision of food at work-

places, free transportation to work etc.

2. Reward for leadership. Each year em-

ployees undergo an assessment of their

competencies, both self-assessment and

evaluation by a linear manager. Based

on the result of such assessment em-

ployees’ base salaries might be reviewed

(more information on annual perfor-

mance appraisal and career advance-

ment in the section Training and career

advancement)

3. Incentive system. This system aims to

ensure that the career goals of our em-

ployees, business targets of business di-

visions and long-term strategic goals of

the company are synchronized. Kernel

annually establishes financial and opera-

tional quantitative and qualitative goals,

which are cascaded down to specific

KPIs of employees in relevant business

segments. Employees can also establish

their own KPIs. Annual performance as-

sessment quantifies the achievement of

KPIs and automatically impacts the size

of the annual performance bonus. The

system is fully transparent and prevents

any prejudice. We provide employees

with all the tools to directly affect KPIs

and monitor the KPIs’ execution on a

close-to-online basis.

Support of employees during wartime

The safety and well-being of our employees

have been the utmost priority amid military ac-

tions in Ukraine, resulting from Russia’s inva-

sion. In FY2023 Kernel continued providing

extensive support to its employees, especially

those who are defending the country or are in-

ternally displaced people.

Over FY2023 a total of 779 employees were

enlisted to the Armed Forces of Ukraine,

whereas 124 employees were demobilized

(since February 2022, the total number of en-

listed employees accounted for 1,478 and de-

mobilized – 634). The size of monetary

support of enlisted employees in FY2023 was

USD 3,920 thousand.

Furthermore, in FY2023 Kernel provided em-

ployees who suffered disability as the result of

military actions and families of employees,

who were killed in action, with a total of USD

545 thousand of financial support.

In addition, employees who had a newborn

child in FY2023 received a total of USD 65.8

thousand of material assistance.

Integration of veterans back into civilian

life

As the wartime context became closely inter-

linked with the company’s everyday life, in

FY2023 Kernel started an adaptation program

for veterans with the primary focus on the

company’s employees who were demobilized

and going back to civilian life. The program

seeks to help veterans in their self-realization

and smooth integration into business pro-

cesses. It consists of three key components,

namely: (1) physical recovery, including com-

pensation of costs of medical treatment and

prosthetics; (2) mental recovery involving tai-

lored work with professional psychologists; (3)

integration into the workplace, which also im-

plies specific training on communication skills

and ethics for other employees. The latter

might also include alterations of a working

place or machinery to accommodate a

………………………………………………………………………………………………………………………………………….……..

Key employment indicators in FY202

Total number of new hires

2,711

by geography

Ukraine

2,711

Other countries

by gender

Male

1,866

Female

603

by age

less than 30 years old

684

up to 50 years old

1,312

more than 50 years old

473

Total number of employee turnover

2,163

by gender

Male

1,623

Female

713

by age

less than 30 years old

477

up to 50 years old

646

more than 50 years old

1,040

Total number of employees that left Kernel due to retirement

1,478 mobilized employees were pro-

vided with military equipment, and

they received a total of

USD 3,920 thousand of monetary

support in FY2023

………………………………………………………………………………………………………………………………………….………..

Key training and education indicators

FY2021

FY2022

FY2023

Average hours of training per employee

21.6

22.8

30.4

by gender:

Average hours of training per male

21.2

25.1

29.9

Average hours of training per female

22.7

18.4

31.4

by employee category:

Average hours of training per manager

76.6

35.8

39.1

Average hours of training per specialist

35.7

32.7

40.0

Average hours of training per worker

7.4

7.9

18.8

Total number of training hours

242,833

152,804

207,596

including by skill sets

Hard skills

195,868

111,309

161,037

Soft skills

46,965

41,495

46,559

including by learning formats

Full-time training

41,266

21,964

63,293

Distance Learning

201,567

130,840

144,303

including by frequency

Annual / regular training

123,420

67,507

95,758

One-time training

109,533

79,417

108,746

Modular development programs

9,880

5,880

3,092

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person’s prosthetics. Upon return to work, vet-

erans may also change their previous profes-

sional qualifications with special support from

the HR department. Kernel’s veterans’ adap-

tation program was recognized by Forbes

Ukraine's Top-25 rating.

New incentive program “Synergy of

Change”

In FY2023 Kernel launched a new project,

‘Synergy of Change’. This initiative seeks to

maximize operational efficiency across busi-

ness segments by providing employees with

an opportunity to implement their ideas and

get rewarded if their suggestions contribute to

an increase in the company’s EBITDA. Within

the project any employee can submit an idea

on operational improvements, such as pro-

cess automation, cost reductions and im-

provements in workplace safety. In addition to

monetary motivation, ‘Synergy of Change’

aims to enhance corporate values of coopera-

tion and continuous improvement.

Training and career advancement

Our management approach to training and

performance review

We manage the professional development of

our employees based on the Competency

model. It is a system of eight key competen-

cies established in line with Kernel’s business

strategy, priorities, and targets, aiming to max-

imize the Group’s long-term value. Competen-

cies, in line with which Kernel currently oper-

ates, were determined during the company-

wide research on different behavioral features

that managers most value and promote in em-

ployees across different business segments

and operational levels.

Kernel’s key professional competencies are

the following:

1. Strategic thinking

2. Performance management

3. Organization of a unit’s work

4. Responsibility

5. Readiness to change

6. Cooperation

7. Systematic thinking

8. Continuous improvement

The employees, covered by the competency

model, undertake an annual assessment after

which they create an individual development

plan. The individual development plan con-

sists of three parts: (1) hard learning, which

provides for the attraction of internal or exter-

nal experts and the allocation of individual

learning budgets; (2) soft learning, which is re-

alized through Kernel’s Institute of internal

couches; and (3) distance learning, which em-

ployees can plan access through an online ed-

ucational platform, Kernel Hub, which pro-

vides more than 1,000 e-books, 155 e-courses

and 200 training videos.

The combination of these three categories of

learning activities is known as the corporate

minimum package, which includes one profes-

sional course and a minimum of three courses

on general development. In terms of employee

categories, the competency model covers

managers and specialists. Workers receive

professional education, which is built on Ker-

nel’s in-house expertise. Professional training

for workers matches their development plans

and job descriptions, that contain standard

skill requirements for each position. During

FY2023 Kernel resumed education under the

‘corporate minimum package’, which was

paused due to wartime, as well as examina-

tion of expertise of key operational employees,

such as mechanics in Agribusiness.

Throughout FY2023 the system of annual per-

formance appraisal underwent a series of

changes. The timeline of the competencies

assessment was shifted to align it with the

budgeting process and to better account for

performance indicators in the decision-making

on salaries and promotions. There were also

changes to the target-setting approach,

namely that it now allows the company’s CEO

and top managers to manually set up strategic

targets and cascade them across relevant

business segments.

In FY2023, a total of 3,319 employees evalu-

ated their competencies and created

individual development plans. Throughout the

year, a total of 6,831 employees benefited

from Kernel’s educational programs, spending

207,596 hours of training (or an average of

30.4 hours per employee), 78% of which were

dedicated to the improvement of hard skills

and 22% - soft skills. In terms of distance

learning, 8,225 employees took at least one

course on Kernel’s Hub in FY2023.

Kernel’s overall expenditures on training and

education of its employees in FY2023 ac-

counted for USD 141.7 thousand.

In addition to competency assessment, em-

ployees undertake annual performance, or

KPIs, assessment through a dedicated digital

system. Based on the results of such evalua-

tion managers provide feedback and consul-

tations on career development, and review

KPIs for the next financial year. Both compe-

tency and performance assessment mecha-

nisms are key pillars in Kernel’s annual perfor-

mance appraisal system.

Assistance with career growth and upgrad-

ing skills of our employees

Kernel has developed two programs to sup-

port employees’ professional growth and ca-

reer advancement, namely Kernel Growth and

Kernel Leadership, which are core pillars of

the ‘Talent Pool’ project. The idea behind

this project is to create two levels for person-

nel reserved for promotion to top-manage-

ment positions: (1) under Kernel Leadership

………………………………………………………………………………………………………………………………………….………….

Kernel’s annual performance appraisal system

………………………………………………………………………………………………………………………………………….…………

Key

employees’ career development indicators

FY2020

FY2021

FY2023

Total number of employees, receiving regular

performance and career development reviews

1,779 1,777 1,647

including by gender

Male

1,385

1,393

1,273

Female

394

384

374

including by employee category

Managers

657

664

621

Specialists

1,122

1,113

1,026

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heads of departments who aspire to become

top managers, receive specialized training,

mentorship from acting top managers and as-

sistance from coaches of personal develop-

ment; whereas (2) Kernel Growth covers mid-

dle-level managers and specialists, who are

motivated to actively build their career at Ker-

nel.

To become a participant in either program,

employees go through several stages of se-

lection, that include analytical tests and busi-

ness cases. By the end of FY2023 a group of

43 participants completed the Kernel Growth

program, of which 15 employees were pro-

moted. Upon graduation all participants re-

ceived mini-MBA diplomas from the Kyiv-Mo-

hyla Business School.

Training to adapt to external challenges

We envision training and professional devel-

opment as integral components of our human

capital, which in turn empowers our ability to

create long-term value and strengthen our

adaptability to external risks and challenges.

Amid wartime in Ukraine, Kernel takes active

steps to adapt to new conditions. To ensure

continuity of processing during the martial law

and ongoing mobilization to the Armed

Forces, the company is building up personnel

reserve by training additional employees for

the following two groups of positions: (1) direc-

tors of silos and (2) leading power engineers,

mechanics and head of laboratory. In addition,

since the beginning of the Russian invasion of

Ukraine, Kernel has launched training on tac-

tical medicine accessible to all employees.

The participants of this training learn how to

provide first aid in accordance with the Tacti-

cal Combat Casualty Care protocol MARCH

(the acronym stands for the proper order of

treatment, namely massive hemorrhage, air-

way, respiration, circulation, head injury/hypo-

thermia). Our employees have demonstrated

significant success in mastering the training,

being able to apply a tourniquet in 45 seconds.

Occupational health and safety

Our management approach to occupa-

tional health and safety

The central driver of our approach to manag-

ing occupational health and safety (OHS) is

the aspiration to have no work-related injuries

and fatalities at all at Kernel’s working sites.

All our employees are provided with appropri-

ate and safe working conditions in line with

Ukraine’s national labor legislation and provi-

sions of the International Labor Organization’s

Fundamental Conventions. Our approach is

enshrined in the Workplace health and safety

policy, which provides for the establishment

Before entering our working sites, any visitor or worker is briefed with description of the OHS risk identification and management system; they are also required to

take an OHS e-course.

Acronym stands for Eliminate, Reduce, Isolate, Control, Personal Protective Equipment, Discipline.

and continuous improvement of the occupa-

tional health and safety management system

(hereinafter – OHSMS). We expect the same

level of responsibility and dedication to ensure

occupational health and safety from our sup-

pliers: our agreements include a provision on

compliance with Kernel’s Code of interaction

with suppliers, under which our suppliers are

obligated to provide their employees with a

safe working environment and have proper

OHS practices implemented. OHSMS covers

all employees and contractors, including con-

tractors working on our sites but whom we

have limited functional control over.

To minimize risks of work-related injuries

among our contractors, we instruct them on

our OHS practices and requirements

. There

is also a dedicated OHS specialist responsible

for managing an independent system of mon-

itoring the implementation of OHS practices

and inspecting compliance with safety require-

ments violations in our investment projects.

Therefore, our contractors are evaluated and

ranked based on their OHS performance. If vi-

olations of OHS requirements reoccur, the

contractors are penalized. In FY2023, there

were no instances of work-related injuries and

fatalities among contractors.

Kernel’s OHSMS operates in line with the re-

quirements of national regulations and ISO

45001 standards and is led by an OHS corpo-

rate manager who annually reports to a man-

agement committee headed by the company’s

CEO. Within the OHSMS the process of iden-

tifying and assessing work-related hazards

and safety risks is exercised on a non-routine

and annual basis. A non-routine procedure of

risk identification takes place for new business

operations and assets, and results in a list of

hazards and risks. The risk identification on an

annual basis is reflected in the responsibilities

of managers, OHS professionals and other

employees to update the list of hazards, bas-

ing their inputs on results of internal and exter-

nal labor safety audits, the outcomes of em-

ployees’ engagement process and feedback,

lessons learned from incidents investigations,

as well as results of OHS assessments and in-

corporation of world best practices. OHS as-

sessments include self-assessments and stat-

utory inspections, information on which is con-

solidated in a special database. Once poten-

tial risks and hazards are identified, the

OHSMS triggers the procedure of risk man-

agement which is organized in line with the

ERIC/PD

hierarchy of hazard controls and

consists of the following steps, taken in de-

scending priority:

• Fully eliminate a risk or a hazard

• Reduce the potential impact of a risk or a

hazard

• Isolate a risk or a hazard from employees

• Control a risk or a hazard, by providing em-

ployees with personal protective equip-

ment, training, detailed instructions and in-

formation, means of first response, as well

as lockout/tagout devices.

If work-related incidents occur, we launch an

investigation of each case, using the Ishikawa,

or ‘fishbone diagram’ approach that aims: (1)

to identify root causes of an incident, (2) to

map risks and hazards that materialized, (3) to

determine corrective actions in line with the

ERIC/PD hierarchy of hazards control, and (4)

to integrate lessons learned into required

………………………………………………………………………………………………………………………………………….…………

Number of participants in occupational health and safety trainings

2,989

1,874

1,200

3,173

1,455

1,005

5,949

2,455

3,555

2021 2022 2023

OH&S trainings (offline) OH&S trainings (online) Emergency response drills

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improvements of the OHSMS. This infor-

mation is diligently recorded in the accident

statistics, which also includes data on the fre-

quency of occupational accidents, subsequent

lost workdays, and the severity of injuries.

For every work-related accident, we create a

special investigation commission that might

also include representatives of relevant au-

thorities. As the result of an investigation the

commission issues a report detailing the cir-

cumstances of the incident and recommenda-

tions to improve the risk management ap-

proaches and to prevent the occurrence of

such incidents in the future. Such an approach

aims to ensure continuous improvement of the

OHS practices to achieve the central target of

zero work-related injuries and fatalities.

As of the end of FY2023, a total of 25 assets

were certified with ISO 45001 standards. In

FY2023, all covered employees were audited

internally, whereas 6,902 of them also under-

went external audit. Overall, 71 externally cer-

tified inspectors spent 92 man-days on inter-

nal labor safety audits; in addition, 16 man-

days were spent on independent audits, com-

pleted by a third party. There were no OHS

statutory inspections of our assets.

These include key trading company Kernel-Trade, six oil extraction plants, two farming clusters, fifteen silos and one grain transshipment terminal.

‘Gold Safety Rules’ initiative recognizes best set of labor safety requirements, composed by employees themselves; ‘Walk the Talk’ projects was launched to allow

OHS specialists and manager explore gaps in OHSMS by interviewing employees and discussing their ideas on improvements.

In FY2023, Kernel’s total expenditures on oc-

cupational health and safety amounted to

USD1,277 thousand. This amount includes

spending on special working clothes and per-

sonal protection equipment, education and

training, risk management and prevention etc.

Employee engagement and training on oc-

cupational health and safety

Our approach to employee engagement in

OHS practices improvement is driven by be-

havioral incentives and material nudges, moti-

vating staff to minimize and prevent hazard-

ous situations. Such incentives include moni-

tors installed at our production sites, which

show a current and record number of days

without work-related accidents, or monetary

rewards for best ideas on labor safety im-

provement and risk identification factors.

We employ proactive methods to engage our

employees in the development, implementa-

tion and evaluation of the effectiveness of the

OHSMS, as well as to communicate OHS in-

formation, namely via corporate surveys, the

‘Gold Safety Rules’ initiative and the ‘Walk the

Talk’ project

At Kernel, any employee can flag and report

occupational health and safety risks they ob-

serve and report about hazardous situations

on a worksite by reaching out to their supervi-

sor, field OHS specialist or the company’s cor-

porate manager. They can also raise any OHS

issues by submitting a ‘Near Miss’ and ‘Stop

card’ letterforms or contacting the corporate

Hotmail (in FY2023 a total of 6,741 ‘Near Miss’

letter forms were submitted, resulting in the

elimination of 98% of potential incidents).

Workplace health and safety policy ensures

the protection of whistleblowers from any form

of retaliation.

Kernel’s OHS training program gives our em-

ployees an opportunity to deepen their under-

standing of key principles in labor safety and

OHSMS, as well as to gain specific skills, al-

lowing them to prevent, minimize and appro-

priately respond to hazardous situations on

worksites. All employees are obligated to take

OHS e-learning courses (a general course for

all employees and specialized courses tai-

lored to different business operations and pro-

fessions) followed by a test. Employees in-

volved in high-risk work take mandatory spe-

cialized training, followed by exams and au-

thorization to begin work. In addition, Kernel

provides employees with training on appropri-

ate response actions in dangerous situations,

such as fire, that involve state rescue services

and specialized equipment.

Over FY2023, a total of 1,005 employees took

mandatory e-learning OHS courses, and

1,200 employees took specialized offline OHS

training, spending 62,194 hours.

Human rights, diversity, and inclusion

Kernel has an unconditional respect for hu-

man rights, which is an obligatory principle

employed at every corporate level and extrap-

olated to our suppliers and business partners.

Our position on internationally proclaimed hu-

man rights is enriched in our Sustainability de-

velopment and corporate social responsibility

policy and aligned with the principles of the UN

Global Compact, which Kernel signed in

2020.

As a signatory, we are committed to safe-

guarding human rights and equal opportuni-

ties for women, persons with disabilities, local

opportunities, smallholder farmers and work-

ers, including those under temporary con-

tracts, sub-contractors and migrant workers;

we are also committed to not undertaking any

activities that have a negative impact on hu-

man rights of children and indigenous people.

Indeed, there is no forced or child labor in-

volved in any of Kernel’s operations; the

………………………………………………………………………………………………………………………………………….…………

Key occupational health and

safety indicators

FY2021 FY2022 FY2023

Recordable work-related injuries

including by business segment

Oilseed processing

Infrastructure and trading

Farming

High-consequence work-related injuries (ex. Fatali-

ties)

including by business segment

Oilseed processing

Infrastructure and trading

Farming

Fatalities resulted from work-related injuries

including by business segment

Oilseed processing

Infrastructure and trading

Farming

Rate of recordable work-related injuries (LTIFR)

0.46

0.22

0.42

Rate of fatalities as a result of work-related injury

0.00

0.06

0.00

Rate of high-consequence work-related injuries

(excluding fatalities)

0.09

0.17

0.05

Workers covered by OHS management system

11,209

10,180

10,676

Workers covered by OHS management system,

who were audited internally

11,209

10,180

10,676

Workers covered by OHS management system,

who were verified internally and externally

10,667

7,358

4,585

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Sustainability: Human capital

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company was not complicit and did not commit

violations of any other human rights in the re-

ported period. We follow the action plan to pro-

mote human rights principles and annually re-

port our performance as part of the Communi-

cation on Progress on the UN Global Com-

pact.

Our suppliers and business partners are also

obligated to respect human rights as part of

their mandatory compliance with Kernel’s

Code of interaction with suppliers, which is

one of the provisions in our agreements with

counterparties. The Code requires our coun-

terparties to ensure equal opportunities for

their employees, diversity, and a ban on

forced and child labor in their operations.

At Kernel, we believe in the respect for diver-

sity among our employees as one of the fun-

damental human rights and freedoms, and its

empowerment is integral for ensuring our suc-

cess, market competitiveness and long-term

value for our stakeholders. Our approach to

safeguarding equal opportunities and a non-

discriminatory working environment is guided

by the Luxembourg Law of 23 July 2016

and

our Anti-Discrimination and Diversity, Equality

and Inclusion (hereinafter – DE&I policy) poli-

cies.

In line with DE&I policy, Kernel aspires to

reach at least 30% representation of each

gender within the company’s corporate bod-

ies, namely the Board of Directors and the Ex-

ecutive Management Team. We have desig-

nated individuals and teams responsible for

implementing the DE&I Policy at every corpo-

rate level, ensuring the adoption of diversity,

equality and inclusion principles in all business

activities of Kernel. At the Board of Directors’

level, matters related to the integration of di-

versity principles are overseen by the Nomina-

tion and Remuneration Committee, whereas

the Chief Executive Officer is responsible for

the implementation of the DE&I Policy

throughout the company.

Under the Anti-discrimination policy, we are

committed to ensuring equal employment op-

portunities and a non-discriminatory working

environment for all categories of individuals. In

FY2023, the share of socially vulnerable em-

ployees was 8% out of the total number of em-

ployees, and 6% of all employees were

individuals with disabilities.

Kernel has a grievance mechanism through

which the company’s employees and counter-

parties have an opportunity to submit com-

plaints related to human rights violations or

discriminatory actions, as well as to receive re-

dress if an investigation determines that such

violations took place

Freedom of association and collective

bargaining

At Kernel, we believe that every employee has

a right to be a part of associations and collec-

tive bargaining agreements. Our position is

enriched in the Freedom of associations and

unions policy and aligned with the principle of

the UN Global Compact to uphold the free-

dom of associations and the effective

recognition of the right to collective bar-

gaining. As of the end of FY2023, 85% of our

employees were covered by collective bar-

gaining, and 5% of all employees were mem-

bers of trade unions.

Luxembourg Law of 23 July 2016 on disclosure of non-financial and diversity information, implementing the European Directive 2014/95/EU.

Submissions to the grievance mechanism can be made via (1) a toll-free round-the-clock hotline, (2) form on Kernel’s website, (3) via email by writing to hot-

line@kernel.lu or compliance@kernel.lu, (4) Telegram chatbot ‘KernelHotline’.

Anti-corruption policy is aligned with requirements of national legislation, the US Foreign policy Corrupt Practices Act (FCPA), the UK Bribery Act (UKBA), the Con-

vention on Combating Bribery of Foreign Public Officials in International Business Transactions, and reflects provisions of anti-corruption legislation of the countries

with Kernel’s presence

SOCIAL CAPITAL

Anti-corruption and compliance

Our management approach to anti-corrup-

tion

At Kernel, we have zero tolerance for any

fraudulent and corrupt activities, both among

our employees and counterparties. Our posi-

tion on anti-corruption and approach towards

ensuring ethical compliance are embodied in

Kernel’s Corporate Governance Charter,

Code of Conduct, Anti-corruption policy

and

Code of Interaction with Suppliers. In addition,

all our agreements and tendering processes

include the Anti-corruption clause.

The requirements to adhere to our anti-corrup-

tion rules also cover our partners in the Open

Agribusiness project (small farmers cannot

participate in our programs if their land lease

agreements are not properly registered, their

crop sales and business processes are not

formalized, as if they are found to be involved

in shadow operations or avoid paying taxes);

and students of Kernel’s Open Agro Univer-

sity, who might be employed at the company

after graduation. Responsibility to enforce pro-

visions of these documents centrally lies on

Kernel’s compliance officer, who reports di-

rectly to the CEO and the Audit Committee on

the Board of Directors, whereas the corporate

culture of integrity and compliance is driven by

………………………………………………………………………………………………………………………………………….…………

Key diversity and equality indicators

(as of June 30, 2023)

FY2021

FY2022

FY2023

Percentage distribution of individuals within the

Board of Directors

by gender

Male

63%

50%

62%

Female

38%

50%

38%

by age

30-50 years old

75%

more than 50 years old

25%

Percentage distribution of individuals within the

Executive Management Team

by gender

Male

67%

80%

Female

33%

20%

by age

30-50 years old

87%

more than 50 years old

13%

Percentage distribution of individuals among em-

ployees

by gender

Male

74%

72%

74%

Female

26%

28%

26%

by age

less than 30 years old

15%

14%

15%

up to 50 years old

57%

61%

28%

more than 50 years old

28%

24%

57%

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the Tone at the Top principle. There are also

regional compliance coordinators, whose role

is to implement anti-corruption and compli-

ance standards, as well as ensure ongoing im-

provement of ethically correct corporate cul-

ture on Kernel’s operational assets. The com-

pliance officer is also responsible for provision

confidential advice on compliance practices to

Kernel’s employees at their request. In

FY2023, there were 83 such requests.

Kernel is also a member of several profes-

sional associations and international initia-

tives, under which the company made public

commitments to promote transparency and

zero tolerance for fraudulent activities. Indeed,

Kernel is a member of the Ukrainian Network

of Integrity and Compliance (UNIC) and a

signatory to the UN Global Compact and the

UN Anti-corruption Collective Action Mem-

orandum. Additionally, for Kernel, these plat-

forms are effective ways to exchange best cor-

ruption prevention practices between busi-

nesses, and to drive the corporate culture of

integrity in the agriculture sector.

Identification and prevention of corruption

risks

All our operations are regularly screened

against risks of corruption. The company iden-

tified a total of 19 risks; the most significant

risks include: (1) obtaining undue benefits,

that might lead to financial losses and reputa-

tional damages; (2) conflict of interest; (3)

work for other companies and entrepreneurial

activities. Our managers and specialists are

obligated to undertake the annual procedure

of declaration of any conflict of interests,

whereas workers are informed on situations

where conflict of interests might occur. The

company also applies screening of corruption

risks when hiring new employees, with partic-

ular focus made on candidates who previously

worked in governmental institutions.

In terms of the identification of corruption inci-

dents among counterparties, Kernel’s security

department conducts an in-depth documented

KYC (Know Your Customer) procedure before

any interaction. A compliance officer is in-

volved in this process to undertake additional

verification if a counterparty poses medium or

high risks of corruption, or conflict of interests

or might be subject to international sanctions

(53 cases in FY2023). Additional verification of

contracts by a compliance manager also takes

place when a counterparty suggests changes

to our Anti-corruption clause (278 cases in

FY2023).

Furthermore, any corruption risks and

Submissions can be made via (1) a toll-free round-the-clock hotline, (2) form on Kernel’s website, (3) via email by writing to hotline@kernel.lu or compliance@ker-

nel.lu, (4) Telegram chatbot ‘KernelHotline’.

potential incidents of misconduct are also

identified through dedicated channels of in-

forming, including anonymous ones which are

open for Kernel’s employees, suppliers and

third parties

. All submissions are examined

and addressed by the compliance officer. Ker-

nel has established a mechanism to protect

whistleblowers from retaliation.

Mandatory education, awareness-raising and

continuous enhancement of ethically correct

corporate culture are the main pillars of our

approach to prevent unethical behavior

among our employees. As a result, all our em-

ployees are familiar with Kernel’s internal pol-

icies on corruption prevention and anti-corrup-

tion provisions of the Code of Conduct. Our

Executive Management team is regularly in-

formed about changes in anti-corruption legis-

lation, the introduction of new sanctions and

key compliance measures integrated into the

company’s operational activities.

Our anticorruption practices and approaches

to enhancement of the culture of transparency

and integrity are demonstrating positive re-

sults. Over the last four years occurrence of

corruption has been following a strong declin-

ing trend. In FY2023, a total of 46 cases of cor-

ruption were confirmed. Incidents of theft by

employees have also decreased by 14% in

FY2023 and accounted for 60 cases (66 em-

ployees were involved).

Our actions on gender-based violence

Throughout the reporting period, the company

was undertaking proactive actions toward the

promotion of gender equality and prevention

of gender-based violence. Kernel held a com-

pany-wide webinar ’What is gender, why do

we need gender equality in society, gender

stereotypes and roles’, and implemented a

short-term project ‘Stories of Kernel’s women’

under which a company published more than

ten success stories of female employees in

recognition of their achievements.

We also participated in the annual interna-

tional campaign ‘The 16 Days of Activism

against Gender-Based Violence’ organized by

UN Women. As part of this campaign the com-

pany organized a series of activities aimed to

help employees recognize and prevent gen-

der-based and domestic violence, as well as

to provide training on first aid for such cases.

Another achievement in this area was a pro-

gram of psychological assistance to employ-

ees who suffered from domestic- and gender-

based violence.

Economic performance and impact

Economic performance is the most important

KPI for the management performance-based

part of compensation. As a diversified agro-in-

dustrial business in Ukraine with leading posi-

tions across all business segments, we gener-

ate a significant direct economic impact on our

stakeholders in areas of all our operations. Di-

rect economic impact includes our purchasing

of goods from suppliers, dividends paid to

shareholders, wages and benefits paid to our

employees, financial expenses paid to credi-

tors, income taxes paid to the public sector,

and community investments, as well as eco-

nomic value retained for investments to in-

crease the capitalization of the company.

EU Taxonomy

Kernel reports its contribution to the European

Union’s environmental objectives of climate

change mitigation and climate change adapta-

tion in line with the guidelines laid down in the

EU Taxonomy regulations. In response to

………………………………………………………………………………………………………………………………………….………….

Key anti

-corruption and compliance indicators in FY2023

Number of confirmed incidents of corruption

Number of employees dismissed for corruption

Number of public legal cases on corruption brought against Kernel

Number of confirmed incidents of contracts with business part-

ners being terminated due to corruption

Total number of submissions to Kernel’s channels of informing on

misconduct

Total number of managers and specialists who completed the pro-

cedure on declaration of conflicts of interest

2,702

Total number of employees who took anti-corruption trainings

1,369

by employee category

Managers

Specialists under high compliance risks

Workers

1,289

Total number of Open Agro University students who took anti-cor-

ruption trainings

134

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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these requirements, we have undertaken a

comprehensive analysis of our economic ac-

tivities, the revenue they generate as well as

our capital (CapEx) and operational (OpEx)

expenditures, and identified the share of activ-

ities that meet the EU Taxonomy criteria or, in

other words, are considered ‘environmentally

sustainable’.

The identified taxonomy-eligible economic ac-

tivity falls under the category ‘Electricity gen-

eration from bioenergy’ (NACE code D35.11

in accordance with the statistical classification

of economic activities, established by Regula-

tion EC No 1893/2006) and refers to produc-

tion of electricity from biomass, namely sun-

flower seed husk, at our combined heat and

power plants (CHP). This ‘green CapEx’ in-

vestment project was launched in 2018, aim-

ing to construct seven CHPs with a total in-

stalled capacity of 94MW. When commis-

sioned, all CHPs are expected to produce and

sell to the national grid up to 650 GWh of elec-

tricity annually, making Kernel the largest pro-

ducer of biomass-originated electric energy in

Ukraine.

A particular value of our ‘green’ electricity is

that we do not produce biomass separately to

be combusted on CHPs but rather use sun-

flower seed husk, which is a side product of

the main operational activity and is approved

as a feedstock to provide advanced biofuels in

accordance with Annex IX.A. of RED II EU

Directive. When sold to the national energy

grid, electricity produced at our CHPs substi-

tutes electricity produced from fossil fuels.

When fully implemented, our taxonomy-eligi-

ble activity will be able to save up to 700,000

tCO2e of national emissions every year, con-

tributing significantly to Ukraine’s transition to

a net-zero emissions economy. As of FY2023

Kernel has been operating four CHPs with the

remaining plants to be commissioned in the

following periods.

Support of local communities and so-

ciety as a whole

Our management approach toward social

impact

At Kernel we are driven to maximize our posi-

tive social impact within the area of our biggest

expertise by sharing our knowledge and

experience with farmers and educating future

generations of specialists in agriculture and

food sectors, as well as by being a responsible

neighbor and reputable partner to local com-

munities and generally supporting the Ukrain-

ian society. These priorities are reflected in

our Sustainable development and corporate

social responsibility policy.

The company’s approach towards effective in-

teraction with different groups of stakeholders

is guided by the Stakeholder engagement pol-

icy aligned with the IFC’s performance stand-

ard, which includes an extensive plan of our

interactions with key stakeholders like local

communities. The responsibility for identifica-

tion and practical interaction with stakeholders

lies in a team of assets-based public relations

managers, who act as Kernel’s representa-

tives in regions, communicating with landown-

ers, local officials, and the media. They also

reach out to communities in rural regions,

helping them with employment on Kernel’s as-

sets, as well as coordinating our regional so-

cial projects and initiatives. Communication

with representatives of local communities and

other stakeholders is also performed via dedi-

cated channels of informing, and grievance

mechanisms, through which they can submit

their inquiries and receive extensive feedback

(in FY2023 we received a total of 879 calls via

a toll-free hotline).

Support of the Armed Forces of Ukraine

and the society in wartime

People have always been the main value for

Kernel and our mission to ensure their safety

and wellbeing have been of highest priority

amid wartime in Ukraine. From the beginning

of Russia’s full-scale invasion of Ukraine, Ker-

nel has been taking a leadership position

among Ukrainian businesses in providing help

and support to the Ukrainian society and the

army during wartime. Our support has been

both financial, such as purchases of military

equipment, medicine and cars, and non-mon-

etary, namely humanitarian aid directed to the

army and internally displaced people, such as

food supplies and provision of temporary shel-

ter for internally displaced people.

Social projects and charity spending

We direct our charity and social investments

towards the following categories of projects:

• Infrastructure investments: maintenance

and repairs of roads, bridges, street lighting,

waterpipes, bus stops and others.

• Education: maintenance and repairs of

schools, kindergartens, and playgrounds;

………………………………………………………………………………………………………………………………………….………..

Taxonomy

-eligible share of Kernel’s economic activities

FY2022

FY2023

USD million

Amount Share Amount Share

Revenue, including

5,332.0

100.00%

3,455.0

100.00%

taxonomy-eligible

13.4

0.25%

28.8

0.83%

taxonomy non-eligible

5,318.6

99.75%

3,426.2

99.17%

Capital expenditure

, including

110.0

100.00%

101.2

100.00%

taxonomy-eligible

21.5

19.58%

5.4

5.32%

taxonomy non-eligible

88.4

80.42%

95.8

94.68%

Operational expenditure, including

5,317.0

100.00%

2,955.0

100.00%

taxonomy-eligible

9.5

0.18%

18.3

0.62%

taxonomy non-eligible

5,307.5

99.82%

2,936.7

99.38%

Note 1:

Additions in CIP and uninstalled equipment for the respective period (Note 15).

………………………………………………………………………………………………………………………………………….………..

Key economic performance indicators

D million

FY2021

FY2022

FY2023

Direct economic value generated

5,839

5,409

3,394

Revenue

5,595

5,332

3,455

Net IAS 41 effect

133

(115)

Other operating income

111

Economic value distributed

Operating costs, of which

(5,147)

(5,317)

(2,955)

employee wages and benefits

(351)

(245)

(229)

Finance costs

(142)

(119)

(122)

Community investments

(4)

(26)

(12)

Other costs

(8)

Total charges

(5,301)

(5,453)

(3,026)

Income tax

(32)

(69)

Dividends paid

(35)

(34)

Total economic value distributed

(5,368)

(5,484)

(3,095)

Economic value retained

471

(75)

299

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providing necessary equipment to educa-

tional institutions.

• General charity: targeted support of land-

owners in need, orphanages and nursing

homes, severely ill people, and cash dona-

tions to other charity organizations.

• Sport and culture: building and repairs of

libraries, athletic fields, community cultural

centers, and sacral buildings; supplying

equipment for gyms; sponsorship of sports

and cultural events.

• Healthcare: maintenance and renovation

of rural health posts and purchases of med-

ical equipment.

Educating the next generation of agricul-

ture specialists

Throughout FY2023 Kernel continued imple-

menting its educational project Open Agro

University, which was launched last year. The

project seeks to prepare future employees of

the company by targeting students of last

years, who are motivated to undertake specific

training on agriculture technologies, food pro-

cessing and corporate management.

Project

participants who successfully complete the

program become employed at Kernel. The

process of selecting the program’s partici-

pants is inclusive and diversity-driven, provid-

ing equal opportunities for candidates of differ-

ent genders from different regions, cities, and

universities.

The University offers education in seven spe-

cialties, namely:

• Agronomist

• Power engineer

• Mechanical engineer in farming

• Mechanical engineer in production

• Engineers of process automated control

systems

• Technology engineer in oil production

• Technology engineer in laboratories and

silos

The team of experts and lecturers includes

more than 100 Kernel’s in-house experts, pro-

fessors of Ukraine’s leading universities, ex-

ternal partners (global producers of agriculture

machinery, fertilizers and crop protection

agents) and international experts.

Sharing our expertise with farmers

In 2018 Kernel launched the Open Agribusi-

ness project, designed to help farmers in

Ukraine sustainably increase their yields, as

well as improve technological and business

management approaches to reduce cost,

maximize income and build resilience to risks

and volatilities. We share our expertise and

provide practical assistance to Open Agribusi-

ness partners. In return, they supply a

minimum of 80% of their yields to Kernel. As

of the end of the reported period, the Open Ag-

ribusiness has more than 50 partners, which

cover a total of 168 thousand hectares of land-

bank.

Since the beginning of Russia’s full-scale in-

vasion of Ukraine, Kernel has continued sup-

porting partners of the Open Agribusiness pro-

ject by providing extensive agronomic consult-

ing on farming practices, development of tech-

nological maps and improvements in produc-

tivity.

In addition, Kernel is taking a leading role in

expanding the market-wide practice of

establishing Water Use Organizations

(WUOs). The idea behind WUOs is to unite

small- and medium-sized farmers and to

simplify their irrigation resources. Indeed, the

company has already supported the

establishment of one WUO around the

Dmitryvka irrigation system, and launched

prepareational works for another WUO in

Brovarky.

Interactions with suppliers

Quality interactions with suppliers are one of

the key aspects of Kernel’s ESG and climate

governance agenda. The main purpose is to

identify opportunities for cooperation, explore

ways to improve our climate-related perfor-

mance (reduction of Scope 3 GHG emissions)

and extrapolate our practices across our sup-

ply chain, including suppliers of grain and

oilseed, as well as our partners within the

Open Agribusiness program.

In FY2023 we started collecting data on the

carbon footprint of production from our

suppliers of nitrogen fertilizers to include this

data in Scope 3 calculations. The purchase of

fertilizers is one of the most material catego-

ries of Kernel’s Scope 3 emissions and the

purpose of such interaction is to minimize the

uncertainty of calculations; in exchange, we

are also prepared to provide our data on GHG

emissions from the application of N-fertilizers

and, therefore, contribute to the advancement

of Scope 3 emissions accounting globally. We

believe that the collection of such data from

domestic producers of fertilizers will be simpli-

fied once companies begin reporting in line

with CBAM regulations (Carbon Border Ad-

justment Mechanism).

The purpose of this exercise, from the long-

term perspective is also to identify ways to op-

timize the portfolio of suppliers to reduce the

carbon footprint of purchased fertilizers. This

would be an initial step in addressing one of

the climate transitional risks associated with

the target of the EU’s ‘Fit for 55’ package to

reduce emissions by 61% before 2030. Given

that production of intermediates for nitrogen

fertilizers, namely nitric acid, ammonia and hy-

drogen, are covered by the scope of the EU

Emission Trading Scheme, it is expected that

the cost of EU-originated fertilizers would in-

crease significantly in the following years.

Kernel’s process of supply chain management

consists of four stages:

• Setting E&S standards. Our expectations

of suppliers’ environmental and social per-

formance are enriched by relevant provi-

sions of the Code of interaction with suppli-

ers and the Anti-corruption Clause, which

reflect Kernel’s commitments to the princi-

ples of the UN Global Compact and

………………………………………………………………………………………………………………………………………….………

Key social impact indicators

FY2023

Total material support of the Armed Forces of Ukraine

and humanitarian aid

USD thousand

12,279

Non-material support of the Armed Forces of Ukraine

psc

Military helmets

Military uniform sets

4,892

Means of communication

464

Thermal imagers

126

Unmanned aerial vehicle (UAV)

Quadcopters

405

Humanitarian aid

Milling wheat, tones

Sunflower oil, liters

80,785

Canned food, liters

7,840

Machinery and other aid, psc

624

Medical aid

Medicine and medical equipment, psc

6,405

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Sustainable Development Goals. They in-

clude requirements on ethics, fair business

practices, human rights, occupational

health and safety, and environmental pro-

tection.

• Ensuring obligatory E&S compliance.

Before entering business relationships, all

counterparties are obligated to sign Ker-

nel’s Anti-corruption clause of a contract.

Kernel is entitled to verify compliance with

relevant provisions and terminate contracts

if non-compliance is identified.

• Compliance verification. The procedure

of conforming suppliers’ compliance with

Kernel’s E&S requirements is of two levels.

