Kernel Holding S.A.

ANNUAL REPORT
For the year ended 30 June 2019

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 0
 Strategic Corporate Financial
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Contents

Kernel is a diversified agricultural

business in the Black Sea region,
listed on the main market of the
Warsaw Stock Exchange.

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

the largest grain exporter from Ukraine, operator of an extensive
agricultural logistics network and the largest producer of grain
and oilseeds in Ukraine. In FY2019, we supplied 9 million tons of
agricultural products from Ukraine across the world.

01-38 61-67
Strategic Report Corporate Governance
3 Key Highlights
4 Operating Highlights
5
7
Chairman’s Statement
Our Business Model
68-127
8 Kernel at a Glance Financial Statements
9 Our Strategy 2021 68 Independent Auditor’s Report
10 Financial Performance in FY2019 72 Statement of Management Responsibilities
13 Segment Performance 73 Selected Financial Data
13 Oilseed Processing 74 Consolidated Statement of Financial Position
19 Infrastructure and Trading 75 Consolidated Statement of Profit or Loss
25 Farming 76 Consolidated Statement of Profit or Loss and
30 Risk Management Other Comprehensive Income
35 Alternative Performance Measures 77 Consolidated Statement of Changes in Equity
78 Consolidated Statement of Cash Flows

39-60 79
128
Notes to the Consolidated Financial Statements
Corporate Information
Sustainability

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 Strategic Corporate Financial
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Key Highlights

US$ million except ratios and EPS FY2018 FY2019 y-o-y

Income statement highlights
Revenue 2,403 3,992 66%
EBITDA 1 223 346 55%
Net profit attributable to equity holders of Kernel Holding S.A. 52 189 3.6x

EBITDA margin 9.3% 8.7% (0.6pp)

Net margin 2.2% 4.7% 2.6pp
Earnings per share, US$ 0.64 2.31 3.6x

Cash flow highlights

Operating profit before working capital changes 183 368 101%
Change in working capital (31) (94) 3.0x
Finance costs paid (69) (76) 10%
Income tax paid (5) (3) (36%)
Net cash generated by operating activities 82 199 2.4x
Net cash used in investing activities (156) (241) 55%

Liquidity and credit metrics

Net debt 622 694 11%
Readily marketable inventories 2 325 293 (10%)
Adjusted net debt 3 297 400 35%
Shareholders' equity 1,171 1,351 15%

Net debt / EBITDA 2.8x 2.0x (0.8x)

Adjusted net debt / EBITDA 1.3x 1.2x (0.2x)
EBITDA / Interest 3.4x 4.2x 0.8x

Non-financial highlights
Number of employees (full-time equivalent) at 30 June 15,116 13,397 (11%)
Rate of recordable work-related injuries, accidents per million worked hours 0.55 0.60 8%
Social spending, US$ million 2.4 2.3 (6%)
Direct greenhouse gas emissions, thousand tons of CO2 equivalent 260 234 (10%)
Total energy consumption, terajoules 6,977 6,857 (2%)
Note: Financial year ends 30 June.
1. Hereinafter, EBITDA is calculated as the sum of the profit from operating activities plus amortization and depreciation.
2. Readily marketable inventories are inventories such as corn, wheat, sunflower oil and other products that could easily be converted into cash due to their commodity characteristics, widely
available markets and the international pricing mechanism.
3. Adjusted debt is the sum of short-term interest-bearing debt, current maturities of long-term interest-bearing debt and long-term interest-bearing debt, less cash and cash equivalents, market-
able securities and readily marketable inventories at cost.
Hereinafter differences between totals and sums of the parts are possible due to rounding.
Hereinafter “Kernel”, “Group” or “Company” refers to the Kernel Holding S.A. group of companies.
Non-financial highlights for FY2018 may differ with ones presented in FY2018 annual report due to changes in calculation methodology, as described in “Sustainability” section of this report.

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

EBITDA Net cash from operations Net debt / EBITDA
US$ million US$ million

397 405 2.8x

346 346
319
2.0x

223 1.6x
199

134 0.9x 0.8x

77 82

FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019

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Operating Highlights

Oilseed Processing Infrastructure and Trading Farming

…………………………………………………………………………………… …………………………………………………………………………………… ……………………………………………………………………………………
Segment volumes Segment volumes Kernel’s key crop production
million tons million tons
3.0 3.1 3.2 6.1 596
2.7 5.1 529
2.5 4.7
4.4 4.6 383 391 385
4.0
1.6
1.4 4.5 4.3
1.1 1.2 4.1
1.1
3.6 3.7
3.3 3.3
2.8 1.8 1.9 2.1 2.5 3.3
2.5
FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019
Oilseeds processed Sunflower oil sales Kernel grain export volumes (ex. Avere) Crop production, million tons
Export terminal throughput (Ukraine) Acreage harvested, thousand hectares
Inland silos in-take volumes
…………………………………………………………………………………… …………………………………………………………………………………… ……………………………………………………………………………………

EBITDA margin EBITDA margin EBITDA margin

US$ / ton of sunflower oil sold US$ / ton of grain exported US$ / ha
190 24 26
24 374 378
22 344

120 17 256
83
67 149
54

FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019
…………………………………………………………………………………… …………………………………………………………………………………… ……………………………………………………………………………………
1
EBITDA EBITDA EBITDA
US$ millions US$ millions US$ millions
213
182
146 146
129
109 114 107 110 106
100 101 98 89
77

FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019

We processed the highest ever 3.2 million tons In FY2019, we delivered record volumes in our Following the divestment of suboptimal farm-
of sunflower seeds in FY2019, and our sales history: 6.1 million tons of grain exported (#1 in land, we harvested 529 thousand hectares in
of sunflower oil achieved highest ever 1.6 mil- Ukraine), 4.6 million tons transshipped through FY2019, down 11% y-o-y. Though the harvest
lion tons in FY2019 exceeding the production our terminals, and 4.3 million tons of intake by of key crops was the record in our history,
volumes and depleting carry-over stock. our silo network. These achievements were standing at 3.3 million tons as we achieved
driven by: record yields for late crops supported by:
EBITDA generated per ton of oil sold recov- • Record crop yields of our farming segment • Favorable weather conditions;
ered from the lowest ever observed level of for 2018 crop; • Quick and successful integration of farming
US$ 54 per ton in FY2018 to US$ 67 in the re- • Full capacity utilization of our infrastructure; business acquired in 2017; and
porting period. Profitability was impacted by • Usage of 3rd-party export terminal in the port • Continued productivity gains
two opposite factors: of Pivdennyi.
• Strong 15.2 million tons harvest of sunflower Effective hedging strategy applied along with
seeds in Ukraine, which reduced the gap be- EBITDA margin per ton of grain exported strong crop yields resulted in EBITDA margin
tween crushing capacities in Ukraine and through our value chain reduced to US$ 17, di- increasing to US$ 344 per hectare, up 2.3x y-
supply of seeds, but… luted by increasing scale of our low-margin o-y.
• … Subdued global sunflower oil prices, trading operations and Avere negative perfor-
which reduced from US$ 750 per ton of un- mance, while keeping contribution from our With 529 thousand hectares harvested in
refined oil sold in bulk (FOB Black Sea ba- high-margin infrastructure businesses limited. FY2019, our farming segment generated the
sis) at the beginning of the season to US$ highest ever US$ 182 million EBITDA, 2.0x in-
620 per ton of oil in December 2018 (the As a result, total segment EBITDA in FY2019 crease as compared to FY2018, being the flag-
lowest in a decade). At our level of margins, added US$ 5 million as compared to the previ- ship Kernel’s business this season.
such price weakness has a tremendous im- ous year, to US$ 106 million.
pact on profitability, and it undermined more
substantial margin improvement in FY2019.

Consequently, segment EBITDA increased

42% y-o-y, to US$ 109 million.
Note: the company has changed segment disclosure starting from FY2019, so the volumes and margins metrics were recalculated retrospectively and differ from figures
reported by FY2018 inclusively.
1) here and further segment EBITDA is provided before unallocated corporate expenses.

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 Strategic Corporate Financial
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Chairman’s Statement

Dear Shareholders, 2017, along with effectively used hedging so-

On behalf of the Board of Directors of Kernel lutions.
Holding S.A. I am pleased to present the re-
sults of the group for the year ended 30 June On our climb to Strategy 2021 targets, we
2019. We generated US$ 346 million of completed the major greenfield expansion of
EBITDA (up 55% y-o-y) and US$ 189 million our grain storage capacity and commissioned
of net profit attributable to shareholders of the first stage of our new export terminal in
Kernel Holding S.A. (up 3.6x y-o-y), improv- the port of Chornomorsk enhancing through-
ing our solid balance sheet position with net- put capabilities.
debt-to-EBITDA ratio at 2.0x as of 30 June
2019. In addition, Kernel acquired RTK-Ukraine
LLC, the largest private operator of grain rail-
FY2019 highlights cars in Ukraine, for US$ 65 million in February
FY2019 was a year of great achievements. 2019. No doubt this deal has strong value-ac-
We became the undisputed champion in cretive potential as we expect EBITDA contri-
grain export volumes from Ukraine outper- bution over US$ 35 million in FY2020. With
forming numerous international and local this transaction, Kernel covered in-house
peers. Farming segment harvested the rec- needs and hedged against constantly grow-
ord crop, the acquisition of grain railcars en- ing railcar renting costs.
hanced our logistic capabilities and origina-
tion reach, while Strategy 2021 passed criti- In February 2019, Kernel purchased 5.85%
cal milestones. interest in ViOil Holding Ltd, the largest inde-
pendent sunflower oil producer in Western
Local market fundamentals were more favor- Ukraine with aggregate crushing capacity of
able for our Oilseed Processing business in 1.1 million tons and a network of silos. A cus-
FY2019 than a year ago. Ukraine harvested tomary shareholder agreement in relation to
a strong 15.2 million tons of sunflower seeds, ViOil grants certain rights making us the front-
13% up y-o-y, which materially bridged the runner in the future sale process. This deal is
gap to 18.5 million tons of installed pro- an important strategic step towards the future
cessing capacities, pushing up crush mar- consolidation of the sector, where Kernel will
gins. However, general weakness in global play a leading role.
Andrii Verevskyi
Chairman of the Board of Directors, sunflower oil price prohibited EBITDA mar-
gins from recovering to normalized levels. As With regards to credit, I would like to highlight
Founder
a result, our EBITDA margin ended up at US$ the launch of our cooperation with two world-
67 per ton of oil sold, up 24% y-o-y, below its class international financial institutions sup-
long-term potential. Combined with a record porting us with long-term project financing.
1.6 million tons sales of sunflower oil, it trans- European Investment Bank provided Kernel
lated to US$ 109 million segment EBITDA, a with a 10-year loan amounting to US$ 250
42% increase y-o-y. million, and EBRD together with Clean Tech-
nology Fund agreed to finance our green en-
Infrastructure and Trading segment perfor- ergy projects up to US$ 56 million with an 8-
mance in FY2019 was uneven. On one hand, year loan.
we delivered the highest ever volume across
all our business lines, becoming the #1 grain The permanent focus on sustainability of
exporter from Ukraine with 6.1 million tons our operations translated into the reduction of
of exports. This is solid early progress to- energy consumption and greenhouse gas
wards set volume targets in our Strategy emissions in FY2019 despite increased scale
2021. On top of that, record volumes were of our business. We continued investing in
achieved in our silo and export terminals busi- our employees, supporting local communities
nesses, enhanced by the improvement of and contributing to overall sector productivity
grain trading margins and further boosted by sharing our knowledge and technology
with a timely investment in grain railcars. On with other farmers via proprietary Open Agri-
the other hand, these achievements were business platform. As a clear market leader,
blurred by softer infrastructure margins and we are the role model for other companies in
negative contribution by Avere in FY2019. As Ukraine in building sustainable and responsi-
a result, EBITDA of the segment amounted to ble business.
US$ 106 million, up 5% as compared to last
year. Following results of FY2019, the Board of Di-
rectors proposes shareholders to approve the
With the largest crop size in our history, dividend of US$ 0.25 per share.
Farming segment generated US$ 182 million
of EBITDA, the highest ever, owing to sup- FY2020 outlook
portive weather conditions and the smooth in- The new season seems to be fundamentally
tegration of the farming landbank acquired in strong for our Oilseed Processing segment.

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 Strategic Corporate Financial
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Chairman’s Statement

Sunflower harvest in Ukraine is expected at Delivering on our Strategy 2021 flow of the feedstock through our business
the level of 15.2 million tons, virtually un- We are building today for the better tomorrow system.
changed vs. FY2019, while sunflower oil of Kernel. We have reached a midpoint where
prices now are higher than last year, building capital deployed gradually turns into cash Finally, on behalf of the Board of Directors, I
momentum for stronger profitability with a rec- generation, crystalizing our leadership posi- would like to thank the Kernel team for the
ord 3.3 million tons of sunflower seed to be tion with the most efficient asset base across good performance in FY2019 and to thank
crushed in FY2020. each business line. our stakeholders for their continued confi-
dence in our business.
As part of Strategy 2021, almost half of our The critical milestones attained over the past
green energy heat & power co-generation ca- year and set targets for the coming years
pacities are due for commissioning in spring clearly evidence that we will deliver on time
2020, contributing to our Oilseed Processing and within initially planned budgets. The suc-
segment. And the nearby launch of the sec- cessful completion of investments in silo busi-
ond stage of a brand-new export terminal in ness, grain railcars, and leasehold farmland
the port of Chornomorsk will add a total of 4 done over the recent past are the first minor
million tons to our annual grain handling ca- achievements on that path.
pacity.
Our US$ 180 million new Western Ukrainian
As a result, we shall export 8 million tons of oilseed processing equipped with co-genera-
grain from Ukraine in FY2020, 7 million of tion heat & power plant is expected to be Andrii Verevskyi
which will pass through our terminals achiev- commissioned in spring 2021. The US$ 150 Chairman of the Board of Directors,
ing one of our Strategy 2021 targets ahead of million green energy plants will be commis- Founder
the initial timeline. sioned throughout spring 2020 and spring
2021. Meanwhile, the second stage of the
In order to secure strong volumes for our US$127 million export terminal facility is al-
crushing and grain export businesses, our most ready, with the launch scheduled by the
procurement team plans to originate a record start of 2020.
8.4 million tons of grain and oilseeds in
FY2020, a 33% increase y-o-y. At the gate of new era
We are building a successful, sustainable and
Unlike last year, Farming segment is ex- vibrant company in a globally competitive
pected to face headwinds as normalization of sector of the Ukrainian economy employing
crop yields, combined with a nearly 7% cost our core values: integrity, efficient and sus-
base inflation and further drop in global soft tainable use of resources.
commodity prices, should take their toll. An-
other distinctive element of this season is that Today, Kernel is the backbone of Ukrainian
we remain naturally long, which will add both agriculture, providing diverse solutions to our
upside and downside risk to our Farming seg- local and international clients in a cost effi-
ment earnings potential this season. cient and highly professional manner.

Capital Expenditures within Strategy 2021 Operational excellence and sustainable cost
are projected to peak in FY2020 with US$ 300 leadership are and will remain our key priori-
million to be deployed to cover both expan- ties and we are committed to these with our
sion and maintenance needs, as part of the strategic investments to better serve the ever-
initially planned FY2019 CapEx was moved demanding needs of our stakeholders and
forward to FY2020. However, the total invest- build long-term relationships.
ment program capital requirements remain
unchanged. Indeed, we pay great attention to a sustaina-
ble and mutually beneficial long-term co-op-
The farmland market reform is widely ex- eration with farmers. Our pledge to
pected to be adopted near term, whereby ag- knowledge- and data-sharing, implemented
ricultural land may become freely tradable in via the Open Agribusiness initiative, along
Ukraine, although exact terms and conditions with comprehensive pre-crop financing solu-
are not yet known. We consider a broad and tions offered to our suppliers, are just few
liberal farmland reform shall unlock the full foundation blocks of an emerging Kernel eco-
potential of Ukrainian agriculture contributing system that will enhance the competitive
to economic development of the country. Ob- edge of our platform. This subtle element,
viously, with over 500,000 hectares of farm- which is widely ignored by our peers, shall
land under cultivation and with the direct ac- contribute to the prosperous future of Kernel,
cess to landowners, Kernel is well placed to probably to the same extent as our strategic
be an active farmland market participant lev- investments in top-notch assets, as the eco-
eraging its multiple sources of on-demand nomic performance of such assets shall
capital. largely depend on the efficient origination and

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 Strategic Corporate Financial
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Our Business Model

3 5

2 6

1 Own Farming

22 Procurement

3 Silo storage 7

4 Oilseed processing

5 Bottled sunflower oil

6 Grain railcars

7 Export terminals in ports

Topping industry league tables in all segments

Oilseed Processing segment

→ #1 global sunflower oil producer (~8% of global production) and exporter (~15% of global exports)
→ #1 bottled sunflower oil producer and marketer in Ukraine
→ 3.5 million tons annual sunflower seed processing capacity

Infrastructure and Trading segment

→ #1 grain exporter from Ukraine with 12% share of country’s total grain export
→ Own grain export port terminal in Ukraine with annual capacity to transship 4.8 million tons of soft
commodities. Similar facility in Russia (50/50 JV with Glencore).
→ #1 private inland grain silo network in Ukraine with 2.5 million tons of grain storage capacity
→ #1 private grain railcar fleet in Ukraine (3.4 thousand railcars)

Farming segment
→ #1 crop producer in Ukraine controlling 530 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 grain and infrastructure and sunflower oil divi-
sions, earning incremental profits

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 Strategic Corporate Financial
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Kernel at a Glance
Sunflower seed crushing capacity, thousand tons per year Poltava
xxx Grain transshipment capacity, thousand tons per year
462
Vovchansk
356

Starokostiantyniv Prykolotne
1,000 149
Prydniprovskyi
617
1
Ellada
274
Kropyvnytskyi
432

Bandurka
558
Black Sea Industries
620

Oilseed processing plants

Grain silos
TransBulkTerminal
Leasehold farmland bank 4,800
Export terminals
Refining and bottling facilities
Co-generation heat and power plants TransGrainTerminal
(renewable energy) 4,000
Assets under construction Taman (50/50 JV)
4,000
50 km

Note 1 Operated under tolling agreement.

……………………………………………………………………………………………………………………………………………………………………………………………………………………………………..
Segment results summary (new presentation format)
Revenue, US$ million EBITDA, US$ million Volume, thousand tons 2 EBITDA margin, US$/t 3
FY2018 FY2019 y-o-y FY2018 FY2019 y-o-y FY2018 FY2019 y-o-y FY2018 FY2019 y-o-y
Oilseed Processing 1,393 1,493 7% 77 109 42% 1,413 1,619 15% 54.3 67.3 24%
Infrastructure and Trading 1,025 3,140 3.1x 101 106 4.9% 3,953 6,094 54% 25.5 17.4 (32%)
Farming 470 602 28% 89 182 2.0x 2,594 3,294 27% 148.9 343.7 2.3x
Unallocated corporate expenses (44) (51) 17%
Reconciliation (486) (1,243) 2.6x
Total 2,403 3,992 66% 223 346 55%
Note 2 Physical grain volumes exported (ex. Avere) for Infrastructure and Trading.
Note 3 US$ per ton of oil sold for Oilseed Processing; US$ per ton of grain exported (ex. Avere volumes) for Infrastructure and Trading; US$ per hectare for Farming.

Segment results summary (old presentation format)

Revenue, US$ million EBITDA, US$ million Volume, thousand tons 4 EBITDA margin, US$/t 5
FY2018 FY2019 y-o-y FY2018 FY2019 y-o-y FY2018 FY2019 y-o-y FY2018 FY2019 y-o-y
Sunflower oil
Sunflower oil sold in bulk 1,264 1,353 7% 63 93 47% 1,301 1,496 15% 48.7 62.2 28%
Bottled sunflower oil 130 140 8% 13 16 19% 119 131 10% 112.6 121.6 8%
1,393 1,493 7% 77 109 42%
Grain and infrastructure
Grain trading 951 3,077 3.2x 17 31 80% 4,646 10,444 2.2x 3.8 3.0 (20%)
Export terminals (Ukraine) 53 49 (7%) 39 36 (8%) 4,112 4,606 12% 9.5 7.8 (18%)
Silo services 72 71 (2%) 44 38 (13%) 3,292 4,276 30% 13.4 9.0 (33%)
1,077 3,197 3.0x 101 106 5%
Farming 470 602 28% 89 182 2.0x 2,594 3,294 27% 148.9 343.7 2.3x
Unallocated corporate expenses (44) (51) 17%
Reconciliation (538) (1,300) 2.4x - -
Total 2,403 3,992 66% 223 346 55%
Note 4 Million liters for bottled sunflower oil; grain trading volumes include physical trading volumes reported by Avere, a subsidiary of Kernel involved in physical and proprietary trading.
Note 5 US$ per thousand of liters for bottled sunflower oil; US$ per hectare for farming.
Differences are possible due to rounding.

`
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 Strategic Corporate Financial
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Our Strategy 2021

We aim to profitably double export volumes by FY2021, providing unique complex

solutions to our clients (customers and suppliers) with balanced development of
our business segments resulting from an efficient use of our asset base, investment
in technology and innovation, strategic acquisitions, continuous development of our
employees and the strengthening of our operations1.

Imperatives Strategic pillars Targets Ultimate goal

Financial Consolidate the

Geographic
stability / Strong oilseed crushing
focus
balance sheet industry

Double grain Maximize

Integrity Strong exports from shareholders’
asset base FY2016 levels value

Professional team of Achieve sustaina-

Operational
leaders ble cost leadership
discipline
in crop production

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

Mid-term targets in detail: Key deliverables in FY2019

Oilseed Processing
• Construction of 1-million-ton per year • Launch of full-speed construction phase of our processing
greenfield crushing plant in western plant in western Ukraine and co-generation heat and power
Ukraine; units adjacent to our crushing plants;
• Substantial upgrade of most our pro- • Acquisition of 5.85% interest in ViOil (one of the largest inde-
cessing plants to drive efficiency; pendent local sunflower oil producers);

Infrastructure and Trading

• Double grain exports in FY2021 through • Commissioned 1st stage (grain intake and storage capacities)
greenfield construction of 4.0-million-ton of our new TransGrainTerminal, a 4-million-ton deep-water
deep-water transshipment facility in grain transshipment facility in Chornomorsk port;
Ukraine; • Constructed two silos and upgraded two other silos;
• Expand and streamline silo network to • Invested in grain railcar business to enhance grain logistics;
serve growing in-house production and • Exported 6.1 million tons of grain from Ukraine (+58% y-o-y),
export volumes; top-1 position for the first time in our history;

Farming
• Achieve sustainable cost-efficient crop • Generated the highest ever EBITDA in our farming business,
production via investment in technology; stemming from favorable weather conditions, successful in-
• Smooth integration of recently acquired tegration of farming businesses acquired in 2017, and con-
assets to uplift the operational efficiency tinuous productivity gains.
and productivity levels to Kernel’s high
standard.

1
Strategy 2021 has been announced in 2017

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 Strategic Corporate Financial
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Financial Performance in FY2019

A season with strong performance boosted by

Farming segment
Kernel delivered solid financial results for the year
ended 30 June 2019. Group EBITDA increased Revenue
55% y-o-y, to US$ 346 million in FY2019 on robust
performance of Farming business and recovery in
the Oilseed Processing segment.
US$ 3,992 million
+66% y-o-y
Farming segment was driving Company’s perfor-
mance this year, posting the highest ever US$ 182
million EBITDA, 2x up compared to the previous EBITDA
year and accounting for 53% of total Company’s
EBITDA in FY2019. Supportive weather conditions
in Ukraine, prompt and successful integration of ac-
US$ 346 million
quired farmland landbank along with the effective +55% y-o-y
hedging of crop defined outstanding results.
…………………………………………………………………………………
In line with our guidance, Oilseed Processing seg- Kernel Holding S.A. market capitalization
ment EBITDA recovered in FY2019, adding 42% y- US$ billion
2.5
o-y to US$ 109 million. Margin in the business im-
proved to US$ 67 EBITDA per ton of oil sold, sup-
2.0
ported by strong harvest of sunflower seeds in
Ukraine, though extremely low sunflower oil prices 1.5
prohibited margin from further improvement.
1.0
Financial result of Infrastructure and Trading seg-
ment was up 5% in FY2019 on the y-o-y basis, with 0.5
EBITDA standing at US$ 106 million. Good perfor-
mance of grain export business line and addition of -
Jun 08
Mar 09

Jan 14

Jun 15
Feb 16

Mar 18
Jul 10

Oct 14

Jul 17
Nov 09

Apr 11
Dec 11
Aug 12
May 13

Nov 16

Dec 18
Aug 19

railcars business was blurred by negative Avere

performance and slight margin contraction in infra-
structure businesses.
Source: Bloomberg

Unallocated corporate expenses increased by 189 million. Consequently, the Board of Directors
17% y-o-y, to US$ 51 million in FY2019, due to gen- of Kernel Holding recommends the General Meet-
eral growth in administrative expenses and intro- ing of Shareholders distributing to shareholders
duction of IFRS 9 and respective recognition of loss US$ 20.5 million as a dividend, unchanged as com-
allowance for trade accounts receivable. pared to the previous year and resulting in 11% div-
idend payout ratio.
Leverage of the company reduced to 2.0x net-debt-
to-EBITDA, and EBITDA-to-interest coverage ratio
improved to 4.2x.

Net profit attributable to shareholders of Kernel

Holding S.A. in FY2019 soared 3.6x y-o-y, to US$

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 Strategic Corporate Financial
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Financial Performance in FY2019 continued

…………………………………………………………………………
Income statement highlights for a year ago. For a detailed breakdown of Kernel’s EBITDA split
We generated a record revenue in Group’s other operating income, please, refer to Note US$ million
history, reaching US$ 3,992 million in FY2019, 27 of the financial statements on page 115.
up 66% y-o-y. The result is mostly driven by 397
record grain export volume from Ukraine (up General and administrative costs increased 346
346
58% y-o-y) stemming from strong in-house by 33% y-o-y, to US$ 107 million in FY2019. 114 319
106
harvest of grain and highest ever procurement The increase was driven mainly by payroll 107
110 223
of grain from 3rd-party farmers in Ukraine, as costs increase, bad debt expenses (mostly 98
well as Avere physical trade operations. On due to provisions recognized following the ap- 146 101 182
top of that, we delivered strong sales of sun- plication of IFRS 9 standard) and higher audit, 146

flower oil minimizing the carry-over stock. legal and other professional fees incurred over 213 89
the period. 129 100 109
77
The Group recognized US$ 9 million gain (29) (36) (36) (44) (51)
from net change in fair value of biological As a result of the factors discussed above and
assets and agricultural produce in FY2019, considering also low comparison base, oper-
ating profit in FY2019 doubled as compared FY2015 FY2016 FY2017 FY2018 FY2019
compared to a US$ 19 million gain a year ago.
This component included a gain from revalu- to the previous year, reaching US$ 269 mil- Oilseed Processing Farming
ing crops in fields to fair value less costs to sell lion. EBITDA of the company constituted US$ Infrastructure and Trading Unallocated G&A and other

as of 30 June 2019 and expensing of the re- 346 million, a 55% growth y-o-y.
spective gain booked a year earlier, as well as
a gain from change in the fair value of live- Finance costs in FY2019 added US$ 17 mil- Other expenses amounted to US$ 8 million
stock. lion y-o-y, totaling US$ 82 million. The growth in FY2019, mostly reflecting losses from reval-
is mostly driven by more intensive use of work- uation of property, plant and equipment.
Cost of sales surged by 62% y-o-y, to US$ ing capital facilities over the season given ex-
3,654 million in FY2019, in line with revenue panded scale of the business. Corporate income tax expenses totaled to
growth and reflecting higher volumes of pro- US$ 12 million in FY2019, as compared to
curement of grain and higher costs incurred by During the reporting period, we recognized US$ 6 million income tax benefit recognized a
our farming business as a result of intensifica- net foreign exchange gain of US$ 13 million, year ago.
tion of crop production on landbank added to up from US$ 5 million a year ago. This item is
our operations in 2017, as well as doubled mostly a non-cash gain recognized after the As a result, net profit in FY2019 posed a hefty
shipping and handling costs reflecting growing revaluation of our intra-group balances de- 3.2x growth y-o-y, reaching US$ 179 million.
volumes sold on CIF-basis. Consequently, nominated in Ukrainian hryvnia. All of the Net profit attributable to shareholders of Ker-
gross profit for the period more than doubled Group’s subsidiaries use the US Dollar as nel Holding S.A. comprised US$ 189 million,
y-o-y, reaching the highest in Kernel history their functional currency, except for farming, up from US$ 52 million in FY2018.
US$ 348 million. export terminals and silo services, which use
the Ukrainian hryvnia and the Russian ruble. Adhering to the dividend policy, the Company
Other operating income totaled at US$ 28 As a normal course of business, the Group’s in April 2019 paid the dividend of US$ 0.25 per
million in FY2019, down from US$ 59 million subsidiaries may need intercompany debt fi- share totaling to US$ 20.5 million for FY2018.
in FY2018, mostly driven by US$ 14 million nancing which, when revalued, causes either Considering Company performance in
loss on operations with commodity futures in foreign exchange gains or losses at one of the FY2019, the Board of Directors recommends
FY2019, as compared to US$ 32 million gain Group’s enterprises, if the lender and the bor- the general meeting of shareholders to ap-
rower had different functional currencies. prove the dividend of US$ 0.25 per share to
………………………………………………………………………………………………………………………………………………………….
be paid during the financial year ending 30
Income statement highlights
US$ million June 2020.
FY2018 FY2019 y-o-y
Revenue 2,403 3,992 66% Cash flow highlights
Net IAS 41 gain 19 9 (51%) Similar to Company’s EBITDA improvement,
Cost of sales (2,261) (3,654) 62% operating profit before working capital
Gross profit 160 348 2.2x changes added US$ 185 million to the previ-
Other operating income 59 28 (52%) ous year result, totaling to US$ 368 million in
General and administrative expenses (80) (107) 33% FY2019.
Operating profit 140 269 93%
Finance costs, net (65) (82) 26% Working capital changes resulted in US$ 94
Foreign exchange gain(loss), net 5 13 2.4x million cash outflow (driven by growth in trade
Other expenses, net (31) (8) (73%) accounts receivable due to Avere operations),
Share of profit/(losses) of joint venture 1 (1) n/m which, together with US$ 76 million finance
Profit / (loss) before income tax 50 190 3.8x costs paid, US$ 4 million interest received
Income tax (benefit)/expenses 6 (12) n/m and US$ 3 million income tax paid resulted in
Profit for the period 56 179 3.2x US$ 199 million net cash generated by op-
Attributable to equity holders of Kernel Holding S.A. 52 189 3.6x erating activities.
Non-controlling interest 4 (11) n/m
Net cash used in investing activities
EBITDA 223 346 55% reached US$ 241 million, mostly driven by our
expansion investments: US$ 167 million

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 11
 Strategic Corporate Financial
Report Sustainability Governance Statements

Financial Performance in FY2019 continued

purchase of PP&E as an execution of our In December 2018, Kernel attracted project fi- ……………………………………………………………………………
CapEx program under Strategy 2021 and US$ nancing from the European Investment Working capital and debt position
US$ million
56 million payment under RTK-Ukraine acqui- Bank, amounting to US$ 250 million. The
1,200
sition (with additional US$ 8 million to be paid funds will be used to construct a greenfield
in FY2020). oilseed processing plant in Western Ukraine 1,000
and co-generation power plants, build inland
Company also paid US$ 20.5 million divi- grain storage facilities and construct a grain 800
dends in FY2019, distributing 39% of profit at- handling and storage terminal in the port of
600
tributable to shareholders of Kernel Holding Chornomorsk. The amounts will be withdrawn
S.A. for FY2018. in tranches depending on CapEx needs. The 400
loan matures in 10 years, having a grace pe-
To finance the gap between operating and in- riod of two years. 200
vesting cashflows, we attracted US$ 61 million
-
of new debt (mostly long-term facilities), and Additionally, in February 2019 we signed an

Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
Q1
Q2
Q3
Q4
reduced Group’s cash balance. agreement with EBRD to attract the 8-year
FY2015 FY2016 FY2017 FY2018 FY2019
loan for the total amount up to US$ 56 million
Working Capital
Debt overview to finance our green energy projects. The be- Net Debt
Net debt as of 30 June 2019 added 11% y-o- ginning of cooperation in long-term funding Readily marketable inventories

y to US$ 694 million due to long-term debt in- with such reputable international financial in-
stitutions demonstrates transparency and “Working Capital”, “Net Debt” and “Readily marketable
crease to finance our CapEx program. inventories” definitions as described in section Alterna-
high standards of our business, as well as our tive Performance Measures.
42% of net debt outstanding at 30 June 2019 proven business strategy.
…………………………………………………………………………….
was covered by readily marketable invento- Sources and uses of cash
ries 1 (“RMI”), which were either presold or CapEx schedule US$ million
could be easily converted into cash being a Having FY2020 as the final year of our CapEx 361 374
commodity by nature. RMI accounted for 82% program under Strategy 2021, we plan to 329
302 303 300 25 55
of all inventories as of 30 June 2019. invest US$ 300 million in expansion and 14 20
61
maintenance projects, completing the 46 30 20 56
Driven by the reduction in RMI, Adjusted net construction of grain export terminal, and 20 47
182 98 76
debt increased 35% y-o-y, to US$ 400 million substantially progressing in green energy and 70
152
as of the end of FY2019. new crushing plants projects. 274

152 147 167

119 41
Stemming from the EBITDA recovery, key lev-
43
erage metrics for FY2019 improved: net-debt-
to-EBITDA measured of 30 June 2019 re- Sources Uses Sources Uses Sources Uses
FY2017 FY2018 FY2019
duced to 2.0x from 2.8x measured a year ago, Other Other uses
adjusted-net-debt-to-EBITDA improved to Disposals Dividends
1.2x vs 1.3x tested at the end of June 2018, Debt increase Acquistions
Cash generated from operations Finance cost and income tax
and EBITDA-to-interest coverage ratio in- CapEx
creased to 4.2x as compared to 3.4x for
FY2018.
………………………………………………………………………………………………………………………………………...................
Liquidity positions and credit metrics
US$ million, except ratios
…………………………………………………………………………….
30 June 2018 30 June 2019 y-o-y
Kernel-2022 Eurobonds mid-YTM
Short-term interest-bearing debt 245.5 202.9 (17%) 12%
Long-term interest-bearing debt 2.8 63.7 22.6x
Obligations under finance lease 10.9 7.7 (30%) 10%
Eurobond 494.8 496.1 0.3%
Debt liabilities 754.1 770.3 2.2% 8%
Cash and cash equivalents 132.0 76.8 (42%)
Net debt 622.1 693.5 11.5% 6%
Readily marketable inventories 325.2 293.4 (10%)
of which sunflower oil and meal 217.9 124.8 (43%) 4%
Sunflower seeds 57.6 103.7 80%
Grains and other RMIs 49.7 65.0 31% 2%
Adjusted net debt 296.9 400.1 35%
FY2019
Shareholders’ equity 1,170.7 1,350.8 15% -
Mar-17 Jul-17 Nov-17 Apr-18 Aug-18 Dec-18 Apr-19 Sep-19
Net debt / EBITDA 2.8x 2.0x (0.8x) Source: Bloomberg
Adjusted net debt / EBITDA 1.3x 1.2x (0.2x)
EBITDA / Interest 3.4x 4.2x 0.8x

1
. Readily marketable inventories are agricultural inventories such as corn, wheat, barley, soybean, sunflower seed, meal and oil, among others, which are readily convertible
into cash because of their commodity characteristics, widely available markets and international pricing mechanism, carried at cost.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 12
 Strategic Corporate Financial
Report Sustainability Governance Statements

Oilseed Processing

Global leader in sunflower oil production

Kernel is a global powerhouse in sunflower seed
processing, actively consolidating the market and
greenfield investing. We emerged as the largest Revenue
global producer and exporter of sunflower oil with
3.5 million tons of annual sunflower seed pro-
cessing capacity and 1.6 million tons sales of sun-
US$ 1,493 million
flower oil in FY2019. Segment EBITDA increased +7% y-o-y
42% y-o-y, to US$ 109 million.
Record 3.2 million tons
of oilseeds processed Margins in this business substantially declined over EBITDA
in FY2019 last several years. Although it is challenge for us as
(before unallocated head office expenses)
oilseed processor, it creates a competitive land-
scape where Kernel’s scale and efficiency is
strongly positioned to advance. Being the global
leader, we continue to strengthen our position
US$ 109 million
through greenfield investing, adding adjacent busi- +42% y-o-y
nesses to our portfolio, consolidating the market sunflower oil producers in Ukraine. The deal grants
and increasing the horizon of our operations. us certain advantages in case of future sale process
of the remaining stake.
Firstly, in FY2021 we plan to commission the larg-
est in Ukraine oilseed processing plant in western Finally, we increase the horizon of our operations.
part of Ukraine – high-potential region for sunflower Historically we used to sell our sunflower oil in Black
seed crushing. By investing US$ 180 million green- sea ports to big international traders, but in FY2019
field, we will add 1 million tons of annual processing we initiated one step ahead and started selling more
capacity to our portfolio by spring 2021. on the CIF-basis (port of destination) through our
Avere subsidiary.
Secondly, we are entering new synergetic busi-
ness of green energy generation from biomass by We remain focused on the delivering on our Strat-
investing US$ 150 million. The project is a truly egy 2021 to bring our Oilseed Processing segment
transformational addition to our oilseed processing to the next level.
business. We use the first mover advantage, as we
are the first big oilseed processor in Ukraine to in-
vest in such heat & power cogeneration projects,
which makes us more competitive against peers.

Thirdly, we continue with our market consolidation

strategy. In FY2019, we acquired 5.85% interest in
ViOil Holding Ltd, one of the largest independent

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 13
 Strategic Corporate Financial
Report Sustainability Governance Statements

Oilseed Processing continued

prices, the exact split of earnings between ………………………………………………………………………...

Market overview Sunflower oil export price, FOB-Chornomorsk
We believe there are two key external factors farmers and crushers depends on supply of
US$ per ton of unrefined oil sold in bulk
materially affecting Kernel oilseed processing seeds (harvest) and demand for seeds (pro-
cessing capacities). 850
business: 1) global sunflower oil prices and 2) FY2019
supply-demand balance on Ukrainian sun- 800
flower seed processing market. While the first In FY2019, sunflower seed processing capac-
factor is important for combined earnings of ities in Ukraine increased by 3% y-o-y to 18.5 750

sunflower seed farming and processing, the million tons, as three new facilities in south-
eastern Ukraine announced the launch of op- 700
second one determines a split of margins
between farmers and processors. erations. At the same time, sunflower seeds 650
harvest in the season increased by 1.8 million
Local market fundamentals were favorable for tons, to 15.2 million tons, driven by supportive 600

oilseed processing business in FY2019, but weather conditions and strong crop yields. As
550
general global price weakness prohibited a result, the gap between crushing capacities
crushing margins from sizable increase vs and supply of seeds reduced, positively im- 500
FY2018 level. pacting crushing margin over the season. Oct 16 May 17 Nov 17 Jun 18 Jan 19 Aug 19

Source: Bloomberg
Global sunflower oil prices Additionally, multiseed crushers in Ukraine
Sunflower oil is the 4th largest vegetable oil in started to process more soybeans and rape- ……………………………………………………………………………………
seeds in FY2019 as compared to FY2018, Mismatch between supply and demand for
terms of global consumption with 9.3% market
thus reducing demand for sunflower seeds. sunflower seeds in Ukraine
share in 2018/19 season and the fastest y-o- million tons
y growth in consumption of 7.8%. Main de-
mand on global market comes from India and Outlook for FY2020 190
18.5
175 176 18.0
China (driven by income and population The beginning of the season looks supportive 17.4

growth and rapidly expanding food processing for Ukrainian crushing industry. 15.2 15.2
14
industries) and EU, together taking 58% in 13.5
12 13
global imports, while the largest global ex- In FY2019, sunflower remained the most prof- 11 12
itable crop generally for farmers in Ukraine2, 10
porter is Ukraine with 57% share in total ex- 9
83
but temporary weakness in sunflower oil 9 120
ports and 6.2 million tons of sunflower oil ex- 67
ported in 2018/19 season1. prices over the season discouraged farmers 54
to further increase the acreage under sun-
Over FY2019, sunflower oil Black Sea FOB flower for FY2020. The most recent field data
price fluctuated between 620-750 US$ per ton make us expect close to 15.2 million tons sun-
of oil, reaching its 10-year minimum in De- flower seed harvest in Ukraine in FY2020, se-
cember 2018. Key factors behind that were: curing a strong supply of seeds on the market. FY13 FY14 FY15 FY16 FY17 FY18 FY19

• Strong supply of sunflower seed globally, Sunflower seed harvest

which was compared to (as initially per- The competitive landscape is not expected to Industrial sunflower seed processing capacities
ceived) an unchanged y-o-y demand base change – we do not envisage any new pro- Kernel's EBITDA, US$ per ton of oil sold
judged by sunflower oil’s relative value jects entering the market, so the effective sun-
against competing oils; flower seed processing capacities are likely to Source: Kernel’s data, Kernel’s estimates.

• Global vegetable oils price weakness remain unchanged at 18.5 million tons.
driven by energy sell-off towards the end of ……………………………………………………………………………………

calendar year 2018 together with de- Global sunflower oil prices recovered at the Processing capacities as at MY 2018/19
beginning of the FY2020 season, supporting million tons
pressed palm oil prices.
the upsurge in margins.
Closer to the end of FY2019 sunflower oil
prices recovered driven by dried out farmer 19%
selling with seeds prices having approximated
to the cost of production threshold, and more 32%

active demand from Southeast Asia on the

back of low sunflower oil flat price having in-
centivized stockpiling driven by opened refin- 18.5 20%
ing and bottling margins.

Supply-demand balance on Ukrainian 5%

24%
sunflower seed processing market
Sunflower seed processing in Ukraine is
heavily localized: nearly all sunflower seeds
harvested by local farmers are processed do- Kernel Multinationals MHP Local big Local small
mestically. While combined profitability of
Source: Kernel’s estimates
farmers (producers of seeds) and crushers
(processors of seeds) is determined by global

1 2
Source: USDA, July 2019 Source: www.ukrstat.gov.ua

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 14
 Strategic Corporate Financial
Report Sustainability Governance Statements

Oilseed Processing continued

……………………………………………………………………………………
Our business model heat and power units adjacent to all but one Sunflower oil sold in bulk destinations FY2019
Market leader in oilseed processing our crushing plants to burn all the husk pro- thousand tons
We are the largest sunflower oil producer and duced and generate electricity. Since 2009
exporter in the world, with annual capacity to our Kropyvnytskyi plant has operated a similar
process 3.5 million tons of sunflower seeds. In facility with 1.6 MW installed turbine capacity, 3%
8%
FY2019 we produced ~8% of global produc- supplying the electricity generated to national
tion of sunflower oil and exported ~15% of grid.
global export1. 20%
40%
Up to 10% of crude sunflower oil is further re-
We operate seven of our own oilseed pro- fined and bottled on our Poltava and Pry-
kolotne plants for higher-added-value prod-
1,496
cessing plants in Ukraine and also process
seeds under the tolling agreement on the 3rd- uct. On the Ellada plant we also process high-
party-owned Ellada crushing plant in Kropyv- oleic sunflower seeds. Most of our crushing
nytskyi city. Our facilities compose 19% of plants are multi-seed and able to switch to 29%
country industrial sunflower crushing capac- soybean or rapeseed processing if needed.
ity, and we keep 21% of total sunflower pro-
cessing volumes in Ukraine. We are currently All the assets are located across the sun- India Iraq Europe China Other

2.4 times bigger than the 2nd-largest crusher flower seed production belt in Ukraine in close
in Ukraine and seek to further increase our proximity to farmers, ensuring the high utiliza-
market share after commissioning the largest tion rates and profitability, as the low density ……………………………………………………………………………………
of sunflower seed negatively impacts the eco- Bottled sunflower oil destinations FY2019
in Ukraine oilseed processing plant with 1 mil-
nomics of transporting seeds to the distant re- million liters
lion tons of annual sunflower seeds crushing
capacity, scheduled for early 2021. gions.
9%
87% of the sunflower seeds we processed in Our crushing plants are modern facilities con- 4%
FY2019 were sourced from 3rd-party farmers, structed or fully renovated recently, granting 5%

and 13% were produced by our farming seg- us processing cost advantages over most of
ment. the other players. Our scale also allows us to 43%
benefit from more efficient usage of our coun-
try-wide origination network and allocation of
15%
131
Sunflower seed processing yields two major
products: sunflower oil and meal, which we overheads over larger volumes.
export globally mostly through 3rd-party termi-
nals, with only a minor portion transshipped Markets and customers 24%
through our own TransBulkTerminal. Sun- Oilseed processing is an export-oriented busi-
flower seed husk, a biomass, is either burnt ness. Over 90% of produced sunflower oil is
Ukraine Middle East Europe Asia Africa Other
in-house to generate steam for production exported in bulk, with India, EU, Middle East
purposes, or pelletized and sold to 3rd parties. and China being our key markets of destina-
We are currently constructing co-generation tions. Our customers include processors of

………………………………………………………………………..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…..…
Sunflower seed crushing process

Refining &
bottling
Bottled sun-
flower oil An edible oil rich with Omega-3 and Omega-6 ac-
Pressing &
ids. A traditional vegetable oil of choice for many
extracting
regions of the world, sunflower oil is used only for
Crude sunflower oil culinary purpose, primarily for salad dressing and
Dehulling &
(440 kg) frying.
filtering
Dehulled
Sunflower kernel A protein-rich livestock feed, used for compound feed
Sunflower Meal production for hog, cattle and poultry industries
(1,000 kg)
(390 kg) across the world. It is the third most important meal
globally after soybean and rapeseed.
Burning… Electricity Electricity is sold to the national grid, considered as
(222 kWh) “green energy”

Husk A biomass used to produce steam and energy on

… or our plants, but can also be pelletized and sold to
(160 kg) selling rd
3 -parties

1
USDA, Kernel analysis.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 15
 Strategic Corporate Financial
Report Sustainability Governance Statements

Oilseed Processing continued

………………………………………………………………………………………………………………………………………………………………………………………………………………………………
Case study: investments into green energy generation
Since its onset in early 2000s, sunflower seed processing in Ukraine has gone through several turns in its development. At first, crushing plants used
only pressing technology. The first indutsry shift added extractors to pressing operations, which improved the yields output and made early adopters
of the new technology much more competitive. The second pivotal point happened with the introduction of highly efficient husk-fueled boilers. Crushers
started to invest in modern productive boilers, which generated steam for crushing without using the natural gas, but by burning the sunflower husk – a
biomass-type by-product from the sunflower seed crushing process. And now we are facing the third turning point: installation of cogeneration
equipment.

Since 2015, Ukrainian government made a set of invenstives for the producers of “green” energy from a biomass by obliging the national grid operator to
buy all the electricity generated from biomass at a higher feed-in tariff, which is fixed until 2030 and regularly adjusted for FX fluctuations.
In 2017, we decided to enter this market by installing
cogeneration heat and power equipment, with a combined Clean exhaust → CO saving
2

turbine capacity of 94 MW on seven of our crushing plants, over

the course of 2019-2021. As before, we will burn husk, and the
steam produced will be used not only for crushing purposes, as
well as for electricity generation.
Sunflower Steam
We see a strong business case for such invesments: Dehulling seeds turbine
✓ Attractive feed-in tariff for “green energy” in Ukraine: 0.12 Energy plant
€/kWh till 31 Dec 2029;
✓ A proven track record of running combined heat and power
Sifting
(CHP) unit on Kropyvnytskyi plant since 2009;
✓ Synergies vs greenfield CHP plant construction: existing Pressing
infrastructure and secured supplies of biomass feedstock Sunflower
✓ Vacanting railcars use / reduction of logistic costs hulls

The total investments are expected to reach US$ 150 million.

