Wood KER & AST

Consumer Staples, Ukraine October 21, 2011
Kernel and ASTARTA Sector update
Safety comes first

In this report, we reiterate our BUY rating on Kernel (price target (PT) Kernel (KER PW)
PLN 77) and downgrade ASTARTA to HOLD (price target (PT) PLN 78). BUY
We have cut our price targets for Kernel and ASTARTA by 16% and (unchanged)
19%, respectively. This is despite the upward revision of our forecasts
Price: PLN 66
and the positive FX translation effect – as a result of the recent increase
of risk aversion and the weakness of the equity markets, as evidenced by Price target: PLN 77
the broadening CDS spreads and the trading multiples of the peer group, (from PLN 92)
which have contracted by nearly 40% since March. MCAP: USD 1692
This brings the valuations to a much more attractive level, implying to us
ASTARTA (AST PW)
still a BUY for Kernel. We believe that, in the near term, downbeat
sentiment and volatility may prevail in the markets. We see a number of HOLD
risks that could potentially hurt the earnings outlook of companies in the (downgrade from BUY)
Ukrainian food and agriculture sector; hence our focus on the risk Price: PLN 68
profiles of particular stocks and our preference for Kernel, which we Price target: PLN 78
perceive as the most defensive stock in its peer group. These risks (from PLN 96)
include, but are not limited to: MCAP: USD 563
 Soft commodity price risk. Grain prices in Ukraine have
corrected by nearly 30% since the summer, which should be
neutral for Kernel with its hedged exposure, and negative for Kernel: sensitivity of PT to changes in RFR
the producers of grains and oilseeds. Due to a significant and g
RFR
increase in sugar beet production this year, there was also a 83 8.0% 9.0% 10.0% 11.0% 12.0%
27% correction in the sugar price, which affected ASTARTA. 1.0%
1.5%
94
97
86
88
79
81
73
74
67
69
g 2.0% 100 91 83 76 70
 Ukraine country risk. A recent increase in the Ukraine country 2.5% 103 93 85 78 72
3.0%
risk perception, illustrated by broadening spreads, could 107 96 87 80 73
continue to negatively affect the valuations of Ukrainian

companies.
ASTARTA: sensitivity of PT to changes in RFR
 FX risk. In light of the broadening CDS spreads and the high and g
external financing requirements of Ukraine, we do not rule out 81 8.0% 9.0%
RFR
10.0% 11.0% 12.0%
UAH depreciation, which should be largely neutral for Kernel 1.0% 98 87 78 70 63
1.5% 100 89 79 71 64
due to its hedged exposure to USD, but could negatively affect g 2.0% 103 91 81 73 65
other players, either through translation only or a translation 2.5%
3.0%
106
109
93
96
83
85
74
76
66
68
effect, and have a negative impact on fundamentals, due to
pressure on operating costs.
 Financing. The increasing Ukraine country risk and locked
equity and bond markets could, in our opinion, result in
potential problems with rising capital or debt rollout for some
Ukrainian companies, but we do not expect either Kernel or
ASTARTA to fall into this group. On the contrary, the weakness
of the smaller players could help them accelerate their
expansion plans.
 Regulatory risks. Following the recent lifting of the duties on
wheat and corn, the balance of regulatory risks seems, for now,
to be on the upside, but we also note uncertainty regarding the
land moratorium that expires officially on 1 January 2012.
On their 2012 EV/EBITDA multiples, both Kernel and ASTARTA currently
trade at premiums of 29% and 22%, respectively, to their peer group
median of 4.1x but, in our opinion, there is significant downside risk in
the near term for the consensus estimates for the entire sector.
EQUITY
EQUITY Analysts: Barbara Zaleska Warsaw: +48 22 222 1547
RESEARCH
RESEARCH E-mail: barbara.zaleska@wood.com Website: www.wood.com
Table of contents
Valuation ......................................................................................................... 3
Risks: focus on risk profiles .............................................................................. 7
Companies
Kernel ..................................................................................................... 13
ASTARTA ................................................................................................ 19
Important disclosures ..................................................................................... 25
Closing Prices as of October 18, 2011
© 2011 by WOOD & Company Financial Services, a.s.
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Kernel/ASTARTA 2 WOOD & COMPANY

Valuation
Valuation summary. In this report, we cut our price target (PT) for Kernel to PLN 77, from
PLN 92, and maintain our BUY recommendation. We also reduce our PT for ASTARTA
from PLN 96 to PLN 78, and downgrade the stock to HOLD from BUY.
Valuation summary
Company Kernel ASTARTA Weight
Current share price 65.8 68.4
Price target 77.4 78.1
- DCF 82.7 81.2 75%
- peer group valuation on EV/EBITDA 61.5 69.0 25%
Upside 18% 14%
Expected dividend yield 0% 0%
Total return potential 18% 14%
Recommendation BUY HOLD
2011E EV/EBITDA 5.6 4.9
2012E EV/EBITDA 5.0 5.3
Source: Wood Research
We cut our PTs for Kernel and ASTARTA by 16% and 19%, respectively. This is despite
an upward revision of our forecasts and the positive FX translation effect – as a result of
a recent increase of risk aversion and the weakness of the equity markets, as evidenced by
the broadening CDS spreads and the contracting trading multiples of the peer group.
Share price corrections. The WIG Ukraine index has lost 22% ytd, underperforming the
broad Polish market by 6%. This underperformance was accrued mostly in the first half of
the year – since the markets started to fall at the beginning of August, the WIG Ukraine
has performed in line with the market, losing 16%. The biggest underperformers were
Milkiland and ASTARTA, which, since 31 July, have lost 26% and 39%, respectively. We
note the relatively strong performance of the newest entrants to the WSE, especially
Ovostar and KSG Agro, which have outperformed the general market.
Share price performance
WIGUKR KER PW AST PW MLK PW AGT PW OVO PW KSG PW IMC PW

WIG Index Index Equity Equity Equity Equity Equity Equity Equity
10% 10%
0% 0%
-10% -10%
-20% -20%
-30% -30%
-40% -40%
-50% -50%
-60% -60%
YTD Since Jul-31 Since IPO Since Jul-31
Source: Bloomberg
Contracting multiples. Meanwhile, the consensus estimates for the stocks have improved
since the spring, driven by the market’s strong expectations for the 2011 harvest in
Ukraine and the high level of soft commodity prices in 1H11 (in Kernel’s case, supported
also by its delivery on its M&A pipeline). As a result of: 1) share price corrections; 2)
improving financial estimates for the stocks; and 3) the FX translation effect (as the PLN
contracted has underperformed the USD and the UAH), the financial multiples for the
stocks have significantly contracted.

