Konstantin Litvinsky, COO, Kernel Holding, Inerco Trade S.A. Kernel Trade Ukraine and Eastern European Sunflower Seed Complex and Export Scenario Konstantin Litvinsky, COO, Kernel Holding, Inerco Trade S.A. GLOBOIL INDIA, September 2017

Kernel Trade Kernel Trade Kernel at glance: Integrated business model, World’s largest SFO/SFM Exporter 1 Own farming: Kernel operates over 600 kha of farmland in Ukraine producing over 3 mmt of grains and oilseeds which then move further along the chain Bottled sunflower oil: Approximately 10% of gross bulk sunflower oil produced is further refined, bottled and sold domestically and abroad Export terminals: Kernel operates Deep-water grain terminal in Chornomorsk (4 mmt/y throughput capacity) Dry cargo terminal in Mykolayiv (0.5 mmt/y throughput capacity) Deep-water grain terminal in Taman (2 mmt/y throughput capacity), 50% JV ownership In 2016 Kernel launched a greenfield construction of its 2nd 4 mmt terminal in Chornomorsk, which should become operative in 2018/19 6 7 Origination: Kernel procures over 3 mmt of SFS and 3 mmt of grains from 5,000 farmers 2 1 Silo network: Kernel owns some 45 inland silos with 2.7 mmt total storage capacity 3 6 2 3 5 Grain export: Kernel exports over 5 mmt of grains annually, using derivative instruments to hedge its exposure to price risk 544 4 I should probably kickoff by telling a few words about our company. Kernel is a large, diversified agricultural company. One of the largest in Ukraine There is a lot of activity going on, but basically we have 3 main businesses Sunflower Oil Farming Grain Trading and Infrastructure And here is our Business Model. It’s fully integrated. So, what do we do? We got our on Crop Production, and we cultivate the largest landbank in Ukraine This is not enough, so we originate another 3 mmt of SFS and 3 mmt of Grains We use our own silo network to store the crops As Grain Trader, we are one of the largest Grain Exporter from Ukraine And we Crush SFS, a lot of SFS. We are Ukraine's, and possibly Worlds #1 SFS Crusher, SFO Exporter, SFM Exporter. A lot of number ones when it comes to SunFlower We also sell a lot of Bottled SFO, domestically and abroad And to serve our Export operation, we have our own port facilities 7 455 Oilseed processing: 8 own SFS crushing plants with 3.5 mmt annual crushing capacity

World SFS Production 10y ago – 30 mmt Kernel Trade Kernel Trade World SFS Production 10y ago – 30 mmt 06/07 MY 16/17 MY vs. RU 6.3 EU 6.6 UKR 5.7 40% of World Production CHINA 1.4 As we all know, driven by world’s appetite for VegOils, Oilseeds Production grows rapidly and SFS is no exception This is how World SFS Production looked 10 y ago: • 30 mmt produced worldwide • 5 major Producers • UKR and RU combined produce 40% of the Crop ARG 3.5 Source: USDA * All values in million metric tons

World SFS Production today – 46 mmt Kernel Trade Kernel Trade World SFS Production today – 46 mmt 06/07 MY 16/17 MY vs. RU 10.9 UKR 14.2 EU 8.6 54% of World Production CHINA 2.8 And this is how Sunseed Production looks today: • Sharp rise. 48 mmt crop, that is 59% up from where we stood a decade ago • Same major Producers • But the role of Black sea has notably increased. Now, the 2 countries combined are in charge of more than a half of global Sunseed Supply ARG 3.4 Source: USDA * All values in million metric tons

World SFO Exports 10y ago – 4 mmt Kernel Trade Kernel Trade World SFO Exports 10y ago – 4 mmt 06/07 MY 16/17 MY vs. UKR 1.87 RU 0.71 64% of World Exports (UKR&RU) Ukraine alone – 46% EU 0.15 Speaking of SFO Exports, the change is even more drastic 10 years ago we used to have 4 major Exporters, with UKR and RU combined already dominated on the market – 64% Ukraine alone exported 46% out of total world trade ARG 0.85 Source: USDA * All values in million metric tons

World SFO Exports Today – 10 mmt Kernel Trade Kernel Trade World SFO Exports Today – 10 mmt 06/07 MY 16/17 MY vs. UKR 5.7 RU 2.1 78% of World Export. Ukraine alone – 57% EU 0.43 TUR 0.65 And these are last season volumes 2 countries in total supplied 78% of SFO to the world market Ukraine alone supplies 57% of the Oil,… so, in case you need to by some SunOil, you know where to look, right? One other thing. As you see, there is very little Oil comes out of EU, which Seeds Production is quite high And since we are here to talk about Eastern European Sunseed Complex, let’s break it down by member states Who are the key Sunseed growers within EU? And Why it’s all concentrated in Eastern Europe? ARG 0.55 Source: USDA * All values in million metric tons