Once done, we will end up as the largest producer of green Sunflower Crude sunflower
energy from biomass in Ukraine. meal oil

soft commodities who refine and bottle sun- Kropyvnytskyi oil-extraction plant, which ex- ……………………………………………………………………………………
flower oil (with Etihad Food Industries pur- panded the on-site green energy generation Oilseed processing volumes
chasing 29% of our bulk sunflower oil in capacity by four times, to 6 MW. thousand tons
2,959 3,136 3,164
FY2019 as the largest of our customers) or in- 2,685
ternational commodity traders, such as FY2019 was a year of launch of on-site con- 2,523
834 896
COFCO and Cargill, taking 9% and 6% of our struction works for our new oilseed processing 418 910
506
bulk oil sales volumes, respectively, in plant in Western Ukraine (a region with strong
915 849 908
FY2019. fundamentals for oilseed processing busi- 700 861
ness), with the aim to commission the facility
704 672 911
Up to 10% of produced crude sunflower oil is in January-March 2021. Equipped by machin- 909
941
further refined and bottled. In FY2019, 57% of ery from leading global suppliers, the plant in 612 679 542
280 419
produced bottled oil was exported mainly to Starokostiantyniv, Khmelnytskyi region, will
Africa, Middle East, EU and China under our be the largest in Ukraine with annual pro- FY2015 FY2016 FY2017 FY2018 FY2019
Q1 (ends 30 Sep) Q2 (ends 31 Dec)
brands or private labels. We have about 55% cessing capacity of 1 million tons of sunflower
Q3 (ends 31 Mar) Q4 (ends 30 Jun)
share in total refined bottled sunflower oil ex- seeds, also accommodating soybeans and ……………………………………………………………………………………
port from Ukraine, supplying products to such rapeseed crushing. The plant will be equipped Kernel bottled oil selected customers
international retail chains as METRO, with an integrated 22 MW combined heat and
Auchan, Walmart, Maxima and others. power generation unit (“CHP unit”) expected
to generate up to 154 thousand MWh of elec-
43% of produced bottled oil was sold in tricity annually to be sold to the national grid.
Ukraine to 18 nationwide retailers and 32 re-
gional distributors, comprising 84% and 16% In order to expand the production of sunflower
of domestic sales, respectively, under well- in western and northern regions of Ukraine,
recognized brands “Chumak”, “Schedryi Dar”, we launched a promotional campaign as a
“Stozhar” and others. part of our Open Agribusiness initiative provid-
ing local farmers with Kernel’s real-life cases
Key developments of how to streamline their crop mix to produce
In FY2019, we processed 3.2 million tons of more sunflower seeds, historically the most ……………………………………………………………………………………

oilseeds – a new record for Kernel, slightly ex- profitable crop in Ukraine. Kernel bottled oil core brands
ceeding last year’s result and running at 91%
capacity utilization level. It is imperative to In the bottled sunflower oil business, we
maximize capacity utilization for margin-tak- added market share in Ukraine as a result of
ers in the current low-margin environment. the customization of bottle size and formats,
successful promotional campaigns and in-
In FY2019, we commenced work of a co-gen- creased cooperation with leading domestic re-
eration heat and power unit in our tail chains on production of private labels and

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 16
 Strategic Corporate Financial
Report Sustainability Governance Statements

Oilseed Processing continued

the promotion of our own brands. For export ………………………………………………………………………………………………………………………………………………

sales, we also managed to enter a new retail Oilseed Processing segment performance
network Superunie in Netherlands, and in- FY2018 FY2019 y-o-y
creased shipments to Asia and South Amer-
Oilseeds processed thousand tons 3,136 3,164 1%
ica, while losing somewhat in Middle East.
Sunflower oil sales thousand tons 1,413 1,619 15%
Revenue US$ million 1,393 1,493 7%
Since mid-FY2019, we changed our approach EBITDA US$ million 77 109 42%
to the sales of sunflower oil sold in bulk. His- EBITDA per ton of oil sold US$ / ton 54 67 24%
torically, we sold oil mainly at Ukrainian ports EBITDA margin % of revenue 5.5% 7.3% 1.8pp
(FOB-basis) to numerous big international
traders. But since Q3 FY2019, we sell almost
shareholders of ViOil, we acquired certain • Strong 15.2 million tons harvest of sun-
rights which might benefit Kernel in future sale flower seeds in Ukraine, which reduced
all unrefined sunflower oil produced by our
process. the gap between crushing capacities in
plants through our Avere trading platform,
Ukraine and supply of seeds, and…
shifting sales from FOB more to CIF-basis
Performance overview • Subdued global sunflower oil prices,
(port in the country of destination). In addition
Our sales of sunflower oil achieved highest which reduced from US$ 750 per ton of un-
to marketing sunflower oil produced by our
refined oil sold in bulk (FOB Black Sea ba-
plants, Avere also buys sunflower oil from ever 1.6 million tons in FY2019, exceeding the
sis) at the beginning of the season to US$
other producers in Ukraine (over 200 thou- production volumes and depleting the carry-
620 per ton of oil in December 2018 (the
sand tons in FY20191), consolidating exports over stock. Bulk sunflower oil sales reached
lowest in a decade). At our level of margins,
from Ukraine under its platform and building 1.5 million tons, up 15% y-o-y following such price weakness has a tremendous im-
up the scale in the vegetable oils export mar- stronger shipments to Middle East. Sales of pact on profitability, and it undermined more
ket. Based on volumes produced by Kernel bottled sunflower oil jumped to 123 thousand substantial margin improvement in FY2019.
plants, we have ~15% of total global export, tons (or 131 million liters), up 10% y-o-y given
but with the help of Avere trading subsidiary growth in domestic sales in Ukraine to further As a result of stronger sales volumes and re-
we intend to increase this stake further, con- increase our market share. covery in margin, segment EBITDA in FY2019
solidating the sunflower oil freight market and increased by 42% y-o-y, to US$ 109 million.
Ukraine FOB-basis market under the Kernel EBITDA generated per ton of oil sold recov-
umbrella. ered from the lowest ever observed level of We also secured strong volumes of sunflower
US$ 54 per ton in FY2018 to US$ 67 in the seeds to crush in Q1 FY2020, which is the last
Over the course of FY2019, we reduced the reporting period. Profitability was impacted by quarter before a new harvest of sunflower
headcount in the segment by 10% y-o-y, to two opposite factors: seeds starts.
2,258 employees (FTE) as of 30 June 2019. ………………………………………………………………………………………………………………………………………………...
While half of this reduction comes from the di- Acquisition of 5.85% in ViOil
vestment of a small inefficient simple-press
In February 2019, Kernel acquired 5.85% interest in ViOil Holding Ltd (“ViOil”), one of the largest
plant in Mykolaiv in July 2018, another 5% re-
independent sunflower oil producers in Ukraine. ViOil assets include:
sults from our efforts in optimization of busi-
• Vinnytsia multiseed oil-extraction plant with annual capacity to process 940 thousand tons of
ness processes within the segment.
sunflower seeds or 640 thousand tons of rapeseeds or 540 thousand tons of soybeans. The plant
is equipped with vegetable oil refining and bottling facility, as well as soft margarines and packaged
Finally, in February 2019 Kernel acquired fat production unit;
5.85% stake in ViOil Holding Ltd, one of the • Chernivtsi multiseed oil-extraction plant with annual capacity to process 165 thousand tons of
largest independent sunflower oil producers in sunflower seeds or 89 thousand tons of rapeseeds or 73 thousand tons of soybeans;
Ukraine, controlling 1.1 million tons of annual • 10 silos with 300 thousand tons storage capacity, used for oilseed procurement purposes.
sunflower seed processing capacity and a
network of silos used for origination of sun- A customary shareholder agreement in relation to ViOil grants us certain rights gaining a favorable
flower seeds. By entering a customary share- position to further increase our stake. This deal is an important initial step towards the future consol-
holder agreement in relation to ViOil with other idation of the sector under Kernel umbrella, which is one of the targets in our Strategy 2021.
……………………………………………………………………………………
In case of closer cooperation with ViOil, we may achieve various potential synergies, like common
Oilseed Processing segment EBITDA procurement of sunflower seeds and sale of sunflower oil produced by ViOil through our subsidiary
213 Avere, which consolidates the FOB-basis market in Ukraine.

190
129
109
100
120 77

83
67
54

FY2015 FY2016 FY2017 FY2018 FY2019

EBITDA,US$ million
EBITDA margin, US$ per ton of oil sold

1
Such volumes are reported as a part of “Other trading
volumes” in our Infrastructure and Trading segment.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 17
 Strategic Corporate Financial
Report Sustainability Governance Statements

Oilseed Processing continued

FY2020 outlook related injuries in our Oilseed Processing seg- remains at the lowest ever level of 1.1 kg of
Oilseed Processing segment is expected to ment over the reporting period for the first time CO2 equivalent per ton of sunflower seed
deliver healthy results in FY2020. Volume- in the last decade. crushed.
wise, we have a target to process 3.3 million
tons of sunflower seeds in FY2020 – the high- To prevent health and safety accidents, each Product quality and safety
est volumes in our history, further increasing processing site has a dedicated health and As the largest global producer of sunflower oil,
our capacity utilization rate. Margin-wise, as safety specialist who ensures that workplaces we strive to set industry benchmarks in terms
of the date of this report publication we expect comply with safety requirements. All our work- of product quality, guaranteeing the highest
stronger y-o-y margins in FY2020. The har- ers are equipped with coveralls and receive standards of goods we deliver to our custom-
vest of sunflower seeds in FY2020 is ex- proper health and safety training annually. For ers.
pected to be unchanged as compared to the more details on our health and safety perfor-
previous season, and crushing capacities are mance, please refer to page 48 of this report. All our crushing plants are certified under ISO
not increasing, but sunflower oil prices recov- 22000, ISO 9001 and GMP+B1. Our bottling
ered from extremely low FY2019 levels, con- Employee training and development facilities have FSSC 22000 certificates. Be-
tributing to the expected margin recovery. On We dedicate a lot of effort to the training and yond that, our crushing plants have numerous
top of that, following the increase of the limits professional growth of our people. Over the other quality certificates which are required to
of our sunflower oil pre-export credit line, we course of FY2019, 1.9 thousand participants sell products across the globe (please see
aim to originate more seeds at the beginning employed by our Oilseed Processing segment “Product quality and safety certificates” on page
of the season at higher margins, which should invested a total of 30 thousand hours in devel- 53).
also contribute to general profitability improve- opment of their hard and soft skills. We en-
ment. gage employees in all six training and educa- We supply bottled sunflower oil to reputable
tion programs we run: professional education, international retail chains (Auchan, Metro,
As before, first quarter of new financial year competency development trainings, one-time Walmart, Maxima etc.), which serves as proof
will be weak in terms of volumes, as we nor- educating activities, corporate modular pro- of the quality of our produce.
mally have scheduled downtime to prepare grams, trainings from internal trainers and dis-
plants for new season in this quarter, but tance learning. We also have a special corpo- Our food safety and quality system is regularly
stronger than Q1 FY2019 given the sufficient rate MBA program for our Oilseed Processing tested by independent third-party auditors and
stock of seed on the market after robust har- segment. constantly overseen by our internal food
vest in FY2019. safety team. The audits’ scope includes pro-
Energy consumption and emissions duction, storage, distribution and supply pro-
Additionally, we expect about US$ 6 million intensity cesses. In FY2019, we passed 88 independ-
EBITDA contribution from green energy gen- Oilseed Processing is our most eco-friendly ent audits, conducted over 156 days.
eration in FY2020, following the planned com- segment, as 83% of energy consumed comes
missioning of 3 cogeneration heat and power from renewable fuel (sunflower husk).
units on our Poltava, Bandurka and Black Sea
Industries oil-extraction plants in spring 2020 In FY2019, we continued the trend of energy
with combined power generation capacity of intensity improvement, consuming the lowest
40 MW. The remaining 48 MW to be installed ever 1,312 MJ per ton of sunflower seed
on our Prydniprovskyi, Vovchansk and new crushed. We reduced total consumption of
Starokostiantyniv plant in FY2021. electricity and sunflower husk while increasing
oilseed processing volumes.
Non-financial performance
Greenhouse gas emissions of the segment
Occupational health and safety
amounted to 3 thousand tons of CO2 equiva-
Our injury prevention system on crushing
lent in FY2019, slightly up y-o-y on more nat-
plants demonstrated a stellar performance in
ural gas consumed. GHG emissions intensity
FY2019, as there were no recordable work-
…………………………………………………………………………………… …………………………………………………………………………………… ……………………………………………………………………………………
Oilseed processing segment energy con- GHG emissions intensity ratio (Scope 1) Number of segment employees (FTE)
sumption and intensity ratio As of 30 June of the respective year

3,859 3,877 3,852 17.8 2,750 2,592

3,635 2,455 2,501
2,258
3,068 13.1

7.1

1,456 6.4
1,441 1,412 4.8
1,328 2.9 3.1
1,312
3.0

1.0 1.1
FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019
Oilseed processing energy consuption, '000 GJ Total GHG emission, thousand tons of CO2e
Energy spent, MJ / ton of sunflower seed crushed
GHG emission, tons of CO2e per thousand tons of
sunflower seed processed

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 18
 Strategic Corporate Financial
Report Sustainability Governance Statements

Infrastructure and Trading

Unlocking Ukraine’s potential in agriculture

In the last decade, our Infrastructure and Trading
segment transformed from an asset-light grain trad-
ing business into the biggest grain exporter from Revenue
Ukraine with a powerful grain infrastructure plat-
form. We connect more than 4,000 crop producers
in Ukraine with global markets through our best-in-
US$ 3,140 million
class integrated value chain, which includes the
+3.1x y-o-y
largest private silo network, one of the largest grain
export sea terminals, the largest private grain rail-
cars fleet and an extensive procurement network. EBITDA
Exported 6.1 million tons The total EBITDA contribution of these businesses
(before unallocated head office expenses)
of grains and oilseeds in FY2019 amounted to US$ 106 million, up 5% y-
from Ukraine o-y.
US$ 106 million
In FY2019, we became the undisputable local
champion in grain export volumes from Ukraine +4.9% y-o-y
for the first time in our history, outperforming nu- them our farming know-how, providing working cap-
merous multinational and local peers. We exported ital financing and access to our infrastructure. All
6.1 million tons of grain from Ukraine, up 58% y-o- these activities are structured through our “Open
y, which is an important step in our Strategy 2021 Agribusiness” initiative which we launched a year
execution. ago and consider an important instrument in further
boosting productivity of farming business in
We also added a new important business stream to Ukraine.
our operations – grain railcars. These operations
mitigate logistics risks to successfully deliver on our
Strategy 2021, and also protects us from ever grow-
ing grain logistics costs in Ukraine.

We do not have plans to stop, setting a target of 8

million tons of grain to be exported by Kernel from
Ukraine in FY2020. This new milestone will be
achieved with the help of our new 4-million-tons
grain export terminal we plan to put into operation
in January 2020.

Although FY2019 grain harvest was a record in

Ukraine, FY2020 crop size promises to be even
more outstanding, driven by wheat and barley crop
yields improvement. We believe in the long-term
grain producing potential of Ukraine and we aim to
help farmers in Ukraine to unlock it by sharing with

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 19
 Strategic Corporate Financial
Report Sustainability Governance Statements

Infrastructure and Trading continued

With 53 million tons of grain export expected ………………………………………………………………………

Market overview Top grain exporters from Ukraine in FY2019
Key market factors important to follow for our for FY2020 and 4-5 million tons of annual
% of total grain export
Infrastructure and Trading segment perfor- oilseed export expected, port transshipment
mance include the harvest of grains in capacities are underutilized, which was re- Kernel 12%
Ukraine, competition among grain traders in flected in recent weakness in export terminal
margins marketwise. Nibulon 10%
Ukraine and competition among grain infra-
structure assets, along with other factors. COFCO 9%
Grain railcars business
Over the last several years, inefficient railway Cargill 8%
Grain harvest in Ukraine
In the season 2018/19 (the company’s logistics became a barrier for the effective ex- ADM 8%
FY2019) Ukraine delivered the largest grain port of grain from Ukraine. The market faced
a shortage of freight railcars and railway trac- Bunge 6%
harvest in its history: 70 million tons1, up 14%
y-o-y. While wheat harvest reduced by 2 mil- tion, which endangers the execution of export Louis Dreyfus 6%
lion tons to 25 million tons, harvest of corn contracts and increases the costs for grain ex-
porters. While the rolling stock market was de- Glencore 5%
boosted by almost 50% y-o-y to 36 million tons
in FY2019 on extremely supportive weather regulated in FY2018 and more private players
Source: STARK
conditions. started to invest in their own railcar fleet (in-
……………………………………………………………………
cluding Kernel), railway traction is still a mo-
Top export terminals in Ukraine in FY2019
With reducing domestic consumption in nopoly-owned by the national railway opera- million tons of grain throuhput
Ukraine, grain export volumes accelerated in tor, causing inefficiencies in logistics.
TIS 7.4
2018/19 reaching 50 million tons, up 23% y-o-
y, making Ukraine the 3rd largest grain ex- Silo business
Nika-Tera 4.5
porter globally with 12% of global grain trade. The most important trend in silo business also
involves railway logistics. Aiming to improve TBT (Kernel) 4.2
Outlook for FY2020 looks even more inspir- the turnover of rolling stock, Ukrainian Rail-
Glecore 4.2
ing. Grain harvest in Ukraine is expected to in- ways adopted new rules for freight railcars as-
signment. Consequently, silos with capacity to COFCO 3.6
crease above 73 million tons mostly driven by
wheat with corn production remaining un- load a full shuttle train (54 grain railcars) per Bunge 2.8
changed y-o-y. It will secure enough volumes day are primarily allocated with railway wag-
ons during the high season. Therefore, nu- Nibulon 2.7
for high grain infrastructure capacity utilization
countrywide. merous unproductive and inefficient grain ADM 2.3
storages face difficulties with getting access to
railcars, and market players started investing Source: STARK
Competition among grain traders
in construction of new silos and debottleneck-
In Ukraine we compete with established mul-
ing of existing ones.
tinational trade houses (COFCO, Cargill,
ADM, Bunge, Louis Dreyfus, Glencore) as
Kernel is one of the largest operators of mod-
well as with numerous local names, including
ern high loading speed silos in Ukraine. At the
Nibulon as the #2 exporter. While all the larg-
end of FY2019, we added two facilities with
est exporters have their own grain export ter-
shuttle train-loading capabilities to our opera-
minals in ports, only some of them have in-
tions as a part of our Strategy 2021 execution.
land silos and grain railcar fleets, not to men-
tion farming business. All those factors com-
bine as a key in winning the race for Kernel. Global picture
Ukraine is well-positioned to remain an im-
portant player in the international grain mar-
Grain infrastructure trends
ket, owing to both its large farmland area and
Grain export terminals
strategic location on the Black Sea. Ukraine is
We estimate current capacity of big special-
ideally positioned for exports to the Mediterra-
ized grain export terminals in Ukraine at ~60
nean market as the closest major grain pro-
million tons per year (including the recently
ducer with a developed grain transshipment
commissioned Cargill’s 5-million-ton terminal
infrastructure offering logistics and cost ad-
in the port of Pivdennyi). On top of that, there
vantages. There are deep-water commercial
are ~15 million tons of capacity for small and
seaports connected to an extensive railway
unspecialized players, which are not efficient,
network serving most of the grain elevators in
often lacking the depth at berth and therefore
the country.
are heavily underutilized.

The pipeline of new projects includes Kernel’s

4-million-tons TransGrainTerminal and debot-
tlenecking of various players to add, in total, a
maximum 5 million tons more of annual trans-
shipment capacity.

1
Source: USDA

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 20
 Strategic Corporate Financial
Report Sustainability Governance Statements

Infrastructure and Trading continued

…………………………………………………………………………………………………………………
Our business model harvest of 2019, one of the largest provid-
Kernel grain export from Ukraine destinations
The Infrastructure and Trading segment com- ers of financing to farmers in Ukraine) and million tons
prises several interdependent business units the Open Agribusiness initiative (sharing
our know-how and providing various ser-
serving as a supply chain connecting Ukrain-
vices to 3rd-party farmers). 6% 1%
ian farmers with global markets: grain export
business, silo services, export terminals, grain 14%
We consider the combination of above-men-
railcars, and Avere operations. On top of that,
tioned factors as one of our key competitive
we account in this segment for a fee received
for assignment of our transshipment quota on
Taman terminal in Russia to a third party.
advantages.
21%
6.1 58%
We sell grain mostly on the FOB-basis in the
ports of Black Sea to big international traders
Grain export business like Cefetra (19% of Kernel grain export vol-
Being the largest grain exporter from Ukraine umes in FY2019), COFCO (12%) and Glen-
and one of the largest from the Black Sea re- core (11%), as well as OLAM, Cargill, ADM
gion, Kernel is involved in buying grain from and others. Traders then deliver grain to key
EU Asia Middle East Africa Other
local farmers (including own farming division) export destinations, being Europe (56% of to-
and exporting it from Ukraine. In FY2019, we tal Kernel grain export volumes in FY2019), rain positively effects margins for silo busi-
exported 6.1 million tons of grain from Asia (21%), Middle East (14%) and Africa ness; less rain negatively so. Our silos start
Ukraine, or 12% of the country’s total grain ex- (8%). grain intake with wheat in July and end with
port. We successfully navigate in this low-
corn in December, thus being able to do more
margin high-volume business by effectively Silo services than 1.0x storage capacity turnover over the
combining the following pillars: We operate the largest private inland silo net- season.
• Professional procurement team with work in Ukraine of 34 silos with total grain stor-
country-wide presence and deep under- age capacity of 2.5 million tons. Our assets in- In addition to typical services provided, our
standing of local trends and regional pecu-
clude very productive silos able to load shuttle silo network serves as an important origina-
liarities;
trains (54 railcars) in one day; like Balyn which tion tool, enabling our procurement team to
• First-hand access to our own infrastruc-
made 3.8x turnover in FY2019 with 0.5 million purchase grain and sunflower seeds from
ture in Ukraine – the largest private silo net-
tons of grain intake, but also smaller and less farmers within a 100-kilometer range from the
work, grain railcars fleet and deep-water ex-
efficient floor-type storages of which we sys- harvested land, thus being the first-choice
port terminals;
tematically divest. buyer to consider. Our inland silo footprint en-
• Prudent risk management: locking up the
margins by selling grain through forward ables us to maintain close contacts with farm-
contracts in a similar time frame as when Silos located across the key grain producing ers and have better visibility on the Ukrainian
we purchase it from farmers on the spot regions in Ukraine provide grain in-take, dry- grain supply.
market; ing, cleaning, storage, and off-loading ser-
• Relationship with farmers, supported with vices to our farming segment and to third- Export terminals
a number of value-added initiatives: provid- party farmers countrywide. Grain drying ser- In Ukraine, Kernel owns TransBulkTerminal
ing pre-crop financing to farmers (over US$ vice has the highest added value, so profita- - one of the largest facilities in the country with
90 million expected to be provided for the bility of the whole business line materially de- 4.8 million tons annual grain handling capac-
pends on the weather when harvesting: more ity, located in the deep-water Chornomorsk
………………………………………………………………………………………………………………… ………………………………………………………………………………………………………………… port, Odesa region. The facility is capable of
Silo in Balyn, Khmelnytskyi region Export terminal in the Chornomorsk Port servicing over-Panamax-sized vessels with
142 thousand tons storage capacity 4.8 million tons annual transshipment capacity
deadweight of up to 100,000 tons and has a
maximum loading at berth of 69,700 tons.
Next to it, we are constructing a new 4-million-
ton TransGrainTerminal. We have started
using this facility to offload railcars and store
grain already in FY2019, but the full commis-
sioning of the asset is scheduled for FY2020.

In Russian Federation, Kernel owns a 50% in-

terest in Taman grain export terminal, a deep-
water facility able to load Panamax vessels,
which provides a materially cheaper logistic
advantage. Being uninvolved in grain market-
ing operations in Russia since FY2018, we as-
signed our transshipment quota in the termi-
nal to Glencore, the owner of another 50%
stake in this venture, thus securing a budg-
eted level of earning from this asset.

• 5% of Kernel’s total silo storage capacity • 4.6 million tons of grain, meal and sunflower oil The business enjoys high natural barriers to
• 17% of silo business EBITDA in FY2019 transshipped in FY2019 entry owing to the combination of high capital
• 539k thousand tons grain in-take volumes in • US$ 36 million EBITDA generated in FY2019 expenditures and limited availability of land
FY2019 (3.8x storage capacity turnover) plots for any new similar projects.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 21
 Strategic Corporate Financial
Report Sustainability Governance Statements

Infrastructure and Trading continued

…………………………………………………………………………………………………………………………………………………
Grain railcars Case study: Transforming railway logistics in Ukraine
After the purchase of 500 brand-new railcars Problem: inefficient inland grain railway logistics in Ukraine not able to effectively handle
in 2018 and the acquisition of the business steadily growing grain export volumes. Consequently, growing costs, resulting losses and
with 2,949 used railcars in February 2019, bottlenecks put at risk the execution of our Strategy 2021 – doubling grain export volumes by
Kernel became the largest private operator of 2021 against a FY2016 baseline year
grain railcars in Ukraine with ~13% market Solution undertaken by Kernel – pro-active 3-stage approach:
share of total grain hoppers fleet in Ukraine. 1. Purchase 500 brand-new railcars to test the market and operations;
We use railcars to deliver grain from silos 2. Acquire RTK-Ukraine with 2,949 grain railcars to reach a scale for impact;
(owned by us and by other players) to the 3. Value-creative initiatives around our fleet to transform the whole system:
grain transshipment terminals in the ports. By • Strict schedule shipments: a joint project with state monopoly Ukrainian Railways to
owning the railcars, we save on lease pay- introduce movement of grain trains by strict schedule. Being the first such initiative in
ments, though we still pay for usage of railway Ukraine, it aims to increase fleet turnover more than twice, provide for more efficient
traction and infrastructure. logistics planning by Kernel team, and improve the effectiveness of the whole system
in case the project is widely adopted by other operators. We expect to transport 0.9
Avere operations million tons of grain applying strict schedule scheme in FY2020.
Avere is a 72.5%-owned subsidiary of Kernel, • Transit-Hub: a web-platform for cargo owners storing grain on nearby silos to combine
with another 27.5% owned by the managing their efforts in loading a single block train (54 railcars) which travels nonstop to a desti-
partners of Avere. It is a research and nation in the port without being split up or stored en route. Such an approach reduces
knowledge platform founded in FY2018 and shipping time and costs for grain exporters.
headquartered in Geneva, Switzerland, with
representative offices in USA and Singapore. Result: Kernel became the 2nd-largest operator (after the state monopoly) of a grain railcar
Avere employs a highly qualified research, fleet in Ukraine, contributing to efficiency improvement of the whole industry.
trading and execution team of approximately
30 specialists. Avere sells almost all sunflower
oil produced by Kernel plants, purchasing
sunflower oil from Kernel at market prices
(FOB Black Sea) and paying Kernel a fee. Ad-
ditionally, Avere helps to hedge Kernel’s
growing grain export volumes and farming
produce. Finally, leveraging its expertise,
Avere is involved in the merchandising and
proprietary trading of grains, oilseeds and re-
lated products in the key world markets.

Key developments
In FY2019, we became the largest grain ex- production technologies. As of the date of this In FY2019, we constructed the first stage
porter from Ukraine, for the first time in Kernel report, other farmers shared information on (grain in-take and storage capacities) of our
history. We outperformed numerous local over 390 thousand hectares of land with each new TransGrainTerminal in the port of Chor-
peers and international players operating on other to make benchmarking within our Open nomorsk. The facilities are linked with our op-
the Ukrainian market, delivering to export Agribusiness program. erating TransBulkTerminal, thus having a pos-
markets 6.1 million tons of grain since 1 July itive impact on the capacity of the last. The fi-
2018 to 30 June 2019. 67% of exported vol- Driven by processes optimization and good nal commissioning of TransGrainTerminal is
umes comprised of corn, 26% - of wheat, and coordination between our logistic and export scheduled for FY2020.
remaining of barley and other crops. terminal teams, our TransBulkTerminal pro-
vided record transshipment volumes in In the reporting period, we continued to further
In FY2019, we pursued investments in railcar FY2019 of 4.6 million tons, including 4.2 mil- optimize our asset base. Firstly, we have been
business: in addition to US$ 25 million in- lion tons of grain and with remaining being disposing of small floor-type grain silos, which
vested into the purchase of 500 brand-new sunflower oil and meal. The facility also set a are inefficient with high costs and low capacity
railcars last season, we obtained 2,949 used new monthly record, transshipping 460 thou- turnover and do not fit our business model. As
railcars by acquiring RTK-Ukraine LLC in Feb- sand tons of commodities, and we upgraded a result, by the end of the year our one-time
ruary 2019 for US$ 65 million. We consider the notional capacity of the facility to 4.8 mil- grain silo storage capacity reduced to 2.5 mil-
these investments of strategic importance, as lion tons per annum. lion tons. Secondly, we divested of a small ex-
it improves control over the value chain and port terminal located in Mykolaiv port. Kernel
protects from ever-growing logistic costs. In FY2019, we initiated optimization of rela- used to transship sunflower meal through this
tions with 3rd-party truck carriers who transport shallow-water facility, but the terminal was
FY2019 was a year of the full-scale roll-out of sunflower seeds to our plants, sunflower oil outdated and inefficient, without any strategic
our Open Agribusiness initiative. We orga- and meal to ports, and grain to our silos and fit to Kernel operations. Stemming from the
nized three large meetings with 246 agripro- port terminals. We are introducing long-term portfolio optimization, the headcount of the
ducers in Ukraine operating in total 1.5 million contracts with 3rd-party carriers increasing segment reduced 13% y-o-y, to 2,990 employ-
hectares of land. On these meetings, we pre- predictability of their business and guarantee- ees as of 30 June 2019.
sented our program and advantages for farm- ing traffic volumes, and getting as a result re-
ers, disclosed our approach in precision farm- duction in tariffs, streamlining of our logistics Delivering on our Strategy 2021, we con-
ing, and demonstrated our fields and crop and uninterrupted supplies. structed two new silos and substantially

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 22
 Strategic Corporate Financial
Report Sustainability Governance Statements

Infrastructure and Trading continued

………………………………………………………………………… …………………………………………………………………………………………………………………………………………………………
Infrastructure and Trading segment EBITDA Infrastructure and Trading segment performance
US$ million
FY2018 FY2019 y-o-y
Grain export volumes thousand tons 3,953 6,094 54%
Export terminal's throughput (Ukraine) thousand tons 4,112 4,606 12%
114 Grain and oilseeds received in inland silos thousand tons 3,292 4,276 30%
107 110
106
101
Revenue US$ million 1,025 3,140 3.1x
EBITDA US$ million 101 106 5%
EBITDA margin per ton of grain exported US$ 26 17 (34%)
transshipped through our TransBulkTermi- through our value chain reduced to US$ 17 di-
nal in the port of Chornomorsk, and the re- luted by increasing scale of our low-margin
maining transshipped through 3rd-party ter- trading operations and Avere negative perfor-
minal in the port of Pivdennyi. Our silo busi- mance, while keeping contribution from our
ness in-take volumes posted a hefty 30% y- high-margin infrastructure businesses limited.
FY2015 FY2016 FY2017 FY2018 FY2019
o-y growth, to the highest ever 4.3 million
upgraded two other silos, almost completing
tons, of which 3.3 million tons was supplied FY2020 outlook
our US$ 65 million investment program in the
by our farming business, and in-take pro- We have a target to export over 8 million tons
silo business line. New capacities start con-
duced by other farmers amounted to 1 mil- of grain and oilseeds from Ukraine in FY2020,
tributing to our EBITDA as soon as in FY2020.
lion tons. with the key tailwinds being:
• Savings from the railcars business, • Commissioning of our new Trans-
Performance overview which added approximately US$ 15 million GrainTerminal in the port of Chornomorsk
Historically we used to report Infrastructure EBITDA to segment earning in FY2019; with 4 million tons annual transshipment ca-
and Trading segment as three sub-segments: pacity. Ramp-up of the facility is not likely to
grain marketing, silo services and export ter- At the same time, several factors restrained take long, so we plan our two terminals in
minals. Though, recently we changed our ap- earning from growth in the reporting period, Ukraine to handle over 7 million tons of
proach to profitability management in these namely: grain in FY2020;
segments when taking managerial decisions • Weaker margins in infrastructure busi- • putting into operations two new silos and
and start looking at the margin through the nesses. Lack of rains during the harvesting debottlenecking of several other silos, com-
whole value chain rather than the profitability period lowered demand for grain drying ser- pleted in the end of FY2019;
of each separate business, also accounting vices (the most profitable services for our • full-season utilization of the railcars ac-
for numerous intragroup transactions between silos), and increased competition in the ex- quired in February 2019. We expect to
our grain export, silo and terminal businesses. port terminals business negatively im- transport 6.7 million tons of cargo (grains,
pacted margins of that our branch as well; oilseeds, sunflower meal) by our fleet in
Infrastructure and Trading segment generated • Loss generated by Avere operations. FY2020.
US$ 106 million EBITDA in FY2019, flat as
compared to the previous year. Among the We were not exporting grain from Russia over For FY2020, we plan to increase the share of
factors pushing earnings up we need to men- the reporting period. Owning 50% in the deep- CIF export sales (in ports of destination), re-
tion: water grain transshipment terminal in Taman, ducing the sales on the FOB basis (in ports of
• Record volumes across all business Russia, we assigned our transshipment quota Ukraine). It will simplify our logistics and allow
lines. In FY2019, Kernel became the larg- to a 3rd-party and received a fee of US$ 8 mil- us to earn additional profits.
est grain exporter from Ukraine for the first lion in FY2019, which is included in the
time in its history, delivering 6.1 million tons EBITDA of the segment. Our procurement team plans to originate 5.5
of grain out of Ukraine, a tremendous 58% million tons of grain from 3rd-party farmers in
growth y-o-y. Of that, 4.2 million tons was EBITDA margin per ton of grain exported Ukraine in FY2020, with the intention to further
increase it to 7 million tons beyond FY2020.
…………………………………………………………………………………………………………………………………………………………………………………
TransGrainTerminal (projected design) As in the two previous years, we will not be
exporting grain from Russia, as we assigned
our transshipment quota on Taman terminal to
a 3rd party for the annual fee of US$ 9 million
for the season of FY2020.

Profitability-wise, we expect flat margins in

grain export operations and infrastructure
businesses. A new bumper grain crop ex-
pected for FY2020 should be supportive for
our plans.

FY2020 may become the beginning of new

productivity growth stage for farmers in
Ukraine. Farmland market reform has high
chances to be finally adopted in the upcoming
season, and it is generally believed to serve

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 23
 Strategic Corporate Financial
Report Sustainability Governance Statements

Infrastructure and Trading continued

as an impetus for further crop production in- health and safety systems at all our infra- Energy consumption and emissions
tensification. Such a scenario is generally structure units fully compliant with OHSAS intensity
beneficial for our Infrastructure and Trading 18001. The ultimate goal is to have no work- Our energy consumption within the infrastruc-
value chain, securing strong utilization of all related injuries among our employees. ture and trading division decreased by 9% y-
the assets. o-y to 1,110 thousand gigajoules in FY2019,
We declared FY2020 to be a year of job safety mainly due to the reduction of natural gas con-
Non-financial performance in our Infrastructure and Trading segment, al- sumption given less demand for grain drying
Occupational health and safety locating increased budgets for training and services in silo business line. At the same
Regretfully, we had one fatal accident in Infra- additional involvement of employees to the time, energy efficiency decreased by 11% in
structure and Trading segment as a result of discussion of job safety. On top of that, se- comparison to the previous year, with 67
the breach of occupational safety regulation. lected KPIs on occupational health and safety megajoules spent for each percentage of
The number of non-fatal injuries over the re- were added to the performance assessment moisture removed from one ton of grain dried,
porting period, unfortunately, increased to 11 system for the key management of our assets: compared to 61 megajoules a year ago. The
from 2 a year ago. 8 such cases are trivial in- oilseed processing plants, silos and export reason is the low humidity of the crops this
juries which happened occasionally in its ma- terminals. season compared to the previous one.
jority, but 3 incidents caused grievous bodily
harm. Employee training and development The factors driving energy consumption also
We remain committed to the professional de- impacted emissions of the division, which de-
We remain committed to fully eliminate such velopment of our employees. 1.1 thousand creased to 57 thousand tons of CO2 equiva-
accidents in the future, organizing health and participants from Infrastructure and Trading lent in FY2019.
segment were involved in our training and de-
safety trainings, workshops, and regularly in-
velopment activities in FY2019, investing For the full group disclosure of energy con-
specting our assets for compliance with health
more than 9,000 hours in total for training and sumption, emissions and intensity ratios, see
and safety requirements. We aim to have our
professional development. The activities were pages 45 and 46 of this report.
focused on the development of hard and soft
skills, various competencies and managerial
abilities.

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

Infrastructure and Trading segment energy Infrastructure and Trading GHG emissions Number of segment employees (FTE)
consumption thousand tons of CO2 equivalent As of 30 June of the respective year

1,224 70 3,501 3,447

1,162 3,250
1,110 3,103
61 2,990
57
803
43
603
29
63 68 67
63 61

FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019

Energy consumption, 000 GJ

Energy spent per ton-% of grain dried, MJ

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 24
 Strategic Corporate Financial
Report Sustainability Governance Statements

Farming

Shaping agribusiness in Ukraine to feed the world

Kernel is the largest and one of the most technolog-
ically advanced crop producers in Ukraine, operat- Revenue
ing 530 thousand hectares of prime farmland. In
just a decade we managed to increase the scale of
our operations 7 times, completely transforming our US$ 602 million
crop production technology and boosting productiv-
ity to set industry benchmarks.
+28% y-o-y
Produced 3.3 million
tons of key grains Notwithstanding the strong fundamentals for farm-
and oilseeds in ing business in Ukraine, like top-quality soils glob-
FY2019 EBITDA
ally and proximity to key markets, profitability in this
(before unallocated head office expenses)
business is extremely sensitive to the level of global
grain prices and weather conditions in Ukraine.
Given our exposure to price and weather risk
(which we cannot control), we are focusing on what
US$ 182 million
we can actually impact: costs and productivity. +105% y-o-y
Ukrainian currency appreciation. Crop yield for corn
We are much more advanced in crop production is expected to reduce, and global grain prices are
technology than most other farmers in Ukraine, and not supportive at the beginning of the season. It
we continue to invest in knowledge and processes makes us expect the contribution from our farming
optimization by developing our #DigitalAgriBusi- segment in FY2020 to be lower than the extremely
ness project. This solution will help us to increase good result generated in FY2019.
the productivity of each separate field, and better
plan and monitor our field works

The season of FY2019 deserves to be one of the

most prominent in the history of our faming busi-
ness. We achieved record yields and harvested the
largest ever crop of grains and oilseeds. Weather
conditions were close to ideal, prices contracting
momentum was chosen appropriately, and our ad-
vanced farm management system allowed us to
quickly and efficiently integrate the new landbank
added to our operations in summer 2017. As a re-
sult, farming segment generated US$ 182 million
EBITDA, up twice y-o-y, driving the performance of
the whole company.

While we believe in the long-term potential of the

farming business in Ukraine, short-term sentiments
are less optimistic. Next year brings us land lease,
fertilizers and labor costs inflation enhanced by

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 25
 Strategic Corporate Financial
Report Sustainability Governance Statements

Farming continued

average size of 4-10 ha depending on the re- …………………………………………………………………..

Our business model Kernel’s farmland lease rights maturity
Large-scale farming gion, who obtained the ownership rights dur-
as % of total landbank
Kernel is the largest crop producer in Ukraine, ing the land distribution process in 1990s fol-
24%
operating 530 thousand hectares of leasehold lowing the collapse of Soviet Union.
farmland including 513 thousand hectares un-
der 2019 harvest. In FY2019, we produced All farmland in Ukraine has been under a sale 17% 17%
3.3 million tons of key crops. We operate in moratorium for the past 18 years. First
western, central and northern regions of adopted in 2001, it was then extended by the
12% 12%
Ukraine, rich with black soils and enjoying suf- parliament several times, suppressing the de-
ficient precipitation. The land bank is divided velopment of farming business in Ukraine. As
a result, crop producers lease lands from its 7% 7%
into 6 production clusters, with operational de-
cision-making sufficiently decentralized to en- current owners, and since 2015, the minimum 5%

sure quick reaction of production teams for land lease term is 7 years, securing business
any types of externalities. Central office is re- operations for farmers.
sponsible for overall business strategy, pro- Less 3-5 5-7 7-9 9-11 11-15 15-20 more
curement of key inputs and control over oper- Kernel leases land through contracts with an than 3 than
ations. Healthy competition between clusters average maturity of 9 years. All lease con- years 20
tracts provide for the right of first refusal to years
stimulates constant efficiency improvements.
prolong leases or to buy the land in case of After presidential and parliamentary elections
We retain a simple crop mix, with 45% of acre- the moratorium lifting in the future. For 18 in Ukraine in 2019, and the appointment of a
age attributable to corn, 27% to sunflower, thousand hectares of land we operate, we new government with quite liberal views, farm-
19% for wheat, 5% to soybean, with the re- signed long-term (>70 years) land lease (‘em- land market reform appeared again in the
maining spread across other minor crops (for phyteusis’) agreements, whereby all rent pay- agenda. We estimate chances of farmland
2019 harvest, which will be sold over ments are paid to the lessor in one installment market liberalization in a year from date of
FY2020). at the signing of the agreement. It allows us to publication of this report as quite high.
secure our operations for a much longer pe-
riod compared to typical farmland lease con- Efficient and sustainable production
Leasehold land operations
tracts. technology
Close to 25% of agricultural land in Ukraine is
owned by the state, municipalities and state- We take great care to ensure our operations
89% of the landbank we lease is owned by pri- maintain long-term productivity of soil by ap-
owned enterprises. Another 75% is owned by
vate individuals, and 11% is owned by state plying sustainable agronomy practices.
private individuals in small land plots with an
authorities.
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………
FY2019 crop production cycle
FY2018 FY2019
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
Soybean
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

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 26
 Strategic Corporate Financial
Report Sustainability Governance Statements

Farming continued

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

Kernel’s acreage harvested by crops Kernel’s crop yields 1 Kernel’s production of key crops
thousand ha tons per ha thousand tons
596 3,266
FY2019
8% 529
513 FY2018
FY2017 17%
11% 6% 5% 2,517
7% 5% FY2016
391 9.9 Ukraine
385 2,119
24% 19% 19% 8.9 18%
7% 7% 1,864
1,772
7.2 7.3 19%
17% 15%
25% 27% 17% 18%
21% 22% 5.8
19% 5.1 5.45.1 83%
16% 21% 82%
3.2 3.0
2.8 3.02.7 2.7 83% 82%
81%
34% 42% 45% 1.9
1.8
41% 36%

FY2016 FY2017 FY2018 FY2019 FY2020 Corn Wheat Sunflower Soybean FY2015 FY2016 FY2017 FY2018 FY2019
Corn Sunflower Wheat Soybean Other Grains Oilseeds
Note 1: For comparison purposes, yields for FY2018 are provided for Ker-
nel’s initial lands (prior to land bank expansion in summer 2017) to avoid
dilution effect.
We do the significant portion of tillage and soil campaign. For several years, we apply deep Innovation-driven approach
leveling in autumn, thus completing our spring fertilizer placement (ca. 15-20 cm under the We are entering a new era in farming busi-
planting campaign within a shorter time frame. ground), thus concentrating around the plants’ ness, when digital technologies and modern
We apply mostly differentiated tillage, rotating root system ensuring faster absorption and farming techniques will have a key role ad-
mini-till and deep-till technologies. We operate improving nutrient use efficiency. vancing operational excellence
modern high-productive machinery and equip-
ment with relatively low consumption of fuel We apply best-quality non-GMO seeds. Most We have 5 specialized R&D centers with
and low level of emissions, driving energy ef- of it is grown in-house from premium parent 1,500 test fields and 60 employees, conduct-
ficiency. seeds, sometimes jointly with established ing over 2,000 tests annually. Additionally,
global seed producers, and the remaining is each of our clusters is free to use up to 10%
Save for a thousand hectares of irrigated land supplied by recognized global players. Our of acreage under control for experiments to
used for in-house seed production, all our crop rotation cycle is designed to prevent the test various new crop production techniques
farmland is rain-fed, with all the weather risks expansion of pathogens and pests and im- focused on productivity improvements.
arising from that. prove the soil structure.
Our crop yields are well above the country av-
We apply balanced fertilization to enrich our We use only crop protection agents pro- erages, and we share our know-how with
soils, utilizing both organic and mineral fertiliz- duced by established international companies other farmers in Ukraine through the Open Ag-
ers. Unlike the majority of farmers in Ukraine, and registered by the Ministry of Ecology and ribusiness initiative to improve their productiv-
we apply most of our fertilizers in autumn, Natural Resources of Ukraine. Before wide ity and minimize environmental impact.
ahead of the spring planting campaign. Au- application, we observe the pesticides in ac-
tumn application provides for a longer time for tion on our test fields for at least three years.
fertilizers to be absorbed by the land, allows Key developments
We widely use drones for crop monitoring to In FY2019, we completed the first module
us to use liquid fertilizers that are more digest- improve the quality of decisions about fertiliz-
ible compared to dry fertilizer, and results in (Planning) of our farming management eco-
ing and crop protection. system #DigitalAgriBusiness with all the basic
faster completion of the spring planting
functionality already used in operations. The
…………………………………………………………………………………… ……………………………………………………………………………………
system allows us to apply sophisticated IT so-
Profitability dynamics Number of segment full-time employees lutions for the proper organization of pro-
US$ million As of 30 June of the respective year cesses and allocation of resources for sowing
602
and harvesting campaigns. Now we are fo-
9,389 cused on the fine-tuning of the Planning mod-
8,770 8,448
7,767
ule and also developing and implementation
470
7,405 of the second module (Monitoring), including
381 the monitoring of crops and the monitoring of
358
310 38% 30% 22.7 machinery. To date, we have invested over
41% 19% 20.4 US$ 3 million in the development of the prod-
32%
16.8 uct. Following the presentation of the product
16.0
14.4 on the market, we see a demand in such so-
146 182 lution from other local farmers, so we may
146 89
98 consider the release of a commercial version
FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 of #DigitalAgriBusiness in the future.
Revenue EBITDA Number of segment full-time employees
EBITDA margin, %
Farming employees per thousand ha

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 27
 Strategic Corporate Financial
Report Sustainability Governance Statements

Farming continued

In FY2019, we reduced headcount to 14 em-

ployees per thousand hectares as of 30 June
2019 from 16 as of 30 June 2018. As a result,
total headcount in farming segment measured
as of 30 June 2019 reduced by 13% (or more
than 1 thousand) y-o-y, to 7,405 full-time em-
ployees. We understand there is further po-
tential for labor productivity improvement,
which will remain our focus for the next sev-
eral years.

Considering the situation with fertilizers in

Ukraine, we initiated the construction of the
equipment for production of UAN (solution of
urea and ammonium nitrate in water), which is
widely applied as a fertilizer. We installed such
equipment in one of our clusters, and plan to
install similar units on our other clusters, in-
vesting US$ 0.5 million in total with less than
a year payback period.

For FY2020 harvest, we further increased per-

centage of acreage under sunflower and corn With 529 thousand hectares harvested in We had 2 non-fatal injuries in FY2019, 5x less
– key crops for our production technology. FY2019, our farming segment generated US$ than a year ago. Since it is still above our tar-
344 EBITDA per hectare. get of zero accidents, we are paying special
Perfromance overview attention to minimize such cases in the future
Our farming segment generated the highest The largest cost categories in farming busi- by training our health and safety specialists,
ever EBITDA of US$ 182 million, up 105% y- ness in FY2019 were land lease costs (17% organizing labor safety trainings and informing
o-y, with the following factors contributing to of total farming costs), fertilizers (15%), labor all employees about each accident immedi-
this achievement: costs (13%) and costs of seeds (11%). ately after it occurs.
• Supportive weather conditions for late
crops (corn, sunflower and soybean). In FY2020 outlook Employee training and development
July, persistent above-normal precipitation In general, we share the prevailing negative Envisaging the highest potential in labor
along with seasonal temperatures were sentiment towards farming segment perfor- productivity improvement in farming as com-
ideal to promote successful pollination. As a mance in FY2020. Crop yield for corn as our pared to other our segments, we pay special
result, Kernel achieved record crop yields in key crop is expected to decrease in FY2020 attention to professional development and
our history; as compared to unusually high base of training of our farming employees. In FY2019,
• quick and successful integration of farm- FY2019, while crop yields for wheat and sun- 3.9 thousand participants employed by our
ing businesses acquired in 2017. FY2019 flower will improve. Growing cost base (mainly Farming segment attended our training and
was the first year when we applied our full- land lease costs, energy costs (fuel and ferti- development activities, investing in total 40
cycle crop production approach on new lizers), and labor costs) coupled with the ap- thousand hours for improving their profes-
lands, and we substantially improved the preciation of local currency may pose some sional and managerial skills, developing
productivity there with minor further upside near-term downside risk on the performance knowledge and competencies. A major por-
remaining. We demonstrated our ability to of our farming business, especially consider- tion of our professional education program is
easily replicate our advanced technology on ing weak grain prices at the beginning of the targeted on our farming personnel. We run
new lands boosting crop yields; season. fully equipped modern training facilities lo-
• our efforts in productivity improvement; cated in several of our farming clusters, where
• proper approach to price hedging. We Non-financial performance we organize module-based practical training
managed to catch relatively high prices programs taught by local and visiting trainers
within the season and successfully con-
Occupational health and safety for our agronomists, engineers and other ag-
Our approach to work-related injury preven- ribusiness specialists. Since 2013, we have
tracted our volumes.
tion resulted in the lowest number of accidents organized a corporate MBA program for our
in our Farming segment over the last decade. agri managers and key specialists and also ar-
…………………………………………………………………………………………………………………………………………………... range numerous experience-exchange pro-
Farming segment performance grams, crop tours and site visits. Finally, we
FY2018 FY2019 y-o-y conduct regular in-person meetings for repre-
Revenue US$ million 470 602 28% sentatives of our clusters, which are spread all
EBITDA US$ million 89 182 105% over Ukraine, to share their experience and
best practices.
Volumes sold thousand tons 2,594 3,294 27%
Acreage harvested thousand ha 596 529 (11%)
Revenue per hectare US$ / ha 790 1,137 44%
EBITDA per hectare US$ / ha 149 344 131%
EBITDA margin % 18.9% 30.2% 11.4pp

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 28
 Strategic Corporate Financial
Report Sustainability Governance Statements

Farming continued

Energy consumption and emissions Giving back to local communities

intensity Rural communities within the scope of our Over the course of FY2019 our social expenses
Our practice in farming business is sustaina- farming operations are a key focus of our com- totaled US$ 2.3 million, comprising mostly in-
ble intensification of the farming: produce pany’s social and charity activities. More than vestments into infrastructure (US$ 625 thou-
more food with less inputs. two hundred of our employees serve as rela- sand, excluding spending related to our busi-
tionship managers with their respective com- ness needs), schools and kindergartens, as
As a result of the farmland bank expansion, munities, some working full-time in this role well as charity donations and other social
total energy consumed by our faming division while others are part-time. Direct contact with spending facilitating sport, art and leisure activ-
increased by 28% y-o-y in FY2018 and re- local residents allows us to plan and execute ities. All our support of local communities is
mains stable in FY2019. However, the energy our social activities in the most efficient way structured through the charitable foundation
spent per ton of crop grown decreased by and receive direct feedback on the impact of ‘Together with Kernel’, which runs its own web-
19%, as the operations on the lands we ac- our operations on communities. site aimed at promoting our social activities and
quired became as efficient as the operations serving as a point of contact with local stake-
on our initial lands. At the same time, a down- holders.
ward sloping trend in energy consumption in-
tensity is obvious, reflecting our constant ef-
forts in efficiency improvement. Emissions in-
tensity remained at a record low 53 kg of CO2
equivalent per ton of grain grown.

………………………………………………………………………… …………………………………………………………………………
Farming division energy consumption Farming division GHG emissions (Scope 1)

1,847 1,867 186

174 173
161 156
1,522
1,392 1,445

854
97
708 675
630 84
546
68 68
50

FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019
Farming division energy consumption, '000 GJ
'000 tons of CO2 equivalent
Energy spent per ton of crop grown, MJ kg of CO2 equivalent per ton of grain grown

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 29
 Strategic Corporate Financial
Report Sustainability Governance Statements

Risk management
………………………………………………………………………………………………………………………………………............
Risk management system Key roles and duties in the risk management process
At Kernel Holding S.A., management defines
risk as an event, action or lack of action, which Board of Directors
can lead to non-achievement of the Com- → supervise the risk manage- Audit Committee
pany’s objectives. ment process Assists the Board of Directors in the discharge of its risk man-
→ determine and approve the agement responsibilities
Kernel has an evolving system of risk man- level of risk acceptability and → formulating a description of the risks specific to the Company;
agement aimed at preserving the stability Company’s risk appetite → overseeing adequacy and effectiveness of the Kernel’s risk
and solvency of the Company under ex- → decide on critical and signif- management system;
treme conditions to preserve long-term icant risks → reviewing the Company’s policies on risk assessment and
→ review the risk related re- risk management.
sustainable value for shareholders.
ports
Based on Risk Management Policy (adopted
by the Board of Directors in November 2018) Risk Committee of the Executive Management Team
and underlying policies and procedures, Ker-
→ ensure the introduction and implementation of the risk
nel monitors and assesses its risk exposures CEO
management policy and procedures;
on an ongoing basis and takes steps to mini- → owner of the risk management
→ develop and continuously improve an effective risk
mize their impact. process for the Company as a
management and monitoring system, spreading the
whole;
culture of decision-making in terms of risks, their valu-
Key roles → responsible for implementing
ation and likelihood of occurrence;
The Company’s risk management is realized the risk management strategy
→ coordinate roles and participants;
and functioning of the effective
by the Board of Directors, executive manage- → identify, assess, manage and control key risks;
risk management system.
ment team and other management and staff, → coordinate updating and improvement of the internal
which starts from the strategy development control system.
and impacts all activities and processes of the
Company. These activities aim at risk identifi-
cation and risk management, in order to pro- Directors and executives Internal Audit
risk owners within their functional duties → assess the adequacy and effectiveness of risk
vide reasonable assurance of the Companies’
→ Identification of risks; management processes and internal controls in
goals achievement. Please see details at Key → Assessment of risks; operations;
roles and duties in the risk management pro- → Making and implementing deci- → assist Directors on operational risk identification,
cess chart. sions on risks mitigating actions. assessment and prioritization in operations;
→ implementation, status monitoring, internal con-
Risk management cycle trols and mitigation activities of action plan of op-
The risk management cycle includes 5 stages: erational risks;
risk identification; risk assessment and priori- → assist, advice and consult management in im-
tization; planning of risk management actions; proving the effectiveness of risk management
actions implementation; measurement, con- and internal control systems in operations.
trol and monitoring. ………………………………………………………………………………………………………………………………………................
Kernel’s risk identification and mitigation system
Risk categories
The management classifies all risks under 5
categories:
1. Strategic (Business)
2. Operational 1 Risk assessment
and prioritization
3. Financial
4. Regulatory Risk identification
5. Sustainability 2
Top-10 risks identified for FY2020 includes
risks from Strategic (Business) and Opera- Risk management
tional categories. 5 Risk
cycle mitigation plan
Risk manage- development
ment process and execution
enhancement

3
4 Monitoring of
plan execution

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 30
 Strategic Corporate Financial
Report Sustainability Governance Statements

Risk management continued

Top-10 risks As a result of the latest review cycle, the

This section includes a summary of the main Board approved Top-10 risks faced by the
risks that Kernel may face during the normal Group for FY2020 as depicted on chart below.
course of its business. However:
• this section does not purport to contain an Key changes for FY2020 Top-10 risks
exhaustive list of the risks faced by Kernel against FY2019 Top-10 risks are:
and Kernel may be significantly affected → Increased probability of risks related to
by risks that it has not identified or consid- Trade position management due to 1)
ered not to be material; expected increases in grain export vol-
umes in FY2020 following the commis-
• some risks faced by Kernel, whether they
sioning of TransGrainTerminal, and 2)
are mentioned in this section or not, may
Avere operations;
arise from external factors beyond Ker-
→ Higher estimated probability of fraudu-
nel’s control;
lent activities risk due to increased vol-
• where mitigations are mentioned in this
umes of grain stored on 3rd-party silos as
section, there is no guarantee that such
a result of expected growth in grain export
mitigations will be effective (in whole or in
volumes from Ukraine in FY2020;
part) to remove or reduce the effect of the
→ New top-10 risk: failure to properly inte-
risk;
gration and manage new business (grain
• investors may face other risks when deal-
railcars).
ing with Kernel securities (shares and
bonds).

