Operator: 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.

Jennifer Rowe: Thank you for joining us. George Freeman, our Chairman, President, and CEO, and Johan Kroner, 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 the website through August 22, 2024. Other than the replay, we have not authorized and disclaimed 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 has 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 the 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 target and by making continued progress towards our social supply chain targets. Turning to our 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 investments, 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 and adjusted diluted earnings per share increased by $1.31 for the fiscal year. An adjusted net income and adjusted diluted earnings per share increased by $20.3 million and $0.82 respectively for the quarter ended March 31, 2024, compared to the same period last fiscal year. Operating income of $222 million for the fiscal year ended March 31, 2024 increased by $40.9 million and operating income for the quarter of $68.2 million increased by $15.8 million. Selling, general, and administrative expenses were up $33.4 million in the fiscal year and up $12.3 million in the quarter ended March 31, 2024, largely on higher incentive compensation costs, as well as unfavorable foreign currency comparisons and costs related to a value-added tax settlement program in Brazil, compared to the same period last fiscal year. Some highlights for our operating segment. Operating income for the tobacco operation segment increased by $49.5 million to $222.4 million for the fiscal year and by $19.6 million to $73.5 million for the quarter ended March 31, 2024, compared with the fiscal year and quarter ended March 31, 2023. Tobacco operations segment operating income was up in fiscal year 2024, largely on higher tobacco sales prices and a more favorable product mix, partially offset by lower tobacco sales volumes, compared to fiscal year 2023. In fiscal year 2024, African crops were larger. Carryover crop shipments from South America were lower, and in Asia we saw an improved product mix compared to fiscal year 2023. Tobacco operations segment operating income was up in the quarter ended March 31, 2024, largely on higher tobacco sales prices and a more favorable product mix, compared to the quarter ended March 31, 2023. Operating income for the ingredients operations segment was $4 million for fiscal year 2024 and an operating loss of $1 million for the quarter ended March 31, 2024. Results for the ingredients operation segment for the fiscal year and quarter ended March 31, 2024 were negatively impacted by higher costs related to infrastructure investments in the ingredients platform, lower new crop raw material prices, and inventory write-downs partially offset by margins on new products. Customer inventory recalibrations in the first-half of fiscal year 2024 also negatively impacted results for the fiscal year. In our ingredients business, the expansion project at our Lancaster manufacturing facility is progressing as expected and we anticipate the facility to be fully operational in the second-half of fiscal year 2025. We're excited about this unique project as it will significantly expand our processing capabilities, including aseptic packaging, and will enable us to considerably grow our product portfolio and supply existing and new customers with additional products. This project is expected to contribute meaningfully to the results of our ingredients operations segment in fiscal year 2026. Going into fiscal year 2025, we remain steadfast in executing our strategy of maximizing tobacco opportunities, while growing the ingredients business. We believe our leading market position, global footprint, and proven sustainability practices will continue to enable us to generate stable cash flow from our tobacco business. Universal ingredients is also well positioned with its fully built platform to deliver high quality innovative products that drive top-line growth, margin expansion, and earning stability. At this time we're available to take your questions.

Operator: [Operator Instructions] And we'll move first to Ann Gurkin with Davenport. Your line is open.

Ann Gurkin: Good evening can y'all hear me?

George Freeman: Yes we can Ann how are you doing?

Ann Gurkin: Hey, good evening thanks doing great. Terrific finish to your fiscal year. Well done.

George Freeman: Thank you.

Ann Gurkin: Want to dive in on the tobacco segment, if I might. The strength we saw in the sales, can you comment on what, how much was like a pull forward from fiscal ‘25 to fiscal ‘24 from accelerated sales, particularly out of Brazil?

George Freeman: It's so tight there's no pull forward. It's extremely tight.

Ann Gurkin: Okay, great. And have you negotiated, can you remind me, in terms of negotiating tobacco prices with customers, have you completed those negotiations for fiscal ‘25 and fiscal ‘26, or just fiscal ‘25 at this point for tobacco?

George Freeman: ‘25 for some, but there's, you know, Zimbabwe's still open, and they're having some quality issues in Zimbabwe, especially the small-scale, on the small-scale farmer side, and so we anticipate there may be a second round in Brazil this summer.

Johan Kroner: And also keep in mind we got bit pretty good a couple of years back by you know three-year fixed price contract that didn't really work for us. So for us to do multi-year contracts with customers is not a normal thing for us.

Ann Gurkin: Right, I guess, I'm just a little concerned that the customers have been paying elevated prices due to the tight supply and demand for tobacco and at some point I'm worried they're going to start pushing back and that's why I was curious about your kind of pricing where you are in terms of the pricing cycle for tobacco?

George Freeman: We're in a good spot at the end of the day most of our customers or larger customers are virtually integrated in a number of markets, so they know what the green price is. Certainly, their green price is pretty much our green price. That's the way that those markets work. So all of them then conversion charges and everything, that is what it is. So everybody is on the same page. And yes, of course, there is pushback. But we need to make a return on our investments. And those are the discussions that our sales team have with our customers on a daily basis.

Ann Gurkin: Great, okay. And then may I get the worldwide uncommitted leaf inventory number, please?

Jennifer Rowe: Sure, it's 30 million kilos for flue-cured and burley as of March 31.

Ann Gurkin: Great. And then in terms of the outlook for the crops, anything that should be noted for tobacco crops in Bob way? It sounds like there's some quality issues. Anything else?

