Q3 2021 Universal Corp Earnings Call

February 8, 2021

[music].

Thank you for standing by and welcome to the Universal Corporation third quarter fiscal year 'twenty 'twenty one earnings call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask the question during the session and you will need to press star one on your telephone.

And you'd be advised that today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Candace <unk>, Vice President and Treasurer. Please go ahead.

Thank you Celine and thank you all for joining us George Freeman, our chairman President and CEO Ericsson the Henske, our Chief operating officer, and Johan Kroner, Our Chief Financial Officer are here with me today and will join me and answering questions. After these brief remarks. This call is being webcast live and will be available on our website and.

And on telephone taped replay it will remain on our website through may eight 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 up 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 of particular note.

During the current ongoing COVID-19 pandemic, when the length and severity of the crisis, and resulting economic and business impacts are so difficult to predict.

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, and the form 10-Q for the most recently ended fiscal quarter such risks and uncertainties include but are not limited to the ongoing COVID-19 pandemic customer mandated timing of shipments weather can.

Additionally, political and economic environment government regulation, and taxation changes and exchange rates and interest rates and industry consolidation and evolution and changes and market structure or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification and and <unk>.

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.

Tobacco shipments in the third quarter of fiscal year, 2021 exceeded our previous expectations as customer mandate of timing for some shipments forecast for the fourth fiscal quarter were accelerated into the third the.

As a result total tobacco shipment volume for the nine months ended December 31, 2020 are similar to those of the prior year's comparable physical period. The majority of our remaining committed tobacco orders for the 2020 crop are packed and ready to ship and we expect sustained strong tobacco shipment volume and our fourth fiscal.

<unk> of 2021, barring any unforeseen events, including changes and shipment timing. In addition, our uncommitted tobacco of inventory levels remained within our target range. We continue to believe our adjusted operating income for fiscal year, 2021, which excludes restructuring and certain cost per acquisition will.

The exceed that for fiscal year, 2020, barring any unforeseen events, including shipment delays due to lack of vessel or container availability port congestion or COVID-19 related uncertainty.

Now turning to the details.

Net income for the quarter ended December 31, 2020 of $33 3 million or $1 34 per diluted share compared with net income of 26.0 million or $1 <unk> per diluted share for the prior year's third fiscal quarter, excluding structure restructuring and impairment costs.

And certain other nonrecurring items detailed in other items and today's earnings release net income and diluted earnings per share increased by $27 5 million and $1 11, respectively for the quarter ended December 31, 2020 compared to the quarter ended December 31 and 2019.

Operating income for the third quarter of fiscal year, 2021 increased to $60 2 million compared to $44 1 million for the three months ended December 31 2019.

Net income for the nine months ended on December 31, 2020 was 48 point sera of million or $1 94 per diluted share compared with $56 1 million or two point to $3 per diluted share for the same period of the prior fiscal year.

Excluding restructuring and impairment costs and certain other nonrecurring items detailed in other items and today's earnings release net income and diluted earnings per share increased by $3 4 million and 18, respectively for the nine months ended December 31, 2020 compared to the same period of the previous fiscal.

The year.

Operating income of $85 1 million for the nine months ended December 31, 2020 decreased by $9 8 million compared to operating income of $94 8 million for the nine months ended December 31, 2019, adjusted operating income detailed and other items and today's earned.

<unk> released of $107 $6 million increased by $10 9 million for the nine months ended December 31, 2020, compared to the same period and the prior fiscal year.

Consolidated revenues increased by $87 9 million to $1 4 billion for the nine months ended December 31, and 2021, sorry of 2020.

And by $167 9 million to $672 9 million for the three months ended December 31, 2020, compared to the same periods and fiscal year 2020 on strong tobacco shipment volume in the third fiscal quarter and the addition of businesses acquired and calendar.

Year 2022, the ingredients operations segment.

We have also made considerable progress towards delivering on our capital allocation strategy and the third fiscal quarter of 2021, one pillar of this strategy is to deliver shareholder value through of building and enhancing our plant based ingredients platform.