………………………………………………………………………………………………………………………………………..........................................................................................................................
Kernel FY2020 Top-10 risks Top-10 risks matrix

Strategic (Business) Operational Change

New risks
risks risks y-o-y
Strategic (Business) risks:
Severe

1. Weak harvest in Ukraine

2. Low global soft commodities prices

Operational risks: 1
Moderate Medium Major

3. Trade position management issues

2
Risk impact

4. Fraudulent activities
5. Investment projects issues 3
6. Crop loss due to late harvesting 4
7. New business management issues (railcars) 5
8. Failure to maintain the integrity of the leasehold
farmland bank
6
9. General IT and information security risks 9 8 7
Minor

10. Human capital risks 10

Very low Low Medium High Very high
Risk Probability

Other risks identified by the Company’s management include (but are not limited to):
→ Increase in competition;
→ Compliance with environmental standards;
→ A prolonged period of weak economic growth, either globally or in the Company’s key markets;
→ Economic policy, political, social, and legal risks and uncertainties in certain countries 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 result 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 reputational harm, both
at operating subsidiaries and in joint ventures; and
→ The risk that Kernel Holding S.A.’s insurance policies may provide inadequate coverage.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 31
 Strategic Corporate Financial
Report Sustainability Governance Statements

Risk management continued

Kernel FY2020 Top-10 risks and mitigating factors

Risk Possible impact Mitigating factors
1. Weak har- • Subdued Farming segment EBITDA as a → Diversified land bank (in northern, central and western regions of
vest in Ukraine: result of reduced total tonnage harvested due Ukraine) reduces to some extent the overall Farming segment expo-
low crop yields to unfavorable weather conditions while un- sure to weather risks;
for Kernel farm- changed cost base. → Insurance of winter crop related costs, and insurance against limited
ing business rainfalls and soil moisture content on some of our fields.
1. Weak har- • Lower capacity utilization of Company’s → Diversified origination base:
vest in Ukraine: oilseed processing plants due to physical • Our oilseed processing plants are spread from the north-east to
sunflower seeds deficit of the seeds on the market; the south of Ukraine, with origination areas covering the whole
• Lower crushing margins due to higher sunflower seed growing belt in Ukraine, thus reducing our ex-
competition among crushers for the limited posure to weather volatility in any particular region. We are also
supply of oilseeds. entering Western Ukraine by constructing greenfield oilseed pro-
cessing plant there;
• Our grain procurement network cover most of the regions of
Ukraine;
→ Comprehensive data-driven procurement strategy based on re-
gional supply-demand balances composed from the official statistics,
market consensuses, inputs from our farming and procurement
1. Weak har- • Lower profitability of grain export value teams, examination of crop conditions by monitoring of the satellite
vest in Ukraine: chain (underutilized infrastructure capacities images, analysis of competitors and logistics bottlenecks;
grain or depressed margins) given that major por- → Pre-crop financing of 3rd-party farmers conditional upon obligatory
tion of our grain export volumes will be origi- sale of future harvest (sunflower seeds and grain) to Kernel, thus
nated from 3rd-party farmers. covering part of our needs;
→ Volumes provided by our own farming production (~10% of sun-
flower seeds we process and almost half of grain we export);
→ “Open Agribusiness” platform serves to share our farming know-
how with 3rd-party farmers (thus increasing their productivity) and to
provide various services to crop producers (thus increasing their loy-
alty to Kernel as grain and oilseeds originator);
→ Improved control over logistics (own railcars) provides additional
flexibility in accessing crop producers across the whole country;
→ Insurance against low crop yields in key our procurement regions.
2. Low global • Undermined profitability of our Farming → Hedging grain prices: we use various hedging tools, including CME
soft commodi- segment (which is always in naturally long corn and soybean futures and options, forward contracts for Black
ties prices: position as a typical upstream type of busi- Sea origin premium and direct forward contacts. Physical delivery for-
grain ness) in case of low global grain pricing envi- ward contracts are typically used for shorter duration hedging, nor-
ronment. mally within six months.
→ Long period of crop sales: we start selling 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.
→ Detailed analysis of global soft commodity fundamentals: our
subsidiary Avere provides the insight on the global soft commodity
market, assisting us with the selection of timing and pricing of our
hedging operations.
2. Low global • Compressed margins in Oilseed Pro- → “Balanced book” policy to mitigate short-term price weaknesses.
soft commodi- cessing segment: low prices for sunflower As we buy sunflower seed on a spot basis, within a similar time-frame
ties prices: sun- oil reduce combined earnings shared by we enter into forward contracts to sell sunflower oil, thus fixing the
flower oil farmers and crushers in Ukraine in the short- selling price and volumes in advance and locking our margin. While
term, and discourage farmers from expan- this policy allows us to mitigate some portion of the risk, a certain
sion of acreage under sunflower in the long- seasonality mismatch between sunflower seed procurement and de-
term. mand for edible oils could cause our exposure to price volatility to rise
during some periods;
→ More intense procurements at the beginning of the season,
(when a huge supply of seeds post-harvest allows for negotiating
more attractive sunflower seed prices) to partially mitigate long-term
sunflower oil price weakness.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 32
 Strategic Corporate Financial
Report Sustainability Governance Statements

Risk management continued

Kernel FY2020 Top-10 risks and mitigating factors

Risk Possible impact Mitigating factors
3. Trade posi- • Losses arising from our trade position → Trade position control system. We set limits on the position (long /
tion manage- mismanagement. For example, an open po- short) and control it on daily basis, limit Value at Risk and drawdown
ment issues sition in sunflower oil may have adverse ef- to control the position of traders. We have daily reporting on traders’
fect on the Company’s earnings in case of positions/results. Contract execution and scheduling of shipments is
significant movements in sunflower oil price. centralized;
→ “Balanced book” policy (as described above).

4. Fraudulent • Losses from external frauds (e.g. theft of → Diligent analysis of suppliers and counterparties;
activities company’s grain stored on 3rd-party silos); → Extension of misappropriation assets insurance (scope, assets,
• Losses from internal frauds (e.g. theft of coverage, risks);
company’s inventories by employees, con- → Zero fraud tolerance approach is widely communicated to employ-
flicts of interests etc.). ees and counterparties, as an anti-corruption clause is a must in our
contracts with counterparties;
→ Continuous improvement of business processes:
• centralization of a warehouse system in the Farming division;
• improvement of a procurement model with additional controls;
• development of analytical procedures aimed to fraud risk identifi-
cation;
• automation of processes (including electronic documents flow);
→ improvement of access and authorization system in accounting.
5. Investment • Extra spending beyond budgets. Our key in- → Strong in-house expertise in greenfield projects execution (includ-
project issues vestments include US$ 180 million invest- ing Bandurka greenfield processing plant, Balyn, Vesnianka and
ments into construction of greenfield oilseed Lazirky silos etc.) with dedicated team of experienced professionals
processing plant in Western Ukraine, US$ to manage new projects;
150 million “green” energy projects invest- → Rigorous project management. All projects are carefully analyzed
ments, and US$ 127 million investments into and properly documented. Each project is organized by a charter of
new grain export terminal; the investment project, which defines goals, budget, delivery mile-
• Lost profits due to execution delays. stones, schedules, deadlines, project team, definition/evaluation/re-
sponse to the project risks, assessment of business case and feasi-
bility study. In case of necessity, we organize quality control of project
documentation for investment construction projects by an independ-
ent expert company. Technical specifications for new construction
projects are evaluated, amended and approved by all related busi-
ness segments;
→ Proper oversight: we have the deep involvement of the Investment
Committee and supervision from the Strategic Committee.
6. Crop loss • Partial losses of crop due to delayed har- → More intensive use of 3rd-party trucks;
due to late har- vesting as a result of unfavorable weather → Debottlenecking of our silos: we constantly work on increasing the
vesting conditions during harvesting campaigns and in-take, drying, cleaning and off-load capacities of our silos. We have
lack of capacity for crop transportation and recently commissioned construction of two greenfield silos, and sig-
storage; nificantly modernized another two silos. We also have had positive
experiences of storing grain and oilseeds in ground plastic ‘sleeve’
bags, which allows us to reduce pressure on our infrastructure during
harvest peak;
→ 3rd-party services. We have an optionality to conclude agreements
with other silos and export terminal facilities to facilitate grain and
oilseeds flow.
7. New busi- • Extra spending or lost profits due to failure → New processes, procedures, controls already in place;
ness manage- to properly integrate new grain railcar busi- → Experienced team managing the integration process.
ment issues ness, effectively organize railcars repair and
maintenance works.
8. Failure to • Reduction of Farming segment EBITDA → Paying market price for land lease;
maintain the in- due to lower acreage under operations. The → Maintaining the excellent reputation of the Company in the regions
tegrity of the Company leases the land it farms from nu- of operations. We try to positively differentiate ourselves from com-
leasehold farm- merous individual owners across Ukraine for petitors through reliability, active support of the communities, and
land bank. an average term of 9 years, but it may fail to promoting the sustainability of our farming practices. We employ ded-
prolong certain land lease agreements due to icated teams of relationship managers to the villages where we op-
growing competition for the land plots with erate, who allow us to keep direct contact with our land lessors and

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 33
 Strategic Corporate Financial
Report Sustainability Governance Statements

Risk management continued

Kernel FY2020 Top-10 risks and mitigating factors

Risk Possible impact Mitigating factors
other land operators, or due to willingness of respond to community needs;
landowners to cultivate the land themselves. → Emphyteusis agreements. For about 15 thousand hectares of land
we operate, we signed long-term land lease (‘emphyteusis’) agree-
ments, whereby all rent payments are paid to the lessor in one install-
ment at the signing of the agreement. It allows us to secure our op-
erations for a much longer period compared to typical farmland lease
contracts;
→ Rights of first refusal to extend leasehold contract (or to buy the
land once this option is available) embedded in all our land lease
agreements;
→ Public support of farmland market reform in Ukraine and acting as
an active market participant once the reform is completed.
9. General IT • The loss or disclosure of key information → Implemented IT business continuity and data recovery policy;
and infor- may threaten business operations and devel- → Multifactor authentication (MFA) and Rights Management Sys-
mation opment of business; tem (RMS) is being implemented to reduce the risk of documents,
security risks • Interruption of business processes and correspondence and other confidential data leakage;
decisions which are dependent on the con- → Regular testing of the IT recovery plan; regular vulnerability testing
tinuity of IT applications and infrastructure. from inside and outside;
→ Backup data center, constant modernization of data backup system;
→ Patch management policy – regular installations of critical and se-
curity patches on servers and workstations;
→ Special solution to combat the APT and 0-day virus attacks is be-
ing implemented.
10. Human cap- • Interruptions in business and support → Competitive compensation: the level we pay matches or exceeds
ital risk processes due to general staff shortage and the benchmark in our industries. We aim to increase further compen-
inability to replace key employees given low sation levels to successfully compete with neighboring countries
qualification of new candidates. along the way;
→ Talent management, professional development and education of
our employees. We have numerous education programs with exten-
sive coverage (page 51) and system of individual development and
career planning (page 49);
→ Safe and convenient working conditions. Improving working con-
ditions and infrastructure for staff.
→ Employee involvement through effective KPI system, responsibility
delegation, rewards for operation efficiency improvement, and team-
building events
→ 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 pro-
gram to develop and solicit new associates.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 34
 Strategic Corporate Financial
Report Sustainability Governance Statements

Alternative Performance Measures

To comply with ESMA Directive on Alternative and distribute dividends to shareholders. In- the impact of depreciation and amortization
Performance Measures (“APMs”), Kernel stead, two additional APM’s were introduced on the Group’s performance. The assets of
Holding S.A. (hereinafter “the Group”) pre- (as defined below): Operating Cash Flows the Group, which are being depreciated
sents this additional disclosure, which en- before Working Capital Changes and Free and/or amortized, will need to be replaced
hances the comparability, reliability and com- Cash Flows to the Firm. in the future and such depreciation and
prehension of its financial information. amortization expense may approximate the
cost of replacing these assets in the future.
EBITDA and EBITDA margin By excluding this expense from EBITDA
The Group presents its results in accordance The Group uses EBITDA1 as a key measure
with generally accepted accounting principles and EBITDA margin, such measures do
of operating performance, and which is de- not reflect the Group’s future cash require-
(IFRS), but nonetheless, management con- fined as profit from operating activities adding
siders that certain supplemental non-IFRS ments for these replacements;
back amortization and depreciation. • EBITDA and EBITDA margin do not reflect
measures, such as
the impact of share of income / loss of joint
• EBITDA; The Group defines EBITDA margin as ventures, which are accounted under equity
• EBITDA margin; EBITDA divided by revenue during the report- method;
• Segment EBITDA; ing period. • EBITDA and EBITDA margin do not reflect
• Segment EBITDA margin; the impact of foreign exchange gain/(loss),
• Investing Cash Flows net of Fixed As- Kernel Holding S.A. views EBITDA and which the Group does not consider to be
sets Investments; EBITDA margin as key measures of the part of its core operating performance be-
• Net Fixed Assets Investments; Group’s performance. The Group uses cause the main difference arise on transac-
• Operating Cash Flows before Working EBITDA and EBITDA margin in its public re- tions between entities of the Group with dif-
Capital Changes; porting, including with respect to the listing of ferent functional currencies;
• Free Cash Flows to the Firm; its equity on the Warsaw Stock Exchange. • EBITDA and EBITDA margin do not reflect
• Debt Liabilities; The Group believes that these measures bet- the impact of other expenses; as such ex-
• Net Debt; ter reflect the Group and its subsidiaries’ core penses are not a part of Group’s core oper-
• Readily Marketable Inventories; operating activities and provide both manage- ations.
• Adjusted Net Debt; and ment and investors with information regarding
• Adjusted Working Capital; operating performance, which is more useful
(together, the ‘Alternative Performance for evaluating the financial position of the
Measures’) provide investors with a supple- Group and its subsidiaries than traditional
mental tool to assist in evaluating current busi- measures, to the exclusion of external factors
ness performance. unrelated to their performance.

The Group believes the Alternative Perfor- EBITDA and EBITDA margin have limitations
mance Measures are frequently used by se- as analytical tools, and investors should not
curities analysts, investors and other inter- consider these measures in isolation or in any
ested parties in evaluating companies in the combination with Non-IFRS Measures as a
Group’s industry. The Alternative Perfor- substitute for analysis if the Group’s operating
mance Measures have limitations as analyti- results as reported under IFRS. Some of
cal tools, and investors should not consider these limitations are as follows:
any of them in isolation or any combination of • EBITDA and EBITDA margin do not reflect
them together as a substitute for analysis of the impact of finance costs, which signifi-
the Company’s operating results as reported cance reflect macroeconomic conditions
under IFRS. Other companies in the industry and have little effect on the Group’s operat-
may calculate these Alternative Perfor- ing performance;
mance Measures differently or may use them • EBITDA and EBITDA margin do not reflect
for different purposes than Kernel Holding the impact of taxes on the Group’s operat-
S.A, limiting their usefulness as comparative ing performance;
measures. Each of the Alternative Perfor- • EBITDA and EBITDA margin do not reflect
mance Measures is defined below.
…………………………………………………………………………………………………………………………………………………...

Before FY2019, the Group used to report such Reconciliation of profit before income tax to EBITDA and EBITDA margin:
APMs as Funds from Operations and Free
Cash Flows, but since FY2019 the Group in thousand US$ except the margin FY2018 FY2019
consider these metrics as not relevant any- Profit from operating activities 139,565 269,207
more, being distortive going forward. The first add back:
APM included purchases of property, plant Amortization and depreciation 82,975 76,303
and equipment distorting the operating cash EBITDA 222,540 345,510
generation capacity of the Group given the
current heavy CapEx cycle for the Group. The Revenue 2,403,003 3,992,133
second APM included dividends paid, thus EBITDA margin 9.3% 8.7%
distorting the cash flow available to repay debt

1
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

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 35
 Strategic Corporate Financial
Report Sustainability Governance Statements

Alternative Performance Measures continued

…………………………………………………………………………………………………………………………………………………...
Segment EBITDA and Segment
Calculation of Segment EBITDA and Segment EBITDA margin:
EBITDA margin
The Group uses Segment EBITDA and Seg- in thousand US$ FY2018 FY2019
ment EBITDA margin as a key measures of Oilseed Processing
segment operating performance. The Group Profit from operating activities 60,214 92,598
defines Segment EBITDA as profit/(loss) plus Amortization and depreciation 16,464 16,419
from operating activities adding back amorti- Segment EBITDA 76,678 109,017
zation and depreciation. Segment revenue 1,393,491 1,493,272
Segment EBITDA margin 6% 7%
The Group defines Segment EBITDA margin Trading and Infrastructure
as Segment EBITDA divided by segment rev- Profit from operating activities 91,968 92,601
enue during the reporting period. plus Amortization and depreciation 8,870 13,134
Segment EBITDA 100,838 105,735
Segment revenue 1,024,579 3,139,916
Segment EBITDA margin 10% 3%
Farming
Profit from operating activities 32,557 136,813
plus Amortization and depreciation 56,174 45,069
Segment EBITDA 88,731 181,882
Segment revenue 470,489 601,585
Segment EBITDA margin 19% 30%
Investing Cash Flows net of Other
Loss from operating activities (45,174) (52,805)
Fixed Assets Investmnets plus Amortization and depreciation 1,467 1,681
The Group uses Investing Cash Flows less
Segment EBITDA (43,707) (51,124)
Net Fixed Assets Investments as a measure
of its expenditures on investments other than
property plant and equipment and which is de- …………………………………………………………………………………………………………………………………………………...
fined as net cash used in investing activities Reconciliation of net cash used in investing activities to Investing Cash Flows net of Fixed
adding back: Assets Investments:
• purchase of property, plant and equipment;
in thousand US$ FY2018 FY2019
• proceeds from disposal of property, plant
and equipment. Net cash used in investing activities (155,694) (241,404)
Adding back:
Purchase of property, plant and equipment (146,565) (166,988)
Proceeds from disposal of property, plant and equipment 7,053 9,754
Net Fixed Assets Investments Investing Cash Flows net of Fixed Assets Investments (16,182) (84,170)
The Group uses Net Fixed Assets Invest-
ments as a measure of its expenditures on …………………………………………………………………………………………………………………………………………………...
fixed assets maintenance and which is de- Reconciliation of net cash used in investing activities to Net Fixed Assets Investments:
fined as net cash used in investing activities
less Investing Cash Flows net of Fixed As- in thousand US$ FY2018 FY2019
sets Investments or alternatively may be cal- Net cash used in investing activities (155,694) (241,404)
culated as cash used for purchase of prop- less:
erty, plant and equipment less proceeds from Investing Cash Flows less Net Fixed Assets Investments (16,182) (84,170)
disposal of property, plant and equipment. Net Fixed Assets Investments (139,512) (157,234)
…………………………………………………………………………………………………………………………………………………...
Operating Cash Flows before Reconciliation of net cash generated by operating activities to Operating Cash Flows before
Working Capital Changes Working Capital Changes:
The Group uses Operating Cash Flows as a
measure of the cash generation of its core in thousand US$ FY2018 FY2019
business operations and which is defined as Net cash generated by operating activities 82,477 198,650
net cash generated by operating activities less Less:
changes in working capital, including: Changes in working capital, including: (31,235) (93,897)
• change in trade and other accounts receiv- Change in trade and other accounts receivable (7,902) (131,516)
able; Change in prepayments and other current assets (52,382) (13,706)
• change in prepayments and other current Change in restricted cash balance 3,251 538
assets; Change in taxes recoverable and prepaid 3,273 441
• change in restricted cash balance; Change in biological assets 1,675 18,779
• change in taxes recoverable and prepaid; Change in inventories 9,866 (24,160)
• change in biological assets; Change in trade accounts payable 19,049 60,055
• change in inventories; Change in advances from customers and other current liabili- (8,065) (4,328)
• change in trade accounts payable; and ties
• change in advances from customers and Operating Cash Flows before Working Capital Changes 113,712 292,547
other current liabilities.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 36
 Strategic Corporate Financial
Report Sustainability Governance Statements

Alternative Performance Measures continued

…………………………………………………………………………………………………………………………………………………...
Free Cash Flows to the Firm
Calculation of Free Cash Flows to the Firm:
The Group uses Free Cash Flows to the
Firm as a measure of the cash generation of in thousand US$ FY2018 FY2019
its core business operations and which is de- Net cash generated by operating activities 82,477 198,650
fined as sum of net cash generated by operat- Net cash used in investing activities (155,694) (241,404)
ing activities and net cash used in investing
Free Cash Flows to the Firm (73,217) (42,754)
activities.
…………………………………………………………………………………………………………………………………………………...
Readily Marketable Inventories The following table shows the Group’s key inventories considered eligible for RMI by type and
The Group uses Readily Marketable Inven- the amounts of such inventory that the Group treats as RMI as at the periods indicated:
tories (hereinafter ‘RMI’), as an additional
measure of its liquidity, which the Group uses
to provide a supplemental tool to assist man- As of 30 As of 30
agement and investors in evaluating current in thousand US$ June 2018 June 2019
business performance and in calculating Sunflower oil & meal 217,878 124,797
credit ratios under certain of the Group’s fi- Sunflower seed 57,599 103,661
nancing arrangements. The Group defines Grains 49,031 63,239
RMI as agricultural inventories, such as corn, Other 43,945 65,914
wheat, barley, soybean, sunflower seed, meal Total 368,453 357,610
and oil, which the Group treats as readily con- of which: Readily Marketable Inventories 325,164 293,437
vertible into cash because of their commodity
characteristics and widely available markets
and international pricing mechanisms, carried
at cost.

Factors which the Group considers when clas-

sifying inventory as RMI include whether there …………………………………………………………………………………………………………………………………………………...
is an ascertainable price for the inventory es- Calculation of Debt Liabilities, Net and Adjusted Net Debts as at the dates indicated:
tablished via international pricing mechanism; As of 30 As of 30
whether there are widely available and liquid in thousand US$ June 2018 June 2019
markets for the inventory; if the pricing and Bonds issued 494,796 496,051
margins on the inventory are hedged through Interest on bonds issued 17,949 17,949
forward sales and can be identified and appro- Long-term borrowings 2,812 63,680
priately valued; if there is stable and/or pre- Current portion of long-term borrowings 2,811 1,233
dictable end-user demand for the inventory;
Short-term borrowings 224,773 183,692
and whether the inventory is not perishable in
Obligations under finance lease 7,710 5,230
short-term.
Current portion of obligations under finance lease 3,236 2,484
Debt Liabilities 754,087 770,319
Debt Liabilities less: cash and cash equivalents 132,018 76,801
The Group uses three metrics as the measure Net Debt 622,069 693,518
of its leverage and indebtedness, which con- less: readily marketable inventories 325,164 293,437
sists of Debt Liabilities, Net Debt and Ad-
Adjusted Net Debt 296,905 400,081
justed Net Debt. The Group defines Debt Li-
abilities as the sum of:
• bonds issued;
• interest on bonds issued;
• long-term borrowings;
• current portion of long-term borrowings;
• short-term borrowings; and
• obligations under finance lease (including …………………………………………………………………………………………………………………………………………………...
current portion). Reconciliation of total current assets to Adjusted Working Capital as at the dates indicated:
The Group defines Net Debt as Debt Liabili- As of 30 As of 30
ties less cash and cash equivalents. Finally, in thousand US$ June 2018 June 2019
the Group defines Adjusted Net Debt, as Net
Total current assets 1,204,269 1,256,432
Debt less readily marketable inventories.
less:
Cash and cash equivalents 132,018 76,801
Adjusted Working Capital Assets classified as held for sale 14,689 2,079
The Group uses Adjusted Working Capital Total current liabilities 475,516 479,760
as a measure of its efficiency and short-term
add back:
liquidity and which is defined as current assets
Short-term borrowings 224,773 183,692
(excluding cash and cash equivalents, and as-
Current portion of long-term borrowings 2,811 1,233
sets classified as held for sale) less current li-
Current portion of obligations under finance lease 3,236 2,484
abilities (excluding short-term borrowings,
Interest on bonds issued 17,949 17,949
current portion of long-term borrowings, cur-
rent portion of obligations under finance lease Adjusted Working Capital 830,815 903,150
and interest on bonds issued).

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 37
 Strategic Corporate Financial
Report Sustainability Governance Statements

Alternative Performance Measures continued

The Management believe 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 are
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 amortiza- EBITDA is the main metric used by management of the Group to
tion and depreciation. measure operating performance. It is also widely used by inves-
tors when evaluating businesses, and by rating agencies and
creditors to evaluate the leverage.
EBITDA margin EBITDA divided by revenue during the reporting pe- EBITDA margin is a metric widely used to measure profitability
riod. of Group's operations.
Segment EBITDA Segment profit from operating activities adding back EBITDA is the main metric used by management of the Group to
amortization and depreciation. measure segment operating performance.
Segment EBITDA Segment EBITDA divided by segment revenue during Segment EBITDA margin is a metric widely used to measure
margin the reporting period. profitability of Group's segment operations.
Investing Cash Net cash used in investing activities adding back pur- As the Group grew and developed through acquisitions, this APM
Flows net of chase of property, plant and equipment, and proceeds helps to monitor the M&A and other investing activities of the
Fixed Assets In- from disposal of property, plant and equipment. Group.
vestments
Net Fixed Assets Net cash used in investing activities less Investing The Group is executing a solid investment program as a part of
Investments Cash Flows net of Fixed Assets Investments. Strategy 2021, and fixed assets investment is an important
measure to monitor capital expenditure as a part of the execution
of investment program.
Operating Cash Net cash generated by operating activities less The Group uses this APM as a pre-working capital measure that
Flows before changes in working capital activities, including: reflects Group’s ability to generate cash for investment, debt ser-
Working Capital • change in trade and other accounts receivable; vicing and distributions to shareholders.
Changes • 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.
Free Cash Flows Sum of net cash generated by operating activities and The Group uses this APM as it reflects the cash generating ca-
to the Firm net cash used in investing activities. pability of the Group to repay debt and distribute dividends to
shareholders.
Readily Agricultural inventories, such as corn, wheat, barley, The Group uses this APM as an additional measure of its liquid-
Marketable soybean, sunflower seed, meal and oil. ity, which the Group uses to provide a supplemental tool to assist
Inventories management and investors in evaluating current business per-
formance and in calculating credit ratios under certain of the
Group’s financing arrangements.
Debt Liabilities Sum of bonds issued, interest on bonds issued, long- The Group uses this APM, as it is a useful measure of the lever-
term borrowings, current portion of long-term borrow- age of the Group, which is widely used by credit investors and
ings, short-term borrowings; and obligations under fi- rating agencies.
nance lease (including current portion).
Net Debt Debt Liabilities less cash and cash equivalents. 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 in-
vestors and rating agencies.
Adjusted Net Net Debt less readily marketable inventories. The Group uses this APM as a supplemental measure of the
Debt Group’s liquidity, which shows the amount of Debt Liabilities not
covered by cash and readily marketable inventories (highly liquid
inventories).
Adjusted Current assets (excluding cash and cash equivalents, The indicator of working capital is important for the Group, as the
Working and assets classified as held for sale) less current lia- Group is involved in trading and processing activities and hold
Capital bilities (excluding short-term borrowings, current por- large volumes of inventories on the balance. The Group also in-
tion of long-term borrowings, current portion of obliga- vests in business expansion, which needs working capital invest-
tions under finance lease and Interest on bonds is- ments to increase efficiency. It is useful for users and investors
sued). because measure of both a company’s efficiency and its short-
term financial health. It also helps management to keep a busi-
ness operating smoothly and meet all its financial obligation
within the coming year.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 38
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability

We are committed to decoupling of the growth in production

of food for the growing world population from ever-greater
use of resources and environmental degradation.
Our approach
One of the major challenges the world faces is to Social spending in FY2019
feed a constantly growing population (+2 billion of
people to feed by 2050) while envisaging arable
land per capita reduction by 25% from 2020 to
US$ 2.3 million
2050, as per FAOSTAT expectations. We at Kernel -6% y-o-y
aim to contribute to the solution of this challenge in
a sustainable way.
Energy consumption
Our approach to sustainable development is under-
pinned by principles stated in the Group’s Code of
Conduct and embedded throughout every level of
6,857 terajoules
our company. We aim to efficiently produce best -2% y-o-y
quality products with the lowest possible consump-
tion of resources and in strict compliance with reg-
ulatory, safety and product quality standards, thus Agenda for FY2020
minimizing our environmental footprint. As the larg- In the next year, we plan to join the UN Global Com-
est crop producer in Ukraine, we not only follow the pact (the world’s largest corporate sustainability ini-
best sustainable long-term agronomy practices our- tiative), thereby declaring the company’s commit-
selves, but also seek to move the whole industry ment to implement 10 universal principles on human
into a sustainable direction by sharing our valuable rights, labor, environment and anti-corruption. To-
experience with other farmers. Finally, we strive to gether with that, we plan to integrate UN Sustaina-
remain the best employer for our people and a reli- ble Development Goals into our decision-making
able contributor to local communities in the regions and reporting processes.
of our operations.
Like in FY2019, we will further strengthen our pur-
FY2019 performance suit of sustainable development by implementing
In the reporting period, we achieved the lowest ever energy efficiency projects, expanding the coverage
consumption of energy per ton of sunflower seed of our training and professional development pro-
crushed in our Oilseed Processing segment and grams, and by promoting the development of the ru-
the record low energy spent per ton of grain/oilseed ral regions where we operate with our contributions
grown in our Farming segment. We reduced direct to the development of local communities.
greenhouse gas emissions (Scope 1) and commis-
sioned the first combined heat and power plant from Aside from this, we plan to widen the sustainability
our US$ 150 million renewable energy investment agenda discussed by the Board of Directors, includ-
program. Additionally, we successfully completed ing the development and adoption of a Kernel Sus-
sustainability inspection conducted by EIB and tainability Strategy, aiming to define selected goals,
EBRD to attract over US$ 300 million long-term fi- targets and actions for our sustainability approach.
nancing, substantially reduced high-consequence
work-related injuries on group enterprises and con- For the next year, we also aim to obtain independ-
tinued to invest into the well-being of local commu- ent external assurance of our FY2020 Sustainability
nities where we operate and the development of our report. Last time we undertook a similar exercise
employees. For the recognition of our efforts, Ker- was in FY2015.
nel was included to top-20 socially responsible
companies in Ukraine by reputable local media
“Vlast Deneg”.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 39
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability highlights

……………………………………………………………………………………………………………………………………….............................................................................................................................
Key non-financial KPIs
FY2015 FY2016 FY2017 FY2018 FY2019
Total number of full-time employees 15,229 14,075 16,103 15,116 13,397
Oilseed processing 18% 17% 16% 17% 17%
Grain and infrastructure 20% 23% 22% 23% 22%
Farming 58% 55% 58% 56% 55%
Headoffice and other 4% 4% 4% 5% 6%

Total injury accidents 19 16 14 16 17

incl. fatalities 1 1 - 4 1
Injury frequency rate accidents / million worked hours 0.66 0.53 0.45 0.55 0.60

Total training expenditures thousand US$ 241 194 445 474 456
Total social spending thousand US$ 1,919 1,668 2,616 2,440 2,303
Direct (Scope 1) GHG emissions thousand tons of CO2 equivalent 236 198 232 260 234
Gross indirect (Scope 2) GHG emissions thousand tons of CO2 equivalent 76 72 80 86 88
Total energy consumption thousand gigajoules 6,000 5,095 6,499 6,977 6,857
incl. renewable thousand gigajoules 2,854 2,566 3,096 3,230 3,215
Energy spent per ton of sunflower seeds processed megajoules 1,441 1,456 1,412 1,328 1,312
Energy spent per ton-% of grain dried megajoules 63 63 68 61 67
Energy spent per ton of grain grown megajoules 854 708 630 675 546

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

Rate of recordable work-related injuries Total social spending Total energy consumption
accidents / million worked hours US$ thousand thousand gigajoules

0.66
0.60 2,616 6,977 6,857
0.55 2,440 6,499
0.53 2,303 6,000
0.45 1,919 5,095
1,668

FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019

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

Total number of employees Total training expenditures Total direct (Scope 1) GHG emission
Full-time equivalent, as of 30 June US$ thousand thousand tons of CO2 equivalent

474 456
16,103 445 260
15,229 15,116
14,075 236 232 234
13,397
198

241
194

2015 2016 2017 2018 2019 FY2015 FY2016 FY2017 FY2018 FY2019 FY2015 FY2016 FY2017 FY2018 FY2019

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 40
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued

Our approach to materiality Our core values and principles:

and report content ………………………………………………………………………………………………………………………………………………

Stakeholder inclusiveness → Efficient use of resources

Based on management’s view, media moni- → Openness to change and innovation
toring and constant interactions with stake- → Integrity
holders, the company has identified 11 stake-
holder groups (please see chart “Key stake- → Responsible leadership
holder groups and engagement channels”). → Entrepreneurial spirit
Management periodically reviews the list of → Mutual respect and trust
stakeholder groups.
This report focuses on material issues deter- materiality of shortlisted sustainability topics
We regularly engage with all identified stake- mined based on feedback obtained from em- has been assessed against two criteria: 1) in-
holder groups through various means: directly ployees and capital providers and a manage- fluence on stakeholder assessments and de-
at meetings and events, and via media, includ- rial assessment of the aspects’ importance for cisions; and 2) significance of economic, envi-
ing the corporate website, social networks and the sustainable development of the company. ronmental and social impacts. The topics with
messengers and press. Public Facebook the highest combination of scores for both cri-
group “We are Kernel!” allows us to engage Environmental and social policies and stand- teria were defined as material.
with over 7,000 people, and the corporate Tel- ards of our lenders are another valuable
egram channel communicate information to source of guidance on materiality and govern- Derived from the materiality exercise, the fol-
almost 1,000 subscribers. ance of the Group’s sustainability aspects. lowing list of topics subject to disclosure in the
Our recent capital investments into grain stor- sustainability report was approved by execu-
The Company engages with all the identified age, crushing, transshipment, and renewable tive management:
stakeholder groups, but for the purposes of energy infrastructure, envisaged by Strategy • Economic performance;
this report management considers capital pro- 2021, are co-financed by the European Bank • Indirect economic impacts;
viders (shareholders and debt providers) and for Reconstruction and Development and Eu- • Anti-corruption;
employees to be key target audiences, while ropean Investment Bank, thus all the planned • Materials;
engagement with other stakeholder groups is developments had to be structured to meet • Energy;
primarily done through other communication the requirements of Environmental and Social • Biodiversity;
channels. Policies of both institutions 1 . Binding • Emissions;
measures required to align the Strategy 2021 • Employment;
Report content activities with the policies, as well as to im- • Occupational health & safety;
In selecting the content of this section, we pur- prove the Group’s overall environmental and • Training and education;
sued an overall goal of demonstrating Ker- social management practices, have been • Local communities;
nel’s material economic, environmental, and identified in the course of a robust due dili- • Customer health and safety.
social impacts to key target audiences, using gence process, that provided us with external
the common language of GRI Standards. insights on our both strengths and areas for
improvement in terms of sustainability.
As a result of stakeholder engagement pro- Based on analysis of inputs collected from in-
cess, we identified the interests, expectations ternal and external stakeholders, the shortlist
and information needs of stakeholders we en- of sustainability topics was developed. The
gage with through this sustainability report.
………………………………………………………………………………………………………………………………………..........................................................................................................................
Key stakeholder groups and engagement channels
Kernel Social Direct External Corporate
Website Hotline Intranet Events
reports networks engagement media newspaper
Internal
Employees ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Management ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓
Shareholders ✓ ✓ ✓ ✓

External
Debt providers and rating agencies ✓ ✓ ✓ ✓
Suppliers (incl 3rd party farmers) ✓ ✓ ✓
Customers ✓ ✓ ✓
National media ✓ ✓
Local media ✓ ✓ ✓
Local communities ✓ ✓ ✓ ✓ ✓ ✓
Local officials ✓ ✓ ✓ ✓ ✓
Regulatory authorities ✓ ✓
Other engagement channels include special publications, emails, interviews, and teleconferences.

1
EIB Environmental and Social Standards; EBRD
Environmental and Social Policy

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 41
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued

…………………………………………………………………………………………………………………………………………………
GRI content index (see on page 54) summa-
rizes disclosure of the listed topics in this re-
Topic boundaries
port. Material Material
Impact Material topics Topic boundary
within Kernel outside Kernel
Notwithstanding the fact that the topic of soils Economic performance ✓ ✓ All business units
does not match exactly with the available Economic Indirect economic impacts ✓ ✓ All business units
topic-specific Standards, we have chosen to Anti-corruption ✓ ✓ All business units
disclose it, as soil properties are crucial for Farming
Materials ✓
Oilseed Processing
crop production, and can be largely influenced Environ-
Energy ✓ ✓ All business units
by the Group’s farming operations. Since the mental
Biodiversity ✓ Farming
topic relates to provision services of ecosys-
Emissions ✓ All business units
tems, GRI 304: Biodiversity Standard has Social Employment ✓ ✓ All business units
been applied for reporting on it. Occupational health & safety ✓ ✓ All business units
Training and education ✓ ✓ All business units
Similarly to soils, climate change adaptation is Local communities ✓ Farming
pivotal to Kernel’s ability to create value in fu- Customer health and safety ✓ ✓ Oilseed Processing
ture. Since no dedicated GRI standard is
available for this topic, we opted to disclose it
under GRI 305: Emissions for the reason of If not stated otherwise, boundaries for mate- • Environmental: keeping the integrity of the
interrelation between climate change and rial topics includes Kernel subsidiaries where ecosystems the Company operates in, and
GHG emissions. company has operating control. Our 50/50 Ta- minimization of the environmental footprint;
man JV in Russia is not included in the scope • Economic: reaching maximum profitability
Although not disclosed in this report, we of this Sustainability Report, as we cannot op- with the optimal usage of natural resources.
acknowledge the materiality of our impact on erate it solely for our benefit and have limited
water resources. While water consumption for control over it. For more information, please The measures taken for the Corporate Social
crop production is moderate (only 0.2% of our refer to the chart “Topic boundaries”. Responsibility and Sustainable Development
landbank is irrigated), our oilseed processing policy implementation shall be disclosed each
operations are associated with substantial wa- Key developments year in the special section of the annual re-
ter volumes and more complex water use pat- In FY2019, we approved a Corporate Social port.
terns. We realized that comprehensive disclo- Responsibility and Sustainable Development
sure of information on consumption of fresh Policy, which is publicly available on the Com- In FY2019 we slightly changed the presenta-
water, and wastewater management requires pany’s website. The policy defines the Com- tion format of the disclosure in our Sustaina-
more time and efforts than we had in our dis- pany’s goals as follows: bility section, aligning disclosure more to the
posal. Therefore, a decision was made to • Social: development of people’s potential, GRI guidance.
postpone the disclosure for FY2020. giving back to local communities, and ethi-
cal and responsible labor practices;

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 42
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued
…………………………………………………………………………………………………………………………………………………
Economic impact (GRI 200)
Economic value generated, distributed and retained (GRI 201-1)
Economic performance (GRI 201) US$ million
The ultimate goal of our strategy is to maxim- FY2015 FY2016 FY2017 FY2018 FY2019
ize shareholders’ value, which we aim to Direct economic value generated 2,406 2,053 2,207 2,481 4,030
achieve through outstanding economic perfor- Revenue 2,330 1,989 2,169 2,403 3,992
mance. Key strategic pillars behind that are a Net IAS 41 effect (7) 20 (3) 19 9
strong asset base, operational discipline and Other operating income 83 45 41 59 28
a geographic focus. We are currently under- Economic value distributed
going CapEx-heavy cycle, which is expected Operating costs (2,077) (1,766) (1,942) (2,341) (3,760)
to bring the Company’s economic perfor- of which employee wages and benefits (72) (60) (67) (103) (126)
mance to a completely new level. Economic Finance costs (69) (57) (62) (65) (82)
performance is the most important KPI for the Community investments (2) (2) (3) (2) (2)
Other costs (156) 19 (3) (22) (1)
management performance-based part of com-
Total charges (2,304) (1,805) (2,009) (2,431) (3,839)
pensation. Income tax (0) (4) (19) 6 (12)
Net income (loss) (2,305) (1,809) (2,028) (2,425) (3,851)
Total economic value retained in FY2019 Dividends paid (20) (20) (20) (20) (20)
amounted to US$ 158 million, calculated as Total economic value distributed (2,325) (1,829) (2,048) (2,445) (3,871)
direct economic value generated (US$ 4,030
million) less total economic value distributed Economic value retained 81 224 158 35 158
(US$ 3,871 million). This result more than four Data presented is calculated based on GRI recommendations using IFRS metrics on an accruals basis.
times exceeds the total economic value re-
tained in FY2018. increases fleet turnover and thus reduced
Our significant indirect economic impacts, grain transportation costs. Additionally,
among others, include: through our “Transit-Hub” solution we sim-
Being a diversified agro-industrial business in
Ukraine with leading positions across all busi- • Boosting productivity of farmers in plify access to railway logistics for some un-
Ukraine. Our farming business achieves productive silos which face difficulties when
ness segments, we have significant direct
15-40% higher crop yields than country av- shipping grain to ports, due to not being pro-
economic impact on our stakeholders in areas
erages, and since 2018 we widely share our ductive enough to load a full block train (54
of all our operations. Direct economic impact railcars) in one day. Our Transit-Hub plat-
knowledge in crop production with other
includes our purchasing of goods from suppli- form allows such silos to combine their ef-
farmers in Ukraine through the special pro-
ers, dividends paid to shareholders, wages forts in loading a single block train, thus im-
gram Open Agribusiness, designed to help
and benefits paid to our employees, financial proving their access to railway transporta-
farmers to increase their yields. We share
expenses paid to creditors, income taxes paid our knowledge: results of our agrochemical tion services, given railway logistics con-
to the public sector, and community invest- laboratories; our practices in precision straints in Ukraine.
ments, as well as economic value retained for farming, differentiated fertilizing and plant-
investments to increase the capitalization of ing, satellite and GPS-monitoring; research Combined with our efforts in food supply
the company. results from our R&D center, access to our value chain optimization, it reduces the total
RTK-stations etc. We also provide farmers cost of food, thus making it more affordable
Indirect economic impact (GRI 203) in Ukraine with a range of high-quality ser- and contributing to the achievement of #2 UN
Given the scale of our operations, we have a vices, like working capital financing, solu- Sustainable Development goal: Zero Hunger.
large indirect economic impact on some of our tions through Kernel’s #DigitalAgriBusiness
stakeholders. platform, high-quality infrastructure ser- We also contribute to the development of rural
vices and trainings. In this way we contrib- areas in Ukraine, which suffer from high pov-
We have one ambitious purpose in our ap- ute to the increase of their productivity and erty rates, by investing in infrastructure
proach: contribute to an increase of global reduction of costs of food produced. (roads, schools, hospitals, kindergartens),
food security by improving productivity and re- • Improving grain railway logistics in simplifying access to medical services, and
ducing costs along the food supply value Ukraine. Other players in grain infrastruc- contributing to local budgets as a responsible
chain we have impact on. We aim to unlock ture start widely adopting new approach taxpayer. Please see section “Local communi-
Ukraine’s potential in agriculture, thus in- “Strict schedule shipments” to grain trans- ties” for details.
creasing the number of people fed in a sus- portation, which was first introduced by Ker-
tainable way globally. nel together with the national monopoly
Ukrainian Railways in 2019. The approach
…………………………………………………………………………………………………………………………………………………………………………………………………………………………………
Sharing knowledge with other farmers in Ukraine within Kernel’s Open Agribusiness initiative

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 43
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued

Anti-corruption and anti-fraud (GRI ……………………………………………………………………………………………………………………………………………………

205) How we prevent fraud, corruption and other types of misconduct
Operating in a region with high fraud and cor- What we → Zero tolerance to any fraudulent/corrupt activities within the Company and its subsidiaries.
ruption risks and poor compliance practices, adhere to Immediate disposal of employees and immediate ban on cooperation with partners suspected
we understand all the negative impacts of cor- in prohibited practices;
ruption such as poverty, undermining the rule → Proper framework in place:
of law, misallocation of investments and the • Code of Conduct (since 2015);
danger to the environment. Kernel is dedi- • Corporate Governance Charter (since 2018) also covering compliance issues;
• Anti-corruption policy, fundamental document for our compliance system developed in
cated to imposing proper control and preven-
accordance with the requirements of the anti-corruption legislation of Ukraine, the US For-
tion mechanisms to reduce the risks of mis- eign Corrupt Practices Act (FCPA) and the UK Bribery Act (UKBA), the Convention on Com-
conduct in areas of all our operations. bating Bribery of Foreign Public Officials in International Business Transactions (the ‘OECD
Convention’), as well as the anti-corruption legislation of the countries in which Kernel oper-
Our approach in this area is presented in the ates;
box at right “How we prevent fraud, corruption → Tone at the Top initiative coming from the Board of Directors and Executive Management
and other types of misconduct”. In three years, Team;
we managed to create a comprehensive com- How we → Anti-corruption clause in all Kernel agreements and tendering processes (since 2017);
pliance system to minimize the risks of mis- do it → Code of Interaction with Suppliers (since 2019). We require all our suppliers to follow the prin-
conduct, which was recognized by our financ- ciple of strict legality, treatment of associates, environmental protection, business relations,
and compliance with Corporate Code;
ing providers EIB and EBRD and by independ-
→ In-depth documented due diligence during KYC procedure, conducted by a security service
ent compliance auditor Baker Tilly. and compliance officer;
→ Conflict of interest annual declaration procedure for over 5,000 participants in FY2019, with
As an ultimate punishment measure for fraud- results carefully analyzed for risks and possible settlements;
ulent and corrupt activities, we dismissed 296 → Business gifts and hospitality rules (since 2018) prohibiting presents and attendance of
employees in FY2019, disclosing such cases events that may influence business decision-making; e-register of business gifts and hospitality
to other employees as a preventive measure. implemented;
→ Channels for informing on misconduct:
Equal treatment here is applied to all employ-
• 24 / 7 / 365 toll-free hotline (0-800-501-483) allowing anonymous calls. We received 110
ees: top-managers, white and blue collars. calls reporting misconduct in FY2019 (up 29% y-o-y);
• Form on company’s website (since June 2019)
For FY2020, we plan to further focus on inte- • Special e-mails: [email protected] and [email protected];
gration of compliance into company opera- We have whistleblower protection mechanism in place, managed by compliance officer;
tions and introduce a compliance risk-man- → Diligent additional screening during the employee selection process (including Compliance
agement system. officer involvement if needed), with specific attention paid to the employment of former govern-
ment officials;
→ Regular assessment of risks covering conflicts of interest, bribes, charitable contributions
Environmental impact (GRI 300) and sponsorships, gifts, hospitality.
Operations and products of farming, grain pro- → Increasing compliance-culture awareness among employees:
cessing and storage, crushing, and transpor- • Trainings and e-courses (over 1,500 employees attended off-line trainings, all new em-
tations have inherent elements that interact ployees go through on-line trainings);
with the environment – environmental as- • Regular e-mail distributions;
pects. The use of chemicals, emissions into • Promo materials and warnings on the company website, intranet portal (with FAQ on the
topic), corporate media, infodesks at company’s assets, 5,000 printed anti-corruption man-
atmosphere, water consumption and uals;
wastewater discharge, if improperly managed, • Surveys among employees on compliance understanding. According to the results of in-
can cause adverse impacts on natural envi- ternal survey conducted in FY2018, all our employees are informed about rules and princi-
ronment and public health. ples of Code of Conduct and Anti-corruption Policy, and 99.9% them know how to report
fraud and corruption;
To avoid adverse impacts, Kernel undertakes • Compliance promo-activities in external and internal media and conferences.
management measures commensurate to sig- → Compliance officer always available for providing assistance in case of disputable situations.
nificance of identified aspects. Resources are course of FY2020. providing logistics services, not consuming
allocated for functioning and professional de- materials to any large extent.
velopment of the Group’s Environmental De- Materials (GRI 301)
partment of 10 full-time employees at Storage, Materials is an important topic for us and our Main non-renewable materials consumed by
Oilseed Processing, and Transshipment busi- stakeholders to assess the environmental im- Kernel include mineral fertilizers and crop pro-
nesses. Environmental aspects of farming are pact of Kernel operations. Our approach to tection agents used by our farming business,
covered by the scope of Environment, Health materials is guided by the principle stated in and solvents and plastic packaging consumed
and Safety professionals work. the group’s Code of Conduct: we strive to min- by our Oilseed Processing segment.
imize the usage of resources and industrial
Being associated with relatively higher envi- waste. To implement this principle, we seek Key renewable materials embrace sunflower
ronmental risks, all but one our crushing options to avoid the use of materials, to reuse, seeds and cardboard packaging in our oilseed
plants implemented the requirements of the or to recycle it, and promote the use of renew- processing, and organic fertilizers and seeds
ISO 14001 standard, which specifies require- able raw materials. for farming business. Seed usage varies
ments for an effective environmental manage- based on shifts in crop mix and technology.
ment system. We periodically train our envi- Our impact occurs mostly in our Oilseed Pro- For example, wheat planting requires 0.2 tons
ronmental specialists under this standard. For cessing and Farming segments, whereas our per hectare, while corn planting requires 0.02
one of our crushing plants, we aim to imple- Infrastructure and Trading segment is a ser- tons per hectare of the respective seeds. Sim-
ment the ISO 14001 requirements over the vice-type business of re-selling grain and ilarly, fertilizer usage varies because of