Best current year EV/ EBITDA
12
10
WIG20 Index KER PW Equity AST PW Equity
Source: Bloomberg
Kernel and ASTARTA: premium/ discount to WIG20 on EV/ EBITDA
60%
40%
20%
0%
-20%
-40%
-60%
-80%
KER PW Equity AST PW Equity
Source: Bloomberg
This contraction reflects, in our opinion, the increasing macroeconomic risks, something
that we will discuss in more detail in the following chapters of this report and which is
reflected, for example, by the broadening CDS spreads for Ukraine and the correcting soft
commodity prices. Despite a significant contraction in the multiples from 8.0-8.5x
EV/EBITDA to 5.0-5.5x EBITDA for ASTARTA and Kernel, respectively, these two names
still trade at significant premiums to their historical lows. In the midst of the financial
crunch, which was particularly harsh for the Ukrainian economy in late 2008 and early
2009, both names traded at EV/EBITDA multiples below 2x, but we note that this reflected
the substantially higher Ukraine country risk perception than we observe currently.
EV/ EBITDA for Kernel and ASTARTA vs. 10-year CDS spread for Ukraine
10 6000
9
8 5000
7 4000
6
5 3000
4
3 2000
2 1000
1
0 0
KER PW Equity AST PW Equity UKRAIN CDS USD SR 5Y Corp
Source: Bloomberg

Downward risk to the consensus estimates. Our 2012 and 2013 financial estimates for
Kernel, and especially ASTARTA, are below the consensus numbers.
Estimates vs. consensus
Astarta, UAHm 2011 2012
Wood Consensus % difference Wood Consensus % difference
Sales 3237 2863 13% 3571 3551 1%
EBITDA 1144 1134 1% 1030 1202 -14%
Net profit 861 825 4% 728 822 -11%
Kernel, USDm 2011/12 2012/13

Sales 2096 2083 1% 2071 2379 -13%
EBITDA 367 337 9% 359 384 -6%
Net profit 251 243 4% 246 273 -10%
Source: Wood Research, Bloomberg
In our opinion, this results from the fact that consensus does not yet reflect the recent soft
commodity price movements in the Ukrainian market.
Premium to peer group median. We also note that, on our and consensus estimates, both
stocks trade at premiums to the peer group median but, in our opinion, there is a
downside risk to the consensus estimates for agricultural producers (such as Agroton, KSG
Agro and IMC). As we have stated above, we believe that consensus does not yet reflect
the recent significant corrections in the Ukrainian prices of grains and oilseeds, especially
sunflower seeds. Due to the high sensitivity of the financial results of the agricultural
companies to soft commodity prices, we believe that such downgrades could affect the
median peer group multiples significantly.
Also, we believe that both rising equity and debt capital will become more difficult and
that it could hinder landbank development plans, bringing potential further downside to
valuations. In the case of Milkiland, we also see downside risk to consensus estimates,
especially in light of the depreciating ruble.
For the above-mentioned reasons, we have decided to reduce the weight we put on the
multiples-derived price targets to 25% from the 50% that we used previously.

Peer group valuation
BBG Ticker Name Market Cap 3M trading vol P/E EV/EBITDA
(USDm) (USDm) 2011E2012E2011E 2012E
CIS food producers 5.9 4.8 5.4 4.5
KER PW Equity KERNEL HOLDING SA 1692 3.9 6.5 6.1 5.9 5.1
MHPC LI Equity MHP SA -GDR REG S 1382 1.8 6.1 5.7 5.5 5.0
AGRO LI Equity ROS AGRO PLC- GDR REG S 996 0.5 6.7 3.7 5.6 3.6
MAYA GR Equity MRIYA AGRO HOLDING -GDR REGS 821 0.0 0.2 0.2 4.5 4.2
CHE LI Equity CHERKIZOVO GROUP-GDR REG S 791 0.3 4.7 3.1 5.6 3.9
AVGR LI Equity AVANGARDCO INVESTMENTS PUBLI 594 0.2 3.2 2.8 3.0 2.5
AST PW Equity ASTARTA HOLDING NV 563 0.7 5.2 4.9 5.1 4.8
MLK PW Equity MILKILAND NV 205 0.1 7.1 5.2 4.8 4.1
GRAZ RX Equity RAZGULAY GROUP 160 0.2 10.4 4.7 6.1 5.7
OVO PW Equity OVOSTAR UNION NV 117 0.2 5.7 5.3 5.3 4.8
CIS farming companies 7.2 5.6 5.0 4.1

BEFSDB SS Equity BLACK EARTH FARMING LTD-SDR 364 0.2 43.9 9.5 14.0 7.0
AGT PW Equity AGROTON PUBLIC LTD 183 0.2 8.1 6.8 5.0 4.1
ALPA SS Equity ALPCOT AGRO AB 119 0.0 21.1 10.9 11.2 6.5
KSG PW Equity KSG AGRO SA 108 0.2 5.9 3.7 5.0 3.4
IMC PW Equity INDUSTRIAL MILK CO 99 0.1 4.3 2.7 3.2 1.8
SNPS GR Equity SINTAL AGRICULTURE-REG S GDR 65 0.0 29.9 5.6 9.6 4.1
LKI LN Equity LANDKOM INTERNATIONAL PLC 26 0.1 8.4 3.0 2.2
4GW1 Gr Equity MCB AGRICOLE HOLDING AG-GDR 24 0.0 4.1 1.4 4.4 1.8
BBG peer group median 6.1 5.1 5.2 4.1
On Wood Research estimates:

KER PW Equity 1692 3.9 6.7 6.9 5.6 5.0
AST PW Equity 563 1.8 5.2 6.2 4.9 5.3
Premium to peer group:
KER PW Equity 11% 35% 7% 22%
AST PW Equity -14% 22% -5% 29%

Focus on risk profiles
We believe that, in the near term, downbeat market sentiment and volatility may prevail
in the markets. We see a number of macroeconomic risks that could potentially hurt the
earnings outlook of the companies from the Ukrainian food and agriculture sector; hence,
our focus is on the risk profiles of the particular stocks and sensitivities.
1) Soft commodity prices

Grains and oilseeds remained at a relatively stable and elevated level in 1H11, due to
supply issues after the 2010 harvest, but we believe they were also driven by the high
level of commodity prices generally, through correlation with crude oil prices.
Wheat futures and consensus forecasts for 2011E and 2012E, USD per bushel
1400
1200
1000
800
600
400
200
0
Dec/08
Dec/09
Dec/10
Jun/08
Jun/09
Jun/10
Jun/11
Oct/08
Oct/09
Oct/10
Oct/11
Nov/08
Nov/09
Nov/10
Jul/08
Jul/09
Jul/10
Jul/11
Apr/08
Apr/09
Apr/10
Apr/11
Sep/08
Feb/09
Sep/09
Feb/10
Sep/10
Feb/11
Sep/11
Mar/08
Mar/09
Mar/10
Mar/11
Jan/00
Jan/08
Jan/09
Jan/10
Jan/11
Aug/08
Aug/09
Aug/10
Aug/11
May/08
May/09
May/10
May/11
Spot 2011 consensus 2012consensus
Sources: Bloomberg
Corn futures and consensus forecasts for 2011E and 2012E, USD per bushel
900
800
700
600
500
400
300
200
100
0
Dec/08
Dec/09
Dec/10
Jun/08
Jun/09
Jun/10
Jun/11
Oct/08
Oct/09
Oct/10
Oct/11
Nov/08
Nov/09
Nov/10
Jul/08
Jul/09
Jul/10
Jul/11
Apr/08
Apr/09
Apr/10
Apr/11
Sep/08
Feb/09
Sep/09
Feb/10
Sep/10
Feb/11
Sep/11
Mar/08
Mar/09
Mar/10
Mar/11
Jan/00
Jan/08
Jan/09
Jan/10
Jan/11
Aug/08
Aug/09
Aug/10
Aug/11
May/08
May/09
May/10
May/11
Spot 2011 consensus 2012consensus
Sources: Bloomberg
From the 1H11 peaks, wheat has already corrected by 29% and corn by 17% but, in our
opinion, the risks are still on the downside, especially in the current environment, of
declining commodity prices and the improving supply outlook following the relatively
strong 2011 harvest: the USDA forecasts that, in 2011, global wheat production could
increase by 4% yoy to 681m tonnes and global corn production by 4% yoy to 860m
tonnes.

