Kernel S A : Annual Report and Consolidated Financial Statements for the year ended 30 June 2022

1-40

Strategic Report

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

1. Our Business Model
2. Kernel at a Glance
3. Impact of War
4. Strategy 2026
5. Financial Performance in FY2022

1. Segment Performance

1. Oilseed Processing

1. Infrastructure and Trading

41-73

Sustainability

74-82

Corporate Governance

83-146

Financial Statements

83 Independent Auditor's Report

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

1. Corporate Information

……………………………………………………………………………………….

Segment volumes

million tons

EBITDA margin

US$ / ton of sunflower oil sold

EBITDA1

US$ millions

FY2018 FY2019 FY2020 FY2021 FY2022

The disruptions in exports due to the war in Ukraine forced Kernel to temporarily suspend oilseed processing operations and resulted in the sales volumes decline. The Group processed 2.2 million tons of sunflower seeds in FY2022, down 31% y-o-y, implying 60% capacity utilization. Sunflower oil sales volumes dwindled to 1 million tons.

Segment EBITDA amounted to a negative US$ 70 million, suffering US$ 185 million losses related to inventories (reduction of value to the net realizable value, write-offof destroyed inventories and reserve for inventories located on territories occupied by Russia) and impairment of goodwill and PP&E.

As a result, the EBITDA margin per ton of oil sold turned negative to US$ 73.

……………………………………………………………………………………

Segment volumes

million tons

EBITDA margin2

US$ / ton of grain exported

EBITDA1,2

US$ millions

359

216237

101 106

FY2018 FY2019 FY2020 FY2021 FY2022

For the second year in a row, decent segment performance in FY2022 is mainly driven by trading profits: the Group recognized US$ 134 million EBITDA attributable to Avere activities (or 57% of US$ 237 million total segment EBITDA) in FY2022, as the trading team skillfully exploited the volatility prevailing on the soft commodity markets.

Grain export value chain in Ukraine generated US$ 103 million EBITDA, reflecting:

• Strong pre-war performance driven by record grain harvest in Ukraine and up- scaled Kernel grain export asset base. Prac- tically all FY2022 segment volumes were delivered before 24 February 2022; and
• Loss-makingoperations after the war broke out, negatively impacted also by US$ 82 million losses stemming from the reduc- tion of the inventory value to the net realiza- ble value, the reserve created for the inven- tories located on territories occupied by Russia, provisions created for receivables and other one-offlosses.

……………………………………………………………………………………

Kernel's production of key crops2

EBITDA margin

US$ / ha

EBITDA1

US$ millions

FY2017 FY2018 FY2019 FY2020 FY2021

Despite the extremely supportive fundamentals (record crop yields, strong global grain and oilseed prices), the segment

EBITDA reduced twofold, to US$ 219 million , accounting for US$ 145 million losses mostly stemming from the reduction of inventory value to the net realizable value and the impairment of right-of-useassets, goodwill, and PP&E.

Adjusting for such losses, the segment EBITDA ended up at US$ 364 million in FY2022, 99% of which was secured in the first half of the year, while in the H2 FY2022 Farming balanced close to zero EBITDA.

Given the blurred perspectives of farming busi- ness, provided seaports in Ukraine are closed for a long time, the Group decided to divest farming entities operating 134 thousand hectares of leasehold land, related infrastructure and working capital to de-risk its op- erations.

Andrii Verevskyi

Chairman of the Board of Directors, Founder

Dear Shareholders,

On behalf of the Board of Directors of Kernel Holding S.A., I would like to present the Group performance for the year ending 30 June 2022, summarizing the negative impact of ongoing war in Ukraine, as well as sharing our view on risks and challenges for the new season.