On October one 2020, we acquired Sylva international on natural specialty dehydrated vegetable fruit and <unk> processing company, we have been working diligently throughout the quarter on integrating and exploring opportunities for synergies between our recently acquired businesses for the Smart Inc, and silver.

During this process, we concluded that Carolina innovative food ingredients, Inc. Our sweet potato processing operation, which we built from the ground up was not a strategic fit for the platform long term objectives due in part to a single product focused high capacity processing line and ongoing international competitive pricing.

We made the difficult, but prudent decision and wind down the operations.

Given our significant and strategic investments and our plant based ingredients platform, we evaluated our operating segments for financial reporting purposes. During the quarter ended December 31 2020.

Based on our evaluation, we determined that we conduct our operations across two primary reportable operating segments tobacco operations and ingredients operations.

The revised segments reflect how we manage the company allocate resources and SaaS business performance.

Periods segment information has been recast retrospectively to reflect these changes.

Now turning to the segments.

Tobacco operations operating income for the tobacco operations segment increased by $6 1 million to $107 7 million for the nine months and by $38 4 million to $84 1 million per the quarter ended December 31, 2020, compared with the same periods for fiscal year two.

1020.

Strong tobacco shipment volume and the third fiscal quarter benefited tobacco operations segment results for both the three and nine months ended December 31, 2020 and year to date tobacco shipment volumes as of December 31, 2020 were similar to those and the same period of fiscal year 2000.

20.

And the nine months ended December 31, 2020 increases and shipments of carryover crop tobacco, largely offset decreases and shipments of current crop tobacco caused in part by customer mandated shipment timing that has pushed some current crop shipments into our fourth fiscal quarter compared to the same period and the prior.

Fiscal year.

And the nine months ended December 31, 2020 sales volumes were up and Brazil, and the United States on higher sales of carryover crop tobacco, while volume decreased and Africa on weather reduced crop sizes compared to the nine months ended December 31 2019.

In the quarter ended December 31, 2020 increased shipments of carryover tobacco from Africa, the United States, and Brazil, higher current crop shipments from Africa, and timing of receipt of distributions from unconsolidated affiliates benefited the tobacco operations segment results compared to the third quarter of <unk>.

Fiscal year 2020.

Segment results were also up in the nine months and quarter ended December 31, 2020, compared to the same periods and the prior fiscal year on a favorable product mix and continued strong demand for rapid tobaccos.

Selling general and administrative costs for the segment were lower for the nine months and flat for the quarter ended December 31, 2020, compared to the same periods and the prior fiscal year and the nine months ended December 31, 2020, selling general and administrative costs for the segment declined largely on favorable net foreign currency.

Remeasurement comparisons, mainly and Indonesia, Brazil, and the Philippines, and lower travel costs.

Ingredients operations as part of our capital allocation strategy to build and enhance our plant based ingredients platform, we acquired two companies <unk>.

<unk> and January one 2020, and silver on October one 2020 and results for these operations are not included in the segment results for the comparable prior periods ended December 31 2019.

The operating loss for the ingredients operations segment was $4 7 million and $2 5 million respectively for the nine months and quarter ended December 31, 2020, compared to an operating loss of $4 5 million and $1 4 million respectively for the nine months and quarter ended December 31, 2000 and.

The team and.

<unk> results for the segment and the costs from amortization of intangibles related to the acquisitions, which totaled $4 million and $2 4 million, respectively, and the nine months and quarter ended December 31, and 2020 as well as purchase accounting adjustments of $2 8 million that also reduced our results for the search.

And the nine months and quarter ended December 31 2020.

Although results improved for our CP business and the nine months.

Compared to the same period and the prior fiscal year, we made a strategic decision to wind down that operation in the quarter ended December 31 2020.

<unk> Smart operations results for the nine months of fiscal year 2021 were dampened by a less favorable product mix due to changes in customer demand as the ongoing COVID-19 pandemic reduced capacity at social venues that use fruit smart products.

Selling general and administrative expenses increased in the nine months and quarter ended December 31, 2020 on the addition of the acquired businesses.

