Economic Insight-Astarta\'s and Kernel\'s conference calls details

Following financial results released for the quarter ended 30 September 2010, the managements of two leading agricultural companies, Kernel and Astarta, held conference calls yesterday on November 15th disclosing details of the period\'s operational results and their future outlooks.

Astarta
The company\'s development and IR director, Mykola Kovalski, emphasised Astarta\'s very strong financial results on the back of increased volumes in sales and higher prices. The issue of increasing the company\'s land bank was also raised; the company foresees the fulfilment of its goal for the current calendar year to expand land under its control to up to 200,000ha, a 14% or 25,000ha increase over 2009. Astarta\'s management drew special attention to the energy efficiency of sugar production, which helped bring about a decrease in gas consumption of 10%. And, the new storage facilities now allow the company to store its crops in its own silos. Astarta\'s CEO, Victor Ivanchik, answered questions highlighting the following issues. The company\'s policy is to acquire undervalued entities at an average cost of US$200-300/ha for land leasing rights. Mr Ivanchik estimated sugar production in Ukraine at 1.5mt for the 2010-11 market year, which is the lowest level reported to date, (other estimates of sugar production are as follows: the Association of Sugar Producers cited 1.6mt, and the Ministry of Agriculture reduced its forecast to 1.7mt on Monday from a prior estimate of 2.0mt), which will lead to a 20% shortage of domestically manufactured sugar and a higher price outlook. The company\'s cost of production has risen in 2010, but detailed figures were not provided. And finally, it is likely that the company\'s own raw materials will not be sufficient to manufacture the same volume of sugar as last year by Astarta, which strives to buy white sugar from the market to ensure its market share and maintain its key client base. Ultimately, Astarta has the capacity to refine 50-65,000 tonnes of cane sugar annually in addition to its main business.

Kernel
Kernel\'s CEO, Andriy Verevskiy, gave an upbeat presentation on the company\'s financial and operational results. Despite the authorities\' interference in the grain market that resulted in suspended grain exports for almost two months, Kernel\'s overall grain export value of sales was not affected compared to last year\'s, but the fact remains that sales did not increase year over year. The biggest positive driver for the reported period was the increased bulk oil production at the recently acquired facilities, yielding a 130% boost in volumes and returns. During the Q&A session, Mr Verevskiy was positive in anticipation of Kernel\'s silo service activities\' improvement in upcoming quarters. Furthermore, Kernel does not intend to make any significant M&A deals in Ukraine by the end of 2010, nor in Russia in the near future. \"[The] market is not in [its] best shape yet,\" Mr Verevskiy said. Mr Verevskiy said M&A deals are more likely in Ukraine next year. Regarding grain exports, he stated that they have already sold 0.6mt of grain this market year, and another 0.4mt is expected to be exported in the company\'s 2Q11 fiscal year. Kernel\'s outlook for sunflower seed production in Ukraine in the current season is 7.5mt (versus the Ministry\'s last estimate of 6.9mt), which gives the company a margin over official estimates and therefore an ample stockpile. In the current quarter, Kernel has already bought 1.3mt of seeds, which is more than 50% of the total requirement for the entire production season. New purchases seeds have slowed down a bit for the moment.

Conclusion
Both companies have shown vigorous financial results for the last three months, and they both have optimistic views for the coming quarters, which seems sound to us.