George Freeman: No, most of the, you know, U.S., is yet to come, and I know that it's, we're forecasting La Nina, which is associated with Atlantic hurricane. So that's nothing we can do about it. But that's something we're watching. But the commercial Zimbabwe crop is pretty good, and Malawi and Mozambique are pretty good.

Johan Kroner: Look, we're dealing in a commercial-oriented agricultural crop. So at the end of the day, the weather is what that weather is. And we are in a number of origins around the world. So we're fairly well diversified and we should be able to supply the crops that our customers require.

Ann Gurkin: Great, great, okay. And then switching to ingredients, so that came in weaker than we were expecting. So I wonder if you can help me understand a little bit. I think you were targeting spending $30 million for the shanks upgrade or an expansion. So how much of that $30 million did you spend in fiscal ‘24?

Johan Kroner: The vast majority of it has been spent Ann the facility will come online later this year. So, you know, we're really upbeat about that. You know, our commercial guys are talking to the customers about what that facility can produce and, you know, we just have to get that thing going and then go from there. We will not see the full result of that line of course, because it is coming online later this year until fiscal year ‘26. But again, we're seeing really positive results and we're having some really good discussions with our customers. Q - Ann Gurkin Right. And so when you call out profits being negatively impacted by infrastructure spend, is that the bulk of that $30 million in that number?

Johan Kroner: No, the spending really is on the commercial and the R&D costs that we are incurring. Of course, on those, we also want to return, right? But you know that you have to spend the money there upfront to be able to bear fruit at a later date. So those costs are just there. Of course this year also we had some inventory write-downs earlier in the year and we got a bit of a hole early on and we just had a bit of a struggle to get out of that. But margins are holding up nicely from that standpoint. So we're really happy where it's at. You're right. The performance was not as good as we had anticipated or had hoped, but certainly it's performing and it's going in the right direction.

Ann Gurkin: Can you quantify the inventory write-down number for the year?

Johan Kroner: It was earlier in the year Ann, I think it was a couple million dollars that was in there.

Ann Gurkin: Right. And then I don't know what lower new crop raw material prices mean?

Johan Kroner: Well across the board, for example, you know, on the West coast in Washington there, you know, Apple prices have dropped dramatically. And so, you know, you are buying product, of course, cheaper, so but your revenue will be down. Your absolute dollar margin profit will be down. So that didn't exactly help this year. But that's the way it is. It did help. On the other hand, for example, you can now more easily compete with some of the offshore areas that we compete with.

Ann Gurkin: Right, okay. And then you highlighted the aesthetic packaging opportunity in the Lancaster facility. Does that mean you can process beverages? Can you package beverages like protein shakes?

George Freeman: We can produce all kinds of things exactly what it is and I can't tell you everything, but certainly our guys are very excited about the possibilities there. And again, that whole setup is unique, because we can do everything in that one facility. So we -- that aseptic packaging often is a separate line somewhere and now we can extract the product and pack it all aseptically on that one line which is something unique.

Ann Gurkin: With the strong growth in the protein shake market, I was hoping you had signed some protein shake customer. I was curious…

George Freeman: No we are talking to all those folks currently, okay. And we're making strides there to get those folks on board. But again, the facility is not up and running yet. So we'll have to see, you know, what we can do there. But we just, you know, we are talking to all those folks and we know healthier and protein and all those things are out there. So we're certainly trying to pursue, you know, every area that we think we can produce.

Ann Gurkin: Fantastic. And then operational in Q3 of fiscal ‘25 or is it slipping to Q4 in fiscal ‘25? You said the second-half…

George Freeman: Yes, we still believe it will be fully operational in the -- our Q3, so the December quarter. And we hope to anticipate that a little bit, but you know, you always, when you build something new, there's going to be a couple of snacks here and there. So, but we haven't heard anything that it's going into Q4 yet.

Ann Gurkin: All right, and sorry, I'm just curious if you can help me at all with any kind of expectations for an uptick in margins for the ingredients business. How can I think about that?

George Freeman: Well, like I said, on the gross profit percentage margins, they have been fairly steady. And it's all in SG&A where there is an uptick in the cost, both SG&A related to the platform on the R&D and the commercial team side as well as just corporate overhead allocation that's being put on that ingredients segment. So again, we believe that we had the inventory write-down, we had the stocking early in the year. Again, the numbers didn't come out like we wanted. So certainly we expect it to be up next year, even without the line being a product coming off the line and being able to sell that product. So we do expect an uptick, but the vast majority of the performance off that line will come in fiscal year ‘26.

Ann Gurkin: Okay, great, that's great, that helps, thank you. And then just kind of a little bigger picture. I saw you increase the dividend and you all commented on the increase in working capital needs for the accelerated tobacco leaf buying in Brazil. I was just wondering if you could review overall capital allocation priorities again for the company if you don't mind?

Johan Kroner: We have not changed from what we announced in 2018.

George Freeman: Yes, very proud of the dividend increase announced earlier today our 54th. So I'm really proud of that and, you know, the Board was proud to be able to make that announcement.

Ann Gurkin: Great. And then I'm sorry, CapEx for fiscal ‘25? Is that -- I'm sorry if I missed that?

George Freeman: I think it's 55-65, right, Jennifer? Yes, 55-65, between 55-65.

Ann Gurkin: Okay, great. Great, thank you all for your time. Appreciate it.

George Freeman: Thanks, Ann. Appreciate it.

Operator: And it does appear that there are no further questions at this time. I would now like to turn it back to Jennifer for any closing remarks.

Jennifer Rowe: Thank you for joining us on our call today.

Operator: This does conclude today's program. Thank you for your participation. You may just disconnect at any time and have a wonderful evening.