We are pleased with the ongoing integration of our plant based ingredients platform and with these acquisitions. We continue to expect the new platform will generate between 10% and 20% of our EBITDA and our fiscal year 2022 ahead of our capital allocation strategy objectives. We are excited about our plant based.

Ingredients platform and its potential for future success. We also remain committed to our role as the leading global leaf tobacco supplier supported by our compliance and sustainability programs, we continue to see opportunities to increase market share and enhance our leaf tobacco businesses.

Operating and growing our businesses during the pandemic has not been easy and our thoughts go out to all who have been impacted by COVID-19, we are deeply grateful for the confidence of our customers have shown and us as well as their commitment of our business relationships. During the pandemic, we would like to thank all of our employees, both new and.

<unk> for their hard work and our customers growers and other partners for their continued support all of which has enabled us to continue to operate successfully during these unprecedented times.

At this time, we are available to take your questions.

Yes.

I'll return to you Celine.

At this time of my to remind to everyone and order to ask the question Press Star then the number one on your telephone keypad and again that is charged and the number one on your telephone keypad.

Pause for just a moment to compile the Q&A roster.

Yes.

We have our first question coming from the line of Ann Gurkin with Davenport <unk> co. Your line is open.

Good evening everybody.

Congratulations on your quarter that was nice and anything on that volume well done and I was worried about container shipment access so that was a very nice surprise.

Just wanted to ask about.

About shipment volume and I always ask about any insight you can give with customer inventory levels and market share gains, particularly since we saw flat adjusted cigarette volume and the U S. I don't remember the last time I've seen that kind of number.

Very positive and I was just curious how that might flow through and looking out of fiscal 'twenty. Two 'twenty three inventory leaf inventory levels with customers and maybe some market share gains and if you can give us any kind of insight or color on that.

Yes and.

What what we have seen as you already disclosed and we have seen of stable cigarette market in the United States and so.

Better performance from our key customers around the world. So the numbers that came out there were there were much better than we originally projected we do see opportunities to increase our market share if you will.

Well positioned to do that.

Youll see all of uncommitted inventory has slowed the onto our level of debt that are within our target and debt assumed represents debt regained market share of moving some of this uncommitted inventory.

And talking more about the future we start the year, we go of course of duration in Brazil.

And so what we have seen so far Brazil.

And it's growing out.

Average to good tobacco quality, and Brazil should remain well competitive and all other areas. We are monitoring the developments of crop sizes and quality in Africa and in some other areas to buckle has not even going to the ground and like the United States, but we remain.

Very positive and optimistic about our tobacco operations for the future.

Okay great.

Virginia has voted to legalize marijuana.

And state with the plan to open dispensaries, beginning 2024 I was just curious if you all have any insight to share on Virginia looking to legalize the use of marijuana and your interest in and entering that segment of the market.

Well.

Food processing, where ingredients of processing is really our choice for adjacent industries.

And we're sort of we spend a lot of money here and it will.

We're working on integrating those operations with each other and within our within Universal. So I don't think we have much appetite for cannabis.

Okay, how about comp.

No no and I don't see I don't see the one working now and.

And from one up and seeing I think helps kind of dental.

First global.

Okay, Okay, and just curious.

And then moving on to your ingredients business day, you're winding down the.

The potato processing, which I guess I'm surprised I understand it's a it's a one product.

Item, just sweet potatoes, and derivatives and its the fast food processing and I understand but sweet potatoes.

Think of very strong growth areas and I'm very surprised kind of that that's not part of your overall plant based approach.

Our platform of offering and greenhouse to customer. So I'm just curious about why are winding that down.

Yeah.

And Fortunately never performed as we originally had envisioned.

And over the years.

The positive trend however, the numerous customer R&D efforts.

We worked through and just Didnt pan out and.

The challenge and Jim just became interim Mountable. So what we can say that and keep in mind that we review underperforming businesses. All the time and if we need to do some people will do something thats, what happened with regard to safety.

Okay.

Okay got it.

Good day really was the the equipment really was very specific for sweet potatoes, and not really usable for other products.