Wheat: global supply, demand and inventory levels (1980-2011)
800 Wheat 0.40

700 0.35
600 0.30
500 0.25
400 0.20
300 0.15
200 0.10
100 0.05
0 0.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
Production Consumption Stock to use ratio
Sources: USDA
Corn: global supply, demand and inventory levels (1980-2011)
1000 Corn 0.50

900 0.45
800 0.40
700 0.35
600 0.30
500 0.25
400 0.20
300 0.15
200 0.10
100 0.05
0 0.00
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011 Production Consumption Stock to use ratio
Sources: USDA
We note that, so far this year, the price corrections in Ukraine have been much steeper
due to state interventions in the market through export quotas (1H11) and duties (since
July 2011), and other internal factors.
Ukraine: wheat prices, USD per tonne
Sources: Agria Agency

Ukraine: corn prices, USD per tonne
Ukraine: sunflower seed prices, USD per tonne
Ukraine: sugar prices, USD per tonne
Impact on stocks. In this report, we do not alter our soft commodity price assumptions
significantly for Kernel and ASTARTA, since our expectation that prices could correct has
already been built into our forecasts. The sensitivity, however, remains high. We estimate
that a 10% downward move in our assumptions for grains, oilseeds and sugar prices

would reduce our EBITDA estimate for Kernel by 6% and by nearly 30% for ASTARTA.
For pure agricultural producers, such a move could reduce EBITDA by c.40%.
In the case of significant corrections in soft commodity prices, we would overweight
Kernel, due to its low level of vertical integration and prudent risk management practices,
as well as un-integrated food producers (such as the egg producers Avangard and
Ovostar, or Kernel’s bottled oil segment), which could benefit from margin expansion. We
would avoid farming enterprises, which all have significant soft commodity price
exposure.
2) Ukraine: broadening CDS spreads

CDS spreads for Ukraine, the basis of our risk free rate calculations, have broadened
significantly over the past month, from 400-500 points to nearly 1,000 points at its
maximum. If the spread broadens further, this could negatively affect the valuation and
cost of financing for Ukrainian companies and for the country itself. The external
financing requirements of Ukraine are high and 50% of it is in the form of short-term debt,
hence, the potential issues with rollover.
Ukraine 10-year CDS spread and our risk free rate estimate
1200 14
1000 12
10
800
8
600
6
400
4
200 2
0 0
UKRAIN CDS USD SR 10Y Corp RFR Spot
Source: Bloomberg
Impact on stocks. Higher Ukraine country risk could affect the valuations of all the listed
Ukrainian names negatively. In the table below, we present the sensitivity of our DCF
valuations for Kernel and ASTARTA to changes in the risk free rate for Ukraine, which we
calculate as the 10Y bund yield increased by the 10Y CDS spread for Ukraine.
Sensitivity of our DCF valuations to changes in the risk free rate
Astarta RFR RFR
81 8.0% 9.0% 10.0% 11.0% 12.0% 0 8.0% 9.0% 10.0% 11.0% 12.0%
1.0% 98 87 78 70 63 1.0% 98 87 78 70 63
1.5% 100 89 79 71 64 1.5% 100 89 79 71 64
g 2.0% 103 91 81 73 65 g 2.0% 103 91 81 73 65
2.5% 106 93 83 74 66 2.5% 106 93 83 74 66
3.0% 109 96 85 76 68 3.0% 109 96 85 76 68
Kernel RFR RFR

83 8.0% 9.0% 10.0% 11.0% 12.0% 0 8.0% 9.0% 10.0% 11.0% 12.0%
1.0% 94 86 79 73 67 1.0% 94 86 79 73 67
1.5% 97 88 81 74 69 1.5% 97 88 81 74 69
g 2.0% 100 91 83 76 70 g 2.0% 100 91 83 76 70
2.5% 103 93 85 78 72 2.5% 103 93 85 78 72
3.0% 107 96 87 80 73 3.0% 107 96 87 80 73
Sources: Wood Research