First, all potential counterparties undergo

initial screening by the corporate Economic

Security Service. Environmental and social

criteria are included in the scope of initial

screening, focusing on the analysis of the

location and nature of suppliers’ operations,

certification by relevant E&S standards,

such as ISCC, ISO14001 and ISO18001, as

well as the outcomes of environmental in-

spections etc. The second level of verifica-

tion is an audit that involves visits to suppli-

ers

• Production facilities, interviews with man-

agement and personnel, and review of rele-

vant documentation. In the process of veri-

fication, we provide feedback to suppliers

regarding possible ways to improve their

E&S performance, if required.

• Application of business consequences.

Based on the results of audits Kernel either

continues cooperation with counterparties

or suggests corrective measures if non-

compliance with our E&S requirements is

identified and monitors their implementa-

tion. Another possible consequence of sup-

pliers’ non-observance is the termination of

business relationships.

Onsite contractors also undergo compliance

checks for anti-corruption risks, OHS and en-

vironmental performance at the stage of ten-

dering. According to the template provisions in

Kernel’s counterparty contracts, onsite con-

tractors are obligated to complete OHS drills

before entering the company’s facilities; pre-

pare the OHS management plans, which need

to be approved by Kernel; report on waste

management procedures etc.

Our overall approach to managing OHS of on-

site contractors is implemented in line with the

ISO 45001:2018 standard.

Product quality and customer safety

Our management approach to product

quality and customer safety

Our management approach towards ensuring

the highest quality of our goods is embodied

in Kernel’s Product Quality and Safety Man-

agement policy. The policy is aimed at estab-

lishing a unified system of managing issues

related to product quality and safety and cre-

ating conditions for its continuous develop-

ment in line with international standards (ISO,

GMP+, ISCC, IFS, BSCI etc.) and Sustainable

Development Goals. At the center of our ap-

proach is the preventive food management

system, which seeks to mitigate potential risks

of biological, chemical, and physical hazards

before they become material.

We adhere to the highest standard of quality

in both the final goods and production pro-

cesses throughout the whole value chain. Our

oil-extraction plants are certified with ISO

9001 “Quality management system” and ISO

22000 “Food safety management” standard,

which integrates the principles of the Hazard

Analysis and Critical Control Point (HACCP)

system and application of procedures devel-

oped by the Codex Alimentarius Commission.

The ISO 9001 standard also covers our export

terminal. In addition, most of our assets are

certified with ISO 14001 “Environmental

………………………………………………………………………………………………………………………………………….………..

Matrix of Kernel’s product quality certification

Standard

Oilseed processing plants

Terminals

Trading

Farming

Total

Bandurka

Vovchansk

Kropyvnytskyi

Poltava

Prykolotne

BSI

Prydniprovksyi

Starokostiantyniv

TransBulkTerminal

TransGrainTerminal

OilEportTermina

Kernel-Trade

Inerco

Avere

ISO 9001

✓

ISO 22000

✓

GMP+R 1.0

✓

ICS

✓

BSCI

✓

Kosher

✓

Kosher Passover

✓

Badatz Passover

✓

Halal

✓

FDA registration

✓

ISCC EU

✓

ISCC PLUS

✓

BRCGS

✓

IFS

✓

Gafta

✓

China (meal sun-

flower)

✓

China (oil sunflower)

✓

China (meal rape-

seed)

✓

China (oil rapeseed)

✓

ISO 14001

✓

ISO 45001

✓

Total

✓

certificates obtained in FY2023

✓

certificates with expanded coverage in FY2023

✓

certificates to be received in FY2024

✓

certificates lost due to hostilities in the production area

..................................................................

Volumes of purchased grains and

oilseeds by types of suppliers in FY2023

88%

12%

Existing New

2,426

thousand tones

82%

13%

Farmers 1st intermediary 2nd intermediary

2,426

thousand tones

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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management” and ISO 45001 “Occupational

health and safety”, namely key trading com-

pany Kernel-Trade, six oil crushing plants, two

farming clusters, fifteen silos and one trading

terminal.

Our approach and the overall system of food

safety and quality are managed by an internal

quality management team, as well as undergo

regular inspection and verification by inde-

pendent third-party auditors. The scope of the

audit covers production, storage, distribution,

and supply processes; 100% of significant

products are assessed with regard to the im-

provement of health and safety impacts.

In FY2023, a total of

112 independent audits were successfully

passed, which were performed throughout

176 days.

In FY2023, the total number of audits in-

creased from 80 to 112, due to the lifted mor-

atorium on state inspections, whereas overall

time spent on audits decreased from 199 to

176 days since offline inspections became

possible.

There were no instances of incompliance with

regulations or voluntary codes, which would

have resulted in fines, penalties, or warnings.

Quality of sunflower oil

Kernel’s oil-crushing and bottling processes in

Poltava are certified in accordance with the

BSCI standard (grade A), which speaks to our

responsibility as an employer and high social

performance. We also certified our laboratory

(ISO 17025 “General requirements for the

competence of testing and calibration labora-

tories”), which conducts regular sample anal-

ysis of sunflower oil, meal and grain to confirm

their compliance with quality standards. Fi-

nally, our TransBulkTerminal is certified for

conducting fumigation activities, in accord-

ance with Gafta standards.

Furthermore, our production assets are com-

pliant with Kosher, Kosher Passover, Badatz

and Badatz Passover requirements of Jewish

dietary regulations, as well as the Muslim

Halal food standards. Four of our plants are

registered by the U.S. Food and Drug Admin-

istration (FDA), making our sunflower oil, in-

cluding high oleic sunflower oil, in bottles and

flexi-tanks suitable for the USA market. Our

bottling facilities are certified under FSSC

22000. In addition, oil-extracting plants with

bottling facilities are certified in accordance

with IFS, which allows us to sell bottled sun-

flower oil and sunflower oil in flexitanks to

Excluding assets held for sale

European countries; one of our plants ob-

tained a country-specific license to sell sun-

flower oil to South Korea. We supply bottled

sunflower oil to reputable international retail

chains (Metro, Walmart, Maxima etc.).

Finally, four of our oil extraction plants (we

plan to terminate certification for Prykolotne

OEP) as well as our trading entities are certi-

fied in line with ISCC EU standards, which

makes the production of sunflower oil and

meal compliant with the legal sustainability re-

quirements of the EU Renewable Energy Di-

rective (RED II) and Fuel Quality Directive.

Quality of meals

Our whole value chain of protein meal is certi-

fied with the applicable feed quality and safety

standard, namely GMP. All our oilseed pro-

cessing plants are certified with GMP+B1; our

export terminals, as well as trading entities,

Kernel-Trade, Inerco and Avere, are certified

with GMP+B3, ensuring feed safety in the col-

lection, storage, transshipment, and trade of

meals. Finally, our Switzerland-based trading

entity, Inerco, is also compliant with GMP+B4,

which demonstrates feed safety in transporta-

tion and affreightment.

In addition, three of our oil extraction plants,

as well as two trading entities, Kernel-Trade

and Inerco, are certified in line with ISCC

PLUS, with regard to meal production. Our

sunflower meal is also suitable for export to

China as it complies with country-specific reg-

ulations.

Quality of crop production and storage

Within the whole landbank of Kernel, 363

thousand hectares

are certified with ISCC EU

requirements, which ensures that crop pro-

duction is performed in environmentally and

socially sound ways. Under this certification

produced crops are considered compliant with

biofuel supply chain sustainability require-

ments outlined in the EU RED II. At all our

grain silos we build our food safety manage-

ment system on the HACCP principles (Haz-

ard Analysis Critical Control Point), namely:

(1) conduct a hazard analysis, (2) determine

critical control points (CCPs), (3) establish crit-

ical limits, (4) establish monitoring procedures,

(5) establish corrective actions, (6) establish

verification procedures, and (7) establish rec-

ord-keeping and documentation procedures.

Implementation of these principles aims to

prevent and reduce the occurrence of food

safety risks through analysis and control of bi-

ological, chemical and physical hazards

throughout the production chain.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Report

Sustainability

Corporate

Governance

Financial

Statements

ABOUT THE REPORT

Disclosure of non-financial information as part

of Kernel’s Annual report is one of the key

channels of communicating our performance

to stakeholders in terms of sustainable devel-

opment and climate actions, as well as our

progress on creating long-term business value

by integrating ESG principles in our opera-

tions.

This report is prepared in line with the Global

Reporting Initiative (GRI) standard, Core op-

tion. When identifying the content of the report

we also ensure compliance with relevant reg-

ulations, including the Luxembourg Law of 23

July 2016 on disclosure of non-financial and

diversity information (the “Law of 23 July

2016”), implementing the European Directive

2014/95/EU.

Stakeholder engagement

Kernel identifies a total of 12 groups of stake-

holders that are subject to inter-influence and

ongoing interaction with the company. These

influences and stakeholders’ categorization

are identified in Kernel’s management vision,

as well as an analysis of the dynamic in stake-

holders’ feedback and media screening. The

company’s management regularly reviews the

list of stakeholder groups.

Our approaches towards interactions with

stakeholders are governed by the Stakeholder

Engagement Policy aligned with relevant IFC

Performance Standards.

Material topics and report content

Evaluation of topics’ materiality and content of

the ‘Sustainability’ section of this report is

based on the results of the stakeholder en-

gagement process, throughout which we iden-

tified interests and expectations of key stake-

holder groups, namely capital providers

(shareholder and debt providers), regulatory

authorities, employees, and environmen-

tal/social NGOs. This was complemented by

the management’s assessment of priorities

and the importance of different aspects of the

company’s sustainability, or ESG, agenda.

The materiality of such topics has been as-

sessed against two criteria: (1) influence on

stakeholder assessments and decisions; and

(2) significance of economic, environmental,

and social impacts. The topics with the highest

combination of scores for both criteria were

defined as material. Furthermore, Kernel’s ex-

ecutive management approved the list of top-

ics that are subject to disclosure in the ‘Sus-

tainability’ section of the report. Boundaries for

material topics include Kernel subsidiaries

where the company has operating control, un-

less stated otherwise. All identified topics are

considered material both internally and exter-

nally. The content of this section of the report

also reflects our Communication on Progress

in implementing principles of the UN Global

Compact, namely:

• Human rights and Labor (chapter ‘Human

capital’);

• Environment (chapter ‘Environmental

capital’);

• Anti-corruption (chapter ‘Social capital’).

…………….………………………………………………..…..……………..…..…..…..……………………

Methods of engagement with key stakeholder groups

Stakeholder

groups

Engagement method

Employees



Learning and development programs

 Internal communications

 Corporate social media and the company’s website

 Corporate hotline for submitting compliance related inquiries

 HR Conference and Strategic sessions for each business division

Shareholders,

creditors,

bondholders

 Annual reports, three quarterly reports; Annual General Meetings

 Corporate social media and the company’s website

 Online/offline one-to-one meetings

 Online communication via email and investors’ questionnaires

 Roadshows and site visits; Investment conferences

Local

communities



Environmental and social impact assessments

 Online/offline one-to-one meetings

 Dedicated channels of corporate social media and the company’s website

 Hot line for submitting compliance related inquiries

 Printed material distributed among communities

National and lo-

cal government

 Online/offline one-to-one meetings



Corporate social media, the company’s website and the website of the

charitable foundation “Together with Kernel”

 Local and national media

 Corporate hotline for submitting compliance related inquiries

Civil society or-

ganiza-

tions/NGOs



Online/offline one-to-one meetings

 Corporate social media and the company’s website; Annual reports

 Corporate hotline for submitting compliance related inquiries

Local and na-

tional media



Corporate social media and the company’s website

 Online/offline one-to-one meetings

 Email communications

Customers

 Corporate social media; website of Company and company’s brand names

 Brand exhibitions and specialized events; annual reports

 Corporate hotline for submitting compliance related inquiries

 Costumer research and brand health tracking

Partners

(Open Agribusi-

ness)

 Online/offline one-to-one meetings

 Online communication via email

 Brand exhibitions and specialized events

Suppliers

 Supply Chain Sustainability Program

 Online/offline one-to-one meetings Corporate social media and the com-

pany’s website

Certification

bodies

 Online/offline one-to-one meetings; site visits

 Disclosure/application requirements for certification bodies

………………………………………………………………………………………………………………………………………….………..

Matrix of Kernel’s material ESG topics

Category of

impact

Material topic

Topic boundary

Social capital

 Economic performance and impact

All business segments

 Anti-corruption and compliance

All business segments

 Support of local communities and society as a whole

All business segments

 Product quality and customer safety

All business segments

 Interactions with suppliers

All business segments

Environmental

capital

 Energy management

All business segments

 Water and effluents management

All business segments

 Waste management

All business segments

 Biodiversity management

Farming

 Climate actions

All business segments

 Monitoring of environmental impacts and ecological com-

pliance

All business segments

Human capital

 Employment

All business segments

 Training and career advancement

All business segments

 Human rights, diversity, and inclusion

All business segments



Freedom of associations and collective bargaining

All business segments

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

GRI CONTENT INDEX

Material topic

Disclosure

number

Disclosure title References and comments

GRI 102: General Dis-

closures 2016. Or-

ganizational profile

102-1

Name of the organization

Kernel Holding S.A.

102-2 Activities, brands, products, and services

Our business model (p.8), Kernel’s corporate web-

site

102-3

Location of headquarters

Kyiv, Ukraine

102-4

Location of operations

Key Kernel’s assets are located in Ukraine (p. 9)

102-5 Ownership and legal form

Group structure (p.102), Share capital and signifi-

cant shareholders (p.103)

102-6 Markets served

Geographic locations: sunflower oil sold in bulk

(p.17) bottled sunflower oil (p.17), grain export mar-

kets (p.17)

Sectors served: food and agriculture

Types of customers and beneficiaries: global soft

commodity traders and processors of agricultural

commodities, feed compounders, retail chains and

distributors

102-7 Scale of the organization

Total number of employees: (p.61)

Total number of operations: three business seg-

ments: Oilseed Processing, Infrastructure and

Trading, Farming (p.6, 7, 105).

Net revenues: key highlights (p.2)

Total capitalization: market capitalization (; for up-

dated figures please see Kernel profile on Warsaw

Stock Exchange website); credit metrics (p.13)

Quantity of products or services provided: Kernel a

Glance (p. 9)

102-8 Information on employees and other workers

General employment information (p.61)

Workers who are not employees perform insignifi-

cant portion of activities. Significant variations in

the numbers include only seasonal variations of

employees in Kernel farming business, which does

not exceed 6% of total headcount. Data compiled

by Kernel employee accounting system; General

employment information

102-9 Supply chain

Our Business Model (p.8), Interactions with suppli-

ers (p.69)

Types of suppliers: independent farmers-suppliers

of grain and oilseeds, suppliers of inputs to crop

production (seeds, fertilizers, crop protection

agents, fuel), suppliers of other inputs (natural gas,

energy)

102-10

Significant changes to the organization and its

supply chain

There were no significant changes to Kernel supply

chain in FY2023.

102-11 Precautionary Principle or approach

The Group’s entities apply the Precautionary Prin-

ciple through maintaining compliance with the Law

of Ukraine on Environmental Impact Assessment

(p.53). The law requires a promoter to provide sci-

entific evidence of no threats of serious or irreversi-

ble environmental

damage associated with the

planned development and activities. Unless such

evidence is presented, no statutory authorization

can be granted to the development and activities in

question.

The same principle works for environmental permit-

ting. No emission or water use permit can be

granted unless an applicant presented evidence of

impacts staying below established thresholds (en-

vironmental quality standards). Kernel’s

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Material topic

Disclosure

number

Disclosure title References and comments

subsidiaries hold all applicable environmental per-

mits (p.53)

102-12 External initiatives

Kernel endorses the following externally-developed

economic, environmental and social charters, prin-

ciples, and other initiatives:

International Labour Organization's Fundamental

Principles and Rights at Work;

United Nations Global Compact (UNGC);

United Nations Universal Declaration of Human

Rights;

Carbon Disclosure Project (CDP);

Task Force on Climate-Related Financial Disclo-

sures (TCFD);

Global Reporting Initiative (GRI).

102-13 Membership of associations

Kernel, through its subsidiaries, is a member of

several industry associations in Ukraine, including:

European Business Association (incl. Logistics

Committee);

American Chamber of Commerce;

Ukrainian Grain Association;

Ukrainian Agrarian Association;

U.S.-Ukraine Business Council;

Federation of Oils, Seeds and Fats Associations;

Grain and Feed Trade Association;

UkrOliyaProm;

Ukrainian Network of Integrity and Compliance;

UN Global Compact

Association “Ukrainian Agribusiness Club” (UCAB)

GRI 102: General Dis-

closures 2016. Strat-

egy

102-14 Statement from senior decision-maker Chairman’s statement (p.4)

GRI 102: General Dis-

closures 2016. Ethics

and integrity

102-16

Values, principles, standards, and norms of

behavior

Business ethics and compliance section on Ker-

nel’s corporate website

Sustainability section on Kernel’s corporate web-

site

102-17

Mechanisms for advice and concerns about

ethics

Anti-corruption and compliance (p.66)

GRI 102: General Dis-

closures 2016. Gov-

ernance

102-18 Governance structure

Governance structure of the organization (p.78)

In FY2022 the Company established a Sustainabil-

ity committee at the Board of Directors, responsible

for overseeing the development of the ESG and cli-

mate corporate governance agenda.

GRI 102: General Dis-

closures 2016. Stake-

holder engagement

102-40

List of stakeholder groups

Stakeholder engagement (p.72)

102-41 Collective bargaining agreements

Freedom of association and collective bargaining

(p. 66)

102-42

Identifying and selecting stakeholders

Stakeholder engagement (p.72)

102-43

Approach to stakeholder engagement

Stakeholder engagement (p.72)

102-44

Key topics and concerns raised

Stakeholder engagement (p.72)

GRI 102: General Dis-

closures 2016. Re-

porting practice

102-45

Entities included in the consolidated financial

statements

Notes 1 to the Consolidated Financial Statements

(p. 102)

102-46

Defining report content and topic Boundaries

Material topics and report content (p.72)

102-47

List of material topics

Material topics and report content (p.72)

102-48 Restatements of information

No restatements of information took place in

FY2022

102-49 Changes in reporting

There were no changes in the list of material topics

and topic boundaries

102-50 Reporting period

Financial year 2023 ended 30 June 2023. See also

Note 1 to the Consolidated Financial Statements

102-51 Date of most recent report

16 November 2022 is the date of the most recent

previous report, as a sustainability section of the

FY2022 annual report

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Material topic

Disclosure

number

Disclosure title References and comments

102-52

Reporting cycle

Annual

102-53

Contact point for questions regarding the re-

port

sustainability@kernel.ua; ir@kernel.ua

102-54

Claims of reporting in accordance with the GRI

Standards

This report has been prepared in accordance with

the GRI Standards:

Core option

102-55 GRI content index

p.73-77

102-56 External assurance

The Company does not have a policy regarding ex-

ternal assurance. FY2023 Sustainability report was

not externally assured

GRI 201: Economic

Performance 2016

GRI 103: Management Approach 2016

Economic performance and impact (p. 67)

Material topics and report content (p.72)

About the Report (p.72)

201-1

Direct economic value generated and distrib-

uted

Economic performance and impact (p. 67)

201-2

Financial implications and other risks and op-

portunities due to climate change

Approach to climate risk identification and manage-

ment (p.54)

Material climate-related risks (p.55)

201-4

Financial assistance received from govern-

ment

Economic performance and impact (p. 67)

GRI 203: Indirect

Economic

Impacts 2016

GRI 103: Management Approach 2016

Support of local communities and society as a

whole (p.68)

About the Report (p.72)

203-1

Infrastructure investments and services sup-

ported

Social projects and charity spendings (p.68)

203-2 Significant indirect economic impact

Support of local communities and society as a

whole (p.68)

GRI 205: Anti-corrup-

tion 2016

GRI 103: Management Approach 2016

Anti-corruption and compliance (p.66)

About the Report (p.72)

205-1

Operations assessed for risks related to cor-

ruption

Anti-corruption and compliance (p.66)

205-2

Communication and training about anti-cor-

ruption policies and procedures

Anti-corruption and compliance (p.66). We do not

provide a breakdown of communication and train-

ing by regions, as all such activities happen in

Ukraine

205-3

Confirmed incidents of corruption and actions

taken

Anti-corruption and compliance (p.66)

GRI 302: Energy 2016

GRI 103: Management Approach 2016

Energy management (p.47)

About the Report (p.72)

302-1

Energy consumption within the organization

Energy management (p.47)

302-3

Energy intensity

Energy management (p.47)

GRI 303: Water and

Effluents 2018

GRI 103: Management Approach 2016

Water and effluents management (p. 48)

About the Report (p.72)

303-1 Interactions with water as a shared resource

Water and effluents management (p. 48), Environ-

mental Protection Policy

303-2

Management of water discharge-related im-

pacts

Water and effluents management (p. 48)

303-3

Water withdrawal

Water and effluents management (p. 48)

303-4

Water discharge

Water and effluents management (p. 48)

GRI 304: Biodiversity

2016

GRI 103: Management Approach 2016

Biodiversity management (p.51)

About the Report (p.72)

304-1

Operational sites owned, leased, managed in,

or adjacent to, protected areas and areas

Biodiversity management (p.51)

Reason for omission - Confidentiality constrains.

We omit disclosure of details of each separate site

falling within the territory of a national park, as all

such sites are lands, we lease from third parties,

and detailed list of such sites constitutes a

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

In FY2023 Kernel started working on the development of operational accounting of GHG emissions from farming operations across field level, which is the highest

level of granularity, for each crop. In this report calculations of GHG emissions include Enselco Agro LLC to ensure consistency of methodological boundaries. In line

with the updated accounting approach historical emissions will be recalculated to exclude Enselco Agro LLC operations, which will be reflected in the company’s

emission baseline and in future disclosures.

Material topic

Disclosure

number

Disclosure title References and comments

commercial information, as we compete for leasing

land with other players in Ukraine

GRI 305: Emissions

2016

GRI 103: Management Approach 2016

Climate actions (TCFD disclosure) (p.54)

About the Report (p.72)

305-1 Direct (Scope 1) GHG emissions

Kernel’s Scope 1, Scope 2, Scope 3 greenhouse

gas emissions and other air emissions (p.58)

305-2 Energy indirect (Scope 2) GHG emissions

Kernel’s Scope 1, Scope 2, Scope 3 greenhouse

gas emissions and other air emissions (p.58)

305-3 Other indirect (Scope 3) GHG emissions

Kernel’s Scope 1, Scope 2, Scope 3 greenhouse

gas emissions and other air emissions (p.58)

305-4 GHG emissions intensity

Kernel’s Scope 1, Scope 2, Scope 3 greenhouse

gas emissions and other air emissions (p.58)

305-7

Nitrogen oxides (NOX), sulfur oxides (SOX), and other significant air emissions

GRI 306: Waste 2020

GRI 103: Management Approach 2016

Waste management (p.49)

About the Report (p.72)

306-1

Waste generation and significant waste-re-

lated impacts

Waste management (p.49)

306-2

Management of significant waste-related im-

pacts

Waste management (p.49)

306-3

Waste generated

Waste management (p.49)

GRI 307: Environ-

mental compliance

GRI 103: Management Approach 2016

Monitoring of environmental impact and ecological

compliance (p.53)

About the Report (p.72)

307-1

Non-compliance with environmental laws and

regulations

Monitoring of environmental impact and ecological

compliance (p.53)

GRI 308: Supplier En-

vironmental

Assessment 2016

GRI 103: Management Approach 2016

Interaction with suppliers (p.69)

About the Report (p.72)

308-2

Negative environmental impacts in the supply

chain and actions taken

Interaction with suppliers (p. 69)

GRI 401: Employ-

ment 2016

GRI 103: Management Approach 2016

General employment information (p.61)

About the Report (p.72)

401-1

New employee hires and employee turnover

General employment information (p.61)

401-2

Benefits provided to full-time employees that

are not provided to temporary or part-time em-

ployees

Renumeration approach and benefits (p.61)

401-3

Parental leave

General employment information (p.61)

GRI 403: Occupa-

tional Health and

Safety 2018

GRI 103: Management Approach 2016

Occupational health and safety (p.64)

About the Report (p.72)

403-1

Occupational health and safety management

system

Occupational health and safety (p.64)

403-2

Hazard identification, risk assessment, and in-

cident investigation

Occupational health and safety (p.64)

403-3

Occupational health services

Occupational health and safety (p.64)

403-4

Worker participation, consultation, and com-

munication on occupational health and safety

Occupational health and safety (p.64). Company

does not have a formal joint management–worker

health and safety committee.

403-5

Worker training on occupational health and

safety

Occupational health and safety (p.64)

403-6 Promotion of worker health

Occupational health and safety (p.64), Renumera-

tion approach and benefits (p.61)

403-7

Prevention and mitigation of occupational

health and safety impacts directly linked by

business relationships

Occupational health and safety (p.64)

403-8

Workers covered by an occupational health

and safety management system

Occupational health and safety (p.64). No workers

have been excluded from this disclosure. OHSMS

covers all Group’s entities and, respectively, all

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Sustainability: GRI Content Index

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Material topic

Disclosure

number

Disclosure title References and comments

Groups workers.

403-9 Work-related injuries

Occupational health and safety (p.64). Main types

of work-related injuries include slips, trips, and

falls. No workers have been excluded from this

disclosure.

GRI 404: Training

and Education 2016

GRI 103: Management Approach 2016

Training and career advancement (p.63)

About the Report (p.72)

404-1

Average hours of training per year per em-

ployee

Training and career advancement (p.63)

404-2

Programs for upgrading employee skills and

transition assistance programs

Training and career advancement (p.63).

We do not provide any specific transition assis-

tance programs to facilitate management of career

endings resulting from retirement or termination of

employment, apart from one-off severance pay-

ment or retirement benefit.

404-3

Percentage of employees receiving regular

performance and career development reviews

Training and career advancement (p.63)

GRI 405: Diversity

and Equal

Opportunity 2016

GRI 103: Management Approach 2016

Human rights, diversity and inclusion (p.65)

About the Report (p.72)

405-1

Diversity of governance bodies and employ-

ees

Human rights, diversity and inclusion (p.65)

GRI 407: Freedom of

Association and

Collective Bargaining

2016

GRI 103: Management Approach 2016

Freedom of association and collective bargaining

(p. 66)

About the Report (p.72)

407-1

Operations and suppliers in which the right to

freedom of association and collective bargain-

ing may be at risk

Freedom of association and collective bargaining

(p. 66).

We have no operations in which workers’ rights to

exercise freedom of association may be violated or

at significant risk. We have not identified suppliers

in which workers’ rights to exercise freedom of as-

sociation or collective bargaining may be violated.

GRI 412: Human

Rights Assessment

2016

GRI 103: Management Approach 2016

Human rights, diversity and inclusion (p.65)

About the Report (p.72)

412-2

Employee training on human rights policies or

procedures

Human rights, diversity and inclusion (p.65)

GRI 413: Local Com-

munities 2016

GRI 103: Management Approach 2016

Support of local communities and society as a

whole (p.68)

413-1

Operations with local community engagement,

impact assessments, and development pro-

grams

Support of local communities and society as a

whole (p.68)

100% of operations in our Farming segment are in-

volved in local community engagement, impact as-

sessments and/or development programs

413-2

Operations with significant actual and potential

negative impacts on local communities

Kernel is not aware of any significant negative im-

pacts on local communities as a result of its activi-

ties

GRI 414: Supplier So-

cial Assessment

2016

GRI 103: Management Approach 2016

Interaction with suppliers (p. 69)

About the Report (p.72)

414-2

Negative social impacts in the supply chain

and actions taken

Interaction with suppliers (p. 69)

GRI 416: Customer

Health and Safety

2016

GRI 103: Management Approach 2016

Product quality and customer safety (p.70)

About the Report (p.72)

416-1

Assessment of the health and safety impacts

of product and service categories

Product quality and customer safety (p.70)

We assess health and safety impacts for improve-

ment for all our significant products

416-2

Incidents of non-compliance concerning the

health and safety impacts of products and ser-

vices

Product quality and customer safety (p.70)

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Corporate Governance

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Main characteristics of Kernel

Group structure

Kernel Holding S.A. (the “Company”) is a Lux-

embourg-based public limited liability com-

pany (RCS Luxembourg B109173) estab-

lished on June 15, 2005, with its registered of-

fice at 9 Rue de Bitbourg, L-1273 Luxem-

bourg. It serves as the holding entity for a

group of companies, collectively referred to as

the “Group” or “Kernel”. The Company's

shares have been listed on the Warsaw Stock

Exchange's main market since November

2007. As of 30 June 2023, Kernel was in the

process of being delisted from the Warsaw

Stock Exchange, with key milestones in this

process outlined below.

The list of primary subsidiaries is disclosed on

page 102 of this report.

Share capital and significant share-

holdings

The issued capital of the Company as of 30

June 2023 consisted of 84,031,230 fully paid

ordinary electronic single class shares without

indication of the nominal value. Ordinary

shares have equal voting rights and rights to

receive dividends (except for 6,602,000 own

shares purchased). Consequently, there were

77,429,230 shares having voting and dividend

rights.

According to notifications received by the

Company, one shareholder owned more than

5% of the Company’s voting shares as of 30

June 2023:

• Namsen Limited (hereinafter “Namsen"), a

legal entity directly controlled by the Chair-

man of the Board of Directors and founder

of the business, Mr. Andrii Verevskyi, own-

ing 80.4% of voting shares.

The Company is not aware of any other share-

holders except Namsen who hold more than

5% of the share capital and total votes.

In FY2023, the Company received two share-

holder notifications from Lind Invest and Ko-

pernik Global Investors, LLC, each reducing

their stake below 5% of the voting rights.

Over the course of FY2023, Namsen in-

creased its stake in the Company from 38% to

74% of total shares issued (or to 80.4% of

shares with voting rights), as a result of the

acquisition of shares during the delisting ten-

der offer, as described in detail in the section

“Kernel delisting from the Warsaw Stock Ex-

change”.

As of 30 June 2023, the Company’s subsidiary

Etrecom Investments Limited held 6,602,000

Company shares purchased over the course

of FY2022 as a part of the Company’s share

buyback program. Such shares are disclosed

as treasury shares in the consolidated finan-

cial statements and have no dividend and vot-

ing rights.

As of 30 June 2023, there were no outstanding

options granting rights to acquire shares of the

Company.

After the reporting date, on 1 September 2023,

the Company issued 216,000,000 new shares

in the registered form (see details in the sec-

tion “Share capital increase on 1 September

2023”). As a result of the participation in the

share offering, the percentage of shares is-

sued owned by Namsen increased to 91.61%,

and the percentage of votes on the general

meeting of shareholders increased to 93.67%.

…………………………………………………………………………………………………………………………………………………

Kernel delisting from the Warsaw Stock Exchange

On 06 March 2023, the Company received from Namsen Limited a letter 1) informing the Board

of Directors about the intention of Namsen to delist the Company and to launch a delisting

tender offer to invite the remaining shareholders to sell their shares in the Company for the

purposes of the potential delisting of the Comp

any’s shares; and 2) requesting the Board of

Directors to consider delisting of the Company’s shares from trading on the Warsaw Stock Ex-

change and make the respective decisions within limits of Board’s powers and responsibilities.

On 30 March 2023, the Company received from Namsen Limited a letter informing the Company

about the announcement of the delisting tender offer for the sale of all shares in the Company,

as required by the applicable delisting regulations.

On 13 April 2023, the Board of Directors, as a competent decision-

making body of a public

company domiciled in Luxembourg and listed on the Warsaw Stock Exchange, decided to with-

draw the shares of the Company from trading on the WSE. The Board of Directors also an-

nounced the intention to convert all Company’s shares into the registered form after delisting.

On 12 May 2023, the delisting tender offer was settled. As a result, Namsen acquired

30,248,449 shares of the Company (36% of total shares issued), increasing its total stake to

74% of the total shares issued.

On 15 May 2023, the Company submitted an application to the Polish Financial Supervision

Authority (“PFSA”) for approval of the withdrawal of the Company's shares from trading on the

regulated market operated by the WSE.

On 13 July 2023, the Company submitted to the PFSA the additional legal memorandum and

other documents requested by the PFSA.

On 01 August 2023, the Company submitted to the PFSA a letter opposing the motions submit-

ted on admission to the Kernel proceedings at PFSA.

As of the date of the publication of this report, the Company has not received any additional

information about the timing of the decision of the Polish Financial Supervision Authority on the

delisting. Once such approval is granted by the PFSA, the Compan

y will immediately make a

delisting application to the WSE and file a relevant motion to the Polish National Depositary for

the conversion of Kernel shares to a registered form with relevant communication to follow.

……………………………………………………………………

Ownership structure as of 30 June 2023

owned

% in

voting and

dividend

Namsen

62,222,460

74.0%

80.4%

Other

15,206,770

18.1%

19.6%

Treasury

6,602,000

7.9%

Total

84,031,230

100.0%

………………………………………………………………………………………………………………………………………....................

Governance structure

General meeting of shareholders

Executive Management Team

Nomination and

Renumeration Committee

Sustainability Committee Audit Committee

Board of Directors

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Corporate Governance continued

Strategic

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Corporate

Governance

Financial

Statements

Corporate governance framework

Kernel is committed to high standards of cor-

porate governance and is guided by the cor-

porate governance framework determined by:

• the corporate law of the Grand Duchy of

Luxembourg as a place of incorporation (in-

cluding voluntary compliance with most of

the provisions of the X Principles of Corpo-

rate Governance of the Luxembourg Stock

Exchange); and

• the corporate governance rules set out in

the Best Practice for WSE Listed Compa-

nies 2021 as a place of Company’s shares

listing. Paragraph 29 of the Warsaw Stock

Exchange Rules requires issuers to publish

a report indicating which rules the issuer

complies with and which rules the issuer

does not comply with permanently. The

Company published such a report on 12 Au-

gust 2021, available on the Company’s

website. The Company applied all the prin-

ciples except for detailed principles 1.4.,

1.4.1., 1.4.2., 1.5., 2.1., 2.11.3., 2.11.5.,

2.11.6., 3.6., 3.9., 6.2., 6.3., 6.4. Addition-

ally, in the current report #19 dated 25

March 2022, the Company informed that it

incidentally breached rule 1.6 of the Best

Practice for GPW Listed Companies 2021

because of the continuing military aggres-

sion of Russia in Ukraine. That rule has not

been breached incidentally in the last two

years.

Key internal documents laying out corporate

governance principles are Kernel Holding S.A.

Articles of Association and Corporate Govern-

ance Charter. On 30 August 2021, the EGM

also approved the Remuneration Policy, which

applies to the Board of Directors and the Ex-

ecutive Management Team. All these docu-

ments are available on the Company’s web-

site.

Following the regular review of the Company’s

compliance with the best corporate govern-

ance practices, the Board believes that the

Company put its best efforts to comply with:

• the applicable corporate governance princi-

ples;

• disclosure obligations concerning compli-

ance with corporate governance principles

defined in the WSE Rules;

• regulations on current and periodic reports

published by the Company as an issuer of

securities;

• defined in the WSE Rules;

• regulations on current and periodic reports

published by the Company as an issuer of

securities.

General Meeting of

Shareholders

The General Meeting of Shareholders is the

highest governance body of the Company,

having the broadest power to order, carry out,

or ratify all acts relating to the operations of the

Company. All the details about organizing and

functioning of the general meeting of share-

holders are listed in the Articles of Association

and Corporate Governance Charter. Both doc-

uments are published on the Company’s web-

site.

Extraordinary general meeting of share-

holders held on 1 July 2022:

• acknowledged the resignation of Mr. Sergei

Shibaev as a non-executive independent di-

rector of the Company with effect as of 12

March 2022 and granted him discharge for

the exercise of his mandate;

• appointed Mr. Andrii Miski-Oglu as a non-

executive independent director of the Com-

pany;

• acknowledged the resignation of Mrs.

Nathalie Bachich as non-executive inde-

pendent director of the Company with effect

as of 22 May 2022 and granted her dis-

charge for the exercise of her mandate;

• appointed Mrs. Daria Anna Danilczuk as

non-executive independent director of the

Company;

• amended Articles of Association.

Extraordinary general meeting of share-

holders held on 23 September 2022:

• approved the creation of an authorized

share capital of the Company, excluding the

current issued share capital, of an amount

of five million seven hundred three thou-

sand six hundred ninety-six US Dollars

(USD 5,703,696) consisting of two hundred

sixteen million (216,000,000) shares with-

out nominal value.

• granted authorization to the board of direc-

tors of the Company for a period of five (5)

years to, from time to time, issue shares, to

grant options to subscribe for shares, and to

issue any other instruments giving access

to shares within the limits of the authorized

capital to such persons and on such terms

as they shall see fit and specifically to pro-

ceed with such issue without reserving a

preferential right to subscribe to the shares

issued for the existing shareholders and it

being understood that any issuance of such

instruments will reduce the available author-

ized capital accordingly.

The annual general meeting held on 20 De-

cember 2022:

• approved the management report of the

Board of Directors, consolidated financial

statements of the Company and standalone

annual accounts of the Kernel Holding S.A.,

and the report of the independent auditor for

………………………………………………………………………………………………………………………………………………….

Share capital increase on 1 September 2023

Following the request of the Board to have an emergency financing option in case the circum-

stances in Ukraine require it, the extraordinary general meeting of shareholders held on 23

September 2022 created the authorized share capital and granted authorization to the Board to

issue new shares on such terms as the Board sees fit.

In the summer of 2023, while negotiating the third restructuring of the Group’s loan portfolio

during wartime in Ukraine, the Group’s creditors demanded equity support from the Company’s

shareholders in order to proceed with the restructuring of the loan portfolio. Following several

rounds of negotiations, the Group managed to reduce the amount of the demanded equity con-

tribution and agreed to initiate the equity raise of USD 60 million. On 22 August 2023, the Com-

pany announced the share offering to qualified investors – existing shareholders of the Com-

pany. As a part of the book-

building process, shareholders provided their subscription forms

which altogether determined (via the mechanism of a Dutch auction) the number of shares to

be issued and the issue price in such a way that the Company raised the necessary amount of

USD 60 million and completed the requirement of the creditors. Consequently, the Company

allotted 216,000,000 shares to several qualified investors (shareholders of the Company) at the

issue price of USD 0.2777 per share.

On 1 September 2023, the Board approved the results of the offering and the share capital

increase. These shares, all paid up in cash, were issued in the registered form and they will not

be admitted to trading on any securities exchange, given the Company’s pending delisting pro-

cess. Each share offers its holder a single voting right at the Company's general meeting of

shareholders. Additionally, each of these shares carries dividend rights congruent with the ex-

isting shares, except for the 6,602,000 share

s owned by the Company’s subsidiary Etrecom

Investments Limited which does not have voting or dividend rights.

As a result of the share capital increase, the number of Company’s shares issued increased to

300,031,230 shares.

These shares collectively represent 293,429,230 voting rights for the

Company's General Meeting, factoring in the 6,602,000 shares held by Etrecom Investments

Limited, which are devoid of voting rights due to their treasury share nature. The stake of Nam-

sen Limited increased to 91.61% of total shares issued, or 93.67% of shares with voting/divi-

dend rights.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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the year ended 30 June 2022;

• granted discharge to the directors of the

Company for the exercise of their mandates

in FY2022;

• acknowledged the resignation of Mrs. Pie-

ternel Boogaard as a non-executive inde-

pendent director of the Company with effect

as of 14 September 2022 and granted her

discharge for the exercise of her mandate;

• appointed Mr. Mykhailo Mishov as a non-

executive independent director of the Com-

pany;

• renewed the mandates of all directors and

approved the fees of executive and non-ex-

ecutive directors for the year ended 11 De-

cember 2023;

• Re-appointed PwC as an independent audi-

tor of the Company.

The next annual general meeting of share-

holders is scheduled for 11 December 2023.

All recent general meetings were held without

any physical presence of shareholders, as all

shareholders who had decided to attend the

meeting opted for direct electronic voting or in-

direct voting via the independent proxy.

All the documents and resolutions adopted by

the shareholder meetings are available on the

Company’s website.

Board of Directors

The Company is managed by the Board of Di-

rectors (the “Board”), which is the ultimate de-

cision-making body, except for the powers re-

served for the general meeting of sharehold-

ers by law, the Articles of Association, and the

Corporate Governance Charter. The Board is

vested with the broadest powers to perform all

acts of administration and disposition in com-

pliance with the Company’s corporate pur-

pose. The Board resolves to take its decisions

objectively, in the best corporate interest of the

Company. The Board is collectively responsi-

ble and accountable to the shareholders for

the proper conduct of the business, the long-

term success of the Company, the effective-

ness of the reporting system, and the corpo-

rate governance framework.