And then certainly we brought in experts eternal life as well as external experts to take a look at it and at the end of the day like I said the challenges and dramatically. So we just have to make that call, which was tough because we bought the start Mike just happened and index and workforce.

Okay, and then you're still reviewing synergy opportunities that you're willing to give a number on projected synergies from.

The other businesses your and your.

The consolidated.

Israel early there and with regard to throwing out numbers certainly on them.

Size of the commercial side, there's certainly opportunities there and there is little overlap with regard to customers and products. So those teams are all talking to each other and seeing what's out there it's hard with the COVID-19 because again a lot of them.

The business is being done.

The Vegas show, which and this type of thing so, but we're working on that and it's going quite well.

Okay. And then you are running ahead of of reaching our 10% to 20% of EBITDA from your.

The adjacent her capability businesses does that mean, you'll slow down your potential M&A opportunities are.

Are you changing your focus on that segment.

And we're going to integrate these two first we've spent a lot of money and the last 12 months and we got to get those two under our belt and make sure that.

Ready to go forward and we just wanted to deliver shareholders one of the good right.

Okay, Great Great and then Capex plans for fiscal 'twenty, one and fiscal 'twenty, two can I get numbers.

I think the numbers for the next 12 months is between $45 million to $55 million.

Okay.

And then are you all and no longer going to breakout the tobacco by the different operating segments and you can do tobacco operations or is it and the Q and I havent seen on it going forward, it's going to be tobacco operations and ingredient operations.

Okay. So let's detail okay, great and then Candace do you have and uncommitted worldwide leaf.

Inventory number.

Yes, and the worldwide unsold flue cured and barley stocks, we have is 105.

The 105 million kilos at 12, 31, 20, which is about 10 million down I think from the June number of that gave you lost.

Okay, and then you're on.

You're targeting.

Operating income to be up.

First the fiscal 'twenty, how does that compare to the fiscal 19 cause fiscal 'twenty reflected the mix of carryover and there. So how does the comparator of fiscal 19.

Okay.

And.

We don't want to really go into details really you know the.

The net 91.

And okay year, I think and 'twenty was certainly down so that's why and certainly the materially and we believe we can go over that we don't believe that the fourth quarter headwinds that were there and the fourth quarter of 2020 fiscal year 2020.

We will.

And B there again, so thats why we came out with that statement that strong statement that we believe certainly that and this year is going to be better than land.

Alright, how about expectations now versus what you were seeing in November.

For the business the for 'twenty, one expectations haven't changed we required.

And we put it out there at that point of my time and we're in the last quarter the debt, where we are and and what we did see is we thought that more of the shipments going into the fourth quarter.

And in Canada.

Kenneth pointed out the debt.

And it's a bit of of surprise it caused certain customers were willing to ship it and the third quarter versus the fourth so we had a very strong third quarter and.

I believe that fourth quarter is going to be strong shipping quarter as well.

Great Congratulations and nice to see thank you. Thank you very much and thank you.

Yes.

Our next question coming from the line of Lisa <unk>.

President of leases Roseland co. Your line is open.

Are you on that.

My other quick question on the plant based business here.

You have spent a fair amount of money over the past year on those two new businesses and it looks like on an EBITDA basis, they're profitable, but on operating basis Theyre not.

And so you basically traded and cash for.

The businesses that need to ultimately become profitable and I guess the question I ask is.

Are you I mean do you.

Are you trying to transform the company away from tobacco company, I mean, and just a very profitable business and it throws off a lot of cash and hence the most recent quarter.

I mean, I guess I wanted to know what your long term thinking is because it appears to me you're using of cash on the balance sheet to buy businesses that.

You know there.

They're clearly not not anywhere near as profitable and the second question I have is related to that is your dividend policy.

Because you've been of cash flow of business, it's afforded them universal the payout at a nice dividend.

Going forward using the cash to buy businesses that are not profitable.

And does there come of change with that dividend.

Yes, let me take those one at the time.

I do believe that the.

The current quarter, and which we purchased silver so that includes some purchase accounting.