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 44
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued
…………………………………………………………………………………………………………………………………………………
changes in technology and the variety of avail- Principal materials used (GRI 301-1)
able fertilizers with different nitrogen, phos- thousand tons
phorus and potassium content. FY2015 FY2016 FY2017 FY2018 FY2019
Non-renewable materials
We internally source a substantial portion of Fertilizers (mineral) 128.0 146.0 171.0 179.7 213.4
renewable materials used in farming, like Crop protection agents 1.8 1.8 2.3 2.3 3.3
seeds and wastes from cattle farming busi- Solvents used in oilseed processing 1.1 1.2 1.1 1.3 1.2
Packaging for bottled sunflower oil 2.8 1.5 3.9 3.3 3.7
ness used as organic fertilizers.
Renewable materials
Roughly 3% of our produce is packaged and Sunflower seeds (from external suppliers) 2,351.1 2,037.7 2,489.2 2,824.7 2,738
labeled (measured by tonnage), while the Sunflower seeds (sourced internally) 171.7 170.7 242.8 311.1 426.0
greater part of our produce is sold in bulk. For Packaging for bottled sunflower oil 2.2 2.3 3.3 3.0 3.1
packaged items, we strictly follow the national Fertilizers (organic, sourced internally) 132.1 122.4 67.0 40.0 136.1
regulations for which the product is destined. Seeds for farming (sourced internally) 20.5 34.0 32.0 32.9 46.5
Typically, labeling is subject to a three-phase Seeds for farming (from external suppliers) 5.5 8.0 5.7 11.6 9.9
control and requires an authorized lab or third- The data excludes Infrastructure and Trading segment, which primarily provides services. Fuel volumes are excluded from the
party issued verification for any information calculation and are presented in a separate disclosure.
exhibited on the markings.
…………………………………………………………………………………………………………………………………………………
Energy consumption (GRI 302-1)
Energy consumption (GRI 302) terajoules
As an agro-industrial holding, Kernel has a FY2015 FY2016 FY2017 FY2018 FY2019
significant impact on the environment and Non-renewable fuel consumed 2,459 1,923 2,647 2,928 2,835
economy through energy consumption. By Natural gas 774 549 1,108 1,044 899
boosting the energy efficiency of our opera- Diesel, gasoline 1,682 1,370 1,537 1,884 1,936
Other non-renewable 4 3 2 0 0
tions and producing renewable energy we Renewable fuel consumed 2,854 2,566 3,096 3,230 3,215
minimize our adverse impacts and contribute Electricity consumed 732 652 798 853 844
to the global climate change mitigation effort. Renewable energy produced and sold 45 46 42 34 37
Electricity 32 35 41 34 37
In FY2019, Kernel consumed 6,857 terajoules Heating 13 10 1 - -
Total energy consumption 6,000 5,095 6,499 6,977 6,857
of energy, 1.7% down y-o-y, a sizable part of
which comes from fossil fuels, thus resulting by division
in GHG emissions. Although the largest share Oilseed Processing 3,635 3,068 3,859 3,877 3,852
of consumed energy (56% of the group’s total Infrastructure and Trading 803 603 1,162 1,224 1,110
Farming 1,522 1,392 1,445 1,847 1,867
consumption) was associated with operations
Other 41 32 33 29 29
of Oilseed Processing business, over 80% of
this energy came from renewable biomass by country
fuel (sunflower seed husk). Our Farming seg- Ukraine 5,720 5,094 6,496 6,977 6,857
ment’s share of 27% derived from diesel and Russia 280 1 3 - -
gasoline consumed by machinery for field Energy intensity (GRI 302-3)
works. Finally, the Infrastructure and Trad- megajoules
ing businesses consumed 16% of total en-
ergy, using natural gas for grain drying ser- Energy spent per ton of sunflower seed crushed 1,459 1,408 1,428 1,340 1,325
Energy spent per ton-% of grain dried 63 63 68 61 67
vices and electricity for machinery and equip-
Energy spent per ton of grain grown 854 708 630 675 546
ment powering.
Only energy purchased from external suppliers is included in energy consumption. Energy generated and consumed internally
In our farming business, we continuously up- is excluded. Additionally, energy consumption figures exclude heating purchased from third-party suppliers due to the non-ma-
grade our machinery fleet every 5-6 years with teriality of volumes.
more powerful and larger size vehicles from The volumes of natural gas and diesel fuel used for energy production are measured by equipment installed at each point of
recognized global suppliers, providing higher consumption. The volumes of diesel fuel, petroleum and liquefied natural gas used in automobiles and agricultural machinery
capacity and a lower specific consumption of are calculated based on the actual fuel consumption by each unit of machinery. The volume of sunflower seed husk used to
generate steam and electricity is accounted based on records from scales installed at each point of husk consumption. Electricity
fuel. Along with hardware improvement, we purchased and used is measured by metering devices.
constantly raise the efficiency of our opera-
tions. GPS trackers installed in all our fuel-in- Energy sold includes heating and electricity produced from sunflower seed husk burned at boilers located at our oilseed crushing
plants. The volume of electricity sold is measured by equipment connected to the country’s electricity grid. Heating sold is meas-
tensive fleet allow us to better monitor the ac- ured based on the volume of hot water supplied to external consumers and is measured by equipment installed at the point of
tual fuel consumption and to run some ma- consumption. All noted measuring equipment is certified and regularly checked for accuracy by independent external experts.
chinery in auto-pilot mode for better execution The conversion of energy into joules is made using conversion factors sourced from GHG Protocol; Collection of emission indi-
cators (specific emissions) of pollutants into the air by different productions (tome 1) prepared by Ukrainian Research Center for
of production technology implying lower fuel Technical Ecology (Donetsk, 2004); Methodology of the State Statistic Service of Ukraine.
intensity. A fuel consumption remote monitor-
ing system, widely applied by our farming efforts in the optimization of business pro- Sunflower seed husk, the crushing process’
companies, eliminates thefts of diesel. cesses, and partially results from record crop byproduct, is the only fuel used. The produced
yields achieved in FY2019. steam is consumed mainly for technology pur-
In FY2019, we achieved the lowest ever en- poses, while at one of the plants it is also sent
ergy spent per ton of grain grown in our farm- In Oilseed Processing segment, all our to a turbine to produce electric energy. The
ing business, which partially reflects our crushing plants operate biomass fired boilers. surplus of electricity is supplied to the national

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 45
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued

grid. In FY2019, this combined heat and opposed to the short-term profit seeking. Our Emissions (GRI 305)
power (CHP) unit has converted 181 thou- key target in sustainable farming is long-term The Group’s operations are associated with
sand tons of sunflower husk into 552 thou- soil productivity based on the following pillars: emissions of carbon dioxide (CO2), methane
sand gigacalories of heat for production pur- • Maintaining proper soil nutrients. We fol- (CH4), nitrous oxide (N2O) - collectively re-
poses and 10.3 million kWh of electricity (sold low the balanced crop rotation practice en- ferred as greenhouse gases (GHG), and other
to 3rd parties), saving 11 thousand tons of suring proper replenishment of nutrients in substances such as carbon monoxide (CO),
greenhouse gases (CO2 equivalent). the soil and apply appropriate fertilization to nitrogen oxides (NOX), sulfur dioxide (SO2),
restore nutrients absorbed by the crops. PM, and hydrocarbons.
In order to upscale production of renewable Once per 3-4 years (in line with our crop ro-
energy, we are investing US$ 150 million to tation cycle) we analyze the quality of soils While the impacts of GHG are mainly per-
become the largest Ukraine producer of en- at our fully equipped technological labora- ceived indirectly, through manifestations of cli-
ergy from biomass with 94MW installed elec- tory, and adjust our crop mix plans, produc- mate change, other emissions have more
tricity generation capacity (see “Case study: in- tion technology and fertilization practices if straightforward effect on human health and
vestments into green energy generation”). The needed;
ecosystems. We acknowledge our share of
first 6 MW CHP unit has already been in- • Preventing soil erosion. Depending on responsibility for these impacts and strive to
stalled, 40 MW are expected to be commis- crop cultivated, land location and soil pat-
minimize emissions. In line with mitigation hi-
sioned in FY2020, and the remaining 48 MW tern, we carefully select proper tillage tech-
erarchy, we prefer prevention over end-of-
nology to minimize soil erosion. For lands
to be launched in FY2021. pipe treatment. Resource efficiency is our key
with soil erosion risk we implement soil-pro-
tective measures and adjust crop mix re- preventive strategy.
As a result of our efforts, a new record was
spectively. Additionally, we leave straw on
achieved in our crushing business in FY2019, the fields after the harvesting as it serves A large share of emissions stems from our en-
when we spent just 1,312 megajoules of en- the organic fertilizer and prevents soil ero- ergy consumption. Although nearly 50% of our
ergy to crush 1 ton of sunflower seeds, our sion; current energy needs are already covered
lower rate ever. • Integrated pest management system, with renewable energy from biomass (which
which ensures thresholds are set for any significantly reduces our GHG emissions), we
Biomass energy is also harnessed at our Ko- pest control actions, and cultural methods keep investing in measures for rising effi-
nonivka grain storage facility. The investment aimed at reducing the exposure of plants to ciency and corresponding decrease of emis-
of US$ 200 thousand has enabled replacing a infection are applied prior to the use of pes- sions, as described in the chapter Energy con-
diesel heat generator with 4 MW biomass- ticides. We comply with all applicable pesti- sumption (GRI 302) above.
fired dryer consuming the site’s by-products. cides regulations and use only those crop
The expected payback period is 5 years. In protection agents, which are authorized for Where prevention is not feasible, treatment
Silo business, we increased energy consump- the use in Ukraine. We do not apply prod- equipment is applied: boilers at all our crush-
tion per ton-% of grain dried due to the low hu- ucts forbidden by the Stockholm Conven- ing plants (but one plant – installation planned
midity of the crops this season compared to tion on Persistent Organic Pollutants and/or for 2021) are equipped with electrostatic filters
the previous one. products listed in Annex 3 of the Rotterdam highly efficient (95-98%) in capturing PM. All
Convention. Any new substances are first grain handling installations at storage silos
Biodiversity (GRI 304) tested on our inspection fields, and only and transshipment terminals are equipped
Modern agriculture has enabled food produc- then widely adopted in our production pro- with cyclone filters. By 2021 several boilers
tion to increase dramatically, contributing cess. Pesticides are stored in certified stor- will receive selective non-catalytic reduction
much to improving food security and reducing ages, subject to annual inspection by Sani- equipment to lessen nitrogen oxide emis-
tary Authority. Proper disposal of the empty
poverty. However, these improvements, if im- sions.
containers is controlled.
properly managed, may be associated with
adverse impacts on natural environment and All stationary sources of emissions in Ukraine
The key waste produced by our farming seg-
specifically on biodiversity. Globally, defor- are subject to permitting procedure that en-
ment is straw. We leave it on our fields after
estation and other forms of land-use conver- compasses emissions inventory, dispersion
harvesting campaign is completed, and straw
sion, driven by the expansion of agricultural modelling, and public disclosure of the out-
serves as an organic fertilizer, also preventing
lands, are key reasons for biodiversity losses. comes in press. The modeling provides esti-
soil erosion. The major portion of waste gen-
Another threat derives from chemical pollution mates on concentrations of emitted pollutants
erated by our silos is sold to third parties to be
and application of pesticides. at neighboring sensitive receptors areas
further used as a cattle feed or biofuel, and the
(housing, schools, hospitals, etc.). All compa-
remaining is disposed in landfills.
Realizing these threats, we strive to fully elim- nies of the Group operating stationary emis-
inate any impact of our operations on biodiver- sion sources hold valid permits (covering
As required by some our customers, over 170
sity. In our farming business, we cultivate only GHG and other emissions), monitor emis-
thousand hectares under corn and 34 thou-
lands which have been used for crop produc- sions’ parameters, and pay environmental tax
sand hectares under soybean (39% of farm-
tion for decades, and therefore we do not give (US$ 137 thousand in FY2019) accrued
land bank under crops) are annually certified
rise to deforestation. We grow only crops based on actual emissions volume.
for compliance with ISCC standards. ISCC
which are typical for the regions of our opera-
(International Sustainability and Carbon Certi-
tions. The Company does not carry on farming When reporting our GHG emissions, we dis-
fication) is a globally leading certification sys-
activities in reserved areas, national parks tinguish between directs GHG emissions from
tem focused on securing traceable and defor-
and areas with high biodiversity value, thus sources that are controlled by Kernel (Scope
estation free supply chains, and protection of
not affecting endangered species. 1), and energy indirect GHG emissions that
land with high biodiversity value. It confirms
result from the generation of purchased elec-
our commitment to the highest sustainability
Kernel is strongly committed to sustainable tricity, heating, consumed by Kernel (Scope
requirements.
long-term crop production practices as 2).

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 46
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued
…………………………………………………………………………………………………………………………………………………
A major portion of our direct (Scope 1) green- Greenhouse gas emissions (GRI 305-1, 305-2)
house gas emissions is produced by our farm- thousand tons of CO2 equivalent
FY2015 FY2016 FY2017 FY2018 FY2019
ing business, mainly from combustion of fuels
Direct (Scope 1) GHG emissions 236 198 232 260 234
by machinery for field works and transporta-
by gas type
tion. The contribution of enteric fermentation CO2 204 168 207 235 216
from our cattle farming is also substantial due CH4 29 27 25 25 18
to high global warming potential that has me- N 2O 0 0 0 0 0
thane emitted by cows. by division
Oilseed Processing 18 6 13 3 3
Though, it should be admitted that fertilizer ap- Infrastructure and Trading 43 29 61 70 57
Farming 174 161 156 186 173
plication – another potentially large source of
Other 2 2 2 1 1
GHG emissions, stays unaccounted this year by country
(except for ISCC certified fields). We plan to Ukraine 225 197 232 260 234
extend the accounting practice to the entire Russia 11 0 0 - -
Kernel’s land bank in order to present more by source
comprehensive figures in our next Annual Re- Fuel-sourced 162 129 172 200 191
port. Cattle Farming 71 67 60 60 44
Non fuel-sourced 2 2 - - -
Biogenic (Scope 1) GHG emissions 280 252 304 317 316
As to Scope 2 emissions, three quarters of
Gross indirect (Scope 2) GHG emissions 76 72 80 86 88
them are associated with electricity consumed Other significant air emissions (non-GHG)
by our seed processing segment. Due to pe- Carbon oxide 0.7 0.7 0.4 0.5 0.4
culiarities of national electricity market there Sulfur dioxide 0.3 0.3 0.2 0.3 0.1
was no opportunity for direct contracts with Particulate matter 0.8 0.8 0.7 1.0 1.4
electricity producers, therefore a unified spe-
cific emission factor has been applied for the GHG emissions intensity ratio (GRI 305-4)
national grid’s energy mix. kg of CO2 equivalent

per ton of sunflower seeds processed 7.1 3.0 4.8 1.0 1.1
Globally, agricultural sector is responsible for per ton of grain grown 97 84 68 68 50
around 10% of GHG emissions that contribute
Scope 1 emissions are calculated based on volumes of fossil fuel used across the company and those generated by livestock.
to the greenhouse effect by absorbing infrared The company use financial control consolidation approach for emission. Emissions are calculated based on volumes of fuel
radiation, and by that to the climate change. consumed and conversion factors sourced from GHG Protocol (GHG Emissions from Stationary Combustion). The calculation
Yet, the sector in its turn is intrinsically im- excludes GHG emissions from the application of fertilizers and pesticides by our farming and the effect of carbon capture during
the development of crops. Currently, we are examining available calculation methodologies. Emissions from livestock farming
pacted by the climate change. Such impacts are calculated based on the average headcount of cattle for the reporting period and established regional normative levels for
on the Group’s operations, that are already emissions per head. Scope 2 emissions represent emissions from purchased electricity. Some other substances such as hexane
and nitrogen oxides are not disclosed due to immateriality. The conversion factor is calculated as the ratio of total emissions
occurring but expected to intensify, include re- from electricity production in Ukraine sourced from UN GHG Inventory to energy production itself sourced from Ministry of
duced crop and pasture yields and quality, in- Energy and Coal Mining. We use IPCC 5th Assessment Report rates for global warming potential calculation. We use direct
creased spread of crop diseases and pests. (Scope 1) GHG emissions as a denominator to calculate the intensity ratios.

These impacts stem from changes in surface • capture weather data using 49 real-time equivalent.
temperatures, the timing of seasons, and in stationary weather stations, which have
the frequency and magnitude of severe been installed since 2012 and fundamen- In addition to the disclosure in this report, Ker-
weather events, such as droughts, floods, tally reorganized in FY2018. nel also reports under the CDP Climate
storms and heatwaves. • expand our land bank and operations in Change initiative, with reports available on
Northern, Central and Western regions of CDP website.
Besides harvest levels, climate change con- Ukraine that are less exposed to climate
tributes to operational risks through hindered change risks;
road transportation (asphalt roads closed dur- • insurance of winter crop related costs, and
ing high temperatures) and maritime naviga- insurance against limited rainfalls and soil
tion (increased storms frequency and inten- moisture content on some of our fields;
sity), and increased risk of fires. • prepare GHG inventories that help us to un-
derstand the Group’s exposure to related
To respond to the abovementioned risks, we risks, identify emissions reduction opportu-
apply measures as follows: nities, and communicate performance to in-
• launched in November 2018 the #DigitalAg- ternal management and external stakehold-
riBusiness project. Embracing field records ers.
for the past five years, climate and soil con-
ditions, market and agronomic inputs, bio- Our most sizable impact in emissions reduc-
chemistry and biophysics rules enhanced tions will occur after the commissioning of our
with the artificial intelligence solutions, ma- renewable energy projects – 7 cogeneration
chine learning and advanced analytics, it heat and power units installed at our oilseed
converts data into a single system assisting processing plants with a combined capacity of
us in making smarter decisions. This unique 94MW. Once working at full capacity and gen-
planning tool enables us to more precisely erating green energy from biomass, reduction
model profitability scenarios, optimize re- of GHG emission is expected to amount at
sources and predict expenses; more than 700 thousand tons of CO2

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 47
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued
…………………………………………………………………………………………………………………………………………………
Social impact (GRI 400)
Employment (GRI 401) Personnel benefits
Our goal is to find and attract the best people Competitive salary (regular monitoring of labor market)
and develop and retain them to ensure sus-
tainability of our operations and business Guaranteed compliance with all the legal labor requirements (incl. parental leaves)
model.
Training and development of personnel, formation of personnel reserve
As of 30 June 2019, Kernel had 13,397 em-
Occupational health and safety, including respective insurance
ployees (FTE), including 12,794 permanently
employed. Although we continue our head- Financing sport initiatives of the employees
count optimization program in the existing
businesses, our investments under Strategy Material assistance to employees facing difficult life circumstances
2021 will create over 600 new jobs by 2021.
Rewards and other benefits dedicated for special events (birth, marriage)
Trade unions representing employees func-
tionate at Kropyvnytskyi, Prykolotne, Poltava Retirement provisions and privileged pensions for employees at hazardous jobs
and Vovchansk oil extraction plants, as well as
on some our silo business entities.
…………………………………………………………………………………………………………………………………………………
Human capital indicators
There were no outstanding disputes between As of 30 June of the respective year
trade unions and Kernel business entities as FY2015 FY2016 FY2017 FY2018 FY2019
of the date of this report. Total number of employees 15,229 14,075 16,103 15,116 13,397

Competitive remuneration by geography

With people as our most valuable asset, we Ukraine 14,642 14,010 16,048 15,066 13,355
Russia & other 587 65 55 50 42
constantly strive to maintain competitive re- by age
muneration. less than 30 years old 3,099 2,755 2,775 2,648 2,322
30-50 years old 8,440 7,822 8,597 7,647 7,615
A fixed part of regular monetary compensa- more than 50 years old 3,690 3,498 4,731 4,821 3,460
tion is set at the level which matches or ex- by gender
Male 11,050 10,048 11,307 11,148 9,897
ceeds the benchmark paid in our industries. Female 4,179 4,027 4,796 3,968 3,500
The variable part depends on numerous KPIs, by level
which are quite granular, including, for exam- Managers 1,166 1,040 1,157 991 885
ple, various indicators for each separate field Specialists 3,081 3,141 3,841 3,959 3,665
in our farming business. What is more im- Workers 10,982 9,894 11,105 10,166 8,847
by business division
portant, we provide employees all tools to di-
Oilseed Processing 2,750 2,455 2,592 2,501 2,258
rectly affect KPI’s and monitor the KPI’s exe- Infrastructure and Trading 3,103 3,250 3,501 3,447 2,990
cution on close-to-online basis, thus trying to Farming 8,770 7,767 9,389 8,448 7,405
keep them involved as much as possible. Fol- Headoffice and other 606 603 621 720 744
lowing the example from our farming busi- by employment contract, by region
ness, agronomists can observe the results of Permanent 14,602 13,626 15,659 14,724 12,794
Ukraine 14,020 13,561 15,605 14,674 12,752
their work online using our own system and Russia & other 582 65 54 7 0
third-party solution Cropio. Seasonal and temporary 627 449 444 392 603
Ukraine 622 449 443 392 603
Apart from regular compensation, employees Russia & other 5 0 1 0 0
receive one-time monetary incentives for by employment contract, by gender
Permanent 14,602 13,626 15,659 14,724 12,794
achievements and business efficiency im- Male 10,313 9,717 10,956 10,882 9,383
provements, as discussed in “Case study: pro- Female 4,289 3,909 4,703 3,842 3,411
moting employee engagement within Kernel”. Seasonal and temporary 627 449 444 392 603
Male 489 331 351 289 514
We strictly follow the principle that, in case of Female 138 118 93 103 89
by employment type, by gender
staff reduction in a team of employees due to
Permanent 14,747 13,606 15,459 14,774 13,143
labor productivity improvements (which is in- Male 10,586 9,828 11,029 11,002 9,774
evitable in our business), the salary pool is not Female 4,161 3,779 4,431 3,772 3,369
reduced, but rather shared with the other team Seasonal and temporary 482 469 644 342 254
members. Male 216 220 278 169 123
Female 266 248 365 173 131
Finally, monetary compensation includes %-age of women in executive management 29.0% 40.0% 33.3% 25.0% 18.2%
such socially oriented components as fixed %-age of women on Board of Directors 25.0% 25.0% 37.5% 37.5% 37.5%
payments in case of retirement and monetary
Note: Differences are possible due to rounding. Headcount data include FTE (full-time equivalent) employees as at 30 June of the respective period
support in case of employee’s personal life dif-
ficulties.

Average salary in FY2019 increased by 23%

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 48
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued
………………………………………………………………………………………………………………………………………………………………………………………………………………………………

Purpose: increase employee engagement, cultivate entrepreneurial spirit within the company
Approach: we have several programs to reach the purpose
1. Kernel Agribusiness League of Champions. Since 2014, we annually award employees
for the best achievements in our farming business. We organize a large gala performance
inviting over 700 employees from all company farming clusters. We award the best machinery
operators, best agronomists for each crop, best engineer team and other for both individual
and team achievements. In FY2019, we provided 52 awards in 9 categories. The award cer-
emony is streamed online via corporate YouTube channel. Results of the champions are 15-
30% higher than average for the company, and applied practices are widely adopted there-
after within the company.

There are two important elements of the award. The average monetary award amounts to
US$ 900 per employee, with total FY2019 award pool of over US$ 1 million. But quite often
public recognition is even more important. We award the best teams and employees in front
of their colleagues, widely cover the winners in our corporate media and social networks.
Winners get the chance to award new winners at next year ceremony.

We consider League of Champions as one of the most important projects for employee en-
gagement and promotion of healthy competition in our farming business. Since FY2019, we
organized similar events for other departments: oil extraction plants, silos, terminals, procure-
ment and logistics.

2. While Champions’ League awards the best achievements within the season, our Super League contest awards the best achieve-
ments among production teams on crushing plants, silos, terminals and the best farming cluster mechanized unit for each month.

3. In all our segments we launched the initiative “We have an idea!”, whereby each employee may propose efficiency improvement
solutions and receive a monetary award if their solution is chosen for implementation by the initiative jury. The winners are announced
in corporate media, on our Facebook page and honor boards, promoting an entrepreneurial spirit and attitude to work within the
company. In FY2019, 112 initiators provided 192 ideas for productivity improvement, of which 98 were implemented. Average payment
to initiators amounts to US$ 1.2 thousand.

as compared to FY2018, and we expect fur- contributions, despite somewhat losing com-
ther compensation growth in FY2020. petitive advantage versus those market play- All new employees attend several adaptation
ers who are involved in shady operations. meetings, where managers from various de-
Our non-monetary compensation includes partments present their activities. Such prac-
additional paid leave in case of special family Individual development system and career tice allows newcomers to better understand
events, numerous events organized for em- planning the business of the Company from various an-
ployees’ children, gifts, trainings and educa- In FY2019, we more than doubled the number gles, thus making them more productive from
tion programs, various discounts for employ- of people participating in standardized perfor- their first days.
ees (vaccination, tickets for sport, art and cul- mance appraisals, from 238 employees in
ture events etc.). FY2018 to 514 in FY2019. We expanded cov- We have a special program, Internal Kernel
erage of employees in our Oilseed Processing Chance, designed to create a talent pool
We fully comply with local labor legislation and business, and also added selected employees within the group for key positions. We carefully
pay all salary-related taxes and social from silo business. select participants through self-nomination,

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 49
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued

professional testing, assessment of compe- include improved cross-functional interaction requirements and regulations. Workers are
tencies and assessment of achieving effi- at different levels, and participants enhanced fully equipped with required special work
ciency indicators. Then we draw up a Devel- understanding of operational activities. We clothes and take a regular medical examina-
opment plan for soft and hard skills and a list plan to make such field visits regular with an tion as prescribed in their role.
of precision tasks and measurable goals. increased number of participants.
Over the course of the program we control the Being high-risk assets, all our crushing plants
progress and, following the completion, create To evaluate our impact, we hired an independ- meet the requirements of OHSAS 18001 from
talent pool for appointment to vacant position ent marketing and social research company which we plan to migrate to ISO 45001 in the
and set tasks for the next period. In FY2019 InMind, which conducted the engagement near future, and we are working on imple-
74 employees participated in the program study of employees in our Farming and menting such requirements on our grain infra-
Oilseed Processing segments and head office structure assets as well. The ultimate goal is
Working with universities in 2017-2018. The study covered such topics to have health and safety systems at most of
In Ukraine, we cooperate with 28 specialized as employee work satisfaction, loyalty and en- our production units fully compliant with ISO
universities. All of them participate in “Kernel gagement, benchmarking Kernel results with 45001.
Chance” – a paid internship program for un- market averages. Results demonstrated that
dergraduates and graduates allowing them to Kernel employee satisfaction level is 19-24% Our occupational health and safety frame-
work in the company for several months under above the market averages, employee loyalty work, as well as numerous OHSAS 18001 re-
the mentorship of our professionals, learn the- is 12-61% higher than market averages, and quirements, are regularly inspected by third-
oretical and practical aspects of the selected employee engagement level exceeds the one party auditors as a part of more complex au-
area, and propose the area for optimization. of peers by 5-59% depending on the segment dits organized for various product certification
Following the evaluation process, the best analyzed. purposes. Additionally, we had over 60 audits
students get job offers from Kernel, and once and inspections run by our internal team,
employed, undergo intensive on-job training Occupational health and safety (GRI members of which constantly undergo train-
and rigorous mentoring, thus creating a ready- 403) ings under ISO 45001 and are supervised by
made career plan. Since the launch of the pro- Operating in the region with historically poor a group level health and safety committee.
gram in 2011, we employed 297 “Kernel work-related safety culture, we pay special at-
Chance” alumni, the majority of whom have tention to the improvement of occupational We declared FY2020 to be the year of occu-
proven to be such a talented staff, that they safety and remain committed to providing ad- pational safety in our Infrastructure and Trad-
earned a special “MBA for Challengers” inter- equate working conditions in compliance with ing segment, allocating increased budgets for
nal training course. In FY2019, we received 61 labor legislation at all Kernel sites. trainings and additional involvement of em-
applicants for the program. ployees to the discussion of job safety. On top
We have a system of hazard identification, and of that, selected KPIs on occupational health
For 90 people in FY2019, Kernel became the ranking, which serves as a basis for creating a and safety were added to the performance as-
first workplace. proper preventive system. All job positions in sessment system for the key management of
the company’s subsidiaries are classified by our assets: oilseed processing plants, silos
In FY2019, Kernel together with other Ukrain- risk exposure, which determines the fre- and export terminals.
ian agricultural companies, PWC Ukraine and quency of compulsory safety trainings we reg-
the National University of Life and Environ- ularly organize for all our employees. Work- As a preventive measure to work-related inju-
mental Sciences of Ukraine created a special- places and production processes are orga- ries, we installed 26 alcohol detectors at en-
ized 1.5-year master program in agriculture nized as a way to comply with safety trances to our key infrastructure and
“Agrokebety” for up to 50 students. The pur- …………………………………………………………………………………………………………………………………………………
pose of the program is to prepare a new gen- Work-related injuries (GRI 403-9)
eration of agribusiness managers with a uni- FY2015 FY2016 FY2017 FY2018 FY2019
versal set of skills in agronomy, agriculture en- Recordable work-related injuries 19 16 14 16 17
gineering and business management. After Oilseed Processing 2 2 2 1 -
the curriculum is polished, the program is Infrastructure and Trading 12 3 2 3 11
Farming 5 11 10 12 6
planned to be spread among other universi- of which
ties, thus improving the quality of higher edu- Fatalities 1 1 - 4 1
cation in agriculture in Ukraine. As a Gold Oilseed Processing - - - 1 -
Partner of the project, Kernel contributes fund- Infrastructure and Trading 1 - - 1 1
ing to the program, provides tutors and men- Farming - 1 - 2 -
High-consequence work-related injuries (excl. fa- 10 8 5 6 5
tors for students, and organizes internships talities)
for students. Oilseed Processing 2 1 - - -
Infrastructure and Trading 6 2 2 1 3
Employee engagement Farming 2 5 3 5 2
In FY2019, we have launched an annual
AgriChallenge project, under which 78 partici- Hours worked, million 29 30 31 29 28
pants of our corporate MBA program spent
Rate of recordable work-related injuries 0.66 0.53 0.45 0.55 0.60
several days working outside office as blue Rate of fatalities as a result of work-related injury 0.03 0.03 - 0.14 0.04
collars at company’s assets. As a result of the Rate of high-consequence work-related injuries (excl. 0.35 0.26 0.16 0.21 0.18
AgriChallenge, a number of initiatives on au- fatalities)
tomation and process efficiency improvement
Injury data is collected in accordance with local regulatory requirements in Ukraine and Russia and does not include minor
have been collected: 10 - completed and 7 - (first-aid level) injuries and does not include contractors working on-site. Injury rates are calculated as total accidents occurred
are being implemented. Besides collected im- over the period divided by the actual hours worked (in millions) over the period.
provement initiatives, benefits of the project

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 50
 Strategic Corporate Financial
Report Sustainability Governance Statements

Sustainability continued

production assets in FY2019. We plan to in-

stall 26 more in FY2020. …………………………………………………………………………………………………………………………………………………
Talent development (GRI 404-1, 404-3)
By following this approach, we aim to reach a FY2015 FY2016 FY2017 FY2018 FY2019
healthy and injury-free working environment Training expenditures, thousand US$ 241 194 445 474 456
for all Kernel entities. Training hours 135,426 150,612 83,943 78,477 92,073
Average hours of training per employee 8.9 10.7 5.2 5.2 6.9
Regretfully, we had one fatal accident in our by gender
Infrastructure and Trading segment, caused Male 9.7 12.8 5.6 5.3 7.3
Female 8.0 6.3 5.8 5.7 5.6
by breach of occupational safety regulation. by employee category
The number of high-consequence work-re- Managers n/d n/d n/d n/d 27.6
lated injuries (excluding fatalities) in FY2019 Specialists n/d n/d n/d n/d 13.7
reduced to 5 from 6 a year ago. While high- Workers n/d n/d n/d n/d 2.0
consequence work-related injuries reduced in % of workforce taking part in standardized 1.0% 1.3% 1.1% 1.6% 3.8%
performance appraisals
FY2019 as compared to FY2018, we under-
stand that the current level is unacceptable, corporate MBA and other programs for ex- training to improve their coaching skills and
and we aim to further reduce it. ecutives. First initiated for agri managers ability to provide feedback. First introduced in
and key specialists in 2013, corporate MBA 2015, the program has proven to be a useful
Training and education (GRI 404) program then emerged into 6 separate pro- tool and successfully extended in FY2019, in-
We treat people as our key competitive ad- grams for oil production, logistics, agricul- creasing the number of mentors from 74 in
vantage and extensively invest in the develop- ture and other divisions, educating 0.6 thou- FY2017 to 81 in the reporting period.
ment of their hard and soft skills. We have nu- sand participants in FY2019. Each program
merous training and education programs for has two workshops per year consisting of In FY2018, we also launched a mentorship
all our business units and for various profes- case studies, team-based assignments and program designed for soft skills improvement.
sions and career bands. Our purpose is to a final project, and is tutored by lecturers The program now includes 33 mentors and 21
continuously develop human capital within the who teach at certified MBA programs. A mentees. Both categories received proper
organization. special version of Corporate MBA is availa-
training before the launch of the program:
ble to high potential specialists and mem-
workshops, training for mentors and master-
Our education activities are structured in six bers of our personnel reserve pool.
classes for mentees.
different directions:
• Professional education, focused mainly • Training from internal coaches. A pool of
Since 2014, we have made progress on im-
on agribusiness, where we see the highest 31 internal coaches provides various 8-
plementing a unified approach to planning in-
potential for implementing cutting-edge hour-average learning programs, promot-
ing knowledge and experience sharing dividual development, the coverage of which
farming approached in our operations. increased in FY2019 to 514 employees (vs
Based at fully equipped modern training fa- within the company. The program was
launched in 2017 and proved to be ex- 180 employees in FY2017), including employ-
cilities located in several of our farming ees from a central office, and management
clusters, we organize module-based practi- tremely popular, with 1.2 thousand partici-
pants attending the trainings in FY2019. and key staff from regional branches. The as-
cal training programs taught by local and
sessment conducted as a part of this program
visiting trainers for our agronomists, engi-
• Distance learning, including e-courses, is used to identify key areas for growth, im-
neers and other agribusiness specialists.
online-tests, webinars. The core element prove career planning and provide better visi-
Similar programs are also organized for our
crushing and infrastructure divisions. Over here is Kernel Hub – a distance learning bility of the ambitious talent pool, their training
4.2 thousand participants were covered by and knowledge web/mobile platform. De- needs and prospects.
professional education programs in veloped in 2014, Kernel Hub allows any
FY2019. employee to take hard- and soft-skills learn- Within the company, we are creating an inter-
ing e-courses, get access to accumulated nal talent pool of highly skilled professionals
Additionally, we organize numerous experi- in-house expertise and e-books from vari- who will not only share their expertise with
ence-exchange trips in Ukraine and abroad ous fields of personal and professional de- their colleagues and help them grow profes-
for our specialists, including attendance of velopment. In FY2018, we did a pivotal up- sionally, but also be the leaders in Kernel's
exhibitions and site visits. grade of the system aimed on further ex- strategy and corporate culture.
pansion of user base, whose number
reached 1 thousand in FY2019. In FY2019, we increased the number of
• Ad-hoc competency development train-
ings tutored mostly by external trainers and trained employees by 12% y-o-y, to 8.3 thou-
organized depending on business needs. Additionally, each year we organize a one- sand.
Over 0.5 thousand participants attended week on-campus executive education pro-
such programs in FY2019. gram in a high-ranked global business school Local communities (GRI 413)
for a group of our top-level executives. By leasing lands on territories of 617 local
• One-time educating activities includes councils in Ukraine and having the majority of
master-classes, conferences and seminars We offer a mentorship program, which is de- our employees working and living in rural ar-
led by both internal and external trainers, as signed to accelerate the adaptation of new eas, we strongly interact with local communi-
well as one-time courses for new manag- employees and develop their hard skills. The ties. Villages in Ukraine suffer from high pov-
ers. Almost 0.8 thousand participants sub- program manager assigns mentors to new erty rates, accelerating urbanization, an a lack
scribed for such activities in FY2019. employees, and structures, formalizes and of access to basic services and infrastructure.
oversees mentor-employee relationships. As a reputable long-term partner, Kernel
• Corporate modular programs include Mentors get monetary incentives and proper shares responsibility for the development of

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 51
 Strategic Corporate Financial
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neighboring local communities, so our pur- …………………………………………………………………………………………………………………………………………………

pose is to continuously contribute to the im- Social spending (GRI 413-1)
provement of local communities’ well-being in thousand US$
the regions of our farming operations. FY2015 FY2016 FY2017 FY2018 FY2019
Total social spending 1,919 1,668 2,616 2,440 2,303
Striving to better understand the needs of lo- incl. infrastructure 1,025 749 1,049 760 625
cal communities and to get feedback about
Social spending includes only direct expenses by the Company.
our social activities, we benefit from:
• a team of 225 dedicated relationship equipment. Such enterprises then provide ser- oilseed-processing segment, where we touch
managers who serve as our representa- vices to municipalities and local people. As of the final customer with our bottled sunflower
tives in rural regions, communicate with the date of this report, we helped to create 6 oil product. Other business lines deliver
landowners, local officials and opinion mak- such enterprises with 33 new jobs created. mostly commodity-type products or related
ers, help with offering seasonal and full- services with globally recognized product
time jobs in Kernel to people in rural re- Since 2011 we publish and freely distribute quality characteristics.
gions. The team has proven to be useful over 60,000 copies of a monthly newspaper to
and effective, and we treat it as one of our a rural audience, customized to the region of We maintain a preventive food management
competitive advantages, as a limited num- our operation. It covers local news, provides system, targeted at addressing the risk of po-
ber of other crop producers in Ukraine apply legal and other advice on various topics rele- tential biological, chemical and physical haz-
such practice; vant for rural regions, presents available va- ards in production processes. It ensures the
• a countrywide 24/7 toll-free hot line (0 800 cancies in the Company’s subsidiaries to- traceability of products across the entire value
50 10 59). We received 1,450 calls in the re- gether with career success stories, and dis- chain under our control.
ported period (17% growth y-o-y), up to 70% closes Kernel’s social and business activities.
of which covers questions related to local Unprecedented by its scale, the project is es- All our oilseed processing plants are certified
communities, proving the efficiency of this pecially valuable in remote rural areas where under the ISO 22000 standard (integrates the
tool; access to information is limited. principles of the Hazard Analysis and Critical
• a constant dialogue with local municipal- Control Point (HACCP) system and applica-
ities. We also contribute to local communities’ de- tion of procedures developed by the Codex Al-
velopment indirectly, by creating jobs and op- imentarius Commission), under quality man-
Over the course of FY2019 our investments in portunities there. At the same time, we under- agement system ISO 9001, and have
the well-being of local communities totaled to stand that in the long-term our constant effi- GMP+B1 certificates which ensure feed
US$ 2.3 million, comprising investments into in- ciency improvements in farming operations safety and quality for our protein meal produc-
frastructure (US$ 625 thousand, excluding result in gradual reduction of the full-time tion. Food safety systems on our bottling facil-
spending related to our business needs), headcount. Through our employees, we are ities are certified under FSSC 22000. Six our
schools and kindergartens, as well as charity spreading corporate culture, knowledge and plants are certified under Kosher, two plants
donations and other social spending facilitating skills, and leaving other positive footprints in – under Kosher Passover, one plant under
sport, art and leisure activities. All our support rural areas we are unable to touch it in other Badatz and Badatz Passover, and five plants
of local communities is structured through the ways. We are also disseminating best farming obtained Halal certification. Three of our
charitable foundation ‘Together with Kernel’, practices, which are quickly adopted by small plants are FDA-registered, which opens the
which runs its own website razom.kernel.ua (in neighboring farmers. USA market to our bottled sunflower oil. All
Ukrainian) aimed at promoting our social activ- our crushing facilities obtained registration al-
ities and serving as a point of contact with local Finally, being a responsible taxpayer commit- lowing for the export of sunflower meal to
stakeholders. In 2018, donations covered 905 ted to full compliance with tax payments, we China, and one plant obtained the registration
villages, including 196 schools and 146 rural indirectly support local communities, as a siz- to sell sunflower oil to South Korea. Three of
health posts which received support from Ker- able portion of the taxes we pay goes directly our companies were certified to sell sunflower
nel to buy equipment and make repairs. to local budgets. In FY2019, we paid US$ 62 meal to Belarus. Our Bandurka asset is certi-
million (UAH 1.7 billion) taxes, a substantial fied under ISCC EU. Finally, our crushing
In FY2019 we launched a test project “Health portion of which was directed to local budgets, plant in Poltava is certified under IFS and suc-
of communities” in one of the regions where supporting the well-being of local communi- cessfully passed BSCI audit (grade “A”),
Kernel leases farmland. Since access to ties. which confirmed the corporate social respon-
healthcare services there is limited, we ac- sibility of our business and simplifies our ac-
quired and fully equipped a medical car and As a recognition of our efforts in FY2019, our cess to retailers in EU.
hired a professional doctor, who regularly visits charity fund “Together with Kernel” has won the
villages and provides medical services. National Charity Award “Charity Ukraine” in one Our export terminals are certified under ISO
of 23 nominations among 964 contestants. 9001 and GMP+B3 (for operations with sun-
While keeping our contributions at a stable siz- flower meal). Our laboratory in Poltava is ac-
able level, we are changing the spending para- Customer health and safety (GRI 416) credited under ISO 17025 standard, which al-
digm by moving from numerous donations cov- Being the largest global producer of sunflower lows us to widen the scope of the analysis
ering day-to-day communities’ needs to invest- oil, the largest crop producer in Ukraine and conducted at our own facilities.
ing into larger projects with strong long-term the largest grain exporter from Ukraine, we
spillover effect. As a part of that, we are pro- are committed to setting the benchmark in Our trading subsidiaries has GMP+B3,
gressing in the advancement of social entrepre- terms of product quality, guaranteeing the GMP+B3, B4 and ISCC EU certification.
neurship in rural regions. As an example, one highest standards of goods we deliver to our
of our farming clusters helps local municipali- customers. Our impact occurs across all our All our farming subsidiaries meet the ISCC EU
ties create municipal enterprises, to which Ker- business lines, but most significantly in the requirements for corn, wheat, soybean, and
nel contributes with various machinery and

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 Strategic Corporate Financial
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…………………………………………………………………………………………………………………………………………………
rapeseed production, covering 170 thousand Product quality and safety certificates and registrations
hectares under corn and 34 thousand hec-
tares under soybean. The standard indicates Oilseed processing plants Terminals Trading
prerequisites set for biofuel supply chain sus-

TransGrainTerminal
TransBulkTerminal
tainability under the Renewable Energy Di-

Prydniprovskyi
Kropyvnytskyi

Kernel-Trade
Vovchansk
rective.

Prykolotne
Bandurka

Poltava

Ellada

Inerco
Standard

BSI

Total
In FY2019, we expanded the coverage of 7
existing certificates by adding more products
under the certificates’ umbrella and obtained
4 new certificates.
ISO 9001 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 8
ISO 22000 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 8
In FY2019, we initiated implementation of GMP+B1 ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 8
HACCP principles on 23 our grain silos. We ex- GMP+B3 ✓ ✓ ✓ 3
pect to complete this project in FY2020, and GMP+B3, B4 ✓ 1
also to extend the implementation for the re- BSCI ✓ 1
maining silos. FSSC 22000 ✓ ✓ 2
Kosher ✓ ✓ ✓ ✓ ✓ ✓ 6
Kosher Passover ✓ ✓ 2
Our purpose is to deliver the best quality prod- Badatz ✓ 1
ucts to our customers and eliminate any inci- Badatz Passover ✓ 1
dents of non-compliance with regulations, as Halal ✓ ✓ ✓ ✓ ✓ 5
well as expand geographies of product export ISCC EU ✓ ✓ ✓ 3
as a result of recognition of our customer IFS ✓ 1
China (meal) ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ 8
health and safety approach. Belarus (meal) ✓ ✓ ✓ 3
Total 7 4 7 11 10 4 6 5 2 1 2 2 61
There were no incidents of non-compliance
with regulations concerning the health and ✓ Certificates obtained in FY2019
safety impacts of products and services within ✓ Certificates with expanded coverage in FY2019
FY2019.
production, storage, distribution and supply
We supply bottled sunflower oil to reputable processes. In FY2019, we passed 88 inde-
international retail chains (Auchan, Metro, pendent audits, taking in total 156 days.
Walmart, Maxima etc.), and sell grain and
meal to big international soft commodity trad-
ers.

For FY2020, we plan to obtain registration for

export of meal to Belarus at two more of our
crushing plants, get IFS certificate for Pry-
kolotne plant, and prolong BSCI certification
at Poltava facility.

Our food safety and quality system is regularly

tested by independent third-party auditors and
constantly overseen by our internal food
safety team. The audits’ scope includes
……………………………………………………………………
Number of independent quality audits
passed

149 156

118

65

96 88
64
46

FY2016 FY2017 FY2018 FY2019

# of audits passed
# of days of audit

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 Strategic Corporate Financial
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GRI Content Index

In accordance with the GRI Standards: Core option

GRI Disclosure Reference (page) or direct response

101: Foundation 2016
102: General Disclosures 2016
1. Organizational profile
102-01 Name of the organization Kernel Holding S.A.
102-02 Activities, brands, products, and services Our business model (p.7), Kernel at a Glance (p. 8), brands (p. 8), website
102-03 Location of headquarters Kyiv, Ukraine
102-04 Location of operations Key Kernel assets are in Ukraine (p.8)

In Russia, Kernel has a 50% stake in Taman grain export terminal as a JV

with Glencore, but we do not operate it solely for our benefit and have limited
control over it. Therefore, this asset is not included in the scope of this Sus-
tainability Report.
102-05 Ownership and legal form Group structure (p. 61), Share capital and significant shareholdings (p. 61)
102-06 Markets served • Geographic locations: sunflower oil sold in bulk (p. 15), bottled sun-
flower oil (p. 15), grain export markets (p.21)
• 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.
102-07 Scale of the organization • Total number of employees: (p. 48)
• Total number of operations: three business segments: Oilseed Pro-
cessing, Infrastructure and Trading, Farming (see p.7)
• Net sales: key highlights (p.11)
• Total capitalization: market capitalization (p. 10; for updated figures
please see Kernel profile on Warsaw Stock Exchange website); credit
metrics (p. 12)
• Quantity of products or services provided: Kernel at a Glance (p. 8)
102-08 Information on employees and other workers a. Human capital indicators (p. 48)
b. Human capital indicators (p. 48)
c. Human capital indicators (p. 48)
d. Workers who are not employees perform insignificant portion of activities
e. Significant variations in the numbers includes only seasonal variations of
employees in Kernel farming business, which does not exceed 5% of total
headcount.
f. Data compiled by Kernel employee accounting system
102-09 Supply chain • Our Business Model (p.7)
• 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 sup- Significant changes to the organization: Note 1 to the Consolidated Fi-
ply chain nancial Statements (p. 79), Oilseed Processing (p. 13), Infrastructure and
Trading (p. 19), Farming (p. 25)

There were no significant changes to Kernel supply chain in FY2019.

102-11 Precautionary Principle or approach The Group’s entities apply the Precautionary Principle through maintaining
compliance with the Law of Ukraine on Environmental Impact Assessment
(EIA), that has been adopted in 2017 as a part of Ukraine’s commitment to
harmonize domestic legislation with the EU requirements, specifically
DIRECTIVE 2011/92/EU. The law establishes principles and mechanisms of
integration of environmental considerations into a decision-making process
for economic activities that may have material environmental impacts. The
EIA is carried out at a planning phase, prior to commencement of the activi-
ties (such as construction), and includes preparation and public disclosure
of an EIA Report, public consultations, scrutiny and conclusion by the com-
petent authority. In FY 2019, following requirements of the law:
• 9 EIA procedures have been initiated by the Group’s farming enterprises
(2), crushing plants (5), and sea terminals (2)
• 2 Environmental Impact Assessment reports for the Group’s planned de-
velopments have been prepared by qualified consultants

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 Strategic Corporate Financial
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GRI Disclosure Reference (page) or direct response

• 1 Public consultation sessions have been held
• 1 Conclusions On EIA have been issued by competent authorities, based
on examination of EIA reports and inputs collected in the course of public
consultations.
102-12 External initiatives Kernel endorses the following externally-developed economic, environmen-
tal and social charters, principles, 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);
• 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.
2. Strategy
102-14 Statement from senior decision-maker Chairman's speech (p. 5)
Our approach (p. 39)
3. Ethics and integrity
102-16 Values, principles, standards, and norms of behavior Our values and principles (p. 41)
Business ethics and compliance section on our website
4. Governance structure
102-18 Governance structure a. Governance structure of the organization (p. 61)
b. Company does not have a separate committee responsible for decision-
making on economic, environmental, and social topics on the Board of
Directors level. Respective responsibilities are attributable to people in
the management team.
5. Stakeholder engagement
102-40 List of stakeholder groups Key stakeholder groups and engagement channels (p.41)
102-41 Collective bargaining agreements Approximately 94% of total employees were covered by collective bargain-
ing agreements as of 30 June 2019
102-42 Identifying and selecting stakeholders ‘Our approach to materiality and report content' and 'Key stakeholder groups
and engagement channels' on p. 41. Although the frequency of our engage-
ment varies, we are intent on staying engaged with all our stakeholders in
areas of mutual interest
102-43 Approach to stakeholder engagement Key stakeholder groups and engagement channels (p.41)
102-44 Key topics and concerns raised Key stakeholder groups and engagement channels (p.41), Stakeholder in-
clusiveness (p.41). Also discussed throughout this report.
6. Reporting practice
102-45 Entities included in the consolidated financial state- Notes 1 to the Consolidated Financial Statements (p.79). Certain sustaina-
ments bility information does not include data for all entities, which is highlighted in
each case
102-46 Defining report content and topic Boundaries An explanation of the process for defining the report content and the topic
Boundaries (p.41).

Implementation of the Reporting Principles for defining report content (p. 41):
• Stakeholder Inclusiveness
• Sustainability Context
• Materiality
• Completeness
• Accuracy
• Balance
• Clarity
• Comparability

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 Strategic Corporate Financial
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GRI Disclosure Reference (page) or direct response

• Reliability
• Timeliness
102-47 List of material topics Topic Boundaries (p.42)
102-48 Restatements of information Restatement carried out in the following standards:
• GRI 305-1, 305-2 Emissions
Reason – change in calculation methodology
• GRI 302-1 Energy
Reason – change in calculation methodology
• GRI 301-1 Materials
Reason – Change in historical data methodology for Associated process
materials / solvents used in oilseed processing
102-49 Changes in reporting There were no significant changes from previous reporting periods in the
list of material topics and topic Boundaries.
102-50 Reporting period Financial year 2019 ended 30 June 2019. See also Note 1 to the Consoli-
dated Financial Statements (p. 79).
102-51 Date of most recent report 22 October 2018, as a sustainability section of the FY2018 annual report
102-52 Reporting cycle Annual
102-53 Contact point for questions regarding the report Michael Iavorskyi, [email protected]; [email protected]
102-54 Claims of reporting in accordance with the GRI This report has been prepared in accordance with the GRI Standards: Core
Standards option
102-55 GRI content index p.54
102-56 External assurance FY2019 Sustainability report has not been externally assured.