3) FX risk
The Ukrainian hryvnia has been one of the best performing currencies over the past year,
as the FX rate has been maintained at a stable level to the USD by the National Bank of
Ukraine.
European currencies: performance vs. USD
CHFUSD NOKUSD UAHUSD SEKUSD GBPUSD EURUSD RUBUSD CZKUSD PLNUSD TRYUSD
Curncy Curncy Curncy Curncy Curncy Curncy Curncy Curncy Curncy Curncy
5%
0%
-5%
-10%
-15%
-20%
1Y Since Jul-31
Source: Bloomberg
The USDUAH exchange rate has remained stable since late 2009, but the CDS spread
remains broad and there could be increasing pressure on the hryvnia. We note that
Ukraine’s international reserves declined by 8.5% in September, and we do not rule out
that this was the result of the National Bank of Ukraine defending the hryvnia. In our
opinion, the depreciation should not be as significant as it was in 2008, when the UAH
lost 60% to the USD – we would expect a 10-12% depreciation to c.9 UAH to the USD.
Impact on stocks. We believe consensus is not pricing in a potential weakening of the
UAH. If this risk materialises, we would overweight exporters such as Kernel, or the
producers of exportable commodities (Agroton, for example). The local currency results of
ASTARTA and MHP, integrated producers of food with a portion of grain sales in their
revenues, should also hold up relatively well, in our opinion, although their valuation
could be diminished because of the FX translation effect. We would avoid, on the other
hand, the un-integrated producers of food, whose results could suffer because of cost
pressures.
4) Financing
Higher Ukraine country risk could also negatively affect Ukrainian companies through
potential problems with debt rollout and higher financing costs. In our opinion, this risk
should not negatively affect Kernel or ASTARTA, as both are quality names.
Due to the nature of its business, Kernel typically has higher leverage, with gearing
cyclically ranging from 1.0-3.0x EBITDA. For the current marketing year, Kernel has
secured the financing already, signing three different contracts, which should meet its
financing needs, especially in light of soft commodity price corrections and the resultant
lower financing needs for grain and sunflower seed purchases.
ASTARTA has relatively low gearing, with a net debt/EBITDA of 1.1x, and has signed an
agreement with EBRD that should help finance its capex.
Moreover, in our opinion, both Kernel and ASTARTA could benefit from the potential
financing problems of smaller companies and accelerate their expansion plans.
5) Regulatory risks
In our opinion, the Ukrainian companies from the agriculture and food sectors operate in
an unstable regulatory environment, with the government often resorting to manual
steering rather than seeking complex solutions. We believe that regulatory risk is key for
Ukrainian enterprises and includes, but is not limited to, export regulations, income tax
EQUITY and VAT regulations, retail price regulations and land market regulations.
RESEARCH
 Export regulations. Following the relatively weak 2010 harvest results and soft
commodities price rally, the Ukrainian government introduced grain export
quotas in order to ensure the availability of grain on the domestic market and to
curb inflation. These quotas were lifted before the start of the 2011 marketing
season, but were replaced by duties on corn (12%), wheat (9%) and barley (14%),
targeted to benefit the state budget from the high level of soft commodity prices.
These duties affected the domestic price level in Ukraine negatively and the
volume of soft commodity exports from the start of the new marketing year. The
parliament voted recently to lift the duties on corn and wheat. The law was
signed by the President and became effective on 19 October, which should be
positive for both the producers of exportable commodities (for example, Agroton,
KSG and IMC) and for traders (such as Kernel). Export regulations remain a risk
factor, however, due to a number of proposals to introduce duties for other soft
commodities, such as sunflower oil, rapeseed and soybeans.
 Tax regulations – FAT and VAT. Ukrainian farming companies enjoy Fixed
Agricultural Tax (FAT) treatment, which is far more advantageous than corporate
income tax. The new Tax Code of Ukraine, adopted in December 2010,
prolonged this advantageous tax treatment, but the regulatory environment for the
agricultural sector may be subject to change. As of July 2011, the new Tax Code
cancelled the VAT refunds on grain and oilseed exports, negatively affecting
domestic grain prices.
 Retail price regulations. Due to the high level of soft commodity prices in early
2011, the Ukrainian authorities put pressure on domestic producers to self-
regulate the prices of commodities such as sunflower oil or sugar, in order to
prevent inflation in the domestic market. As the prices have started to come
down, we do not expect similar moves in the near future.
 Land market reforms. The land sale moratorium in Ukraine is in place until 1
January 2012. So far, the Ukrainian parliament has not adopted any regulations
that would stay in place once the market is opened; hence, there is a high degree
of uncertainty as to how the land market will shape. Risks related to the potential
change in land ownership include the risk of lost lease contracts and higher rents,
as well as increased capex requirements to purchase land.
EQUITY
RESEARCH
Kernel Buy
Unchanged
Price: PLN 66
Price target: PLN 77
(From: PLN 92)
Back to basics
We remain BUYers of Kernel as upward revisions to our
forecasts outweigh the pricing-in (illustrated by the lower Expected Events
share price) of increased macro risk. We have increased our
EBITDA forecasts for Kernel by 25% to USD 367m for 1Q11/12 Nov 14, 2011
2011/12 and by 17% to USD 359m for 2012/13, reflecting its
delivered M&A transactions and the recent soft commodity
price movements. We have nevertheless cut our price target Key Data
(PT) from PLN 92 to PLN 77, as a result of the higher cost of
risk for Ukraine (terminal WACC up from 12.5% to 15.3%) Market Cap USD 1,692mil
and the weakness of the equity markets (the 2012E median Free Float 62%
EV/EBITDA multiple for its CIS peers has declined from 7.1x Shares Outstanding 79.7 mil
to 4.1x since our last update, dated 1 March). On our new Average daily volume USD 3.9 mil
estimates, Kernel is currently trading at a 2011/12E Major Shareholder Namsen Ltd
EV/EBITDA ratio of 5.6x. Reuters Code KERN.WA
Risk profile. In the current volatile market environment and Bloomberg Code KER PW
the presence of significant macroeconomic risks for the entire WIG Index 39,970
sector, we believe Kernel stands out as the most defensive
name in its peer group. Its prudent soft commodity price risk
management policy should help the company to protect its Price Performance
margins in the sunflower oil and grain trading sector,
supported by a stable flow of revenues from fee-for-service 52-w range (PLN) 58 - 86
businesses, such as the silo network or port terminals. Kernel YTD PLN Performance -12%
also remains hedged against UAH depreciation through its Relative YTD PLN Performance 1%
significant share of export revenues and secured financing for
the current marketing season (by signing loan agreements for Kernel price performance
USD 850m). In our opinion, all these features make Kernel a
good name to hide in amid turbulent times. 100.0
M&A pipeline. Year-to-date, Kernel has made four M&A

80.0
transactions, paying USD 270m in total. It acquired the BSI 60.0
sunflower seed crushing plant, sugar and crops producer 40.0
Ukrros, farming company Delco and, last but not least, 20.0
sunflower oil producer Russian Oils. We see the Russian 0.0

acquisition as a small but important step to building a Oct-10 Jan-11 Apr-11 Jul-11 Oct-11
stronger presence in this country and a further source of both Kernel WIG20
organic and external growth for the company. We do not

build in any larger investments in Russia into our model and Kernel: sensitivity of PT to changes in RFR and g
RFR
valuation yet, as we are waiting to hear more on the 83 8.0% 9.0% 10.0% 11.0% 12.0%
1.0% 94 86 79 73 67
company’s strategy from management. 1.5% 97 88 81 74 69
g 2.0% 100 91 83 76 70
2.5% 103 93 85 78 72
3.0% 107 96 87 80 73
Sa les EBITDA N et In c o me EP S EP S P /E CEP S P /CE EV/ P /CF ROE

(U SD mil) (U SD mil) (U SD mil) (U SD) g r o w th (x) (U SD) (x) EBITDA (x)
2012/13e 2071 359 246 3.0 -2.2% 5.9 3.6 5.8 5.0 5.7 18.4%
2011/12e 2096 367 251 3.1 13.8% 6.2 3.7 5.7 5.6 7.6 23.1%
2010/11 1906 309 218 2.7 32.3% 7.6 3.1 6.7 6.4 29.4 27.8%
2009/10 1020 191 153 2.1 7.6% 9.5 2.4 8.8 10.3 18.2 31.8%
2008/09 1047 190 132 1.9 27.2% 10.9 2.3 9.3 9.8 11.1 35.1%
EQUITY 2007/08 663 123 82 1.5 226.2% - 1.7 12.1 0.0 -9.1 35.6%
RESEARCH Analysts: Barbara Zaleska Warsaw: +48 22 222 1547

E-mail: barbara.zaleska@wood.com Website: www.wood.com
Valuation
We have reduced our PT for Kernel to PLN 77 from PLN 92. Our PT is the weighted
average of our DCF-based and comparative analysis-derived prices. However, due to the
significant risk that we see for the consensus estimates for its peer group, we have decided
to reduce the weight that we assign to the comparative valuation to 25%. As our PT offers
18% upside to the current share price, we maintain our BUY recommendation.
Valuation summary
Price Weight
DCF 83 75%
Comparative valuation 61 25%
Target price 77
Current share price 66
Upside 18%
Recommendation BUY
Financial forecasts. In this report, we have revised up our forecasts for Kernel, reflecting
its delivered M&A transactions and the recent soft commodity price movements. We have
increased our EBITDA forecasts by 25% to USD 367m for 2011/12 and by 17% to USD
359m for 2012/13. The correction we forecast between 2011/12 and 2012/13 results from
our conservative assumptions on grain and sugar prices. We believe the EBITDA results of
the farming and sugar segment could, as a result, contract by 11%. We note that our
estimates for 2012/13 are below consensus.
Our estimates vs. consensus
USDm 2011/12 2012/13

Sales 2096 2083 1% 2071 2379 -13%
EBITDA 367 337 9% 359 384 -6%
Net profit 251 243 4% 246 273 -10%
As far as capex is concerned, we expect a USD 278m outflow related to the M&A
transactions and the construction of new silos this year, and capex at the level of the D&A
charges afterwards.
We note that our assumptions on the low soft commodity price level reduce Kernel’s
working capital requirements.
DCF valuation. We discount the free cash flow by using a WACC of between 14.8% and
15.3% (up from 12.5%). Our WACC calculations are based on a risk free rate of 10% for
Ukraine (up from 8%) and an equity risk premium of 5.5%. We assume a terminal growth
rate of 20%, which is our long-term expected growth in the production yields of
Ukrainian agriculture – we expect that Kernel will continue to grow with the market, on a
terminal basis. Our DCF model yields a PT of PLN 83 per share.
Kernel 14 WOOD & COMPANY