SFS Production – Why Eastern Europe? Kernel Trade Kernel Trade SFS Production – Why Eastern Europe? SFS Production map – Europe Here’s a thing about SFS – there are not many areas in the world where it can be grown successfully. Overall, most Sunflowers are remarkably adaptable, tough and easy to grow. They are also heat- and drought-tolerant. And if you like to get nice cut flowers in your garden, you can grow Sunflowers at various places around the globe But, to generate good Yields of Sunflower Seeds, you going to need nutrient-rich, well-drained soils with neutral acidity (slightly acidic to somewhat alkaline (pH 6.0 to 7.5)) and right climate – warm and sunny with sufficient precipitation Even though the Sunflower is native to North America, It turns out, that most of SFS Production is concentrated in Europe Source: USDA

SFS Production – Why Eastern Europe? Kernel Trade Kernel Trade SFS Production – Why Eastern Europe? 16/17 SFS Production by country, mmt All European Continent produces at 77% of World Sunseeds Eastern European Crops makes 70% of World SFS Production Only few EU member states produce significant SFS volume UKR 14.2 EU is net importer and a major buyer of SunOil and SunMeal RU 10.9 HUN 1.9 MLD 0.7 FRA 1.2 ROM 1.8 And here we go again. We got Ukraine and Russia – 2 major producers by far We have Moldova on the side. And then, if we look at EU as individual states, we ‘ve got only few EU members who produce any notable amounts of seeds All Europe produces at 77% And if we narrow it to Eastern Europe – more than 70% of World Output generated in this area, the Black sea and Danube region BUL 1.8 SPN 0.7 Source: USDA * All values in million metric tons

SFS Production – Why Eastern Europe? Kernel Trade Kernel Trade SFS Production – Why Eastern Europe? 16/17 SFS Production by country, mmt UKR 14.2 RU 10.9 HUN 1.9 MLD 0.7 ROM 1.8 So, 70% of Global Sunseed Production concentrated in this area Let’s see how each country production evolved in the past years BUL 1.8 Source: USDA * All values in million metric tons

Kernel Trade Kernel Trade Eastern Europe SFS Production has doubled over past 10Y. Where does the Growth come from? Here is Eastern Europe SFS Production breakdown by major states. And we can see that all of them build up their SFS Production, but Ukraine is the fastest growing followed by Russia SFS Production is growing in the Danube area as well, but being part of EU they don’t supply much to the world market – It’s all stays within EU EU SunOil and Meal Demand grows faster than Domestic Production, therefore I wouldn’t count on these counties as a potential Sunseed and Products Supplier Instead, we should focus on what’s happening in the big two – Ukraine and Russia Source: USDA

UKR and RU SFS S&D Comparison Kernel Trade Kernel Trade UKR and RU SFS S&D Comparison UKR SFS and Products – Key S&D components, mmt 14/15 15/16 16/17 17/18 RU SFS and Products – Key S&D components, mmt Here I’d like to compare two countries S&D Given that they do have comparable Sunseed Production, the entire S&Ds are different Here is Ukraine’s Production and Crush And this is how much Oil and Meal comes out of crushed seeds ( the volumes are about the same, Husk and Losses make around 14.5% ) And this is Oil and Meal Export out of Ukraine. As you see, most of the Products are being exported And for comparison, here is Russian SFS Production and Crush on the same scale A little lower Crops and, same as Ukraine, most of if is Crushed domestically That’s Oil and Meal Production – proportions in line with Ukraine Yet, here is the difference – they Export much lower portion of SFS Products due to large Domestic Consumption

Kernel Trade Kernel Trade Ukraine SFS Production grows steady over both Area expansion and better Yields 14.9 13.8 Let’s take a closer look at Ukraine's SFS complex Ukraine Sunseeds Production increases at a fast pace on both Area and Yields. While Yield keeps trending higher thanks to technology, Area Expansion is capped by land availability and Crop Rotation limitations Last year Ukraine has set an outstanding record, producing nearly 15 mmt of SFS. This year, we expect SFS Production to retreat from LY high due to lower Yields. Harvest is gaining momentum these days, with over 15% of the Area have been harvested and Yields are notably lower than last year same time.

Kernel Trade Kernel Trade Most of UKR SunSeeds are crushed domestically. SFS Export and FSR Consumption are insignificant Practically all the crop is being crushed (small amount goes for confectionery usage). Oil makes up about 43% of the crushed seeds

Will Ukraine be able to process its fast-growing Supply?.. Sure thing! Kernel Trade Kernel Trade Will Ukraine be able to process its fast-growing Supply?.. Sure thing! There is no limitation in the Crushing Capacities in the latter years

UKR SFS Complex Exports Kernel Trade Kernel Trade UKR SFS Complex Exports Export grows very sharply

UKR SFO Destinations – India is the largest buyer by far Kernel Trade Kernel Trade UKR SFO Destinations – India is the largest buyer by far Should we show EU total instead of member states??