The Company obtained independent external assurance report for FY2015

Sustainability report. The Company expects to obtain independent assur-
ance report for FY2020 Sustainability report.

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 Strategic Corporate Financial
Report Sustainability Governance Statements

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GRI Disclosure Reference (page) or direct response

Material topics
Economic performance
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Economic performance (p. 43), Strategy (p. 9), Topic boundaries (p. 42).
103-2 The management approach and its components Also discussed throughout the strategic report.
103-3 Evaluation of the management approach
201: Economic performance 2016
201-1 Direct economic value generated and distributed Economic value generated, distributed and retained (p. 43)
201-4 Financial assistance received from government Note 27 'Other operating income' to the Consolidated Financial Statements
(p. 115).
Indirect Economic Impacts
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Indirect economic impact (p. 43), Local Communities (p. 51), Topic bounda-
103-2 The management approach and its components ries (p. 42).
103-3 Evaluation of the management approach
203: Indirect Economic Impacts 2016
203-1 Infrastructure investments and services supported Local Communities (p. 51)
203-2 Significant indirect economic impacts Indirect economic impact (p. 43)
Anti-corruption
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Anti-corruption (p. 43), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
205: Anti-corruption 2016
205-1 Operations assessed for risks related to corruption a. All company’s operations are assessed for risks related to corruption. Fol-
lowing the assessment, company identified 19 risk areas assigning each
specific inherent risk level;
b. Significant risks related to corruption identified through the risk assess-
ment, among other, include:
• obtaining undue benefits, which leads to financial losses and may affect
the reputation of the Company;
• conflict of interest;
• combination of work in the Kernel Group of Companies with work for
another company or entrepreneurial activities.
205-2 Communication and training about anti-corruption a. Kernel anti-corruption policies and procedures have been communicated
policies and procedures to all Kernel governance body members;
b. Kernel anti-corruption policies and procedures have been communicated
to all Kernel employees;
c. Kernel anti-corruption policies and procedures have been communicated
to all Kernel business partners. We have a mandatory anti-corruption
clause in all agreements with business partners, and suppliers are com-
municated with our Code of interaction with suppliers;
d. All Kernel governance body members have received training on anti-cor-
ruption;
e. Total number of employees that have received anti-corruption trainings
since 2018: 2,643 (19.7% of total number of employees). All that employ-
ees are based in Ukraine. Breakdown by category: Executive Manage-
ment Team – 11; heads of departments and structural subdivisions – 90;
Heads of lines and functions – 560; Employees of departments / lines /
functions exposed to high compliance risk – 482; Other employees –
1,500;
205-3 Confirmed incidents of corruption and actions taken a. 74 confirmed incidents of corruption in FY2019 (mostly thefts and frauds
by abuse of position);
b. Total number of confirmed incidents in which employees were dismissed
or disciplined for corruption;
c. There were 25 confirmed incidents in FY2019 when contracts with busi-
ness partners were terminated or not renewed due to violations related to
corruption;
d. We are not aware of public legal cases regarding corruption brought
against the Kernel group and its employees during FY2019.

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GRI Disclosure Reference (page) or direct response

Materials
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Materials (p. 44), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
301: Materials 2016
301-1 Materials used by weight or volume Principal materials used (p. 45)
Energy
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary The Company is not subject to any government or industry-specific policy
103-2 The management approach and its components for energy use, while the renewable energy produced from biomass at the
103-3 Evaluation of the management approach Company’s sites falls under the legal incentive scheme (feed-in tariff). Man-
agement approach disclosed in 'Energy consumption within the organization'
(p.45), Topic boundaries (p. 42).
301: Energy 2016
302-1 Energy consumption within the organization a-g. Energy consumption (p. 45)
302-3 Energy intensity a. Energy intensity (p. 45);
b. Organization-specific metric (the denominators) chosen to calculate the
energy intensity ratios: volumes of sunflower seeds processed (for
Oilseed Processing Segment), ton-percentages of grain dried (for Infra-
structure and Trading Segment) and volumes of grain and oilseeds pro-
duced (for Farming segment);
c. All the energy consumed by respective business segment (fuel, electric-
ity, heating etc.) was included to calculate the respective energy intensity
ratios;
d. All the ratios use energy consumption within the organization;
Biodiversity
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Biodiversity (p. 46), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
304: Biodiversity 2016
304-1 Operational sites owned, leased, managed in, or ad- Biodiversity (p. 46)
jacent to, protected areas and areas of high biodi-
versity value outside protected areas
Emissions
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Environment (p. 43), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
305: Emissions 2016
305-1 Direct (Scope 1) GHG emissions a. Emissions (p. 46)
b. Emissions (p. 46)
c. Emissions (p. 46)
d. Base year not applicable
e. Emissions (p. 46)
f. Emissions (p. 46)
g. Emissions (p. 46)
305-2 Energy indirect (Scope 2) GHG emissions Greenhouse gas emissions (p. 47)
305-4 GHG emissions intensity Greenhouse gas emissions (p. 47)
Employment
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Employment (p. 48), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
401: Employment 2016
401-2 Benefits provided to full-time employees that are not a. Standard benefits for full-time employees in Ukraine (p. 48). Same bene-
provided to temporary or part-time employees fits are provided to temporary and part-time employees.
b. Ukraine is considered as a significant location of operations for the pur-
poses of GRI 401-2 disclosure.

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GRI Disclosure Reference (page) or direct response

Occupational health and safety
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Occupational health and safety (Oilseed Processing) (p. 18)
103-2 The management approach and its components Occupational health and safety (Infrastructure and Trading) (p.24)
103-3 Evaluation of the management approach Occupational health and safety (Farming) (p.28)
Occupational health and safety (p. 48), Topic boundaries (p. 42).
403: Occupational Health and Safety
403-1 Occupational health and safety management sys- a. Kernel has implemented an occupational health and safety management
tem system (OHSMS), in accordance with Ukrainian regulatory requirements.
All crushing plants have implemented OHSMS in line with OHSAS 18001
Standard;
b. OHSMS covers all Kernel employees, activities and workplaces.
403-9 Work-related injuries a. Work-related injuries (p. 50). Main types of work-related injuries include
slips, trips and falls;
b. Not applicable; (insignificant number of such workers)
c. The work-related hazards that pose a risk of high-consequence injury are
mostly physical, as these types of hazards contributed most high-conse-
quence injuries historically and in the reporting period. Hazards are de-
termined reactively as a result of high-consequence injury. Most such
cases occur either because of non-adherence to occupational health and
safety instructions, or because of personal negligence. Therefore, actions
taken to minimize risks of this hazard include more intense training and
instructions on occupational health and safety;
d. Actions taken to eliminate other work-related hazards include, among oth-
ers, installation of alcohol detectors in all company’s industrial and infra-
structure assets and re-design of business processes with high potential
risks;
e. Rates have been calculated based on 1,000,000 hours worked;
f. No workers have been excluded from this disclosure;
g. No other contextual information necessary to understand how the data
have been compiled.
Training and education
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Training and education (p. 51), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
404: Training and Education
404-1 Average hours of training per year per employee Training and education (p. 51)
404-2 Programs for upgrading employee skills and transi- a. Training and education (p. 51);
tion assistance programs b. Transition assistance programs provided to facilitate continued employa-
bility are described in section “Training and education” (p. 51). We do not
provide any specific transition assistance programs to facilitate manage-
ment of career endings resulting from retirement or termination of employ-
ment, apart from one-off severance payment or retirement benefit.
404-3 Percentage of employees receiving regular perfor- Talent development (p. 51)
mance and career development reviews
Local communities
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Local communities (p. 51), Topic boundaries (p. 42).
103-2 The management approach and its components
103-3 Evaluation of the management approach
413: Local Communities 2016
413-1 Operations with local community engagement, im- Local communities (p. 51), Social spending (p. 52).
pact assessments, and development programs We estimate that more than half of our operations (by labor count) are ac-
tively involved in local community engagements, though the frequency and
depth of engagement differs by region.
413-2 Operations with significant actual and potential neg- Kernel is not aware of any significant negative impacts on local communities
ative impacts on local communities as a result of its activities.
Customer health and safety
103: Management Approach 2016
103-1 Explanation of the material topic and its Boundary Customer health and safety (p. 52), Topic boundaries (p. 42).
103-2 The management approach and its components

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 59
 Strategic Corporate Financial
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Sustainability continued

GRI Disclosure Reference (page) or direct response

103-3 Evaluation of the management approach
416: Customer Health and Safety 2016
416-1 Assessment of the health and safety impacts of We assess health and safety impacts for improvement for all our significant
product and service categories products.
416-2 Incidents of non-compliance concerning the health There were no incidents of non-compliance with regulations and/or voluntary
and safety impacts of products and services code concerning the health and safety impacts of products and services
within the reporting period;

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 60
 Strategic Corporate Financial
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Corporate Governance
………………………………………………………………………………………………………………………………………............
Main Characteristics of Kernel Governance structure
Group structure General meeting of shareholders
Kernel Holding S.A. is a public limited liability
company (société anonyme) incorporated on
15 June 2005 under the laws of the Grand
Duchy of Luxembourg (RCS Luxembourg Board of Directors Nomination and Remu-
B109173) and having its registered address Audit Committee
neration Committee
19 Rue de Bitbourg, L-1273 Luxembourg.
Kernel Holding S.A. is a holding entity for the
group of companies (altogether ‘the Group’ or
‘the Company’ or ‘Kernel’) and has its share Executive Management Team
listed on the main market of the Warsaw Stock corporate governance framework determined • approved the management report of the
Exchange (Bloomberg ticker: KER PW) since by: Board of Directors, consolidated financial
November 2007. The list of primary subsidiar- • the corporate law of the Grand Duchy of statements of the Company and standalone
ies is disclosed on page 79 of this report. Luxembourg as a place of incorporation (in- annual accounts of the Kernel Holding S.A.,
cluding voluntary compliance with most of and the report of the independent auditor
Share capital and significant share- the provisions of the X Principles of Corpo- for the year ended 30 June 2018;
holdings rate Governance of the Luxembourg Stock • granted discharge to the directors of the
The issued capital of the Kernel Holding S.A. Exchange); and Company for the exercise of their mandates
as of 30 June 2019 consisted of 81,941,230 • corporate governance rules set out in the in FY2018;
fully paid ordinary single class shares, all Best Practices of Warsaw Stock Exchange • renewed the mandates of seven of the di-
ranking pari passu and having equal voting Listed Companies 2016 (“Best Practices”) rectors and approved the fees of executive
rights and no special control rights attached to as a place of shares listing. Kernel complies and non-executive directors for the year
any of the shares. with most of the standards of “Best Prac- ended 10 December 2019;
tices”, except for the recommendations in- • granted discharge to the independent audi-
According to notifications received by the cluded in items IV.R.2 and the detailed prin- tor and reappointed Deloitte Audit as inde-
company, three shareholders owned more ciples included in items I.Z.1.16, I.Z.1.20, pendent auditor of the Company for one-
than 5% of Company’s shares as of 30 June IV.Z.2, VI.Z.4. At the same time, the Board year term mandate.
of Directors decided that the recommenda-
2019:
tions and detailed principles, marked as There were no extraordinary meetings of
• Namsen Limited, a legal entity directly con-
items II.Z.11, III.Z.6. and IV.R.3 do not ap- shareholders of Kernel Holding S.A. in
trolled by the Chairman of the Board of Di-
ply to the Company. The respective state- FY2019.
rectors and founder of the business, Mr. An-
ment of compliance is published on Com-
drii Verevskyi, owning 39.93% of shares;
pany’s website under section “Board of Di- The next annual general meeting of share-
• Julius Baer Group, controlling between 5% rectors and Corporate Governance”.
and 10%; holders is scheduled for 10 December 2019.
• Cascade Investment Fund, holding be- Key internal documents laying out the princi-
tween 5% and 10%; All the documents and resolutions adopted by
ples of corporate governance are Kernel Hold- the shareholder meetings are available on
…………………………………………………………………… ing S.A. Articles of Association and Corporate
Ownership structure
Company’s website.
Governance Charter, both available on Com-
Shares %-age
pany’s website.
owned owned Board of Directors
Namsen Limited 32,716,775 39.93% Company is managed by the Board of Direc-
Other1 49,224,455 60.07% In FY2019, Kernel’s efforts in enhancing cor-
porate governance practices were recognized tors (“the Board”), which is the ultimate deci-
Total 81,941,230 100.00% sion-making body, except for the powers re-
Note 1: including two shareholders controlling between by EBRD and EIB, as both institutions ap-
5% and 10% of total shares: Julius Baer Group and proved loans to Kernel following the very gran- served for the general meeting of sharehold-
Cascade Investment Fund. ular inspection of corporate governance, com- ers by law, the Articles of Association and the
pliance and environmental practices adopted Corporate Governance Charter. The Board is
The company held no treasury shares as of 30 vested with the broadest powers to perform all
June 2019. by the company.
acts of administration and disposition in com-
pliance with the Company’s corporate pur-
As of 30 June 2019, there were 5,150,000 out- General Meeting of pose. The Board resolves to take its decisions
standing options granted to the senior manag-
Shareholders objectively, in the best corporate interest of
ers of the Group, of which 3,875,000 were the Company. The Board is collectively re-
General Meeting of Shareholders is the high-
vested (3,000,000 options at PLN 75 strike sponsible and accountable to the sharehold-
est governance body of the Company, having
price and 875,000 options at PLN 29.61 strike ers for the proper conduct of the business, the
the broadest power to order, carry out or ratify
price). The remaining 1,275,000 options (at long-term success of the Company, the effec-
all acts relating to the operations of the Com-
PLN 29.61 strike price) become vested in De- tiveness of the reporting system and the cor-
pany. All the details about organizing and
cember 2019. Each option provides for the porate governance framework.
functioning of the general meeting of share-
right to acquire one ordinary share of the
holders are listed in the Articles of Association
Company.
and Corporate Governance Charter, both
published on Company’s website.
Corporate governance framework
Kernel is committed to high standards of cor- The annual general meeting held on 10 De-
porate governance and is subject to the cember 2018:

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 61
 Strategic Corporate Financial
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Corporate Governance continued

……………………………………………………………………………………………………………………………………….............................................................................................................................
Effective and experienced leadership
Kernel Holding S.A. is governed by the Board of Directors composing of eight members, including three non-executive independent directors.
Biographical details of the Board as at 30 June 2019 are as follows (with further details available on Company’s website).

Andrii Verevskyi, 45 Nathalie Bachich, 45 Andrzej Danilczuk, 56 Sergei Shibaev, 60

Non-executive independent Non-executive independent Non-executive independent
Chairman of the Board, Founder director director director

Tenure: 12 years Tenure: 3 years Tenure: 12 years Tenure: 7 years

Skills and experience: Skills and experience: Skills and experience: Skills and experience:
Founded the Group’s business in With over 15 years’ experience in His rare know-how combines with Occupied different managerial
1995, holding various executive international investment banking, a strong understanding of west- roles with international consul-
positions within the Group. Pres- Nathalie spent the majority of that ern corporate culture and modus tancy and financial services firms
ently, he oversees the strategic time in Equity Capital Markets. operandi and a deep knowledge including PWC, ING Barings,
development and overall man- of local culture and business Deloitte & Touché and Roland
agement of the Group. practices in the Black Sea region. Berger, among others

Board Committee: Board Committee: Board Committee: Board Committee:

Nomination & Remuneration Nomination & Remuneration Chairman of the Nomination & Chairman of the Audit Committee
Committee Committee, Audit Committee Remuneration Committee, Audit
Committee

Yevgen Osypov, 43 Anastasiia Usachova, 48 Viktoriia Lukianenko, 44 Yuriy Kovalchuk, 38

Chief executive officer Chief financial officer Chief legal officer Corporate investment director

Tenure: 2 year Tenure: 12 years Tenure: 12 years Tenure: 8 years

Skills and experience: Skills and experience: Skills and experience: Skills and experience:
Mr. Osypov is responsible for the Ms. Usachova is responsible for Ms. Lukianenko is responsible for Mr. Kovalchuk contributes to
day-to-day management of the the overall financial management providing legal advice and coun- strategy formulation and is re-
Company’s subsidiaries, execu- of Kernel. She holds an MBA de- seling in all aspects of Kernel’s sponsible for the execution of in-
tion of strategy, budgets, and gree from IMD (Switzerland). business operations. vestment projects. Yuriy has
Board decisions. He completed been a Fellow with Association of
several educational programs in Chartered Certified Accountants
Harvard Business School. (FCCA), since September 2013.

Board Committee: Board Committee: Board Committee: Board Committee:

None None None None

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 62
 Strategic Corporate Financial
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Corporate Governance continued

……………………………………………………………………………………………………………………………………….........................................................................................................................
Composition of the Board of Directors as of 30 June 2019

13%
25% 25%
38%
Gender Age 50% Tenure
63%
25%
30-40 63% less than 5 years
Male 40-50 5-10 years
Female 50+ more than 10 years
The responsibilities of the Board include ap- to ensure that the Board has an appropriate, conflicts of interests among Board members.
proval and review of strategies and policies, diverse and balanced mix of competences, Any Director having a direct or indirect conflict
governance of the Company and manage- skills, experience, background and knowledge of interest must inform the Board thereof and
ment supervision. More detailed responsibili- of the Company’s affairs. Key principles gov- shall refrain from deliberating or voting on the
ties are specified in Company’s Corporate erning the processes of nomination, appoint- relevant item of the agenda. Any conflict of in-
Governance Charter. ment and re-election of Directors are de- terest should be properly declared and docu-
scribed in the Company’s Corporate Govern- mented.
All Directors are equally accountable for the ance Charter, published on Kernel’s website.
proper stewardship of the Company’s affairs. Members of the Board shall refrain from pro-
The non-executive directors have a responsi- Board diversity fessional or other activities which might cause
bility for ensuring that the business strategies Diversity among Directors makes the Board a conflict of interest or adversely affect their
proposed are fully discussed and critically re- high-performing and efficient, serving the best reputation as members of the governing bod-
viewed. This enables the Directors to promote interests of the Company’s key stakeholders. ies of the Company, and where a conflict of
the success of the Company for the benefit of The Company benefits from nationality, gen- interest arises, immediately disclose it.
its shareholders, while having regard to, der, age, experience and industry expertise
among other matters, the interest of employ- diversity among Directors. The diversity within The following non-exhaustive list is an exam-
ees, the fostering of business relationships the Board is enhanced by Kernel’s Equality, ple of the duties that shall be followed by the
with customers, suppliers and other stake- Diversity and Inclusion Policy, which was Directors:
holders, as well as promoting the impact of the adopted in 2018. The policy is on constant ba- • duty not to accept any benefits from third
Company’s operations on the communities sis considered by the Nomination and Remu- parties, which may give rise to a personal
and the environment in which the business op- neration Committee of the Board and Execu- financial interest and/or gain;
erates. tive Management Team when making em- • duty to disclose any interest in a proposed
ployee and management appointment deci- transaction or arrangement with the Com-
The Board approves every investment, divest- sions. pany and a separate and independent duty
ment, acquisition, disposal and funding trans- to disclose any arrangement with the Com-
action exceeding in value 5% of average 12 Directors consider the diversity among Board pany; and
months trailing daily market capitalization of members while evaluating the Board’s effec- • duty to avoid conflicts of interest unless au-
the Company. tiveness. thorized.

Board composition During the annual Board evaluation process There were no cases of conflict of interest
The Board is composed of 8 directors, of conducted in FY2019, most directors recog- among Directors declared over the course of
which 5 executive (including a Chairman) and nized the sufficient range of expertise, atti- FY2019.
3 non-executive independent directors. There tudes and external relationships within the
were no changes in the composition of the Board members. As of August 2019, non-executive directors
Board in FY2019. occupied the following positions in companies
Directors’ independence outside the Group:
The non-executive directors are experienced Each non-executive director annually pro- • Mr. Shibaev is an Independent Director and
and influential individuals from a range of in- vides the other members of the Board with a Audit Committee Chair at RESO Garantia,
dustries and countries with an appropriate mix an Independent Director and Audit Commit-
statement of meeting the independence crite-
of skills and business experience to contribute tee Chair at Bank Zenit, an Independent Di-
ria indicated in Annex II of the European Com-
rector and Audit Committee Chair at Katren.
to the proper functioning of the Board and its mission Recommendation of 15 February
Committees. • Mr. Andrzej Danilczuk is a Director at
2005. The statements are published on Com-
Koepta Brokers Sarl and a Director at Agroil
pany’s website.
S.A.
The mandate of the Chairman expires at the
• Ms. Nathalie Bachich does not occupy po-
annual general shareholder meeting in De- As per statements received in August 2019, sitions in companies outside the Group.
cember 2020. The mandates of all other direc- all non-executive directors meet the inde-
tors expire at the annual general shareholder pendence criteria.
meeting in December 2019.
Conflict of interest
Nomination and Remuneration Committee A Corporate Governance Charter adopted in
regularly review the composition of the Board May 2018 pays special attention to disclosing

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 63
 Strategic Corporate Financial
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Corporate Governance continued

Board committees ………………………………………………………………………………………………………………………………………..............
The Board has two committees appointed Remuneration of the Board of Directors
amongst its members: US$ thousands
• Audit Committee; FY2015 FY2016 FY2017 FY2018 FY2019
• Nomination & Remuneration Committee Chairman of the Board 117 200 200 250 200
(hereinafter “N&R Committee”); Three non-executive Directors 250 264 269 268 260
Four executive Directors 50 44 40 50 40
The Board believes this structure is sufficient Total Board of Directors 417 508 509 568 500
enough to ensure its efficient performance of Excluding reimbursement of travelling expenses incurred by Directors in performing their duties
duties and tasks, as certain specific matters approval of budget; adequate resources to continue in operational
are heard first by specialized bodies with ex- • review and approval of annual, semi-annual existence for the foreseeable future. Accord-
plicit professional experience, and only then and quarterly accounts; review of opera- ingly, the Board continues to adopt the going
considered by the Board. tions updates; concern basis in preparing the annual report
• review of management accounts and fi- and accounts.
Following the regular annual review in nancing transactions;
FY2019, the Board does not see a necessity • review of the progress of implementation of Takeover disclosure
to establish new committees. corporate governance best practices; The Company’s shares are in electronic form
• supervision of the risk management pro- and are freely transferable, subject only to the
Board self-evaluation cess: approval of top risks for the Company provisions of law and the Company’s Articles
Following the best standards of corporate and mitigation plan, review of reports on top of Association. There are no agreements be-
governance, the Board regularly undertakes a risks mitigation activities; update on imple- tween the Company and its employees or di-
formal self-evaluation of its performance and menting the risk management system; re- rectors providing for compensation of the loss
effectiveness as a collective body, operating view of risk limits. In particular, in FY2019 of office or employment (whether through res-
efficiency, composition, organizational struc- the Board approved Kernel Risk Manage-
ignation, purported redundancy, or otherwise)
ture, compliance with the rules of good gov- ment Policy;
that would occur because of a takeover bid.
ernment and relationship with the executive • updates from Audit Committee and N&R
Options granted under management incentive
management and other stakeholders. The Committee;
plans incorporate accelerated vesting in the
survey conducted in FY2019 identified no ma- • various ad-hoc items (M&A updates, up-
event of a takeover.
jor issues with regards to the items mentioned dates on market situation, Avere perfor-
above. Board recognized the quality and time- mance review).
The Company in the ordinary course of busi-
liness of the information provided to the ness has entered into various agreements
Board, quality of Board practices and meet- Over the course of FY2019, the Board also
with customers and suppliers around the
ings, appropriate composition of the Board, approved financing and M&A transactions and
amended Corporate Governance Charter via world. Some of the Company’s borrowing
adequate Board roles and responsibilities, agreements, which either by their nature or
proper established committee practices etc. circular resolutions.
value may represent significant agreements,
do provide for the right of termination upon a
Corporate secretary and independent Accountability and audit change of control of the Company. The com-
advice Going concern mercial sensitivity of these agreements pre-
All directors can consult with the corporate The Group’s business activities, together with vents their details from being disclosed.
secretary. The corporate secretary is availa- the factors affecting its performance, position
ble to provide assistance and information on and future development are set out in the stra- Except for the preceding disclosure, there are
governance, corporate administration and le- tegic report on pages 7-29. The financials of no other significant agreements to which the
gal matters as appropriate. Directors may also the group, its liquidity position, borrowing fa- Company is a party that take effect, alter, or
seek advice on such matters, or on other busi- cilities and applicable terms are described in terminate upon a change of control following
ness-related matters relating to the perfor- the financial statement’s accounts. a takeover of the Company.
mance of his duties, directly from independent
professional advisors, if so desired, at the Current economic conditions have fostered Audit Committee
Company’s expense. the development of a number of risks and un- The Audit Committee is a continuously oper-
certainties for the Company, in particular in re- ating collective body of the Board. It consists
Board activity report gard to global soft commodity prices and har- of three members including a chairman, all of
The Board held 7 scheduled meetings in vest expectations. Details can be seen in the whom are non-executive independent direc-
FY2019, of which 2 where physical meetings Risks and Uncertainties section of this report, tors. The members have competence in ac-
in Luxembourg in 5 meetings were via tele- pages 30-34. counting and audit, and the competence rele-
conference, with an average attendance rate vant to the sector in which the company is op-
of 84%. Directors have reviewed the current and pro- erating. The Audit Committee is fully capable
jected financial position of the Company, mak- of overseeing the affairs of the Company in
Typically, at each meeting, the Chairman of ing reasonable assumptions about the future the areas of adequacy and effectiveness of
the Board, together with the Chief Financial trading and production performance, as well the Kernel’s system of financial reporting, in-
Officer, report on strategy implementation, as debt requirements. ternal controls and risk management.
present recent developments and manage-
ment accounts. The workplan of the Board for The results show that the Company should be The functioning and key responsibilities of the
FY2019 included, among others, the following able to operate within the levels of its available Audit Committee are described in the Articles
items: capital. Therefore, the Board has a reasona- of Association, and further specified in the
• review of Company’s mid-term strategy and ble expectation that the Company has Corporate Governance Charter. Both

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 64
 Strategic Corporate Financial
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Corporate Governance continued

documents available on Company’s website. monitoring system; reviewing top risks, risk Directors on the operational risk manage-
mitigation plans and results of risk mitiga- ment, internal controls and mitigation activ-
Audit Committee activity report tion activities, overseeing group risk man- ities by undertaking regular or ad hoc re-
The Audit Committee had 5 meetings in agement procedures; reviewing trade man- views;
FY2019, of which 2 were physical meetings in agement position risk mitigation activities • to provide independent and objective eval-
Luxembourg and 3 were meetings via telecon- (including Avere). The Audit Committee uation of effectiveness and efficiency of in-
ference. Most members of the Audit Commit- also reviewed Kernel group-wide business ternal control systems within operational
tee attended all the meetings of the committee continuity plan (including Avere IT business framework of the Company;
over the reported period. Chief Executive Of- continuity plan); • to assist personnel and management of the
ficer, Chief Financial Officer, head of internal • conducted oversight over the compliance Company in improving the effectiveness of
function, including implementation of the risk identification and internal control sys-
audit and compliance officer were invited to all
Corporate Governance Charter provisions, tems in operations; advise and consult
the meetings of the Audit Committee. CFO at-
compliance with good corporate govern- them regarding how to effectively execute
tended all the meetings of the Audit Commit-
ance practices with respect to the function- their responsibilities, including recommen-
tee, head of internal audit and compliance of- ing of the Audit Committee, and reviewing dations on specific improvements in poli-
ficer attended 80% of meetings each. All the reports from Kernel Compliance Officer on cies and procedures; and
meetings were also attended by representa- the progress achieved in the enhancement • to assist in open and two-way communica-
tives of the Company’s external auditor, of Company’s compliance function; tion among internal and external auditors,
Deloitte. During its meetings, Audit Committee • discussed various ad-hoc items, includ- management and personnel, Audit Commit-
had one closed session with the external au- ing communications with Commission de tee and the Board.
ditor and one with the internal auditor to com- Surveillance du Secteur Financier.
municate without the presence of executives. External auditor
Additionally, decisions of the Audit Committee After each meeting, the chairman of the Audit Deloitte Audit S.a.r.l. (“Deloitte”), with its reg-
were taken via 5 circular resolutions signed Committee reports to the Board on key mat- istered office at 560 rue du Neudorf, L-2220
over the course of FY2019. ters. Luxembourg and register number B 67 895
with the Luxembourg Trade and Companies’
To execute its key functions and discharge its Over the course of FY2019 Audit Committee Register, acts as an external auditor of Ker-
responsibilities as outlined in the Corporate conducted annual self-evaluation procedure, nel’s consolidated and standalone accounts
Governance Charter, the Committee, during which indicated potential areas of Audit Com- since FY2012. Annual general meeting of
FY2019: mittee performance and activities improve- shareholders held on 10 December 2018 ap-
• assisted the Board in monitoring the reli- ment and resulted in clear action plan based pointed Deloitte as Kernel’s external auditor
ability and integrity of the financial infor- on results of the self-evaluation procedure. also for the year ended 30 June 2019. In com-
mation provided. The Committee re- pliance with the EU statutory audit legislation
viewed the quarterly, semi-annual and an- Exercising its right to obtain independent pro- requirement for key audit partners to rotate af-
nual financial reports, reviewed critical ac- fessional advice, granted by the Corporate ter a maximum of seven years, new Deloitte
counting policies and management esti- Governance Charter, Audit Committee re- partners led Kernel’s external audit process
mates, among other things; ceived in FY2019 professional advice from le- starting from FY2019.
• conducted oversight over the perfor- gal advisor with respect to correspondence of
mance of the internal audit function, in- Audit Committee activities to the EU audit
cluding the review of the internal audit ac- Deloitte attended all four meetings of the Audit
market reform. Committee in FY2019, presenting the results
tivities and action plans and reports. To fur-
ther enhance the internal audit function, Au- of the annual audit, additional auditor’s report,
dit Committee approved the Internal Audit Internal audit management letter, review of the semi-annual
Charter. The committee had one meeting As an integral part of the system of internal accounts and audit plan for FY2019 among
with the Head of Internal Audit of the Com- control, the Company established an internal other things. Audit Committee also had one
pany without the presence of executives; audit division headed by an experienced pro- meeting with Deloitte without presence of the
• conducted oversight over the perfor- fessional reporting directly to the Audit Com- executives. The Audit Committee review and
mance of the external audit function in- mittee and to the CEO of the Company as a monitor the level of fees paid by the Company
cluding review of the annual audit plan and chairman of the Risk Committee within the Ex- to external auditor, preapprove permissible
scope of semiannual accounts review and ecutive Management Team and working non-audit services and monitor the cap on
areas of focus, review of auditor reports, closely with the Board. non-audit fees.
presentations and additional auditors re-
port, management letter review. The Audit The Internal Audit shall provide independent Audit fees in FY2019 amounted to US$ 659
Committee had one face-to-face discussion and objective assurance and consulting ser- ……………………………………………………………………..
with the external auditors in the absence of vices in the areas of internal controls and risk External auditor’s fees
executives. The Audit Committee moni- management, aimed at improving the opera- US$ thousand
tored the fee cap of non-audit services, and tions and performance of the Company and its
Non-audit services Audit fees
review of the contract with auditors (includ- subsidiaries. 659
ing review of expected fees for the audit and
518 540 -
consulting services) and independence of The independence rules defined in generally 465 495
external auditor; 18 6
accepted international standards of the pro- -
33
• conducted oversight over the risk man- fessional internal audit practice apply to mem- 659
agement function. The Audit Committee bers of internal audit division. 500 534 495
432
assisted the Board in the discharge of its
risk management responsibilities, monitor- Main responsibilities of internal audit are:
ing and examining the effectiveness of the FY2015 FY2016 FY2017 FY2018 FY2019
• to maintain continuous support for the
Company’s internal control and risk

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thousand, as compared to US$ 495 thousand ………………………………………………………………………………………………………………………………………...................
in FY2018. Like in FY2018, external auditors Compensation structure of the Executive Management Team
were not providing Kernel with non-audit ser-
vices in FY2019. The fixed part of the compensation is determined at the discretion of the
Board considering the respective position and the individual profile of
Base salary
Nomination and remuneration the manager in terms of qualifications, skill set, and experience. All
Compensation principles amounts are fixed and paid in cash, monthly.
The Company’s compensation policies and
management incentive plans reward perfor- The annual variable monetary bonus is calculated as a percentage of
mance, sustainable growth and long-term the EBITDA less the financial expenses, with exact parameters deter-
Short-term variable
value creation for all stakeholders. Remuner- mined by the Nomination & Remuneration Committee. A minimum
bonus
ation programs for the Board and Executive threshold level is required to activate the pay-out. The bonus rewards
Management Team are competitive, internally for the short-term financial performance of the Company.
equitable and straightforward.
A management incentive plan is a reward for performance of the Com-
The compensation of the Board for execution pany over the long-term period and shall align the interests of the Exec-
of Directors’ duties consists of fixed fees, with- utive Management Team with those of the shareholders by delivering a
out any performance-based variable compo- Long-term manage- substantial portion of share options in the Company as compensation.
ment incentive plan The plan is duly reviewed by the Nomination & Remuneration Commit-
nent, pension, retirement or similar benefits
tee and approved by the Board. Each option is granted non-vested, with
provided by the Company. This ensures a cer- a vesting period from three to five years, carrying no rights to dividends
tain degree of independence when it comes to and voting, and to be executed in cash.
fulfilling the Board’s duties towards the Exec-
utive Management Team. On top of that, Di-
rectors are reimbursed for certain travel, hotel Nomination and Remuneration Com- Nomination and Remuneration Com-
and other expenses related to the exercise of mittee mittee’s activity report
their duties. The fees paid to the independent The Nomination and Remuneration commit- The N&R Committee held two scheduled
directors and the fees paid to executive direc- tee is a continuously operating collective body meetings during the reporting period, discuss-
tors are approved at the annual general of the Board. It is established from amongst ing the composition of the Board, performance
shareholders’ meeting. the members of the Board and consists of of the CEO and the Executive Management
three members, including a chairman elected Team, changes within key management per-
Compensation of the Executive Management by the members of the N&R Committee sonnel, and settled on the management com-
Team is based on a pay-for-performance prin- amongst themselves. The majority of the pensation for FY2019 standing at US$ 5,518
ciple, rewarding sustainable growth and long- members of the N&R Committee (including thousand (including a short-term variable bo-
term value creation for shareholders. A signif- the chairman) are independent nonexecutive nus of US$ 3,099 thousand) for 12 key exec-
icant portion of remuneration comes from a Directors. utives, as compared to the total compensa-
variable part depending on Company’s perfor- tion of US$ 3,294 thousand (including a bonus
mance. For details, please see the figure be- The role of the N&R Committee is to assist the of US$ 827) a year ago for 12 executives.
low. Board in fulfilling its responsibilities by review-
ing, advising and making recommendations to There were no new management incentive
The remuneration of the Executive Manage- the Board, the Chairman and the CEO on the plans approved over FY2019, and no signifi-
ment Team is proposed by the Chairman of nomination to the Board and Executive Man- cant amendments to the Executive Manage-
the Board in accordance with the remunera- agement Team and their remuneration. The ment Team remuneration policy in FY2019.
tion policies and incentive plans drawn up by N&R Committee assists the Board in nominat-
the N&R Committee and is reviewed and, if ing and assessing candidates for both direc- Executive Management Team
necessary, adjusted by the N&R Committee torship and managerial positions, establishing The Executive Management Team is respon-
on an annual basis. The Board shall approve and reviewing the compensation principles sible for the overall financial and operating re-
any long-term management incentive plan. and strategy. N&R Committee also supports sults of the Company’s subsidiaries, heading
the Board in preparing the Board’s remunera- operating segments and providing support
Remuneration policies and incentive plans, as tion proposals to the shareholders’ general functions on a daily basis. The Executive Man-
well as amounts, are reviewed by the N&R meeting. A detailed list of N&R Committee re- agement Team focuses on strategy imple-
Committee on an annual basis and, if re- sponsibilities in available in Corporate Gov- mentation, financial and competitive perfor-
quired, adjusted by the Board. ernance Charter, published on Company’s mance, commercial and technological devel-
website. opments, succession planning and organiza-
Members of the executive management team tional development.
are not granted any pension, retirement or
similar benefits provided by the Company,
………………………………………………………………………………………………………………………………………..............
apart from those required by the law.
Remuneration of the Executive Management Team
US$ thousands
The Company believes that remuneration pol- FY2015 FY2016 FY2017 FY2018 FY2019
icy strongly contributes to the long-term
Total remuneration 8,564 6,476 5,699 3,294 5,518
shareholder value creation and the company’s
Base salary 2,564 2,276 2,409 2,467 2.419
stability.
Short-term variable bonus 6,000 4,200 3,290 827 3,099
# of executive managers 14 10 10 12 12

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 66
 Strategic Corporate Financial
Report Sustainability Governance Statements

Corporate Governance continued

The Executive Management Team is headed ………………………………………………………………………………………………………………………………………...............
by the Chief Executive Officer (the “CEO”), Kernel Holding S.A. Investor Calendar
who is appointed and removed by the Board
and report directly to the latter. The role of the Q1 FY2020 Operations Update 22 October 2019
CEO has been established in FY2018. The Q1 FY2020 Financial Report 27 November 2019
CEO is responsible for the day-to-day man- Annual general shareholders’ meeting 10 December 2019
agement of the Company’s subsidiaries, exe- Q2 FY2020 Operations Update 21 January 2020
cution of strategy, budgets, and Board deci- H1 FY2020 Financial Report 28 February 2020
sions. The CEO delegates his/her responsibil- Q3 FY2020 Operations Update 23 April 2020
ities to other members of the Executive Man- Q3 FY2020 Financial Report 29 May 2020
agement Team. Q4 FY2020 Operations Update 20 July 2020
FY2020 Financial Report 30 October 2020
The Executive Management Team consists of
12 professionals including CEO. All the mem- European Investment Bank and EBRD, which semiannual reports, meeting equity and
bers of the Executive Management Team provided Kernel with financing over the course credit investors in Poland, Western Europe
other than CEO are appointed and removed, of FY2019 after a very granular inspection of and Scandinavia, USA and Canada;
as applicable, by the Board upon proposal by corporate governance, compliance and envi- • investor conferences. In FY2019, we met
the N&R Committee after prior consultation ronmental practices adopted by the company. with equity and debt investors at 12 confer-
with the CEO, save where he is subject of the ences in Europe and USA, organized by
procedure. The full list of the members of the Since 2017, compliance function within Kernel Auerbach Grayson, WOOD, J.P. Morgan,
Executive Management Team, including short is headed by a dedicated Compliance Officer, Bank of America Merrill Lynch, Citi, PKO
biographies for each member is available on who reports directly to CEO and Audit Com- BP, Erste, Dragon Capital, Goldman Sachs,
the Company’s website. mittee of the Board, as well as attends all Au- and HSBC. Of that, 3 conferences we at-
dit Committee meetings. tended for the first time. The full list of con-
Responsibilities of the Executive Manage- ferences is published on our website;
ment Team are described in more detail in Compliance at Kernel is focused on the follow- • regular annual Investor Days. In May
Company’s Corporate Governance Charter, ing areas: 2019, Kernel organized for investors a 3-
available on Company’s website. day visit to company assets (farming clus-
• preventing fraud, corruption and other
ter, silo, 2 oilseed processing plants, and
misconduct (see details in section Anti-cor-
There are various committees operating on export terminal) and a meeting with top
ruption and anti-fraud);
management in Kyiv office;
the Executive Management Team level: Stra- • managing risk of cooperation with unre-
• ad-hoc meetings and calls with investors;
tegic Committee, Investment Committee, liable counterparties and international
Trade Committee, with executive directors sanctions. We improved the process of
Company is covered by 7 sell-side equity an-
checking our contractors for sanctions risk
in FY2019. Compliance officer and security alysts and 3 credit analysts (full list published
In FY2019, Executive Management Team cre-
ated a risk committee with CEO of the Com- department check business partners for on our website).
pany acting as a chairman of this committee. compliance risks: sanctions, corruption,
money-laundering, terrorism financing; All reports, presentations and other materials
The responsibilities of the committee include,
• making company activities compliant with are available to stakeholders on the Com-
among others, the implementation of the risk
management policy and procedures together various external initiatives (GDPR, equal- pany’s website https://www.kernel.ua/.
with development and continual improvement ity, diversity, and inclusion initiatives, etc.).
of an effective risk management system. See
more details in section Risk management sys- Compliance risks are generally assessed
tem. among other risks in Kernel risk management
system.
Compliance system In FY2019 Kernel became a member of
In December 2016, Kernel initiated a Corpo-
Ukrainian Network of Integrity and Compli-
rate Compliance Program (“CCP”) – an ac-
ance (UNIC), thus publicly committing itself to
tion plan of bringing Company’s compliance
promoting the UNIC’s principles of doing busi-
system in accordance with best international
ness ethically and responsibly, supporting a
standards. Progress on CCP implementation
good business reputation and constantly im-
was monitored each quarter by Baker Tilly,
proving the integrity standards in accordance
with final report presented in summer 2019,
with the best international practices.
after completion of the CCP in June 2019.
Baker Tilly recognized a significant progress
achieved in the implementation of Kernel’s Investor Relations
Compliance Program due to the actual execu- Kernel constantly put efforts on establishing
tion of both internal and external control activ- adequate and efficient communication with
ities, highlighting also the aspects for further shareholders, bondholders and other capital
continuous improvement. providers and targets the expansion of inves-
tors base.
Our efforts in enhancing corporate govern- The means for that include:
ance and compliance practices were recog- • non-deal roadshows. We had two NDRs
nized by such reputable institutions as in FY2019 after publication of annual and

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 Strategic Corporate Financial
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Independent Auditor’s Report

To the Shareholders of
Kernel Holding S.A.
19, rue de Bitbourg
L-1273 Luxembourg

INDEPENDENT AUDITOR’S REPORT

REPORT OF THE REVISEUR D’ENTREPRISES AGREE

Opinion
We have audited the consolidated financial statements of Kernel Holding S.A. (the “Company”) and its subsidiaries (the “Group”), which comprise
the consolidated statement of financial position as of 30 June 2019, the consolidated statement of profit or loss and the consolidated statement of
profit or loss and other comprehensive income for the year then ended, the consolidated statement of changes in equity and the consolidated
statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting
policies.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the
Group as of 30 June 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with
International Financial Reporting Standards (“IFRSs”) as adopted by the European Union.

Basis for opinion

We conducted our audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 on the audit profession (Law of 23 July 2016)
and with International Standards on Auditing (ISAs) as adopted for Luxembourg by the “Commission de Surveillance du Secteur Financier” (CSSF).
Our responsibilities under those Regulation, Law and standards are further described in the “Responsibilities of “Réviseur d’Entreprises Agréé” for
the Audit of the Consolidated Financial Statements” section of our report. We are also independent of the Group in accordance with the Interna-
tional Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) as adopted for Luxembourg by the
CSSF together with the ethical requirements that are relevant to our audit of the consolidated financial statements, and we have fulfilled our other
ethical responsibilities under those ethical requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to
provide a basis for our opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgment, were of most significance in our audit of the consolidated financial state-
ments of the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in
forming our opinion thereon, and we do not provide a separate opinion on these matters.

Why the matter was determined to be a key audit matter How the matter was addressed in the audit
Valuation of biological assets
Under IAS 41, the Group has to measure biological assets at fair value We obtained an understanding of controls surrounding valuation of bi-
as of reporting date. As of 30 June 2019, the carrying amount of bio- ological assets.
logical assets consisted primarily of current biological assets (mainly
crops in fields) in amount of USD 309,030 thousand. We challenged management’s assumptions with reference to histori-
cal data (yields) and, where applicable, external benchmarks (prices)
Crops in fields are measured using the discounted cash flow tech- and market data noting the assumptions used fell within an acceptable
nique. range.

The key assumptions used in the preparation of forecasts (see Note We performed an independent recalculation of fair value of biological
13 to the consolidated financial statements) are: assets as of 30 June 2019 using actual prices subsequent to year end,
• expected yields; median actual yields for last five years and a discount rates calculated
• prices; by our internal valuation specialists.
• discount rates.
We tested the accuracy and methodology of valuation models.

We tested discount rate with the assistance of our internal valuation

specialists and carried out audit procedures on management’s sensi-
tivity calculations.

We considered the appropriateness of the related disclosures pro-

vided in the consolidated financial statements (Note 13 to the consol-
idated financial statements).

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 Strategic Corporate Financial
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Independent Auditor Report continued

Why the matter was determined to be a key audit matter How the matter was addressed in the audit
Impairment of goodwill
Annually, as of the reporting date, or as required per IAS 36 “Impair- We obtained an understanding of controls around goodwill impairment
ment of Assets” more frequently, if there are indicators that the carry- test.
ing amount of goodwill is no longer recoverable, the Group performs
an impairment test. The Group manages its goodwill at the group of Our procedures included, among other, using internal valuation ex-
cash generating unit (“CGU”) level. Impairment is tested with refer- perts to assist us in evaluating the assumptions and valuation meth-
ence to fair value less cost to sell or the value-in-use, typically based odologies used by the Group, in particular those relating to the meth-
on the cash flow forecast for each CGU. odology and data used to estimate the WACC of each CGU’s value-
in-use estimate.
Impairment considerations were significant to our audit because the
goodwill balance of USD 107,735 thousand as of 30 June 2019 is ma- We have also focused on those assumptions that have the most sig-
terial to the consolidated financial statements. In addition, manage- nificant effect on the determination of the recoverable amount of good-
ment’s assessment process is complex, involves judgment and is will by performing sensitivity analysis.
based on assumptions, which are affected by expected future market
and economic conditions. The key assumptions with the most signifi- More specifically:
cant impact on the cash flow forecasts (see Note 17 to the consoli-
dated financial statements) were: We performed audit procedures on impairment models relating to sun-
• The discount rate (“WACC”), which is based on the weighted aver- flower oil and export terminal CGUs. We evaluated reasonableness of
age cost of capital. the models by comparing the assumptions made to internal and exter-
• Terminal growth rate. nal data. In particular, we:
• Business assumptions, including but not limited to expected oper- • compared short-term revenue growth rates to the latest approved
ating margins, future production and sales volumes, which are vol- budgets and found them to be consistent;
atile. • challenged the reasonableness of the assumptions in manage-
Further, key considerations included determination of CGUs, whether ment’s forecasts with reference to past performance, market condi-
the value in use calculation and valuation method used complied with tions and external benchmarks, where applicable;
the requirements of IFRS. • assessed the historical forecasting and budgeting accuracy;
• tested the integrity and mathematical accuracy of the models;
• tested discount rate with the assistance of our internal valuation
specialists and carried out audit procedures on management’s sen-
sitivity calculations;
• prepared our independent estimation of value-in- use for the tested
CGUs and compared amount obtained to the carrying value of non-
current assets of these CGUs.

We also considered the adequacy of the Group’s disclosures in re-

spect of goodwill impairment testing (Note 17 to the consolidated fi-
nancial statements) and whether disclosures, related to the sensitivity
of the valuation model used, properly reflecting the risks inherent in
such assumptions.
Revenue recognition
The Group sells different commodities, goods and services to various We obtained an understanding of controls in respect of completeness
counterparties as disclosed in Note 25, and operates in different busi- of revenue.
ness and geographical segments as described in Note 6 in the con-
solidated financial statements. We have disaggregated revenue population for first-class counterpar-
ties (public companies, companies with good reputation identified in
ISAs require an auditor in assessing risk of material misstatement to prior periods), and less known counterparties or new counterparties
presume fraud risk in revenue recognition. Given the high volume of (“second tier counterparties”).
underlying transactions and high number of counterparties, we con-
sider a risk that goods can be sold to certain counterparties per prices For second tier counterparties we have performed background search
lower than market prices, with part of the profit margin arising from to obtain information about these counterparties. We have compared
those sales not included into the consolidated statement of profit or sales prices for a sample of transactions with such counterparties to
loss. market prices at the date of the transactions.

Additionally, we have performed analysis for companies owned by

management and the Major Equity Holder and ensured that no such
companies are related to the Group’s customers.

Other information
The Board of Directors is responsible for the other information. The other information comprises the information included in the management report
and the Corporate Governance Statement, but does not include the consolidated financial statements and our report of “réviseur d'entreprises
agréé” thereon.

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 Strategic Corporate Financial
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Independent Auditor Report continued

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion
thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider
whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit or other-
wise appears to be materially misstated. If, based on the work we have performed, we concluded that there is a material misstatement of this other
information; we are required to report this fact. We have nothing to report in this regard.

Responsibilities of Board of Directors and Those Charged with Governance for the Consolidated Financial Statements
The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Luxem-
bourg 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.

Those charged with governance are responsible for overseeing the Group’s financial reporting process.

Responsibilities of the « Réviseur d’Entreprises Agréé » for the Audit of the Consolidated Financial Statements
The objectives of our audit are to obtain a reasonable assurance about whether the consolidated financial statements as a whole are free from
material misstatement, whether due to fraud or error, and to issue a report of “Réviseur d’Entreprises Agréé” that includes our opinion. Reasonable
assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the EU Regulation N°537/2014, the Law
of 23 July 2016 and with ISAs as adopted for Luxembourg by the CSSF will always detect a material misstatement when it exists. Misstatements
can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with the EU Regulation N° 537/2014, the Law of 23 July 2016 and with ISAs as adopted for Luxembourg by the
CSSF, we exercise professional judgment and maintain professional skepticism throughout the audit. We also:
• Identity and asses the risks of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform
audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The
risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion,
forgery, intentional omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances,
but not for expressing an opinion on the effectiveness of the Group’s internal control.
• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the
Board of Directors.
• Conclude on the appropriateness of Board of Directors’ use of the going concern basis of accounting and, based on the audit evidence obtained,
whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going
concern. If we conclude that a material uncertainty exists, we are required to draw attention in our report of “Réviseur d’Entreprises Agréé” to
the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions
are based on the audit evidence obtained up to the date of our report of “Réviseur d’Entreprises Agréé”. However, future events or conditions
may cause the Group to cease to continue as a going concern.
• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the
consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express
an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We
remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant
audit findings, including any significant deficiencies in internal control that we identify during our audit.

We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independ-
ence, and to communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where
applicable, related safeguards.

From the matters communicated with those charged with governance, we determine those matters that were of most significance in the audit of
the consolidated financial statements of the current period and are therefore the key audit matters. We describe these matters in our report unless
law or regulation precludes public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be
communicated in our report because the adverse consequences of doing so would reasonably be expected to outweigh the public interest benefits
of such communication.

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Independent Auditor Report continued

Report on Other Legal and Regulatory Requirements
We have been appointed as « Réviseur d’Entreprises Agréé » by the General Meeting of the Shareholders on 10 December 2018 and the duration
of our uninterrupted engagement, including previous renewals and reappointments, is 8 years.

The management report, which is the responsibility of the Board of Directors, is consistent with the consolidated financial statements and has been
prepared in accordance with applicable legal requirements.

The Corporate Governance Statement, included in the management report (in corporate governance section) and as published on the Group’s
website http://www.kernel.ua is the responsibility of the Board of Directors. The information required by Article 68bis paragraph (1) letters c) and
d) of the law of 19 December 2002 on the commercial and companies register and on the accounting records and annual accounts of undertakings,
as amended, is consistent with the consolidated financial statements and has been prepared in accordance with applicable legal requirements.