As well as the closure of the wind down 50, we will have a significant impact on the ingredients business. So I don't believe that you should take the current quarter.

On the space.

And the shown so you got to you got to read a little bit deeper into the numbers and you will be able to figure out.

What it looks like going forward, because as we reduce trading cash and and we wouldn't have done it.

And then with regards to your question.

The.

Tobacco business is extremely important to us.

And that's why we have only.

Capital allocation strategy put out a number of between 10 and 20% of EBITDA. So we still believe that the tobacco business.

And to be very profitable for us going forward and there's certainly a lot of opportunity still there and.

And as part of the capital allocation strategy dividends.

And as part of debt strategy. So, we certainly will be looking at and together with the board and will.

The.

The increases in the future with regard to our dividend and today, we came out and certainly with our regular quarterly dividends on the call.

I think that going forward all of that looks positive and our view.

Okay, and then I just have another question regarding your balance sheet, you've historically had a really strong balance sheet.

And again, you know using cash to make purchases.

There has to be some kind of return for that and so long term I mean, how do you see leveraging up your balance sheet or not I mean, how do you how comfortable do you feel with that.

Well count.

And in combination with the rating agencies, who have confirmed our ratings, we are quite happy where we're at but again, you're 100% right. We just spent $250 million. So we have to.

Keep an eye on our balance sheet and make sure that.

We don't Overleverage and do anything.

So we shouldnt be doing but currently we believe that where we at where certainly not uncomfortable, but we have to look at the two businesses that we bought and integrate those businesses and do what we need to do to the create shareholder value going forward.

Okay. Thank you.

Certainly.

Our next question coming from the line of Steve Marotta with capital Securities. Your line is open.

Good afternoon, all congratulations on the good quarterly result, thanks.

Just one question you mentioned that Youre looking in 2022 to about 10% to 20% of EBITDA coming from the ingredients operations, what type of scenario does that involve and terms and.

Terms of pet and recovery from the pandemic and.

Businesses reopening I mean, what if you kind of factored into that or are you just assuming a full blown wide open economy and 2022.

Yes.

Steve This is really based on the current numbers.

And the way.

And currently doing business with on silver as well as fruit smart.

And which crudes smart has been impacted a little bit more than and fuel for certainly.

But those are the numbers that we're looking at.

If the pandemic.

This appears which we're all hoping.

And then there might be some some some upsides of it yes.

We're just looking at debt right now and we.

We're very happy where everything is going and.

And we'll see where we go.

Okay. Thank you very much.

And wind.

And of our last question coming from the line of Chris Reynolds with Neuberger Berman. Your line is open.

Good evening and congratulations on the positive results.

And I do have a follow up question.

To the questions that we're on.

I asked about acquisitions and.

Have you considered and the.

The diversification.

The strategies that you have to buy.

Shares and other publicly traded food and ingredients companies because there are many of them their debt.

Our trading at modest multiple similar to your company and pay dividends.

And as a way to the two.

Diversify and.

And the other faster growing and strategic areas.

It seems like there of so many opportunities to buy and.

The other.

Food and commodity companies and restricting yourself, the private companies where you.

Well you have to integrate and operate debt.

The cumbersome and some ways and I understand the need for control and then and.

And the value associated with with having 100% ownership, but the there is precedent historically and cut.

These diversifying by acquiring other other companies and not necessarily having.

100% ownership.

And of a long winded question, so I apologize for that.

No worries.

Steve.

We have.

We have had and exome.

Yes.

The business is debt did not one of 100% not all of those worked out as well.

And.

So we certainly contemplated at the point in time, but decided to go with different growth.

Okay.

Okay. Thank you.

Thanks, Chris.

And there are no further question at this time presenters. Please continue.

Thank you and that's all we happy to sort of a nice evening and we look forward and.

And next quarter.

And to everybody and thanks to everyone.

This concludes today's conference call you may now disconnect.

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Thank you for standing by and welcome to the Universal Corporation third quarter fiscal year 2021 earnings call. At this time all participants are in a listen only mode. After the Speakers' remarks, there will be a question and answer session to ask the question. During the session you will need to press star one on your telephone.

