Universal Corporation

Good day and thank you for standing by.

Welcome to Universal Corporation Fiscal Year 2021 Earnings Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone or touchstone key. Please be advised that today's conference is being recorded. If you require any further assistance, please press star 0. I would now like to hand the conference over to your speaker today, Ms. Candice Formatek, Vice President and Pressurer.

Thank you. Please go ahead. Thank you, Mika, and thank you all for joining us this evening. George Freeman, our Chairman, President, and CEO, Airton Hentschke, our Chief Operating Officer, and Johan Kroener, our Chief Financial Officer, are here with me today and will join me in answering questions after these brief remarks. This call is being webcast live and will be available on our website and on telephone taped replay. It will remain on our website through August 26, 2021. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay, or distribution of any transcription of this call. This call is copyrighted and may not be used without our permission. Before I begin to discuss our results, I caution you that we will be making forward-looking statements that are based on our current knowledge and some assumptions about the future and are representative as of today only. Actual results could differ materially from projected or estimated results and we assume no obligation to update any forward-looking statements. This is a particular note during the current ongoing COVID-19 pandemic when the length and severity of the crisis and resultant economic and business impacts are so difficult to predict. For information on some of the factors that can affect our estimates, I urge you to read our 10-K for the year ended March 31, 2020, as well as our Form 10-K for the year ended March 31, 2021, which we expect to file with the SEC later this week. Such risks and uncertainties include, but are not limited to, the ongoing COVID-19 pandemic, customer mandated timing of shipments, weather conditions, political and economic environment, government regulation and taxation, changes in exchange rates and interest rates, industry consolidation and evolution, and changes in market structure or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may include non-GAAP financial measures. For details on these measures, including reconciliations to the most comparable GAAP measures, please refer to our current earnings press release. We are pleased to report that our net income and diluted earnings per share and our non-GAAP adjusted operating income for fiscal year 2021 are all up over 20% compared to fiscal year 2020. Strong leaf tobacco shipments in the second half of fiscal year 2021, the addition of our plant-based ingredients acquisitions and favorable foreign currency comparisons all contributed to this improvement in our results. We are especially proud that we were able to deliver these results in the midst of the COVID-19 pandemic and would like to thank our employees, growers, customers and other partners for their support, adaptability and hard work that made this a successful year. Leap tobacco shipments, which started slowly earlier in the fiscal year, accelerated in the second half of the year. We ended the year with leaf tobacco volumes that were just slightly below those in fiscal year 2020, in part due to some tobacco shipments that were delayed and will ship in fiscal year 2022. Despite global challenges, including increased safety protocols, work from home mandates, and travel restrictions that necessitated adjustment to how we conduct our leaf tobacco business, we successfully delivered the leaf tobacco desired by our customers. We also delivered on our capital allocation strategy objective to build and enhance our plant-based ingredients platform through the acquisition of Silva International in the third quarter of fiscal year 2021. We are excited about the prospects for our new ingredients platform and continue to progress on our integration process. In the fourth quarter of fiscal year 2021, our ingredients operations segment performed well against its objectives in both the human and pet food categories. In the quarter and year end ended March 31, 2021, we benefited from positive net foreign currency comparisons, mostly non-cash currency remeasurement of $21 million and $26 million, respectively, compared to the same periods in fiscal year 2020. Certain currencies weakened significantly in the fourth quarter of fiscal year 2020, largely due to uncertain market conditions related to the burgeoning COVID-19 pandemic. We ended our fiscal year 2021 with a strong balance sheet and uncommitted leaf tobacco inventory levels just over our target range at 22%. In addition to our investments in growth opportunities, we are also pleased to have announced our 51st annual dividend increase today, continuing our commitment to delivering shareholder value. Turning now to the details, net income for the fiscal year ended March 31, 2021 was $87.4 million or $3.53 per diluted share compared with $71.7 million or $2.86 per diluted share for the fiscal year ended March 31, 2020. Excluding restructuring and impairment costs and certain other non-recurring items, Detailed and other items in today's earnings release, net income and diluted earnings per share increased