The management report is consistent with the consolidated financial statements and has been prepared in accordance with applicable legal
requirements.

We confirm that the audit opinion is consistent with the additional report to the audit committee or equivalent.

We confirm that the prohibited non-audited services referred to in the EU Regulation No 537/2014 on the audit profession were not provided and
that we remain independent of the Group in conducting the audit.

Other matter
The Corporate Governance Statement includes information required by Article 68bis paragraph (1) of the law of 19 December 2002 on the com-
mercial and companies register and on the accounting records and annual accounts of undertakings, as amended.

For Deloitte Audit, Cabinet de révision agréé

Marco Crosetto,
Réviseur d’entreprises agréé
Partner

27 September 2019

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 Strategic Corporate Financial
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Statement of the Board of Directors’ Responsibilities for the

Preparation and Approval of the Consolidated Financial
Statements
for the year ended 30 June 2019

The Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with Luxem-
bourg 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 con-
formity with International Financial Reporting Standards as adopted by the European Union give a true and fair view of the consolidated
statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes to the consolidated financial
statements, including a summary of significant accounting policies; and

→ The Management 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 September 2019

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

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Selected Financial Data

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

USD1 PLN EUR

30 June 30 June 30 June 30 June 30 June 30 June
2019 2018 2019 2018 2019 2018
I. Revenue 3,992,133 2,403,003 15,042,756 8,529,459 3,499,903 2,014,918
II. Profit from operating activities 269,207 139,565 1,014,399 495,386 236,014 117,025
III. Profit before income tax 190,406 50,054 717,469 177,667 166,929 41,970
IV. Profit for the period from continuing operations 178,504 55,954 672,621 198,609 156,494 46,917
V. Net cash generated by operating activities 198,650 82,477 748,534 292,753 174,155 69,157
VI. Net cash used in investing activities (241,404) (155,694) (909,634) (552,636) (211,639) (130,549)
VII. Net cash generated by financing activities 29,102 76,121 109,659 270,191 25,514 63,827
VIII. Total net cash flow (13,652) 2,904 (51,441) 10,308 (11,970) 2,435
IX. Total assets 2,463,600 2,210,514 9,198,097 8,276,164 2,163,287 1,897,505
X. Current liabilities 479,760 475,516 1,791,232 1,780,332 421,277 408,183
XI. Non-current liabilities 637,814 557,394 2,381,342 2,086,883 560,064 478,467
XII. Issued capital 2,164 2,164 8,080 8,102 1,900 1,858
XIII. Total equity 1,346,026 1,177,604 5,025,523 4,408,949 1,181,946 1,010,855
XIV. Number of shares 81,941,230 81,941,230 81,941,230 81,941,230 81,941,230 81,941,230
XV. Profit per ordinary share (in USD/PLN/EUR) 2.31 0.64 8.71 2.26 2.03 0.53
XVI. Diluted number of shares 82,820,378 82,887,231 82,820,378 82,887,231 82,820,378 82,887,231
XVII. Diluted profit per ordinary share (in USD/PLN/EUR) 2.29 0.63 8.62 2.23 2.01 0.53
XVIII. Book value per share (in USD/PLN/EUR) 16.49 14.29 61.57 53.50 14.48 12.27
XIX. Diluted book value per share (in USD/PLN/EUR) 16.31 14.12 60.90 52.87 14.32 12.12

1
Please see Note 3 for the exchange rates used for conversion

The accompanying notes are an integral part of these financial statements.

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Consolidated Statement of Financial Position

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As of As of
Notes
30 June 2019 30 June 2018
Assets
Current assets
Cash and cash equivalents 8, 36 76,801 132,018
Trade accounts receivable, net 3, 9, 33, 36 183,196 92,355
Prepayments to suppliers and other current assets, net 3,10 129,822 113,342
Corporate income tax prepaid 24 8,484 6,937
Taxes recoverable and prepaid, net 11 118,575 114,695
Inventory 12 357,610 368,453
Biological assets 13 309,030 289,436
Other financial assets 36 70,835 72,344
Assets classified as held for sale 14 2,079 14,689
Total current assets 1,256,432 1,204,269
Non-current assets
Property, plant and equipment, net 15 764,686 588,127
Intangible assets, net 16 114,942 104,466
Goodwill 17 107,735 103,691
Investments in joint ventures 32 51,252 52,218
Deferred tax assets 24 8,447 18,536
Corporate income tax prepaid 4,374 4,645
Other non-current assets 18, 33 155,732 134,562
Total non-current assets 1,207,168 1,006,245
Total assets 2,463,600 2,210,514
Liabilities and equity
Current liabilities
Trade accounts payable 36 136,043 73,629
Advances from customers and other current liabilities 19, 33 104,976 104,898
Short-term borrowings 20 183,692 224,773
Current portion of long-term borrowings 21 1,233 2,811
Interest on bonds issued 23, 29, 36 17,949 17,949
Other financial liabilities 36 35,867 51,456
Total current liabilities 479,760 475,516
Non-current liabilities
Long-term borrowings 21 63,680 2,812
Obligations under finance leases 22 5,230 7,710
Deferred tax liabilities 24 29,010 19,570
Bonds issued 23 496,051 494,796
Other non-current liabilities 7, 33, 36 43,843 32,506
Total non-current liabilities 637,814 557,394
Equity attributable to Kernel Holding S.A. equity holders
Issued capital 2,164 2,164
Share premium reserve 481,878 481,878
Additional paid-in capital 39,944 39,944
Equity-settled employee benefits reserve 9,111 8,114
Revaluation reserve 62,249 43,815
Translation reserve (734,396) (724,054)
Retained earnings 1,489,996 1,318,872
Total equity attributable to Kernel Holding S.A. equity holders 1,350,946 1,170,733
Non-controlling interests (4,920) 6,871
Total equity 1,346,026 1,177,604
Total liabilities and equity 2,463,600 2,210,514

Book value 1,350,946 1,170,733

Number of shares 37 81,941,230 81,941,230
Book value per share (in USD) 16.49 14.29
Diluted number of shares 37 82,820,378 82,887,231
Diluted book value per share (in USD) 16.31 14.12

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

The accompanying notes are an integral part of these financial statements.

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Consolidated Statement of Profit or Loss

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Notes As of 30 June 2019 As of 30 June 20181

Revenue 25, 33 3,992,133 2,403,003
Net change in fair value of biological assets and agricultural produce 13 9,140 18,699
Cost of sales 26, 33 (3,653,762) (2,261,230)
Gross profit 347,511 160,472

Other operating income, net 27 28,228 59,092

General and administrative expenses 28, 33 (106,532) (79,999)
Profit from operating activities 269,207 139,565

Finance costs, net 29, 33 (82,319) (65,099)

Foreign exchange gain, net 30 12,860 5,375
Other expenses, net 31, 33 (8,376) (30,980)
Share of (loss)/income of joint ventures 32 (966) 1,193
Profit before income tax 190,406 50,054

Income tax (expenses)/benefit 24 (11,902) 5,900

Profit for the period from continuing operations 178,504 55,954

Profit for the period 178,504 55,954

Profit for the period attributable to:

Equity holders of Kernel Holding S.A. 189,464 52,143
Non-controlling interests (10,960) 3,811

Earnings per share

From continuing operations
Weighted average number of shares 37 81,941,230 81,941,230
Profit per ordinary share (in USD) 2.31 0.64
Diluted number of shares 37 82,820,378 82,887,231
Diluted profit per ordinary share (in USD) 2.29 0.63

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

1
During the year ended 30 June 2019, the Group has changed its accounting policy due to IFRS 15 adoption and changed presentation of Distributions costs and included
them in Cost of sales. Comparative information was reclassified respectively. Please see Note 3 for more details and description of changes in accounting policy and reclassi-
fications made

The accompanying notes are an integral part of these financial statements.

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Consolidated Statement of Profit or Loss and

Other Comprehensive Income
for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

30 June 2019 30 June 2018

Profit for the period 178,504 55,954

Other comprehensive income/ (loss)

Items that will not be reclassified subsequently to profit or loss:
Gain on revaluation of property (Note 15) 25,833 ─
Income tax related to components of other comprehensive income (Note 24) (4,650) ─
Items that may be reclassified subsequently to profit or loss:
Exchange differences on translating foreign operations (10,979) (16,574)
Other comprehensive income/(loss), net 10,204 (16,574)
Total comprehensive income for the period 188,708 39,380

Total comprehensive income/(loss) attributable to:

Equity holders of Kernel Holding S.A. 200,305 35,547
Non-controlling interests (11,597) 3,833

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

The accompanying notes are an integral part of these financial statements.

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Consolidated Statement of Changes in Equity

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Attributable to Kernel Holding S.A. shareholders

Equity-
settled
Share Additional employee Revalu- Non-
Issued premium paid-in benefits ation Translation Retained controlling Total
capital reserve capital reserve reserve reserve Earnings Total interests equity
Balance as of 30 June 2017 2,164 481,878 39,944 7,014 43,815 (707,458) 1,285,671 1,153,028 4,581 1,157,609
Profit for the period ─ ─ ─ ─ ─ ─ 52,143 52,143 3,811 55,954
Other comprehensive (loss)/income ─ ─ ─ ─ (16,596) ─ (16,596) 22 (16,574)
Total comprehensive (loss)/income for the ─ ─ ─ ─ ─ (16,596) 52,143 35,547 3,833 39,380
period
Distribution of dividends ─ ─ ─ ─ ─ (20,485) (20,485) ─ (20,485)
Effect of changes in non-controlling interests ─ ─ ─ ─ ─ ─ 1,543 1,543 (1,543) ─
Recognition of share-based payments (Note 2) ─ ─ ─ 1,100 ─ ─ ─ 1,100 ─ 1,100
Balance as of 30 June 2018 (as previously re- 2,164 481,878 39,944 8,114 43,815 (724,054) 1,318,872 1,170,733 6,871 1,177,604
ported)
Effect of IFRS 9 implementation (Note 3, 9) ─ ─ ─ ─ ─ ─ (314) (314) ─ (314)
Balance as of 1 July 2018 (restated) 2,164 481,878 39,944 8,114 43,815 (724,054) 1,318,558 1,170,419 6,871 1,177,290
Profit/(Loss) for the period ─ ─ ─ ─ ─ ─ 189,464 189,464 (10,960) 178,504
Other comprehensive income/(loss) ─ ─ ─ ─ 21,183 (10,342) ─ 10,841 (637) 10,204
Total comprehensive income/(loss) for the ─ ─ ─ ─ 21,183 (10,342) 189,464 200,305 (11,597) 188,708
period
Distribution of dividends (Note 2) ─ ─ ─ ─ ─ ─ (20,485) (20,485) ─ (20,485)
Disposal of subsidiaries ─ ─ ─ ─ (1,626) ─ 1,626 ─ ─ ─
Effect of changes on minority interest ─ ─ ─ ─ ─ ─ (290) (290) (194) (484)
Recognition of share-based payments (Note 2) ─ ─ ─ 997 ─ ─ ─ 997 ─ 997
Transfer of revaluation reserve ─ ─ ─ ─ (1,123) ─ 1,123 ─ ─ ─
Balance as of 30 June 2019 2,164 481,878 39,944 9,111 62,249 (734,396) 1,489,996 1,350,946 (4,920) 1,346,026

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

The accompanying notes are an integral part of these financial statements.

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Consolidated Statement of Cash Flows

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Notes As of 30 June 2019 As of 30 June 2018

Operating activities:
Profit before income tax 190,406 50,054
Adjustments for:
Amortization and depreciation 76,303 82,975
Finance costs, net 29 82,319 65,099
Movement in allowance for doubtful receivables 7,905 997
Other accruals 31 5,036 44,870
Gain on disposal of property, plant and equipment (605) (791)
Net foreign exchange gain (13,840) (12,179)
Write-offs and (reversal)/impairment loss 16, 17, 31 (116) 577
Net change in fair value of biological assets and agricultural produce 13 (9,140) (18,699)
Gain on bargain purchase 7, 31 — (2,309)
Share of loss/(income) of joint ventures 32 966 (1,193)
Gain on sales of subsidiaries 7, 31 (4,833) (2,972)
Net loss/(gain) arising on financial assets classified as at fair value through profit or loss 23,662 (23,137)
Other losses 10,234 —
Operating profit before working capital changes 368,297 183,292
Changes in working capital:
Change in trade and other accounts receivable1 (131,516) (7,902)
Change in prepayments and other current assets (13,706) (52,382)
Change in restricted cash balance 538 3,251
Change in taxes recoverable and prepaid 441 3,273
Change in biological assets 18,779 1,675
Change in inventories (24,160) 9,866
Change in trade accounts payable 60,055 19,049
Change in advances from customers and other current liabilities (4,328) (8,065)
Cash generated from operations 274,400 152,057
Interest paid (76,233) (69,482)
Interest received 3,829 5,106
Income tax paid (3,346) (5,204)
Net cash generated by operating activities 198,650 82,477
Investing activities:
Purchase of property, plant and equipment (166,988) (146,565)
Proceeds from disposal of property, plant and equipment 9,754 7,053
Purchase of intangible and other non-current assets (25,375) (15,670)
Acquisition of subsidiaries, net of cash acquired 7 (56,272) (46,512)
Disposal of subsidiaries 7 11,313 24,706
Amount advanced for subsidiaries 3,873 (1,996)
Amount advanced to related parties (10,085) —
Proceeds from disposal of financial assets — 23,290
Payment to acquire financial assets (7,624) —
Net cash used in investing activities (241,404) (155,694)
Financing activities:
Proceeds from borrowings 577,983 777,599
Repayment of borrowings (516,713) (680,026)
Payment of dividends 2 (20,485) (20,485)
Financing for farmers (11,083) —
Net cash generated by financing activities 29,702 77,088
Effects of exchange rate changes on the balance of cash held in foreign currencies (600) (967)
Net increase in cash and cash equivalents (13,652) 2,904
Cash and cash equivalents, at the beginning of the year 90,069 87,165
Cash and cash equivalents, at the end of the year 76,417 90,069

For non-cash financing activities please see Note 8.

On behalf of the Board of Directors

Andrii Verevskyi Anastasiia Usachova

Chairman of the Board of Directors Director, Chief Financial Officer

1
Includes movement in other financial assets

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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. Its ordinary shares are traded on the Warsaw stock exchange.

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 2019, the Group employed 13,397 people
(15,116 people as of 30 June 2018).

The Group’s financial year runs from 1 July to 30 June.

The principal operating office of the Group is located at 3 Tarasa Shevchenka Lane, Kyiv, 01001, Ukraine.

As of 30 June 2019 and 30 June 2018, the primary Subsidiaries of the Group and principal activities of the Subsidiaries consolidated by the Holding
were as follows:
Group’s effective ownership in-
terest and voting rights as of
Country of
30 June 2019 30 June 2018
Subsidiary Principal activity incorporation
Jerste S.a.r.l. Holding companies. Luxembourg 100.0% 100.0%
Inerco Trade S.A. Trading in sunflower oil, Switzerland 100.0% 100.0%
Restomon Ltd meal and grain. British Virgin Islands 100.0% 100.0%
Kernel-Trade LLC Ukraine 100.0% 100.0%
Avere Commodities SA Switzerland 60.0% 60.0%
Ukragroinvest LLC Ukraine 100.0% 100.0%
Poltava OEP PJSC Oilseed crushing plants. Production of Ukraine 99.7% 99.7%
Bandurka OEP LLC sunflower oil and meal. Ukraine 100.0% 100.0%
Vovchansk OEP PJSC Ukraine 99.4% 99.4%
Prykolotnoe OEP LLC Ukraine 100.0% 100.0%
Kropyvnytskyi OEP PJSC1 Ukraine 99.2% 99.2%
Ekotrans LLC 2 Ukraine 0.0% 100.0%
BSI LLC Ukraine 100.0% 100.0%
Prydniprovskyi OEP LLC Ukraine 100.0% 100.0%
Estron Corporation Ltd Provision of grain, oil and meal Cyprus 100.0% 100.0%
handling and transshipment services.
Poltava HPP PJSC Grain elevators. Provision of grain and Ukraine 94.0% 94.0%
Kononivsky Elevator LLC oilseed cleaning, drying and storage ser- Ukraine 100.0% 100.0%
Agro Logistics Ukraine LLC vices. Ukraine 100.0% 100.0%
Bilovodskyi KHP PJSC Ukraine 91.12% 91.12%
Unigrain-Agro (Semenivka) Agricultural farms. Cultivation of agricultural Ukraine 0.0% 100.0%
LLC3 products: corn, wheat, soybean, sunflower
Agrofirma Arshytsya LLC4 seed, rapeseed, forage, pea and barley. Ukraine 0.0% 100.0%
Hliborob LLC Ukraine 100.0% 100.0%
Vyshneve Agro ALLС3 Ukraine 0.0% 100.0%
Prydniprovskyi Kray ALLC Ukraine 100.0% 100.0%
Enselco Agro LLC Ukraine 100.0% 100.0%
Druzhba-Nova ALLC Ukraine 100.0% 100.0%
Agro Invest Ukraine LLC5 Ukraine 0.0% 100.0%
Druzhba 6 PE Ukraine 100.0% 100.0%
AF Semerenky LLC Ukraine 100.0% 100.0%
Hovtva ALLC Ukraine 100.0% 100.0%
Buymerske PE6 Ukraine 0.0% 100.0%

These consolidated financial statements were authorized for release by the board of directors of Kernel Holding S.A. on 27 September 2019.

1
The company was renamed from Kirovogradoliya PJSC
2
The company was disposed on 30 July 2018
3
The company merged with Prydniprovskyi Kray ALLC
4
The company merged with Hovtva ALLC
5
The company merged with Hliborob LLC
6
The company merged with AF Semerenky LLC

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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 2019,
consisted of 81,941,230 ordinary electronic shares without indication of the nominal value (30 June 2018: 81,941,230). Ordinary shares have
equal voting rights and rights to receive dividends.

The shares were distributed as follows:

As of 30 June 2019 As of 30 June 2018
Shares allotted Share Shares allotted Share
Equity holders and fully paid owned and fully paid owned
Namsen Limited Liability Company registered under the legislation of Cy- 32,716,775 39.93% 32,344,404 39.47%
prus (hereinafter the ‘Major Equity Holder’)
Free float 49,224,455 60.07% 49,596,826 60.53%
Total 81,941,230 100.00% 81,941,230 100.00%

As of 30 June 2019 and 2018, 100% of the beneficial interest in the Major Equity Holder was held by Andrii Mykhailovych Verevskyi (hereinafter
the ‘Beneficial Owner’).

As of and during the year ended 30 June 2019, the fair value of the share-based options granted to the management was USD 9,111 thousand
and USD 997 thousand was recognized as an expense (part of payroll and payroll related expenses), with a corresponding increase in equity over
the vesting period (as of and during the year ended 30 June 2018: USD 8,114 thousand and USD 1,100 thousand, respectively).

On 10 December 2018, the annual general meeting of shareholders approved an annual dividend of USD 0.25 per share amounting to
USD 20,485 thousand.

On 25 April 2019, the dividends were fully paid to the shareholders.

On 10 November 2017 the Company received a notification from Cascade Investment Fund, regarding the acquisition of shares in Kernel Holding
S.A. The Cascade Investment Fund held 5,397,453 shares in the Company, representing 6.59% of the share capital and entitling it to 5,397,453
votes at the Company’s general shareholders’ meeting, equal to 6.59% of the total number of votes.

On 18 June 2018, the Company received a notification from Julius Baer Group Ltd, regarding the acquisition of shares in Kernel Holding S.A. that
on 8 June 2018 it had crossed 5% threshold. The Julius Baer Group Ltd held 5,098,297 shares in the Company, representing 6.22% of the share
capital.

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 216 thousand as of 30 June 2019 and 2018, may not be distributed as dividends.

3. 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 bulk and bottled oil segments, assets held for sale, 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 reg-
ulations, reflect adjustments necessary for such financial statements to be presented in accordance with IFRS.

Adoption of New and Revised Standards

In the current year, the Group has adopted a number of new and revised IFRS standards that became effective as of 1 July 2018.

IFRS 15 Revenue from Contracts with Customers

IIFRS 15 supersedes IAS 18 Revenue, IAS 11 Construction Contracts and related Interpretations and it applies, with limited exceptions, to all
revenue arising from contracts with customers.

The core principle of IFRS 15 is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an
amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.

The standard introduced a 5-step model to revenue recognition where entities have to exercise judgement, taking into consideration all of the
relevant facts and circumstances when applying each step of the model to contracts with their customers. The standard also specifies the ac-
counting for the incremental costs of obtaining a contract and the costs directly related to fulfilling a contract. In addition, the standard requires
extensive disclosures.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The Group elected the modified retrospective method (without practical expedients) with the effect of initially applying this standard recognized at
the date of initial application as of 1 July 2018. In accordance with the transition guidance, IFRS 15 has only been applied to contracts that are
incomplete as at 1 July 2018. As the majority of the Group’s revenue is derived from commodity sales, for which the point of recognition is
dependent upon contract sales terms (Incoterms), the transfer of risks and rewards as defined by IAS 18 and the transfer of control as defined by
IFRS 15 could differ. The application of IFRS 15 has an impact on the Group’s commodity sales as it may be necessary to recognize a separate
performance obligation and allocate part of the transaction price to a carriage and fright 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 support-
ing services. The revenue from these carriage and fright services is recognized over time.

IFRS 15 uses the terms ‘contract asset’ and ‘contract liability’ to describe what might more commonly be known as ‘accrued revenue’ and ‘deferred
revenue’, however the Standard does not prohibit an entity from using alternative descriptions in the statement of financial position. A contract
liability is an entity’s obligation to transfer goods or services to a customer for which the entity has been entitled for receipt of consideration from
the customer. Contract liabilities are included in advances from customers and other current liabilities line item.

As of 30 June 2018, there were no incomplete contracts, which will materially affect revenue recognition retrospectively. As such, the adoption of
this standard has had no material impact in respect of timing and amount of revenue recognized by the Group and accordingly retained earnings
have not been impacted by the first application of the standard.

The Group’s accounting policies for its revenue streams are disclosed in detail in note below. Apart from providing more extensive disclosures for
the Group’s revenue transactions, the application of IFRS 15 has not had a significant impact on the financial position and/or financial performance
of the Group. However, in context of IFRS 15, the Group decided to change its accounting policy for presentation of distribution costs as illustrated
below in paragraph ‘Change in Accounting Policy’.

The adoption of IFRS 15 has had no material impact with respect to timing of recognition for carriage, freight and insurance services

IFRS 9 Financial Instruments

IFRS 9 replaces IAS 39 Financial Instruments: Recognition and Measurement that relate to the recognition, classification and measurement of
financial assets and financial liabilities, derecognition of financial instruments, impairment of financial assets and hedge accounting.

The Group reassess classification of financial assets from four to three primary categories (amortized cost, fair value through profit and loss, fair
value through other comprehensive income). Reclassification depends on the business model for managing the financial assets and the contrac-
tual terms of the cash flows characteristics. Financial liabilities continue to be measured at either fair value through profit and loss or amortized
cost. In addition, IFRS 9 introduced an expected credit loss (“ECL”) impairment model, which means that anticipated as opposed to incurred credit
losses are recognized resulting in earlier recognition of impairments.

In accordance with the transitional guidance, comparative figures have not been restated for prior year other than certain presentation changes.
Therefore, the difference between the carrying amount of financial instruments under IAS 39 and the carrying amount under IFRS 9 has been
recognized in the opening retained earnings as at date of initial application as of 1 July 2018.

The following summarizes the impact of transition to IFRS 9 on the opening balance of reserves, retained earnings and non-controlling interest:
• Presentational changes primarily in the trade accounts receivable (Note 9) and prepayments to suppliers and other current assets (Note 10)
disclosures to reflect the business model and cash flow characteristics of these assets and liabilities and group them into their respective IFRS 9
category or other IFRS classification;
• Additional disclosure around classification and measurement of financial instruments; and
• An additional net credit loss allowance of USD 314 thousand as at 1 July 2018, recognized against opening retained earnings.

The Group considered that the new classification requirements do not have a material impact on its accounting for financial assets and liabilities
previously classified as receivables and loans. Loans and receivables are held to collect contractual cash flows and are expected to give rise to
cash flows representing solely payments of principal and interest. The Group analyzed the contractual cash flow characteristics of those instru-
ments and concluded that they meet the criteria for amortized cost measurement under IFRS 9. Therefore, reclassification for these instruments
is not required.

There were no financial assets or financial liabilities which the Group had previously designated as at FVTPL under IAS 39 that were subject to
reclassification or which the Group has elected to reclassify upon the application of IFRS 9. There were no financial assets or financial liabilities
which the Group has elected to designate as at FVTPL at the date of initial application of IFRS 9.

Trade and other receivables that were classified as loans and receivables under IAS 39 are now classified at amortized cost. An increase of
USD 314 thousand in the allowance for impairment over these receivables was recognized in opening retained earnings at 1 July 2018 on transi-
tion to IFRS 9.

Additionally, the Group has adopted consequential amendments to IFRS 7 Financial Instruments: disclosures that are applied to disclosures about
2018, but have not been generally applied to comparative information.

The Group has adopted the other standards and interpretations effective for annual periods beginning on or after 1 July 2018.

The adoption of new standards, except for IFRS 15, had no effect on earnings per share either in the current or previous periods.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The adoption of other new or revised standards did not have any material effect on the consolidated financial position or performance of the Group
and any disclosures in the Group’s consolidated financial statements.

Standards and Interpretations Issued but not Effective

IFRS 16 was issued in January 2016 and it replaces IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15
Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease.

The standard establishes principles for the recognition, measurement, presentation and disclosure of leases, with the objective of ensuring that
lessees and lessors provide relevant information that faithfully represents those transactions.

IFRS 16 provides a comprehensive model for identification of lease arrangements and their treatment (on-balance sheet) in the financial state-
ments of both lessees and lessors. Under the new standard, a lessee is required to recognize the present value of the unavoidable lease payments
as a lease liability on the statement of financial position (including those currently classified as operating leases) with a corresponding right of use
asset. The unwind of the financial charge on the lease liability and amortization of the leased asset are recognized in the statement of income
based on the implied interest rate and contract term respectively. On transition, for leases previously accounted for as operating leases exist
exemptions for short-term leases and leases of low-value items. Lessors will continue to classify all leases using the same classification principle
as in IAS 17 and distinguish between two types of leases: operating and finance leases. Furthermore, extensive disclosures are required by IFRS
16.

The Group will apply this standard retrospectively with the cumulative effect recognized in retained earnings at the date of initial application on 1
July 2019 as permitted under the specific transition provisions in the standard. Under this approach, the Group will not restate amounts previously
reported and will apply the practical expedient available on transition to IFRS 16 not to reassess whether a contract is or contains a lease.
Accordingly, the definition of a lease in accordance with IAS 17 and IFRIC 4 will continue to apply to those leases entered or modified before 1
July 2019. The Group will apply the definition of a lease and related guidance set out in IFRS 16 to all lease contracts entered into or modified on
or after 1 July 2019 (whether it is a lessor or a lessee in the lease contract).

Impact on Lessee Accounting is as follows:

Operating leases
IFRS 16 will change how the Group accounts for leases previously classified as operating leases under IAS 17, which were off-balance sheet. On
initial application of IFRS 16, for all leases (except as noted below), the Group will:
• Recognize right-of-use assets and lease liabilities in the consolidated statement of financial position, initially measured at the present value of
the future lease payments;
• Recognize depreciation of right-of-use assets and interest on lease liabilities in the consolidated statement of profit or loss;
• Separate the total amount of cash paid into a principal portion (presented within financing activities) and interest (presented within operating
activities) in the consolidated cash flow statement.

Lease incentives (e.g. rent-free period) will be recognized as part of the measurement of the right-of-use assets and lease liabilities whereas under
IAS 17 they resulted in the recognition of a lease liability incentive, amortized as a reduction of rental expenses on a straight-line basis. Under
IFRS 16, right-of-use assets will be tested for impairment in accordance with IAS 36 Impairment of Assets.

For short-term leases (lease term of 12 months or less) and leases of low-value assets (such as personal computers and office furniture), the
Group will opt to recognize a lease expense on a straight-line basis as permitted by IFRS 16.

As at 30 June 2019, the Group has non-cancellable operating lease commitments of USD 591,547 thousand. A preliminary assessment indicates,
and hence the Group may recognize a right-of-use asset and a corresponding lease liability in a range between USD 245,000 thousand and USD
335,000 thousand in respect of all these leases, other than short-term leases and leases of low-value assets. The impact on the consolidated
statement of profit or loss and other comprehensive income, the Group will be recognizing depreciation charges on right to use-of-asset and the
interest expense from unwinding the lease the discount on the lease liability instead of rental payments in cost of sales and general and adminis-
trative expenses.

Under IAS 17, all lease payments on operating leases are presented as part of cash flows from operating activities. The impact of the changes
under IFRS 16 would be to reduce the cash generated by operating activities and to increase net cash used in financing activities by the same
amount.

Finance leases
The main differences between IFRS 16 and IAS 17 with respect to assets formerly held under a finance lease is the measurement of the residual
value guarantees provided by the lessee to the lessor. IFRS 16 requires that the Group recognizes as part of its lease liability only the amount
expected to be payable under a residual value guarantee, rather than the maximum amount guaranteed as required by IAS 17. On initial application
the Group will present equipment previously included in property, plant and equipment within the respective note lines in property, plant and
equipment, disclosing them as right-of-use assets and the lease liability, previously presented within obligations under finance lease, will be
presented in a separate note line within lease liabilities.

The above assessment for IFRS 16 is preliminary because not all transition work has been finalized. The actual effect of adopting IFRS 16 may
change because their adoption will require the Group to revise its accounting processes and internal controls and these changes are not yet
completed. The new accounting policies, assumptions, judgements and estimation techniques are subject to changes until the Group finalizes its
first consolidated financial statements that include the date of initial application.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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:
Effective for annual period
Standards and Interpretations beginning on or after
IFRS 16 Leases 1 January 2019
IFRS 17 Insurance contracts 1 January 2021
Amendments to IAS19: Plan Amendment, Curtailment or Settlement 1 January 2019
Amendments to IAS 28: Long-term Interests in Associates and Joint Ventures 1 January 2019
Amendments to IFRS 9: Prepayment Features with Negative Compensation 1 January 2019
Amendments to IAS 1 and IAS 8: Definition of Material 1 January 2020
Annual improvements to IFRS Standards 2015-2017 Cycle 1 January 2019
IFRIC 23 Uncertainty over Income Tax Treatments 1 January 2019
Amendments to IFRS 3 Definition of a Business 1 January 2020
Amendments to References to the Conceptual Framework in IFRS Standards 1 January 2020

For other standards and interpretations, management anticipates that their adoption will not have a material effect on the consolidated financial
statements of the Group in future periods.

Change in Accounting Policy

Starting from 1 July 2018, the Group voluntary changed its accounting policy relating to the classification of distribution expenses charged to its
customers. The Group sells products to customers based on different selling terms, which include among other carriage and freight services,
storage and dispatch services which are relating to costs incurred to store and to prepare goods for delivery and some other distribution services
(custom, certification and sanitation services and other services). These services are relating to costs incurred to deliver goods to the customers’
indicated locations and consist mostly of services provided by third parties. Carriage and freight, storage and dispatch costs and other distribution
expenses have been previously presented cumulative as distribution costs.

The Group decided to change the accounting policy regarding classification of distribution costs upon analysis of its performance obligations and
principal versus agent considerations according to the requirements of the new revenue standard (IFRS 15), adopted by the Group starting from
1 July 2018. More specifically, the Group has identified a separate performance obligation relating to freight and other related services. Further-
more, since the control over promised goods or services is transferred to the customers only upon their receipt of the goods or services, the Group
is considered to be a principal in providing freight and other services. As such and since the proceeds from freight and other services are presented
gross within Revenues, the corresponding cost of such services should be also presented gross in Cost of sales. Based on the above, the Group
decided to present all cost relating to freight and other related services within Cost of sales and to apply the above mentioned change in the
accounting policy retrospectively in order to eliminate inconsistency in presentation of carriage and freight and other related distribution expenses
and to comply with the requirements of the new revenue standard.

This approach is most commonly used in the industry and the Group’s management believes that such change in accounting policy will provide
more precise, relevant and consistent approach towards gross profit result of the Group.

The effect of the retrospective application of this policy on the Consolidated Financial Statement of Profit or Loss was as follows:

For the year ended 30 June 2019 For the year ended 30 June 2018
Effect of the change Effect of the change
New Policy Old Policy in accounting policy New Policy Old Policy in accounting policy
Cost of sales 3,653,762 3,345,500 308,262 2,261,230 2,107,677 153,553
Distribution costs — 308,262 (308,262) — 153,553 (153,553)

The change in accounting policies had no effect on earnings per share either in the current or previous 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, for which USD was selected 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 accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The exchange rates during the period of the financial statements were as follows:

Closing rate as of Average rate for the Closing rate as of Average rate for the
Currency
30 June 2019 year ended 30 June 2019 30 June 2018 year ended 30 June 2018
USD/UAH 26.1664 27.2935 26.1892 26.5878
USD/EUR 0.8781 0.8767 0.8584 0.8385
USD/PLN 3.7336 3.7681 3.7440 3.5495

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 2019.

The consolidated financial statements incorporate the financial statements of the Company and entities (including structured entities) controlled
by the Company and its Subsidiaries. Control is achieved when the Company:
• has 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 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. 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 and administrative 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;
• 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 Pay-
ment at the acquisition date; and
• Assets (or those held for disposal by the Group) 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 acquire 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

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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 consid-
eration 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
as the excess of the sum of the consideration transferred, the amount of any non-controlling interest in the acquire 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 acquire 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)
that is 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 entity.

Investments in Joint Ventures

A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint
arrangement. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant
activities require unanimous consent of the parties sharing control.

The results and assets and liabilities of joint ventures are incorporated in these consolidated financial statements using the equity method of
accounting, except when the investment, or a portion thereof, is classified as held for sale, in which case it is accounted for in accordance with
IFRS 5. Under the equity method, an investment in a joint venture is initially recognized in the consolidated statement of financial position at cost
and adjusted thereafter to recognize the Group’s share of the profit or loss and other comprehensive income of the associate or joint venture and
dividends received. When the Group’s share of losses of a joint venture exceeds the Group’s interest in that joint venture (which includes any
long-term interests that, in substance, form part of the Group’s net investment in the joint venture), the Group discontinues recognizing its share
of further losses. Additional losses are recognized only to the extent that the Group has incurred legal or constructive obligations or made payments
on behalf of the joint venture.

An investment in a joint venture is accounted for using the equity method from the date on which the investee becomes a joint venture. On
acquisition of the investment in a joint venture, any excess of the cost of the investment over the Group’s share of the net fair value of the
identifiable assets and liabilities of the investee is recognized as goodwill, which is included within the carrying amount of the investment. Any
excess of the Group’s share of the net fair value of the identifiable assets and liabilities over the cost of the investment, after reassessment, is
recognized immediately in the profit or loss in the period in which the investment is acquired.

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 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.

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
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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.

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 the lower of cost or net realizable value. Cost consists of the purchase cost and, where applicable, those expenses 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. The Group recognizes a biological asset or agricultural produce when the
Group controls the asset as a result of past events, it is probable that future economic benefits associated with the asset will flow to the Group,
and the fair value or cost of the asset can be measured reliably.

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 to sell 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.

Biological assets for which quoted market prices are not available and for which alternative estimates of fair value are considered to be clearly
unreliable 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 depreci-
ation 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
accumulated in revaluation reserve in equity. However, such an increase is recognized in the Consolidated Statement of Profit or Loss to the

The accompanying notes are an integral part of these financial statements.

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 Strategic Corporate Financial
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

extent that it reverses a revaluation decrease 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 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 the Consoli-
dated 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.

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 impair-
ment loss.

Trademarks
The ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’ trademarks 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.

Land Lease Rights

Land lease rights acquired in a business combination are recognized separately from goodwill at their fair value at the acquisition date (which is
subsequently regarded as their cost).

Amortization of land lease rights is calculated on a straight-line basis during the term of a lease contract. For land lease rights acquired in business
combination, the amortization period varies from 1 to 22 years. The amortization period for emphyteusis contracts varies from 20 to 90 years.

Subsequent to initial recognition, intangible assets acquired in a business combination are reported at cost less accumulated amortization and
accumulated impairment losses, on the same basis as intangible assets that are acquired separately.

An intangible asset is derecognized on disposal, or when no future economic benefits are expected from use or disposal. Gains or losses arising
from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carrying amount of the asset,
are recognized in the Consolidated Statement of Profit or Loss when the asset is derecognized.

Impairment of tangible and intangible assets, except Goodwill

At 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

The accompanying notes are an integral part of these financial statements.

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 Strategic Corporate Financial
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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 its carrying amount, the carrying amount of the asset
(or cash-generating unit) is reduced to its recoverable amount. 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.

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.

Cash and cash equivalents include cash on hand, cash with banks, and deposits with original maturities of three months or less.

Financial assets are classified as either 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 nature and purpose 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. 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 subse-
quently 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 acquisition of financial assets or financial liabilities at fair value through profit or loss are recognized immediately in profit or loss.

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 appropriate, 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 common control, 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 meas-
uring 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 substantially retains all the risks and rewards of ownership
The accompanying notes are an integral part of these financial statements.
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 Strategic Corporate Financial
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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 substantially retains 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 and the cumulative gain or loss that had been recognized in other comprehensive income and accumulated in equity 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 ECL (expected credit losses) 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
and other current assets. 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.

Definition of default
The Group considers the following as constituting an event of default for internal credit risk management purposes as historical experience indi-
cates 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.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

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 the 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 are
recognized in other comprehensive income are not subsequently reclassified to profit or loss; instead, they are transferred to retained earnings
upon derecognition 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 differ-
ence 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 profit or loss as the modification gain or loss within other
gains and losses.

Commodity derivatives
The Group enters into 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 Other operating income, net, 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.

Derivatives are not offset in the consolidated financial statements unless the Group has both legal right and intention to offset. As of 30 June 2019
and 2018, the impact of the Master Netting Agreements on the Group’s financial position was not material.

Leases
Leases are classified as finance leases whenever the terms of the lease transfer substantially all the risks and rewards of ownership to the lessee.
All other leases are classified as operating leases.

Assets held under finance leases are recognized as assets of the Group at their fair value at the inception of the lease or, if lower, at the present
value of the minimum lease payments. The corresponding liability to the lessor is included in the Consolidated Statement of Financial Position as
an obligation under finance lease.

Finance costs, which represent the difference between the total leasing commitments and the fair value of the assets acquired, are charged to
income 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.

Rentals payable under operating leases are charged to income on a straight-line basis over the term of the relevant lease except where another
more systematic basis is more representative of the time pattern in which economic benefits from the lease asset are consumed.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Taxes Recoverable and Prepaid

Taxes recoverable and prepaid are stated at their nominal value and reduced by appropriate allowances for estimated irrecoverable amounts.

Employee Benefits
Certain entities within the Group participate in a mandatory government defined retirement benefit plan, which provides for early pension benefits
for employees working in certain workplaces with hazardous and unhealthy working conditions. The Group also provides lump sum benefits upon
retirement subject to certain conditions. For defined benefit retirement benefit plans, the cost of providing benefits is determined using the Projected
Unit Credit Method, with actuarial valuations being carried out at the end of each annual reporting period.

The liability recognized in the Consolidated Statement of Financial Position with respect to the defined benefit pension plan is the present value
of the defined benefit obligation at the reporting date, less adjustments for unrecognized actuarial gains or losses and past service costs. The
defined benefit obligation is calculated annually by actuaries using the projected unit credit method. The present value of the defined benefit
obligation is determined by discounting the estimated future cash outflows using interest rates of high-quality corporate bonds that are denomi-
nated in the currency in which the benefits will be paid.

Equity-settled Transactions
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 Black-Scholes 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 since the previous reporting date is recognized in the Consolidated Statement of Profit or Loss, with
a corresponding entry in equity.

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, taking into account the risks and uncertainties surrounding the obligation.

Contingencies
Contingent liabilities are not recognized in the consolidated financial statements. They are disclosed unless the possibility of an outflow of re-
sources embodying economic benefits is remote. A contingent asset is not recognized in the consolidated financial statements but is disclosed
when an inflow of economic benefits is probable.

Revenue from contracts with customers

Sale of Goods and Finished Products
The Group produces and sells a range of agricultural commodities, sunflower oil and meal in the wholesale market. Revenue from contracts with
customers is recognized when control of the goods or services are 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. 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, respec-
tively, amount of contract assets and contract liabilities is not material.

The promise to provide freight and insurance services after control is transferred is a separate performance obligation for which part of the
transaction price is allocated. Revenue relating to these services is recognized over time. The transaction price allocated to these services is
recognized as a contract liability at the time of the initial sales transaction and is released on a straight-line basis over the period of service. For
provision of such services the Group regularly engages third-party service providers to provide freight and other services to its customers. 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. Also, the
Group is responsible for inventory risk during the freight service provision

Rendering of Services
Revenue is recognized over the period of time as the service is rendered. The main type of services provided by the Group are transshipment
services by terminals and crop cleaning, drying and storage services by the Group’s silos. Revenue from transshipment services is recognized
using input methods based on a time-and-materials basis as the services are provided. 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.

VAT benefits
Till 31 December 2016, in accordance with the Tax Code of Ukraine the Group’s enterprises that qualify as agricultural producers were entitled to
retain a portion of net VAT payable which were recognized as VAT benefits. Starting from 1 January 2017 the special VAT treatment regime has
been abolished but VAT benefits on prepayments received up to this date are recognized upon subsequent sales.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Government grants
Government grants are not recognized until there is reasonable assurance that the Group will comply with the conditions attaching to them and
that the grants will be received.

Government grants are recognized in profit or loss on a systematic basis over the periods in which the Group recognizes as expenses the related
costs for which the grants are intended to compensate. Specifically, government grants whose primary condition is that the Group should purchase,
construct or otherwise acquire non-current assets are recognized as deferred income in the consolidated statement of financial position and
transferred to profit or loss on a systematic and rational basis over the useful lives of the related assets.

Government grants that are receivable as compensation for expenses or losses already incurred or for the purpose of giving immediate financial
support to the Group with no future related costs are recognized in profit or loss in the period in which they become receivable.

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.

Investment income earned on the temporary investment of specific borrowing spending their expenditure on qualifying assets is deducted from
the borrowing costs eligible for capitalization.

All other borrowing costs are recognized in the Consolidated Statement of Profit or Loss in the period in which they are incurred. The interest
expense component of finance lease payments is recognized in the Consolidated Statement of Profit or Loss using the effective interest rate
method.

Taxation
Income taxes have been provided for in the consolidated financial statements in accordance with legislation currently enacted in the legal juris-
dictions where the operating entities are located. Income tax expense represents the sum of the tax currently payable and deferred tax expense.

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 asset 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.

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.

Reclassifications
Certain reclassifications have been made to the consolidated financial statements as of 30 June 2018 and for the year then ended to conform to
the current year’s presentation.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

4. Critical Accounting Judgments and Key Sources of Estimation Uncertainty

The application of IFRS requires the use of 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.

Revenue Recognition
In the normal course of business, the Group engages in sale and purchase transactions for the purpose of exchanging grain in various locations
to fulfill the Group’s production and trading requirements. In accordance with the Group’s accounting policy, revenue is not recognized with respect
to the exchange transactions involving goods of a similar nature and value. The Group’s management applies judgment to determine whether
each particular transaction represents an exchange or a transaction that generates revenue. In making this judgment, management considers
whether the underlying grain is of similar type and quality, as well as whether the time passed between the transfer and receipt of the underlying
grain indicates that the substance of the transaction is an exchange of similar goods. The amount of exchange transactions involving goods of a
similar nature amounted to USD 105,783 thousand and USD 34,305 thousand for the years ended 30 June 2019 and 2018, respectively.

Revaluation of Property, Plant and Equipment

As described in Note 3, the Group applies the revaluation model to the measurement of buildings and constructions and production machinery
and equipment (bulk and bottled oil segments). At each reporting date, the Group carries out a review of the carrying amount of these assets to
determine whether the carrying amount differs materially from fair value. The Group carries out such a review by preparing a discounted cash flow
analysis involving assumptions on projected revenues and costs, and a discount rate. Additionally, the Group considers economic stability and
the availability of transactions with similar assets in the market when determining whether to perform a fair value assessment in a given period.

Useful Lives of Property, Plant and Equipment

The Group’s property, plant and equipment are depreciated using the straight-line method over their estimated useful lives, which are based on
management’s business plans and operational estimates.

The factors that could affect the estimation of the life of a non-current asset and its residual value include the following:
• Changes in technology;
• Changes in maintenance technology;
• Changes in regulations and legislation; and
• Unforeseen operational issues.

Any of the above could affect the prospective depreciation of property, plant and equipment and their carrying and residual values. The Group
reviews the estimated useful lives of property, plant and equipment at the end of each annual reporting period. The review is based on the current
condition of the assets and the estimated period during which they will continue to bring economic benefit to the Group. Any change in the
estimated useful life or residual value is recorded on a prospective basis from the date of the change.

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.

Revaluation of Property, Plant and Equipment

The Group appointed an independent appraiser to perform a revaluation of buildings, constructions, production machinery and equipment used
in the sunflower oil segments (Oilseed Processing segment) as of 30 June 2019. The independent appraiser has performed the valuation in
accordance with International Valuation Standards applying the following techniques:
• depreciated replacement cost for buildings and constructions; and
• depreciated replacement cost and market comparable approach, if applicable, for production machinery and equipment.

Depreciated replacement cost reflects the cost to a market participant to purchase or construct the comparable asset, adjusted for physical,
functional or economical depreciation, and obsolescence. Depreciated replacement cost approach was based on internal sources and analysis of
the Ukrainian and international markets for similar property, plant and equipment. Economical obsolescence was determined using the discounted
cash flow method. Cash flows were projected based on past experience, actual operating results and analyses of market inputs. The fair value
of non-specialized in nature property, plant and equipment had been determined using market approach that reflects recent transaction prices for
comparable assets.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Key assumptions used by the independent appraiser in assessing the fair value of property, plant and equipment using the replacement cost and
market comparable methods were as follows:
• present condition of particular assets based on examination of valuation experts and physical wear-and-tear;
• changes in prices of equipment, construction materials and services from the date of their acquisition/construction to the date of valuation
represented by inflation rates;
• external prices for production machinery and equipment; and
• other external and internal factors that might have effect on fair value of property, plant and equipment under review.

The results of revaluation using the depreciated replacement cost and market comparable approaches were then compared with results of income
approach for corresponding assets to test whether impairment indicators exist.

Fair value as of Value Fair value Unobservable Range of unobserva- Relationship of unobserva-
Description
30 June 2019 techniques hierarchy inputs ble inputs (average) ble inputs to fair value
Buildings and 207,882 Depreciated Level 3 Index of 0 - 80% (36%) The higher the index of
constructions replacement cost physical physical depreciation, the
depreciation lower the fair value
Production machinery 68,314 Depreciated Level 3 Index of 0 - 82 (56%) The higher the index of
and equipment replacement cost physical physical depreciation, the
depreciation lower the fair value
Production machinery 19,123 Market Level 3 Index of 0 - 82 (69%) The higher the index of
and equipment comparables physical physical depreciation, the
depreciation lower the fair value

If the above unobservable inputs to the valuation model were 5 p. p. higher/lower while all other variables were held constant, the carrying amount
of the buildings and constructions and production machinery and equipment would decrease/increase by USD 20,349 thousand and USD 22,154
thousand, respectively.

Distribution of revaluation surpluses to participants is denoted by local legislation.

Impairment Testing of Property, Plant and Equipment

Management reviews the carrying amounts of assets to determine whether there is any indication that those assets are impaired.

In making the assessment for impairment, assets that do not generate independent cash flows are allocated to an appropriate cash-generating
unit.

The assessment of whether there are indicators of a potential impairment are based on various assumptions including market conditions, asset
utilization and the ability to utilize the asset for alternative purposes. If an indication of impairment exists, the Group estimates the recoverable
value (greater of fair value less cost to sell and value in use) and compares it to the carrying value, and records impairment to the extent the
carrying value is greater than the recoverable amount.

The value in use is based on estimated future cash flows that are discounted to their present value. Estimated future cash flows require manage-
ment to make a number of assumptions including customer demand and industry capacity, future growth rates and the appropriate discount rate.
Any change in these estimates may result in impairment in future periods.

As of 30 June 2019, no indicators of property, plant and equipment impairment have been identified except for the results of revaluation of property,
plant and equipment (Note 31).

Impairment Testing of Goodwill and Intangible Assets with Indefinite Useful Lives
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. 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.

As of 30 June 2019, the carrying amount of goodwill and intangible assets with indefinite useful lives amounted to USD 120,836 thousand (30
June 2018: USD 116,676 thousand). As of 30 June 2019, no impairment loss for goodwill and intangible assets with indefinite useful lives was
recognized (Notes 16, 17) (30 June 2018: USD 577 thousand). 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 Notes 16 and
Note 17.

Provision for ECL of trade and other receivables and contract assets
The Group uses a provision matrix to calculate ECLs for trade and other receivables and contract assets. The provision rates are based on days
past due for groupings of various customer segments that have similar loss patterns (i.e., by customer type and rating). The amount of ECL is
sensitive to changes in circumstances and of forecasts economic conditions. The Group uses reasonable and supportable forward-looking infor-
mation for the forecast of economic conditions when measuring ECL. Loss given default is an estimate of the loss arising on default. It is based
on the difference between the contractual cash flows due and those that the lender would expect to receive, taking into account cash flows from
collateral and integral credit enhancements.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Fair Value of Biological Assets and Agricultural Produce

Biological assets are recorded at fair value less costs to sell. The Group estimates the fair values of biological assets and agricultural produce
based on the following key assumptions:
• Expected crop output (for crops in fields);
• Expected future inflows from livestock;
• Average number of heads of milk cows and its weight;
• Productive life of one milk cow;
• Estimated changes in 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).

Fair value measurements

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 three hierarchy levels, Level 1, 2 and 3, 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); by using models with externally
verifiable inputs (Level 2); or by using alternative procedures such as comparison to comparable instruments and/or using models with unobserv-
able market inputs requiring Group to make market-based assumptions (Level 3). Level 3 inputs therefore include the highest level of estimation
uncertainty.

5. 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 management and members of the board of directors of the Group 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.

Starting from FY 2019, the Group has changed the presentation of segment information in line with the performance management approach to its
business activities. Comparative information as of 30 June 2018 was restated to reflect the changes in presentation.

Starting with 1 July 2018, Kernel is presenting its segment results within three business segments: Oilseed Processing, Infrastructure and Trading,
and Farming. The reason behind this aggregation is to align representation with the management decision making, as business processes within
the historical six business segments are not separate and decisions are mostly made to account for the combined effect on several segments.

In Oilseed Processing segment, the Group combines what was previously reported as Sunflower Oil Sold in Bulk and Bottled Oil segments. With
expansion of the Group’s oilseed processing capacities devoted to bulk oil, the share of Kernel’s sales of sunflower oil through bottled oil channel
has naturally declined, thus decreasing materiality of this sales channel. Furthermore, other sales channels emerged as the size of oilseed pro-
cessing business evolved, while oil sold through different channels exhibit similar profitability trends. In the financial year ended 30 June 2018,
bottled oil contributed less than 10% to the Company’s EBITDA. Kernel’s oilseed crushing business is managed jointly and thus split into segments
is not justifiable.