The responsibilities of the Board include ap-

proval and review of strategies and policies,

governance of the Company, and

management supervision. More detailed re-

sponsibilities are specified in the Company’s

Corporate Governance Charter.

All Directors are equally accountable for the

proper stewardship of the Company’s affairs.

The non-executive directors have a responsi-

bility to ensure that the business strategies

proposed are fully discussed and critically re-

viewed. This enables the Directors to promote

the success of the Company for the benefit of

its shareholders, while having regard to,

among other matters, the interest of employ-

ees, the fostering of business relationships

with customers, suppliers, and other stake-

holders, as well as promoting the impact of the

Company’s operations on the communities

and the environment in which the business op-

erates.

The Board approves every investment, divest-

ment, acquisition, disposal, and funding trans-

action exceeding in value 5% of the average

12 months trailing daily market capitalization

of the Company.

Board composition

The Board is composed of eight directors, five

of which are executive (including a Chairman)

and three are non-executive directors. Two

non-executive directors fulfill the criteria of be-

ing independent. None of the three non-exec-

utive directors have material relations with any

shareholder who holds at least 5% of the total

vote in the company.

There were several changes in the compo-

sition of the Board in FY2023. Specifically:

• The general meeting of shareholders held

on 1 July 2022 acknowledged the resigna-

tion of Mr. Sergei Shibaev and Mrs. Nathalie

Bachich from their mandate as non-execu-

tive independent directors and granted

them full discharge for the exercise of their

mandates.

• The general meeting of shareholders held

on 1 July 2022 approved the co-optation of

Mr. Andrii Miski-Oglu and Mrs. Daria Anna

Danilczuk and appointed them as non-ex-

ecutive independent directors of the Com-

pany.

• In September 2022, Mrs. Pieternel

Boogaard resigned from the Board due to

the lack of availability of D&O insurance,

which the Company was not able to extend

considering the lack of offers from insurers

to take Ukrainian risks. The Board acknowl-

edged the resignation of Mrs. Pieternel

Boogaard with effect as of 14 September

2022 and approved the co-optation of Mr.

Mykhaylo Mishov as a new non-executive

director of Kernel Holding S.A. as the re-

placement of Mrs. Pieternel Boogaard. Mr.

Mykhaylo Mishov has experience in con-

sulting, including Ernst & Young, Deloitte,

and KPMG, leading numerous strategy and

performance improvement projects for agri-

business clients. The annual general meet-

ing of shareholders held on 20 December

2022 approved the co-optation of Mr.

Mykhailo Mishov and appointed him as a

non-executive independent director of the

Company.

New appointments bring a wealth of fresh ex-

pertise and perspectives to the Company's

governance. These additions are expected to

have a positive impact on the Company's per-

formance. Furthermore, these appointments

play a crucial role in enhancing the diversity of

the Board.

Our non-executive directors are highly experi-

enced and influential individuals hailing from

diverse industries and countries. They bring a

well-rounded blend of skills and extensive

business acumen to the Board and its various

Committees, contributing significantly to their

effective operation.

The mandate of the Chairman expires at the

annual general shareholder meeting in De-

cember 2025. The mandates of all other direc-

tors expire at the annual general shareholder

meeting in December 2023.

The Nomination & Remuneration Committee

regularly reviews the composition of the Board

to ensure that the Board has an appropriate,

diverse, and balanced mix of competencies,

skills, experience, background, and

knowledge of the Company’s affairs. Key prin-

ciples governing the processes of nomination,

appointment, and re-election of Directors are

described in the Company’s Corporate Gov-

ernance Charter, published on the Kernel’s

website.

Composition of the Board of Directors as of

27 October 2023

63%

38%

Male

Female

Gender

13%

75%

13%

30-40

41-50

51+

Age

38%

13%

50%

less than 5 years

5-10 years

more than 10 years

Tenure

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Effective and experienced leadership

Kernel Holding S.A. is governed by the Board of Directors composing of

eight members, including three non-executive directors

, two of whom are

independent)

. Key information on Directors is as follows (with further details available on Company’s website).

Andrii Verevskyi, 49

Chairman of the Board, Founder

Andrii Miski-Oglu, 46

Independent non

-executive director

Tenure: 16 years

Skills and experience:

Founded the Group’s business in 1995,

holding various executive positions within

the Group. Presently, he oversees the stra-

tegic development and overall manage-

ment of the Group.

Board Committee:

Nomination & Remuneration Committee

Tenure: 2 years

Skills and experience:

21 years’ experience in public ac-

counting and audit in EY, involved in

major EY Global audit

related initia-

tives. Andrii is Certified Public Ac-

countant in the US since 2011 and a

member of The American Institute of

Certified Public Accountants

(AICPA).

Board Committee: Chairman of the

Audit Committee

Nomination & Re-

muneration Committee

Daria Danilczuk, 36

Non

-executive director

Mykhaylo Mishov, 41

Independent non

-executive director

Tenure: 2 years

Skills and

experience:

Agricultural commodity broker, specialized

in Black Sea commodity markets, experi-

enced in international trade and biofuels

trade and regulatory framework.

Board Committee:

Chair

woman of the

Sustainability Commit-

tee,

Audit Committee

Tenure: 2 years

Skills and experience:

Mr. Mishov has over 1

years’ expe-

rience in consulting, including Ernst &

Young, Deloitte and KPMG, leading

numerous strategy and performance

improvement projects for agribusi-

ness clients.

Board Committee:

Chairman of the Nomination & Remu-

neration Committee, Audit Commit-

tee, Sustainability Committee

Viktoriia Lukianenko, 47

Executive Director

Yevgen Osypov, 47

Chief

Executive Officer

Tenure: 16 years

Skills and

experience:

s. Lukianenko is responsible for provid-

ing legal advice and counseling in all as-

pects of Kernel’s business operations.

Board Committee:

None

Tenure: 6 years

Skills and experience:

Mr. Osypov

is responsible for the day

day management of the Com-

pany’s subsidiaries, execution of

strategy, budgets, and Board deci-

sions. He completed several educa-

tional programs in Harvard Business

School.

Board Committee: Sustainability

Committee

Anastasiia Usachova, 52

Executive Director

Yuriy Kovalchuk, 42

Corporate

Investment Director

Tenure: 16 years

Skills and experience:

rs. Usachova

is responsible for the overall

financial oversight of Kernel. She

holds a

MBA degree from IMD (Switzerland).

Board Committee:

None

Tenure: 12 years

Skills and experience:

Mr. Kovalchuk contributes to strategy

formulation and is responsible for the

executi

of investment projects.

Yuriy has been a Fellow with Associ-

ation of Chartered Certified Account-

ants (FCCA), since September

2013.

Board Committee:

None

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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Board diversity

Diversity among the Directors makes the

Board high-performing and efficient, serving

the best interests of the Company. The diver-

sity within the Board is enhanced by Kernel’s

Diversity, Equality, and Inclusion Policy, which

was adopted by the management back in

2018, and then specified and adopted by the

AGM on 10 December 2021. The policy is

constantly considered by the N&R Committee

of the Board and by the Executive Manage-

ment Team when making employee and man-

agement appointment decisions.

The Company benefits from diversity in:

• gender (37.5% female Directors, above the

minimum 30% threshold recommended by

the Best Practice for WSE Listed Compa-

nies 2021);

• age and tenure;

• professional experience (industry and op-

erations expertise, soft commodities trad-

ing, finance and audit, banking and invest-

ments, sustainability, legal, among others);

• nationality and culture (while the majority

of Directors are Ukrainians, we also have

one citizen of Poland and residents of the

US on the Board of Directors).

The Directors consider the diversity among

Board members while evaluating the Board’s

effectiveness. During the annual Board self-

evaluation process conducted in FY2023,

most directors recognized the sufficient range

of expertise, attitudes, and external relation-

ships among the Board members.

Directors’ independence

Each non-executive director annually provides

the other members of the Board with a state-

ment of meeting the independence criteria in-

dicated in Annex II of the European Commis-

sion Recommendation of 15 February 2005.

The statements are published on the Com-

pany’s website.

As per statements received in 2023, two out of

three non-executive directors met the inde-

pendence criteria.

Conflict of interest

A Corporate Governance Charter adopted in

May 2018 pays special attention to disclosing

conflicts of interest among Board members.

Any Director having a direct or indirect conflict

of interest must inform the Board thereof and

shall refrain from deliberating or voting on the

relevant item of the agenda. Any conflict of in-

terest should be properly declared and docu-

mented.

Members of the Board shall refrain from pro-

fessional or other activities which might cause

a conflict of interest or adversely affect their

reputation as members of the governing

bodies of the Company, and where a conflict

of interest arises, immediately disclose it.

The following non-exhaustive list is an exam-

ple of the duties that shall be followed by the

Directors:

• duty not to accept any benefits from third

parties, which may give rise to personal fi-

nancial interest and/or gain;

• duty to disclose any interest in a proposed

transaction or arrangement with the Com-

pany and a separate and independent duty

to disclose any arrangement with the Com-

pany; and

• duty to avoid conflicts of interest unless au-

thorized.

There were 6 cases of conflict of interest de-

clared by Directors in FY2023:

• at 4 Board meetings related to the discus-

sion and the approval of the delisting of the

Company, the Chairman of the Board de-

clared a conflict of interest and abstained

from voting on any related decisions;

• two directors declared conflicts of interest

and abstained from voting for the Board de-

cisions related to the appointment of new

members of the Executive Management

Team.

As of October 2023, non-executive directors

occupied the following positions in companies

outside Kernel:

• Mrs. Daria Danilczuk is a commodities bro-

ker and trading expert at JDI Brokers, Swit-

zerland.

• Mr. Mykhaylo Mishov is Supply Chain Strat-

egy Lead at SC Johnson, Chicago, United

States.

• Mr. Andrii Miski-Oglu does not occupy posi-

tions in companies outside Kernel at the

date of publication of this report. In FY2023,

he was the business analysis lead (data an-

alytics, EY technology) at the EY Chicago

office, United States.

Board committees

The Board has three committees appointed

among its members:

• Audit Committee;

• Nomination & Remuneration Committee

(hereinafter “N&R Committee”);

• Sustainability Committee.

The Board believes this structure is sufficient

to ensure its efficient performance of duties

and tasks, as certain specific matters are dis-

cussed first by specialized bodies with explicit

professional experience, and only then con-

sidered by the Board.

The Board regularly reviews the necessity of

establishing new committees, striving to adapt

to the changing needs of the business. Follow-

ing the regular annual review in July 2023, the

Board concluded that there is no need to es-

tablish new committees at the moment, but

decided to discuss establishing of a Risk com-

mittee at a later stage, as such a step requires

additional preparations.

Board self-evaluation

Following the best standards of corporate gov-

ernance, the Board regularly undertakes a for-

mal self-evaluation of its performance and ef-

fectiveness as a collective body, operating ef-

ficiency, composition, organizational struc-

ture, compliance with the rules of good gov-

ernment, and relationship with the executive

management and other stakeholders. The sur-

vey conducted in FY2023 identified no major

issues concerning the items mentioned above.

The Board recognized the quality and timeli-

ness of the information provided to the Board,

the quality of the Board practices and meet-

ings, the appropriate composition of the

Board, adequate Board roles and responsibil-

ities, properly established committee prac-

tices, etc.

Independent advice

All directors can consult with the corporate

secretary, who is available to provide assis-

tance and information on governance, corpo-

rate administration, and legal matters as ap-

propriate. The Directors may also seek advice

on such matters, or other business-related

matters relating to the performance of their du-

ties, directly from independent professional

advisors, if so desired, at the Company’s ex-

pense.

Board activity report

The Board held fourteen meetings in FY2023,

including one physical meeting in Luxembourg

and thirteen meetings via teleconference. The

average attendance rate for all directors was

92% for the reporting period.

Typically, at each meeting, the Chairman of

the Board together with other executive direc-

tors reports on the strategy implementation

and presents recent developments and man-

agement accounts. The work plan (minutes

and circular resolutions) of the Board for

FY2023 included, among others, the following

items:

• review of the impact of the Russian war

against Ukraine on the Company’s opera-

tions;

• review of the Company’s mid-term strategy

and approval of budget; review of cash flow

forecasts;

• review and approval of annual, semi-an-

nual, and quarterly accounts; review of op-

erations updates;

• review of management accounts and fi-

nancing transactions;

• convening annual and extraordinary

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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general meetings of shareholders;

• review of corporate-governance-related

questions;

• supervision of the risk management pro-

cess: approval of top risks for the Company

and mitigation plan, review of reports on top

risks mitigation activities; update on imple-

menting the risk management system; re-

view of risk limits; review of outstanding le-

gal cases;

• updates from Audit Committee, N&R Com-

mittee, and Sustainability Committee;

• review of the performance of the Group sus-

tainability function;

• selection and nomination of new

independent non-executive directors and

members of the Executive Management

Team, appointment of members of the

Board committees;

• approvals of financing and investment

transactions; M&A updates;

• matters related to the delisting of the Com-

pany from the Warsaw Stock Exchange;

• discussions of the share capital increase

transaction;

• various ad-hoc items and other corporate

decisions.

Executive Management Team

The Executive Management Team is

responsible for the overall financial and oper-

ating results of the Company’s subsidiaries,

heading operating segments and providing

support functions on a daily basis. The Exec-

utive Management Team focuses on strategy

implementation, financial and competitive per-

formance, commercial and technological de-

velopments, succession planning, and organi-

zational development.

The Executive Management Team is headed

by the Chief Executive Officer (the “CEO”),

who is appointed and removed by the Board

and reports directly to the latter. The CEO is

responsible for the day-to-day management of

Compensation structure of the Executive Management Team

Fixed

remuneration

Members of the Executive Management Team receive a base salary determined at the discretion of the Board of Directors,

commensurate with the respective position and the individual profile of the relevant members in terms of qualifications, skill

set, and experience. All amounts are fixed and shall be paid monthly. In FY2023, the aggregated base salary for 15 members

of the Executive Management Team amounted to USD 2,683 thousand paid by the subsidiaries of the Company.

Variable

remuneration

An annual variable monetary bonus (if applicable) is paid as well. Such bonus is determined by the formula approved by the

Board of Directors upon the recommendation of the N&R Committee. The bonus shall reward the members of the Executive

Management team for the financial performance of the Group, which derives from the financial performance of each of its

subsidiaries where each respective member of the Executive Management Team is employed or has contractual obligations.

The structure of the variable remuneration is as follows:

• The bonus pool for 13 members of the Executive Management Team (the “Bonus Pool”) is expressed as a percentage of

the consolidated EBITDA of the Group less the consolidated financial costs of the Group (“EBITDA Less Finance Costs”),

with a minimum threshold level of USD 123 million required to activate the pay-out. The Bonus Pool as a percentage of

EBITDA Less Finance Costs is gradually increasing starting from 0.46% of EBITDA Less Finance Costs in case EBITDA

Less Finance Costs exceeds USD 123 million and reaching 3.66% of EBITDA Less Finance Costs in case EBITDA Less

Finance Costs exceeds USD 443 million. The exact allocation of the Bonus Pool between the relevant members of the

Executive Management Team is determined by the N&R Committee.

• Two members of the Executive Management Team have different metrics determining their variable remuneration, includ-

ing the financial results of the business divisions they lead, the Group EBITDA and personal key performance indicators.

The variable remuneration is paid by the subsidiaries of the Company for duties and services provided by members of the

Executive Management Team to subsidiaries of the Company. In FY2023, the aggregated variable remuneration for 15 mem-

bers of the Executive Management Team amounted to USD 17,902 thousand to be paid by the subsidiaries of the Company.

Long-term

management

incentive

plan

Seven members of the Executive Management Team are subject to the long-term management incentive plan which shall

reward such members of the Executive Management Team for accomplishing individual performance goals related to the

duties and services provided by such individuals to subsidiaries of the Company, altogether contributing to the better financial

and non-financial results of the group of companies to which the Company belongs over the long-term period and aligning

the interests of the Executive Management Team with those of the shareholders of the Company. The long-term management

incentive plan is duly reviewed by the N&R Committee and approved by the Board of Directors after the generic terms thereof

having been approved by the general meeting of shareholders. Seven members of the Executive management team are

granted with put options providing the right but not the obligation to sell a fixed number of Company’s shares owned by

management at the moment at Put Price during the exercise period:

• exercise period shall commence on 1 November 2024 and end on 31 December 2025 (or in certain cases 31 December

2026), if no put options are exercised during Exercise Period, then such put options shall lapse. Put option also provides

for acceleration events which dictate that the put options may be exercised before the commencement of the exercise

period if the following events occur: 1) the cessation of trading of Company's shares at the Warsaw Stock Exchange or

any other recognized stock exchange; or 2) a change of control event where the shareholding of Namsen Limited or its

ultimate beneficial owner in Kernel's total votes falls below twenty five percent (25%). In such cases, put options may be

exercised only after 12 months following the occurrence of the relevant events.

• Put Price is determined as lower of (1) USD 23.80; or (2) operating profit before working capital changes minus interest

paid plus interest received minus interest tax paid, minus maintenance capital expenditures in the fixed amount of USD

155,000,000, where all amounts, except for the maintenance capital expenditures, are specified in USD in the relevant

paragraph of the consolidated statement of cash flows of the audited annual consolidated accounts of the Company and

its subsidiaries for the Financial Years 2022-2024, divided by 3 divided by 12% and divided by 84,031,230.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Corporate Governance continued

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

the Company’s subsidiaries, execution of

strategy, budgets, and Board decisions. The

CEO delegates his/her responsibilities to the

other members of the Executive Management

Team.

The Executive Management Team consists of

15 professionals including the CEO, benefit-

ting from the diversity among its members. All

the members of the Executive Management

Team other than the CEO are appointed and

removed, as applicable, by the Board upon

proposal by the N&R Committee after prior

consultation with the CEO, save where he is

subject to the procedure. As such, in FY2023

the Board:

• acknowledged the resignation of Mrs. Ana-

stasiia Usachova from her mandate as

Chief Financial Officer of the Group (as a

member of the Executive Management

Team) with effect as of 5 May 2023;

• acknowledges the resignation of Mrs.

Viktoriia Lukianenko from her mandate as

Chief Legal Officer of the Group (as a mem-

ber of the Executive Management Team)

with effect as of 25 April 2023;

• resolved to appoint Mr. Sergiy Volkov as a

new Chief Financial Officer of the Group (as

a member of the Executive Management

Team) with effect as of 8 May 2023;

• resolves to appoint Mr. Artem Filipyev as

the new Chief Legal Officer of the Group (as

a member of the Executive Management

Team) with effect as of 26 April 2023.

The full list of the members of the Executive

Management Team, including short biog-

raphies for each member is available on the

Company’s website.

Responsibilities of the Executive Management

Team are described in more detail in the Com-

pany’s Corporate Governance Charter, avail-

able on the Company’s website.

There are various committees operating on

the Executive Management Team level, in-

cluding the Strategic Committee, the Invest-

ment Committee, the Trade Committee, and

the Risk Committee.

Remuneration report

This remuneration report is published in ac-

cordance with article 7ter of the same law, the

Luxembourg law of 24 May 2011 on the exer-

cise of certain rights of shareholders at gen-

eral meetings, as amended.

The compensation principles for the Board

and the Executive Management Team are

specified in the Remuneration Policy of the

Company. The Group pays remuneration to

the Board and the Executive Management

Team only in accordance with the Remunera-

tion Policy. The Remuneration Policy must be

submitted to a vote by the general meeting at

every material change and, in any case, at

least every four years.

The EGM held on 30 August 2021:

• approved a new long-term management in-

centive plan in the form of share put option

agreements; and

• approved the Remuneration Policy, follow-

ing the requirements of Article 7bis of the

Luxembourg law of 24 May 2011 on the ex-

ercise of certain rights of shareholders at

general meetings, as amended.

ESG-linked KPIs historically have not been in-

tegrated into the compensation schemes of

the Board and the Executive Management

Team. However, throughout FY2023, the

Group developed a set of ESG-linked KPIs to

apply to the compensation of six members of

the Executive Management team starting from

FY2024 (see details in TCFD disclosure sec-

tion of the Sustainability report).

Remuneration of the Board

Compensation of the Directors of the Com-

pany is comprised only of the fixed fees paid

for the services provided by the Directors in

their capacity as members of the Board of Di-

rectors of the Company. There is no perfor-

mance-based variable component, pension,

retirement, or similar benefits provided by the

Company. This ensures a certain degree of in-

dependence when it comes to fulfilling the

Board’s duties towards the Executive Man-

agement Team. On top of that, Directors are

reimbursed for certain travel, hotel, and other

expenses related to the exercise of their du-

ties. The fees paid to the independent direc-

tors and the fees paid to executive directors

are approved at the annual general sharehold-

ers’ meeting. See more details on the remu-

neration of the Board in the Remuneration Pol-

icy of the Company.

Two executive Directors in their capacity as

members of the Executive Management Team

also receive compensation for their services

provided to subsidiaries of the Company, with

such compensation being paid by the subsidi-

aries of the Company. Two other executive Di-

rectors not being members of the Executive

Management Team receive compensation for

occupying executive positions at the Com-

pany’s subsidiaries.

Remuneration of the Executive Man-

agement Team

Compensation of the members of the Execu-

tive Management Team (15 people in total) is

based on a pay-for-performance principle, re-

warding sustainable growth and long-term

value creation for shareholders of the Com-

pany. A significant portion of the remuneration

comes from a variable part depending on the

Group’s consolidated financial performance.

For details, please see the figure above.

The principles of the remuneration of the Ex-

ecutive Management Team are specified in

the Remuneration Policy.

Members of the Executive Management Team

are not granted any pension, retirement, or

similar benefits provided by the Company,

apart from those required by the law.

The Company believes that the Remuneration

Policy strongly contributes to the long-term

shareholder value creation and the Com-

pany’s stability.

Nomination and Remuneration Com-

mittee

The Nomination and Remuneration Commit-

tee is a continuously operating collective body

of the Board. It is established from among the

members of the Board and consists of three

members, including a chairman elected by the

members of the N&R Committee amongst

themselves. The majority of the members of

the N&R Committee (including the chairman)

are non-executive independent Directors.

………………………………………………………………………………………………………………………………………..............

Remuneration of the Board of Directors

USD thousands

FY2019

FY2020

FY2021

FY2022

FY2023

Chairman of the Board

200

Other executive Directors

Non-executive Directors

260

275

240

Total Board of Directors

500

515

480

Excluding reimbursement of travelling expenses incurred by Directors in performing their duties.

………………………………………………………………………………………………………………………………………..............

Remuneration of the Executive Management Team

USD thousands

FY2019

FY2020

FY2021

FY2022

FY2023

Total remuneration

5,518

8,834

29,334

8,492

20,585

Base salary

2,419

2,508

2,834

2,949

2,683

Short-term variable bonus

3,099

6,326

26,500

5,543

17,902

Number of executive managers

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Corporate Governance continued

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Corporate

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Financial

Statements

The role of the N&R Committee is to assist the

Board in fulfilling its responsibilities by review-

ing, advising, and making recommendations

to the Board, the Chairman, and the CEO on

the nomination to the Board and Executive

Management Team and their remuneration.

The N&R Committee assists the Board in

nominating and assessing candidates for both

directorship and managerial positions, estab-

lishing and reviewing the compensation princi-

ples specified in the Remuneration Policy. The

N&R Committee ensures that only persons

with adequate competencies, experience, and

skills are appointed to the Board. The N&R

Committee also supports the Board in prepar-

ing the Board’s remuneration proposals for the

shareholders’ general meeting. A detailed list

of N&R Committee responsibilities is available

in the Corporate Governance Charter, pub-

lished on the Company’s website.

Nomination and Remuneration Com-

mittee’s activity report

The N&R Committee held four meetings dur-

ing the reporting period, discussing the nomi-

nation of the new Director, the performance of

the CEO and the Executive Management

Team, the remuneration of the executive man-

agement team and transactions within the

management incentive plans, and nomination

of new members of the Executive Manage-

ment Team.

On the additional meeting held in October

2023, the N&R Committee settled on the Ex-

ecutive Management Team compensation for

FY2023 standing at USD 20,585 thousand (in-

cluding a bonus of USD 17,902) for 15 key ex-

ecutives, as compared to the total compensa-

tion of USD 8,492 thousand (including a bonus

of USD 5,543) a year ago for 15 executives.

Accountability and audit

Going concern

The Group’s business activities, together with

the factors affecting its performance, position,

and future development are set out in the stra-

tegic report on pages 1-44.

The financials of

the Group, its liquidity position, borrowing fa-

cilities, and applicable terms are described in

the financial statement’s accounts.

Current economic conditions have fostered

the development of several risks and uncer-

tainties for the Company, in particular, related

to the war in Ukraine (see details in the Risks

and Uncertainties section of this report).

The Directors have reviewed the current and

projected financial position of the Company,

making reasonable assumptions about the fu-

ture trading and production performance, as

well as the debt requirements. The results

show that the Company should be able to

operate within the levels of its available

capital. Therefore, the Board has a reasona-

ble expectation that the Company has ade-

quate resources to continue in operational ex-

istence for the foreseeable future. Accord-

ingly, the Board continues to adopt the going

concern basis in preparing the annual report

and accounts.

Takeover disclosure

The Company’s shares are in electronic form

(84,031,230 shares) and registered form

(216,000,000 shares) and are freely transfer-

able, subject only to the provisions of law and

the Company’s Articles of Association. There

are no agreements between the Company and

its employees or directors providing for com-

pensation for the loss of office or employment

(whether through resignation, purported re-

dundancy, or otherwise) that would occur be-

cause of a takeover bid. Put options granted

under management incentive plans incorpo-

rate accelerated vesting in the event of a take-

over.

The Company in the ordinary course of busi-

ness has entered into various agreements

with customers and suppliers around the

world. Some of the Company’s borrowing

agreements, which either by their nature or

value may represent significant agreements,

do provide for the right of termination upon a

change of control of the Company. The com-

mercial sensitivity of these agreements pre-

vents their details from being disclosed.

Except for the preceding disclosure, there are

no other significant agreements to which the

Company is a party that take effect, alter, or

terminate upon a change of control following a

takeover of the Company.

Audit Committee

The Audit Committee is a continuously oper-

ating collective body of the Board. It consists

of three members including a chairman, all of

whom are non-executive directors and two of

whom meet the independence criteria. The

members have competence in accounting and

audit, and competence relevant to the sector

in which the company is operating. The Audit

Committee is fully capable of overseeing the

affairs of the Company in the areas of ade-

quacy and effectiveness of the Kernel’s sys-

tem of financial reporting, corporate govern-

ance, internal controls, and risk management.

The functioning and key responsibilities of the

Audit Committee are described in the Articles

of Association and further specified in the Cor-

porate Governance Charter.

Audit Committee activity report

The Audit Committee had nine meetings in

FY2023, all of which were via teleconference.

The average attendance rate for all Directors

was 89% for the reporting period.

The Chief Financial Officer was invited and at-

tended all the meetings of the Audit Commit-

tee. Additionally, the Audit Committee invited

the CEO, head of internal audit, compliance

officer, sustainability manager, and head of re-

porting and controls to its meetings. The rep-

resentatives of the external auditor (PwC)

were invited and attended six meetings of the

Audit Committee. During its meetings, the Au-

dit Committee had one closed session with the

external auditor and one session with the in-

ternal auditor to communicate without the

presence of executives. Additionally, the deci-

sions of the Audit Committee were taken via

two circular resolutions signed throughout

FY2023.

To execute its key functions and discharge its

responsibilities as outlined in the Corporate

Governance Charter, the Audit Committee,

during FY2023:

• assisted the Board in monitoring the relia-

bility and integrity of the financial infor-

mation provided. The committee reviewed

the consolidated quarterly, semi-annual,

and annual financial reports of the Group,

standalone annual accounts of the Com-

pany, Avere financial statements, reviewed

critical accounting policies and manage-

ment estimates, among other things;

• conducted oversight over the perfor-

mance of the internal audit function, in-

cluding the review of the internal audit activ-

ities and action plans and reports;

• conducted oversight over the perfor-

mance of the external audit function in-

cluding review of the annual audit plan and

scope of semiannual accounts review and

areas of focus, review of auditor reports,

presentations and additional auditors’ re-

port, and management letter review. The

Audit Committee had one face-to-face dis-

cussion with the external auditors in the ab-

sence of executives. The Audit Committee

monitored the fee cap of non-audit services,

and reviewed the contract with auditors (in-

cluding a review of expected fees for the au-

dit and consulting services) and the inde-

pendence of the external auditor;

• conducted oversight over the risk man-

agement function. The Audit Committee

assisted the Board in the discharge of its

risk management responsibilities, monitor-

ing and examining the effectiveness of the

Company’s internal control and risk moni-

toring system; reviewing top risks, risk miti-

gation plans, and results of risk mitigation

activities, overseeing group risk manage-

ment procedures; reviewing trade manage-

ment position risk mitigation activities (in-

cluding Avere); review of climate physical

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

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nel.ua

Corporate Governance continued

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

and transitional risks relevant to Kernel’s

operations;

• conducted oversight over the compliance

function, including implementation of the

Corporate Governance Charter provisions,

compliance with good corporate govern-

ance practices concerning the functioning

of the Audit Committee, and reviewing re-

ports from the Kernel Compliance Officer on

the progress achieved in the enhancement

of the Company’s compliance function;

• discussed various ad-hoc items.

After each meeting, the chairman of the Audit

Committee reports to the Board on key mat-

ters discussed.

Throughout FY2023, the Audit Committee

conducted an annual self-evaluation proce-

dure, which indicated potential areas of Audit

Committee performance and activities im-

provement and resulted in a clear action plan

based on the results of the self-evaluation pro-

cedure.

Additionally in FY2023, the Audit Committee

conducted the assessment of the efficiency of

internal control, risk management and compli-

ance systems, and internal audit function. The

Audit Committee agreed that the overall as-

sessment of the internal control and risk man-

agement system is rather effective, the overall

assessment of the compliance system is ef-

fective, and the overall assessment of the in-

ternal audit function is effective.

Internal audit

As an integral part of the system of internal

control, the Company has an internal audit de-

partment headed by an experienced profes-

sional reporting directly to the Board of Direc-

tors via the Audit Committee and to the CEO

of the Company as a chairman of the Risk

Committee within the Executive Management

Team, and working closely with the Board. In-

ternal audit is a separate independent unit in

the Group’s organizational structure.

The Internal Audit provides independent and

objective assurance and consulting services in

the areas of corporate governance, internal

controls, and risk management, aimed at im-

proving the operations and performance of the

Company and its subsidiaries. The efficient in-

ternal audit function is adequate to the size of

the Company and the type of and scale of the

Company’s activities.

The Independence rules defined in generally

accepted international standards of the pro-

fessional internal audit practice apply to mem-

bers of the internal audit department.

The main responsibilities of the internal audit

are:

• to maintain continuous support for the Di-

rectors on risk management, internal con-

trols, and mitigation activities by undertak-

ing regular or ad hoc reviews;

• to provide an independent and objective

evaluation of the effectiveness and effi-

ciency of corporate governance, internal

control, and risk-management systems

within the operational framework of the

Company;

• to assist personnel and management of the

Company in improving the effectiveness of

risk identification and internal control sys-

tems in operations; advise and consult them

regarding how to effectively execute their

responsibilities, including recommendations

on specific improvements in policies and

procedures; and

• to assist in open and two-way communica-

tion among internal and external auditors,

management and personnel, the Audit

Committee, and the Board.

The Head of internal audit regularly presents

the results of its work to the Audit Committee,

including communication with the members of

the committee in the absence of executives.

External audit

PwC Société cooperative (“PwC”), with its reg-

istered office at 2, rue Gerhard Mercator B.P.

1443 L-1014 Luxembourg and register num-

ber B 65 477 with the Luxembourg Trade and

Companies Register, acts as an external au-

ditor of Kernel’s consolidated and standalone

accounts since FY2022.

PwC attended six meetings of the Audit Com-

mittee in FY2023, presenting the review of the

semi-annual accounts, and audit plan for

FY2023, and presenting to the Audit Commit-

tee the approach to accounting and audit of

various business operations, among other

things. The Audit Committee review and mon-

itor the level of fees paid by the Company to

the external auditor, preapprove permissible

non-audit services, and monitor the cap on

non-audit fees.

Remuneration to auditors in FY2023

amounted to USD 781 thousand (including

USD 196 thousand non-audit services), as

compared to USD 783 thousand in FY2022

(including 257 thousand non-audit services).

Sustainable development

The sustainability function at Kernel is gov-

erned by the Board via a special Sustainability

Committee, which has the purpose of over-

seeing the overall performance of the sustain-

ability corporate function of the Company and

the Group; ensuring the implementation of the

environmental, social, and sustainability gov-

ernance agendas across all business opera-

tions; and connect these agendas with the

Group’s strategy, business objectives, and

capital allocation decisions.

The Sustainability Committee had one meet-

ing during the reporting period, discussing the

following:

• update on various business opportunities

related to the sustainability function and cli-

mate change;

• CDP scoring results and areas for improve-

ment.

At the meeting held in July 2023, the Sustain-

ability Committee discussed business oppor-

tunities related to the sustainability function

and climate change and discussed the EY

summary presentation related to the project

“Climate Corporate Governance and Low-

Carbon Pathway”.

Business ethics and

compliance

Kernel has embedded strong ethical stand-

ards in the Company’s everyday operations,

as outlined in the Code of Conduct. Addition-

ally, the AGM held on 10 December 2021 ap-

proved the Diversity, Equality, and Inclusion

Policy of the Company and its subsidiaries.

In December 2016, Kernel initiated a Corpo-

rate Compliance Program (“CCP”) – an ac-

tion plan to bring the Company’s compliance

system in accordance with the best interna-

tional standards. Progress on CCP implemen-

tation was monitored each quarter by Baker

Tilly, with the final report presented in summer

2019, after completion of the CCP in June

2019. Baker Tilly recognized significant pro-

gress achieved in the implementation of Ker-

nel’s Compliance Program due to the actual

execution of both internal and external control

activities, also highlighting the aspects for fur-

ther continuous improvement.

Since 2017, the compliance function within

Kernel has been headed by a dedicated Com-

pliance Officer, who reports directly to the

CEO and Board of Directors via the Audit

Committee of the Board, as well as attends all

Audit Committee meetings and reports on the

……………………………………………………………………..

External auditor’s fees

D thousand

659

739

717

526

585

249

294

257

196

659

988

1,011

783

781

FY2019 FY2020 FY2021 FY2022 FY2023

Non-audit services Audit fees

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Corporate Governance continued

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

functioning of compliance system and compli-

ance controls not less than twice per year.

We continue to pay great attention to mutual

relations with counterparties. The counter-

party’s risk identification is carried out based

on risk appetite and assessment metrics for

trustworthiness, corruption, and sanctions

risks. Anti-corruption and anti-sanctions

clauses are included in all contracts with coun-

terparties. These clauses consider both na-

tional and foreign legislation requirements in

connection with the Russian war invasion of

Ukraine. Also, we have updated our anti-cor-

ruption provisions to reflect changes in na-

tional legislation, strengthened controls, en-

hanced counterparty due diligence processes

and contract templates, and made changes to

the Anti-Corruption and Sanctions Clauses.

Since 2019 Kernel has been a member of the

Ukrainian Network of Integrity and Compli-

ance (UNIC) and a signatory of the UN Global

Compact and the Memorandum of UN Collec-

tive Action to Combat Corruption. These plat-

forms are effective for sharing best practices

in preventing corruption between companies

and promoting a corporate culture of integrity

in the agricultural sector.

Kernel continues to share compliance best

practices with the market. Together with re-

sponsible Ukrainian businesses, we worked

on materials for the video course "Anti-corrup-

tion" about the importance of anti-corruption

processes for maintaining a healthy economy

in the country.

Over the past few years, Kernel has been tak-

ing ongoing steps to promote gender equality

and inclusion. The company actively creates

and supports favorable workplaces. Gender

diversity and equality are very important.

Treating everyone with dignity and honesty is

the basis of the company's values Kernel con-

tinues to work on balancing gender asym-

metry in various areas of the company's life.

The compliance at Kernel is focused on the

following areas:

• preventing fraud, corruption, and other

misconduct (see details in section Anti-cor-

ruption);

• managing risk of cooperation with unre-

liable counterparties and international

sanctions. Compliance officer and security

department check business partners for

compliance risks: sanctions, corruption,

money laundering, terrorism financing;

• making company activities compliant with

various external initiatives (GDPR, United

Nations Global Compact, equality, diversity,

and inclusion initiatives, etc.);

• compliance by employees with internal

documents, including the Code of

Conduct, Policy for managing conflicts of in-

terest, combating fraud and corruption, and

other internal documents on compliance.

The compliance officer leads the compli-

ance incident management processes for

all interested parties.

We have a compliance risk management sys-

tem. We assessed compliance risks in 19 risk

areas and introduced the necessary compli-

ance controls in business processes to miti-

gate the most significant risks. We regularly

assess our compliance with internal standards

of conduct and take corrective actions accord-

ingly.

To increase employee awareness of business

ethics, we have a special e-learning course on

the Code of Conduct. All new employees shall

reach a minimum 80% pass rate when

onboarding.

Additionally, questions related to business

ethics and compliance are discussed on the

risk committee of the Executive management

team.

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

www.ker

nel.ua

Statement of the Board of Directors’ Responsibilities for the

Preparation and Approval of the Consolidated Financial

Statements

for the year ended 30 June 2023

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The Board of Directors is responsible for the preparation, publishing and fair presentation of the consolidated financial statements in accordance

with Luxembourg legal and regulatory requirements relating to the preparation and presentation of the consolidated financial statements, and for

such internal control as the Board of Directors determines is necessary to enable the preparation of consolidated financial statements that are free

from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, the Board of Directors is responsible for assessing the Group’s ability to continue as a going

concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Board of Directors

either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

We confirm that to the best of our knowledge and belief:

• The consolidated financial statements of Kernel Holding S.A. (the ‘Company’) presented in this Annual Report and established in conformity with

International Financial Reporting Standards as adopted by the European Union give a true and fair view of the consolidated statements of

omprehensive income, changes in equity and cash flows for the year that ended, and notes to the consolidated financial statements, including

a summary of significant accounting policies; and

• The Directors Report includes a fair review of the development and performance of the business and position of the Company and the

undertakings included within the consolidation taken as a whole, together with a description of the principal risks and uncertainties it faces.

27 October 2023

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova Sergiy Volkov

Chairman of the Board of Directors Director Chief Financial Officer of Kernel Holding S.A.

group of companies

www.ker

nel.ua

Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

Selected Financial Data

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

USD

PLN

EUR

30 June

2023

30 June

2022

30 June

2023

30 June

2022

30 June

2023

30 June

2022

Revenue

3,455,121

5,331,545

15,483,636

21,848,138

3,306,205

4,734,412

II.

Profit from operating activities

439,460

90,667

1,969,378

371,544

420,519

80,512

III.

Profit/(Loss) before income tax

367,824

(43,481)

1,648,351

(178,181)

351,971

(38,611)

IV.

Profit/(Loss) for the period

298,774

(40,700)

1,338,913

(166,785)

285,897

(36,142)

Net cash generated by/(used in) operating activities

716,132

(305,464)

3,209,245

(1,251,761)

685,267

(271,252)

VI.

Net cash generated by/(used in) investing activities

9,576

(293,689)

42,913

(1,203,508)

9,163

(260,796)

VII.

Net cash (used in)/generated by financing activities

(219,181)

472,869

(982,229)

1,937,770

(209,734)

419,908

VIII.

Total net cash flow

506,527

(126,284)

2,269,929

(517,499)

484,696

(112,140)

IX.

Total assets

3,885,169

4,185,612

15,954,835

18,762,006

3,585,234

4,008,561

Current liabilities

1,898,804

2,238,186

7,797,629

10,032,669

1,752,216

2,143,511

XI.

Non-current liabilities

242,370

261,205

995,316

1,170,851

223,659

250,156

XII.

Issued capital

2,219

9,113

9,947

2,048

2,125

XIII.

Total equity

1,743,995

1,686,221

7,161,890

7,558,486

1,609,359

1,614,894

XIV.

Weighted average number of shares

77,429,230

80,187,230

77,429,230

80,187,230

77,429,230

80,187,230

XV.