DCF model
Free Cash Flow Forecast (USD mil) 2011/12 2012/13 2013/14 2014/15 2015/16
Sales 2,096 2,071 2,223 2,251 2,301
EBIT 322 314 334 339 346
Tax Rate -3% -5% -7% -8% -8%
NOPAT 331 329 357 366 373
D&A 45 45 46 46 47
Capex -278 -47 -47 -48 -48
Change in Working Capital -73 7 -42 -7 -13
FCF (USD mil) 26 335 314 358 359
WACC 14.8% 15.2% 15.3% 15.3% 15.3%
Terminal growth rate 2.0%

PV of OFCF 2010-14 862
PV of Terminal Value 1,327
Net debt -301
Minorities -43
Value of Equity 1,845
# of shares 81
Value of Equity per Share (USD) 23
Value of Equity per Share (PLN) 72
12M target price 83
In the table below, we present the sensitivity of our PT to changes in the terminal gross
rate and RFR. We note that if the RFR for Ukraine increases to 11%, we would be
HOLDers of the stock.
Sensitivity analysis
Kernel RFR RFR
83 8.0% 9.0% 10.0% 11.0% 12.0% 0 8.0% 9.0% 10.0% 11.0% 12.0%
1.0% 94 86 79 73 67 1.0% 94 86 79 73 67
1.5% 97 88 81 74 69 1.5% 97 88 81 74 69
g 2.0% 100 91 83 76 70 g 2.0% 100 91 83 76 70
2.5% 103 93 85 78 72 2.5% 103 93 85 78 72
3.0% 107 96 87 80 73 3.0% 107 96 87 80 73
Comparative valuation. As far as comparative valuation is concerned, due to the

increasing Ukraine country risk, we have decided to compare Kernel to its CIS peers only,
looking at both food producers and farming companies. We note that, on our estimates,
Kernel trades at quite a significant double-digit premium to its peer group for 2012, which
we believe results from the potential downside risk that we see to consensus estimates,
especially for the smaller and not widely covered stocks.

Peer group comparison
BBG Ticker Name Market Cap3M trading volP/E EV/EBITDA
(USDm) (USDm) 2011E2012E2011E 2012E



KER PW Equity 1692 3.9 6.7 6.9 5.6 5.0
AST PW Equity 563 1.8 5.2 6.2 4.9 5.3
KER PW Equity 11% 35% 7% 22%
AST PW Equity -14% 22% -5% 29%
Implied Market Cap
KER PW Equity 1479 1187 1626 1522
AST PW Equity 634 440 629 466
Implied price target
KER PW Equity 58 46 63 59
AST PW Equity 80 55 79 59
Up to now, Kernel has not paid any dividends and we have decided not to include
dividends in our forecasts.

Financials
INCOME STATEMENT
USD mil 2007/08 2008/09 2009/10 2010/11 2011/12E 2012/13E 2013/14E 2014/15E 2015/16E
Sunflower Oil 472 379 513 1,313 1,330 1,388 1,439 1,487 1,521
Grain Trading 168 583 466 575 636 567 660 633 643
Others 23 85 41 18 130 115 125 131 138
Total sales 663 1,047 1,020 1,906 2,096 2,071 2,223 2,251 2,301
COGS 505 730 708 1,447 1,514 1,496 1,613 1,630 1,667
Gross profit 159 317 313 459 582 575 610 620 635
SG&A 47 150 145 182 215 216 230 235 242
EBITDA 123 190 191 309 367 359 380 385 392
Depreciation (12) (23) (23) (32) (45) (45) (46) (46) (47)
Operating Income 112 167 168 277 322 314 334 339 346
Net financial income (20) (40) (16) (72) (63) (55) (51) (46) (41)
Profit before taxes 91 127 153 205 259 259 283 293 305
Income tax 9 (5) (0) (13) 8 13 20 23 24
Net profit 82 132 153 218 251 246 264 269 280
BALANCE SHEET
USD mil 2007/08 2008/09 2009/10 2010/11 2011/12E 2012/13E 2013/14E 2014/15E 2015/16E
Shareholders equity 397 356 603 964 1,215 1,460 1,724 1,993 2,273
Minorities 44 2 3 23 23 23 23 23 23
Net Debt 167 165 286 301 355 104 (116) (378) (643)
Capital Employed 608 523 892 1,287 1,593 1,587 1,630 1,638 1,653
Non-current assets 378 321 526 743 976 977 978 980 981
Inventories 145 99 148 188 212 209 226 228 233
Trade receivables and prepayments 79 58 161 206 238 235 252 255 261
Trade payables and advances (27) (33) (143) (136) (149) (147) (158) (160) (163)
Other current assets 34 77 200 286 316 313 331 335 341
Working Capital 230 201 366 544 617 610 652 658 672
Capital Employed 609 523 892 1,287 1,593 1,587 1,630 1,638 1,653
CASH FLOW
USD mil 2007/08 2008/09 2009/10 2010/11 2011/12E 2012/13E 2013/14E 2014/15E 2015/16E
Net profit 82 132 153 218 251 246 264 269 280
Depreciation 12 23 23 32 45 45 46 46 47
Change in Working Capital (210) (25) (97) (188) (73) 7 (42) (7) (13)
Other (9) (1) 7 (6) 0 0 0 0 0
Net Cash from Operations (126) 129 85 57 223 298 268 309 314
Capex and Acquistions 170 95 126 111 278 47 47 48 48
Free Cash Flow (296) 34 (41) (55) (54) 251 221 261 266
Share issue 235 0 82 141 0 0 0 0 0
Change in net debt 61 -34 -42 -86 54 -251 -221 -261 -266
Dividends paid 0 0 0 0 0 0 0 0 0
KEY RATIOS
Grain trading volume 0.32 2.26 2.23 1.81 2.50 2.23 2.59 2.49 2.53
Seed crushing volume 0.68 0.73 1.18 1.99 2.70 2.80 2.84 2.88 2.89
Gross margin 23.9% 30.3% 30.6% 24.1% 27.8% 27.8% 27.4% 27.6% 27.6%
EBIT margin 16.8% 15.9% 16.5% 14.5% 15.4% 15.2% 15.0% 15.0% 15.0%
Net margin 12.4% 12.6% 15.0% 11.4% 12.0% 11.9% 11.9% 12.0% 12.2%
Effective tax rate 9.9% -4.0% -0.1% -6.2% 3.0% 5.0% 7.0% 8.0% 8.0%
Dividend payout 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
ROE 35.6% 35.1% 31.8% 27.8% 23.1% 18.4% 16.6% 14.5% 13.1%
Net debt/Equity 42.1% 46.5% 47.4% 31.2% 29.3% 7.1% -6.7% -18.9% -28.3%
Net debt/EBITDA 1.36 0.87 1.50 0.97 0.97 0.29 (0.31) (0.98) (1.64)

