Universal Corporation

Good day, everyone, and welcome to today's Universal Corporation fourth quarter fiscal year 2024 earnings call. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question and answer session. Please note, today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Assistant Treasurer at Universal Corporation, Jennifer Rowe. Please go ahead.

Thank you for joining us. George Freeman, our Chairman, President, and CEO, 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. We remain on the website through August 22nd, 2024. 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 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. 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, 2023 and our 10-K for the year ended March 31, 2024, which will be filed shortly. Such risks and uncertainties include but are not limited to 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 may be based on unaudited allocations and is subject to reclassification. In an effort to provide useful information to investors, our comments today may also 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. Universal Corporation had a positive finish to its strong fiscal year 2024 with notable financial and operational performance in both the fiscal year and quarter ended March 31, 2024. Fiscal year 2024 was an exceptional year for our tobacco business. As a favorable product mix, strong customer demand, and the sale of larger crops in Africa compared to fiscal year 2023 drove our strong operating results. Fiscal year 2024 was also a significant building year for our ingredients business. We made important progress with our state of the art expansion project and we continue to invest in Universal Ingredients commercial sales team and research and development function. We also made advances in fiscal year 2024 towards our sustainability goals. by entering agreements that move us closer to our operational emissions targets and by making continued progress towards our social supply chain targets. Turning to current tobacco market conditions, while we expect leaf tobacco supply and demand to return to a more balanced position over time, we are currently seeing very tight tobacco supply and elevated green tobacco prices. We continue to leverage our diverse global footprint and financial flexibility to manage these conditions and to execute on our tobacco strategies. For example, during the fourth quarter of fiscal year 2024 and into the first quarter of fiscal year 2025, we accelerated buying in Brazil to ensure access to the tobacco we need for our customers. This accelerated buying, combined with higher green tobacco prices, resulted in increased use of working capital and higher debt levels at March 31, 2024. We expect most of the net impact on working capital from our accelerated buying strategy to naturally unwind over the next two years. In addition, we remain committed to supporting our tobacco business while efficiently managing working capital and reducing leverage levels. Our vision for our ingredients business is to be a provider of a complete innovative suite of solutions and value-add products. We believe our investments in our universal ingredients platform's commercial sales team and research and development function support our vision and will deliver value over time. During fiscal year 2024, we entered several new partnerships to supply innovative products that capitalize on our newly developed capabilities and portfolio across our three ingredients companies. Those new customer relationships and new product sales benefited our ingredients business by helping offset lower revenues from sales in fiscal year 2024 due to inventory recalibrations by existing customers and lower sales prices due to lower raw material prices. Earnings in fiscal year 2024, however, were below expectations due to higher costs related to our infrastructure investment, lower new crop raw material prices, inventory write downs, and customer inventory recalibration. We expect our new product sales to increase and contribute to our future earnings. Some financial highlights for the fiscal year and quarter ended March 31, 2024. Net income for the fiscal year was $119.6 million, or $4.78 per diluted share, and was $40.3 million, or $1.61 per diluted share, for the quarter ended March 31, 2024.

Excluding certain non-recurring items detailed in today's press release, adjusted net income increased by $33 million,