Profit/(Loss) per ordinary share (in USD/PLN/EUR)

3.86

(0.51)

17.32

(2.10)

3.70

(0.46)

XVI.

Diluted number of shares

77,429,230

80,187,230

77,429,230

80,187,230

77,429,230

80,187,230

XVII.

Diluted profit/(loss) per ordinary share

(in USD/PLN/EUR)

3.86

(0.51)

17.32

(2.10)

3.70

(0.46)

XVIII.

Book value per share (in USD/PLN/EUR)

22.50

21.74

92.40

97.45

20.76

20.82

XIX.

Diluted book value per share (in USD/PLN/EUR)

22.50

21.74

92.40

97.45

20.76

20.82

Please see Note 3 for the exchange rates used for conversion.

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

Consolidated Statement of Financial Position

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Notes

As of

30 June 2023

As of

30 June 2022

Assets

Current assets

Cash and cash equivalents

9, 37

954,103

447,625

Trade accounts receivable

10, 34, 37

321,579

142,738

Prepayments to suppliers

135,044

107,167

Corporate income tax prepaid

3,595

12,228

Taxes recoverable and prepaid

162,280

204,686

Inventory

341,543

953,922

Biological assets

147,895

161,911

Other financial assets

14, 34, 37

376,063

205,811

Assets classified as held for sale

—

287,068

Total current assets

2,442,102

2,523,156

Non-current assets

Property, plant and equipment

1,020,411

1,018,073

Right-of-use assets

205,644

247,740

Intangible assets

36,334

124,198

Goodwill

71,632

71,620

Deferred tax assets

21,353

41,568

Non-current financial assets

25,524

52,532

Other non-current assets

62,169

106,725

Total non-current assets

1,443,067

1,662,456

Total assets

3,885,169

4,185,612

Liabilities and equity

Current liabilities

Trade accounts payable

34, 37

158,567

161,342

Advances from customers and other current liabilities

20, 34

153,770

89,200

Corporate income tax liabilities

12,943

7,411

Short-term borrowings

869,933

1,093,087

Current portion of lease liabilities

31,160

39,111

Current bonds issued

596,211

595,038

Interest on bonds issued

7,612

Other financial liabilities

21, 37

68,608

128,537

Liabilities associated with assets classified as held for sale

—

116,848

Total current liabilities

1,898,804

2,238,186

Non-current liabilities

Lease liabilities

166,735

200,441

Deferred tax liabilities

20,557

21,893

Other non-current liabilities

55,078

38,871

Total non-current liabilities

242,370

261,205

Equity attributable to Kernel Holding S.A. equity holders

Issued capital

2,219

Share premium reserve

500,378

Additional paid-in capital

39,944

Treasury shares

(96,897)

Revaluation reserve

104,303

Translation reserve

(932,089)

(816,490)

Retained earnings

2,123,999

1,949,731

Total equity attributable to Kernel Holding S.A. equity holders

1,741,857

1,683,188

Non-controlling interests

2,138

3,033

Total equity

1,743,995

1,686,221

Total liabilities and equity

3,885,169

4,185,612

Book value

1,741,857

1,683,188

Number of shares

2, 38

77,429,230

Book value per share (in USD)

22.50

21.74

Diluted number of shares

77,429,230

Diluted book value per share (in USD)

22.50

21.74

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova Sergiy Volkov

Chairman of the Board of Directors Director Chief Financial Officer of Kernel

Holding S.A. group of companies

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

Consolidated Statement of Profit or Loss

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova Sergiy Volkov

Chairman of the Board of Directors Director Chief Financial Officer of Kernel

Holding S.A. group of companies

Notes

For the year ended

30 June 2023

For the year ended

30 June 2022

Revenue

26, 34

3,455,121

5,331,545

Net change in fair value of biological assets and agricultural produce

(114,705)

12,537

Cost of sales

27, 34

(2,704,014)

(4,691,973)

Gross profit

636,402

652,109

Other operating income

53,547

63,694

Other operating expenses

(34,867)

(44,710)

General, administrative and selling expenses

29, 34

(205,019)

(230,405)

Net reversal/(impairment) losses on financial assets

4,130

(32,993)

Loss on impairment of assets

(14,733)

(317,028)

Profit from operating activities

439,460

90,667

Finance costs

(153,249)

(130,549)

Finance income

31, 34

30,792

11,322

Foreign exchange gain, net

62,650

10,140

Other expenses, net

33, 34

(11,829)

(25,061)

Profit/(Loss) before income tax

367,824

(43,481)

Income tax (expenses)/benefit

(69,050)

2,781

Profit/(Loss) for the period

298,774

(40,700)

Profit/(Loss) for the period attributable to:

Equity holders of Kernel Holding S.A.

299,192

(41,102)

Non-controlling interests

(418)

402

Earnings per share

Weighted average number of shares

77,429,230

80,187,230

Profit/(loss) per ordinary share (in USD)

3.86

(0.51)

Diluted number of shares

77,429,230

80,187,230

Diluted profit/(loss) per ordinary share (in USD)

3.86

(0.51)

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

Consolidated Statement of Profit or Loss and

Other Comprehensive Income

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Notes

For the year ended

30 June 2023

For the year ended

30 June 2022

Profit/(Loss) for the period

298,774

(40,700)

Other comprehensive income/(loss)

Items that will not be reclassified subsequently to profit or loss:

Increase in revaluation reserve

—

57,334

Income tax related to components of other comprehensive income

—

(10,321)

Items that may be reclassified subsequently to profit or loss:

Exchange differences on translating foreign operations

(241,000)

(111,241)

Gain arising on cash flow hedge

4, 36

—

1,736

Income tax related to cash flow hedge

—

(243)

Other comprehensive loss

(241,000)

(62,735)

Total comprehensive income/(loss) for the period

57,774

(103,435)

Total comprehensive income/(loss) attributable to:

Equity holders of Kernel Holding S.A.

58,669

(106,649)

Non-controlling interests

(895)

3,214

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova Sergiy Volkov

Chairman of the Board of Directors Director Chief Financial Officer of Kernel

Holding S.A. group of companies

Exchange differences on translating foreign operations increased mostly as a result of foreign exchange rate change.

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

100

Consolidated Statement of Changes in Equity

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Attributable to Kernel Holding S.A. shareholders

Issued

capital

pre-

mium

reserve

Addi-

tional

paid-

capital

Equity-

settled

em-

ployee

benefits

reserve

Treas-

ury

Revalu-

ation

reserve

Other

re-

serves

Transla-

tion

reserve

Retained

Earnings

Total

Non-

control-

ling

interests

Total

equity

Balance as of 30 June 2021

2,219

500,378

39,944

1,850

—

57,290

(896)

(703,034)

2,048,399

1,946,150

2,756

1,948,906

Profit/(Loss) for the period

—

(41,102)

402

(40,700)

Other comprehensive

(loss)/income

—

47,013

896

(113,456)

—

(65,547)

2,812

(62,735)

Total comprehensive

(loss)/income for the period

—

47,013

896

(113,456)

(41,102)

(106,649)

3,214

(103,435)

Distribution of dividends

—

(34,069)

—

(34,069)

Effect of changes on non-con-

trolling interest

—

18,728

(2,937)

15,791

Recognition of share-based

payments (Note 34)

—

(1,850)

—

(44,282)

(46,132)

—

(46,132)

Repurchase of treasury

—

(96,897)

—

(96,897)

—

(96,897)

Transfer of revaluation re-

serve upon disposal of prop-

erty, plant and equipment

—

2,057

—

2,057

Balance as of 30 June 2022

2,219

500,378

39,944

—

(96,897)

104,303

—

(816,490)

1,949,731

1,683,188

3,033

1,686,221

Profit/(Loss) for the period

—

299,192

(418)

298,774

Other comprehensive loss

—

(115,599)

(124,924)

(240,523)

(477)

(241,000)

Total comprehensive in-

come/(loss) for the period

—

(115,599)

174,268

58,669

(895)

57,774

Balance as of 30 June 2023

2,219

500,378

39,944

—

(96,897)

104,303

—

(932,089)

2,123,999

1,741,857

2,138

1,743,995

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova Sergiy Volkov

Chairman of the Board of Directors Director Chief Financial Officer of Kernel

Holding S.A. group of companies

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

101

Consolidated Statement of Cash Flows

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

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Sustainability

Corporate

Governance

Financial

Statements

Notes

As of

30 June 2023

As of

30 June 2022

Operating activities:

Profit/(Loss) before income tax

367,824

(43,481)

Adjustments for:

Amortization and depreciation

104,786

129,676

Finance costs

153,249

130,549

Finance income

(30,792)

(11,322)

Net (reversal)/impairment losses on financial assets

(4,130)

32,993

Other accruals

(1,089)

4,518

Gain on disposal of property, plant and equipment

(621)

(2,570)

Net foreign exchange gain

(61,201)

(7,266)

Loss on impairment of assets

14,733

317,028

Net change in fair value of biological assets and agricultural produce

114,705

(12,537)

Net loss arising on financial instruments

29,656

41,333

Write-downs of inventories to net realisable value

65,690

98,229

Operating profit before working capital changes

752,810

677,150

Changes in working capital:

Change in trade receivable

(177,380)

217,613

Change in other financial assets

(265,846)

14,463

Change in prepayments and other current assets

(70,235)

(58,369)

Change in restricted cash balance

Change in taxes recoverable and prepaid

2,733

(58,918)

Change in biological assets

73,662

141,024

Change in inventories

508,182

(937,306)

Change in trade accounts payable

1,063

15,126

Change in advances from customers and other current liabilities

55,396

(127,507)

Cash generated from/(used in) operations

880,443

(116,692)

Interest paid

(148,436)

(130,576)

Interest received

28,128

11,321

Income tax paid

(44,003)

(69,517)

Net cash generated by/(used in) operating activities

716,132

(305,464)

Investing activities:

Purchase of property, plant and equipment

(77,093)

(119,678)

Proceeds from disposal of property, plant and equipment

2,720

5,876

Payment for lease agreements

(1,825)

(1,927)

Purchase of intangible and other non-current assets

(10,223)

(178,678)

Proceeds from disposal of intangible and other non-current assets

123,436

21,132

Acquisition of subsidiaries, net of cash acquired

(12,031)

—

Disposal of subsidiaries

89,705

—

Placement of pledge deposits

(122,703)

—

Advances received for disposal of subsidiaries

—

22,867

Loans provided to related parties

—

(20,065)

Proceeds from return of loans by related parties

—

15,203

Proceeds from disposal of/(Payment to acquire) financial assets

17,590

(38,419)

Net cash generated by/(used in) investing activities

9,576

(293,689)

Financing activities:

Proceeds from borrowings

54,905

1,073,642

Repayment of borrowings

(247,717)

(230,240)

Payment of dividends

—

(34,069)

Proceeds from/(Financing) for farmers

193

(11,475)

Repayment of lease liabilities

(23,179)

(9,671)

Repurchase of treasury shares

—

(96,897)

Repayment of corporate bonds

—

(213,110)

Premium for early repayment of bonds

—

(1,888)

Net cash (used in)/generated by financing activities

(215,798)

476,292

Effects of exchange rate changes on the balance of cash held in foreign currencies

(3,383)

(3,423)

Net increase/(decrease) in cash and cash equivalents

506,527

(126,284)

Cash and cash equivalents, at the beginning of the year

447,566

573,850

Cash and cash equivalents, at the end of the year

954,093

447,566

For non-cash financing activities please see Note 9.

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova Sergiy Volkov

Chairman of the Board of Directors Director Chief Financial Officer of Kernel

Holding S.A. group of companies

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023 |

102

Notes to the Consolidated Statements

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

Statements

1. Corporate Information

Kernel Holding S.A. (hereinafter referred to as the ‘Holding’ or the ‘Company’) incorporated under the legislation of Luxembourg on 15 June 2005

(number B 109,173 in the Luxembourg Register of Companies) is the holding company for a group of entities (hereinafter referred to as the

‘Subsidiaries’), which together form Kernel Group (hereinafter referred to as the ‘Group’ or the ‘Kernel Group’).

Kernel Holding S.A. has been a publicly traded company since 2007. Kernel Holding S.A. made an announcement on 13 April 2023, indicating

that their Board of Directors had decided to withdraw the company's shares from trading on the Warsaw Stock Exchange's regulated market.

However, as of 30 June 2023, the delisting process has not been completed.

The Group’s principal business activity is the production and subsequent export of sunflower oil and meal in bulk, the production and sale of bottled

sunflower oil, the wholesale trade of grain (mainly corn, soybean, wheat and barley), farming, and the provision of logistics and transshipment

services. The majority of the Group’s manufacturing facilities is primarily based in Ukraine. As of 30 June 2023, the Group employed 10,733 people

(10,223 people as of 30 June 2022).

The Group’s financial year runs from 1 July to 30 June.

The principal place of business of the Group is Ukraine. The principal operating office of the Group is located at 3 Tarasa Shevchenka Lane, Kyiv,

01001, Ukraine.

As of 30 June, the primary Subsidiaries of the Group and principal activities of the Subsidiaries consolidated by the Holding were as follows:

Group’s effective ownership

interest and voting rights as of

Subsidiary

Principal activity

Country of incorporation

30 June 2023

30 June 2022

Inerco Trade S.A.

Trading in sunflower oil,

meal and grain.

Switzerland

100.0%

Kernel-Trade LLC

Ukraine

100.0%

Avere Commodities SA

Switzerland

100.0%

Poltava OEP PJSC

Oilseed crushing plants. Produc-

tion of sunflower oil and meal.

Ukraine

99.7%

Bandurka OEP LLC

Ukraine

100.0%

Vovchansk OEP PJSC

Ukraine

99.4%

Prykolotne OEP LLC

Ukraine

100.0%

Kropyvnytskyi OEP PJSC

Ukraine

99.2%

BSI LLC

Ukraine

100.0%

Prydniprovskyi OEP LLC

Ukraine

100.0%

Estron Corporation Ltd

Provision of grain, oil and meal

handling and transshipment ser-

vices

Cyprus

100.0%

Transbulkterminal LLC

Ukraine

100.0%

Transgrainterminal LLC

Ukraine

100.0%

Oilexportterminal LLC

Ukraine

100.0%

—

Poltava HPP PJSC

Grain elevators. Provision of

grain and oilseed cleaning, dry-

ing and storage services.

Ukraine

94.1%

Kononivsky Elevator LLC

Ukraine

100.0%

Agro Logistics Ukraine LLC

Ukraine

100.0%

Bilovodskyi KHP PJSC

Ukraine

91.12%

Hliborob LLC

Agricultural farms. Cultivation of

agricultural products: corn,

wheat, soybean, sunflower seed,

rapeseed, forage, pea and bar-

ley.

Ukraine

100.0%

Prydniprovskyi Kray ALLC

Ukraine

100.0%

Enselco Agro LLC

Ukraine

—

100.0%

Druzhba-Nova ALLC

Ukraine

100.0%

Druzhba 6 PE

Ukraine

100.0%

AF Semerenky LLC

Ukraine

100.0%

Hovtva ALLC

Ukraine

100.0%

These consolidated financial statements were authorized for release by the board of directors of Kernel Holding S.A. on 26 October 2023.

40% were repurchased by the Company on 9 March 2022

The company was disposed on 3 March 2023.

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

103

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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2. Change in Issued Capital

Since 15 June 2005, the parent company of the Group is Kernel Holding S.A. (Luxembourg). The issued capital of the Holding as of 30 June 2023

and 2022, consisted of 84,031,230 ordinary electronic shares without indication of the nominal value. Ordinary shares have equal voting rights and

rights to receive dividends (except of own shares purchased).

The shares were distributed as follows:

As of 30 June 2023

As of 30 June 2022

Equity holders

Shares allotted

and fully paid

owned

Shares allotted

and fully paid

owned

Namsen Limited Liability Company registered under the legislation of Cyprus

62,222,460

74.05%

31,974,011

38.05%

Free float

15,206,770

18.10%

45,455,219

54.09%

Own shares purchased

6,602,000

7.85%

6,602,000

7.86%

Total

84,031,230

100.00%

84,031,230

100.00%

As of 30 June 2023, the Company’s immediate majority shareholder was Namsen Limited Liability Company (‘Namsen LLC') and the Company

was ultimately controlled by Mr. Andrii Verevskyi (30 June 2022: no ultimately controlling party). As of 30 June 2023 and 2022, 100% of the

beneficial interest in Namsen LLC was held by Mr. Andrii Verevskyi.

As of 12 May 2023, the Company had received notification from Namsen LLC, a notification of major holding about crossing the 66 2/3% threshold

of voting rights, pursuant to the provisions of articles 8 and 9 of the Law of 11 January 2008 on Transparency Requirements for Issuers of Grand

Duchy of Luxembourg. This event stemmed from share purchase transactions executed by Namsen LLC on 9 May 2023 (subsequently settled on

12 May 2023), when Namsen LLC acquired 30,248,449 shares of the Company, representing approximately 36.00% shares in the share capital of

the Company, and gained control over the Group.

Luxembourg companies are required to allocate to a legal reserve a minimum of 5% of the annual net income until this reserve equals 10% of the

subscribed issued capital. This reserve, in the amount of USD 221 thousand as of 30 June 2023 and 2022, may not be distributed as dividends.

3. Operating Environment

The Ukrainian economy has features inherent in emerging markets, and its development is heavily influenced by the fiscal and monetary policies

adopted by the Ukrainian government, together with developments in the legal, regulatory, and political environment which changes rapidly.

On 24 February 2022, Russia launched a full-scale military invasion of Ukraine. As a response, Ukraine declared martial law which is still in place

as of the date of signing of these consolidated financial statements as the military actions are still ongoing in the Eastern and Southern parts of

Ukraine along the frontline, some towns and cities in these regions remain temporarily occupied while Russia conducts sporadic bombardments

throughout the whole Ukrainian territory.

Given the fast-moving nature of the situation and the unpredictability of war, it will likely take time to assess the economic fallout. For now, the

government has prioritised defence and social spending. From January to September 2023, annual inflation in Ukraine had reached 3%. The

Ukrainian economy experienced significant challenges and the government heavily relied on international financial support. This decrease in infla-

tion, along with other factors, allowed the National Bank of Ukraine (‘NBU’) to start easing its monetary policy by decreasing the policy rate by 3

percentage points to 22% from 28 July 2023 and 20% from 15 September 2023 onwards.

From the start of the war, the Ukrainian budget experiences a deficit, which is financed by international financial assistance, national borrowings,

and direct deficit monetisation by the NBU as a measure of last resort. Since the beginning of the full-scale invasion by Russia and till 30 June

2023, the total amount of funds received by Ukraine from international partners amounted to USD 54.8 billion, approximately half out of which were

in the grant format. International support is crucially important for Ukraine’s ability to continue fighting against the aggression and funding the budget

deficit and on-going debt repayments. As of 1 September 2023, Ukraine’s international reserves reached USD 40.4 billion.

It is noteworthy that since April 2022, economic activity has been steadily recovering. Businesses and the Ukrainian population have demonstrated

resilience and adaptation to the new conditions. According to the latest reports from the National Bank of Ukraine ('the NBU'), as of September

2023, the percentage of enterprises that remained idle from those that were operational before the conflict has significantly decreased, with only

7% of such enterprises still not fully active.

After the commencement of the Russian invasion, the NBU abandoned its inflation targeting policy and effective from 14 September 2023 de-

creased its key policy rate to 20%.

In August 2023, the NBU improved its real GDP growth forecast for 2023 to 2.9%.

In order to stabilize the Ukrainian financial system during the war, the NBU fixed the official hryvnia exchange at UAH 36.57 per USD from 21 July

2022. In July 2023 the NBU announced the plans regarding easing of foreign currency restrictions and the return to a floating exchange rate and

inflation targeting, which will be done gradually and subject to some preconditions being in place. At the date of this consolidated financial statement,

the official NBU exchange rate of Hryvnia against the US dollar remained at the level of UAH 36.57 per USD 1. In September 2023, the NBU

announced that the economy and financial system of Ukraine return to normal operation regime therefore the floating exchange rate will be restored.

Moreover, the NBU has determined that the ban on transactions in Ukraine using the accounts of residents of Russia or Belarus and legal entities

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

104

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

Statements

whose ultimate beneficial owners are based in Russia or Belarus does not apply to social benefits, wages, utilities, taxes, fees, and other required

payments. Despite the current unstable situation, the banking system remains stable, with sufficient liquidity even as martial law continues, and all

banking services are available to its customers, both legal entities and individuals. Companies operating in Ukraine are paying taxes and money

is still flowing through its financial system. Starting from 3 October 2023, the NBU is transitioning to a managed exchange rate regime, in which

the official exchange rate will be determined based on market transactions in the interbank market, rather than being set directly by the NBU.

Starting in late 2022 and in early 2023, the situation in the energy market was substantially affected by Russia`s extensive campaign of illegal aerial

bombardment, which targeted Ukraine’s power generation and transmission facilities, stabilized due to the measures implemented such as the

balancing of the energy system, the increase in the production of electricity by nuclear power and the establishment of electricity imports from

abroad as well as a decrease of the intensity of the attacks on the energy infrastructure by Russia.

On 6 June 2023, the Russian occupying forces blew up the dam of the Kakhovska Hydroelectric Power Plant, which led to the flooding of the

floodplains of the Kherson region and a critical drop in the water level in the Kakhovska reservoir, which, amongst others, is used for supplying

water to surrounding regions.

During March - July 2022 the Black Sea and Azov Sea ports in Ukraine suspended their operations being blocked or occupied by Russia as a

result of military actions while limited railway capacity with Western countries has restricted the ability to replace seaborne throughput. This has

prevented most seaborne imports and exports. On 22 July 2022, the representatives of Ukraine, Turkey and the UN Secretary-General signed in

Istanbul the Initiative on the Safe Transportation of Grain and Foodstuffs from Ukrainian Ports, which allowed only for exports of grain and related

food products from the ports of Odesa, Chornomorsk, and Pivdennyi (“Grain deal”). On 17 July 2023, the Grain deal was not renewed, following

the refusal of Russia to extend the agreement. Since then, Russia has launched a series of air attacks on Ukraine, focused, among others, on

destroying Danube ports infrastructure as well as Black Sea ports infrastructure.

As of October 2023, the full-scale military attack continues. Russian attacks are targeted for destroying civilian infrastructure all over Ukraine. At

the same time, logistics routes in occupied territories were damaged and there is no access to them. Other railway and car logistic routes are

available for usage as Ukraine has an extensive road and railway network. Assets belonging to different businesses, except those located on

temporary occupied territory, were not destroyed materially, based on available information, as air attacks and missile strikes primarily destroyed

military infrastructures, objects, airfields, and civilian buildings.

In May 2023, the World Health Organization declared the end of the pandemic status effective since early 2020 for the coronavirus disease Covid-

19, which emerged and rapidly spread all over the world. Starting from 1 July 2023, the government of Ukraine lifted the quarantine and the state

of emergency related to COVID-19. The Management assesses that COVID-19 had a low effect on the Group’s business during the year ended

30 June 2023.

4. Summary of Significant Accounting Policies

Basis of Preparation and Accounting

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS) as

adopted by the European Union.

The consolidated financial statements have been prepared under the historical cost convention, as modified by the revaluation of property, plant

and equipment for oilseeds processing segment, biological assets, agricultural produce and certain financial assets and liabilities measured at fair

value. The consolidated financial statements have been prepared on a going concern basis.

The Group’s Subsidiaries maintain their accounting records in local currencies in accordance with the accounting and reporting regulations of the

countries of their incorporation. Local statutory accounting principles and procedures may differ from those generally accepted under IFRS. Ac-

cordingly, the consolidated financial statements, which have been prepared from the Group’s Subsidiaries’ accounts under local accounting regu-

lations, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS.

Going concern

On 24 February 2022, the Russian Federation started a military invasion of Ukraine, leading to significant disruption within Ukraine and triggering

both economic and humanitarian crises. The business activities of Kernel Group have been changed and focused on continuity and safekeeping.

The Group considers the direct and indirect exposures to the impacts arising from the war on the business, as mentioned below:

• For the period after the Russian invasion of Ukraine 1,478 employees joined Ukrainian military forces and territorial defence, and approximately

634 of them were demobilized. Personnel mostly work in the same place as before the war.

• Several of the Group's facilities and infrastructure have suffered from missile and drone attacks. Since 19 July 2023, immediately following the

termination of the Grain Deal, Russia intensified missile and drone attacks on Ukrainian ports, transshipment, and agricultural infrastructure in

the Odesa and Danube River regions aiming to suspend the export of agricultural products from Ukraine. These attacks caused significant

damage to the grain export infrastructure at Ukrainian ports, specifically Odesa and Chornomorsk, including critical assets owned by the Group.

The attacks resulted in substantial harm to storage facilities, intake capacities, and loading equipment, with a total estimated value of equipment

loss of USD 11.2 million and a total value of commodity inventories loss of USD 10.3 million, respectively (described in Note 39 Subsequent

events).

• The Vovchansk and Prykolotne oil extraction plants are currently inaccessible. Ukraine regained control over this part of the Kharkiv region in

September 2022, but it is still a high-risk zone due to the proximity to the border with Russia and regular artillery attacks.

• Two of the Kernel crushing plants reduced operations from November 2022 to January 2023 due to electricity outages caused by the Russian

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The accompanying notes are an integral part of these financial statements.

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missile strikes targeting the Ukrainian electricity generation and distribution system. Four remaining crushing plants of the Group are equipped

with cogeneration heat and power units, which enables them to function relatively stable. The Ukrainian officials assume that Russia will also

intensify attacks on the Ukrainian electricity generation and distribution system during the winter of 2023/2024.

• During the second and third quarters of the 2023 financial year the Grain Deal achieved relatively high volumes of grain export, which allowed

the Group to secure cash inflows from a decrease of working capital. The Group resumed grain trading activity at a minimum level to ensure a

stable flow of commodities at the Group’s export terminals. Since the middle of spring, the Grain corridor had been operating unreliably and

inefficiently. However, despite these, the Group managed to export products through alternative routes including the Danube River, railways,

and trucks. On 17 July 2023, the Grain Deal was not renewed due to Russia’s refusal to extend the agreement. The Group is developing

alternative export channels though with significantly higher logistics costs compared to the Black Sea ports routes.

• Closer to the end of the 2023 financial year, the European Commission enacted temporary import restrictions within its five member states on

selected agricultural commodities originating from Ukraine, encompassing wheat, maize, rapeseed, and sunflower seed. These measures de-

fined that these products of Ukrainian origin could solely pass through EU member states via a unified customs transit process or when en route

to a non-EU territory. Nevertheless, on 15 September 2023, the European Commission lifted the previously enforced restrictions in response to

Ukraine's commitment to enhancing its oversight of agricultural exports.

• Procurement of grain remains at low levels as Kernel continues to focus on exporting its own harvest and maintaining low inventories while the

availability of the export channels remains limited.

• Group’s liquidity position is under continuous pressure due to the reduction of export volumes and revenue and the growth of logistic costs for

alternative ways of export.

• Considering the disruptions described above, the Group’s ability to service debt still suffers and the availability of new facilities is extremely

limited. The Group successfully negotiated with its lenders’ waivers on the repayment of the loan principal with the requirement to make a certain

portion of cash-sweep from the export revenue for the period ending 30 June 2024, while interest payments are settled in a timely manner. As

of the date of issue of these consolidated financial statements, the Group obtained waivers to extend the terms of repayment of the principal of

USD 777,909 thousand with the lenders and waiving of the debt covenants and some other conditions by 30 June 2024.

• The repayment of the bonds issued with a nominal value of USD 300,000 thousand scheduled on October 2024, together with the repayment of

the loan facilities mentioned above put significant pressure on the liquidity position of the Group in the upcoming twelve months. The Group is

scheduled to settle over USD 313 million of financial obligations during June-October 2024.

• As of 30 June 2023, the Group continued to classify its bank borrowings with long-term initial contractual maturity as short-term because the

Group did not possess an unconditional right to defer the settlement of those loans until their initial contractual settlement date. The extension

of the waivers for the long-term loan facilities depends on the results of further negotiations with the lenders and the conditions of the extension.

In case waivers are not extended upon expiration, it may trigger ability of bondholders to exercise their right for cross-acceleration event of

default under the Group’s outstanding bonds. As the Group did not have an unconditional right to defer the settlement of its bonds for 12 months

or longer it classified its long-term bonds as short-term in these financial statements.

The management has undertaken a restructuring of the business processes in response to the impacts of the abovementioned events:

• Given the uncertain outlook for the reopening of Ukrainian Black Sea ports for agricultural product exports in FY2024, the Group relies on Danube

River ports and inland routes. While the Group has successfully secured some capacity for exporting sunflower oil and meal, the increased

logistics costs do not provide economically viable alternatives for handling grain shipments at the current level of global commodities prices. The

Group is analysing additional investments to expand its grain export capabilities and simultaneously decrease logistics expenses.

• Management set up logistics routes for grain and oil export through Danube River ports to Constanca, Romania by vessels and barges, as well

as through Poland, Romania, and Lithuania by trucks and railway including using own railway wagons. This application of new logistic routes via

land borders and Reni port started when the Black Sea ports closed after 18 July 2023. The creation of alternative logistics chains for export

makes it possible to export approximately 100,000 tons of grain/oilseeds, 100,000 tons of sunflower oil, and 100,000 of sunflower meal pro-

cessing products per month. However, high logistic costs and low selling prices may result in some of such operations being loss-making.

• The export sales volume is limited by slow railway logistics through land borders due to technical differences between the Ukrainian and Euro-

pean railway networks. Therefore, during the 2023 financial year, the management has invested USD 38,486 thousand in the purchase of one

bulk carrier vessel for grain shipments, one oil tanker for sunflower oil shipments, 2 barges, 99 rail flatcars, 100 grain containers and 400 tank-

containers to increase logistic capacity, and 30 trucks with trailers for grain transportation.

• The Group currently operates a land bank comprising 359 thousand hectares, including 340 thousand hectares under 2022 crop to be sold, 7

thousand hectares of land under seeds and crops grown for in-house use (cattle business), and 12 thousand hectares of fallow land. As of the

date of publication of this report, the Group completed the harvesting of winter crops, sunflower seeds, and soybeans, and is progressing with

corn harvesting.

• To maintain liquidity and manage the uncertainty the Group decided to continue waiver and standstill arrangements with the lenders and entered

into new negotiations with the Lenders in May 2023 in respect of the commercial terms for the new standstill period till 30 June 2024. As a result,

the Group obtained waivers for the pre-war borrowings of USD 777,909 thousand to defer repayment until 30 June 2024.

• The restructuring negotiations with the lenders resulted in the complex solution of the restructuring terms accepted by the lenders including the

provisions regarding the Group’s shareholders support in the amount of up to USD 60,000 thousand which was deemed necessary and equitable

by the lenders. To satisfy the restructuring terms, on 1 September 2023, the Group announced an additional issue of 216,000,000 shares raising

USD 59,983 thousand in proceeds. In addition, the Group repaid USD 20,264 thousand as part of the restructuring conditions and pledged

deposit as the collateral of USD 122,703 thousand.

• Additionally, conditions of the restructuring allowed the Group to settle borrowings of USD 25,319 thousand, which were repaid by the Group in

October 2023.

• Despite the disruptions caused by the war in Ukraine, as of 30 June 2023 the Group’s current assets exceeded current liabilities and the Group

generated profit for the period of USD 298,774 thousand and operating cash flow of USD 595,839 thousand.

• The Group is exploring alternative sources of financing, such as loans from international and Ukrainian banks and financial institutions that have

committed to providing financial support to businesses in Ukraine.

Considering the above management has assessed the going concern assumption based on which the consolidated financial statements have been

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The accompanying notes are an integral part of these financial statements.

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prepared.

The management prepared two scenarios of cash flow forecasts for the next 12 months from the date of the approval of these consolidated financial

statements, assuming full operation of the Grain Corridor from January 2024 or July 2024. 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.

If significant assumptions and judgments made by management are not realized, management will continue seeking alternative ways to meet its

financial obligations during 2024, including requesting additional support from shareholders.

Management acknowledges that future development of military actions, their duration represent a material uncertainty that may cast significant

doubt about the Group’s ability to continue as a going concern and, therefore, the Group may be unable to realize its assets and discharge its

liabilities in the normal course of business. These events may adversely affect the Group’s ability to repay its debt as it falls due. Despite the

material uncertainty relating to the war in Ukraine, management is continuing to take actions to minimize the impact on the Group and thus believes

that the application of the going concern assumption for the preparation of these consolidated financial statements is appropriate.

Adoption of New and Revised Standards

The Group has adopted all new and revised IFRS standards that became effective for annual periods beginning on or after 1 July 2022. The

changes are as follows:

Amendments to IFRS 3, IAS 37, IAS 16, FRS 7 and Annual Improvements to IFRS Standards 2018–2020 (IFRS 1, IFRS 9, IFRS 16, IAS 41)

Reference to the Conceptual Framework (Amendments to IFRS 3) became effective for year ends beginning on or after 1 January 2022. The

amendments update an outdated reference to the Conceptual Framework in IFRS 3 without significantly changing the requirements in the standard.

The changes in Onerous Contracts — Cost of Fulfilling a Contract (Amendments to IAS 37) specify that the ‘cost of fulfilling’ a contract comprises

the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples

would be direct labour, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the

depreciation charge for an item of property, plant and equipment used in fulfilling the contract).

Property, Plant and Equipment – Proceeds before intended use (Amendments to IAS 16) became effective for year ends beginning on or after

1 January 2022. The amendments enable entities to deduct from the cost of an item of property, plant and equipment, any proceeds from selling

items produced while bringing those assets to the location and conditions for its intended use. Instead, an entity recognizes the proceeds from

selling such items, and the costs of producing those items, in the statement of profit or loss.

Agriculture – Taxation in fair value measurements (Amended by Annual Improvements to IAS 41) became effective for annual periods beginning

on or after 1 January 2022. The amendment removes the requirement in paragraph 22 of IAS 41 that entities exclude cash flows for taxation when

measuring the fair value of assets within the scope of IAS 41.

Annual Improvements to IFRS Standards 2018–2020 introduced amendments to clarify the application of the paragraphs of such standards as

IFRS 1, IFRS 9, IFRS 16, IAS 41.

The amendments did not have a material impact on the consolidated financial position or performance of the Group in the Group’s consolidated

financial statements.

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The accompanying notes are an integral part of these financial statements.

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Standards and Interpretations Issued but not Effective

At the date of authorization of these consolidated financial statements, the following standards, and interpretations, as well as amendments to the

standards had been issued but were not yet effective:

Standards and Interpretations

Effective for annual period

beginning on or after

Initial Application of IFRS 17 and IFRS 9—Comparative Information

1 January 2023

IFRS 17: Insurance Contracts

1 January 2023

IFRS 1, IAS 12: Deferred Tax related to Assets and Liabilities arising from a Single Transaction

1 January 2023

Amendment to IAS 8: Definition of Accounting Estimates

1 January 2023

Amendments to IAS 1 and IFRS Practice Statement 2: Disclosure of Accounting Policies

1 January 2023

International Tax Reform – Pillar Two Model Rules (Amendments to IAS 12)

1 January 2023

Management anticipates that the adoption of these standards and interpretations will not have a material effect on the consolidated financial

statements of the Group in future periods.

Functional and Presentation Currency

The Group’s presentation currency is the United States dollar (‘USD’). The functional currency of the majority of the Group’s foreign Subsidiaries

is their local currency, except for businesses engaged in the production and sale of sunflower oil and export terminals, for which USD was deter-

mined as the functional currency.

Foreign Currencies

Transactions in currencies other than the functional currencies of the Group`s companies are initially recorded at the rates of exchange prevailing

on the dates of the transactions. Subsequently, monetary assets and liabilities denominated in such currencies are translated at the rates prevailing

on the reporting date. Non-monetary items carried at fair value that are denominated in foreign currencies are retranslated at the rates prevailing

at the date when the fair value was determined. Non-monetary items that are measured in terms of historical cost in a foreign currency are not

retranslated.

On consolidation, the assets and liabilities of the Subsidiaries are translated at exchange rates prevailing on the reporting date. Income and expense

items are translated at the average exchange rates for the period, unless the exchange rates fluctuate significantly during that period, in which

case the exchange rates at the dates of the transactions are used. Exchange differences arising, if any, are recognized in Consolidated Statement

of Profit or Loss and Other Comprehensive Income accumulated in ‘Translation reserve’.

The exchange rates during the period of the financial statements were as follows:

Currency

Closing rate as of

30 June 2023

Average rate for the

year ended 30 June 2023

Closing rate as of

30 June 2022

Average rate for the

year ended 30 June 2022

USD/UAH

36.5686

36.1678

29.2549

27.8426

USD/EUR

0.9228

0.9569

0.9577

0.8880

USD/PLN

4.1066

4.4814

4.4825

4.0979

As disclosed in Note 3, rates established by National Bank of Ukraine (‘NBU’) might differ from the commercial rates. Therefore, these rates might

not be the ones at which the assets could be realized or liabilities could be settled. Additionally, certain NBU restrictions on the transactions with

foreign currency continued in 2023 and until the date of these consolidated financial statements issue, and hence net assets of Ukrainian subsidi-

aries of the Group temporarily cannot be distributed to the parent company of the Group. NBU’s Board Resolution No. 21 dated 24 February 2022

allowed the purchase of foreign currency and cross-border transfer of currency valuables only for buying of goods from the list of critical imports,

defined by the Cabinet of Ministers of Ukraine. Additionally, the NBU reduced the settlement deadlines for export and import transactions that were

executed after 5 April 2022 from 365 to 90 calendar days to prevent capital outflows from Ukraine.

As of 26 June 2023, the NBU has published the Strategy to Ease FX Restrictions, Transition to Greater Flexibility of the Exchange Rate, and Return

to Inflation Targeting (Strategy).The development of this strategy will allow economy to be more adaptive to the exchange rate flexibility and restore

monetary transmission.

The average exchange rates for each period are calculated as the arithmetic mean of the exchange rates for all trading days during this period.

The sources of exchange rates are the official rates set by the National Bank of Ukraine for USD/UAH and by the National Bank of Poland for

USD/EUR and USD/PLN.

All foreign exchange gain or loss that occurs on revaluation of monetary balances, presented in foreign currencies, is allocated as a separate line

in the Consolidated Statement of Profit or Loss.

Basis of Consolidation

The consolidated financial statements incorporate the consolidated financial statements of the Holding and companies controlled by the Holding

(‘Subsidiaries’) as of 30 June 2023.

The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled by

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The accompanying notes are an integral part of these financial statements.

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the Company and its Subsidiaries. Control is achieved when the Company:

• has the power over the investee;

• is exposed, or has rights, to variable returns from its involvement with the investee; and

• has the ability to use its power to affect its returns.

The Company reassesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the

three elements of control listed above.

When the Company has less than a majority of the voting rights of an investee, it has power over the investee when the voting rights are sufficient

to give it the practical ability to direct the relevant activities of the investee unilaterally. The Company considers all relevant facts and circumstances

in assessing whether or not the Company’s voting rights in an investee are sufficient to give it power, including:

• the size of the Company’s holding of voting rights relative to the size and dispersion of holdings of the other vote holders;

• potential voting rights held by the Company, other vote holders or other parties;

• rights arising from other contractual arrangements;

• any additional facts and circumstances that indicate that the Company has, or does not have, the current ability to direct the relevant activities

at the time that decisions need to be made, including voting patterns at previous shareholders’ meetings.

Consolidation of a Subsidiary begins when the Company obtains control over the Subsidiary and ceases when the Company loses control of the

Subsidiary. Specifically, income and expenses of a Subsidiary acquired or disposed of during the year are included in the Consolidated Statement

of Profit or Loss and Other Comprehensive Income from the date the Company gains control until the date when the Company ceases to control

the over Subsidiary.

All inter-company transactions and balances between the Group’s enterprises are eliminated for the consolidation purpose. Unrealized gains and

losses resulting from inter-company transactions are also eliminated, except for unrealized losses that cannot be recovered.

Non-controlling interests in Subsidiaries are identified separately from the Group’s equity therein. Non-controlling interests as of the reporting date

represent the non-controlling equity holders’ portion of the fair values of the identifiable assets and liabilities of the Subsidiary at the acquisition

date and the non-controlling equity holders’ portion of movements in equity since the date of acquisition. Profit or loss and each component of other

comprehensive income are attributed to the owners of the Company and to the non-controlling interests. The total comprehensive income of

Subsidiaries is attributed to the equity holders of the Company and to non-controlling interests even if this results in the non-controlling interests

having a deficit balance.