This page is left blank intentionally

ASTARTA Hold
Downgraded from Buy
Price: PLN 68
Price target: PLN 78
(From: PLN 96)
Sugar, we’re going down
Expected Events
We decrease our price target (PT) for ASTARTA from
PLN 96 to PLN 78, offering 14% upside to the current 3Q11 results Nov 10, 2011
share price, and downgrade the stock to HOLD from
BUY. This is despite the fact that we have increased our
estimates for the company on the net profit level, by 3%
for 2011 and 18% for 2012. Key Data
Despite the upward revision of our forecasts, we reduce Market Cap USD 563 mil
our PT for ASTARTA as a result of the growing number of Free Float 32%
risks facing the sector, including the Ukraine country risk Shares Outstanding 25 mil
and lower peer group median multiples, both negatively Average daily volume USD 0.7 mil
affecting our valuation. We note also the company’s high Major Shareholder Viktor Ivanchyk (37%)
sensitivity to soft commodity price risk, as a further 10% Valery Korotkov (26%)
reduction in sugar and grain prices would reduce our Reuters Code ASRH.WA
EBITDA estimates by 27%, and long UAH exposure, Bloomberg Code AST PW
which could harm the valuation in the event of potential WIG Index 39,970
UAH depreciation. Given these risks and the current high
volatility in the markets, we reduce our recommendation
to HOLD, although we maintain our view that ASTARTA Price Performance
is one of the strongest fundamental growth stories on the
market. 52-w range (PLN) 65-102
YTD PLN Performance -18%
The negative scenario for Ukrainian sugar prices has Relative YTD PLN Performance --5%
materialised, as we predicted in our initiation note,
published on 14 April. We expect Ukrainian sugar ASTARTA price performance
production to reach 2.1m tonnes this year, bringing the
market into surplus after four years of deficit. This has 120
resulted in a 27% sugar price correction to the level of

100
80
USD 800 per tonne, in line with our forecast. Grain prices 60
have also corrected but, since ASTARTA delivered strong 40
crop yields in this marketing season, especially in corn, 20
and decided to accelerate its landbank expansion, on the 0
back of higher-than-expected grain production volumes, Oct-10 Jan-11 Apr-11 Jul-11 Oct-11
we have increased our 2012 net profit estimate for the Astarta WIG20
company by 18% to UAH 728m, down 15% yoy. We ASTARTA: sensitivity of PT to changes in RFR and g
note that this is, however, at an 11% discount to RFR
81 8.0% 9.0% 10.0% 11.0% 12.0%
consensus. 1.0% 98 87 78 70 63
1.5% 100 89 79 71 64
On our estimates, ASTARTA is trading at EV/EBITDA g 2.0% 103 91 81 73 65
2.5% 106 93 83 74 66
multiples of 4.9x on 2011 estimates and at 5.2x at 2012 3.0% 109 96 85 76 68
estimates.
Sales Net Profit EPS EPS P/E EV/EBITDA PBV Dividend ROE
(UAHm) (UAHm) growth (x) (x) (x) yield
2013E 4,314 953 38 30.8% 4.4 4.1 0.9 0.0% 22.3%
2012E 3,571 728 29 -15.4% 5.7 5.2 1.1 0.0% 21.2%
2011E 3,237 861 34 3.1% 4.9 4.7 1.4 0.0% 32.6%
2010E 2,328 835 33 153.0% 5.0 5.1 1.9 0.0% 47.0%
2009 1,481 330 13 n.m. 12.7 9.6 3.1 0.0% 33.3%
EQUITY 2008 971 -89 -4 n.m. n.m. 23.9 6.4 0.0% -12.9%
RESEARCH Analysts: Barbara Zaleska Warsaw: +48 22 222 1547
E-mail: barbara.zaleska@wood.com Website: www.wood.com
Valuation
In this report, we decrease our PT for ASTARTA from PLN 96 to PLN 78 and downgrade
the stock to BUY from HOLD. We value ASTARTA using two valuation methodologies:
DCF and peer group comparative valuation on P/E and EV/EBITDA multiples. Due to the
significant risk that we foresee for the consensus estimates for the peer group, we have
decided to reduce the weight that we assign to our comparative valuation to 25%. Our PT
offers 14% upside potential to the current share price, hence we rate ASTARTA a HOLD.
Valuation summary
Price Weight
DCF 81 75%
Comparative valuation 69 25%
Target price 78
Current share price 68
Upside 14%
Recommendation HOLD
Financial forecasts. In this report, we update our financial model for ASTARTA, reflecting
the most recent developments, including the actual yields on crop and oilseeds,
information about the accelerated landbank development plan, changes in soft
commodity and sugar prices and, last but not least, the changes in VAT reporting.
As a result, we increase our 2011 net profit estimate by 3% and our 2012 net profit
estimate by 18% – the main contributors are the better-than-expected yields on grains,
especially corn. We note that, despite the increase in our 2012 forecasts, our estimates
are still at a double-digit discount to the market consensus.
Our financial forecasts vs. consensus
UAHm 2011 2012

Sales 3237 2863 13% 3571 3551 1%
EBITDA 1144 1134 1% 1030 1202 -14%
Net profit 861 825 4% 728 822 -11%
DCF. Our DCF model yields a PT of PLN 81 per share for ASTARTA. In our financial
forecasts for the company, which we present further on in this report, we estimate that,
between 2010 and 2015, ASTARTA should be able to increase its revenues by 2.5x. The
jump is thanks to the implementation of its expansion plan and improving efficiency. As
far as operating margins are concerned, we expect that, in the longer run, the sustainable
level of EBIT margin is between 23% and 26%.
We have increased our terminal WACC for ASTARTA from 13.4% to 15.5%, as a result of
the higher Ukraine country risk as measured by the CDS spread, which we use in our RFR
calculations (we use the 10Y bund yield increased by the 10Y CDS spread for Ukraine).
We continue to use a beta of 1.1 and a terminal growth rate of 2%.
ASTARTA-KYIV 20 WOOD & COMPANY

DCF model
DCF (UAHm) 2011E 2012E 2013E 2014E 2015E 2016E 2017E 2018E 2019E 2020E
Sales 3,237 3,571 4,314 5,124 5,742 6,010 6,384 6,744 7,054 7,334
EBIT 966 823 1,042 1,318 1,428 1,493 1,586 1,676 1,754 1,824
tax rate 0.7% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0% 1.0%
NOPAT 959 815 1,031 1,305 1,414 1,478 1,571 1,659 1,736 1,806
D&A 178 207 250 297 333 349 370 391 409 425
Capex -500 -550 -450 -400 -400 -366 -389 -411 -430 -447
Increase in WC -542 -194 -431 -470 -359 -376 -399 -422 -441 -459
FREE CASH FLOW 95 278 400 731 988 1085 1153 1218 1275 1325
WACC 15.0% 15.3% 15.6% 15.5% 15.5% 15.5% 15.5% 15.5% 15.5% 15.5%
PV of FCF 3,385
g 2.0%
Terminal WACC 15.5%
PV of terminal value 2,384
Net debt -1169
PV of equity 4,462
Diluted # of shares 25.0
Value per share (UAH) 178
PLN/UAH 2.54
Value per share (PLN) 70
12M target 81
In the table below, we present the sensitivity of our DCF-based PT to changes in the
terminal growth rate and RFR. We note that if the RFR for Ukraine increases to 12%, we
would be SELLers of the stock. If the RFR contracts to 9%, we would be BUYers of
ASTARTA.
ASTARTA: DCF-based PT sensitivity analysis to WACC and terminal growth rates
RFR RFR
81 8.0% 9.0% 10.0% 11.0% 12.0% 0 8.0% 9.0% 10.0% 11.0% 12.0%
1.0% 98 87 78 70 63 1.0% 98 87 78 70 63
1.5% 100 89 79 71 64 1.5% 100 89 79 71 64
g 2.0% 103 91 81 73 65 g 2.0% 103 91 81 73 65
2.5% 106 93 83 74 66 2.5% 106 93 83 74 66
3.0% 109 96 85 76 68 3.0% 109 96 85 76 68
Comparative valuation. As far as comparative valuation is concerned, due to the

increasing Ukraine country risk, we have decided to compare ASTARTA to its CIS peers
only, looking at both food producers and farming companies. We note that, on our
estimates, ASTARTA trades at quite a significant double-digit premium to the peer group
on 2012 estimates, which, in our opinion, results from the potential downside risk we see
to consensus estimates, especially for the smaller and not widely covered stocks.