UKR SFM Exports – Mainly Europe, France keeps the lead Kernel Trade Kernel Trade UKR SFM Exports – Mainly Europe, France keeps the lead

Kernel Trade Kernel Trade Russian SFS Production is on the rise too. Not as fast us Ukraine though – lower Yields 12.0 11.5 How about Russia? Comparing to Ukraine – vaster area, lower yields New crop Production expected higher as Planted Area expanded further and initial harvest reports indicate better Yields in some key areas. For now, at about 7% of SFS acreage has been harvested If this Increase verifies, it will partly offset Production setback in Ukraine

Kernel Trade Kernel Trade RU SunSeeds are crushed domestically. SFS Export and FSR Consumption are insignificant More Seeds consumed by confectionery industry (larger population)

There is no bottle neck in Crushing Capacities in Russia Kernel Trade Kernel Trade There is no bottle neck in Crushing Capacities in Russia Very comfortable Capacity Utilization. There was some tightness many years back, but nowadays Russia has enough facilities

RU SFS Complex Exports Kernel Trade Unlike Ukraine, large portion of RU SunOil (at 2mmt) consumed domestically. Therefore, not too much left for Export

RU SFO Destinations – Turkey and Egypt are the largest buyers Kernel Trade Kernel Trade RU SFO Destinations – Turkey and Egypt are the largest buyers

RU SFM Exports – 2 countries in charge of nearly 3/4 of entire volume Kernel Trade Kernel Trade RU SFM Exports – 2 countries in charge of nearly 3/4 of entire volume

World SunOil Trade was very active last year Kernel Trade Kernel Trade World SunOil Trade was very active last year 16/17 World SFO - Main Trade Flows UKR 5.8 RU 2.0 EU 1.8 N&M EAST 2.2 5 N AFR 0.9 INDIA 2.2 CHINA 0.8 World Trade is largely divided by 2 major Suppliers. And the Oil is shipped to 5 Major Destinations Ukrainian SunOil dominates in EU and India Russians are very active in Near and Mid East and N Africa How the coming season can be different? It should be rather similar to this As probably may see lower Availabilities of UKR SunOil India is likely to increase its Sunoil Procurements, while other origins will need to reduce slightly their Imort and switch to VegOil choices Why India? Source: USDA, Kernel * All values in million metric tons

Indian Import Demand – higher Duties for Palm and Soy Oils Kernel Trade Kernel Trade Indian Import Demand – higher Duties for Palm and Soy Oils India VegOil Consumption vs. Main VegOil Import Imports: ? India, the world’s largest Edible Oil Exporter Since consumption is growing more rapidly than production, the appetite for imports is growing at a faster rate (11% per year) to fill the gap. Newly imposed changes in Import duties should be supportive to SFO an Canola Oil Imports

Indian Import Demand – higher Duties for Palm and Soy Oils Kernel Trade Kernel Trade Indian Import Demand – higher Duties for Palm and Soy Oils Last month, Import Duties were raised for Palm and Soybean Oils, while SunFlower and Rape/Canola Oil remained unchanged Newly imposed changes in Import duties should be supportive to SFO an Canola Oil Imports

16/17 SFO Prices were quite low in relation to other Oils Kernel Trade Kernel Trade 16/17 SFO Prices were quite low in relation to other Oils SFO is premium product compare to other oils and normally it is more expensive. Yet it was not the case last year Prices for SunOil were quite low, largely due to record SFS Production Now, we expect things to return to normal

17/18 SFO Trade Outlook - Key Factors Kernel Trade Kernel Trade 17/18 SFO Trade Outlook - Key Factors SFS Production in key countries (expected marginally lower than LY). SFO Production will change accordingly World SFO Demand to absorb as much surplus as available Recent changes in Indian import duties to encourage SFO exports to India Chinese Import Demand will depend on World Soybean Supply/Prices and Rapeseed stocks release EU Demand will follow VegOils’ price ratio and changing Consumer Preferences Global Production of other major Oilseeds: Good Soybean Crop coming in Northern hemisphere World Rapeseed/Canola output is likely to set new record Palm Oil Production expected higher as well To conclude, let’s outline some key factors that shape up this new season As usual, SFO market will largely depend on 2 things – World SFS Production and Global VegOils S&D New crop harvest is in full swing in Northern Hemisphere, and based on yield reports we expect World Production to be a little lower And this should be supportive to SunOil prices in my view Demand for SunOil remains strong and will consume as much Oil as available. It always does. Indian Import duties increased for Palm and Soy Oils, but left intact for SFO - good news for Ukrainian Crushers Another big Importer, China – the demand is uncertain. It will depend on Soybean market and government regulations, including Rapeseed stock release EU and MENA countries demand will follow price ratio for major Edible Oils and changing eating habits Of course, Major Oilseeds harvest results will play big role and affect SunOil market All in all, we hope for another busy and fruitful season ahead and wish you all the same Thank you

Kernel Trade Kernel Trade THANK YOU