Business Combinations

Acquisitions of businesses are accounted for using the acquisition method. The consideration transferred in a business combination is measured

at fair value, which is calculated as the sum of the acquisition-date fair values of the assets transferred by the Group, liabilities incurred by the

Group to the former owners of the acquire and equity interests issued by the Group in exchange for control of the acquire. Acquisition costs are

expensed when incurred and included in general, administrative and selling expenses.

At the acquisition date, identifiable assets acquired, and liabilities assumed are recognized at their fair value, except that:

• Deferred tax assets or liabilities and liabilities or assets related to employee benefit arrangements are recognized and measured in accordance

with IAS 12 Income Taxes and IAS 19 Employee Benefits, respectively;

• The Group shall recognise right-of-use assets and lease liabilities for leases identified in accordance with IFRS 16 in which the acquiree is the

lessee. The Group shall measure the lease liability at the present value of the remaining lease payments (as defined in IFRS 16) as if the

acquired lease were a new lease at the acquisition date. The Group shall measure the right-of-use asset at the same amount as the lease

liability, adjusted to reflect favourable or unfavourable terms of the lease when compared with market;

• The acquirer shall measure the value of a reacquired right recognized as an intangible asset on the basis of the remaining contractual term of

the related contract regardless of whether market participants would consider potential contractual renewals when measuring its fair value;

• Liabilities or equity instruments related to share-based payment arrangements of the acquire or share-based payment arrangements of the

Group entered into to replace share-based payment arrangements of the acquire are measured in accordance with IFRS 2 Share-based Payment

at the acquisition date; and

• Assets and liabilities that are classified as held for sale in accordance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations

are measured in accordance with that standard.

For each business combination, the Group measures the non-controlling interests in the acquiree either at fair value or at a proportionate share of

the acquirer’s identifiable net assets. If the initial accounting for a business combination cannot be completed by the end of the reporting period in

which the combination occurs, only provisional amounts are reported, which can be adjusted during a measurement period of 12 months after the

acquisition date.

Changes in the Group’s ownership interests in Subsidiaries that do not result in the Group losing control over the Subsidiaries are accounted for

as equity transactions. The carrying amounts of the Group’s interests and non-controlling interests are adjusted to reflect changes in their relative

interests in Subsidiaries. Any difference between the amount by which the non-controlling interests are adjusted and the fair value of the consider-

ation paid or received is recognized directly in equity and attributed to the equity holders of the Holding.

Goodwill

Goodwill arising from a business combination is recognized as an asset at the date that control is acquired (acquisition date). Goodwill is measured

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The accompanying notes are an integral part of these financial statements.

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as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquiree and the fair value of the

acquirer’s previously held equity interest (if any) in the entity net of the acquisition date amounts of the identifiable assets acquired and the liabilities

assumed.

Goodwill is not amortized but it is tested for impairment annually, or more frequently if events or changes in circumstances indicate that it might be

impaired and is carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of

goodwill relating to the entity sold. If, after reassessment, the net of the acquisition date amounts of the identifiable assets acquired and liabilities

assumed exceeds the sum of the consideration transferred, the amount of any non-controlling interests in the acquiree and the fair value of the

acquirer’s previously held interest in the acquire (if any), the excess is recognized immediately in profit or loss as a bargain purchase gain.

For the purposes of impairment testing, goodwill is allocated to each of the Group’s cash-generating units (or groups of cash-generating units)

(‘CGU’) that are expected to benefit from the synergies of the combination. The cash generated units or groups of units are identified at the lowest

level at which goodwill is monitored for internal management purposes, being the legal entity, which represents a production site of the Group,

except for the Farming segment where the whole segment is determined as one CGU and two grain export terminals which represent a single

CGU.

Non-current assets held for sale and Discontinued Operations

In compliance with IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, non-current assets and disposal groups are classified

as held for sale if their carrying amounts will be recovered principally through a sale transaction rather than through continuing use.

This condition is regarded as met only when the sale is highly probable within one year, and the asset or disposal group is available for immediate

sale in its present condition. Non-current assets are measured at the lower of the previous carrying amount or the fair value less costs to sell.

Events or circumstances may extend the period to complete the sale beyond one year. An extension of the period required to complete a sale does

not preclude an asset from being classified as held for sale if the delay is caused by events or circumstances beyond the Group’s control, and there

is sufficient evidence that the Group remains committed to its plan to sell the asset. In such circumstances, the asset is measured at its fair value

less costs to sell at each reporting date. Any impairment loss arising subsequent to reclassification as held for sale is recognized in the Consolidated

Statement of Profit or Loss. Non-current assets and liabilities of a disposal group classified as held for sale are presented separately from the other

assets and liabilities in the balance sheet.

Non-current assets are not depreciated or amortized while they are classified as held for sale.

If criteria for classification of the asset as held for sale are no longer met at the reporting date, the Group ceases to classify the asset as held for

sale.

A discontinued operation is a component of the Group that either has been disposed of, or is classified as held for sale, and:

• Represents a separate major line of business or geographical area of operations;

• Is part of a single coordinated plan to dispose of a separate major line of business or geographical area of operations; or

• Is a Subsidiary acquired exclusively with a view to resale.

The result from discontinued operations is presented in the Consolidated Statement of Profit or Loss as a separate item after the profit from

continuing operations. If the criteria for classification of the disposal group held for sale are met after the reporting date, the disposal group is not

presented as held for sale in those consolidated financial statements when issued. However, when those criteria are met after the reporting date

but before the authorization of the consolidated financial statements for issue, the Group discloses the relevant information in the notes to the

consolidated financial statements.

Fair Value Measurement

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at

the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes

place either in the principal market for the asset or liability, or in the absence of a principal market, in the most advantageous market for the asset

or liability. The principal or most advantageous market must be accessible to the Group.

The fair value of an asset or a liability is measured using the assumptions market participants would use when pricing the asset or liability, assuming

that market participants act in their economic best interest.

A fair value measurement of a non-financial asset takes into account a market participant’s ability to generate economic benefits by using the asset

in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses

valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use

of relevant observable inputs and minimizing the use of unobservable inputs.

All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value

hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole:

• Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

• Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

• Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.

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for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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For assets and liabilities that are recognized in the consolidated financial statements on a recurring basis, the Group determines whether transfers

have occurred between levels in the hierarchy by reassessing categorization (based on the lowest level input that is significant to the fair value

measurement as a whole) at the end of each reporting period.

Inventories

Inventories are stated at a lower cost or net realizable value. Cost comprises direct materials and, where applicable, direct labour costs and those

overheads that have been incurred in bringing the inventories to their present location and condition. Cost is calculated using the first-in, first-out

(FIFO) method. Net realizable value is the estimated selling price in the ordinary course of business less the estimated costs of completion and the

estimated costs necessary to make the sale.

Biological Assets and Agricultural Produce

The Group classifies crops in fields and cattle as biological assets.

Biological assets are stated at fair value less estimated costs to sell at both initial recognition and as of the reporting date, with any resulting gain

or loss recognized in the Consolidated Statement of Profit or Loss. Costs of selling include all costs that would be necessary to sell the assets,

including costs necessary to get the assets to market.

Agricultural produce harvested from biological assets is measured at its fair value less costs to sell estimated at the point of harvest. A gain or loss

arising from the initial recognition of agricultural produce at fair value less costs to sell is included in the Consolidated Statement of Profit or Loss.

The Group presents gain/(loss) on revaluation attributable to the agricultural produce sold during the year in the line Net change in fair value of

biological assets and agricultural produce.

Biological assets for which quoted market prices are not available are measured using the present value of expected net cash flows from the sale

of an asset discounted at a current market-determined rate. The objective of a calculation of the present value of expected net cash flows is to

determine the fair value of a biological asset in its present location and condition.

Cost of agricultural preparation of fields before seeding is recorded as work-in-progress in inventories. After seeding, the cost of field preparation

is recognized as biological assets held at fair value less costs to sell.

The Group classifies biological assets as current or non-current depending upon the average useful life of the particular group of biological assets.

All of the Group’s biological assets except non-current cattle were classified as current, as their average useful life is less than one year.

Property, Plant, and Equipment

Buildings, constructions, production machinery and equipment (Oilseed Processing segment) are accounted for at revalued amounts, being the

fair value, which is determined using external professional expert evaluation. Revaluations are performed with sufficient regularity such that the

carrying amount does not differ materially from that which would be determined using fair values at the reporting date. Any accumulated deprecia-

tion at the date of revaluation is eliminated against the gross carrying amount of the asset, and the net amount is restated to the revalued amount

of the asset.

If the asset’s carrying amount is increased as a result of a revaluation, the increase is credited directly to other comprehensive income and accu-

mulated in revaluation reserve in equity. However, such an increase is recognized in the Consolidated Statement of Profit or Loss to the extent that

it reverses an impairment of the same asset previously recognized in the Consolidated Statement of Profit or Loss. If the asset’s carrying amount

is decreased as a result of a revaluation, the decrease is recognized in the Consolidated Statement of Profit or Loss. However, such a decrease is

debited directly to the Other Comprehensive Income or Loss to the extent of any credit balance existing in the revaluation surplus with respect to

that asset.

Depreciation on revalued assets is charged to the Consolidated Statement of Profit or Loss. On the subsequent sale or retirement of revalued

assets, the revaluation surplus remaining in the revaluation reserve is transferred directly to retained earnings. No transfer is made from the

revaluation reserve to retained earnings except when an asset is derecognized. Property, plant and equipment are depreciated over the estimated

useful economic lives of assets under the straight-line method.

Useful lives of property, plant, and equipment are as follows:

Buildings and constructions

20 - 50 years

Production machinery and equipment

10 - 20 years

Agricultural equipment and vehicles

3 - 10 years

Other fixed assets

5 - 20 years

Construction in progress (CIP) and uninstalled equipment

not depreciated

Except for land, building and constructions and production machinery and equipment of Oilseed Processing segment, all other property, plant and

equipment is stated at historical cost less accumulated depreciation and accumulated impairment losses. Land is carried at cost less accumulated

impairment losses and is not depreciated.

Capitalized costs include major expenditures for improvements and replacements that extend the useful lives of assets or increase their revenue-

generating capacity. Repairs and maintenance expenditures that do not meet the foregoing criteria for capitalization are presented in the

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Consolidated Statement of Profit or Loss as incurred.

Construction in progress consists of costs directly related to the construction of property, plant and equipment including an appropriate allocation

of directly attributable variable overhead incurred during construction. Depreciation of these assets commences when the assets are put into

operation.

An item of property, plant and equipment is derecognized upon disposal or when no future economic benefits are expected to arise from the

continued use of the asset. Any gain or loss arising from the disposal or retirement of an item of property, plant and equipment is determined as

the difference between the sales proceeds and the carrying amount of the asset and is recognized in the Consolidated Statement of Profit or Loss.

Leases

The Group assesses whether a contract is, or contains, a lease at the inception of the contract. The Group recognizes right-of-use assets and

corresponding lease liabilities with respect to all lease arrangements in which it is the lessee, except for short-term leases (defined as leases with

a lease term of 12 months or less).

For the short-term leases, the Group recognizes the lease payments as an operating expense on a straight-line basis over the term of the lease

unless another systematic basis is more representative of the time pattern in which economic benefits from the leased assets are consumed.

The lease liability is initially measured at the present value of the lease payments that are not paid at the commencement date, discounted by using

the incremental borrowing rate. The incremental borrowing rate is determined as reference interest rates which were derived from the yields of

corporate bonds in the currency similar to the lease contracts, for a period up to 10 years.

Lease payments included in the measurement of the lease liability comprise:

• Fixed lease payments (including in-substance fixed payments), less any lease incentives receivable:

• Variable lease payments that depend on an index or rate, initially measured using the index or rate at the commencement date;

• The amount expected to be payable by the lessee under residual value guarantees.

• The exercise price of purchase options, if the lessee is reasonably certain to exercise the options; and

• Payments of penalties for terminating the lease, if the lease term reflects the exercise of an option to terminate the lease.

• The lease payments are discounted using the interest rate implicit in the lease. If that rate cannot be readily determined, which is generally the

case for leases of the Group, the Group’s incremental borrowing rate is used, being the rate that the Group would have to pay to borrow the

funds necessary to obtain an asset of similar value to the right-of-use asset in a similar economic environment with similar terms, collateral and

conditions.

• To determine the incremental borrowing rate, the Group:

− where possible, uses recent third-party financing received by the Group as a starting point, adjusted to reflect changes in financing conditions

since third party financing was received,

− uses a build-up approach that starts with a risk-free interest rate adjusted for credit risk, and

− makes adjustments specific to the lease, e.g., term, country, currency and collateral

The Group remeasures the lease liability (and makes a corresponding adjustment to the related right-of-use asset) whenever:

• The lease term has changed or there is a significant event or change in circumstances resulting in a change in the assessment of exercise of a

purchase option, in which case the lease liability is remeasured by discounting the revised lease payments using a revised discount rate.

• The lease payments change due to changes in an index or rate or a change in expected payment under a guaranteed residual value, in which

cases the lease liability is remeasured by discounting the revised lease payments using an unchanged discount rate (unless the lease payments

change is due to a change in a floating interest rate, in which case a revised discount rate is used).

• A lease contract is modified, and the lease modification is not accounted for as a separate lease, in which case the lease liability is remeasured

based on the lease term of the modified lease by discounting the revised lease payments using a revised discount rate at the effective date of

the modification.

The right-of-use assets comprise the initial measurement of the corresponding lease liability, lease payments made at or before the commencement

day, any lease incentives received and any initial direct costs. Right-of-use assets are depreciated on a straight-line basis from the commencement

date of the lease.

The commencement date is the date on which a lessor makes an underlying asset available for use by a lessee.

The right-of-use assets and lease liabilities are presented as separate lines in the consolidated statement of financial position.

Finance costs, which represent the difference between the total lease payments included in the measurement of the lease liability and the initial

amount of the lease liability, are charged to profit or loss over the term of the relevant lease so as to produce a constant periodic rate of charge on

the remaining balance of the obligations for each accounting period.

Intangible Assets

Intangible assets with finite useful lives that are acquired separately are carried at cost less accumulated depreciation and accumulated impairment

losses. Amortization is primarily recognized within “Cost of Sales” on a straight-line basis over their estimated useful lives. The amortization method

and estimated useful life are reviewed annually with the effect of any changes in estimate being accounted for on a prospective basis. Intangible

assets with indefinite useful lives that are acquired separately shall not be amortized and are carried at cost less accumulated impairment loss.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Trademarks

The ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ are separately acquired trademarks that have indefinite useful lives and are not amortized

but tested for impairment by comparing their recoverable amount with their carrying amount annually on 30 June and whenever there is an indication

that the trademarks may be impaired.

Crypto Assets

The Group owned crypto assets which meet the definition of an intangible asset in accordance with IAS 38 Intangible Assets. The following inherent

characteristics were considered to classify crypto assets as intangible assets:

• Assets are identifiable;

• Assets have a lack of physical substance;

• Groups has control over the resource; and

• Future economic benefits exist.

The crypto assets are carried initially at a cost comprised of purchase price and transaction costs. The Group considers that the crypto assets do

not have a foreseeable limit to the period over which it is expected to generate net cash inflows for the Group, as a result no amortization is required.

The Group applies the cost model: crypto assets are measured at cost on initial recognition and are subsequently measured at cost less impairment

losses, if any.

Impairment of tangible and intangible assets, except Goodwill

On each reporting date, the Group reviews the carrying amounts of the Group’s non-current assets to determine whether there is any indication

that those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the assets is estimated in order to

determine the extent of the impairment loss (if any). Where it is not possible to estimate the recoverable amount of an individual asset, the Group

estimates the recoverable amount of the cash-generating unit to which the asset belongs.

The recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows

are discounted to their present value using a discount rate that reflects current market assessments of the time value of money and the risks

specific to the asset for which the estimates of future cash flows have not been adjusted.

If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than it is carrying amount, the carrying amount of the asset

(or cash-generating unit) is reduced to its recoverable amount. The cash generating unit represents the lowest level within the Group at which the

goodwill is monitored by management and which is not larger than a segment. An impairment loss is recognized immediately in the Consolidated

Statement of Profit or Loss, unless the relevant asset is carried at a revalued amount, in which case the impairment loss is treated as a revaluation

decrease.

Where an impairment loss subsequently reverses, the carrying amount of the asset (or a cash-generating unit) is increased to the revised estimate

of its recoverable amount to the extent that the increased carrying amount does not exceed the carrying amount that would have been determined

had no impairment loss been recognized for the asset (or cash-generating unit) in prior years. A reversal of an impairment loss is recognized

immediately in the Consolidated Statement of Profit or Loss, unless the relevant asset is carried at a revalued amount, in which case the reversal

of the impairment loss is treated as a revaluation increase.

Cash and cash equivalents.

Cash and cash equivalents include cash in hand, deposits held with banks with original maturities of three months or less. Cash and cash equiva-

lents are carried at amortized cost because: (i) they are held for collection of contractual cash flows and those cash flows represent SPPI, and (ii)

they are not designated at FVTPL. Restricted balances are excluded from cash and cash equivalents for the purposes of the consolidated statement

of cash flows.

Financial Instruments

Financial asset and financial liability are recognized in the Group’s Consolidated Statement of Financial Position when, and only when, the Group

entity becomes a party to the contractual provisions of the instrument.

Financial assets are classified to the following categories financial assets at amortized cost, at fair value through other comprehensive income

(FVTOCI) or at fair value through profit or loss (FVTPL). The classification depends on the business model and contractual cash flow characteristics

of the financial assets or financial liabilities and is determined at the time of initial recognition.

The Group does not have financial instruments carried at FVTOCI. The Group measures derivative instruments and investments made in equity

instruments at FVTPL, all other financial instruments are measured at amortized cost.

Financial assets and financial liabilities are initially measured at fair value, except for trade receivables and trade payables that do not have a

significant financing component which are measured at transaction price. All recognized financial assets are measured subsequently in their entirety

at either amortized cost or fair value, depending on the classification of the financial assets. All financial liabilities are measured subsequently at

amortized cost using the effective interest method or at FVTPL. Transaction costs that are directly attributable to the acquisition or issue of financial

assets and financial liabilities (other than financial assets and financial liabilities at fair value through profit or loss) are added to or deducted from

the fair value of the financial assets or financial liabilities, as appropriate, on initial recognition. Transaction costs directly attributable to the acqui-

sition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Amortized cost and effective interest method

The Group measures financial assets at amortized cost if both of the following conditions are met:

• The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and

• The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the

principal amount outstanding.

Financial assets at amortized cost are subsequently measured using the effective interest method and are subject to impairment. Gains and losses

are recognized in profit or loss when the asset is derecognized, modified or impaired.

The effective interest method calculates the amortized cost of a debt instrument and allocates interest income over the relevant period. The effective

interest rate is the rate that exactly discounts estimated future cash receipts (including all fees and points paid or received that form an integral part

of the effective interest rate, transaction costs and other premiums or discounts) through the expected life of the debt instrument, or, where appro-

priate, a shorter period, to the net carrying amount on initial recognition.

Interest income is recognized on an effective interest basis for debt instruments other than those financial assets classified as at fair value through

profit or loss. The effect of initial recognition of financial assets and liabilities obtained/incurred at terms below the market is recognized net of the

tax effect as an income or expense, except for financial assets and liabilities with shareholders or entities under control of the Beneficial Owner,

whereby the effect is recognized through equity.

Financial assets at FVTPL

Financial assets that do not meet the criteria for being measured at amortized cost or FVTOCI are measured at FVTPL. Specifically:

• Investments in equity instruments are classified as at FVTPL, unless the Group designates an equity investment that is neither held for trading

nor a contingent consideration arising from a business combination as at FVTOCI on initial recognition;

• Debt instruments that do not meet the amortized cost criteria or the FVTOCI criteria are classified as at FVTPL. In addition, debt instruments

that meet either the amortized cost criteria or the FVTOCI criteria may be designated as at FVTPL upon initial recognition if such designation

eliminates or significantly reduces a measurement or recognition inconsistency (so called ‘accounting mismatch’) that would arise from measuring

assets or liabilities or recognizing the gains and losses on them on different bases. The Group has not designated any debt instruments as at

FVTPL.

Financial assets at FVTPL are measured at fair value at the end of each reporting period, with any fair value gains or losses recognized in profit or

loss to the extent they are not part of a designated hedging relationship. The net gain or loss recognized in profit or loss includes any dividend or

interest earned on the financial asset.

Derecognition of financial assets

The Group derecognizes a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial

asset and all the risks and rewards to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership

and continues to control the transferred asset, the Group recognizes its retained interest in the asset and associated liability for amounts it may

have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to

recognize the financial asset and also recognizes collateralized borrowing for the proceeds received.

On derecognition of a financial asset in its entirety, the difference between the asset’s carrying amount and the sum of the consideration received

and receivable is recognized in the Consolidated Statement of Profit or Loss.

On derecognition of a financial asset other than in its entirety (e.g. when the Group retains an option to repurchase part of a transferred asset or

retains a residual interest that does not result in the retention of substantially all the risks and rewards of ownership and the Group retains control),

the Group allocates the previous carrying amount of the financial asset between the part it continues to recognize under continuing involvement,

and the part it no longer recognizes on the basis of the relative fair values of those parts on the date of the transfer. The difference between the

carrying amount allocated to the part that is no longer recognized and the sum of the consideration received for the part no longer recognized and

any cumulative gain or loss allocated to it that had been recognized in other comprehensive income is recognized in the Consolidated Statement

of Profit or Loss. A cumulative gain or loss that had been recognized in other comprehensive income is allocated between the part that continues

to be recognized and the part that is no longer recognized on the basis of the relative fair values of those parts.

Impairment of financial assets

The Group recognizes a loss allowance for expected credit losses (ECL) on a financial asset, other than those at FVTPL, at the end of each

reporting period. The amount of ECL and other current assets is updated at each reporting date to reflect changes in credit risk since initial

recognition of the respective financial instrument.

The Group applies a simplified approach permitted by IFRS to measuring ECL which uses a lifetime expected loss allowance for trade receivables.

The ECL on trade receivables and other current assets is estimated using a provision matrix, based on historical credit loss experience and credit

rating of customers, adjusted on observable and reasonable information.

Lifetime ECL represents the expected credit losses that will result from all possible default events over the expected life of a financial instrument.

In contrast, 12-month ECL represents the portion of lifetime ECL that is expected to result from default events on a financial instrument that are

possible within 12 months after the reporting date.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The Group writes off a financial asset when there is information indicating that the debtor is in severe financial difficulty and there is no realistic

prospect of recovery, e.g. when the debtor has been placed under liquidation or has entered into bankruptcy proceedings, or in the case of trade

accounts receivable, when the amounts are over three years past due, whichever occurs sooner. Financial assets written off may still be subject

to enforcement activities under the Group’s recovery procedures, taking into account legal advice where appropriate. Any recoveries made are

recognized in profit or loss.

Definition of default

The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates

that financial assets that meet either of the following criteria are generally not recoverable:

• when there is a breach of financial covenants by the debtor; or

• information developed internally or obtained from external sources indicates that the debtor is unlikely to pay its creditors, including the Group,

in full (without taking into account any collateral held by the Group).

Irrespective of the above analysis, the Group considers that default has occurred when a financial asset is more than 90 days past due unless the

Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.

Financial liabilities measured subsequently at amortized cost

Financial liabilities that are not (i) contingent consideration of an acquirer in a business combination, (ii) held‑for‑trading, or (iii) designated as at

FVTPL, are measured subsequently at amortized cost using the effective interest method.

Financial liabilities at FVTPL

Financial liabilities are classified as at FVTPL when the financial liability is (i) contingent consideration of an acquirer in a business combination, (ii)

held for trading or (iii) it is designated as at FVTPL.

A financial liability is classified as held for trading if:

• it has been acquired principally for the purpose of repurchasing it in the near term; or

• on initial recognition it is part of a portfolio of identified financial instruments that the Group manages together and has a recent actual pattern of

short‑term profit‑taking; or

• it is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective hedging instrument.

A financial liability other than a financial liability held for trading or contingent consideration of an acquirer in a business combination may be

designated as at FVTPL upon initial recognition if:

• such designation eliminates or significantly reduces a measurement or recognition inconsistency that would otherwise arise; or

• the financial liability forms part of a group of financial assets or financial liabilities or both, which is managed and its performance is evaluated

on a fair value basis, in accordance with the Group’s documented risk management or investment strategy, and information about the grouping

is provided internally on that basis; or

• it forms part of a contract containing one or more embedded derivatives, and IFRS 9 permits the entire combined contract to be designated as

at FVTPL.

Financial liabilities at FVTPL are measured at fair value, with any gains or losses arising on changes in fair value recognized in profit or loss to the

extent that they are not part of a designated hedging relationship. The net gain or loss recognized in profit or loss incorporates any interest paid on

financial liability.

However, for financial liabilities that are designated as at FVTPL, the amount of change in the fair value of the financial liability that is attributable

to changes in the credit risk of that liability is recognized in other comprehensive income, unless the recognition of the effects of changes in the

liability’s credit risk in other comprehensive income would create or enlarge an accounting mismatch in profit or loss. The remaining amount of

change in the fair value of liability is recognized in profit or loss. Changes in fair value attributable to a financial liability’s credit risk that is recognized

in other comprehensive income are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings upon derecog-

nition of the financial liability.

Derecognition of financial liabilities

The Group derecognizes financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or have expired. The difference

between the carrying amount of the financial liability derecognized and the consideration paid and payable is recognized in profit or loss.

When the Group exchanges with the existing lender one debt instrument into another one with the substantially different terms, such exchange is

accounted for as an extinguishment of the original financial liability and the recognition of a new financial liability. Similarly, the Group accounts for

substantial modification of terms of an existing liability or part of it as an extinguishment of the original financial liability and the recognition of a new

liability. It is assumed that the terms are substantially different if the discounted present value of the cash flows under the new terms, including any

fees paid net of any fees received and discounted using the original effective rate is at least 10 per cent different from the discounted present value

of the remaining cash flows of the original financial liability. If the modification is not substantial, the difference between:

1. the carrying amount of the liability before the modification; and

2. the present value of the cash flows after modification should be recognized in the statement profit or loss as the modification gain or loss within

other operating income and expenses.

Commodity derivatives

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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The Group enters into a variety of derivative financial instruments including futures, options and physical contracts to buy or sell commodities,

which do not meet the own use exemption. These derivatives are initially recognized at fair value at the date the derivative contracts are entered

into and are subsequently remeasured to their fair value at the end of each reporting period. The resulting gain or loss is recognized immediately

in the profit or loss within Cost of sales (for the derivative purchase contracts) or Revenue (for settled forward sales contracts) unless the derivative

is designated and effective hedging instrument, in which case the timing of the recognition in profit or loss depends on the nature of the hedge

relationship. Fair values are determined using quoted market prices, broker quotations or using models and other valuation techniques.

A derivative with a positive fair value is recognized as a financial asset whereas a derivative with a negative fair value is recognized as a financial

liability.

Other financial assets include margin accounts that are represented by variation margin and initial margin held in respect of open exchange-traded

futures and forwards contracts. Margin accounts are measured at amortized cost.

For the financial assets and liabilities subject to enforceable master netting or similar arrangements above, each agreement between the Group

and the counterparty allows for net settlement of the relevant financial assets and liabilities when both elect to settle on a net basis (Note 37). In

the absence of such an election, financial assets and liabilities may be settled on a gross basis, however, each party to the master netting or similar

agreement will have the option to settle all such amounts on a net basis in the event of default of the other party. Per the terms of each agreement,

an event of default includes failure by a party to make payment when due, failure by a party to perform any obligation required by the agreement

(other than payment) if such failure is not remedied within periods of 30 to 60 days after notice of such failure is given to the party or bankruptcy.

Derivatives and hedging activities

Derivatives are initially recognized at fair value on the date a derivative contract is entered into and are subsequently remeasured at their fair value

at each reporting period. The resulting gain or loss is recognized in profit or loss immediately unless the derivative is designated and effective as

a hedging instrument. Derivatives expected to be settled within a year after the end of the reporting period are classified as current liabilities or

current assets.

The Group utilizes derivatives to hedge market risk exposures related to commodity price movements in relation to its sales. Those derivatives

qualifying and designated as cash flow hedge of the exposure to variability in cash flows that is attributable to a risk or a highly probable forecast

sale transaction. The gains and losses, the effective portion of changes in the fair value of derivatives is recognized in the cash flow hedging

reserve within equity, limited to the cumulative change in fair value of the hedged item on a present value basis from the inception of the hedge

and recycled to profit or loss as the hedged transaction occurs. Amounts deferred in equity are transferred to the statement of profit or loss and

classified as income or expense in the same periods during which the cash flows, such as hedged highly probable sales, affect the statement of

profit or loss. Derivatives that do not qualify for hedge accounting have a gain or loss recognized in the income statement at the time of the

transaction.

Hedge effectiveness is determined at the inception of the hedge relationship, and through periodic prospective effectiveness assessments to ensure

that an economic relationship exists between the hedged item and hedging instrument. The effective portion of changes in the fair value of deriva-

tives and other qualifying hedging instruments that are designated and qualify as cash flow hedges is recognized in other comprehensive income

and accumulated under the heading of cash flow hedging reserve, limited to the cumulative change in fair value of the hedged item from inception

of the hedge. The gain or loss relating to the ineffective portion is recognized immediately in profit or loss and is included in the Revenue line.

When a hedging instrument expires, or is sold or terminated, or when a hedge no longer meets the criteria for hedge accounting, any cumulative

deferred gain or loss and deferred costs of hedging in equity at that time remains in equity until the forecast transaction occurs. When the forecast

transaction is no longer expected to occur, the cumulative gain or loss and deferred costs of hedging that were reported in equity are immediately

reclassified to profit or loss.

The risk management objective is to hedge commodity price risk exposure arising from the changes in sunflower oil market price. In order to comply

with its risk management strategy, the Group enters into sunflower oil commodity sales agreements with counterparties matching the highly prob-

able forecasted sale quantity per time bucket in the end destination to hedge the identified commodity price exposure for its future sales at end

destination. There is an economic relationship between the hedged items and the hedging instruments as the designated hedged items and hedging

instruments’ quantities and timing of the cash flows is matching and there is high correlation in movement of prices for hedged item and hedging

instrument. The Group has established a hedge ratio of 1:1 for the hedging relationships as the underlying risk of the commodity forward contracts

are identical to the hedged risk components. To quantify the hedge ineffectiveness, the Group uses the hypothetical derivative method and com-

pares the changes in the fair value of the hedging instruments against the changes in fair value of the hedged items attributable to the hedged

risks.

Share-based payments

Equity-settled share-based payments with employees are measured by reference to the fair value at the grant date and are recognized as an

expense over the vesting period, which ends on the date the relevant employees become fully entitled to the award.

Fair value is calculated using the Monte Carlo Simulation model. No expense is recognized for awards that do not ultimately vest.

At each reporting date before vesting, the cumulative expense is calculated representing the extent to which the vesting period has expired and

management’s best estimate of the achievement or otherwise of non-market conditions and of the number of equity instruments that will ultimately

vest. The movement in cumulative expense from the previous reporting date is recognized in the Consolidated Statement of Profit or Loss, with a

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Statements

corresponding entry in equity.

For cash-settled share-based payments, a liability is recognized for the goods or services acquired, measured initially at the fair value of the liability.

At each reporting date until the liability is settled, and at the date of settlement, the fair value of the liability is remeasured, with any changes in fair

value recognized in profit or loss for the year.

Treasury shares

Own equity instruments held by the Group (‘Treasury shares') shall be deducted from equity. No gain or loss shall be recognized in profit or loss

on the purchase, sale, issue, or cancellation of the Group’s own equity instruments. These treasury shares may be acquired and held by the entity

or by other members of the Group. Any difference between the carrying amount and the consideration, if reissued, will be recognized in the share

premium reserve.

Provisions

A provision is recognized in the Consolidated Statement of Financial Position when the Group has a legal or constructive obligation as a result of

a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation and a reliable estimate of the obligation

amount can be made. The amount recognized as a provision is the best estimate of the consideration required to settle the present obligation at

the reporting date, considering the risks and uncertainties surrounding the obligation.

Revenue recognition

Revenue is derived principally from the sale of goods and finished products, farming and rendering services. Revenue from contracts with custom-

ers is recognized when control of the goods or services is transferred to the customer at an amount that reflects the consideration to which the

Group expects to be entitled in exchange for those goods or services.

The point of revenue recognition for sale of commodity goods is dependent upon contract sales terms (Incoterms). When goods are sold on a Cost

and freight (CFR) or Cost, insurance, and freight (CIF) basis, the Group is responsible for providing services such as carriage and freight to the

customer. The Group recognizes revenue from each separate performance obligation and allocates part of the transaction price to carriage and

freight services incorporated in some contracts that the Group undertakes to perform. The Group allocates the transaction price based on the

relative stand-alone selling prices of the commodities and supporting services. The revenue from these carriage and fright services is recognized

over time.

A receivable is recognized by the Group when the control over goods is transferred to the wholesaler as this represents the point of time at which

the right to consideration becomes unconditional, as only the passage of time is required before payment is due. Timing of billing is generally close

to the timing of performance obligation satisfaction, respectively, amount of contract assets and contract liabilities is not material. When the Group

obtains a contract from a customer, the Group enters into a contract with one of those service providers, directing the service provider to render

freight and other services for the customer. The Group is obliged to pay the service provider even if the customer fails to pay.

Rendering of Services

Revenue is recognized over time for services provided by the Group. The main type of services provided by the Group a crop cleaning, drying and

storage services by the Group’s silos. Revenue from grain cleaning, drying and storage services is recognized on an accrual basis, based on the

fees for the specific service, volumes of crops under service and days of storage.

Employee benefits

Wages, salaries, contributions to the pension and social insurance funds, paid annual leave and sick leave, bonuses, and non-monetary benefits

are accrued in the year in which the associated services are rendered by the employees of the Group. The Group recognizes a liability and an

expense for short-term bonuses and other short-term profit-sharing arrangements when the reporting entity has a present legal or constructive

obligation to make payments as a result of past events and a reliable estimate can be made of the amount payable.

Share based options

The Group recognizes a compound financial instrument if an entity has granted the counterparty the right to choose whether a share-based payment

transaction is settled in cash or by issuing equity instruments, which includes a debt component (i.e. the counterparty’s right to demand payment

in cash) and an equity component (i.e. the counterparty’s right to demand settlement in equity instruments rather than in cash). The Group measures

the debt component of the compound financial instrument first, and then measures the fair value of the equity component—taking into account that

the counterparty must forfeit the right to receive cash in order to receive the equity instrument. The fair value of the compound financial instrument

is determined as the sum of the fair values of the two components.

Borrowing Costs

Borrowing costs directly attributable to the acquisition, construction or production of qualifying assets, which are assets that necessarily take a

substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are

substantially ready for their intended use or sale.

All other borrowing costs are recognized in the Consolidated Statement of Profit or Loss in the period in which they are incurred.

Taxation

Income taxes have been provided for in the consolidated financial statements in accordance with legislation currently enacted in the legal jurisdic-

tions where the operating entities are located. Income tax expense represents the sum of the tax currently payable and deferred tax expense.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Current and deferred tax for the year

Current and deferred tax are recognized in the Consolidated Statement of Profit or Loss, except when they relate to items that are recognized in

other comprehensive income or directly in equity, in which case, the current and deferred tax are also recognized in other comprehensive income

or directly in equity, respectively. Where current tax or deferred tax arises from the initial accounting for a business combination, the tax effect is

included in the accounting for the business combination.

Current tax

The current income tax charge is the amount expected to be paid to, or recovered from, taxation authorities with respect to taxable profit or losses

for the current or previous periods. It is calculated using tax rates that have been enacted or substantially enacted by the reporting date in the

countries where the Holding and its Subsidiaries operate and generate taxable income. Taxable profit differs from ‘profit before tax’ because of

items of income or expense that are taxable or deductible in other years and items that are never taxable or deductible taxes other than income

tax are recorded within operating expenses. Some of the Group’s companies that are involved in agricultural production are exempt from income

taxes and pay the Unified Agricultural Tax instead.

Deferred tax

Deferred income tax is recognized on temporary differences arising between the carrying amount of assets and liabilities in the financial statements

and their corresponding tax bases used in the computation of taxable profit. Deferred tax balances are measured at tax rates enacted or substan-

tively enacted at the end of the reporting period that are expected to apply to the period when the temporary differences will reverse, or the tax loss

carried forward will be utilized. Deferred tax assets for deductible temporary differences and tax losses carried forward are recorded only to the

extent that it is probable that future taxable profit will be available against which the deductions can be utilized.

The carrying amount of deferred tax assets is reviewed at the end of each reporting period and reduced to the extent that it is no longer probable

that sufficient taxable profits will be available to allow all or part of the assets to be recovered.

Deferred tax liabilities for taxable temporary differences associated with investments in Subsidiaries and joint ventures are recognized, except

when the Group is able to control the reversal of the temporary difference and it is probable that the temporary difference will not reverse in the

foreseeable future. In addition, a deferred tax liability is not recognized if the temporary difference arises from the initial recognition of goodwill.

Deferred tax assets and liabilities are offset when:

• The Group has a legally enforceable right to set off the recognized amounts of current tax assets and current tax liabilities;

• The Group has the intention to settle on a net basis, or to realize the asset and settle the liability simultaneously;

• The deferred tax assets and the deferred tax liabilities relate to income taxes levied by the same taxation authority in each future period in which

significant amounts of deferred tax liabilities and assets are expected to be settled or recovered.

Corrections and reclassifications

Certain corrections and reclassifications were made in the comparatives to conform to the current year’s presentation in the Notes 17, 34, 36 and

37. The Group believes that the change provides reliable and more relevant information.

5. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

The application of IFRS requires management to make reasonable judgments, assumptions and estimates. These estimates and assumptions

affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the consolidated financial

statements. The estimates are based on the information available as of the reporting date. Actual results could differ from these estimates.

The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in

which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the revision affects both

current and future periods.

Critical Judgments in Applying Accounting Policies

The following are the critical judgments, apart from those involving estimations (see below), that management has made in the process of applying

the Group’s accounting policies and that have the most significant effect on the amounts recognized in the consolidated financial statements.

Revaluation of Property, Plant and Equipment

The Group recognizes the buildings, constructions, production machinery and equipment used in the Oilseed Processing segment at the fair value,

and assesses the carrying amount of items of property, plant and equipment through the revaluation model to determine whether the carrying

amount differs materially from fair value. All other classes of property, plant and equipment are recognized at historical cost less depreciation.

The most recent valuation of the Group’s buildings, constructions, production machinery and equipment used in the Oilseed Processing segment

was performed as of 30 June 2022 by an independent appraiser in accordance with International Valuation Standards. Some machinery and

equipment were valued using the market approach, which is within level 3 of the fair value hierarchy. Other items of buildings, constructions,

machinery and equipment were valued using the depreciated replacement cost approach, which is within level 3 of the fair value hierarchy. The

results of the depreciated replacement cost and market approach were then compared with results of income approach (Level 3 of unobservable

inputs) for corresponding assets to test whether impairment exists.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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As of 30 June 2023 the Group’s analysis did not reveal that the fair value of the categories of property, plant and equipment carried at fair value

may be significantly different from their carrying amount. Therefore, revaluation of buildings, constructions, production machinery and equipment

used in the Oilseed Processing segment was not carried out as of 30 June 2023.

Key sources of estimation uncertainty

The following are the key assumptions concerning the future, and other key sources of estimating uncertainty at the end of the reporting period,

that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year.

Impairment Testing of Property, Plant and Equipment

The Group performs impairment testing of non-financial assets whenever there is an indicator those assets might be impaired.

Full-scale Russian invasion of Ukraine caused the following events which might indicate impairment:

• temporarily breakouts of the operations;

• breaches of supply/purchase contracts;

• limitation of market for product delivery;

• limitation of export routes; and

• decline in profitability and physical damage as a result of the invasion.

As a result of the above-mentioned triggering events, the Group tested non-current assets for recoverability by comparing the net carrying value of

the assets and their recoverable amount (higher in their value in use or fair value less cost to sell).