Peer group comparison
BBG Ticker Name Market Cap3M trading volP/E EV/EBITDA
(USDm) (USDm) 2011E2012E2011E 2012E



KER PW Equity 1692 3.9 6.7 6.9 5.6 5.0
AST PW Equity 563 1.8 5.2 6.2 4.9 5.3
KER PW Equity 11% 35% 7% 22%
AST PW Equity -14% 22% -5% 29%
Implied Market Cap
KER PW Equity 1479 1187 1626 1522
AST PW Equity 634 440 629 466
Implied price target
KER PW Equity 58 46 63 59
AST PW Equity 80 55 79 59
Dividends. Thus far, ASTARTA has not paid any dividends but management has not ruled
out introducing a dividend policy once the company’s liquidity position allows it. In our
model, we assume that the first dividends could be paid out from the 2013E net profit.

Financials
INCOME STATEMENT
(UAH mil) 2007 2008 2009 2010 2011E 2012E 2013E 2014E
Agriculture 149 233 385 429 708 902 1,069 1,274
Sugar 411 642 955 1,693 2,273 2,362 2,883 3,432
Cattle farming 51 72 104 184 233 283 336 391
Other sales 4 24 36 22 23 24 25 26
Total Sales 615 971 1,481 2,328 3,237 3,571 4,314 5,124
COGS -468 -767 -952 -1,361 -2,047 -2,477 -2,950 -3,427
Loss/gain from the remeasurement of
agricultural produce to fair value 25 50 -21 -3 -7 -9 -11 -13
Gross Profit 172 254 508 964 1,183 1,085 1,354 1,684
Changes in fair value of biological assets 63 2 135 113 0 0 0 0
Other operating income 45 89 19 53 59 65 70 76
G&A -53 -91 -92 -98 -105 -120 -132 -144
Selling and distribution expense -29 -53 -63 -76 -107 -136 -164 -195
Other operating expense -19 -49 -45 -45 -65 -71 -86 -102
EBITDA 214 223 555 1,051 1,144 1,030 1,292 1,615
Depreciation -35 -73 -93 -140 -178 -207 -250 -297
Operating Income 179 151 462 912 966 823 1,042 1,318
Net financial cost -62 -342 -135 -127 -101 -90 -82 -72
Other income -3 1 7 2 2 2 2 2
Gain on acqusition of subsidiaries 35 74 2 42 0 0 0 0
Profit before taxes 148 -116 335 829 867 736 962 1,248
Income Tax 1 27 -5 6 -6 -7 -10 -12
Net profit 149 -89 330 835 861 728 953 1,236
BALANCE SHEET
(UAH mil) 2007 2008 2009 2010 2011E 2012E 2013E 2014E
Shareholders equity 735 648 1,335 2,214 3,075 3,803 4,756 5,753
Minorities 26 44 39 67 93 114 140 172
Net debt 373 980 958 1,169 1,146 933 586 130
Capital Employed 1,134 1,671 2,333 3,450 4,314 4,851 5,482 6,055
Non-current assets 635 941 1,432 1,723 2,045 2,388 2,587 2,690
Inventories 385 623 768 1266 1774 1957 2364 2808
Biological assets 113 164 231 413 413 413 413 413
Receivables 60 74 90 132 186 205 248 295
Payables -40 -92 -45 -60 -80 -88 -106 -126
Other liabilities -18 -39 -142 -24 -24 -24 -24 -24
Working Capital net 500 730 901 1727 2269 2463 2894 3365
Capital Employed 1,134 1,671 2,333 3,450 4,314 4,851 5,482 6,055
CASH FLOW
(UAH mil) 2007 2008 2009 2010 2011E 2012E 2013E 2014E
Net profit 149 -89 330 835 861 728 953 1236
Depreciation 35 73 93 140 178 207 250 297
Change in Working Capital -98 -231 -171 -826 -542 -194 -431 -470
Other cashflow items -71 195 -94 76 26 21 26 32
Net Cash from Operations 14 -53 158 224 523 763 797 1094
Capex and Acquisitions net -162 -349 -58 -421 -500 -550 -450 -400
Free Cash Flow -148 -402 101 -197 23 213 347 694
Change in Debt 148 402 -98 199 -22 -213 -347 -456
Shares issued 0 0 -3 -2 -1 0 0 0
Dividends paid 0 0 0 0 0 0 0 -238

KEY RATIOS
2007 2008 2009 2010 2011E 2012E 2013E 2014E
Gross margin 28.0% 26.1% 34.3% 41.4% 36.6% 30.4% 31.4% 32.9%
EBITDA margin 34.7% 23.0% 37.5% 45.2% 35.3% 28.8% 29.9% 31.5%
EBIT margin 29.1% 15.5% 31.2% 39.2% 29.8% 23.0% 24.1% 25.7%
Net margin 24.2% -9.2% 22.3% 35.9% 26.6% 20.4% 22.1% 24.1%
Effective Tax rate -0.4% 23.4% 1.6% -0.7% 0.7% 1.0% 1.0% 1.0%
P/E 12.7 5.0 4.9 5.7 4.4 3.4
EV/EBITDA 25.0 23.9 9.6 5.1 4.7 5.2 4.1 3.3
ROE 26.0% -12.9% 33.3% 47.0% 32.6% 21.2% 22.3% 23.5%
ROCE 16.8% -6.4% 16.5% 28.9% 22.2% 15.9% 18.4% 21.4%
Dividend yield 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 0.0% 5.7%
Net debt/Equity 51% 151% 72% 53% 37% 25% 12% 2%
Net debt/EBITDA (x) 1.4 3.0 1.7 1.0 1.0 1.0 0.6 0.2

Important Disclosures
This investment research is published by Wood & Company Financial Services, a.s. (“Wood & Co”) and/or one of its branches who are regulated by the Czech National Bank as
Home State regulator and in the UK by the FSA and in Poland by the KFN as Host State regulators.
Wood’s 12-month ratings and price target changes for Kernel

01/03/2011 PLN 92
21/10/2011 PLN 77
Wood’s 12-month ratings and price target changes for ASTARTA-KYIV
14/04/2011 Initiation of coverage - BUY
14/04/2011 PLN 96
21/10/2011 HOLD
21/10/2011 PLN 78
Explanation of Ratings
BUY: The stock is expected to generate total returns of over 15% during the next 12 months as measured by the target price.
HOLD: The stock is expected to generate total returns of 0-15% during the next 12 months as measured by the target price.
SELL: The stock is expected to generate a negative total return during the next 12 months as measured by the target price.
RESTRICTED: Financial forecasts, and/or a rating and/or a target price is restricted from disclosure owing to Compliance or other regulatory/legal considerations such as a blackout
period or a conflict of interest.
NOT RATED: Suspension of rating after 30 consecutive weekdays where the current price vis-à-vis the target price has been out of the range dictated by the current
BUY/HOLD/SELL rating.
COVERAGE IN TRANSITION: Due to changes in the Research team, the disclosure of a stock’s rating and/or target price and/or financial information are temporarily suspended.
Equity Research Ratings (as of 21 October 2011)