In Infrastructure and Trading segment, the Group combines what was previously presented in Export Terminals, Silo Services, and Grain seg-
ments. These parts of the business form an integrated supply chain which is managed jointly. The management’s decision-making has evolved
compared with previous years to account for a throughput margin while making a decision on whether to buy or not a specific volume of grain.
Under current framework, the management considers export terminals and grain storage facilities as production assets which serve grain mer-
chandizing business and consequently uses a combined throughput margin to evaluate performance of Infrastructure and Trading business. In
FY2019, 99% 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 Farming segment, the Group continues to report results of its crop production business, which includes growing of corn, wheat, soybean,
sunflower seed and rapeseed on the leasehold land, as well as some minor crops and small cattle farming operations. The scope of the farming
segment under new segment reporting structure corresponds to the farming segment reported previously.

Presentation of the operating segments’ activities in previous consolidated financial statements was as follows:

Operating segments Activities

Bottled sunflower oil Production, refining, bottling, marketing and distribution of bottled sunflower oil.
Sunflower oil sold in bulk Production and sales of sunflower oil sold in bulk (crude and refined) and meal.
Export terminals Grain handling and transshipment services in the ports of Chornomorsk and Mykolaiv.
Farming Agricultural farming. Production of corn, wheat, soybean, sunflower seed and rapeseed
Grain Sourcing and merchandising of wholesale grain and other agriculture commodities, proprietary trading
Silo services Provision of grain cleaning, drying and storage services.
Other Income and expenses unallocated to other segments, which are related to the administration of the Holding.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The measure of profit and loss, and assets and liabilities is based on the Group accounting policies, which are in compliance with IFRS, as adopted
by the European Union.

Reconciliation eliminates intersegment items and reflects income and expenses not allocable to segments. 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.

Since financial management of the Group’s companies is carried out centrally, borrowings, obligations under financial lease, deferred taxes and
some other assets and liabilities are not allocated directly to the respective operating segments and are presented in the ‘Other’ segment. Con-
sequently, the assets and liabilities shown for individual segments do not include borrowings, obligations under financial leases, 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.

6. Key Data by Operating Segment

Key data by operating segment for the year ended 30 June 2019:

Oilseed Infrastructure Continuing

Farming Other Reconciliation
Processing and Trading operations
Revenue (external) 878,835 3,083,315 29,983 — — 3,992,133
Intersegment sales 614,437 56,601 571,602 — (1,242,640) —
Total revenue 1,493,272 3,139,916 601,585 — (1,242,640) 3,992,133
Net change in fair value of biological assets and agri- — — 9,140 — — 9,140
cultural produce
Other operating income, net 1,729 14,755 11,744 — — 28,228
Profit/(Loss) from operating activities 92,598 92,601 136,813 (52,805) — 269,207
Finance costs, net (82,319)
Foreign exchange gain, net 12,860
Other expenses, net (8,376)
Share of loss of joint ventures (966)
Income tax expenses (11,902)
Profit for the period from continuing operations 178,504
Total assets 914,414 748,022 744,796 56,368 — 2,463,600
Capital expenditures 53,431 115,368 91,285 3,600 — 263,684
Amortization and depreciation 16,419 13,134 45,069 1,681 — 76,303
Liabilities 74,532 150,899 69,470 822,673 — 1,117,574

Allocated revenue of promised goods and services by operating segment for the year ended 30 June 2019 under requirements IFRS 15 was as
follows:
Oilseed Infrastructure Continuing
Processing and Trading Farming operations
Revenue from sales of commodities 865,222 2,946,419 29,983 3,841,624
Freight and other services 13,613 136,896 — 150,509
Total external revenue from contracts with customers 878,835 3,083,315 29,983 3,992,133

During the year ended 30 June 2019, revenues of approximately USD 314,471 thousand (2018: USD 245,201 thousand) are derived from a single
external customer. These revenues are attributed to Oilseed processing and Infrastructure and Trading segments. Also, during that period, export
sales amounted to 97.0% of total external sales.

For the year ended 30 June 2019, revenue from the Group’s top five customers accounted for approximately 36.0% of total revenue (for the year
ended 30 June 2018, revenue from the top five customers accounted for 38.6% of total revenue).

Among 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 accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The Group’s revenue from external customers (based on the location where sale occurred) and information about its segment assets (non‑current
assets excluding financial instruments, deferred tax assets and other financial assets) by geographical location are detailed below:

Revenue from
external customers Non-current assets
Year ended As of
30 June 2019 30 June 2019
Ukraine 2,083,289 1,144,221
Europe 1,102,392 2,451
North America 806,452 276
Other locations — 51,773
Total 3,992,133 1,198,721

None of the other locations represented more than 10% of total revenue or non-current assets individually. Revenue from external customers
allocated based on the location, where the sale occurred.

Non-current assets that relate to other locations include investments in a joint venture (grain export terminal at the Taman port).

Gain/loss from Avere operations with financial derivatives are presented within Infrastructure and Trading segment.

Key data by operating segment for the year ended 30 June 2018:

Oilseed Infrastructure Continuing

Farming Other Reconciliation
Processing and Trading operations
Revenue (external) 1,393,491 957,983 51,529 — — 2,403,003
Intersegment sales — 66,596 418,960 — (485,556) —
Total revenue 1,393,491 1,024,579 470,489 — (485,556) 2,403,003
Net change in fair value of biological assets and ag- — — 18,699 — — 18,699
ricultural produce
Other operating income, net 4,712 36,748 17,632 — — 59,092
Profit/(Loss) from operating activities 60,214 91,968 32,557 (45,174) — 139,565
Finance costs, net (65,099)
Foreign exchange gain, net 5,375
Other expenses, net (30,980)
Share of income of joint ventures 1,193
Income tax benefit 5,900
Profit for the period from continuing operations 55,954
Total assets 888,310 540,907 700,052 81,245 — 2,210,514
Capital expenditures 7,804 30,045 91,751 3,784 — 133,384
Amortization and depreciation 16,464 8,870 56,174 1,467 — 82,975
Liabilities 72,046 91,659 84,099 785,106 — 1,032,910

Presentation of the operating segments’ activities in previous consolidated financial statements for the year ended 30 June 2018:

Bottled sun- Sunflower Export Silo Reconcili- Continuing

Farming Grain Other
flower oil oil sold in bulk terminals services ation operations
Revenue (external) 129,859 1,263,632 423 51,529 951,252 6,308 — — 2,403,003
Intersegment sales — — 52,826 418,960 — 65,946 — (537,732) —
Total revenue 129,859 1,263,632 53,249 470,489 951,252 72,254 — (537,732) 2,403,003
Net change in fair value of bio- — — — 18,699 — — — — 18,699
logical assets and agricultural
produce
Other operating income, net 14 4,698 4 17,632 34,520 2,224 — — 59,092
Profit/(Loss) from operating 11,561 48,653 35,897 32,557 17,492 38,579 (45,174) — 139,565
activities
Finance costs, net (65,099)
Foreign exchange gain, net 5,375
Other expenses, net (30,980)
Share of income of joint ven- 1,193
tures
Income tax benefit 5,900
Profit for the period from con- 55,954
tinuing operations
Total assets 60,403 827,907 119,386 700,052 330,571 90,950 81,245 — 2,210,514
Capital expenditures 607 7,197 7,689 91,751 — 22,356 3,784 — 133,384
Amortization and depreciation 1,805 14,659 3,205 56,174 — 5,665 1,467 — 82,975
Liabilities 3,533 68,513 4,700 84,099 84,945 2,014 785,106 — 1,032,910
The accompanying notes are an integral part of these financial statements.
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 Strategic Corporate Financial
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

For the purpose of segment reporting, revenue from the sale of sunflower meal and cake is allocated to the bottled sunflower oil segment in
proportion to the share of total sunflower oil production used for bottled sunflower oil sales, while remaining amounts are allocated to the sunflower
oil sold in bulk segment.

The Group’s revenue from external customers (based on the location where sale occurred) and information about its segment assets (non‑current
assets excluding financial instruments, deferred tax assets and other financial assets) by geographical location are detailed below:

Revenue from ex-

ternal customers Non-current assets
Year ended As of
30 June 2018 30 June 2018
Ukraine 1,519,128 933,149
North America 815,361 21
Europe 58,471 2,303
Other locations 10,043 52,236
Total 2,403,003 987,709

None of the other countries constituted more than 10% of total revenue or non-current assets individually. Revenue from external customers
allocated based on the location, where the sale occurred.

Non-current assets that relate to other locations include investments in a joint venture (grain export terminal at the Taman port).

Gain/loss from Avere operations with financial derivatives are presented within Infrastructure and Trading/Grain segment.

7. Acquisition and Disposal of Subsidiaries

On 14 February 2019, to protect the Company against ever rising logistic costs and to procure the smooth and efficient flow of grains from inland
silos, the Group has acquired 100% effective ownership obtaining shares in Rail Transit Kargo Ukraine LLC (herein “RTK-Ukraine”): a railcar
business that manages about 2,949 grain railcars.

As of the date of acquisition, the fair values of assets and liabilities were as follows:
Fair value
Assets
Current assets:
Cash and cash equivalents 1,137
Trade accounts receivable, net 1,696
Prepayments to suppliers and other current assets, net 2,085
Taxes recoverable and prepaid, net 1,982
Inventory 11
Total current assets 6,911
Non-current assets:
Property, plant and equipment, net 56,925
Total non-current assets 56,925
Total assets 63,836
Liabilities
Current liabilities:
Advances from customers and other current liabilities 1,096
Total current liabilities 1,096
Non-current liabilities:
Deferred tax liabilities 6,328
Total non-current liabilities 6,328
Total liabilities 7,424
Fair value of net assets of acquired subsidiaries 56,412
Non-controlling interest —
Fair value of acquired net assets 56,412
Goodwill 3,867
Fair value of purchase consideration 60,279
Less: acquired cash (1,137)
Net cash outflow on acquisition of subsidiaries (48,016)

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Revenue and net profit of the acquired entity from the date of acquisition to 30 June 2019 were as follows:

Total
Revenue 6,002
Net profit 1,832

The Group does not disclose the revenue and net profit of the acquired entity as if it has been acquired at the beginning of the reporting period as
it is impracticable due to the fact that no IFRS financial information is available for the acquired entity as from the beginning of the reporting period
and up to the date of acquisition.

Since initial accounting is incomplete as of the reporting date due to finalization of relevant calculations and market valuations, only provisional
amounts were recognized to determine net assets, and result of acquisition. After finalization of relevant information retrospective adjustments to
the provisional amounts will be made. The Group supposes to finalize result of acquisition and relevant amounts till the end of the period ended
31 March 2020.

At the moment of acquisition, nominal value of consideration amounted to USD 64,833 thousand and comprised of USD 49,153 thousand paid in
cash and USD 15,680 thousand payable (out of which USD 15,000 thousand of deferred consideration payable over 5 years). At the moment of
acquisition, fair value of consideration was USD 60,279 thousand (including USD 11,126 thousand payable) calculated as the present value of
amounts payable at discount rate 7.5% (represented within the line ‘Other non-current liabilities’). As of 30 June 2019, as a result of accelerated
payments of USD 7,350 thousand, made after the acquisition date, the consideration paid comprised USD 56,272 thousand and the present value
of amount payable was USD 5,638 thousand.

The goodwill in the amount of USD 3,867 thousand arising from the accounting for acquisition of RTK-Ukraine as business combination is attribut-
able to the protection the Company against the rising logistic costs and the synergies expected to be gained efficient flow of grains from inland
silos to the ports. It will not be deductible for tax purposes.

During the year ended 30 June 2019, as a result of the optimization process, the Group disposed of farming entities managing about 12,350 hec-
tares of leasehold suboptimal farmlands located in Zhytomyr, Volyn and Mykolaiv regions and grain elevators, located in Ternopil, Kyiv, Chernihiv
and Kharkiv regions.

The net assets of the disposed entities as of the date of disposal were equal to USD 7,671 thousand and the cash consideration receivable was
USD 11,857 thousand (out of which USD 6,300 thousand was received during this reporting period).

Fair value of cash consideration receivable which should be repaid in full in arrears up to 1 December 2020, were calculated at a discount rate
7.5% and as of the reporting date the outstanding amount comprised to USD 4,820 thousand (USD 4,722 thousand as of the date of disposal)
and is presented within the lines ‘Prepayments to suppliers and other current assets, net’ and ‘Other non-current assets’.

During the year ended 30 June 2019, according to management’s plan, the Group disposed of one of its oilseed crushing plants, previously
classified as assets held for sale, located in Mykolaiv region.

The net assets as of the date of disposal amounted to USD 14,432 thousand (including goodwill in the amount of USD 8,096 thousand). The cash
consideration received was USD 15,079 thousand (out of which USD 5,013 thousand was received during this reporting period).

On 4 July 2017, the Group has acquired 100% effective ownership of AIU (Agro Invest Ukraine) Group: a farming business that manages about
27,500 hectares of leasehold farmland and over 170,000 tons of grain storage capacity.

The primary subsidiaries of the acquired Group are as follows:

Group’s effective
Country of ownership interest on Date of
Subsidiary Principal activity incorporation the date of acquisition acquisition
Agro Logistics Ukraine LLC Grain elevators. Provision of grain and oilseed Ukraine 100.00% 04 July 2017
cleaning, drying and storage services.
Agro Invest Ukraine LLC Agricultural farms. Cultivation of agricultural products: Ukraine 100.00% 04 July 2017
corn, wheat, soybean, sunflower seed, rapeseed, forage,
pea and barley.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As of the date of acquisition, the fair values of assets, liabilities and contingent liabilities were as follows:
Fair value
Assets
Current assets:
Cash and cash equivalents 4
Trade accounts receivable, net 176
Prepayments to suppliers and other current assets, net 316
Corporate income tax prepaid 29
Taxes recoverable and prepaid, net 2,735
Inventory 1,574
Biological assets 12,006
Total current assets 16,840
Non-current assets:
Property, plant and equipment, net 23,161
Intangible assets, net 14,385
Deferred tax assets 40
Other non-current assets 270
Total non-current assets 37,856
Total assets 54,696
Liabilities
Current liabilities:
Trade accounts payable 3,021
Advances from customers and other current liabilities 687
Total current liabilities 3,708
Non-current liabilities:
Deferred tax liabilities 1,463
Total non-current liabilities 1,463
Fair value of net assets of acquired subsidiaries 49,525
Non-controlling interest —
Fair value of acquired net assets 49,525
Gain on bargain purchase (2,309)
Total cash considerations due and payable 47,216
Less: acquired cash (4)
Net cash outflow on acquisition of subsidiaries (46,512)
Net cash due and payable (700)

The Group does not disclose the revenue and net profit of the acquired group as if it has been acquired at the beginning of the reporting period
due to the fact that the beginning of the reporting period almost coincides with the date of acquisition.

Acquired group manages world-class grain storage infrastructure which complemented the recent expansion of our farmland bank in the region
and completes our land bank expansion strategy.

Based on the knowledge available as of 30 June 2018 the management verified that all acquired or assumed liabilities have been fully accounted
for, and net assets acquired have not been overstated. Gain on bargain purchase was recognized in the amount of USD 2,309 thousand within
‘Other expenses, net’ in the consolidated statement of profit or loss.

Agro-Invest Ukraine was a Ukrainian subsidiary of Serbian-based agroholding MK Group, willing to exit Ukraine since 2014 as part of their business
restructuring. Kernel participated in the organized process of acquisition of Agro-Invest Ukraine, being very flexible and providing the best offer in
terms of consideration payment schedule but receiving instead a price discount.

During the year ended 30 June 2018, as a result of the optimization process of its legal structure, the Group disposed of one grain elevator located
in Poltava region. The net assets of the disposed entity as of the date of disposal were equal to USD 137 thousand and the cash consideration
received was USD 2,013 thousand (out of which USD 1,404 thousand was received during this reporting period).

During the year ended 30 June 2018, as a result of business optimization, the Group disposed of farming entities managing more than 40,000 ha
of leasehold suboptimal farmlands located in Northern and Western regions of Ukraine.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Net assets of the disposed farming entities as of the date of disposal were as follows:
Fair value
Assets
Current assets:
Cash and cash equivalents 263
Trade accounts receivable, net 1,238
Prepayments to suppliers and other current assets, net 2,583
Taxes recoverable and prepaid, net 1,989
Inventory 3,449
Biological assets 3,040
Total current assets 12,562

Non-current assets:
Property, plant and equipment, net 6,184
Intangible assets, net 13,295
Other non-current assets 1
Total non-current assets 19,480
Total assets 32,042

Liabilities
Current liabilities:
Trade accounts payable 959
Advances from customers and other current liabilities 8,378
Short-term borrowings 10
Total current liabilities 9,347
Non-current liabilities:
Other non-current liabilities 52
Total liabilities 9,399
Net assets disposed 22,643
Non-controlling interest —
Net assets of disposed companies 22,643
Total cash consideration receivable 23,739
Less: cash from assets disposed (263)
Less: accounts receivable for subsidiaries disposed of (174)
Net cash inflow from subsidiaries disposed of 23,302
Gain on disposal 1,096

8. Cash and Cash Equivalents

The balances of cash and cash equivalents were as follows:
As of As of
30 June 2019 30 June 2018
Cash in banks in USD 64,109 92,617
Cash in banks in UAH 4,448 20,407
Cash in banks in other currencies 8,237 18,989
Cash on hand 7 5
Total 76,801 132,018
Less restricted and blocked cash on security bank accounts (138) (676)
Less bank overdrafts (Note 20) (246) (41,273)
Cash for the purposes of cash flow statement 76,417 90,069

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 2019 were as follows:
As of As of
30 June 2019 30 June 2018
Ukrainian subsidiaries of international banks without international ratings 27,504 28,371
International banks with F1 rating 24,740 46,514
International banks with F2 rating 21,122 34,496
International banks with F1+ rating 2,395 75
International banks with F3 rating 562 12,643
Foreign banks without ratings 478 9,919
Total 76,801 132,018

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.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Reconciliation of liabilities arising from financing activities:

Non-cash movements
Amortization of
As of Cash flow from pro- New finance one-off and trans- Foreign exchange Other As of
30 June 2018 ceeds/ (repayments) leases action costs movements changes1 30 June 2019
Bank borrowings (Note 20, 21) 188,280 64,947 — 2,398 (4,015) (4,537) 247,073
Finance lease obligations (Note 22) 10,946 (3,677) — — 3 442 7,714
Bonds issued (Note 23) 494,796 — — 1,255 — — 496,051
Total 694,022 61,270 — 3,653 (4,012) (4,095) 750,838

Non-cash movements
Amortization of
As of Cash flow from pro- New finance one-off and trans- Foreign exchange Other As of
30 June 2017 ceeds/(repayments) leases action costs movements changes1 30 June 2018
Bank borrowings (Note 20, 21) 87,210 105,173 — 1,798 (1,587) (4,314) 188,280
Finance lease obligations (Note 22) 5,744 (7,600) 11,572 — (35) 1,265 10,946
Bonds issued (Note 23) 493,648 — — 1,148 — — 494,796
Total 586,602 97,573 11,572 2,946 (1,622) (3,049) 694,022

9. Trade Accounts Receivable, net

The balances of trade accounts receivable, net were as follows:
As of As of
30 June 2019 30 June 2018
Trade accounts receivable 189,669 93,471
Allowance for expected credit losses (6,473) (1,116)
Total 183,196 92,355

As of 30 June 2019, accounts receivable from one European customer accounted for approximately 14.3% (30 June 2018: for approximately
27.9% respectively).

The average credit period on sales of goods was 17 days (for the period ended 30 June 2018: 16 days). No interest is charged on the outstanding
balances of trade accounts receivable.

The Group applies IFRS 9 simplified approach for measuring ECL which uses a lifetime expected loss allowance for all trade accounts receivables.

To measure ECL, trade accounts receivables have been grouped based on shared credit risk characteristics and the days past due.

The expected loss rates are based on the payment profiles of sales over a period of 24 months before 30 June 2019 and the corresponding
historical credit losses experienced within this period. The historical loss rates are adjusted to reflect current and forward-looking information on
macroeconomic factors affecting the ability of the customers to settle the receivables. The Group has identified actual losses per each group to
be the most relevant factor, and accordingly adjusts the historical loss rates based on expected changes in these factors.

As the Group’s historical credit loss experience does not show significantly different loss patterns for different customer groups, the provision for
loss allowance based on past due status is not further distinguished between the Group’s different customer base.

On this basis, the loss allowance as at 30 June 2019 was determined for trade accounts receivables as follows:

Less than 90 More than 90

Current days past due days past due Total
Expected loss rate2 0.2% 27.8% 84.6%
Gross carrying amount – trade accounts receivables 176,559 8,874 4,236 189,669
Loss allowance (423) (2,465) (3,585) (6,473)

1
Other changes include translation difference, repayment of transactions costs and one-off borrowing commissions and other non-cash changes.

2
Differences in expected loss rate are possible due to rounding
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The loss allowances for trade accounts receivables as of 30 June reconcile to the opening loss allowances as follows:

Trade accounts receivables

Collectively Individually
assessed assessed Total
Opening loss allowance as of 1 July under IAS 39 390 726 1,116
Adjustment upon application of IFRS 9 (Note 3) 314 – 314
Opening loss allowance as of 1 July under IFRS 9 704 726 1,430
Increase in loss allowance recognized in profit or loss during the year 4,899 1,040 5,939
Trade receivables written off during the year as uncollectible (896) – (896)
Unused amount reversed – – –
Closing loss allowance as of 30 June 4,707 1,766 6,473

Trade accounts receivables are written off, where there is no reasonable expectation of recovery. Indicators that there is no reasonable expectation
of recovery include, among others, the failure of a debtor to engage in a repayment plan with the Group, and a failure to make contractual payments
for a period of greater than 90 days past due.

Impairment losses on trade accounts receivables are presented as net impairment losses within operating profit. Subsequent recoveries of
amounts previously written off are credited against the same line item.

10. Prepayments to Suppliers and Other Current Assets, net

The balances of prepayments to suppliers and other current assets, net were as follows:
As of As of
30 June 2019 30 June 2018
Prepayments to suppliers 111,461 110,509
Other current assets 24,137 8,901
Allowance for estimated irrecoverable amounts of prepayments to suppliers and other current assets (5,776) (6,068)
Total 129,822 113,342

Increase of prepayments to suppliers and other current assets as of 30 June 2019 in comparison with 30 June 2018 is mostly connected with
financing of suppliers for future commodities purchases.

11. Taxes Recoverable and Prepaid, net

The balances of taxes recoverable and prepaid, net were as follows:
As of As of
30 June 2019 30 June 2018
VAT (‘value added tax’) recoverable and prepaid 117,880 114,192
Other taxes recoverable and prepaid 695 503
Total 118,575 114,695

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 2019, the amount of VAT refunded by the government in cash was USD 331,719 thousand
(30 June 2018: USD 265,048 thousand).

12. Inventory
The balances of inventories were as follows:
As of As of
30 June 2019 30 June 2018
Raw materials 148,205 81,543
Finished products 105,569 210,687
Goods for resale 47,355 37,072
Agricultural products 38,560 22,132
Fuel 7,075 4,411
Packaging materials 1,620 1,634
Work in progress 1,478 1,620
Other inventories 7,748 9,354
Total 357,610 368,453

As of 30 June 2019, raw materials mostly consisted of sunflower seed stock in the amount of USD 103,661 thousand (30 June 2018 USD 57,603
thousand).

As of 30 June 2019, finished products mostly consisted of sunflower oil in bulk in the amount of USD 75,518 thousand (30 June 2018 USD 193,460
thousand).

Write-downs of inventories to net realizable value amounted to USD 1,709 thousand (2018: USD 5,459 thousand).
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As of 30 June 2019 and 2018, the inventory balances in the amounts of USD 166,245 thousand and USD 200,849 thousand, respectively, were
pledged as security for short-term borrowings (Note 20).

13. Biological Assets

The balances of crops in fields were as follows:
As of 30 June 2019 As of 30 June 2018
Hectares Value Hectares Value
Corn 231,115 130,075 225,267 123,885
Sunflower seed 136,537 87,855 134,816 80,926
Wheat 97,072 66,304 100,505 56,136
Soybean 24,283 10,031 36,485 16,419
Rapeseed 9,447 9,077 4,605 4,396
Other 5,262 3,773 19,231 5,096
Total 503,716 307,115 520,909 286,858

The following table represents the changes in the carrying amounts of crops in fields during the years ended 30 June 2019 and 30 June 2018:

Effect of
Capitalized biological Fair value of
expendi- transfor- biological
tures mation assets
As of 30 June 2017 230,672 23,810 254,482
Increase due to purchases and subsequent expenditures capitalized in biological assets (harvest 114,658 — 114,658
2017)
Increase resulting from business acquisitions 11,832 — 11,832
Decrease due to harvest (harvest 2017) (357,162) (23,810) (380,972)
Decrease resulting from disposal (2,946) (94) (3,040)
Increase due to purchases and subsequent expenditures capitalized in biological assets (harvest 231,304 — 231,304
2018)
Gain arising from changes in fair value attributable to physical changes and to changes of the market — 52,350 52,350
price (sowing under harvest 2018)
Exchange difference 4,919 1,325 6,244
As of 30 June 2018 233,277 53,581 286,858
Increase due to purchases and subsequent expenditures capitalized in biological assets (harvest 126,979 — 126,979
2018)
Decrease due to harvest (harvest 2018) (360,256) (53,581) (413,837)
Decrease resulting from disposals (970) (265) (1,235)
Increase due to purchases and subsequent expenditures capitalized in biological assets (harvest 246,203 — 246,203
2019)
Decrease due to harvest (harvest 2019) (333) (71) (404)
Gain arising from changes in fair value attributable to physical changes and to changes of the market — 53,385 53,385
price (sowing under harvest 2019)
Exchange difference 8,023 1,143 9,166
As of 30 June 2019 252,923 54,192 307,115

As of 30 June 2019, non-current cattle in the amount of USD 5,271 thousand (30 June 2018: USD 7,606 thousand) was represented mainly by
5,058 heads of milk cows (30 June 2018: 7,164 heads) (Note 18), and current cattle of USD 1,915 thousand (30 June 2018: USD 2,578 thousand)
was represented mainly by 4,707 heads of calves (30 June 2018: 6,871 heads). The change in the balances was mainly represented by a change
in the mix of cattle and variation in prices and exchange rates between reporting dates. For the year ended 30 June 2019, the net gain arising
from changes in the fair value of biological assets in the amount of USD 9,140 thousand (2018: gain of USD 18,699 thousand) includes a USD
3,700 thousand loss on changes in current and non-current cattle’s fair value (2018: loss of USD 3,805 thousand).

As a result of business acquisitions, the Group purchased biological assets in the amount of USD 12,006 thousand (Note 7) for the year ended
30 June 2018 (30 June 2019: nil), out of which crops in fields amounted to USD 11,832 thousand (30 June 2019: nil). The fair value of agricultural
produce was estimated based on market prices as at the date of harvest and is within level 2 of fair value hierarchy. Crops in fields and non-
current cattle of the Group are measured using discounted cash flow technique and are within the level 3 of the fair value hierarchy. Current cattle
is 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 accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

There were no changes in valuation technique since previous year. There were no transfers between any levels during the year.

Fair value as of Valuation tech- Unobservable Range of unobservable Relationship of unobservable

Description 30 June 2019 niques inputs inputs (average) inputs to fair value
Crops in field 307,115 Discounted cash Crops yield 2.41 - 7.20 (5.39) tons per The higher the crop yield, the
flows hectare higher the fair value
Discount rate 17.88% (in UAH, short The higher the discount rate, the
term) lower the fair value
Milk cows 5,271 Discounted cash Milk yield – liter per cow 17.48 – 22.03 (19.72) liters The higher the milk yield, the
flows per cow per day higher the fair value
Weight of 1 calf 29 - 33 (31) kg The higher the weight, the higher
the fair value
Average yield of calves 61 - 75 (69) calves The higher the yield, the higher the
from 100 cows per year fair value
Discount rate, % 15.82% (in UAH, long The higher the discount rate, the
term) lower the fair value

If the above unobservable inputs to the valuation model were 5% higher/lower while all other variables were held constant, the carrying amount
of the current and non-current biological assets would increase/decrease by USD 23,048 thousand and USD 23,155 thousand, respectively.

Fair value as of Valuation tech- Unobservable Range of unobservable Relationship of unobservable

Description 30 June 2018 niques Inputs inputs (average) inputs to fair value
Crops in field 286,858 Discounted cash Crops yield 1.91 - 7.2 (4.55) The higher the crop yield, the
flows tons per hectare higher the fair value
Discount rate 22.90% (in UAH, short The higher the discount rate, the
term) lower the fair value
Milk cows 7,606 Discounted cash Milk yield – liter per cow 16.97 – 21.93 (19.45) liters The higher the milk yield, the
flows per cow per day higher the fair value
Weight of 1 calf 27 - 33 (30) kg The higher the weight, the higher
the fair value
Average yield of calves 62 - 66 (64) calves The higher the yield, the higher
from 100 cows per year the fair value
Discount rate, % 17.70% (in UAH, long term) The higher the discount rate, the
lower the fair value

If the above unobservable inputs to the valuation model were 5% higher/lower while all other variables were held constant, the carrying amount
of the current and non-current biological assets would increase/decrease by USD 22,506 thousand and USD 22,469 thousand, respectively.

14. Assets Classified as Held for Sale and Discontinued Operations

As of 30 June 2019, according to management’s plan to dispose one of export terminals and silo, their net assets, which predominantly consist of
property, plant and equipment in the amount of USD 1,380 thousand were classified as assets held for sale. As of 30 June 2019, advances for
sale of the subsidiaries in the amount of USD 2,290 thousand has been received and represented within the line ‘Advances from Customers and
Other Current Liabilities’ (Note 19). The above-mentioned export terminal was disposed in August 2019. Their operations weren’t presented as
discontinued operations as they do not meet the criteria of recognition since the entities do not represent a separate major line of business or
geographical area of operations.

During the year ended 30 June 2019, according to management’s plan, the Group disposed of one of its oilseed crushing plants, previously
classified as assets held for sale, located in Mykolaiv region. The net assets as of the date of disposal amounted to USD 14,432 thousand
(including goodwill in the amount of USD 8,096 thousand). The cash consideration received was USD 15,079 thousand (out of which USD 5,013
thousand was received during this reporting period).

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

15. Property, Plant and Equipment, net

The following table represents movements in property, plant and equipment for the year ended 30 June 2019:
Oilseed Infrastructure
Farming Other Total
Processing and Trading
Net Book Value as at 30 June 2018 302,717 123,496 138,255 23,659 588,127
Land 842 560 64 1,109 2,575
Buildings and Constructions 205,210 73,152 17,517 19,737 315,616
Production machinery and equipment 86,436 36,253 21,883 18 144,590
Agricultural equipment and vehicles 3,590 2,234 81,262 923 88,009
Other fixed assets 2,522 2,185 6,930 1,858 13,495
CIP and uninstalled equipment 4,117 9,112 10,599 14 23,842
Additions 53,339 58,240 66,249 1,455 179,283
CIP and uninstalled equipment 53,339 58,240 66,249 1,455 179,283
Reclassification (5) — 6 (1) —
Land — — 7 — 7
Buildings and Constructions (587) — — — (587)
Production machinery and equipment (756) — (6) — (762)
Agricultural equipment and vehicles 35 — (377) — (342)
Other fixed assets 1,303 — 382 (1) 1,684
CIP and uninstalled equipment — — — — —
Additions from acquisition of subsidiaries — 56,925 — — 56,925
Agricultural vehicles and equipment — 56,925 — — 56,925
Transfers — — — — —
Land 80 — 3 — 83
Buildings and Constructions 1,414 3,090 2,773 141 7,418
Production machinery and equipment 5,148 1,460 17,822 6 24,436
Agricultural equipment and vehicles 1,739 378 20,755 136 23,008
Other fixed assets 989 601 3,524 1,201 6,315
CIP and uninstalled equipment (9,370) (5,529) (44,877) (1,484) (61,260)
Revaluation 15,599 — — — 15,599
Buildings and Constructions 10,133 — — — 10,133
Production machinery and equipment 5,466 — — — 5,466
Disposals (at NBV) (3,127) (4,631) (4,266) (36) (12,060)
Land (70) (124) — — (194)
Buildings and Constructions (1,875) (2,152) (1,107) — (5,134)
Production machinery and equipment (839) (839) (42) (1) (1,721)
Agricultural equipment and vehicles (26) (16) (2,169) (35) (2,246)
Other fixed assets (25) (60) (227) — (312)
CIP and uninstalled equipment (292) (1,440) (721) — (2,453)
Transfers to Assets classified as held for sale — (1,380) — — (1,380)
Land — (54) — — (54)
Buildings and Constructions — (966) — — (966)
Production machinery and equipment — (174) — — (174)
Agricultural vehicles and equipment — (1) — — (1)
Other fixed assets — (10) — — (10)
CIP and uninstalled equipment — (175) — — (175)
Depreciation expense (15,992) (12,506) (33,809) (1,395) (63,702)
Buildings and constructions (6,413) (3,805) (1,637) (494) (12,349)
Production machinery and equipment (8,018) (3,812) (5,575) (4) (17,409)
Agricultural equipment and vehicles (825) (4,400) (24,686) (206) (30,117)
Other fixed assets (736) (489) (1,911) (691) (3,827)
Translation difference 141 780 948 25 1,894
Land — (5) — 1 (4)
Buildings and Constructions — (24) 58 7 41
Production machinery and equipment — (44) 568 1 525
Agricultural equipment and vehicles 71 (3) 31 (17) 82
Other fixed assets (4) 5 128 8 137
CIP and uninstalled equipment 74 851 163 25 1,113
Net Book Value as at 30 June 2019 352,672 220,924 167,383 23,707 764,686
Land 852 377 74 1,110 2,413
Buildings and Constructions 207,882 69,295 17,604 19,391 314,172
Production machinery and equipment 87,437 32,844 34,650 20 154,951
Agricultural equipment and vehicles 4,584 55,117 74,816 801 135,318
Other fixed assets 4,049 2,232 8,826 2,375 17,482
CIP and uninstalled equipment 47,868 61,059 31,413 10 140,350

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The following table represents movements in property, plant and equipment for the year ended 30 June 2018:
Oilseed Infrastructure
Farming Other Total
Processing and Trading
Net Book Value as at 30 June 2017 319,221 104,321 123,066 23,106 569,714
Land 2,280 332 48 1,163 3,823
Buildings and Constructions 214,124 62,829 18,933 19,944 315,830
Production machinery and equipment 95,174 33,779 2,512 24 131,489
Agricultural equipment and vehicles 1,580 1,727 93,733 599 97,639
Other fixed assets 2,681 1,054 4,333 1,362 9,430
CIP and uninstalled equipment 3,382 4,600 3,507 14 11,503
Additions 6,457 14,565 57,333 1,991 80,346
CIP and uninstalled equipment 6,457 14,565 57,333 1,991 80,346
Reclassification 36 (61) (4) 29 —
Land — — — — —
Buildings and Constructions — (4) — 162 158
Production machinery and equipment — 2,021 — — 2,021
Agricultural equipment and vehicles 56 (76) (4) 14 (10)
Other fixed assets (20) (2,002) — (147) (2,169)
CIP and uninstalled equipment — — — — —
Additions from acquisition of subsidiaries — 15,297 7,584 280 23,161
Land — 228 10 — 238
Buildings and Constructions — 12,275 1,487 — 13,762
Production machinery and equipment — 2,546 57 — 2,603
Agricultural vehicles and equipment — 172 5,832 — 6,004
Other fixed assets — 76 191 280 547
CIP and uninstalled equipment — — 7 — 7
Transfers — — — — —
Land 140 3 5 — 148
Buildings and Constructions 272 3,103 1,128 464 4,967
Production machinery and equipment 1,798 2,047 22,368 4 26,217
Agricultural equipment and vehicles 2,527 838 21,325 503 25,193
Other fixed assets 551 3,432 4,035 1,003 9,021
CIP and uninstalled equipment (5,288) (9,423) (48,861) (1,974) (65,546)
Disposals (at NBV) (641) (1,333) (10,174) (399) (12,547)
Land — — — (49) (49)
Buildings and Constructions (1) (818) (1,874) (269) (2,962)
Production machinery and equipment (575) (35) (1,383) (8) (2,001)
Agricultural equipment and vehicles (2) (10) (6,162) — (6,174)
Other fixed assets (3) (5) (254) (36) (298)
CIP and uninstalled equipment (60) (465) (501) (37) (1,063)
Transfers to Assets classified as held for sale (6,480) — — — (6,480)
Land (1,578) — — — (1,578)
Buildings and Constructions (2,551) — — — (2,551)
Production machinery and equipment (1,853) — — — (1,853)
Agricultural vehicles and equipment (1) — — — (1)
Other fixed assets (35) — — — (35)
CIP and uninstalled equipment (462) — — — (462)
Depreciation expense (16,012) (8,840) (39,101) (1,273) (65,226)
Buildings and constructions (6,634) (3,952) (2,029) (492) (13,107)
Production machinery and equipment (8,108) (4,050) (1,794) (4) (13,956)
Agricultural equipment and vehicles (622) (415) (33,814) (206) (35,057)
Other fixed assets (648) (423) (1,464) (571) (3,106)
Translation difference 136 (453) (449) (75) (841)
Land — (3) 1 (5) (7)
Buildings and Constructions — (281) (128) (72) (481)
Production machinery and equipment — (55) 123 2 70
Agricultural equipment and vehicles 52 (2) 352 13 415
Other fixed assets (4) 53 89 (33) 105
CIP and uninstalled equipment 88 (165) (886) 20 (943)
Net Book Value as at 30 June 2018 302,717 123,496 138,255 23,659 588,127
Land 842 560 64 1,109 2,575
Buildings and Constructions 205,210 73,152 17,517 19,737 315,616
Production machinery and equipment 86,436 36,253 21,883 18 144,590
Agricultural equipment and vehicles 3,590 2,234 81,262 923 88,009
Other fixed assets 2,522 2,185 6,930 1,858 13,495
CIP and uninstalled equipment 4,117 9,112 10,599 14 23,842

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Total cost of property, plant and equipment and total accumulated depreciation as of 30 June 2019 and 2018 were as follows:

Accumulated Accumulated de-

Cost as of 30 depreciation as Cost as of 30 preciation as of 30
June 2019 of 30 June 2019 June 2018 June 2018
Land 2,413 - 2,575 —
Buildings and constructions 364,745 (50,573) 356,489 (40,873)
Production machinery and equipment 216,807 (61,856) 189,624 (45,034)
Agricultural equipment and vehicles 292,395 (157,077) 222,320 (134,311)
Other fixed assets 33,652 (16,170) 25,272 (11,777)
CIP and uninstalled equipment 140,350 — 23,842 —
Total 1,050,362 (285,676) 820,122 (231,995)

Had the Group’s buildings and constructions and production machinery and equipment (Oilseed Processing segment) been measured on a his-
torical cost basis, their carrying amount would have been as follows:
As of 30 June 2019 As of 30 June 2018
Buildings and constructions 185,317 193,568
Production machinery and equipment 69,195 75,352
Total 254,512 268,920

Revaluation of property, plant and equipment of oil plants is comprised of impairment loss recognized in other expenses in the amount of USD
10,234 thousand (Note 31) and revaluation surplus recognized in other comprehensive income in the amount of USD 25,833 thousand.

As of 30 June 2019, property, plant and equipment with a carrying amount of USD 104,053 thousand (30 June 2018: USD 540 thousand) were
pledged by the Group as collateral against short-term and long-term bank loans (Notes 20, 21).

As of 30 June 2019, property, plant and equipment with a carrying amount of USD 29,228 thousand (30 June 2018: USD 25,742 thousand) were
pledged by the Group as a collateral for amount due and payable within the acquisition of 560,000 tons oilseed crushing plant located in Kirovograd
region, completed as of 30 June 2016.

As of 30 June 2019 and 30 June 2018, the net carrying amount of property, plant and equipment, represented by agricultural equipment and
vehicles held under finance lease agreements was USD 9,269 thousand and USD 15,976 thousand, respectively.

16. Intangible Assets, net

The following table represents movements in intangible assets for the year ended 30 June 2019:
Trade- Land lease Other intangible
Total
marks rights assets
Cost as of 1 July 2018 22,036 149,069 6,200 177,305
Additions — 24,501 2,975 27,476
Disposals — (5,033) (951) (5,984)
Transfers to Assets classified as held for sale — — (7) (7)
Exchange difference — 1,096 (60) 1,036
Cost as of 30 June 2019 22,036 169,633 8,157 199,826

Trade- Land lease Other intangible

Total
marks rights assets
Accumulated amortization and impairment loss as of 1 July 2018 (9,051) (60,323) (3,465) (72,839)
Amortization charge — (11,643) (958) (12,601)
Disposals — 600 376 976
Transfers to Assets classified as held for sale — — 5 5
Reduction of loss on impairment recognized in the Statement of Profit or Loss 116 — — 116
Exchange difference — (531) (10) (541)
Accumulated amortization and impairment loss as of 30 June 2018 (8,935) (71,897) (4,052) (84,884)
Net book value as of 30 June 2019 13,101 97,736 4,105 114,942

The following table represents movements in intangible assets for the year ended 30 June 2018:
Trade- Land lease Other intangible
Total
marks rights assets
Cost as of 1 July 2017 22,036 136,259 4,589 162,884
Additions from acquisition of subsidiaries (Note 7) — 14,385 — 14,385
Additions — 13,613 1,879 15,492
Disposals — (14,687) (203) (14,890)
Transfers to Assets classified as held for sale — — (17) (17)
Exchange difference — (501) (48) (549)
Cost as of 30 June 2018 22,036 149,069 6,200 177,305

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Trade- Land lease Other intangible

Total
marks rights assets
Accumulated amortization and impairment loss as of 1 July 2017 (10,729) (44,606) (2,688) (58,023)
Amortization charge — (16,981) (768) (17,749)
Disposals — 1,392 79 1,471
Reduction of loss on impairment recognized in the Statement of Profit or Loss 1,678 — — 1,678
Exchange difference — (128) (88) (216)
Accumulated amortization and impairment loss as of 30 June 2018 (9,051) (60,323) (3,465) (72,839)
Net book value as of 30 June 2018 12,985 88,746 2,735 104,466

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 5,122 thousand, USD 3,233 thousand and USD 179 thousand, respectively, in 2019 (USD 4,967 thousand, USD 4,298
thousand, USD 3,541 thousand and USD 179 thousand, respectively, in 2018). These trademarks are used by the Group for the sale of bottled
sunflower oil mostly in the Ukrainian market.

In management’s view, there is no foreseeable limit to the period over which the trademarks are expected to generate 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 2019 was performed by an independent appraiser. The recoverable amount of
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).

Key assumptions used for the calculation were as follows:

• The royalty rate used was determined at the weighted average market level of 5.00%;
• Growth rates are based on the expected market growth rate for sunflower oil consumption. As of 30 June 2019, management believed that the
market for bottled oil was saturated and for a period of five years no growth is expected; and
• As bottled oil is predominantly sold within Ukraine, the discount rate used was based on the weighted average cost of capital rate of 19.24% for
UAH denominated cash flow projections.

As a result of testing performed as of 30 June 2019, recoverable amounts of the trademarks ‘Schedry Dar’, ‘Stozhar’, ‘Zolota’ and ‘Domashnya’
were USD 4,567 thousand, USD 5,122 thousand, USD 3,233 thousand and USD 320 thousand, respectively (30 June 2018: USD 4,967 thousand,
USD 4,298 thousand, USD 3,541 thousand and USD 301 thousand, respectively).

As a result of testing performed, impairment of the trademarks ‘Zolota’ and ‘Schedry Dar’ in the amount of USD 308 thousand and USD 400
thousand, respectively, was recognized as of 30 June 2019 (30 June 2018: ‘Zolota’ in the amount of USD 368 thousand) as a loss on impairment
of intangible assets within ‘Other expenses, net’ (Note 31). This impairment loss was attributable to the Oilseed Processing segment. Impairment
was caused primarily by shrinkage of consumer demand for premium segment bottled sunflower oil.

As a result of testing performed, impairment loss for the trademarks ‘Stozhar’ recognized in prior periods was partly reversed in the amount of
USD 824 thousand as of 30 June 2019 (30 June 2018: ‘‘Stozhar’ and ‘Schedry Dar’ in the amount of USD 1,054 thousand and USD 992 thousand,
respectively). Reversal was recognized as a reduction of loss on impairment of intangible assets within ‘Other expenses, net’ (Note 31). Value
recovery was caused primarily by increase of export sales.

For the year ended 30 June 2019, additions included USD 24,501 thousand of amounts paid per land lease agreements, where USD 15,305
thousand of this amount related to agreements with an average lease term of 77 years (for the year ended 30 June 2018: USD 11,608 thousand
and 87 years accordingly), amortized using straight-line method. The amount of amortization of the above-mentioned rights for the year ended 30
June 2019 amounted to USD 107 thousand (for the year ended 30 June 2018: USD 127 thousand).

17. Goodwill
The following table represents movements in goodwill for the year:
As of As of
30 June 2019 30 June 2018
Cost 114,705 122,624
Accumulated impairment losses (10,837) (10,837)
Other movements 3,867 (8,096)
Total 107,735 103,691

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As of As of
30 June 2019 30 June 2018
Cost at beginning of the year 114,528 122,692
Acquisitions of Subsidiaries (Note 7) 3,867 —
Transfer to Assets classified as held for sale (Note 14) — (8,096)
Exchange differences 177 (68)
Balance at the end of the year 118,572 114,528

Accumulated impairment losses

As of As of
30 June 2019 30 June 2018
Balance at the beginning of the year (10,837) (8,582)
Impairment losses recognized in the year — (2,255)
Balance at the end of the year (10,837) (10,837)

The Group allocates goodwill to individual entities as to separate cash-generating units (CGU). A summary of goodwill allocation to separate
CGUs is presented below:
Goodwill carrying value
Segment Cash-generating unit As of As of
30 June 2019 30 June 2018
Oilseed Processing BSI LLC 35,331 35,331
Kropyvnytskyi OEP PJSC (former Kirovogradoliya PJSC) 31,334 31,334
Prydniprovskyi OEP LLC 13,225 13,225
Prykolotnoe OEP LLC 2,147 2,147
Other 1,906 1,906
Infrastructure and Trading Transbulkterminal LLC 10,727 10,755
RTK-Ukraine 4,027 —
Farming Druzhba-Nova Group and other agricultural farms 9,038 8,993
Total 107,735 103,691

The group tests whether goodwill has suffered any impairment on an annual basis. The recoverable amounts of Oilseed Processing and Infra-
structure and Trading CGUs were determined based on a value in use calculation, which uses cash flow projections based on the most recent
financial budgets approved by the management and covering a five-year period and a discount rate of 8.6% per annum (2018: 10.2%). The value
in use estimates developed by the Group to estimate the recoverable amount of cash-generating units represent the best available estimate based
on the analysis of the Group’s past perfor-mance, market knowledge and internal assumptions as to future trends on the market.

The discount rate reflects the current market assessment of the risks specific to the cash-generating units. The discount rate was determined by
the weighted average cost of capital based on observable inputs from external sources of information. The discount rate used as of 30 June 2019
was 8.6% (30 June 2018: 10.2%). Cash flows beyond that five-year period have been extrapolated using a steady 2% per annum growth rate. As
of 30 June 2019, the assumptions for expected sunflower oil prices were USD 688 to 769 per one metric ton in 2020-2024 with a corresponding
cost of USD 340 to 349 per one metric ton of sunflower seeds, which corresponds to a margins of USD from 67 to 100 for one metric ton of oil.
As of 30 June 2018, the assumptions for expected sunflower oil prices were USD 750 to 811 per one metric ton in 2019-2023 with a corresponding
cost of USD 368 to 381 per one metric ton of sunflower seeds, which corresponds to a margins of USD from 52 to 100 for one metric ton of oil.
Management believes that the margin per one metric ton of sunflower oil depends on the supply-de-mand balance for raw material in Ukraine
rather than on the level of prices.

Excess of recoverable amount over carrying amount of individual CGUs summarized below:

As of 30 June 2019
Oilseed Processing BSI LLC 159,465
Prydniprovskyi OEP LLC 144,963
Kropyvnytskyi OEP PJSC (former Kirovogradoliya PJSC) 100,453
Volchansk 50,465
Prykolotnoe OEP LLC 8,477

The recoverable amount of Druzhba-Nova Group and other agricultural farms have been determined based on fair value less cost to sell estimates.
The valuation method is based on the market approach and observable market prices, adjusted for the age and liquidity of the assets, which is
within level 2 of the fair value hierarchy.

Management believes that no reasonably possible change in the key assumptions would cause the carrying amount of Transbulkterminal LLC
and Oilseed Processing CGUs to exceed its recoverable amount. Management believes that no reasonably possible change in the key assump-
tions on which the recoverable amount of Druzhba-Nova Group and other agricultural farms is based will cause the carrying amount to exceed
their recoverable amount.

The recoverable amount of RTK CGU was determined based on a value in use calculation, which uses cash flow projections based on the most
recent financial budgets approved by the management and covering railcars useful life period and a discount rate of 14.3% per annum and is
classified within Level 3 of fair value hierarchy.
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As of 30 June 2019 and 2018, no impairment of goodwill was identified except for the impairment of goodwill allocated to BSI LLC oilseed crushing
plant relating to the Oilseed Processing segment was recognized in the amount of USD 2,255 thousand for the year ended 30 June 2018 within
‘Other expenses, net’.