The Group performed the impairment test at CGU level, for all CGUs of all segments, covering property, plant and equipment, intangible assets,

right of use assets and goodwill. The recoverable amount of each CGU was determined based on the higher amount of value-in-use and fair value

less costs to sell. In a case of impairment, the Group firstly allocates impairment to goodwill, then proportionally other intangible assets, property,

plant and equipment and rights of use the assets.

In making the assessment for impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating

unit.

During the year ended 30 June 2023, the Group combined two CGUs into one for the purposes of terminals’ impairment test. Historically, CGU

was determined at the level of separate legal entities, each holding one export terminal. The Group considered that CGU which includes both

export terminals (i.e. combines both legal entities) better presents a pattern of assets utilization and management hence providing more reliable

results for impairment test.

The value in use is based on estimated future cash flows that are discounted to their present value applying the appropriate discount rate. Estimated

future cash flows require management to make a number of assumptions including (but not limited to) production volumes, prices for goods, lease

and transshipment rates, and future growth rates. Cash flow forecasts used in the value in use approach were based on financial budgets approved

by management covering a five-year period and extrapolated using the estimated growth rates for periods over 5 years.

To capture the increased risk and uncertainty in the cash flows, management used probability-based discounted cash flow scenarios, which,

according to their opinion, better estimates the recoverable amount of the asset or cash-generating unit than a single predicted outcome.

The Group used three probability-weighted scenarios, derived mostly from the date of Ukrainian Black Sea ports operation at full capacity, which

influenced the main assumptions used in value in use calculation, like: prices for its goods, transportation costs and working capital. Probability of

scenarios was calculated based on three-point estimation technique.

Scenario

Assumption

Probability

Basic

Ukrainian Black Sea ports operation at full capacity by the second half of the financial year 2024

66.66%

Optimistic

Ukrainian Black Sea ports operation at full capacity in the first half of the financial year 2024

16.67%

Pessimistic

Ukrainian Black Sea ports operation at full capacity in the financial year 2025

16.67%

The logistics routes and transportation costs per unit of production, as well as the distance to the point of sale, undergo significant changes

depending on when ports reach full operational capacity each year. These alterations in transportation costs have a direct impact on the selling

prices of goods in each situation. Furthermore, the working capital ratio fluctuates in accordance with the scenario, as it is closely tied to sales

volume and the corresponding inventory balance at the close of each year.

While calculating the discount rate, the Group incorporated the risks associated with the Russian invasion in scenarios of cash flows, hence such

components of discount rate, as country risk and debt risk were taken at the pre-war level. The discount rate is disclosed in Note 15. Should the

Group take these factors at the post-war levels, the discount rate would have been 24.4% for UAH-denominated cash flows and 17.1% for USD-

denominated cashflow.

Other key assumptions used in the discounted cash flow forecasts and their sensitivities are disclosed in Note 15.

Impairment of Right of Use Assets

The Group allocated the right of use assets to a cash generating unit, for impairment test within the respective CGU. The majority of the Group’s

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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right of use assets relate to leasehold land for agricultural purposes, being part of the Farming segment.

Details of the management assumptions used to assess the recoverable amount of cash-generating units which right of use assets were allocated

to are provided in Note 5 under Impairment Testing of Property, Plant and Equipment section and Note 15.

Impairment Testing of Goodwill and Intangible Assets with Indefinite Useful Lives

The Group assesses CGU, for impairment whenever events or changes circumstances indicate that the carrying amount of assets or CGU may be

impaired. Individual assets are grouped into CGU for representing the lowest level within the entity at which the goodwill is monitored by manage-

ment.

Determining whether goodwill is impaired requires an estimation of the value in use or fair value less costs to sell of the cash-generating units to

which goodwill has been allocated. Where the carrying amount of a CGU exceeds its recoverable, The CGU is considered impaired and is written

down to its recoverable amount. The calculation of value in use requires management to estimate the future cash flows expected to arise from the

cash-generating unit and a suitable discount rate in order to calculate their present value.

Details of the management assumptions used to assess the recoverable amount of cash-generating units for which goodwill and intangible assets

with indefinite useful lives have been allocated to are provided in Note 5 under Impairment Testing of Property, Plant, and Equipment section and

Notes 15, 17 and 18.

Functional currencies of different entities of the Group

Different entities within the Group have different functional currencies, based on the underlying economic conditions of their operations. This

determination of what the specific underlying economic conditions are requires judgement. In making this judgement, the Group evaluates among

other factors, the location of activities, the sources of revenue and risks associated with activities, denomination of currencies of operations of

different entities and degree of independence of subsidiaries’ business model. Specifically, in determination of the functional currencies of Kernel

Trade LLC, the Group based its judgement on the fact that the company operates internationally on the markets mainly influenced by the US Dollar

(not Ukrainian Hryvnia) and its major activities include the sale of goods to foreign customers. Moreover, the majority of its operations are denom-

inated in US Dollars and also, the US Dollar is the currency in which their business risks and exposures are managed, and the performance of their

business is measured. In determining the functional currency of the oil-processing plants and transshipment terminals, the Group based its judge-

ment on the degree of independence of those companies’ business model of Kernel Trade LLC.

Crypto assets

The Group’s cryptocurrency assets are recognized as intangible assets carried at cost less impairment, if any. Assessment of impairment is a key

source of estimation due to volatility of prices in the market. The Group performs an analysis each quarter to identify if events or changes in

circumstances, such as decreases in quoted prices on active exchanges, indicated that it is more likely than not that any of the assets is impaired.

In determining if an impairment has occurred, the Group considers the lowest market price of one unit of digital asset quoted on the active exchange

since acquiring the digital asset. If the current carrying value of a digital asset exceeds the fair value so determined, an impairment loss has

occurred with respect to those digital assets in the amount equal to the difference between their carrying values and the price determined. As of

30 June 2023, the Group did not own any crypto assets.

Net realizable value of inventory

As of 30 June 2023 and 2022, the Group encountered a situation where reliable, directly observable price inputs for inventory were unavailable.

The Group analysed data from independent broker agencies and market data and factored in the costs associated with alternative export routes,

particularly because Ukrainian Black Sea ports were not operational at the time these consolidated financial statements were issued. As the result,

the Group recognized USD 65,690 thousand (30 June 2022: USD 98,229 thousand) to decrease the cost of certain inventories to their net realizable

value (Note 12). As of 30 June 2023, the decrease in price by 10% will lead to a decrease in inventory balance by USD 25,214 thousand, while the

increase in transportation costs by 10% will lead to a reduction in inventory balance by USD 9,488 thousand (30 June 2022: a decrease in price

by 10 % USD 105,995 thousand and an increase in transportation cost by 10% decrease in inventory balance by USD 32,052 thousand, respec-

tively).

Fair Value of Biological Assets and Agricultural Produce

Biological assets are recorded at fair value less costs to sell. The fair value of growing crops is determined using a discounted cash flow model

based on the expected crops’ yield by sowing area size, the market price for respective crops, and after allowing for harvesting costs, contributory

asset charges for the land and sowing areas and other costs yet to be incurred in getting the harvest to maturity.

The Group estimates the fair values of biological assets and agricultural produce based on the following key assumptions:

• Expected crop yields (for crops in fields);

• Average weight and quality of animals;

• Productive life of one milk cow;

• Estimated future sales prices;

• Projected production costs and costs to sell; and

• Discount rate.

Although some of these assumptions are obtained from published market data, a majority of these assumptions are estimated based on the Group’s

historical and projected results (Note 13).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Fair value measurements

Derivative instruments are reported at their fair value, and the Group assesses the reliability and quality of the assumptions and data used for fair

value measurement in accordance with the three hierarchy levels as outlined in IFRS 13 Fair Value Measurement. Fair values are determined

through the following methods: firstly, they are externally verified by comparing them to quoted market prices in active markets (Level 1); secondly,

they are calculated using models that rely on externally verifiable inputs (Level 2); or thirdly, they are established using alternative procedures,

such as comparing them to similar instruments and/or utilizing models that involve unobservable market inputs, which necessitate the Group to

make assumptions based on market conditions (Level 3). It's worth noting that Level 3 inputs involve the highest degree of estimation uncertainty.

Further details regarding the management's estimates can be found in Note 36 of these consolidated financial statements.

6. Operating Segments

Operating segments are reported in a manner consistent with the internal reporting as provided to the chief operating decision makers in order to

allocate resources to the segment and to assess its performance. The executive management who are members of the board of directors of the

Company are identified as chief operating decision makers.

Segments in the consolidated financial statements are defined in accordance with the type of activity, products sold or services provided. Segmen-

tation presented in these consolidated financial statements is consistent with the structure of financial information regularly reviewed by the Group’s

executive management, including Chief Executive Officer. Operating segments’ performance is assessed based on a measure of EBITDA.

The Group is presenting its segment results within three operating segments: Oilseed Processing, Infrastructure and Trading, and Farming.

In the Oilseed Processing segment, the Group combines oilseed origination, edible oil production and sales of bottled sunflower oil. Sunflower oil

in bulk is mostly sold further to the Infrastructure and Trading segment for global marketing.

In the Infrastructure and Trading segment, the Group combines results of grain trading, silo services and export terminals operations. These parts

of the business form an integrated supply chain which is managed jointly. Under the current framework, the management considers export terminals

and grain storage facilities as production assets which serve grain merchandizing business and consequently uses a combined throughput margin

to evaluate performance of Infrastructure and Trading business. In 2023 and 2022, 100% of the Group’s export terminals capacity and majority of

grain storage capacity were used for the Group’s own export volumes. The results of the Infrastructure and Trading segment incorporate savings

achieved by acquiring and employing the Company’s own railcar park. Also, the Infrastructure and Trading segment include the results of the Avere

Commodities S.A. and its subsidiaries (hereinafter, Avere).

In the Farming segment, the Group reports results of its crop production business, which includes growing corn, wheat, soybean, sunflower seed

and rapeseed on the leasehold land, as well as some minor crops and small cattle farming operations.

Presentation of the operating segments’ activities is as follows:

Operating segments

Activities

Oilseed Processing

Sunflower seed origination and sunflower oil production. Sales of bottled and bulk sunflower oil.

Infrastructure and Trading

Sourcing and merchandising of wholesale edible oils, grain, provision of silo services, operating the fleet of logistics

assets for inland transportation and vessels, grain and sunflower oil handling and transshipment services.

Farming

Agricultural farming. Production of corn, wheat, soybean, sunflower seed and rapeseed.

Income and expenses unallocated to any segment, which are related to the administration of the Group, were included in the ‘Other’ column.

The measures of profit and loss, and assets and liabilities are based on the Group accounting policies, which are in compliance with IFRS, as

adopted by the European Union.

Reconciliation eliminates intersegment items. The segment data is calculated as follows:

• Intersegment sales reflect intergroup transactions effected on an arm’s length basis.

• Capital expenditures, amortization and depreciation related to property, plant and equipment and intangible assets are allocated to segments

when possible.

The ‘Other’ column reflects income and expenses not allocated to segments.

Since financial management of the Group’s companies is carried out centrally, borrowings, bonds, deferred taxes and some other assets and

liabilities are not allocated directly to the respective operating segments and are presented in the ‘Other’ column. Consequently, the assets and

liabilities shown for individual segments do not include borrowings, bonds, deferred taxes and some other assets and liabilities.

Seasonality of operations

The Oilseed Processing segment normally has seasonally lower sales in the first quarter of the financial year, which corresponds to the end of the

crushing season and lower production levels. The operations of the Farming segment reflect seasonality in the context of seeding and harvesting

campaigns, which are conducted mainly in November-May and June-November, respectively. The Infrastructure and Trading segment usually

experiences somewhat higher volumes in the several months after the commencement of the harvesting campaign (July for early grains and

September for crops harvested in autumn). In addition, the farming segment usually reflects a higher effect from the IAS 41 valuation of biological

assets in the last quarter of the financial year when more acreage is revalued to fair value less costs to sell and a higher effect from the IAS 41

valuation of agricultural produce in the first half of the financial year due to the completion of the harvesting campaign.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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7. Key Data by Operating Segment

Key data by operating segment for the year ended 30 June 2023:

Key data by operating segment for the year ended 30 June 2022:

Oilseed

Processing

Infrastructure

and Trading

Farming

Other

Reconcilia-

tion

Total

Revenue (external)

862,114

4,428,749

40,682

—

5,331,545

Intersegment sales

818,890

105,857

594,541

—

(1,519,288)

—

Total revenue

1,681,004

4,534,606

635,223

(1,519,288)

5,331,545

Net change in fair value of biological assets and agricultural produce

—

12,537

—

12,537

Cost of sales

(1,642,200)

(4,222,311)

(344,412)

(2,338)

1,519,288

(4,691,973)

Other operating income

14,870

41,592

6,833

399

—

63,694

Other operating expenses

—

(44,710)

—

(44,710)

General, administrative and selling expenses

(16,356)

(142,010)

(28,294)

(43,745)

—

(230,405)

Net impairment losses on financial assets

2,826

10,391

(3,666)

(42,544)

—

(32,993)

Loss on impairment of assets

(141,812)

(9,107)

(131,007)

(35,102)

—

(317,028)

Profit/(Loss) from operating activities

(101,668)

213,161

147,214

(168,040)

—

90,667

Amortization and depreciation

31,384

23,593

72,192

2,507

—

129,676

EBITDA

(70,284)

236,754

219,406

(165,533)

—

220,343

Reconciliation:

Finance costs

(130,549)

Finance income

11,322

Foreign exchange gain, net

10,140

Other expenses, net

(25,061)

Income tax benefit

2,781

Profit for the period

(40,700)

Total assets

1,605,543

1,457,637

908,828

213,604

—

4,185,612

Capital expenditures

61,907

23,623

93,907

210,422

—

389,859

Liabilities

63,564

215,734

310,590

1,909,503

—

2,499,391

As of 30 June 2022, Assets classified as held for sale and Liabilities associated with assets classified as held for sale were presented in the Farming

segment until their disposal as describe in Note 8.

Oilseed

Processing

Infrastruc-

ture and

Trading

Farming

Other

Reconcilia-

tion

Total

Revenue (external)

966,517

2,445,638

42,966

—

3,455,121

Intersegment sales

941,164

156,209

652,189

—

(1,749,562)

—

Total revenue

1,907,681

2,601,847

695,155

—

(1,749,562)

3,455,121

Net change in fair value of biological assets and agricul-

tural produce

—

(114,705)

—

(114,705)

Cost of sales

(1,674,132)

(2,412,481)

(366,963)

—

1,749,562

(2,704,014)

Other operating income

19,801

17,211

12,326

4,209

—

53,547

Other operating expenses

(23,481)

—

(28)

(11,358)

—

(34,867)

General, administrative and selling expenses

(11,656)

(70,226)

(25,234)

(97,903)

—

(205,019)

Net reversal on financial assets

557

941

(465)

3,097

—

4,130

Loss on impairment of assets

21,923

(8,143)

(26,027)

(2,486)

—

(14,733)

Profit/(Loss) from operating activities

240,693

129,149

174,059

(104,441)

—

439,460

Amortization and depreciation

29,651

24,608

47,068

3,459

—

104,786

EBITDA

270,344

153,757

221,127

(100,982)

—

544,246

Reconciliation:

Finance costs

(153,249)

Finance income

30,792

Foreign exchange gain, net

62,650

Other expenses, net

(11,829)

Income tax expense

(69,050)

Profit for the period

298,774

Total assets

1,859,659

1,207,011

585,219

233,280

—

3,885,169

Capital expenditures

45,523

52,100

4,436

1,566

—

103,625

Liabilities

113,473

188,527

239,979

1,599,195

—

2,141,174

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

Statements

Revenue from sales of goods and services allocated by operating segment for the year ended 30 June under requirements of IFRS 15 was as

follows:

For the year ended 30 June 2023

For the year ended 30 June 2022

Oilseed

Processing

Infrastructure

and Trading

Farming

Total

Oilseed

Processing

Infrastructure

and Trading

Farming

Total

Revenue from sales of com-

modities

813,095

2,282,563

42,966

3,138,624

805,977

4,210,649

40,682

5,057,308

Freight and other services

153,422

163,075

—

316,497

56,137

218,100

—

274,237

Total external revenue from

contracts with customers

966,517

2,445,638

42,966

3,455,121

862,114

4,428,749

40,682

5,331,545

During the year ended 30 June 2023, revenues of approximately USD 228,327 thousand (2022: USD 470,127 thousand) were derived from a

single external customer. These revenues are attributed to Oilseeds processing and Infrastructure and Trading segments. Also, during that period,

export sales amounted to 91.9% of total external sales (2022: 95.4%).

For the year ended 30 June 2023, revenue from the Group’s top five customers accounted for approximately 22.1% of total revenue (for the year

ended 30 June 2022, revenue from the top five customers accounted for 27.6% of total revenue).

Among the other, intersegment sales between Oilseed Processing segment and Infrastructure and Trading segment comprise of sunflower oil

which is marketed by Avere, the activities of which are included in Infrastructure and Trading segment results.

The Group’s revenue from external customers (based on the country of incorporation of the sales counterparty) and information about its segment

assets (non‑current assets excluding non-current financial assets and deferred tax assets) by geographical location are detailed below:

Revenue from external customers

Non-current assets

For the year

ended

30 June 2023

For the year

ended

30 June 2022

As of

30 June 2023

As of

30 June 2022

Asia

1,731,439

2,676,356

Ukraine

1,366,659

1,463,772

of which India

586,894

672,760

Switzerland

18,264

2,624

China

275,451

265,912

USA

669

1,215

Hong Kong

270,103

276,644

Other locations

10,598

100,745

Singapore

262,818

1,002,150

Europe

1,512,780

2,302,727

of which Switzerland

418,794

829,785

Ukraine

292,560

340,717

Netherland

203,975

405,117

Belgium

155,120

226,322

Other locations

210,902

352,462

Total

3,455,121

5,331,545

Total

1,396,190

1,568,356

None of the other locations represented more than 10% of total revenue or non-current assets individually.

Gain/loss from Avere operations with financial derivatives are presented within the Infrastructure and Trading segment.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

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8. Acquisition and Disposal of Subsidiaries

As of 3 March 2023, the Group completed the disposal of its several farming entities to a related party. The assets of the disposed entities are

mainly composed of 134 thousand hectares of farmland, along with the accompanying farming infrastructure, machinery, and working capital.

The carrying amounts of assets and liabilities as at the date of sale were:

As of

3 March 2023

Current assets

Cash and cash equivalents

10,295

Trade accounts receivable

84,624

Prepayments to suppliers

35,716

Taxes recoverable and prepaid

9,566

Inventory

119,138

Biological assets

20,798

Other financial assets

30,493

Total current assets

310,630

Non-current assets

Property, plant and equipment

18,455

Right-of-use assets

32,680

Intangible assets

955

Other non-current assets

3,591

Total non-current assets

55,681

Total assets

366,311

Current liabilities

Trade accounts payable

7,606

Advances from customers and other current liabilities

51,346

Current portion of lease liabilities

17,530

Other financial liabilities

13,352

Total current liabilities

89,834

Non-current liabilities

Lease liabilities

66,464

Other non-current liabilities

Total non-current liabilities

66,477

Total liabilities

156,311

Net assets

210,000

The complete amount of the consideration to be paid by the buyer is USD 210,000 thousand. As of 30 June 2023, the outstanding unpaid consid-

eration stood at USD 90,000 thousand in the Other Financial Assets line (Note 14, 39), taking into account that during the 2022-2023 financial

years the buyer has made a payment in the total amount of USD 120,000 thousand. Disposal of subsidiaries did not result in any material effects

on the Group's profit or losses.

Following the disposal of its subsidiaries, the Group maintained arm's length relationships with these entities, engaging in sales and purchase

transactions in the normal course of business. This approach ensured the appropriate separation of interests and allowed for an unbiased and fair

business environment.

On 27 December 2022 the Group acquired 100% of the issued share capital of Oilexportterminal LLC and Transshipservice LLC (considered as

business acquisition), a vegetable oil terminal. The acquisition has increased the Group’s export capacity of sunflower oil. The assets of acquired

companies consist of property, plant and equipment in the amount of USD 7,874 thousand and intangible assets in the amount of

USD 11,456 thousand. The net assets of the companies were in the amount of USD 19,807 thousand.

The total consideration equaled to USD 19,819 thousand (fully settled), out of which USD 7,750 thousand is a non-cash consideration.

As a result of the optimization process of the logistic assets, the Group disposed of two grain elevators located in Poltava and Odesa regions during

the 2023 financial year. The net assets of the disposed entities as of the date of disposal were equal to USD 70 thousand and the cash consideration

received was USD 4,159 thousand. Gain on disposal comprised USD 4,089 thousand.

No entities were acquired or disposed of during the year ended 30 June 2022.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

Statements

9. Cash and Cash Equivalents

The balances of cash and cash equivalents were as follows:

As of

30 June 2023

As of

30 June 2022

Cash in banks in USD

906,676

404,279

Cash in banks in UAH

39,560

3,403

Cash in banks in other currencies

7,863

39,938

Cash on hand

Total

954,103

447,625

Less restricted and blocked cash on security bank accounts

—

(58)

Less bank overdrafts (Note 22)

(10)

(1)

Cash for the purposes of cash flow statement

954,093

447,566

In accordance with the international rating agency of Fitch, credit ratings of the banks with which the Group had the accounts opened as of

30 June were as follows:

As of

30 June 2023

As of

30 June 2022

International bank with F1+ rating

175,465

57,364

International bank with F1 rating

306,435

165,512

International bank with F2 rating

8,617

131,362

Banks with lower medium grade

160,047

19,895

Banks without international ratings

303,539

73,492

Total

954,103

447,625

As of 30 June 2023, the majority of balances presented in banks without international ratings were bank accounts held in Ukrainian subsidiaries of

international banks, totalling USD 299,414 thousand (as of June 30, 2022: USD 12,519 thousand), where international banks were primarily rated

F2 or above by Fitch or similar rating agencies.

As of 30 June 2023 and 2022, the identified expected credit loss on cash and cash equivalents was immaterial.

The reconciliation in the table below presents changes in the Group’s liabilities arising from financing activities by incorporating cash flows and

non-cash changes over the reporting period.

Bank

borrowings

(Note 22)

Lease

liabilities

(Note 23)

Bonds issued

Total

As of 30 June 2021

263,343

324,492

821,790

1,409,625

Cash flow from proceeds/ (repayments)

803,232

(51,733)

(269,613)

481,886

Non-cash movements

Additions and change of terms of lease liabilities

—

69,259

—

69,259

Disposals of lease liabilities

—

(8,831)

—

(8,831)

Non-cash settlement of lease liabilities

—

(8,870)

—

(8,870)

Amortization of one-off and transaction cost (Note 31)

—

2,856

Interest expense accrued (Note 31)

34,048

42,074

47,617

123,739

Interest expense capitalized (Note 15)

4,131

—

4,131

Foreign exchange movements

(9,959)

(601)

—

(10,560)

Classified as held for sale

—

(101,922)

—

(101,922)

Other changes

(1,708)

—

(1,708)

Translation difference

—

(24,316)

—

(24,316)

As of 30 June 2022

1,093,087

239,552

602,650

1,935,289

Cash flow from proceeds/ (repayments)

(269,391)

(48,579)

(39,750)

(357,720)

Non-cash movements

Additions and change of terms of lease liabilities

—

38,904

—

38,904

Disposals of lease liabilities

—

(9,386)

—

(9,386)

Non-cash settlement of lease liabilities

—

(2,366)

—

(2,366)

Amortization of one-off and transaction cost (Note 31)

—

1,173

Interest expense accrued (Note 31)

75,605

27,294

39,750

142,649

Interest expense capitalized (Note 15)

5,504

—

5,504

Foreign exchange movements

(29,443)

(2,189)

—

(31,632)

Other changes

(5,429)

—

(5,429)

Translation difference

—

(45,335)

—

(45,335)

As of 30 June 2023

869,933

197,895

603,823

1,671,651

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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10. Trade Accounts Receivable

The balances of trade accounts receivable were as follows:

As of

30 June 2023

As of

30 June 2022

Trade accounts receivable

335,493

162,419

Allowance for expected credit losses

(13,914)

(19,681)

Total

321,579

142,738

No interest is charged on the outstanding balances of trade accounts receivable.

The average credit period on sales of goods is 26 days (2022: 19 days). The carrying value of trade receivables approximates the fair value.

As of 30 June 2023, receivable balance of USD 271,465 thousand was due from international customers and the remaining USD 50,113 thousand

being receivable from Ukrainian buyers (30 June 2022: USD 121,580 thousand and USD 21,158 thousand accordingly).

The Group applies the simplified approach of measuring expected credit loss which uses a lifetime expected loss allowance. This estimate for

lifetime expected credit losses on trade receivables is determined through a provision matrix, which takes into account the historical default patterns

of the debtor, their credit rating, and is further modified by evaluating current and future data related to overall economic conditions that might

impact customers’ capacity to repay the receivables Trade receivables are collectively assessed, except for certain receivables that have differing

credit risk characteristics. There has been no change in the estimation techniques during the current reporting period.

The changes in expected credit loss provisions are recognized in the line Net reversal/(impairment) losses on financial assets. For the year ended

30 June 2023, a decrease in loss allowance was USD 5,264 thousand (for the period ended 30 June 2022: increase USD 15,058 thousand).

Subsequent recoveries of amounts previously written off are credited against the same line item.

On this basis, the loss allowance as of 30 June was determined for trade accounts receivables as follows:

As of 30 June 2023

As of 30 June 2022

Current

Less than

90 days

past due

More than

90 days

past due

Total

Current

Less than

90 days

past due

More than

90 days

past due

Total

Expected loss rate

0.1%

1.1%

94.6%

0.1%

6.3%

91.0%

Gross carrying amount – trade

accounts receivables

288,747

32,625

14,121

335,493

104,098

39,577

18,744

162,419

Loss allowance

(185)

(374)

(13,355)

(13,914)

(146)

(2,475)

(17,060)

(19,681)

The movement in allowance for credit loss relating to trade accounts receivables as of 30 June is presented below:

Trade accounts receivables

Lifetime ECL

Individually

assessed

Total

Closing loss allowance as of 30 June 2021

4,113

1,381

5,494

Increase in loss allowance recognized in profit or loss during the year

9,600

5,458

15,058

Trade receivables written off during the year as uncollectible

—

(871)

Loss allowance as of 30 June 2022

13,713

5,968

19,681

Decrease in loss allowance recognized in profit or loss during the year

(3,854)

(1,410)

(5,264)

Trade receivables written off during the year as uncollectible

—

(503)

Closing loss allowance as of 30 June 2023

9,859

4,055

13,914

11. Taxes Recoverable and Prepaid

The balances of taxes recoverable and prepaid were as follows:

As of

30 June 2023

As of

30 June 2022

Value added tax recoverable and prepaid

161,967

204,599

Other taxes recoverable and prepaid

313

Total

162,280

204,686

Value added tax (‘VAT’) recoverable and prepaid mainly represents VAT credits in relation to purchases of agricultural products on the domestic

market in Ukraine. Management expects that these balances will be recovered in full within 12 months after the reporting date through cash

collection or set-off with respective VAT liabilities. For the year ended 30 June 2023, the amount of VAT refunded by the government in cash was

USD 124,152 thousand (30 June 2022: USD 271,299 thousand). VAT refund pace decreased in 2023 due to the changes in tax regulations іn the

period of martial law in Ukraine.

Differences in expected loss rate are possible due to rounding

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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12. Inventory

The balances of inventories were as follows:

As of

30 June 2023

As of

30 June 2022

Finished products

105,323

154,954

Products of agriculture

87,502

121,863

Goods for resale

76,249

292,479

Raw materials

46,496

346,961

Fuel

10,338

20,292

Work in progress

4,372

5,252

Packaging materials

1,617

2,474

Other inventories

9,646

9,647

Total

341,543

953,922

As of 30 June 2022, the Group accumulated a significant amount of inventory due to the war disruptions in the usual export routes through the

Black Sea caused by the war. Nevertheless, starting from 22 July 2022, with the launch of the Black Sea Grain Initiative, until 30 June 2023, the

Group successfully managed to sell most of its stock from previous periods.

As of 30 June 2023, inventories with a carrying amount of USD 191,186 thousand have been pledged as security for short-term borrowings

(Note 22) (30 June 2022: USD 566,902 thousand).

As of 30 June 2023, write-downs of inventories to the net realizable value amounted to USD 65,690 thousand (30 June 2022:

USD 98,229 thousand) recognised within Cost of Sales (Note 5).

13. Biological Assets

The balances of biological assets were as follows:

As of

30 June 2023

As of

30 June 2022

Non-current assets

Non-current cattle

5,924

5,937

Total

5,924

5,937

Current assets

Crops in fields

146,239

160,158

Current cattle

1,656

1,753

Total

147,895

161,911

For the year ended 30 June 2023, the Group incurred a loss of USD 114,705 thousand due to changes in the fair value of biological assets (2022:

gain of USD 12,537 thousand). The primary reason for this loss was the revaluation of agricultural products in the amount of USD 86,769 thousand,

at the point of harvest. Additionally, the Group incurred a loss of USD 26,763 thousand from the revaluation of crop-bearing fields. This loss was

triggered by lower market prices anticipated for future harvests and increased selling costs at the end of the current period, deviating from the trend

observed in the previous year.

The balances of crops in fields were as follows:

As of 30 June 2023

As of 30 June 2022

Hectares

Value

Hectares

Value

Sunflower seed

119,589

38,144

130,680

61,732

Wheat

61,009

35,471

35,633

16,386

Corn

83,685

34,588

148,795

75,795

Soybean

64,996

33,970

6,331

2,118

Rapeseed

10,151

3,980

4,727

3,611

Other

1,880

1,155

516

Total

341,310

146,239

327,321

160,158

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127

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

Statements

The following table represents the changes in the carrying amounts of crops in fields during the years ended 30 June 2023 and 2022:

Capitalized

expenditures

Effect of

biological

transformation

Fair value of

biological

assets

As of 30 June 2021

205,424

169,671

375,095

Expenditures capitalized in biological assets (harvest 2021)

191,889

—

191,889

Decrease due to harvest (harvest 2021)

(397,313)

(169,671)

(566,984)

Expenditures capitalized in biological assets (harvest 2022)

234,293

—

234,293

Gain arising from changes in fair value of biological assets (sowing under harvest 2022)

—

38,327

Decrease due to transfer to assets held for sale

(66,714)

(32,587)

(99,301)

Translation difference

(11,311)

(1,850)

(13,161)

As of 30 June 2022

156,268

3,890

160,158

Expenditures capitalized in biological assets (harvest 2022)

89,784

—

89,784

Decrease due to harvest (harvest 2022)

(246,052)

(3,890)

(249,942)

Expenditures capitalized in biological assets (harvest 2023)

174,609

—

174,609

Loss arising from changes in fair value of biological assets (sowing under harvest 2023)

—

(26,763)

Translation difference

(1,900)

293

(1,607)

As of 30 June 2023

172,709

(26,470)

146,239

Farming costs such as expenses for seeds, fertilizers, plant protecting means, energy and fuel, costs for growing and harvesting, silos services,

rent, payroll and other are expensed as incurred and further are capitalized as part of biological assets based on sowing areas and types of costs

allocated to particular crops.

The fair value of agricultural produce was estimated based on market prices as at the date of harvest and is within level 2 of the fair value hierarchy.

Crops in fields and non-current cattle of the Group are measured using discounted cash flow technique and are within level 3 of the fair value

hierarchy. Current cattle are measured based on market prices of livestock of similar age, breed and genetic merit, which is within level 2 of the

fair value hierarchy. The change in the balances of livestock is represented by an increase in heads of milk cows within regular transfer from young

calves to mature herd and the variation in prices and exchange rates between reporting dates.

In the table below biological assets are classified into the three levels prescribed under the accounting standards:

As of 30 June 2023

As of 30 June 2022

Measure

Quantity

Level 2

Level 3

Total

Quantity

Level 2

Level 3

Total

Livestock

Mature – Milk cows

Heads

5,052

—

5,922

5,178

—

5,934

Immature – Milk cows

Heads

2,480

998

—

998

2,288

1,007

—

1,007

Immature – Calves

Heads

2,469

623

—

623

2,221

714

—

714

Beehives

Hives

1,104

—

1,101

—

Horses

Heads

—

Crops in fields

Hectares

341,310

—

146,239

327,485

—

160,158

Total

1,658

152,161

153,819

1,756

166,092

167,848

There were no changes in valuation technique since the previous year. There were no transfers between any levels during the year.

Fair value

Range of unobservable inputs (average)

Descrip-

tion

Valuation

techniques

As of

30 June

2023

As of

30 June

2022

Unobservable

Inputs

As of

30 June

2023

As of

30 June

2022

Relationship of

unobservable inputs to

fair value

Crops in

field

Discounted

cash flows

146,239

160,158

Crop yields

2.34 – 8.82 (4.78)

tons per hectare

2.01 – 7.57 (5.15)

tons per hectare

The higher the crop yield, the

higher the fair value

Grain sales

prices net of

transportation

costs

144 – 446 (273) USD

per ton

178 – 476 (301) USD

per ton

The higher the market price,

the higher the fair value

Discount rate

24.40% (in UAH)

28.75% (in UAH)

The higher the discount rate,

the lower the fair value

Milk cows

Discounted

cash flows

5,922

5,934

Milk yield – liter

per cow

19.22 – 22.21 (21.22)

liters per cow per day

17.71 – 21.74 (20.34)

liters per cow per day

The higher the milk yield, the

higher the fair value

Weight of 1 calf

29 – 32 (31) kg

The higher the weight, the

higher the fair value

Average yield of

calves from 100

cows per year

55 – 64 (59) calves

35 – 89 (62) calves

The higher the yield, the higher

the fair value

Discount rate, %

24.40% (in UAH)

28.75% (in UAH)

The higher the discount rate,

the lower the fair value

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

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If the above unobservable inputs to the valuation model were 5 per cent higher/lower while all other variables were held constant, as of

30 June 2023, the carrying amount of the current and non-current biological assets would increase/decrease by USD 31,014 thousand and

USD 29,653 thousand, respectively (30 June 2022: by USD 16,059 thousand and USD 16,179 thousand, respectively).

14. Other Financial Assets

The balances of other financial assets were as follows:

As of

30 June 2023

As of

30 June 2022

Pledge deposits

122,703

—

Receivables from disposal of subsidiaries (Note 8, 34, 39)

90,000

—

Margin account with brokers (Note 37)

65,993

77,136

Loans granted

41,092

43,760

Corporate and government bonds

16,058

33,205

Derivative financial instruments (Note 37)

13,842

48,879

Short-term bank deposits

7,127

—

Other financial assets

19,248

2,831

Total

376,063

205,811

As of 30 June 2023, the Group pledged deposits of USD 122,703 thousand as collateral for credit facilities extended by the lenders (30 June 2022:

nil). These pledge deposits are restricted and cannot be used for general operating purposes until the credit lines are repaid or other conditions

specified in the credit agreement are met. The terms and conditions of the credit lines, including any financial covenants, are detailed in the credit

agreement with Banks (Note 22).

As of 30 June 2023, other financial assets with a total value of USD 7,999 thousand were pledged for short-term borrowings (Note 22)

(30 June 2022: Ukrainian government bonds with a total value of USD 6,077 thousand and deposit previously presented in Cash and cash equiv-

alents line of USD 8,000 thousand).

The Group's exposure to credit risks associated with other financial assets is disclosed in Note 36.