Buy Hold Sell Restricted Not rated Coverage in
transition
Equity Research
49% 24% 13% N.A. 5% 9%
Coverage
IB Clients 1% 1% N.A. N.A. N.A. N.A.
Securities Prices
Prices are taken as of the previous day’s close on the home market unless otherwise stated.
Valuation & Risks

Analysis of specific risks to set stock target prices highlighted in our investment case(s) are outlined throughout the report. For details of methodologies used to determine our
price targets and risks related to the achievement of the targets referred to in the main body of the report or at http://www.wood.com in the Section Corporate Governance or
via the link http://www.wood.com/research.html
Users should assume that the investment risks and valuation methodology in Daily news or flash notes not changing our estimates or ratings is as set out in the most recent
substantive research note on that subject company and can be found on our website at www.wood.com
Wood Research Disclosures (as of 21 October 2011)

Company Disclosures
AmRest 9
CETV 5
CEZ 5
Cinema City International NV 1, 2
DO & CO 1, 2, 3, 6
ECM Real Estate Investment 5
Elstar 1, 2, 9
Erste Group Bank 5,8
Fortuna 5
S.C. Fondul Proprietatea S.A. 4, 5
Jastrzebska Spolka Weglowa 1, 2, 3
KGHM 5
Kernel 3
Komercni 5
Mittal 1, 2
MVV 1, 2, 4
New World Resources 5
NG2 9
Orco Property Group 5
OTP Bank 8
Pegas Nonwovens 5, 10
Philip Morris 5
Raiffeisen Bank International 8
Telefonica 5
Unipetrol 5
Warimpex 1, 2, 3, 6
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CONTACTS
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Namesti Republiky 1079/1a Skylight Zlote Tarasy Berkeley Square House Director of Equities
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Strategy Strategy Consumer/Agriculture Consumer/Industrials

Carsten Hesse Mateusz Zawada Barbara Zaleska Erik Hegedus
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RECENTLY PUBLISHED REPORTS

Date Company Title Analyst
20/10/11 Gedeon Richter Not a HUF 40,000 stock any more Bram Buring
17/10/11 EME Strategy– global macro Mines still in the water Mark Robinson, Carsten Hesse
14/10/11 EME Strategy Fund flows: Outflow tap still on despite market bounce Mark Robinson, Mateusz Zawada
13/10/11 EME Strategy Declining estimates reflecting slowdown Mark Robinson, Robert Rethy
13/10/11 CEE Oil & Gas OMV/Petrom may stand out with 3Q11 profits. Robert Rethy, Bram Buring
12/10/11 X5 Xxxxxasperating, but worth it Patrick Shields, Erik Hegedus
06/10/11 EME Strategy EME Strategy – Polish elections: Dice or roulette? Mark Robinson, Mateusz Zawada
06/10/11 EME Strategy 4Q11 RFR and FX estimates update Mark Robinson, Mateusz Zawada
30/09/11 EME Strategy Fund flows: Strong outflows out of Russia Mark Robinson, Carsten Hesse
30/09/11 DIXY Assured Victory Patrick Shields
23/09/11 EME Strategy Fund flows: Capitulation flows across GEMs Mark Robinson, Carsten Hesse
21/09/11 Fondul Proprietatea Overhang fading away, time to buy in Ovidiu Fer
16/09/11 EME Strategy Fund flows: Strong outflows across GEMs Mark Robinson, Carsten Hesse
Although the information contained in this report comes from sources Wood & Company believes to be reliable, we do not guarantee its accuracy, and such information
may be incomplete or condensed. All opinions and estimates included in this report constitute our judgment as of this date and are subject to change without notice. This
report is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.

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Consumer Staples, Ukraine October 21, 2011

Kernel and ASTARTA Sector update

Safety comes first

continue to negatively affect the valuations of Ukrainian

Risks: focus on risk profiles .............................................................................. 7

Important disclosures ..................................................................................... 25

Closing Prices as of October 18, 2011

© 2011 by WOOD & Company Financial Services, a.s.

WOOD & Company Financial Services a.s.

tel.: +420 222 096 111

Kernel/ASTARTA 2 WOOD & COMPANY

WIGUKR KER PW AST PW MLK PW AGT PW OVO PW KSG PW IMC PW

YTD Since Jul-31 Since IPO Since Jul-31

Kernel/ASTARTA 3 WOOD & COMPANY

WIG20 Index KER PW Equity AST PW Equity

Kernel and ASTARTA: premium/ discount to WIG20 on EV/ EBITDA

KER PW Equity AST PW Equity

KER PW Equity AST PW Equity UKRAIN CDS USD SR 5Y Corp

Kernel/ASTARTA 4 WOOD & COMPANY

Kernel, USDm 2011/12 2012/13

Source: Wood Research, Bloomberg

Kernel/ASTARTA 5 WOOD & COMPANY

CIS farming companies 7.2 5.6 5.0 4.1

On Wood Research estimates:

Kernel/ASTARTA 6 WOOD & COMPANY

1) Soft commodity prices

Spot 2011 consensus 2012consensus

Kernel/ASTARTA 7 WOOD & COMPANY

800 Wheat 0.40

Corn: global supply, demand and inventory levels (1980-2011)

1000 Corn 0.50

Sources: Agria Agency

Kernel/ASTARTA 8 WOOD & COMPANY

Sources: Agria Agency

Ukraine: sunflower seed prices, USD per tonne

Sources: Agria Agency

Ukraine: sugar prices, USD per tonne

Sources: Agria Agency

Kernel/ASTARTA 9 WOOD & COMPANY

2) Ukraine: broadening CDS spreads

UKRAIN CDS USD SR 10Y Corp RFR Spot

Kernel RFR RFR

Sources: Wood Research

Kernel/ASTARTA 10 WOOD & COMPANY

M&A pipeline. Year-to-date, Kernel has made four M&A

transactions, paying USD 270m in total. It acquired the BSI 60.0

sunflower seed crushing plant, sugar and crops producer 40.0

sunflower oil producer Russian Oils. We see the Russian 0.0

organic and external growth for the company. We do not

Sa les EBITDA N et In c o me EP S EP S P /E CEP S P /CE EV/ P /CF ROE

RESEARCH Analysts: Barbara Zaleska Warsaw: +48 22 222 1547

USDm 2011/12 2012/13

Source: Wood Research, Bloomberg

Kernel 14 WOOD & COMPANY

Terminal growth rate 2.0%

Source: Wood Research

Source: Wood Research

Comparative valuation. As far as comparative valuation is concerned, due to the

Kernel 15 WOOD & COMPANY

CIS food producers 5.9 4.8 5.4 4.5

CIS farming companies 7.2 5.6 5.0 4.1

On Wood Research estimates:

Kernel 16 WOOD & COMPANY

Kernel 17 WOOD & COMPANY

Wood KER & AST

Wood KER & AST