FY2022 highlights

Group's EBITDA in FY2022 plummeted by 73% y-o-y,to US$ 220 million. We recognized US$ 495 million losses related to Russian military aggression against Ukraine and incrementally we spent US$ 26 million on social and military needs to support Ukrainian army and communities impacted by the war. This is just a part of the war costs we bore, in addition to lost profits and unplanned capital ex- penditures. Strong operating results attained prior to 24 February 2022 were destroyed by the war and translated into a net loss of US$

41 million attributable to shareholders. As a result, the net debt peaked at US$ 1.5 bil- lion as of 30 June 2022, implying 6.8x net- debt-to-EBITDA,the highest in our history.

Before describing the performance in detail, I will first provide a general context of the situation we live in. The operating environment was quite positive in the first half of our financial year. Ukraine delivered a record harvest of grain and oilseeds. Soft commodity prices were supportive. We were progressing toward the commissioning of the largest crushing plant in Ukraine and completion of our extensive renewable energy projects. We increased returns to shareholders via share buybacks and dividends and repaid the remaining US$ 213 million of our debut Euro- bond. The new ambitious growth Strategy 2026 was announced, and the team was fully focused on its execution.

And then the war came. The unprovoked and illegal aggression of Russia completely obscured the peaceful life of all Ukrainians and placed a heavy toll on the business in Ukraine. Military actions unseen in Europe since World War II were progressing in the regions of our operations in the northern and eastern Ukraine. Inventories with a book value of nearly US$ 11 million were de- stroyed, and inventories with the value of US$ 53 million remained located in the occupied territories. We stopped all but one of our crushing plants due to safety reasons and the uncertainty regarding our ability to export sunflower oil and meal. Two of our crushing plants were occupied by the enemy. Due to force majeure events, we terminated export contracts with a total value of US$ 1.6 billion. Almost 1,300 of our employees were mobilized to the Armed Forces of Ukraine or joined the Territorial Defense units to withstand the Russian aggression. Tragically, 14 our employees died because of the military actions and 51 were injured as of the date of this

report.

Our first reaction was to ensure the safety of our employees and stabilize operations. We have switched to daily anti-crisismanagement and launched the strong support campaign for the Ukrainian defenders and people in need of humanitarian aid.

Immediately in March, we initiated the negotiations with creditors to postpone the repayment of loan principal amounts.

The key challenge for our operations appeared to be the inability to export goods via Ukrainian Black Sea ports, which stopped all our export operations through deep-water ports. Alternative export routes via the Ukraine-EU border were not ready to absorb the massive flows of goods for export, so we halted virtually all export activities. With uninspiring progress on the battlefield at the end of March, there was a strong likelihood of keeping exports closed for a long time and even losing the entire south of Ukraine together with all its ports. In such circum- stances, farming business would suffer the most, as it eventually becomes loss making without the ability to reach the international marketplace, requiring a lot of working capital to keep operations going, and bearing a significant social burden. Considering also the limited progress achieved back then with creditors on the new debt repayment sched- ule, in April 2022 the Board decided to sell some farming entities to de-risk the business. But after market sounding there appeared to be no interest, so I decided to step in and offer the price of US$ 210 million for corporate rights of such business. The independent appraisal has confirmed that the offered price is in line with the fair value of disposed assets as of the transaction date. The deal allowed Kernel to de-risk operations and injected some new liquidity.

Despite all the challenges with the deficit of crop inputs and uncertainties around the sale of farming produce, we decided to proceed with the spring planting campaign in our farming business, except for 28 thousand hectares of land in the northern regions of Ukraine, which suffered the most from Rus- sia's invasion. We increased the share of acreage under sunflower to compensate for the reduced acreage under corn.

As the war was dragging on, we fully focused our efforts on establishing alternative export routes. It was an extremely difficult task, especially for such a giant as Kernel. In Q4 FY2022, our grain export constituted just 4% and sunflower oil only 15% of Q2 level. Logistics costs surged in Q4 FY2022 making grain export operations unprofitable. It became obvious that there is no scalable and economically viable alternative to seaborn exports of