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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15. Property, Plant and Equipment

The following table represents movements in property, plant and equipment for the year ended 30 June 2023:

Oilseed

Processing

Infrastructure

and Trading

Farming

Other

Total

Net Book Value as of 30 June 2022

603,677

327,502

63,665

23,229

1,018,073

Land

266

502

1,048

1,861

Buildings and Constructions

281,955

152,231

15,187

17,540

466,913

Production machinery and equipment

141,285

83,424

1,378

1,588

227,675

Agricultural equipment and vehicles

4,745

70,774

44,222

1,702

121,443

Other fixed assets

2,125

1,596

—

647

4,368

CIP and uninstalled equipment

173,301

18,975

2,833

704

195,813

Additions in CIP and uninstalled equipment

44,946

51,796

3,819

591

101,152

Reclassification

(310)

656

(370)

—

Buildings and Constructions

375

(315)

370

—

430

Production machinery and equipment

(104)

(373)

270

(40)

(247)

Agricultural equipment and vehicles

(10)

(30)

(1)

(31)

Other fixed assets

(17)

101

CIP and uninstalled equipment

(220)

362

—

(395)

(253)

Additions from acquisition of subsidiaries

—

8,507

—

8,507

Land

—

632

—

632

Buildings and Constructions

—

6,387

—

6,387

Production machinery and equipment

—

915

—

915

Agricultural equipment and vehicles

—

Other fixed assets

—

CIP and uninstalled equipment

—

516

—

516

Transfers

—

Land

—

Buildings and Constructions

2,263

3,026

1,823

7,151

Production machinery and equipment

6,077

4,684

308

11,102

Agricultural equipment and vehicles

3,999

44,439

1,795

100

50,333

Other fixed assets

525

815

995

446

2,781

CIP and uninstalled equipment

(12,864)

(52,966)

(4,921)

(618)

(71,369)

Disposals (at NBV)

(1,042)

(348)

(416)

(17)

(1,823)

Land

—

(5)

—

(5)

Buildings and Constructions

—

(275)

—

(275)

Production machinery and equipment

(69)

(34)

(3)

(109)

Agricultural equipment and vehicles

(30)

(45)

(58)

(11)

(144)

Other fixed assets

(6)

(8)

(43)

(3)

(60)

CIP and uninstalled equipment

(937)

(261)

(32)

—

(1,230)

Disposal of Subsidiaries (at NBV)

—

(276)

—

(276)

Buildings and Constructions

—

(173)

—

(173)

Production machinery and equipment

—

(80)

—

(80)

Agricultural equipment and vehicles

—

(15)

—

(15)

Other fixed assets

—

(8)

—

(8)

Transfers from Right-of-Use Assets

—

703

—

703

Agricultural equipment and vehicles

—

703

—

703

Transfers to Assets classified as held for sale (at NBV)

(1,052)

—

(1,052)

CIP and uninstalled equipment

(1,052)

—

(1,052)

Depreciation expense

(29,056)

(23,708)

(14,194)

(1,851)

(68,809)

Buildings and Constructions

(12,525)

(6,254)

(1,297)

(583)

(20,659)

Production machinery and equipment

(14,475)

(7,288)

(329)

(614)

(22,706)

Agricultural equipment and vehicles

(1,347)

(9,497)

(12,256)

(486)

(23,586)

Other fixed assets

(709)

(669)

(312)

(168)

(1,858)

Impairment of assets

—

(1,439)

—

(1,439)

Agricultural equipment and vehicles

—

(1,439)

—

(1,439)

Translation difference

(870)

(20,725)

(12,674)

(356)

(34,625)

Land

—

(101)

(10)

—

(111)

Buildings and Constructions

—

(15,550)

(3,041)

(49)

(18,640)

Production machinery and equipment

—

(3,912)

(276)

—

(4,188)

Agricultural equipment and vehicles

(816)

(222)

(8,533)

(28)

(9,599)

Other fixed assets

(12)

(202)

(11)

—

(225)

CIP and uninstalled equipment

(42)

(738)

(803)

(279)

(1,862)

Net Book Value as of 30 June 2023

616,627

340,999

41,559

21,226

1,020,411

Land

266

1,035

1,048

2,379

Buildings and Constructions

272,068

139,352

12,767

16,947

441,134

Production machinery and equipment

132,714

77,337

1,348

964

212,363

Agricultural equipment and vehicles

6,541

104,034

25,843

1,276

137,694

Other fixed assets

1,906

1,557

675

988

5,126

CIP and uninstalled equipment

203,132

17,684

896

221,715

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130

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The following table represents movements in property, plant and equipment for the year ended 30 June 2022:

Oilseed

Processing

Infrastructure

and Trading

Farming

Other

Total

Net Book Value as of 30 June 2021

564,775

339,590

138,193

22,647

1,065,205

Land

967

440

1,048

2,533

Buildings and Constructions

215,058

156,149

18,548

18,117

407,872

Production machinery and equipment

87,636

88,368

2,113

1,539

179,656

Agricultural equipment and vehicles

4,403

74,183

69,124

1,119

148,829

Other fixed assets

2,544

1,804

3,836

704

8,888

CIP and uninstalled equipment

254,167

18,646

44,494

120

317,427

Additions in CIP and uninstalled equipment

59,175

18,944

29,161

2,686

109,966

Reclassification

—

46,574

(46,568)

(6)

—

Land

—

(13)

—

Buildings and Constructions

1,101

(250)

323

1,175

Production machinery and equipment

(1,118)

490

(34)

(8)

(670)

Agricultural equipment and vehicles

170

(72)

—

Other fixed assets

(153)

(405)

(232)

(789)

CIP and uninstalled equipment

—

46,725

(46,540)

—

185

Transfers

—

Land

—

103

Buildings and Constructions

43,081

38,645

2,951

84,699

Production machinery and equipment

76,200

20,074

356

705

97,335

Agricultural equipment and vehicles

1,817

2,667

13,558

1,061

19,103

Other fixed assets

1,059

1,709

1,884

270

4,922

CIP and uninstalled equipment

(122,158)

(63,178)

(18,768)

(2,058)

(206,162)

Revaluation

59,393

—

59,393

Buildings and Constructions

53,517

—

53,517

Production machinery and equipment

5,876

—

5,876

Disposals (at NBV)

(316)

(289)

(2,689)

(12)

(3,306)

Buildings and Constructions

(1)

(9)

(422)

—

(432)

Production machinery and equipment

(126)

(115)

(33)

(3)

(277)

Agricultural equipment and vehicles

(68)

(97)

(617)

(9)

(791)

Other fixed assets

(12)

(4)

(39)

—

(55)

CIP and uninstalled equipment

(109)

(64)

(1,578)

—

(1,751)

Transfers to Assets classified as held for sale (at NBV)

—

(42,905)

(20,483)

—

(63,388)

Land

—

(34)

—

(34)

Buildings and Constructions

—

(26,409)

(2,987)

—

(29,396)

Production machinery and equipment

—

(14,131)

(349)

—

(14,480)

Agricultural equipment and vehicles

—

(117)

(12,672)

—

(12,789)

Other fixed assets

—

(253)

(631)

—

(884)

CIP and uninstalled equipment

—

(1,995)

(3,810)

—

(5,805)

Depreciation expense

(30,809)

(22,820)

(24,633)

(2,005)

(80,267)

Buildings and Constructions

(13,116)

(7,490)

(1,792)

(580)

(22,978)

Production machinery and equipment

(15,487)

(8,464)

(534)

(643)

(25,128)

Agricultural equipment and vehicles

(1,207)

(5,749)

(20,517)

(463)

(27,936)

Other fixed assets

(999)

(1,117)

(1,790)

(319)

(4,225)

Impairment of assets and reversal of impairment loss of the previous period (Note 30)

(48,275)

(110)

(2,780)

—

(51,165)

Land

(702)

—

(702)

Buildings and Constructions

(17,685)

(72)

—

(17,757)

Production machinery and equipment

(11,696)

(15)

—

(11,711)

Agricultural equipment and vehicles

(105)

(3)

(16)

—

(124)

Other fixed assets

(313)

(20)

(2,764)

—

(3,097)

CIP and uninstalled equipment

(17,774)

—

(17,774)

Translation difference

(266)

(11,482)

(6,536)

(81)

(18,365)

Land

—

(34)

(5)

—

(39)

Buildings and Constructions

—

(8,333)

(1,434)

(20)

(9,787)

Production machinery and equipment

—

(2,783)

(141)

(2)

(2,926)

Agricultural equipment and vehicles

(265)

(111)

(4,566)

(6)

(4,948)

Other fixed assets

(1)

(118)

(264)

(9)

(392)

CIP and uninstalled equipment

—

(103)

(126)

(44)

(273)

Net Book Value as of 30 June 2022

603,677

327,502

63,665

23,229

1,018,073

Land

266

502

1,048

1,861

Buildings and Constructions

281,955

152,231

15,187

17,540

466,913

Production machinery and equipment

141,285

83,424

1,378

1,588

227,675

Agricultural equipment and vehicles

4,745

70,774

44,222

1,702

121,443

Other fixed assets

2,125

1,596

—

647

4,368

CIP and uninstalled equipment

173,301

18,975

2,833

704

195,813

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131

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Total cost of property, plant and equipment and total accumulated depreciation as of 30 June 2023 and 2022 were as follows:

Cost as of

30 June 2023

Accumulated

depreciation as of

30 June 2023

Cost as of

30 June 2022

Accumulated

depreciation as of

30 June 2022

Land

2,380

—

1,861

—

Buildings and constructions

500,723

(59,590)

542,212

(75,299)

Production machinery and equipment

283,782

(71,419)

314,313

(86,638)

Agricultural equipment and vehicles

289,229

(151,535)

266,085

(144,642)

Other fixed assets

23,161

(18,035)

22,497

(18,129)

CIP and uninstalled equipment

221,715

—

195,813

—

Total

1,320,990

(300,579)

1,342,781

(324,708)

Had the Group’s buildings and constructions and production machinery and equipment (Oilseed Processing segment) been measured on a histor-

ical cost basis, their carrying amount would have been as follows:

As of

30 June 2023

As of

30 June 2022

Buildings and constructions

210,976

224,047

Production machinery and equipment

122,655

134,257

Total

333,631

358,304

For the year ended 30 June 2023, the Group capitalized interest totalling USD 5,504 thousand (2022: USD 4,131 thousand) (Note 9) and there

were no borrowing costs eligible for capitalization from project-specific borrowings during this period.

As of 30 June 2023, prepayments for property, plant and equipment were in the amount USD 21,268 thousand (30 June 2022: USD 45,098

thousand).

As of 30 June 2023, property, plant and equipment with a carrying amount of USD 406,731 thousand (30 June 2022: USD 393,782 thousand) were

pledged by the Group as collateral against short-term and long-term bank borrowings (Note 22).

Considering the uncertainties attached to operating environment in Ukraine and disruptions to the export of goods via various routes through the

Black Sea, the Group carried out impairment test for all material CGUs.

The recoverable amount of each CGU was determined based on value-in-use calculations. This method was based on the probability-weighted

scenarios disclosed in Note 5. Management determined budgeted gross margin based on expectations of market developments. The weighted

average growth rate used was consistent with forecasts included in industry reports. The discount rates used were pre-tax and reflected specific

risks relating to the relevant segments.

Oilseed Processing segment

The key assumptions used in the value-in-use and income approach calculations by segment are as follows:

Oilseed processing

Growth rate,

Discount

rate, %

Price of sunflower oil,

USD per ton

Transportation costs, USD

per ton

Price of sunflower seeds,

USD per ton

As of 30 June 2023

2.1%

10.6%

813 - 1,050

15 - 108

335 - 517

As of 30 June 2022

2.0%

10.2%

1,001 - 1,190

16 - 139

372 - 499

The price of sunflower oil and sunflower seeds are interdependent and the effect from their changes are offset within a relatively short period of

time. Should the price of sunflower oil decrease by 5 per cent while all other variables were held constant, as of 30 June 2023, the recoverable

amount of the group of CGUs would be lower than carrying amount by USD 344,757 thousand. Should the price of sunflower seeds increase by 5

per cent while all other variables were held constant, as of 30 June 2023, the recoverable amount of the group of CGUs would be lower than

carrying amount by USD 380,645 thousand. These effects are expected to offset each other. Should the price of sunflower oil and seeds decrease

by 5 per cent while all other variables were held constant, as of 30 June 2022, the headroom would increase by USD 48,914 thousand.

As of 30 June 2023, the sensitivity analysis impairment test did not identify the recoverable amount of the CGUs in the Oilseeds processing segment

as being sensitive to the reasonably possible changes of assumptions other than disclosed in table above.

Farming segment

As of 30 June 2023, the market selling prices of agricultural commodities have been taken into consideration while determining the assumptions

for Farming CGU. The key assumptions used in the value in use and income approach calculations by segment are as follows:

Farming

Growth rate,

Discount

rate, %

Crop yields,

tons per hectare

Sales price of crops,

USD per ton

Transportation cost,

USD per ton

As of 30 June 2023

5.1%

17.5%

2 - 9

213 - 552

28 - 108

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

132

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

Sensitivity to the mentioned above key assumptions, as of 30 June 2023, is presented in the table below:

Inputs

Change in input by:

Crop yields, tons per hectare

Decrease by 0.53%

Recoverable amount equals carrying amount

Decrease by 1.00%

Impairment of USD 23,748 required

Sales price of crops, USD per ton

Decrease by 0.43%

Recoverable amount equals carrying amount

Decrease by 1.00%

Impairment of USD 35,243 required

Transportation cost, USD per ton

Increase by 4.24%

Recoverable amount equals carrying amount

Increase by 10.00%

Impairment of USD 36,076 required

As of 30 June 2023, the sensitivity analysis did not identify recoverable amount of Farming CGU as being sensitive to the reasonably possible

changes of assumptions other than disclosed in table above.

As of 30 June 2022, as the result of the test, the recoverable amount of assets within the Farming segment was significantly below their carrying

value. Hence, the Group determined a recoverable amount based on the fair value less cost to sell method, using the adjusted market approach

(level 2 of the fair value hierarchy).

Infrastructure and Trading segment

As of 30 June 2023 and 2022, the Infrastructure and Trading segment’s CGU assumptions rely on transshipment rates and suggested proceeded

volumes. The key assumptions used in the value in use and income approach calculations by segment are as follows:

Infrastructure and

Trading

Growth rate,

Discount

rate, %

Transshipment rate,

USD per ton

Transshipment volume,

thousand ton

As of 30 June 2023

2.1%

10.6%

9 - 15

0 - 9,840

As of 30 June 2022

2.0%

10.2%

8 - 12

720 - 10,383

The assumptions above vary from optimistic to pessimistic scenarios and periods covered by the cash flow forecast.

As of 30 June 2023 and 2022, the impairment test did not identify the CGUs in the Infrastructure and Trading segments as being sensitive to

reasonably possible changes in key assumptions.

As of 30 June 2023 and 2022, the Group recognized a full impairment of USD 50,300 thousand for those assets located at the temporary non-

controlled territories (Note 30) which was charged to the line Loss on impairment of assets for the year ended 30 June 2022.

The discount rate used depends on the functional currency of the CGU and whether scenario approach or expected cash flow method is used.

16. Right-of-Use Assets

The following table represents movements in right-of-use assets for the year ended 30 June 2023:

Land

Agricultural equip-

ment and vehicles

Buildings

Total

Cost as of 30 June 2022

299,661

10,726

8,056

318,443

Additions and modifications

37,923

3,169

128

41,220

Transfer of assets to Property, Plant and Equipment

—

(3,995)

—

(3,995)

Disposals

(15,165)

(861)

(570)

(16,596)

Translation difference

(58,630)

(1,518)

(100)

(60,248)

Cost as of 30 June 2023

263,789

7,521

7,514

278,824

Accumulated depreciation as of 30 June 2022

(61,041)

(8,144)

(1,518)

(70,703)

Depreciation

(23,103)

(2,398)

(523)

(26,024)

Disposals

5,758

861

236

6,855

Transfer of assets to Property, Plant and Equipment

—

3,292

—

3,292

Translation difference

12,353

996

13,400

Accumulated depreciation as of 30 June 2023

(66,033)

(5,393)

(1,754)

(73,180)

Net book value as of 30 June 2023

197,756

2,128

5,760

205,644

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133

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The following table represents movements in right-of-use assets for the year ended 30 June 2022:

Land

Agricultural equip-

ment and vehicles

Buildings

Total

Cost as of 30 June 2021

416,277

13,942

7,794

438,013

Additions and modifications

67,146

470

701

68,317

Transfers to Assets classified as held for sale

(133,205)

(1,960)

(240)

(135,405)

Disposals

(19,382)

(1,055)

(173)

(20,610)

Translation difference

(31,175)

(671)

(26)

(31,872)

Cost as of 30 June 2022

299,661

10,726

8,056

318,443

Accumulated depreciation as of 30 June 2021

(64,631)

(7,552)

(1,131)

(73,314)

Depreciation

(40,884)

(2,416)

(635)

(43,935)

Disposals

10,950

179

173

11,302

Transfers to Assets classified as held for sale

28,021

1,282

29,345

Translation difference

5,503

363

5,899

Accumulated depreciation as of 30 June 2022

(61,041)

(8,144)

(1,518)

(70,703)

Net book value as of 30 June 2022

238,620

2,582

6,538

247,740

The impairment testing of the value right of use assets along with the test of property, plant and equipment of Farming segment was done by

internal specialists. The recoverable amount of assets is determined based on the value-in-use method which is based on estimated future cash

flows that are discounted to their present value by applying the appropriate discount rate. Cash flow forecasts used in the value-in-use approach

were based on financial budgets approved by management covering a five-year period and extrapolated using the estimated growth rates for

periods over 5 years. The calculation of the discount rate relies on the assumptions belonging to the Group and the operating segments in which

they are applied.

The impairment testing for the year ended 30 June 2023 has not identified right-of-use assets being impaired. The impairment model level of

sensitivity disclosed in Note 15 was not identified as being sensitive to reasonably possible changes in key assumptions.

17. Intangible Assets

The following table represents movements in intangible assets for the year ended 30 June 2023:

Trade-

marks

Land lease

rights

Crypto

assets

Other

intangible

assets

Total

Cost as of 1 July 2022

22,036

94,486

100,195

17,254

233,971

Additions

—

7,750

2,473

10,223

Additions from acquisition of subsidiaries

—

11,631

Disposals

—

(125,745)

(720)

(126,465)

Transfer from current assets

—

17,800

—

17,800

Translation difference

—

(13,715)

—

(5,826)

(19,541)

Cost as of 30 June 2023

22,036

80,771

—

24,812

127,619

Accumulated amortization and impairment losses as of 1 July 2022

(8,769)

(92,256)

—

(8,748)

(109,773)

Amortization charge

—

(225)

—

(1,168)

(1,393)

Disposals

—

2,412

617

3,029

Impairment loss recognized in the Statement of Profit or Loss

(82)

—

(2,412)

—

(2,494)

Translation difference

—

15,664

—

3,682

19,346

Accumulated amortization and impairment losses as of 30 June 2023

(8,851)

(76,817)

—

(5,617)

(91,285)

Net book value as of 30 June 2023

13,185

3,954

—

19,195

36,334

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

134

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

Strategic

Report

Sustainability

Corporate

Governance

Financial

Statements

The following table represents movements in intangible assets for the year ended 30 June 2022:

Trade-

marks

Land lease

rights

Crypto

assets

Other

intangible

assets

Total

Cost as of 1 July 2021

22,036

125,724

—

13,259

161,019

Additions

—

173,100

5,488

178,588

Disposals

—

(55,105)

(102)

(55,207)

Transfers to Assets classified as held for sale (Note 15)

—

(22,769)

—

(695)

(23,464)

Transfer to other financial assets

—

(17,800)

Translation difference

—

(8,469)

—

(696)

(9,165)

Cost as of 30 June 2022

22,036

94,486

100,195

17,254

233,971

Accumulated amortization and impairment losses as of 1 July 2021

(8,318)

(86,366)

—

(4,191)

(98,875)

Amortization charge

—

(8,632)

—

(1,333)

(9,965)

Disposals

—

34,075

34,165

Transfers to Assets classified as held for sale (Note 15)

—

20,024

—

20,038

Impairment loss recognized in the Statement of Profit or Loss

(451)

(23,698)

(34,075)

(3,409)

(61,633)

Translation difference

—

6,416

—

6,497

Accumulated amortization and impairment losses as of 30 June 2022

(8,769)

(92,256)

—

(8,748)

(109,773)

Net book value as of 30 June 2022

13,267

2,230

100,195

8,506

124,198

As of 30 June 2022, crypto assets consisted only of stable coins, cost of which directly connected to the exchange rate of the fiat currency (USD).

During the year ended 30 June 2023 the Group converted USD 110,700 thousands of its crypto assets into cash with the bank.

Included in the intangible assets of Subsidiaries are the ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ trademarks with net book values of

USD 4,567 thousand, USD 5,459 thousand, USD 2,980 thousand and USD 179 thousand, respectively, in 2023 (USD 4,546 thousand, USD 5,553

thousand, USD 2,989 thousand and USD 179 thousand, respectively, in 2022). These trademarks are used by the Group for the sale of bottled

sunflower oil mostly in the Ukrainian market.

According to management's perspective, there is no identifiable limit to the duration during which the trademarks are anticipated to generate positive

net cash inflows for the Group.

The Group believes that, as a result of further promotion of the ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ trademarks, the market share

enjoyed by the Group will be stable and thus the Group will obtain economic benefits from them for an indefinite period of time.

Accordingly, the trademarks that belong to the Group are considered to have an indefinite useful life and thus are not amortized but tested for

impairment by comparing their recoverable amount with their carrying amount annually on 30 June and whenever there is an indication that the

trademarks may be impaired.

The impairment testing of the value of trademarks as of 30 June 2023 was performed by an independent appraiser. The recoverable amount of

the trademarks was based on the fair value less costs to sell method using the royalty approach of valuation and is classified within level 3 of the

fair value hierarchy. This calculation uses cash flow projections based on financial budgets approved by management and covering a five-year

period. The total amount of the trademarks was allocated to the Oilseed Processing segment (as one cash-generating unit).

As a result of testing performed, as of 30 June 2023, impairment loss for the trademarks ‘Stozhar’,‘Zolota’ in the amount of USD 94 thousand, USD

9 thousand, respectively, was recognized, and impairment loss ‘Schedry Dar’ recognized in prior periods was reversed in the amount of USD 21

thousand (30 June 2022: impairment loss for the trademarks ‘Schedry Dar’, ‘Stozhar’ and ‘Zolota’ recognized in prior periods in the amount of USD

21 thousand, USD 377 thousand and USD 53 thousand respectively). It was recognized as loss on impairment of intangible assets within Loss on

impairment of assets (Note 30). Impairment was caused primarily by shrinkage of consumer demand for bottled sunflower oil.

18. Goodwill

The following table represents movements in goodwill for the year:

For the year ended

30 June 2023

For the year ended

30 June 2022

Cost at beginning of the year

132,281

133,909

Additions

—

Translation differences

—

(1,628)

Cost at the end of the year

132,293

132,281

Accumulated impairment losses at the beginning of the year

(60,661)

(12,984)

Impairment losses recognized in the year

—

(47,677)

Accumulated impairment losses at the end of the year

(60,661)

Balance at the end of the year

71,632

71,620

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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A summary of goodwill allocated to individual entities or group of entities as separate CGU, were aggregated at the segment level and presented

below:

Goodwill carrying value

Segment

CGU

As of 30 June 2023

As of 30 June 2022

Oilseed Processing

Kropyvnytskyi OEP PJSC

28,978

Prydniprovskyi OEP LLC

29,446

Infrastructure and Trading

Transbulkterminal and Transgrainterminal

9,594

RTK-Ukraine

3,602

Oilexportterminal

—

Total

71,632

71,620

The Group tests whether goodwill has suffered on impairment at the level of the operating segments. The recoverable amount of a CGU was

determined based on the higher value from value-in-use or fair value less cost of disposal. Impairment test of goodwill was based on the same

assumptions as impairment test for property, plant and equipment (Note 15). Sensitivity to the mentioned above key assumptions, as of 30 June

2023, is presented in the table below:

CGU

Inputs

Change in input by:

Kropyvnytskyi OEP PJSC

Sales price of sunflower oil,

USD per ton

Decrease by 2.33%

Recoverable amount equals carrying amount

Decrease by 5.00%

Impairment of USD 43,540 required

Purchase price of sunflower

seeds, USD per ton

Increase by 2.20%

Recoverable amount equals carrying amount

Increase by 5.00%

Impairment of USD 47,826 required

Prydniprovskyi OEP LLC

Sales price of sunflower oil,

USD per ton

Decrease by 1.38%

Recoverable amount equals carrying amount

Decrease by 5.00%

Impairment of USD 119,397 required

Purchase price of sunflower

seeds, USD per ton

Increase by 1.30%

Recoverable amount equals carrying amount

Increase by 5.00%

Impairment of USD 127,912 required

As of 30 June 2023, as a result of the test no impairment was identified.

As of 30 June 2022, the Group recognised an impairment charge against goodwill in the amount of USD 47,677 thousand attributable to the Oilseed

Processing and Farming CGUs and included within the line Loss on impairment of assets.

19. Other non-current assets

The balances of other non-current assets were as follows:

As of

30 June 2023

As of

30 June 2022

Value added tax recoverable and prepaid

34,958

51,771

Prepayments for property, plant and equipment

21,268

41,405

Non-current biological assets

5,924

5,937

Other non-current assets

7,612

Total

62,169

106,725

As of 30 June 2023, the portion of VAT recoverable and prepaid, amounting to USD 34,958 thousand, was presented in the line Other non-current

assets, considering that the planned utilization period for this amount is more than 12 months (30 June 2022: USD 51,771 thousand). As of

30 June 2023, an allowance for VAT in the amount of USD 8,530 thousand was recognized in the line Loss on impairment of assets (30 June 2022:

nil) (Note 30).

20. Advances from Customers and Other Current Liabilities

The balances of advances from customers and other current liabilities were as follows:

As of

30 June 2023

As of

30 June 2022

Accrued payroll, payroll related taxes and bonuses

87,773

44,236

Contract liabilities

49,042

11,528

Provision for unused vacations and other provisions

7,274

6,106

Taxes payable and provision for tax liabilities

4,284

3,499

Advances for assets classified as held for sale (Note 8)

—

20,000

Other current liabilities

5,397

3,831

Total

153,770

89,200

During the year ended 30 June 2023, the Group recognized USD 11,528 thousands of revenue related to the contract liabilities as of 30 June 2022

(2022: USD 29,206 thousand), which related to advances.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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21. Other Financial Liabilities

The balances of other financial liabilities were as follows:

As of

30 June 2023

As of

30 June 2022

Payable for legal claims (Note 35, 37)

40,558

38,387

Derivative financial instruments (Note 37)

18,327

23,130

Accounts payable for property, plant and equipment

5,587

7,884

Payable from profit-sharing arrangement

—

32,626

Other current liabilities

4,136

26,510

Total

68,608

128,537

22. Borrowings

The balances of borrowings were as follows:

As of

30 June 2023

As of

30 June 2022

Bank credit lines

652,273

854,828

Short-term borrowings

211,261

234,429

Interest accrued on short-term borrowings

6,389

3,829

Bank overdrafts (Note 9)

Total

869,933

1,093,087

The balances of short-term borrowings in details by tranches were as follows:

Interest rate in range

Currency

Amount due 30

June 2023

Amount due 30

June 2022

European bank

from 2.30% to 3.50% plus LIBOR

USD

194,952

348,870

Ukrainian subsidiary of European bank

from 1.90% to 10.00%

USD

151,781

175,271

European bank

from 2.90% to 4.00% plus SOFR

USD

123,870

157,042

European bank

from 3.50% to 4.00% plus LIBOR

UAH

63,063

—

Ukrainian subsidiary of European bank

from 13.50% to 22.00%

USD

32,182

53,430

European bank

from 2.50% to 4.00% plus COF

USD

25,721

12,000

Ukrainian bank

7.00%

UAH

19,142

—

Ukrainian bank

6.00% plus UIRD

UAH

18,230

—

Ukrainian bank

from 17.00% to 23.73%

USD

16,435

43,753

European bank

from 2.20% to 2.97%

USD

6,907

8,000

Ukrainian subsidiary of European bank

21%

USD

—

56,463

Total

652,283

854,829

As of 30 June 2023, the Group continued to classify its bank borrowings with long-term initial contractual maturity as short-term as the Group did

not have an unconditional right to defer settlement of those loans until the initial contractual settlement date. Previously, as of 30 June 2022, the

Group classified its long-term bank borrowings as short-term because the Group had exceeded certain ratios for the purposes of financial covenants

in certain of its bank loans and effective waivers had an expiry date within 12 months ending 30 June 2023. Upon expiry of those waivers the Group

obtained waivers and reservation of rights covering the period until 31 July 2023 which were further extended after the reporting date in August-

September. In September-October 2023, the Group obtained waivers which waived compliance with financial and some of non-financial covenants

effective until 30 June 2024 for the borrowings in the amount of USD 777,909 thousand.

The balance of the borrowings with initial contractual maturity more than 12 month of 30 June 2023 is disclosed in the table below by tranches:

Initial

contractual

maturity

Interest rate in range

Currency

Amount due 30

June 2023

Amount due 30

June 2022

European bank

2030

from 2.77% to 2.84% plus LIBOR

USD

85,871

91,421

European bank

2029

from 2.77% to 2.84% plus LIBOR

USD

84,846

95,968

European bank

2027

from 1.00% to 4.50% plus LIBOR

USD

34,751

40,320

European bank

2027

1.00%

USD

5,793

6,720

Total

211,261

234,429

As of 30 June 2023, the undrawn amount of bank borrowings amounted to USD 130,620 thousand including available facility amounts upon bank

credit lines and long-term financing (30 June 2022: USD 10,938 thousand).

For Libor-based borrowings that were exposed to 1M and 3M Libor, the Group's management has reached an agreement with the Lenders to

determine SOFR as an alternative benchmark. Respective changes to the facilities documentation were signed prior to 30 June 2023. In accord-

ance with the management’s expectation, the impact of alternative benchmark is not expected to be material to the Group.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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As of 30 June, bank borrowings were secured as follows:

As of

30 June 2023

As of

30 June 2022

Property, plant and equipment (Note 15)

406,731

393,782

Inventory (Note 12)

191,186

566,902

Pledge deposits (Note 14)

122,703

—

Future sales receipts

49,165

—

Cash deposit (Note 14)

6,907

8,000

Ukrainian government bonds (Note 14)

1,092

6,077

Total

777,784

974,761

As of 30 June 2023, there were no inventories pledged as security for short-term borrowings included in Assets classified as held for sale (30 June

2022 USD 5,678).

23. Lease liabilities

The following is the maturity analysis of lease payments under the lease agreements as of 30 June:

Maturity

As of

30 June 2023

As of

30 June 2022

Payable within one year

33,594

41,720

Payable in the second to fifth years

163,332

179,191

Payable after five years

247,574

301,134

Total

444,500

522,045

less

Future finance charges

(246,605)

(282,493)

Present value of lease obligations

197,895

239,552

less

Current portion

(31,160)

(39,111)

Lease obligations, long-term portion

166,735

200,441

24. Bonds issued

The balances of bonds issued were as follows:

Maturity

As of

30 June 2023

As of

30 June 2022

US 300,000 thousand 6.75% coupon bonds (issued October 2020)

October 2027

297,660

297,314

US 300,000 thousand 6.50% coupon bonds (issued October 2019)

October 2024

298,551

297,724

Total

596,211

595,038

As of 30 June 2023, the bonds are rated CCC by S&P (30 June 2022: CC), one notch below the Ukrainian sovereign. Also, the bonds kept the CC

rating assigned by Fitch.

All the notes are unsecured, ranking equally with all existing and future senior unsecured indebtedness of the Company and have been uncondi-

tionally and irrevocably guaranteed by designated Group subsidiaries on the joint and several basis to the maximum extent permitted by law.

All the bonds contain certain restrictive covenants that limit the ability of the Company and, where applicable, its restricted subsidiaries to create

or incur certain liens, make restricted payments, engage in amalgamations, mergers or consolidations, or combination with other entities; make

certain disposals and transfers of assets; and enter into transactions with affiliates.

As of 30 June 2023 and 2022, the Group did not have an unconditional right (within the meaning of paragraph 69 d) of IAS 1 Presentation of

Financial Statement) to defer settlement of its bonds for 12 months or longer as effective bank waivers relating to its loans and reservation of rights

cover period of 1 month only (Note 22). The Group therefore classified its long-term bonds as short-term. Notwithstanding such classification,

management notes that, in view of the effective waivers from banks that were in place as of 30 June 2023, cross-acceleration events of default

under the bonds were not triggered as at such date, and the Group remained otherwise in full compliance with the terms of its bonds.

25. Income Tax

The Group operates globally and is subject to the tax laws and regulations of numerous tax jurisdictions and authorities as well as tax agreements

and treaties among these jurisdictions. The corporate income tax rate in Ukraine, where the main operations of the Group are located, was 18%

as of 30 June 2023 and 2022.

The majority of the Group’s companies that are involved in agricultural production pay the Unified Agricultural Tax (‘UAT’) in accordance with the

Tax Code of Ukraine. The UAT replaces the following taxes for agricultural producers: Corporate Income Tax, Land Tax, Special Water Consump-

tion Duty and Trade Patent. The UAT is calculated by local authorities and depends on the area and valuation of land occupied. This tax regime is

valid indefinitely. The UAT does not constitute an income tax and, as such, is recognized in the Consolidated Statement of Profit or Loss in cost of

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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sales.

The tax rate for agricultural producers is calculated as a percentage of the target-ratio based monetary valuation per hectare of agricultural land

resulting in substantially lower tax charges compared to corporate income tax. Agricultural manufacturers are eligible to apply for a single tax if

they meet both the following two requirements:

• The share of the entity’s revenue from agricultural production (i.e., sale of the entity’s cultivated and processed products) to the total share of its

income equals or exceeds 75 per cent; and

• These agriproducts were cultivated on land that such agricultural manufacturers own or lease, and the ownership title and leases have been

duly registered.

The components of income tax (expenses)/benefit were as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Current income tax charge

(49,626)

(32,957)

Deferred tax (expenses)/benefit relating to origination and reversal of temporary differences

(19,424)

35,738

Total income tax (expenses)/benefit recognized in the reporting period

(69,050)

2,781

The income tax (expenses)/benefit is reconciled to the profit before income tax per Consolidated Statement of Profit or Loss as follows:

As of

30 June 2023

As of

30 June 2022

Profit/(Loss) before income tax

367,824

(43,481)

Tax (expenses)/benefit at Ukrainian statutory tax rate of 18%

(66,208)

7,827

Effect of income that is exempt from taxation (farming)

(18,225)

28,771

Effect of different tax rates of Subsidiaries operating in other jurisdictions

(18,459)

1,874

Effect of unused tax losses and tax offsets not recognized as deferred tax assets

(4,900)

(6,269)

Other expenditures not allowable for income tax purposes and non-taxable income, net

38,742

(29,422)

Income tax (expenses)/benefit

(69,050)

2,781

For the year ended 30 June 2023, income tax benefit recognized in other comprehensive income were nil (for the year ended 30 June 2022:

USD 10,564 thousand income tax loss).

The primary components of the deferred tax assets and deferred tax liabilities were as follows:

As of

30 June 2023

As of

30 June 2022

Tax losses carried forward

17,112

14,564

Valuation of property, plant and equipment

2,390

13,843

Valuation of inventories

10,257

19,229

Others

1,757

2,088

Deferred tax assets

31,516

49,724

Valuation of property, plant and equipment

(26,032)

(27,754)

Valuation of intangible assets

(1,525)

(1,753)

Others

(3,163)

(542)

Deferred tax liabilities

(30,720)

(30,049)

Net deferred tax assets

796

19,675

As of 30 June 2023, deferred tax assets in the amount of USD 29,126 thousand are expected to be recovered or settled within twelve months after

the reporting period (30 June 2022: USD 35,881 thousand).

As of 30 June 2023, based upon projections for future taxable income over the periods in which the taxable temporary differences are anticipated

to reverse, management believes it is probable that the Group will realize the benefits of deferred tax assets of USD 17,112 thousand (2022:

USD 14,564 thousand) recognized with respect to tax losses carried forward by the subsidiaries. The amount of future taxable income required to

be generated by the Subsidiaries to utilize the tax benefits associated with the tax loss carried forward is approximately USD 95,067 thousand

(2022: USD 80,911 thousand). However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates of

taxable income are revised.

As of 30 June 2023, unrecognized deferred tax assets arising from tax losses carried forward by the Group’s subsidiaries amounted to

USD 11,170 thousand (30 June 2022: USD 5,529 thousand).

The Group does not recognize a deferred tax liability for all taxable temporary differences associated with investments in subsidiaries as it is able

to control the timing of the reversal of such temporary differences and it is probable that they will not reverse in the foreseeable future.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Certain deferred tax assets and liabilities have been offset in accordance with the Group’s accounting policy. The following is an analysis of the

deferred tax balances (after offset) as they are presented in the Consolidated Statement of Financial Position:

As of

30 June 2023

As of

30 June 2022

Deferred tax assets

21,353

41,568

Deferred tax liabilities

(20,557)

(21,893)

Net deferred tax assets

796

19,675

26. Revenue

The Group’s revenue was as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Revenue from edible oils sold in bulk, meal and cake

1,891,335

2,314,603

Revenue from agriculture commodities merchandizing

1,347,681

2,743,079

Revenue from bottled sunflower oil

139,652

209,475

Revenue from farming

35,074

38,967

Revenue from transshipment services

34,904

16,999

Revenue from grain silo services

6,475

8,422

Total

3,455,121

5,331,545

Revenue is obtained principally from the sale of commodities, recognized once the control of the goods has transferred from the Group to the

customer. Revenue derived from freight, storage and other services, presented in the line Revenue from edible oils sold in bulk, meal and cake, is

recognized over time as the service is rendered. Disaggregated revenue for each reportable segment is presented in Note 7.

The transaction price allocated to outstanding performance obligations as of 30 June 2023 is USD 17,554 thousand (30 June 2022:

USD 434 thousand). This amount represents revenue from carriage, freight and insurance services under CIF/CFR Incoterms contracts which are

to be executed in July 2023, when the goods are delivered to the point of destination and under which the Group has already recognized revenue

from sale of goods at a point in time as of 30 June 2023.

27. Cost of Sales

Cost of sales was as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Cost of goods for resale and raw materials used

1,941,524

4,139,354

Shipping and handling costs

596,855

366,778

Amortization and depreciation

100,378

120,790

Payroll and payroll related costs

65,257

65,051

Total

2,704,014

4,691,973

For the year ended 30 June 2023 result on operations with commodity futures, options, and unrealized forwards, included within Cost of goods for

resale and raw materials used line, decreased Cost of sales for the amount of USD 65,095 thousand (2022: USD 204,835 thousand decrease).

28. Other Operating Income and Expenses

Other operating income/(expenses), net was as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Other operating income

Gain on sale of foreign currency

15,884

2,965

Insurance reimbursement

13,982

—

Stock-take

9,224

8,481

Contracts wash-out (price difference settlement)

5,791

48,258

Gain on operations with securities

4,190

—

Other operating income

4,476

3,990

Total

53,547

63,694

Other operating expenses

Other dispatch fees and fines

(24,185)

—

Loss on operations with derivatives

(10,682)

(11,483)

Loss on operations with securities

—

(33,227)

Total

(34,867)

(44,710)

Net other operating income

18,680

18,984

The Group enters into wash-out contracts in order to reduce administrative time and costs, these contracts can be offset based on a mutual

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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agreement with the same partners who sold or purchased commodities.

For the year ended 30 June 2023, there has been an increase in other dispatch fees and other fines due to extended waiting times during the

loading and unloading of ships in ports. The primary driver behind this surge in fines is the instability within the Black Sea Grain Initiative. A signif-

icant part of this amount is fines related to the sale of sunflower oil and meal.

29. General, administrative and selling expenses

General, administrative and selling expenses were as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Payroll and payroll related costs

163,417

180,206

Audit, legal and other professional fees

12,096

11,392

Repairs and material costs

7,271

7,639

Amortization and depreciation

4,409

8,500

Business trip expenses

3,957

3,686

Taxes other than income tax

2,319

4,611

Expense relating to leases of low-value assets

1,967

2,532

Insurance

1,953

1,130

Bank services

1,398

2,644

Communication expenses

1,003

1,693

Other expenses

5,229

6,372

Total

205,019

230,405

Audit, legal and other professional fees for the year ended 30 June 2023 included the auditor’s remuneration in the amount of USD 585 thousand

and remuneration for non-audit services were USD 196 thousand (for the year ended 30 June 2022: USD 526 thousand and USD 257 thousand,

respectively). No consultancy services were provided by the auditors for the years ended 30 June 2023 and 2022.

30. Loss on Impairment of Assets

Loss on impairment of assets were as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Impairment of assets classified as held for sale

26,039

92,920

Allowance for VAT (Note 19)

8,530

—

Allowance for inventories and write-offs of inventories and of property, plant and equipment

7,198

64,084

Impairment loss on crypto assets

2,412

34,075

Property, plant and equipment impairment (Note 15)

—

51,165

Goodwill impairment (Note 18)

—

47,677

Intangible assets impairment (Note 17)

27,107

Reversal of loss on impairment of assets

(29,528)

—

Total

14,733

317,028

During the year ended 30 June 2023, the Group reversed the previously created allowance for inventories located at the temporary occupied

territories was reversed in the amount of USD 27,604 thousand since the Group relocated those inventories. Hence, the Group was able to use

those inventories in its operating activities during the year ended 30 June 2023. Respective amount of reversal is presented in line Reversal of loss

on impairment of assets in the table above.

However, during the current reporting period, in addition to the previous allowance a new part in amount of USD 2,240 thousand was recognized

through Loss on impairment of assets (2022: USD 53,127 thousand).

During the year ended 30 June 2023, the Group recognized write-offs for destroyed inventories totalling USD 3,520 thousand and reversed a

portion of previous year written-off inventories, amounting to USD 1,924 thousand, (during the year ended 30 June 2022: total write-off of inventories

in the amount of USD 10,838 thousand due to the suspension of export and subsequent expiration date of the goods as well as destruction as a

result of military actions).

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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31. Finance Costs and Income

Net finance costs were as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Finance costs expensed

Interest expense on bank loans (Note 9)

(75,605)

(34,048)

Interest on corporate bonds (Note 9)

(39,750)

(50,473)

Interest on lease liabilities (Note 9)

(35,180)

(42,074)

Other finance costs

(2,714)

(3,954)

Total

(153,249)

(130,549)

Finance income

Interest received on financial assets held for cash management

28,128

10,732

Other financial income

2,664

590

Total

30,792

11,322

Net finance costs

(122,457)

(119,227)

32. Foreign exchange gain, net

For the year ending 30 June 2023, the net foreign exchange gain amounted to USD 62,650 thousand (30 June 2022: USD 10,140 thousand). This

result is primarily attributed to the fluctuations in exchange rates, impacting the revaluation of balances denominated in currencies other than the

functional currency. These balances include trade balances, VAT and borrowings (including intra-group balances where the Company's subsidiar-

ies operate with different functional currencies and engage in intercompany financing, which, upon revaluation, can result in foreign exchange

gains or losses for one of the Company's subsidiaries if they use different functional currencies).

33. Other Expenses, net

Other (expenses)/income, net was as follows:

For the year ended

30 June 2023

For the year ended

30 June 2022

Social spending

(12,279)

(26,271)

Fines and penalties

(3,020)

(1,360)

(Loss)/gain on disposal of property, plant and equipment

(621)

2,570

Gain on disposal of Subsidiaries (Note 8)

4,091

—

Total

(11,829)

(25,061)

34. Transactions with Related Parties

As of 30 June 2023, the Group is controlled by the Namsen LLC (Note 2).

The Group had the following balances outstanding with related parties from sales or purchases of goods and services:

Related party

Statement of Financial Position line

Related party balances

as of 30 June 2023

Related party balances

as of 30 June 2022

Entities under Common

control

Trade accounts receivable, net

13,776

—

Prepayments to suppliers and other current assets

41,798

—

Other financial assets

104,319

—

Trade accounts payable

26,922

—

Entities under Beneficial

Owner control

Trade accounts receivable, net

—

1,763

Other financial assets

—

8,849

Non-current financial assets

—

19,552

Trade accounts payable

—

768

Advances from customers and other current liabilities

—

20,000

Key management

Other financial assets

3,546

Non-current financial assets

124

2,099

Advances from customers and other current liabilities

20,345

5,545

Other financial liabilities

—

964

Other non-current liabilities

54,278

37,970

Entities under Key

Management control

Other financial assets

18,250

18,304

Non-current financial assets

—

1,325

Other related parties

Trade accounts receivable, net

39,563

44,333

Prepayments to suppliers and other current assets

747

6,590

Other financial assets

4,419

4,433

Non-current financial assets

8,563

11,324

Trade accounts payable

18,746

13,468

Other financial liabilities

—

15,015

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for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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As of 30 June 2023, consideration receivable for disposal of the farming entities of USD 90,000 thousand is presented within the line Other financial

assets and it is due from the Entities under Common control (Note 14).