Today's conference is being recorded if you require any further assistance. Please press star zero and I would now like to hand, the conference over to your speaker today, Candace <unk>, Vice President and Treasurer. Please go ahead.

Okay.

Thank you Celine and thank you all for joining us George Freeman, our chairman President and CEO, Eric <unk>, Our Chief operating officer, and Johan Kroner, Our Chief Financial Officer are here with me today and will join me and answering questions. After these brief remarks. This call is being webcast live and will be available on our website and on telephone.

Take the replay it will remain on our website through may eight 2021 other than the replay we have not authorized and disclaim responsibility for any recording replay of distribution of any transcription of this call. This call is copyrighted and may not be used without our permission.

And 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.

Additionally, the political and economic environment government regulation, and taxation changes and exchange rates and interest rates industry consolidation and evolution and changes and market structure or sources. Finally, some of the information I have for you today is based on unaudited allocations and is subject to reclassification and and <unk>.

Tobacco shipments and the third quarter of fiscal year 2021 exceeded our previous expectations as customer mandate of timing for some shipments forecast for the fourth fiscal quarter were accelerated into the third fiscal quarter. As a result, total tobacco shipment volume for the nine months ended December 31.

2020 are similar to those of the prior year's comparable fiscal period. The majority of our remaining committed tobacco orders for the 2020 crops are packed and ready to ship and we expect sustained strong tobacco shipment volume and our fourth fiscal quarter of 2021, barring any unforeseen events, including changes in.

Shipment timing in addition, our uncommitted tobacco of inventory levels remained within our target range. We continue to believe our adjusted operating income for fiscal year, 2021, which excludes restructuring and certain cost per acquisition will materially exceed that for fiscal year 2020, barring any unforeseen event.

Including shipment delays due to lack of vessel or container availability port congestion or COVID-19 related uncertainty.

Now turning to the details.

Operating income for the third quarter of fiscal year, 2021 increased to $60 2 million compared to $44 1 million for the three months ended December 31 2019.

Net income for the nine months ended on December 31, 2020 was $48 <unk> million or $1 94 per diluted share compared with $56 1 million or two to $3 per diluted share for the same period of the prior fiscal year.

Excluding restructuring and impairment costs and certain other nonrecurring items detailed and other items in today's earnings release net income and diluted earnings per share increased by $3 4 million and 18, respectively for the nine months ended December 31, 2020 compared to the same period of the previous fiscal.

Year.

The release of $107 $6 million increased by $10 9 million for the nine months ended December 31, 2020, compared to the same period and the prior fiscal year.

Consolidated revenues increased by $87 9 million to $1 4 billion for the nine months ended December 31, 2021, sorry 2020.

Year 2022 of the ingredients operations segment.

On October one 2020, we acquired Sylva international on natural specialty dehydrated vegetables, and fruit and our processing company, we have been working diligently throughout the quarter on integrating and exploring opportunities for synergies between our recently acquired businesses for the Smart Inc, and silver.

During this process, we concluded that Carolina innovative food ingredients, Inc. Our sweet potato processing operation, which we built from the ground up was not a strategic fit for the platform long term objectives. Due in part of single product focused high capacity processing line and ongoing international competitive pricing.

We made the difficult, but prudent decision to wind down the operations.

Based on our evaluation, we determined that we conduct our operations across two primary reportable operating segments tobacco operations and ingredients operations the.

The revised segments reflect how we manage the company allocate resources and assess the business performance.

Periods segment information has been recast retrospectively to reflect these changes.

Now turning to the segments.

1020.

And 'twenty.

Fiscal year.

And the quarter ended December 31, 2020 increased shipments of carryover tobacco from Africa, the United States, and Brazil, higher current crop shipments from Africa, and timing of receipt of distributions from unconsolidated affiliates benefited the tobacco operations segment results compared to the third quarter of <unk>.

Fiscal year 2020.

The measurement comparisons, mainly and Indonesia, Brazil, and the Philippines and lower travel hubs.