18. Other Non-current Assets

The balances of other non-current assets were as follows:
As of As of
30 June 2019 30 June 2018
Prepayments for property, plant and equipment 87,849 94,047
Loans provided to related parties (Note 33) 19,769 10,124
Loans to farmers 11,083 —
Investments in financial asset 7,341 —
Non-current biological assets (Note 13) 5,271 7,606
Prepayments for business acquisitions 4,500 4,500
Other non-current assets 19,919 18,285
Total 155,732 134,562

19. Advances from Customers and Other Current Liabilities

The balances of advances from customers and other current liabilities were as follows:
As of As of
30 June 2019 30 June 2018
Provision for legal claims (Note 35) 31,872 28,971
Accrued payroll, payroll related taxes and bonuses 16,929 8,160
Taxes payable and provision for tax liabilities 9,748 13,296
Accounts payable for property, plant and equipment 9,230 2,434
Advances from customers 7,277 13,309
Provision for unused vacations and other provisions 6,334 5,911
Settlements for acquired Subsidiaries 5,537 12,364
Settlements with land lessors 2,754 2,048
Obligation under finance lease payable within one year (Note 22) 2,484 3,236
Other current liabilities 12,811 15,169
Total 104,976 104,898

20. Short-term Borrowings

The balances of short-term borrowings were as follows:
As of As of
30 June 2019 30 June 2018
Bank credit lines 182,160 182,657
Interest accrued on short-term borrowings 759 718
Interest accrued on long-term borrowings 527 125
Bank overdrafts (Note 8) 246 41,273
Total 183,692 224,773

The balances of short-term borrowings as of 30 June 2019 were as follows:

Interest rate Currency Maturity Amount due
Ukrainian subsidiary of European bank 4.00% USD July 2019 48,700
European bank Libor + 2.25% USD July 2019 43,447
European bank Libor + 3.95% USD July 2019 32,860
European bank Libor + 4.00% USD July 2019 15,032
Ukrainian subsidiary of European bank 18.00% UAH July 2019 10,261
Ukrainian subsidiary of European bank 18.50% UAH July 2019 8,102
Ukrainian subsidiary of European bank 4.30% USD July 2019 7,300
European bank Libor + 1.50% USD July 2019 6,992
Ukrainian subsidiary of European bank 19.00% UAH July 2019 3,803
European bank Libor + 1.65% USD March 2020 2,903
Ukrainian subsidiary of European bank 18.25% UAH July 2019 2,484
European bank Libor + 2.45% USD July 2019 522
Total bank credit lines 182,406
Interest accrued on short-term loans 759
Interest accrued on long-term loans 527
Total 183,692

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The balances of short-term borrowings as of 30 June 2018 were as follows:

Interest rate Currency Maturity Amount due
European bank Libor + 4.15% USD July 2018 58,672
European bank Libor + 2.25% USD July 2018 41,273
Ukrainian subsidiary of European bank 3.75% USD July 2018 29,971
European bank Libor + 4.00% USD July 2018 23,286
European bank Libor + 3.50% USD July 2018 19,200
European bank Libor + 3.20% USD July 2018 10,500
Ukrainian subsidiary of European bank 3.80% USD July 2018 6,900
Ukrainian subsidiary of European bank 3.50% USD July 2018 6,800
Ukrainian subsidiary of European bank 3.55% USD August 2018 6,700
Ukrainian subsidiary of European bank 3.50% USD December 2018 5,800
Ukrainian subsidiary of European bank 16.40% UAH September 2018 5,475
Ukrainian subsidiary of European bank 3.55% USD July 2018 4,500
Ukrainian subsidiary of European bank 16.30% UAH July 2018 1,993
Ukrainian subsidiary of European bank 16.40% UAH August 2018 1,860
Ukrainian subsidiary of European bank 3.75% USD July 2018 1,000
Total bank credit lines 223,930
Interest accrued on short-term loans 718
Interest accrued on long-term loans 125
Total 224,773

As of 30 June 2019, undrawn short-term bank credit lines amounted to USD 708,866 thousand (as of 30 June 2018: USD 121,908 thousand).

Short-term borrowings from banks were secured as follows:

As of As of
Assets pledged 30 June 2019 30 June 2018
Inventory (Note 12) 166,245 200,849
Future sales receipts 85,365 41,273
Property, plant and equipment (Note 15) 626 540
Total 252,236 242,662

21. Long-term Borrowings

The balances of long-term borrowings were as follows:
As of As of
30 June 2019 30 June 2018
Long-term bank borrowings 64,913 5,623
Current portion of long-term borrowings (1,233) (2,811)
Total 63,680 2,812

The balances of long-term borrowings as of 30 June 2019 were as follows:

Interest rate Currency Maturity Amount due
European bank Libor + 2.78% USD February 2029 50,000
European bank Libor + 2.77% USD April 2029 12,140
Ukrainian subsidiary of European bank Libor + 4.50% USD August 2021 2,773
Total 64,913

The balances of long-term borrowings as of 30 June 2018 were as follows:

Interest rate Currency Maturity Amount due
European bank Libor + 1.65% USD March 2020 5,623

As of 30 June 2019, undrawn long-term borrowings amounted to USD 243,860 thousand (as of 30 June 2018: nil).

Long-term bank borrowings from banks were secured as follows:

Assets pledged As of As of
30 June 2019 30 June 2018
Property, plant and equipment (Note 15) 103,427 —
Total 103,427 —

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

22. Obligations under Finance Leases

The Group entered into finance lease arrangements for part of its agricultural equipment, vehicles and production machinery. Leases are denom-
inated in USD and UAH. The average term of finance leases is 5 years.

The major components of finance lease liabilities were as follows:

As of 30 June 2019 As of 30 June 2018
Minimum Present value of Minimum Present value of
lease minimum lease lease minimum lease
payments payments payments payments
Amounts payable due to the finance lease:
Within one year (Note 19) 3,113 2,484 3,979 3,236
Later than one year and not later than five years 5,983 5,230 9,096 7,710
Total 9,096 7,714 13,075 10,946
Less future finance charges (1,382) — (2,129) —
Present value of lease obligations 7,714 7,714 10,946 10,946

The average effective interest rate contracted for the year ended 30 June 2019 was at the level of 9.74% (30 June 2018: 9.44%).

23. Bonds issued

As of As of
30 June 2019 30 June 2018
Unsecured senior notes 500,000 500,000
Less: Unamortized debt issue costs (3,949) (5,204)
Total 496,051 494,796

In January 2017 the Group issued USD 500,000 thousand unsecured notes (‘the Notes’), that will mature on 31 January 2022. The Notes bear
interest from 31 January 2017 at the rate of 8.75% per annum payable semi-annually in arrears on 31 January and 31 July each year commencing
from 31 July 2017.

As of 30 June 2019 and 2018, accrued interest on bonds issued was USD 17,949 thousand.

The Notes are unsecured, ranking equally with all existing and future senior unsecured indebtedness of the Issuer and have been unconditionally
and irrevocably guaranteed by designated Group subsidiaries on the joint and several basis to the maximum extent permitted by law.

The Notes contain certain restrictive covenants that limit the ability of the Issuer 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.

The Notes may be redeemed in whole, but not in part, at the option of the Issuer at a price equal to 100 per cent of their principal amount, plus
accrued and unpaid interest to the redemption date, in case of specified taxation event. The Notes could be redeemed at any time, at the option
of the Issuer, up to 35 per cent of the principal aggregate amount of the Notes (‘Equity Offering’) at redemption price of 108.75 per cent of their
principal amount, plus accrued and unpaid interest to the redemption date.

Upon a change of control event each noteholder has the right, but not the obligation, to require the Issuer to purchase the Notes at the purchase
price equal to 100 per cent of their principal amount, plus accrued and unpaid interest to the purchase date.

The Notes were rated in line with the Issuer’s IDR by Fitch (B+) and S&P (B), which is two notches and one notch above the sovereign at the
issue date, respectively.

24. Income Tax

The Company is subject to corporate income tax in Luxembourg. The tax rate in Luxembourg was 27.08% as of 30 June 2019 and 2018. The
effective income tax rate in Switzerland as of 30 June 2019 was in range 9.92% - 11.64%. Income tax rate in the US as of 30 June 2019 was
23.60%. The corporate income tax rate in Ukraine, where the main operations of the Group are located, was 18% as of 30 June 2019 and 2018.
The majority of the Group’s operating entities are located in Ukraine, therefore effective tax rate reconciliations is completed based on Ukrainian
statutory tax rates.

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
other operating income.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The components of income tax expense were as follows:

For the year ended For the year ended
30 June 2019 30 June 2018
Current income tax charge (3,359) (7,391)
Deferred tax (expenses)/benefit relating to origination and reversal of temporary differences (8,543) 13,291
Total income tax (expenses)/ benefit recognized in the reporting period (11,902) 5,900

The income tax expense is reconciled to the profit before income tax per Consolidated Statement of Profit or Loss as follows:

As of As of
30 June 2019 30 June 2018
Profit before income tax 190,406 50,054
Tax expense at Ukrainian statutory tax rate of 18% (34,273) (9,010)
Effect of income that is exempt from taxation (farming) 34,984 15,996
Effect of different tax rates of Subsidiaries operating in other jurisdictions 1,527 (3,402)
Effect of unused tax losses and tax offsets not recognized as deferred tax assets 764 (510)
Other expenditures not allowable for income tax purposes and non-taxable income, net (14,904) 2,826
Income tax (expenses)/ benefit (11,902) 5,900

For the year ended 30 June 2019, USD 4,650 thousand income tax expenses were recognized in other comprehensive income (2018: nil).

The primary components of the deferred tax assets and deferred tax liabilities were as follows:
As of As of
30 June 2019 30 June 2018
Tax losses carried forward 4,821 16,611
Valuation of property, plant and equipment 9,417 11,620
Valuation of inventory 307 334
Valuation of advances and other temporary differences 367 494
Deferred tax assets 14,912 29,059
Valuation of property, plant and equipment (32,438) (27,781)
Valuation of intangible assets (1,952) (2,026)
Valuation of prepayments to suppliers and other temporary differences (1,085) (286)
Deferred tax liabilities (35,475) (30,093)
Income tax liability, net (20,563) (1,034)

As of 30 June 2019, based upon projections for future taxable income over the periods in which the deductible temporary differences are antici-
pated to reverse, management believes it is probable that the Group will realize the benefits of deferred tax assets of USD 4,821 thousand (2018:
USD 16,611 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 26,783 thousand
(2018: USD 92,283 thousand). However, the amount of the deferred tax asset considered realizable could be adjusted in the future if estimates
of taxable income are revised.

Tax losses incurred by subsidiaries registered in Ukraine can be brought forward for a reasonable period of time.

There were no unrecognized deferred tax assets arising from tax losses carried forward by the Group’s subsidiaries as of 30 June 2019 (as of
30 June 2018: USD 764 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.

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 As of
30 June 2019 30 June 2018
Deferred tax assets 8,447 18,536
Deferred tax liabilities (29,010) (19,570)
Net deferred tax liabilities (20,563) (1,034)

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

25. Revenue
The Group’s revenue was as follows:
For the year ended For the year ended
30 June 2019 30 June 2018
Revenue from agriculture commodities merchandizing 2,093,333 951,252
Revenue from edible oils sold in bulk, meal and cake 1,744,287 1,286,645
Revenue from bottled sunflower oil 114,526 106,846
Revenue from farming 29,983 51,529
Revenue from grain silo services 5,919 6,308
Revenue from transshipment services 4,085 423
Total 3,992,133 2,403,003

Revenue for the period is comprised of the following:

For the year ended
30 June 2019
Sale of commodities 3,841,624
Freight, storage and other services 150,509
Total 3,992,133

Revenue is obtained principally from the sale of commodities, recognized once the control of the goods has transferred from the Company to the
customer. Revenue derived from freight, storage and other services is recognized over time as the service is rendered. Disaggregated revenue
for each reportable segment is presented in the Note 6.

The transaction price allocated to unsatisfied performance obligations as of 30 June 2019 is of USD 1,952 thousand. This amount represents
revenue from carriage, freight and insurance services under CIF/CFR (INCOTERMS) contracts which are to be executed in July 2019 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 2019

26. Cost of Sales

Cost of sales was as follows:
For the year ended For the year ended
30 June 20191 30 June 2018
Cost of goods for resale and raw materials used 3,117,528 1,876,392
Shipping and handling costs (Note 3) 307,525 153,553
Amortization and depreciation 71,947 79,789
Rental payments 71,765 72,694
Payroll and payroll related costs 65,666 55,792
Other operating costs 19,331 23,010
Total 3,653,762 2,261,230

27. Other Operating Income, net

For the year ended 30 June 2019, other operating income, net amounted to USD 28,228 thousand (2018: USD 59,092 thousand). Decrease was
mainly caused by loss on operations with commodity futures in the amount of USD 13,650 thousand, basically driven by result of Avere operations
with derivative instruments, including its revaluation as of year-end (2018: gain in the amount of USD 32,317 thousand).

For the year ended 30 June 2019, together with income from assigning transshipment quota entitlement in Zernovoy Terminalny Complex Taman
LLC for the amount of USD 8,000 thousand (2018: USD 7,800 thousand) (Note 32), other operating income included result from price difference
settlements namely contracts wash-out and circles, fines and penalties, VAT benefits and other state dotations and other income from operating
activities.

1
During the year ended 30 June 2019, the Group has changed its accounting policy due to IFRS 15 adoption and changed presentation of Distributions costs and included
them in Cost of sales. Comparative information was reclassified respectively. Please see Note 3 for more details and description of changes in accounting policy and reclas-
sifications made.
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

28. General and Administrative Expenses

General and administrative expenses were as follows:
For the year ended For the year ended
30 June 2019 30 June 2018
Payroll and payroll related costs 60,381 46,887
Audit, legal and other professional fees 11,052 6,841
Bad debts expenses 7,905 997
Repairs and material costs 7,454 6,858
Business trip expenses 4,955 5,073
Amortization and depreciation 3,805 2,870
Taxes other than income tax 2,287 2,478
Rental payments 2,158 1,815
Insurance 1,918 2,554
Communication expenses 1,522 878
Bank services 1,444 1,658
Other expenses 1,651 1,090
Total 106,532 79,999

Audit, legal and other professional fees for the year ended 30 June 2019 include the auditor’s remuneration in the amount of USD 659 thousand
and no consultancy fees for the respective period (for the year ended 30 June 2018: USD 495 thousand and nil, respectively).

29. Finance Costs, net

Finance costs, net were as follows:
For the year ended For the year ended
30 June 2019 30 June 2018
Interest on corporate bonds (Note 23) 44,886 44,619
Interest expense on bank loans 26,520 15,336
Other finance costs, net 10,913 5,144
Total 82,319 65,099

30. Foreign Exchange Gain/(Loss), net

For the year ended 30 June 2019, foreign exchange gain, net amounted to USD 12,860 thousand (30 June 2018: USD 5,375 thousand). The
result is mostly connected with fluctuation of exchange rates which influenced on revaluation of balances denominated in other than functional
currencies, namely trade balances, VAT and income tax prepaid, borrowings (including intra-group balances: the Company’s subsidiaries operate
with different functional currencies and during the normal course of business issue intercompany financing which, when revalued, causes either
foreign exchange gains or losses at one of the Company’s subsidiaries if they had different functional currencies) (Note 35).

31. Other Expenses, net

Other expenses, net were as follows:
For the year ended For the year ended
30 June 2019 30 June 2018
Revaluation losses of property, plant and equipment (Note 15) 10,234 —
Charity 2,303 2,440
Fines and penalties (Note 34) 1,610 28,923
Other material expenses 1,341 2,084
Gain on bargain purchase (Note 7) — (2,309)
(Reduction of impairment)/Impairment of intangible assets and goodwill, net (Note 16, 17) (116) 577
Gain on disposal of property, plant and equipment (605) (791)
Gain on disposal of Subsidiaries (Note 7) (4,833) (2,972)
Other (gain)/expenses, net (1,558) 3,028
Total 8,376 30,980

32. Investments in Joint Ventures

On 27 September 2012, a 50/50 joint venture was formed with Renaisco BV, a Subsidiary of Glencore International PLC. The joint venture acquired
a 100% interest in a deep-water grain export terminal in Taman port (the Russian Federation). Taman port provides storage and transshipment
services as well as an efficient freight forwarding process.

As of 30 June 2019, the Group assigned its transshipment quota entitlement for the year ended 30 June 2020 (2,000,000 tons) in Zernovoy
Terminalny Complex Taman LLC to a third party (year ended 30 June 2019: 2,000,000 tons). For the year ended 30 June 2019, income received
for the quota entitlement amounted to USD 8,000 thousand (2018: USD 7,800 thousand) and was included in Other operating income, net
(Note 27).

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The investment in the joint venture is accounted for using the equity method from the date of acquisition. The Group has the following significant
interests in joint ventures (all related to the export terminal in Taman port):

Place of incorporation Proportion of ownership interest and

Name of joint venture Principal activity and principal place of voting rights held by the Group
business As of 30 June 2019 As of 30 June 2018
Taman Grain Terminal Holdings Limited Holding Company Cyprus 50.0% 50.0%
Taman Invest Limited CJSC Holding Company Russian Federation 50.0% 50.0%
Zernovoy Terminalny Complex Taman LLC Grain export terminal Russian Federation 50.0% 50.0%

Financial data in regard to joint ventures, reflecting 100% interest in the underlying joint venture, was as follows:
As of 30 June 2019 As of 30 June 2018
Current assets 3,331 5,621
Non-current assets 64,735 66,260
Current liabilities (20,911) (17,914)
Non-current liabilities (9,274) (14,154)
Net assets of joint ventures 37,881 39,813

The above amount of assets and liabilities include the following:

As of 30 June 2019 As of 30 June 2018
Cash and cash equivalents 20 1,055
Property, plant and equipment, net 63,586 65,633
Current financial liabilities (excluding trade and other payables and provisions) (4,618) (5,050)
Non-current financial liabilities (excluding trade and other payables and provisions) (5,877) (10,532)

Summarized statement of profit or loss and other comprehensive income of joint ventures was as follows:

For the year ended For the year ended

30 June 2019 30 June 2018
Revenue 23,217 35,572
Cost of sales (23,849) (29,104)
Other operating income 1,244 —
General and administrative expenses (3,304) (3,566)
(Loss)/Profit from operating activities (2,692) 2,902

Other income, net 70 542

(Loss)/Profit before income tax (2,622) 3,444

Income tax benefit/(expenses) 690 (1,058)

(Loss)/Profit for the period and total comprehensive (loss)/income (1,932) 2,386

The above information for the period includes the following:

Year ended Year ended

30 June 2019 30 June 2018
Depreciation and amortization 4,086 4,217
Interest expenses 1,344 2,271

Reconciliation of the above summarized financial information to the carrying amount of the interest in the joint venture recognized in the consoli-
dated financial statements:
Year ended Year ended
30 June 2019 30 June 2018
Net assets of the joint venture 37,881 39,813
Proportion of the Group’s ownership interest in the joint venture 50.0% 50.0%
Goodwill 32,311 32,311
Carrying amount of the Group’s interest in the joint venture 51,252 52,218

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

33. Transactions with Related Parties

Related parties are the Beneficial Owner and companies under control of the Beneficial Owner, joint ventures and the Group’s key management
personnel.

The Group had the following balances outstanding with related parties:

Total category as per Total category as per

Related party Related party
consolidated state- consolidated state-
balances as of balances as of
ment of financial posi- ment of financial posi-
30 June 2019 30 June 2018
tion as of 30 June 2019 tion as of 30 June 2018
Trade accounts receivable, net (Note 9) 785 183,196 106 92,355
Prepayments to suppliers and other current 9,675 129,822 9,714 113,342
assets, net (Note 10)
Other non-current assets (Note 18) 19,769 155,732 13,366 134,562
Advances from customers and other current 4,462 104,976 8,204 104,898
liabilities (Note 19)
Other non-current liabilities — 43,843 1,058 32,506

As of 30 June 2019, and 30 June 2018, prepayments to suppliers and other current assets included a trade prepayment to Zernovoy Terminalny
Complex Taman LLC according to the transshipment agreement in the amount of USD 3,574 thousand and USD 4,358 thousand, respectively.

As of 30 June 2019, prepayments to suppliers and other current assets and other non-current assets included a loan at rate comparable to the
average commercial rate of interest in the amount of USD 2,575 thousand provided to Taman Grain Terminal Holding (30 June 2018: USD 2,484
thousand).

As of 30 June 2019, other non-current assets included a loan at rate comparable to the average commercial rate of interest in the amount of USD
10,459 thousand provided to the company under control of the Beneficial Owner (30 June 2018: nil).

As of 30 June 2019, other non-current assets included an interest-free financing in the amount of USD 5,493 thousand and loan at a rate compa-
rable to the market rate in the amount of USD 1,000 thousand provided to key management personnel (30 June 2018: USD 6,076 thousand and
USD 1,000 thousand, respectively).

As of 30 June 2019, advances from customers and other current liabilities included USD 3,099 thousand in bonuses payable to the management
(30 June 2018: USD 1,413 thousand).

The amounts outstanding are unsecured and will be settled in cash. No guarantees have been given or received.

All remaining outstanding balances with related parties, which are presented in the table above, were represented by amounts due to companies
under common control.

Transactions with related parties were as follows:

Total category as Total category per
Amount of opera- Amount of opera-
per consolidated consolidated state-
tions with related tions with related
statement of finan- ment of profit or
parties, for the year parties, for the year
cial position as of loss for the year
ended 30 June 2019 ended 30 June 2018
30 June 2019 ended 30 June 2018
Revenue (Note 25) 1,165 3,992,133 — 2,403,003
Cost of sales (Note 26) (4,192) (3,653,762) — (2,261,230)
General and administrative expenses (Notes 28) (8,377) (106,532) (7,944) (79,999)
Finance costs, net (Note 29) (611) (82,319) 94 (65,099)
Other expenses, net (Note 31) 3,178 (8,376) (2) (30,980)

Transactions with related parties are performed on terms that would not necessarily be available to unrelated parties.

As of 30 June 2019, the Board of Directors consisted of the following eight directors: the chairman of the board, three non-executive independent
directors and four directors employed by Subsidiaries. Remuneration of the Board of Directors (8 Directors) for the year ended 30 June 2019
amounted to USD 500 thousand (30 June 2018: 8 directors, USD 568 thousand). The non-executive directors were also refunded, to a reasonable
extent, any expenses incurred by them in performing their duties, including reasonable traveling expenses.

Four directors employed by Subsidiaries are entitled to remuneration for their services as members of the management team of the Group.
Remuneration of the management team of the Group, totaling 12 people, amounted to USD 5,518 thousand for the year ended 30 June 2019
(30 June 2018: 12 people, USD 3,294 thousand), including USD 3,099 thousand of variable bonus as per approved remuneration scheme
(30 June 2018: USD 827 thousand).

Members of the Board of Directors and management team are not granted any pensions, retirement or similar benefits by the Group. The man-
agement of the Group has been provided with options to purchase shares of the Holding (Note 2).

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

34. Commitments and Contingencies

Operating Environment
In the recent years, Ukraine has been in a political and economic turmoil. Crimea, an autonomous republic of Ukraine, was effectively annexed
by the Russian Federation. In 2018-2019, an armed conflict with separatists continued in certain parts of Luhansk and Donetsk regions. These
events resulted in higher inflation, devaluation of the national currency against major foreign currencies, decrease of GDP, illiquidity, and volatility
of financial markets.

During the year ended 30 June 2019, annual inflation rate amounted to 9% (2018: 10%). The Ukrainian economy proceeded recovery from the
economic and political crisis of previous years that resulted in GDP smooth growth for the year ended 30 June 2019 for 3% (2018: 3%) and
stabilization of national currency. From trading perspective, the economy continued to demonstrate refocusing on the European Union (“EU”)
market, in such a way effectively reacting to mutual trading restrictions imposed between Ukraine and Russia.

To further facilitate business activities in Ukraine, the National Bank of Ukraine (NBU) lifts the surrender requirement of a share of foreign currency
proceeds. The requirement that obliged entrepreneurs to sell certain share of their foreign currency proceeds was abolished starting from 20 June
2019.

In line with the currency liberalization the National Bank of Ukraine (“NBU”) streamlined currency supervision of compliance with settlement
deadlines for export and import transactions in foreign currency from 120 to 365 days and cancelled all limits on repatriation of dividends since
July 2019 (from March 2018, companies were allowed to pay dividends to foreign investors in foreign currency at the amount under USD 7 million
per month regardless of the period, when such dividends were accrued).

Further stabilization of the economic and political situation depends, to a large extent, upon success of the Ukrainian government’s efforts and
cooperation with the International Monetary Fund (“IMF”), yet further economic and political developments are currently difficult to predict.

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 2019 were USD 18,619 thousand (2018: USD 15,594 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. For the year ended 30 June
2019, there were USD 222 thousand retirement and other pension obligation expenses of the Group recognized (2018: nil). As of 30 June 2019,
and 30 June 2018, the Group was not liable for any significant supplementary pensions, post-retirement health care, insurance benefits or retire-
ment indemnities to its current or former employees.

Capital Commitments
As of 30 June 2019, the Group had commitments under contracts with a group of suppliers for a total amount of USD 152,851 thousand, mostly
for the construction of an oil-crushing plant and port terminal (30 June 2018: USD 109,681 thousand, mostly for the purchase of agricultural
equipment and reconstruction of a terminal).

Contractual Commitments on Sales

As of 30 June 2019, the Group had entered into commercial contracts for the export of 802,375 tons of grain and 546,117 tons of sunflower oil
and meal, corresponding to an amount of USD 156,194 thousand and USD 227,450 thousand, respectively, in contract prices as of the reporting
date.

As of 30 June 2018, the Group had entered into commercial contracts for the export of 1,631,918 tons of grain and 503,369 tons of sunflower oil
and meal, corresponding to an amount of USD 314,269 thousand and USD 248,196 thousand, respectively, in contract prices as of the reporting
date.

Commitments on leases of property plant and equipment

As of 30 June 2019, following the strategy to increase port capacity, the Group entered into a 49-year lease contract of property plant and
equipment with a renewal option according to the market rent. The Group is obliged to perform fixed monthly payments adjusted on the rate of
inflation. The Group will not obtain the right to acquire property plant and equipment after expiration of the lease contract.
The future minimum lease payments:
Future minimum lease payment Future minimum lease payment
Lease term
as of 30 June 2019 as of 30 June 2018
Less than 1 year 548 550
From 1 to 5 years 2,193 2,198
More than 5 years 21,683 22,289
Total 24,424 25,037

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Commitments on land operating leases

As of 30 June 2019 and 2018, the Group had outstanding commitments under non-cancellable operating lease agreements with the following
maturities:

Future minimum lease payment Future minimum lease payment

Lease term
as of 30 June 2019 as of 30 June 2018
Less than 1 year 50,718 77,582
From 1 to 5 years 228,739 270,884
More than 5 years 312,090 287,127
Total 591,547 635,593

Taxation and Legal Issues

In April 2012, the Group entered into a call option agreement to acquire Stiomi Holding, a farming company located in the Khmelnytskyi region of
Ukraine. Upon signing, the sellers received approximately 40% of the estimated net asset value partly from the Group and its related parties. As
of 30 June 2019, the consideration paid for Stiomi Holding by the Group comprised USD 33,472 thousand. A final payment was due and payable
only after fulfilment of certain conditions to the satisfaction of the Group and subject to rights of set-off in respect of claims against the sellers. The
Group submitted several claims to the sellers in respect of the non-fulfillment of the sellers’ obligations. In December 2012, the Group received a
request for arbitration from the sellers in which the sellers claimed amounts said to be due to them. An arbitral tribunal was formed; the parties
exchanged written statements on the case in which the Group asserted its counterclaims and thereafter written statements of evidence and expert
reports were also exchanged. The hearing took place in November 2015. The tribunal delivered its award in late February 2018. That award was
in part subject to challenge by the Group in the High Court in London. In March 2019 the High Court remitted the award to the tribunal for
reconsideration in certain respects and a further hearing took place before the tribunal at the end of September 2019. The tribunal’s revised award
is awaited and is due by no later than 21 December 2019.

As of 30 June 2018, the Group has recognized a provision regarding the above-mentioned award. The provision represents the directors’ best
estimate of the maximum future outflow that will be required in respect of the award. The directors believe there are good prospects of success
on the remitted issues but the amount of the provision has not been discounted for the purposes of this estimate, since at the moment of estimation
both the outcome of the challenge and the expected period of time in which the Court will make its decision are unknown.

The carrying amount of the provision for legal claims is USD 31,872 thousand as of 30 June 2019 (2018: USD 28,971 thousand), and related
expenses in the amount of USD 2,901 thousand were recognized within the year ended 30 June 2019 (2018: USD 28,971 thousand) and included
within the line “Other expenses, net” (Note 31). No payment has been made to the claimant pending the outcome of the award on the remitted
issues.

The Group performed certain sale and acquisition transactions and other concentrations which could have required the obtaining of the prior
approval of the Antimonopoly Committee of Ukraine (“AMC”). In February 2019, the Group acquired RTK-Ukraine LLC (the “Acquisition”). In July
2019, the AMC initiated investigation in respect of the Acquisition claiming that the Group had to obtain the AMC approval for the concentration
prior to acquisition of RTK Ukraine. The Group believes that the AMC approval for the concentration was not required as the Acquisition falls
under the exemption allowing not to obtain the AMC approval for the concentration. The investigation is currently pending. Exact amount of
potential fines and penalties could be defined after investigation finalized. Management believes that based on the past history, it is unlikely that
any material settlement will arise and no respective provision is required in the Group’s financial statements as of the reporting date.

As of 30 June 2019, the Group’s management assessed its maximum exposure to tax risks related to VAT refunds claimed by the Group, the
deductibility of certain expenses for corporate income tax purposes and other tax issues for total amount of USD 21,493 thousand (30 June 2018:
USD 60,604 thousand), from which USD 7,797 related to VAT recoverability (30 June 2018: USD 42,882 thousand), USD 10,592 thousand related
to corporate income tax (30 June 2018: 17,382 thousand) and USD 3,104 thousand related to other tax issues (30 June 2018: 340 thousand).

As of 30 June 2019, companies of the Group had ongoing litigations with the tax authorities concerning tax issues for USD 20,471 thousand (30
June 2018: USD 31,480 thousand), included in the abovementioned amount. Out of this amount, USD 7,613 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 (30 June 2018: USD
19,159 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, inter alia, could increase fiscal pressure on taxpayers. Inconsistent application, interpretation, and enforcement of tax laws can lead to
litigations resulting in the imposition of additional taxes, penalties, and interest, which could be material.

Key characteristics of Ukrainian tax system:

• Ukraine currently operates a classic corporate income tax system under which companies are taxed at a rate of 18%.
• Value-added tax at the standard rate of 20% is levied on the supply of domestic goods and on the import of goods and auxiliary services. VAT
at 7% rate is applied to pharmaceuticals and healthcare products. Exported goods and auxiliary services are zero-rated.
• Transfer pricing rules are also effective in Ukraine and apply to taxpayers with annual revenue exceeding UAH 150 million that engage in
controlled transactions exceeding UAH 10 million with one counterparty. Controlled transactions include, inter alia, transactions with non-resi-
dent related parties, non-residents from low-tax jurisdiction, non-residents with specific legal forms, etc.
• In Ukraine thin capitalization rules apply to all loans received by resident companies from nonresident related parties where the debt is greater
than 3.5 times the company’s equity. Deduction for interest paid on such loans is limited to 50% of profits before tax plus the amount of financing
expenses and depreciation for the relevant tax period.
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

• 15% withholding tax is levied on dividends, royalties and interest and other passive income paid to the nonresident unless the rate is reduced
under the tax treaty in force.

Facing the current economic and political issues, the Government has implemented certain reforms in the tax system of Ukraine by adopting
significant amendments of the Tax Code of Ukraine which became effective from 1 January 2015, 1 January 2016, 1 January 2017 and 1 January
2018 except for certain provisions, which take effect at a later date. The Draft Law on new amendments to the Tax Code of Ukraine was registered
with the Parliament on 30 August 2019. The major changes proposed by the Draft Law are as follows:
• The rules of thin capitalization may be changed, notably the deduction for interest paid on both controlled and uncontrolled loans is to be limited
by a more fiscal approach.
• Foreign exchange gains/losses are to be excluded from taxable income calculation.
• Additional VAT accrual on the supply below “normal price” (in case of self-produced goods) or purchase price is to be applicable for export
operations (previously – only for domestic sales).
• Insignificant changes in the administration of withholding tax, the transfer pricing principles, the definition of the controlling person and benefi-
ciary owner, expansion of the definition of dividends (this issue led to a lot of disputes), etc.

Since the Ukrainian tax environment changes dynamically, we are not able to access the probability of the Draft Law adoption and/or modification.

Possible changes in Ukrainian land legislation

According the Land Code of Ukraine, there exists a prohibition on the sale of agricultural land plots (hereinafter – “the Moratorium”). The Morato-
rium is in force until 1 January 2020, unless the Parliament decides to prolong its validity. As of September 2019, the President Administration
together with the Government plans to draft and adopt the Law on the market of agricultural land and cancel the Moratorium. The Parliament is
expected to adopt the law by 1 December 2019.

On 19 September 2019, the Government announced the plan to launch the market of land starting from 1 October 2020. Only Ukrainian nationals
and legal entities will be entitled to buying or selling the land. If the changes are adopted, Ukrainian entities of Kernel Group will be entitled not
only to renting agricultural land plots, but also to buying them.

Since respective legislation acts have not been adopted yet, we are not able to comment on their impact on Ukrainian tax and legal environment.

35. Financial risk management

Capital Risk Management
The Group manages its capital to ensure that entities in the Group will be able to continue as a going concern while maximizing return to share-
holders through a combination of debt and equity capital. Management reviews the capital structure on a semi-annual basis. As part of this review,
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 as well as the issue of new debt or the redemption
of existing debt.

The Group monitors capital based on the carrying amount of 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.

Gearing Ratio
Management reviews the capital structure of the Group, taking into consideration 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. Following its listing on the WSE, the Group’s
management considers that the gearing ratio should not exceed 150%.

As of As of
30 June 2019 30 June 2018
Equity 1 1,350,946 1,170,733
Debt liabilities 2 (Notes 20, 21, 22, 23) 770,319 754,087
Net debt 693,518 622,069
Less cash and cash equivalents (Note 8) (76,801) (132,018)
Net debt liabilities to capital 51% 53%

Financial instruments risk

Due to its activity, the Group is exposed to the following risks from its use of financial instruments:
• Credit risk.
• Liquidity risk.
• Market risk.

This note provides information on the Group’s exposure to each of the above risks, the Group’s objectives, policies and processes for measuring
and managing such risks, and the Group’s management of capital.

Risk management policies have been established to identify and analyze the risks faced by the Group, to set appropriate risk limits and controls,
and to monitor risks and adherence to limits. Risk management policies and systems are regularly reviewed to reflect changes in market conditions

1
Equity includes issued capital, share-premium reserve, additional paid-in capital, revaluation reserve, equity-settled employee benefits reserve, retained earnings and translation reserve.
2
Debt includes short-term and long-term borrowings, obligations under finance leases, bonds issued and accrued interest.
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

and the Group’s activities. The Group, through its training and management standards and procedures, aims to develop a disciplined and con-
structive control environment in which all employees understand their roles and obligations.

Credit Risk
Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations
and arises principally from the Group’s receivables from customers. The carrying amount of trade receivables and other current assets, cash and
cash equivalents and other financial assets represent the maximum credit exposure.

The Group’s most significant customer is an international customer, which accounted for USD 26,198 thousand out of total trade accounts receiv-
able as of 30 June 2019 (30 June 2018: one international customer accounted for USD 25,785 thousand).

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, has less of an influence on credit risk.

The management of the Group has established a credit policy under which each new customer is analyzed individually for creditworthiness before
the Group’s standard payment and delivery terms and conditions are offered. The Group’s review includes external ratings, where available, and
in some cases bank references, and also counterparty recommendations. Purchase limits are established for each customer, which represent the
maximum open amount without requiring approval from the management of the Group. These limits are reviewed quarterly. 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 and bank
guarantees. The Group does not hold any collateral or other credit enhancements to cover its credit risk associated with its financial assets.

Guarantees
As of 30 June 2019, the Company has guaranteed to unrelated party that certain subsidiaries of the group will release the assets pledged under
the 3-year loan provided by the Company to unrelated party. In case subsidiaries do not release those after the loan repayment, then the Company
has to pay the amount that is equal to the market price of the assets or USD 29,900. The guarantee is valid for the term of the loan agreement.

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 reserves, banking facilities and reserve borrowing facilities by continuously monitoring forecasted and actual cash flows
and by matching the maturity profiles of financial assets and liabilities.

As of 30 June 2019, the carrying amount of the Group’s maximum exposure to financial obligations was USD 1,041,369 thousand (30 June 2018:
USD 960,300 thousand).

Typically, the Group ensures that it has sufficient cash on demand to meet expected operational expenses for a period of 60 days, including the
servicing of financial obligations; this excludes the potential impact of extreme circumstances that cannot reasonably be predicted, such as natural
disasters.

The average credit period on purchases of goods is 12 days.

The following table details the Group’s remaining contractual maturity for its non-derivative financial liabilities with agreed repayment periods as
of 30 June 2019 and 2018. 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 Contractual Less than 1 More than 5
Non-derivative financial liabilities 1–2 years 2–5 years
amount cash flows year years
Trade accounts payable 136,043 (136,043) (136,043) — — —
Short-term borrowings (Note 20) 183,692 (184,754) (184,754) — — —
Long-term borrowings (Note 21) 64,913 (82,988) (4,510) (7,802) (30,141) (40,535)
Obligations under finance leases (Note 22) 7,714 (9,095) (3,113) (2,924) (3,058) —
Bonds issued (Note 23) 514,000 (631,250) (43,750) (43,750) (543,750) —
Other current liabilities 55,297 (55,297) (55,297) — — —
Other non-current liabilities 43,843 (60,236) (1,868) (52,651) (5,717) —
Total 1,005,502 (1,159,663) (429,335) (107,127) (582,666) (40,535)

Carrying Contractual Less than 1 More than 5

Non-derivative financial liabilities 1–2 years 2–5 years
amount cash flows year years
Trade accounts payable 73,629 (73,629) (73,629) — — —
Short-term borrowings (Note 20) 224,773 (225,824) (225,824) — — —
Long-term borrowings (Note 21) 5,623 (5,995) (3,124) (2,871) — —
Obligations under finance leases (Note 22) 10,946 (13,075) (3,979) (3,113) (5,983) —
Bonds issued (Note 23) 512,745 (675,000) (43,750) (43,750) (587,500) —
Other current liabilities 47,779 (47,779) (47,779) — — —
Other non-current liabilities 32,506 (56,064) (1,867) (3,007) (51,190) —
Total 908,001 (1,097,366) (399,952) (52,741) (644,673) —

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Financial liabilities, which were not included above, are repayable within one year.

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 risk.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the
return on risk. The Group measures and manages market risk using a variety of tools and metrics such as Drawdown or Value at Risk.

Value at Risk (VaR) is a statistical estimate of the potential loss in value of our positions due to adverse market movements. The Avere companies
calculate VaR over a one-day time horizon with a 95 percent confidence level based on a Log-Normal assumption of Returns. Parameters are
estimated using and Exponentially Weighted Moving Average over a 75 days period with a weight of 0.94. Market risk VaR was USD 3,451
thousand as of 30 June 2019.
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.
The Group does not disclose sensitivity analysis based on VaR as of year end since such analysis is unrepresentative of a risk inherent in financial
instruments during the year.

Currency Risk
The major sources of financing of the Group, prices of sales contracts with customers, and prices of significant contracts for the purchase of goods
and services from suppliers are denominated in USD.

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.

In respect of other monetary assets and liabilities denominated in foreign currencies, the Group ensures that its net exposure is kept at an
acceptable level by buying or selling foreign currencies at spot rates when necessary to address short-term imbalances.

The table below covers UAH and USD denominated assets and liabilities carried by Subsidiaries having distinct functional currencies.

The Group’s exposure to foreign currency risk as of 30 June 2019 and 2018 was as follows:

30 June 2019 30 June 2018

UAH USD UAH USD
Cash and cash equivalents 1,242 146 2,215 4,622
Trade accounts receivable, net 11,069 — 10,354 —
Other current assets 4,798 — — —
Other non-current assets 5,373 4,500 14,887 —
Trade accounts payable (30,442) — (15,702) (137)
Other current liabilities (1,323) (1,479) — —
Other non-current liabilities (35,936) — (31,208) —
Short-term borrowings from Ukrainian subsidiary of European bank (Note 20) (24,650) — (9,328) —
Long-term borrowings European Bank (Note 21) — (62,140) — —
Obligations under finance leases — (4,015) — (5,087)
Net exposure (69,869) (62,988) (28,782) (602)

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
analysis assumes that all other variables, in particular interest rates, remain constant.

Sensitivity of changes in the exchange rate of Ukrainian hryvnia (UAH) against US dollar (USD) is as follows:
Profit or loss (before income tax) effect for the year ended 30 June 2019:
10% strengthening of UAH........................................(1,261)
10% depreciation of UAH............................................. (12)

Profit or loss effect for the year ended 30 June 2018:

10% strengthening of UAH......................................... (2,823)
10% depreciation of UAH..............................................2,811

As of 30 June 2019, the Ukrainian hryvnia stabilized against major foreign currencies. Foreign exchange gains and losses reflected the Ukrainian
hryvnia fluctuation against the US dollar for the years ended 30 June 2019 and 2018. The Group recognized a net foreign exchange gain in the
amount of USD 12,860 thousand for the year ended 30 June 2019 and USD 5,375 thousand for the year ended 30 June 2018 (Note 31). In
management’s opinion, the sensitivity analysis is unrepresentative of the inherent foreign exchange risk because the exposure at the end of the
reporting period does not reflect the exposure during the year. Foreign exchange gain mostly consisted of gain incurred from operations resulted
from normal operating activity during the year ended 30 June 2019.

The accompanying notes are an integral part of these financial statements.

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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

The concentration of currency risk is limited due to not significant net open position of balances in foreign currencies.

Management of the Group optimizes the influence of currency risk in Ukrainian hryvnia through export sales expressed in USD and EUR: out of
total sales amounting to USD 3,992,133 thousand, sales in USD comprised USD 3,799,394 thousand and in EUR comprised USD 52,589 thou-
sand for the year ended 30 June 2019. Export sales represented 97% of the total sales volume.

Interest Rate Risk

The Group is exposed to interest rate risk because entities in the Group borrow funds at both fixed and floating interest rates.

The interest rate profile of the Group’s interest-bearing financial instruments was as follows:
Carrying amount as of Carrying amount as of
30 June 2019 30 June 2018
Fixed rate instruments 595,226 583,911
Variable rate instruments 210,960 225,267
Total 806,186 809,178

The Group does not use any derivatives to manage interest rate risk exposure.

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 increase or decrease was used when reporting interest rate risk internally to key management
personnel and represents management’s assessment of reasonably possible changes in interest rates.

If interest rates had been 100 basis points higher/lower, and all other variables were held constant, the Group’s profit for the year (before income
tax) ended 30 June 2019 would decrease/increase by USD 2,101 thousand (2018: decrease/increase by USD 2,253 thousand). This was mainly
attributable to the Group’s exposure to interest rates on its variable rate borrowings.

Commodity price risk

The Group enters into derivative financial instruments to manage its exposure using commodity options, futures contracts for managing the
exposures associated with agricultural commodity prices. Fair value of future contracts is evaluated based on quoted prices on international
markets. Changes in the fair value of these contracts are recognized in the Consolidated Statement of Profit and Loss (Note 27).

36. Financial Instruments

Fair value disclosures in respect of financial instruments are made in accordance with the requirements of International Financial Reporting
Standards 7 ‘Financial Instruments: Disclosure’ and 13 ‘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.

As at 30 June 2019, the financial assets and liabilities are presented by class in the tables below at their carrying values:
Amortized
Assets FVTPL 1 Total
cost
Cash and cash equivalents (Note 8) 76,801 — 76,801
Trade accounts receivable, net (Note 9) 183,196 — 183,196
Other current assets (Note 10) 20,221 — 20,221
Other financial assets 48,533 22,302 70,835
Other non-current assets 33,833 7,341 41,174

Liabilities
Trade accounts payable 136,043 — 136,043
Borrowings (Note 20, 21) 248,605 — 248,605
Obligations under finance lease (Note 22) 7,714 — 7,714
Bonds issued and interest accrued (Note 23) 514,000 — 514,000
Other financial liabilities — 35,867 35,867
Other current liabilities 55,297 — 55,297
Other non-current liabilities 43,843 — 43,843

1
FVTPL – Fair value through profit and loss.
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As at 30 June 2018 the financial assets and liabilities are presented by class in the tables below at their carrying values:
Amortized
Assets FVTPL 1 Total
cost
Cash and cash equivalents (Note 8) 132,018 — 132,018
Trade accounts receivable, net (Note 9) 92,355 — 92,355
Other financial assets — 72,344 72,344
Other non-current assets 10,123 — 10,123

Liabilities
Trade accounts payable 73,629 — 73,629
Borrowings 230,396 — 230,396
Obligations under finance lease (Note 22) 10,946 — 10,946
Bonds issued (Note 23) 512,745 — 512,745
Other financial liabilities — 51,456 51,456
Other current liabilities 48,622 — 48,622
Other non-current liabilities 32,506 — 32,506

As of 30 June 2019, other financial assets include Initial margin used as collateral for derivatives in the amount of USD 22,147 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.

All assets and liabilities for which fair value is measured or disclosed in the 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.

The following table below represents comparison of carrying amounts and fair value of the financial instruments:

30 June 2019 30 June 2018

Financial liabilities 2 Carrying amount Fair value Carrying amount Fair value
Long-term borrowings (Note 21) 64,913 65,066 5,623 5,623
Obligations under finance lease (Note 22) 7,714 7,709 10,946 10,873
Bonds issued (Note 23) 514,000 527,330 512,745 499,205

For the year ended 30 June 2019, the fair value of bank long-term borrowings was estimated by discounting the expected future cash outflows by
a market rate of interest for bank borrowings of 5.12% (2018: 4.42%) that is within level 2 of the fair value hierarchy.

The fair value of Bonds issued was estimated based on published price quotations in an active market and is within Level 1 of the fair value
hierarchy.

The following table below represents the fair values of the derivative financial instruments including trade related financial and physical forward
purchase as at 30 June 2019 and 2018.

As at 30 June 2019
Other financial assets Level 1 Level 2 Total
Physical forwards — 21,591 21,591
Futures 318 — 318
Options 393 — 393
Total 711 21,591 22,302

Other financial liabilities

Physical forwards — 26,397 26,397
Futures 9,470 — 9,470
Total 9,470 26,397 35,867

1
FVTPL – Fair value through profit and loss.
2
Including accrued interests
The accompanying notes are an integral part of these financial statements.
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Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

As at 30 June 2018
Other financial assets Level 1 Level 2 Total
Physical forwards — 67,303 67,303
Futures 4,856 — 4,856
Options 185 — 185
Total 5,041 67,303 72,344

Other financial liabilities

Physical forwards — 49,023 49,023
Futures 1,003 — 1,003
Options 1,430 — 1,430
Total 2,433 49,023 51,456

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).

Valuation of the Group’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.

Major part of other financial liabilities has contractual maturity due within 6 months.

The fair value is estimated to be the same as the carrying value of cash and cash equivalents, trade accounts receivable, other current assets,
trade accounts payable, other current liabilities and short-term borrowings due to the short-term nature of the financial instruments. 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 2019, the fair value of obligations under finance lease was estimated by discounting the expected future cash outflows
by a market rate of finance lease of 12.10% (2018: 11.08%) that is within level 2 of the fair value hierarchy.

For the year ended 30 June 2019, 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 2019, the fair value of other non-current assets recognized at FVTPL was estimated by market comparable approach
that is within level 2 in the fair value hierarchy.

As of 30 June 2019, fair value of other non-current assets and liabilities does not differ materially from it carrying amount and 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 2019, 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 years ended 30 June 2019 and 2018, the fair value of other non-current liabilities was estimated by discounting the expected future cash
outflows by a market rate of interest for bank borrowings of 24.88% and 22.93%, respectively.

There were no transfers between levels of fair value hierarchy.

There were no changes in the valuation technique since the previous year.

37. Earnings per Share

Basic earnings per share from continuing and discontinued operations 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 2019 and 2018,
81,941,230 weighted average number of ordinary shares for the periods ended then), excluding 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 calculating diluted earnings per share, an
average number of 82,820,378 ordinary shares is taken into account (30 June 2018: 82,887,231).

As of 30 June 2019 and 2018, total of 3,000,000 options granted under the management incentive scheme were excluded from the weighted-
average number of ordinary shares calculation for the purpose of diluted earnings per share as antidilutive.

The accompanying notes are an integral part of these financial statements.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 126
 Strategic Corporate Financial
Report Sustainability Governance Statements

Notes to the Consolidated Statements continued

for the year ended 30 June 2019 (in thousands of US dollars, unless otherwise stated)

Impact from adoption of new standards on both basic and diluted earnings per share was not material.

38. Subsequent Events

On 13 August 2019, according to management’s plan, the Company disposed one of export terminals, assets of which as of 30 June 2019 were
classified as assets held for sale.

As of 3 September 2019, the Company entered pre-export credit facility with a syndicate of European banks. Total available limit under amended
facility was increased up to USD 390 million by adding additional tranche of USD 100 million maturing 31 August 2021 Moreover, the tenors of
existing tranches were extended for one year: USD 200 million till 31 August 2022 and USD 90 million till 31 August 2020, respectively. Financing
will be used by the Company to fund the working capital needs of its sunflower oil production business in Ukraine.

As of 6 September 2019, Fitch Ratings has upgraded Ukraine's Long-Term Foreign- and Local-Currency Issuer Default Ratings (IDR) to 'B' from
'B-', the outlooks are positive, according to a report on the rating agency's website.

As of 23 September 2019, the Company entered pre-export credit facility with a syndicate of European banks. Total available limit under amended
facility was increased up to USD 300 million by adding additional tranche of USD 200 million maturing 30 June 2021. Moreover, the tenor of
existing USD 100 million tranche was extended for one year till 30 June 2022.

The accompanying notes are an integral part of these financial statements.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 127
 Strategic Corporate Financial
Report Sustainability Governance Statements

Corporate Information
Investor calendar
Headquarters
3 Tarasa Shevchenka Lane, Q1 FY2020 Operations Update…………………………………………….....…....22 October 2019
Kyiv, Ukraine, 01001 Q1 FY2020 Financial Report…………………………………………………..…27 November 2019
Tel.: +38044 4618801 Annual general shareholders’ meeting…………..……………………………...10 December 2019
Fax: +38044 4618864 Q2 FY2020 Operations Update…………………..…………………………………21 January 2020
H1 FY2020 Financial Report………………………………………………..……...28 February 2020
Registered office
Kernel Holding S.A. Q3 FY2020 Operations Update…………………………………………..………..……23 April 2020
19, rue de Bitbourg Q3 FY2020 Financial Report……………………………….……………………………29 May 2020
L-1273 Luxembourg Q4 FY2020 Operations Update……………………………………….…………………20 July 2020
FY2020 Financial Report…………………………………………………………....30 October 2020
Registered number
B109173 Stock information
Auditors Exchange……….…………………………………………………………...Warsaw Stock Exchange
Deloitte Audit S.а.r.l., Stock quote currency………………………………………….…………………...……………….PLN
560, rue du Neudorf, Shares issued as of 30 June 2019……………………………….………………..……..81,941,230
L-2220 Luxembourg Bloomberg……………………………………………………………….…………..…………KER PW
Reuters ticker……………………………………………………………….…..………..….KERN.WA
Investor relations
Mr. Yuriy Kovalchuk, ISIN code……………………………………………………….………….......………LU0327357389
Corporate Investment Director
Mr. Michael Iavorskyi, IR Manager
Cautionary statement This document does not constitute or form
[email protected]
Certain statements in this document are for- part of any offer or invitation to sell or pur-
ward-looking statements. By their nature, for- chase, or any solicitation of any offer to sell or
3 Tarasa Shevchenka Lane,
ward-looking statements involve a number of purchase any shares or securities. It is not in-
Kyiv, Ukraine, 01001
risks, uncertainties or assumptions that could tended to form the basis upon which any in-
Tel.: +38044 4618801, ext. 72-75
cause actual results or events to differ materi- vestment decision or any decision to purchase
ally from those expressed or implied by the any interest in Kernel Holding S.A. is made.
forward-looking statements. These risks, un- Information in this document relating to the
certainties or assumptions could adversely af- price at which investments have been bought
fect the outcome and financial effects of the or sold in the past or the yield on investments
plans and events described herein. Forward- cannot be relied upon as a guide to future per-
looking statements contained in this docu- formance.
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 for-
ward-looking statements, which speak only as
of the date of this announcement. Except as
required by law, the Company is under no ob-
ligation to update or keep current the forward-
looking statements contained in this docu-
ment or to correct any inaccuracies which may
become apparent in such forward-looking
statements.

www.kernel.ua Kernel Holding S.A. Annual Report and Accounts 30 June 2019 128
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