During the year ended 30 June 2022, a new management incentive plan was introduced, according to which the Company granted to management

the options to sell to the Company 2,792,435 of its ordinary shares. The consideration for each share will be a minimum of (i) USD 23.80 and

(ii) operating profit before working capital changes minus interest paid plus interest received minus interest tax paid minus maintenance capital

expenditures in the fixed amount of USD 155,000 thousand, where all amounts, except for the maintenance capital expenditures, are specified in

USD as appropriately classified and disclosed in the consolidated statement of cash flows of the audited annual consolidated accounts of the

Company and its subsidiaries for the Financial Years 2022-2024, divided by three divided by 12% and divided by 84,031,230. The option exercise

period is set for a period commencing on 1 November 2024 and expiring on 31 December 2026. As of 30 June 2023, fair value of liability recognised

in terms of share options amounted to USD 54,278 thousand (30 June 2022: USD 35,370 thousand) and presented within Other non-current

liabilities. Upon initial recognition, in December 2021, fair value of liability amounted to USD 44,830 thousand, out of which USD 44,282 thousand

were recognized through Retained earnings and USD 548 thousand expensed in General, administrative and selling expenses (part of Payroll and

payroll related expenses).

Transactions with related parties are performed on terms equivalent to those that prevail in arm’s length transactions. The amount of outstanding

balances is unsecured and will be settled in cash. There have been no guarantees provided or received for any related party receivables or

payables. Loans provided at rates comparable to the average commercial rate of interest.

Transactions with related parties were as follows:

Related party

Statement of Profit and Loss line

Related party transac-

tions for the year ended

30 June 2023

Related party transaction

for the year ended

30 June 2022

Entities under common control

Revenue

7,010

—

Purchases of various goods and services

35,977

—

Entities under Beneficial Owner

control

Revenue

16,161

2,786

Purchases of various goods and services

56,694

34,184

Cost of sales

(10,356)

(7)

Finance income

164

1,246

Key management

General, administrative and selling expenses

(40,151)

(378)

Entities under Key Management

control

General, administrative and selling expenses

(820)

(145)

Finance income

1,017

Other related parties

Revenue

72,300

43,945

Cost of sales

(611)

(686)

Purchases of various goods and services

3,621

22,893

Other operating income

8,045

General, administrative and selling expenses

(1,639)

(704)

Finance income

1,687

1,876

Remeasurement of liability related to options provided to key management as of 30 June 2023 resulted in loss recognized in General, administrative

and selling expenses in the amount of USD 18,158 thousand (30 June 2022: gain USD 8,912 thousand recognised as decrease in General,

administrative and selling expenses).

The Group key management personnel are the members of the Board of Directors and management team. The remuneration of Directors and

other members of key management personnel recognized in the Consolidated Statement of Profit and Loss and Other Comprehensive Income

including salaries and other current employee benefits amounted to USD 21,065 thousand (for the year ended 30 June 2022: USD 9,007 thousand).

35. Commitments and Contingencies

Retirement and Other Benefit Obligations

Employees of the Group receive pension benefits from the government in accordance with the laws and regulations of Ukraine. The Group’s

contributions to the State Pension Fund for the year ended 30 June 2023 were USD 15,395 thousand (2022: USD 17,511 thousand).

The Group is required to contribute a specified percentage of the payroll to the Pension Fund to finance some post-retirement benefits of its former

employees. The only obligation of the Group with respect to this pension plan is to make the specified contributions. As of 30 June 2023 and 2022,

the Group was not liable for any significant supplementary pensions, post-retirement health care, insurance benefits or retirement indemnities to

its current or former employees.

Capital Commitments

As of 30 June 2023, the Group had commitments under contracts with a group of suppliers for a total amount of USD 21,749 thousand, mostly for

construction of the oil-crushing plant (30 June 2022: USD 32,595 thousand, mostly for the construction of an oilseed crushing plant).

Contractual Commitments on Sales

As of 30 June 2023, the Group had entered into commercial contracts for the export of 103,000 tons of grain, 157,545 tons of sunflower oil and

129,373 tons of sunflower meal and other related products, corresponding to an amount of USD 25,751 thousand, USD 149,280 thousand and

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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USD 43,838 thousand, respectively, in contract prices as of the reporting date.

As of 30 June 2022, the Group had entered into commercial contracts for the export of 838,000 tons of grain, 50,572 tons of sunflower oil and

75,676 tons of sunflower meal and other related products, corresponding to an amount of USD 244,633 thousand, USD 73,032 thousand and USD

32,733 thousand, respectively, in contract prices as of the reporting date.

Taxation and Legal Issues

The international tax environment is becoming more complex in terms of tax administration, which could increase tax pressure on taxpayers. In

particular, a key part of the OECD/G20 BEPS Project is addressing the tax challenges arising from the digitalization of the economy. The Global

Anti-Base Erosion Rules (GloBE) are a key component of this plan and ensure large multinational enterprises pay a minimum level of tax on the

income arising in each of the jurisdictions where they operate. More specifically, the GloBE Rules provide for a coordinated system of taxation that

imposes a top-up tax on profits arising in a jurisdiction whenever the effective tax rate, determined on a jurisdictional basis, is below the minimum

rate. It is expected that the final legislation will be enacted before 31 December 2023, in line with the requirements of the EU Directive, and will be

effective for the Group from 1 July 2024. The Kernel Group estimates that the introduction of Pillar 2 could potentially result in an increase in income

tax at the level of the parent company, which may be obliged to pay the top-up tax on low-taxed income of the Group companies. In general, the

increase in the tax burden will depend on the actual level of the effective tax rate in the jurisdictions in which the Group operates.

Tax risk management is embedded in overall Group risk management. As of 30 June 2023, companies of the Group had ongoing litigations with

the tax authorities concerning tax issues for USD 65,803 thousand (as of 30 June 2022: USD 89,796 thousand). Out of this amount, USD 6,638

thousand relates to cases where court hearings took place and where the court in either the first or second instance has already ruled in favor of

the Group (as of 30 June 2022: USD 4,787 thousand). Management believes that based on the past history of court resolutions of similar lawsuits

by the Group, it is unlikely that a significant settlement will arise out of such lawsuits and no respective provision is required in the Group’s financial

statements as of the reporting date.

Ukraine’s tax environment is characterized by complexity in tax administration, arbitrary interpretation by tax authorities of tax laws and regulations

that could increase fiscal pressure on taxpayers. Inconsistent application, interpreting, and enforcement of tax laws can lead to lawsuits resulting

in the imposition of additional taxes, penalties, and penalty interest.

Key aspects of the Ukrainian tax system are the following:

• Ukraine operates a classic corporate income tax system, under which taxable profit of companies (i.e., financial profit adjusted by tax differences)

is subject to 18% corporate income tax (“CIT”).

• Transfer pricing rules apply to transactions with related non-residents and “low-tax” non-residents (i.e., non-residents, taxed domestically at a

significantly lower corporate income tax rate than the Ukrainian tax rate of 18%), subject to a company’s minimum income threshold of

UAH 150 million and turnover threshold with each separate non-resident of UAH 10 million.

• Domestic supply of goods and services, as well as the import of goods and certain services, are subject to value-added tax at the standard rate

of 20%. Reduced tax rate of 0% applies to the export of goods from Ukraine. Starting from March 2021, also 14% tax rate applies to the domestic

supply and import of certain agricultural commodities.

• Payment of passive income (i.e., interest, royalties, dividends etc.) to non-residents is subject to withholding tax at a standard 15% rate unless

double tax treaties or the Tax Code of Ukraine provide another tax rate.

• Agricultural producers of raw materials are allowed to apply a simplified tax system, given that at least 75% of their income is attributable to sales

of agricultural raw materials produced by such company. Under the simplified tax system, companies are subject to a fixed tax, which depends

on the type, location and monetary value of farmland used by such companies.

• In March 2022 significant changes to the Tax Code of Ukraine have been introduced as a result of the war and adoption of Marital Law in Ukraine.

Amongst others, these changes released the taxpayers from financial liability for any tax and other violations of legislation, the compliance with

which is monitored by the customs and tax authorities, if such violations occur as a result of the force majeure circumstances (the war following

the military aggression of the Russian Federation). At the same time, such obligations must be fulfilled immediately after the termination of the

force majeure circumstances. The Law has also temporarily suspended certain types of tax audits, including transfer pricing audits. In May 2022

and August 2023 other Laws have been adopted partially reinstating the taxpayers’ obligations and the tax authorities’ right to initiate tax audits.

• During some periods of Martial Law, taxpayers had the right to voluntarily transfer from general taxation regime to the special tax regime whereby

the tax rate of 2% from revenue is applied. The temporary 2% unified tax regime is abolished starting from 1 August 2023 and taxpayers having

chosen the special regime was obliged to return to the general taxation regime.

• In February 2022 the National Bank of Ukraine imposed restrictions on the purchase of foreign currency and cross-border cash transfers in

import transactions. Temporarily it has been prohibited to purchase foreign currency for executing the payments for the import of certain goods,

services, work, intellectual property rights, apart from the payments for goods from the so called “critical import” list. In 2022-2023 these re-

strictions have been eased, but still continue to apply to certain transactions.

• Taxpayers may apply for VAT refund. The respective application is the ground for the tax audit. After the confirmation of the respective amount

of VAT refund by tax authorities, the taxpayer may receive VAT refund in cash. It should be noted that in practice due to martial law tax authorities

apply a fiscal approach to estimation of the amount of VAT refund.

• The Ukrainian resident individuals or legal entities controlling CFCs are obliged to submit notifications to the tax authorities in case of an acqui-

sition / alienation of a share in a CFC, set up of new CFC or liquidation of the existing CFC, commencement / termination of actual control over

the CFC and in some other cases.

• Starting from 4 June 2022, the tariff restrictions provided in the EU-Ukraine Association Agreement have been suspended, namely all tariff

quotas for agricultural products; antidumping duties; global safeguards actions against Ukrainian goods. However, some European countries

continue to keep some restrictions for Ukrainian agricultural products.

• Diia City regime providing for special tax benefits for IT companies was adopted in Ukraine. Among other novelties, this regime introduces certain

protection from excessive interference from state bodies and control over IT business, simplification of formalities with hiring IT specialists

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for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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(including special “gig-contracts”), reduced income tax and payroll tax rates for qualifying IT businesses.

36. Financial risk management

Capital Risk Management

The Group manages its capital, which is attributable to equity holders to ensure that entities in the Group will be able to continue as a going concern

so that they can continue to provide returns for shareholders and benefits for other stakeholders and maintain an optimal capital structure to reduce

the cost of capital. Management considers the cost of capital and risks associated with each class of capital. Based on recommendations from

management, the Group balances its overall capital structure through the payment of dividends, new share issues, repurchase of own shares as

well as the issue of new debt or the redemption of existing debt. The Group monitors capital based on the carrying amount of equity, borrowings

less cash and cash equivalents as presented in the statement of financial position.

The Group is not subject to any externally imposed capital requirements, except for bank borrowing covenants imposed by external lenders.

Gearing Ratio

During 2023, the group’s strategy, which was unchanged from 2022, Management reviews the capital structure of the Group, taking into consider-

ation the seasonality of the activity of the Group. As part of this review, management considers the cost of capital and the risks associated with

each class of capital. The Group’s management considers that the gearing ratio should not exceed 150%.

As of

30 June 2023

As of

30 June 2022

Equity

1,741,857

1,683,188

Debt liabilities

(Notes 22, 23, 24)

1,671,651

1,935,289

Less cash and cash equivalents (Note 9)

(954,103)

(447,625)

Net debt

717,548

1,487,664

Net debt liabilities to capital

41.2%

88.4%

The net debt liabilities to capital ratio decreased from 88.4% to 41.2% as a result of an increase in operating cash flows and cash held by the Group

at the end of the year.

Financial Risk

The Group is exposed to financial risk in the result of normal course of business and include following risks:

• Credit risk

• Liquidity risk

• Market risk

Risk management policies have been established to identify, assess, and analyse the risks faced by the Group, to manage and continuously

improve an effective risk management and monitoring system, spreading the culture of decision-making in terms of risks, their valuation and

likelihood of occurrence. The Group coordinates roles and participants through training, management standards and procedures.

Credit Risk

Credit risk is the risk of financial loss to the Group if counterparties may not be able to settle their contractual obligations due to the Group within

their agreed payment terms.

The Group’s exposure to credit risk is influenced mainly by the individual characteristics of each customer. The characteristics of the Group’s

customer base, including the default risk of the industry and country in which the major customers operate, have less of an influence on credit risk.

The management of the Group has established a credit policy under which each new customer is analysed individually for creditworthiness before

the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes assessment of the credit quality of the

customer, taking into account its financial position, past experience and other factors. Sales limits are established for each customer, which repre-

sent the maximum open amount without requiring approval from the management of the Group. These limits are reviewed annually. Customers

that fail to meet the Group’s benchmark for creditworthiness may transact with the Group only on a prepayment basis. To reduce non-payment risk

in international markets, the Group presents title documents via banking channels and uses payment instruments such as letters of credit, insurance

arrangements and bank guarantees. The Group holds collaterals against loans provided to farmers in the form of future harvest and immovable

property in the quantity that covers loans provided according to market price. The Group’s applied policy about expected credit losses which is

disclosed in Note 10 for all trade receivables. Other financial assets at amortized cost include loans to related parties, key management personnel

and other receivables have a low credit risk.

The Group’s most significant customer is an international customer, who accounted for USD 39,440 thousand out of total trade accounts receivable

as of 30 June 2023 (30 June 2022: one international customer accounted for USD 43,708 thousand).

The Group performs credit risk assessment of counterparties individually. If counterparties are independently rated, these ratings are used.

Equity includes issued capital, share-premium reserve, additional paid-in capital, revaluation reserve, equity-settled employee benefits reserve, retained earnings, other reserve and translation reserve

attributable to Kernel Holding S.A. shareholders.

Debt includes short-term and long-term borrowings, obligations under finance leases, bonds issued and accrued interest. Debt liabilities do not include the liabilities associated with assets held for sale.

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for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Otherwise, if there is no independent rating, risk control assesses the credit quality of the counterparty, taking into account its financial position,

past experience and other factors. Individual risk limits are set based on internal or external ratings in accordance with limits set by the management.

The compliance with credit limits by counterparty is regularly monitored by line management.

The entity is also exposed to credit risk in relation to debt investments in corporate and government bonds that are measured at fair value through

profit or loss. Government bonds are represented by bonds issued by the Ukrainian government and the credit rating of Ukraine has been down-

graded since the beginning of war. The corporate bonds are not rated by the international rating agencies. Other instruments are considered to be

low credit risk where they have a low risk of default, and the issuer has a strong capacity to meet its contractual cash flow obligations in the near

term.

As of 30 June 2023, 81% (30 June 2022: 77%) of margin account with brokers and derivative financial instruments balances are conducted with

the financial institutions rated at F1-B by Fitch (or analogue), and all pledge deposits held by the Group in the international banks with a F1+ rating.

Liquidity Risk

Liquidity risk is the risk that the Group will not be able to meet its financial obligations as they fall due. The Group manages liquidity risk by

maintaining adequate cash and cash equivalents, as well as availability of funding through the adequacy of the banking facilities by continuously

monitoring forecasted and actual cash flows and by matching the maturity profiles of financial assets and liabilities. Management diversifies funding

sources to ensure that sufficient liquidity is maintained to meet liquidity requirements.

As of 30 June 2023, the carrying amount of the Group’s maximum exposure to financial obligations (including lease liabilities) was

USD 1,953,904 thousand (30 June 2022: USD 2,231,413 thousand).

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods as of

30 June 2023 and 2022. The table has been drawn up based on the undiscounted cash flows of financial liabilities based on the earliest date on

which the Group can be required to pay. The tables include both interest and principal cash flows.

Carrying

amount

Contractual

cash flows

Less than 1

year

1–2 years

2–5 years

More than 5

years

30 June 2023

Non-derivative financial liabilities

Trade accounts payable

158,567

(158,567)

—

Borrowings (Note 22)

869,933

(869,933)

—

Bonds issued (Note 24)

603,823

(603,823)

—

Other financial liabilities (Note 21)

50,281

(50,281)

—

Other non-current liabilities

55,078

(55,078)

—

(54,678)

(400)

—

Total

1,737,682

(1,737,682)

(1,682,604)

(54,678)

(400)

—

Derivatives

Derivative financial instruments (Note 21)

18,327

(18,327)

—

Total

18,327

(18,327)

—

30 June 2022

Non-derivative financial liabilities

Trade accounts payable

161,342

(161,342)

—

Borrowings (Note 22)

1,093,087

(1,093,087)

—

Bonds issued (Note 24)

602,650

(602,650)

—

Other financial liabilities (Note 21)

105,407

(105,407)

—

Other non-current liabilities

38,871

(38,871)

—

(451)

(35,820)

(2,600)

Total

2,001,357

(2,001,357)

(1,962,486)

(451)

(35,820)

(2,600)

Derivatives

Derivative financial instruments (Note 21)

23,130

(23,130)

—

Total

23,130

(23,130)

—

The concentration of liquidity risk is limited due to different repayment terms of financial liabilities and sources of borrowing facilities.

Market Risk

The Group’s activities expose it primarily to the market risks of changes in foreign currency exchange rates, interest rates and commodity price

risk. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the

return on risk.

Currency Risk

The functional currency of the majority of the Group’s Subsidiaries is their local currency, except for businesses engaged in the production and

sale of sunflower oil and transshipment services, for which USD was selected as the functional currency.

Currency risk is a risk of financial impact due to exchange rate fluctuations related to transactions and balances in currency other than functional

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for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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currency. The Group enters into such transactions denominated in other currencies, which include capital expenditures, operating expenses, certain

sales of goods and recognized assets and liabilities denominated in a currency that is not the functional currency of entity. Exposure of currency

risk are managed by utilizing currency forward contracts and fulfilling comparative analysis between subsidiaries.

Management of the Group mitigates the influence of currency risk in Ukrainian hryvnia through export sales expressed in USD and EUR: for the

year ended 30 June 2023, out of total sales USD-denominated sales stated USD 3,070,642 thousand, and EUR-denominated sales were in the

amount of USD 87,156 thousand (2022: USD 4,804,274 thousand and USD 308,052 thousand, respectively).

Interest and principal on borrowings are denominated in currencies that match the cash flows generated by the underlying operations of the Group,

primarily in USD. This provides the Group with a natural hedge against currency risk and no derivatives are required to cover such risk.

The table below covers UAH and USD denominated assets and liabilities carried by Subsidiaries having balances in currencies other than functional

currencies.

The Group’s exposure to foreign currency risk including the balances outstanding between the Group’s companies as of 30 June 2023 and 2022

was as follows:

30 June 2023

30 June 2022

UAH

USD

UAH

USD

Cash and cash equivalents

36,175

37,353

2,594

2,551

Trade accounts receivable

75,764

61,198

74,149

116,267

Other financial assets

14,966

—

14,506

—

Trade accounts payable

(24,546)

(519)

(59,423)

(2)

Other financial liabilities

(188,250)

—

(312,053)

—

Current portion of lease liabilities (Note 23)

(739)

(121)

(1,226)

(828)

Other non-current liabilities

(369)

—

(417)

—

Borrowings from Ukrainian subsidiary of European bank (Note 22)

(27,654)

—

(110,762)

—

Borrowings from Ukrainian bank (Note 22)

(16,760)

—

(44,069)

—

Borrowings European Bank (Note 22)

—

(15,720)

—

(18,358)

Lease liabilities (Note 23)

(7,333)

—

(12,147)

(114)

Net exposure

(138,746)

82,191

(448,848)

99,516

The following table details the Group’s sensitivity to a 10 % change of the UAH against the USD would prompt a fluctuation in the equity and profit

and loss account by the amounts shown below. This sensitivity analysis assumes that all other variables, in particular interest rates, remain con-

stant. The sensitivity analysis includes only outstanding monetary items denominated in currency other than functional currency.

A strengthening/depreciation of the UAH against USD on 30 June would have affected the measurement of financial instruments denominated in

a foreign currency and affected profit or loss before income tax by the amounts shown below:

30 June 2023

30 June 2022

Strengthening

Depreciation

Strengthening

Depreciation

UAH (10% movement)

(21,347)

23,007

(53,932)

55,942

Interest Rate Risk

The Group’s main interest rate risk arises from bank borrowings and lease liabilities with variable rates, which expose the group to cash flow interest

rate risk.

The sensitivity analysis below has been determined based on exposure to interest rates for financial liabilities at the end of the reporting period.

For floating rate liabilities, the analysis was prepared assuming the amount of the liability outstanding at the end of the reporting period was

outstanding for the whole year. A 100-basis point (‘bp’) increase or decrease was used when reporting interest rate risk internally to key manage-

ment personnel and represents management’s assessment of reasonably possible changes in interest rates.

The interest rate profile of the Group’s interest-bearing financial instruments and its sensitivity to increase or decrease of variable interest rate was

as follows:

Carrying

amount as of

30 June 2023

Gain/(loss) on profit for the year

(before income tax) due to change

of variable rate

Carrying

amount as of

30 June 2022

Gain/(loss) on profit for the year

(before income tax) due to change

of variable rate

100 bp higher

100 bp lower

100 bp higher

100 bp lower

Fixed rate

1,034,904

—

1,294,757

—

Variable rate

636,752

(6,369)

6,369

748,780

(7,488)

7,488

LIBOR

467,454

(4,675)

4,675

579,190

(5,792)

5,792

SOFR

124,074

(1,241)

1,241

157,118

(1,571)

1,571

COF

26,558

(266)

266

12,472

(125)

125

UIRD

18,666

(187)

187

—

Total

1,671,656

(6,369)

6,369

2,043,537

(7,488)

7,488

The Group does not use any derivatives to manage interest rate risk exposure. The Group manages its interest rate risk by having a balanced

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The accompanying notes are an integral part of these financial statements.

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portfolio of fixed and variable rate loans and borrowings.

Commodity Price Risk

The Group is naturally exposed to fluctuations in commodity prices. Following the russian military invasion of Ukraine in February 2022, the Group

undertook a several-months assessment to mitigate both operational and commercial risks. This also involved exploring alternative channels for

selling our existing inventory. The war-induced volatility in prices and disruptions in supply chains led to a meaningful long exposure in our oilseeds

processing business unit at the start of the 2022-2023 marketing year. However, this was successfully managed through forward sales to interna-

tional markets, facilitated by the introduction of the Black Sea Grain Initiative with the assistance of the UN and Turkey.

Over the course of the 11 months during which the Black Sea Grain Initiative has been operational, we have worked on establishing logistical

routes via Danube River ports for our oilseed products. This ensured a sufficient spare export capacity and allowed the Group to manage commer-

cial exposure in vegetable oils and meals effectively.

Naturally, since sunflower products are not commonly traded on international exchanges, the Group can position itself for hedging purposes in

futures and options on CBOT bean complex, as well as other exchange-traded futures and options for rapeseeds, soy, and palm. While these

financial instruments remain in our risk management arsenal, they typically don't offer the same level of hedging effectiveness as our forward over-

the-counter book. Therefore, the Group may employ these tools selectively, based on the specific risk profile and market conditions.

As of the year ended 30 June 2022, accumulated loss resulted from change in fair value of hedging instruments under cash flow hedge accounting

was fully absorbed due to interruption of hedge accounting mostly as a result of full-scale Russian invasion into Ukraine (30 June 2021: USD 1,736

thousand). The Other reserves included cash flow hedge reserve representing the cumulative amount of gains and losses on hedging instruments

deemed effective in cash flow hedges, which is attributable to the shareholders of the Group. The remaining part of the cash flow hedge reserve is

included in non-controlling interests. There were no derivative financial instruments outstanding as of 30 June 2022. The fair value of expired

commodity price contract as well as the hedged item is recorded in Revenue.

The Group’s risk management strategies are aligned with the requirements of IFRS 9 and are thus the designated derivatives are treated as cash

flow hedges under IFRS:

Year ended

30 June 2023

Year ended

30 June 2022

Cash flow hedge reserve at the beginning of the period

—

(1,736)

Gain arising on changes in fair value of hedging instruments during the period

—

57,797

(Loss)/Gain arising on hedges ineffective-ness

—

(21,790)

Loss reclassified to profit or loss – hedged item has affected profit or loss

—

(23,952)

(Loss)/Gain reclassified to profit or loss – forecast transaction no longer expected to occur

—

(10,319)

Cash flow hedge reserve at the end of the period

—

The Group measures and limit price risk using a Value at Risk measure for physical marketing exposures and related derivatives instruments.

Value at Risk (VaR) is a statistical estimate of the potential loss in value of positions due to adverse market movements. The Group calculates VaR

approach based on over a one-day time horizon with 95 percent confidence level utilizing a Log-Normal assumption of Returns. Parameters are

estimated using an Exponentially Weighted Moving Average over a 75 days period with a weight of 0.94. The VaR model does not capture the

liquidity of different risk positions and therefore does not estimate potential losses if the companies liquidate large positions over a short period of

time. The VaR is based on statistical analysis of historical market data which might not reflect futures market prices. Market risk VaR was

USD 5,063 thousand as of 30 June 2023 (30 June 2022: USD 6,897 thousand).

The Group’s VaR should be interpreted in light of the limitations of the methodologies used. These limitations include the following:

• VaR model does not capture the liquidity of different risk positions and therefore does not estimate potential losses if the company liquidates

large positions over a short period of time.

• VaR is based on historical data may not provide the best estimate of the joint distribution of risk factor changes in the future and may fail to

capture the risk of possible extreme adverse market movements which have not occurred in the historical window used in the calculations.

37. Financial Instruments

The following tables gives information on the carrying and fair values of the financial instruments. Fair value is the price that would be received to

sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measure-

ment is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset

or liability, or in the absence of a principal market, in the most advantageous market for the asset or liability.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

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As of 30 June 2023 and 2022, the financial assets and liabilities are presented by class in the tables below at their carrying values:

As of 30 June 2023

As of 30 June 2022

Amortized

cost

FVTPL

Total

Amortized

cost

FVTPL

Total

Assets

Cash and cash equivalents (Note 9)

954,103

—

954,103

447,625

—

447,625

Trade accounts receivable (Note 10)

321,579

—

321,579

142,738

—

142,738

Other financial assets (Note 14) of which

Pledge deposits

122,703

—

122,703

—

Receivables from disposal of subsidiary

90,000

—

90,000

—

Margin account with brokers

65,993

—

65,993

77,136

—

77,136

Loans granted

41,092

—

41,092

43,760

—

43,760

Other financial assets

19,248

—

19,248

2,831

—

2,831

Short-term bank deposits

7,127

—

7,127

—

Other financial assets (Note 14) of which

Corporate and government bonds

—

16,058

—

33,205

Derivative financial instruments

—

13,842

—

48,879

Non-current financial assets

25,524

—

25,524

45,019

7,513

52,532

As of 30 June 2023

As of 30 June 2022

Amortized

cost

FVTPL

Total

Amortized

cost

FVTPL

Total

Liabilities

Trade accounts payable

158,567

—

158,567

161,342

—

161,342

Borrowings (Note 22)

869,933

—

869,933

1,093,087

—

1,093,087

Bonds issued and interest accrued (Note 24)

603,823

—

603,823

602,650

—

602,650

Other financial liabilities (Note 21) of which

Payable for legal claims

40,558

—

40,558

38,387

—

38,387

Accounts payable for property, plant and equipment

5,587

—

5,587

7,884

—

7,884

Other current liabilities

4,136

—

4,136

26,510

—

26,510

Payable from profit-sharing arrangement

—

32,626

—

32,626

Other financial liabilities (Note 21) of which

Derivative financial instruments

—

18,327

—

23,130

Other non-current liabilities

800

54,278

55,078

901

37,970

38,871

Information about the gains and losses on derivatives within Other financial assets and liabilities at FVTPL is recognized within Revenue and Cost

of sales and disclosed in Notes 26 and 27, respectively. There were no gains and losses related to other assets and liabilities at FVTPL during the

year ended 30 June 2023 and 2022.

The following table below represents comparison of carrying amounts and fair value of the financial instruments for which they differ:

As of 30 June 2023

As of 30 June 2022

Financial liabilities

Carrying amount

Fair value

Carrying amount

Fair value

Bonds issued (Note 24)

603,823

365,250

602,650

319,800

Due to the defined short-term nature of the borrowings, as of 30 June 2023, their carrying amount is considered to be approximately the same as

their fair value. The fair value was calculated based on cash flows discounted using a current lending rate that is within level 2 of the fair value

hierarchy.

The fair value of Bonds issued was estimated based on directly observable quotations within Level 2 of the fair value hierarchy.

Derivative instruments are carried at fair value for which the Group evaluates the quality and reliability of the assumptions and data used to measure

fair value in the two hierarchy levels, Level 1 and 2, as prescribed by IFRS 13 Fair Value Measurement. Fair values are determined in the following

ways: externally verified via comparison to quoted market prices in active markets (Level 1) or by observable quoted prices sourced from exchanges

or brokers in active markets for identical assets or liabilities (Level 2).

Valuat30 June 2023,roup’s commodity physical forward contracts categorized within level 2 is based on observable quoted prices sourced from

exchanges or traded reference indices in active markets for identical assets or liabilities and broker mark ups derived from observable quotations

representing differentials, as required, including geographic location and local supply and demand.

FVTPL – Fair value through profit and loss.

Including accrued interests

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149

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Financial

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The following table below represents the fair values of the derivative financial instruments including trade related financial and physical forward

purchase as of 30 June 2023 and 2022:

As of 30 June 2023

As of 30 June 2022

Level 1

Level 2

Total

Level 1

Level 2

Total

Other financial assets

Forwards

—

10,994

—

10,448

Futures/Options

2,848

—

2,848

38,431

—

38,431

Other financial liabilities

Forwards

—

13,302

—

22,185

Futures/Options

5,025

—

5,025

945

—

945

The major part of other financial liabilities has contractual maturity due within 6 months.

Cash and cash equivalents and short-term borrowings are classified as level 2 fair values in the fair value hierarchy due to the inclusion of directly

and indirectly observable inputs. Trade receivables, other current assets and trade accounts payable, other current liabilities are classified as

level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs including counterparty credit risk.

For the year ended 30 June 2023, the fair value of other non-current assets recognized at amortized cost was estimated by discounting the expected

future cash outflows by a market rate of interest for bank borrowings of 5-10% that is within level 3 in the fair value hierarchy due to the inclusion

of unobservable inputs including counterparty credit risk.

For the year ended 30 June 2022, the fair value of other non-current assets recognized at amortized cost was estimated by discounting the expected

future cash outflows by a market rate of interest for bank borrowings of 5-10% that is within level 3 in the fair value hierarchy due to the inclusion

of unobservable inputs including counterparty credit risk.

There were no transfers between levels of fair value hierarchy.

There were no changes in the valuation technique since the previous year.

Offsetting of financial assets and liabilities

As of 30 June 2023, other financial assets include collaterals for derivatives in the amount of USD 49,693 thousand (30 June 2022:

USD 53,985 thousand). The cash collateral does not meet the offsetting criteria in IAS 32, but it can be set off against the net amount of the

derivative asset and derivative liability in the case of default and in accordance with associated collateral arrangements.

The derivative asset and liability meet the offsetting criteria per IAS 32. Consequently, the gross derivative liability is set off against the gross

derivative asset, on a net basis in the consolidated statement of financial position only if there is a legally enforceable right to set off the recognized

amounts and intention either to settle on a net basis, or to realize the asset and settle the liabilities simultaneously.

The financial assets and liabilities, which meet the criteria of offsetting as of 30 June 2023 were as follows:

Amounts set off in the statement of

financial position

Amounts not set off in the

statement of financial position

Total as presented

in the consoli-

dated statements

of financial

position

Gross amount

of financial

assets

Gross amount

of financial

liabilities

Net amount

Margin

account with

brokers

Not under master

netting

agreements

Derivative assets (Note 14)

66,633

(63,785)

2,848

—

10,994

13,842

Derivative liabilities (Note 21)

7,281

(12,306)

(5,025)

—

(13,302)

(18,327)

Margin account with brokers

(Note 14)

—

65,993

—

65,993

Total

73,914

(76,091)

(2,177)

65,993

(2,308)

61,508

The financial assets and liabilities, which meet the criteria of offsetting as of 30 June 2022 were as follows:

Amounts set off in the statement of

financial position

Amounts not set off in the

statement of financial position

Total as presented

in the consoli-

dated statements

of financial

position

Gross amount

of financial

assets

Gross amount

of financial

liabilities

Net amount

Margin

account with

brokers

Not under master

netting

agreements

Derivative assets (Note 14)

144,029

(105,598)

38,431

—

10,448

48,879

Derivative liabilities (Note 21)

1,717

(2,662)

(945)

—

(22,185)

(23,130)

Margin account with brokers

(Note 14)

—

77,136

—

77,136

Total

145,746

(108,260)

37,486

77,136

(11,737)

102,885

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

150

Notes to the Consolidated Statements continued

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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38. Earnings per Share

Basic earnings per share are computed by dividing net income from continuing and discontinued operations available to ordinary shareholders by

the weighted-average number of ordinary shares outstanding (as of 30 June 2023 and 2022, 77,429,230 and 77,429,230 shares, respectively, and

weighted average number of ordinary shares in the number of 77,429,230 and 80,187,230 shares for the periods then ended, respectively), ex-

cluding any dilutive effects of stock options. Diluted earnings per share are computed in the same way as basic earnings per share, except that the

weighted-average number of ordinary shares outstanding is increased to include additional shares from the assumed exercise of stock options.

The number of additional shares is calculated by assuming that outstanding stock options, except those which are not dilutive, were exercised and

that the proceeds from such an exercise were used to acquire ordinary shares at the average market price during the reporting period. For calcu-

lating diluted earnings per share, as of 30 June 2023, an average number of 77,429,230 ordinary shares is taken into account

(30 June 2022: 80,187,230).

39. Subsequent Events

In addition to the subsequent events disclosed in Notes 3 and 4, there were the following subsequent events.

As of 19 July 2023, immediately following the termination of the Grain Deal, a sequence of destructive events unfolded. A Russian missile attacks

severely damaged the grain export infrastructure at Ukrainian ports Odesa and Chornomorsk, including vital Group assets. This, coupled with the

Grain Deal cancellation, rendered the export of soft commodities via Ukrainian Black Sea ports unfeasible. The attack inflicted considerable harm

to storage facilities, intake capacities, loading equipment in the estimated amount of USD 11,177 thousand, and stocks in the amount of USD

10,313 thousand.

Subsequently, on 24 July 2023, another missile attack by Russia targeted the port of Reni on the Danube River. The attack inflicted damage on

port infrastructure, impacting the Group's vegetable oil transshipment terminal assets – resulting in the loss of 6 thousand tons of storage capacity,

and damage to railway intake capacity and piping equipment, which amounted to USD 171 thousand. In addition, almost one thousand tons of

sunflower oil was spilled and lost in total amount of USD 260 thousand.

In July 2023, the Group received the remaining consideration of USD 90,000 thousand for the disposal of farming entities (Note 8 and 14). As of

the date of this consolidated financial statements issue, the purchaser's obligations are deemed fulfilled, as full consideration has been provided

to the Group.

As of 6 August 2023, an elevator in the Khmelnytskyi region was damaged due to shelling. Warehouses with a simultaneous storage capacity of

21 thousand tons and automatic unloading equipment were destroyed. In addition, damage was inflicted on storage facilities with a capacity of

44 thousand tons, dryers, and administrative buildings. The total amount of losses incurred on this day amounted to USD 2,406 thousand.

On 16 August 2023, as Russian drones targeted and inflicted severe damage upon all grain storages belonging to the Group's grain transshipment

terminal in the Reni port. This assault also resulted in the destruction of valuable loading equipment in the total amount of USD 603 thousand.

On 2 September 2023, Russia once again targeted key Danube port infrastructure in Ukraine, vital to the operations of the Company’s subsidiaries

involved in sunflower oil exports from the region. Russian drones inflicted damage to multiple critical assets, including storage tanks used for

vegetable oil accumulation, equipment essential for transshipment activities (including pipelines), railway intake capabilities, rail tanks awaiting

unloading, and an administrative building.

On 3 September 2023, Russia also targeted grain flat storages operated by a port operator in the Danube region, which provides crucial grain

transshipment services to Kernel. This resulted in the complete destruction of two flat storages with a combined storage capacity of 5 thousand

tons, while another two flat storages with the same capacity suffered damage and temporarily cannot be used for grain accumulation. These

relentless airstrikes are severely disrupting the export of agricultural products from Ukraine.

As part of loans restructuring negotiations the Group’s lenders requested shareholders support of USD 60,000 thousand to be provided to the

Company. In response to the lenders’ requests, on 4 September 2023, the Company increased its share capital by USD 5,704 thousand, through

the issuance of 216,000,000 new Ordinary Shares, each without indication of a nominal value. The total offering of USD 59,983 thousand was

raised from qualified investors, with USD 54,279 thousand allocated to share premium.

Additionally, on 6 September 2023, another strike occurred, targeting, among other locations, the Company's assets in the Danube ports. Fortu-

nately, there was no significant damage, although the operational activity of such assets was disrupted during hostile shelling.

During July - September 2023, the Group settled the current portion of capital expenditure financing in the amount of USD 850 thousand and part

of the working capital financing in the amount of USD 19,414 thousand.

On 28 July 2023, the Group entered into an agreement to acquire 100% of corporate rights in Reni-Oil LLC (a vegetable oil transshipment terminal

in the port of Reni in the port of Chornomorsk) for USD 24,750 thousand. The deal is expected to be completed by 31 December 2023.

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Kernel Holding S.A. Annual Report and Accounts for the year ended 30 June 2023

151

Corporate information

for the year ended 30 June 2023 (in thousands of US dollars, unless otherwise stated)

The accompanying notes are an integral part of these financial statements.

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Headquarters

3 Tarasa Shevchenka Lane,

Kyiv, Ukraine, 01001

Tel.: +38044 4618801

Fax: +38044 4618864

Registered office

Kernel Holding S.A.

9, rue de Bitbourg

L-1273 Luxembourg

Registered number

B109173

Auditors

PwC Société cooperative,

2, rue Gerhard Mercator B.P.

L-1014 Luxembourg

Investor relations

Mr. Yuriy Kovalchuk,

Corporate Investments Director

Mr. Michael Iavorskyi,

Investor Relations Manager

ir@kernel.ua

3 Tarasa Shevchenka Lane,

Kyiv, Ukraine, 01001

Tel.: +38044 4618801, ext. 72-75

Kernel Holding S.A. Investor Calendar

Q1 FY2024 Operations Update

27 October 2023

Annual general shareholders’ meeting

11 December 2023

Q1 FY2024 Financial Report

22 December 2023

Q2 FY2024 Operations Update

22 January 2024

H1 FY2024 Financial Report

22 March 2024

Q3 FY2024 Operations Update

22 April 2024

Q3 FY2024 Financial Report

21 June 2024

Q4 FY2024 Operations Update

22 July 2024

FY2024 Financial Report

28 October 2024

Stock information

Exchange

Warsaw Stock Exchange

Stock quote currency

PLN

Shares issued as of 30 June 2023

84,031,230

Shares issued as of 27 October 2023

300,031,230

Bloomberg

KER PW

Refinitiv Eikon ticker

KER.WA

ISIN code

LU0327357389

Including 6,602,000 of treasury shares.

Cautionary statement

Certain statements in this document are

forward-looking statements. By their na-

ture, forward-looking statements involve a

number of risks, uncertainties or assump-

tions that could cause actual results or

events to differ materially from those ex-

pressed or implied by the forward-looking

statements. These risks, uncertainties or

assumptions could adversely affect the

outcome and financial effects of the plans

and events described herein. Forward-

looking statements contained in this docu-

ment regarding past trends or activities

should not be taken as a representation

that such trends or activities will continue

in the future. You should not place undue

reliance on forward-looking statements,

which speak only as of the date of this an-

nouncement. Except as required by law,

the Company is under no obligation to up-

date or keep current the forward-looking

statements contained in this document or

to correct any inaccuracies which may be-

come apparent in such forward-looking

statements.

This document does not constitute or form

part of any offer or invitation to sell or pur-

chase, or any solicitation of any offer to

sell or purchase any shares or securities.

It is not intended to form the basis upon

which any investment decision or any de-

cision to purchase any interest in Kernel

Holding S.A. is made. Information in this

document relating to the price at which in-

vestments have been bought or sold in the

past or the yield on investments cannot be

relied upon as a guide to future perfor-

mance.