by $17.6 million and 76 cents respectively for fiscal year 2021 compared to fiscal year 2020. Adjusted operating income detailed and other items in today's earnings release of $172.9 million increased by $31.7 million for fiscal year 2021 compared to adjusted operating income of 141.3 million for fiscal year 2020. Net income for the quarter ended March 31, 2021 was 39.4 million or $1.58 per diluted share compared with net income of 15.6 million or 63 cents per diluted share for the quarter ended March 31, 2020. Excluding restructuring and impairment costs and certain other non-recurring items, Detailed in today's earnings release, net income and diluted earnings per share increased by 14.3 million and 57 cents respectively for the quarter ended March 31, 2021 compared to the fourth quarter of fiscal year 2020. Consolidated revenues increased by $73.4 million to $2 billion for the year ended March 31, 2021 and decreased by $14.5 million to $617.6 million for the three months ended March 31, 2021 compared to the same periods in the prior fiscal year on the addition of businesses acquired in calendar year 2020 in the ingredients operations segment, all set in part by lower comparative leaf tobacco shipment volumes. Turning to the segments, and Tobacco Operations Segment. Operating income for the Tobacco Operations Segment increased by $22.2 million to $168.8 million for the fiscal year and by $16.1 million to $61.2 million for the quarter ended March 31, 2021 compared with the same periods for fiscal year 2020. Favorable foreign currency remeasurement comparisons and strong tobacco shipment volumes benefited tobacco operations segment results for both the quarter and year ended March 31, 2021. In fiscal year 2021 compared to fiscal year 2020, sales volumes were up in Brazil and the United States on higher sales of carryover crop tobacco. While volumes decreased in Africa, partly from weather reduced crop sizes as well as some delayed shipments that will occur in fiscal year 2022. Selling general and administrative costs for the segment were lower for fiscal year 2021 compared to fiscal year 2020, largely on favorable net foreign currency remeasurement comparisons, mainly in Indonesia and Brazil. A favorable product mix and continued strong wrapper demand also benefited segment results in fiscal 2021. In the quarter ended March 31, 2021, results for the tobacco operations segment were up, largely on favorable currency remeasurement comparisons compared to the fourth fiscal quarter of 2020 when certain currencies drastically weakened, mainly due to market uncertainties caused by the COVID-19 pandemic. Leaf tobacco shipments were modestly lower in the fourth quarter of fiscal 2021 compared to the same quarter in the prior fiscal year, largely due to reduced African volumes, including some volumes that will ship in fiscal year 2022. and improved product mix and continued strong wrapper demand benefited the segment results in the fourth quarter of fiscal year 2021 compared to the same quarter of the prior fiscal year. In the ingredients operations, operating income for the ingredients operations segment was 0.4 million and 5.1 million respectively for the fiscal year and quarter ended March 31, 2021 compared to an operating loss of 8.5 million and 4.1 million respectively for the fiscal year and quarter ended March 31, 2020. Results for the segment included costs from amortization of intangibles related to the acquisitions, which totaled 6.4 million and 2.4 million respectively in the fiscal year and quarter ended March 31, 2021, as well as purchase accounting adjustments of 2.8 million in the year ended March 31, 2021 at 2.7 million in the year and quarter ended March 31, 2020, but also reduced our results for the segment. Our ingredients operations saw some changes in product mix during fiscal year 2021 due to changes in customer demand resulting from the ongoing COVID-19 pandemic. While demand for ingredients used in products for restaurants and social venues declined, we saw demand increase for ingredients used in grocery items and pet foods. In the fourth quarter of fiscal year 2021, we began to see demand for our products recover from certain sectors, such as food service, which were negatively impacted by COVID-19. Selling general and administrative expenses increased in the fiscal year and quarter on the addition of the acquired businesses. As we move into fiscal year 2022, We currently expect global supply for the flu cured leaf tobacco to be in line with anticipated demand and for burley leaf tobacco to be in a slight under supply position. We are continuing to monitor freight costs as the COVID-19 pandemic disrupted shipping patterns, which has resulted in cost increases due to limited container availability. We published our second annual sustainability report in fiscal year 2021 on our website. The report showcases our strong commitment to our sustainability programs and initiatives, which stems from our belief that sustainability is a key component of our past and future success. In fiscal year 2022, we will continue to deliver on our fundamental responsibility to our stakeholders to set high standards of social and environmental performance to support a sustainable supply chain. At this time, we are available to take your questions. Mika, I will turn the call back to you.