Ingredients operations as part of our capital allocation strategy to build and enhance our plant based ingredients platform, we acquired two companies <unk>.

And January one 2020 and silver on October one 2020 and results for these operations are not included in the segment results for the comparable prior periods ended December 31 2019.

The team. In addition results for the segment on the cost from amortization of intangibles related to the acquisitions, which totaled $4 million and $2 $4 million, respectively, and the nine months and quarter ended December 31, 2020, as well as purchase accounting adjustments of $2 8 million that also.

<unk> reduced our results for the segment and the nine months and quarter ended December 31 2020.

Although results improved for our CP business and the nine months.

Impaired to the same period and the prior fiscal year, we made a strategic decision to wind down that operation in the quarter ended December 31 and 2020.

Our free smart operations results for the nine months of fiscal year 2021 were dampened by a less favorable product mix due to changes in customer demand as the ongoing COVID-19 pandemic reduced capacity at social venues that use free smart products.

Selling general and administrative expenses increased and the nine months and quarter ended December 31, 2020 on the addition of the acquired businesses.

<unk> platform and its potential for future success. We also remain committed to our role as the leading global leaf tobacco supplier supported by our compliance and sustainability programs, we continue to see opportunities to increase market share and enhance our leaf tobacco businesses.

And would like to thank all of our employees, both new and old for their hard work and our customers the growers and other partners for their continued support all of which has enabled us to continue to operate successfully during these unprecedented times.

At this time, we are available to take your questions.

I'll return to use the lean.

At this time I would like to remind to everyone and order to ask the question Press Star then the number one on your telephone keypad and again that is stars and the number one on the telephone keypad, we'll pause for just a moment to compile the Q&A roster.

We have a first question and told me from the line of Ann Gurkin with Davenport <unk> co. Your line is open.

Good evening everybody.

Hey, Dara.

Congratulations on your quarter that was nice and anything on that volume well done I was worried about container shipment access. So so that was a very nice surprise.

Just wanted to ask about.

About shipment volume and as I always ask about any insight you can give with customer inventory levels and market share gains, particularly since we saw flat adjusted cigarette volume and the U S. I don't remember the last time I've seen that kind of number of.

And I'm very positive and I was just curious how that might flow through and looking out the fiscal 'twenty two 'twenty three inventory of leaf inventory levels with customers and maybe some market share gains and if you can give us any kind of insight or color on that.

Yes and.

What we have seen as you already disclosed and we have seen a stable cigarette market in the United States and.

A better performance from our key customers around the world. So the number of that came out there were there were much better than we originally projected we do see opportunities to increase our market share I think we are well positioned to do that if youll see our uncommitted inventory of asphalt on tool our level.

The debt that are within our target and debt assumed represents that regained market share moving some of this uncommitted inventory.

The talking more about the future we start the year with our first of operation in Brazil.

And so.

What we have seen so far of Brazil.

Throwing out.

Average to grow tobacco quality and <unk>.

Brazil should remain well competitive and all the areas. We are monitoring the developments of crop sizes and quality in Africa and in some other areas to buckle has not even gone to the ground and like the United States, but we remain.

Very positive and optimistic about the auto part of operations for the future.

Okay great.

Virginia has voted to legalize marijuana.

Well.

Food processing or ingredients of processing is really our choice for adjacent industries.

And we're sort of we spend a lot of money here and we're working on integrating those operations with each other and within within Universal So on.

I think we have much appetite for cannabis.

Okay, how about comp.

No no I don't see I don't see the one working on either.

And from what I've been seeing I think helps kind of bid on.

Burst bubble.

Okay, Okay, and just curious.

And then moving on to your ingredients business day, you're winding down the.

The potato processing, which I guess I'm surprised that I understand it's a it's a one product.

Hum item, just sweet potatoes, and derivatives and of the fast food processing and I understand but sweet potatoes.

The very strong growth areas and I'm very surprised kind of debt that's not part of your overall plant based approach.

Our platform of offerings ingredients of the customer. So I'm just so curious about why are winding that down.

Yes.

Unfortunately never performed as we originally had envisioned.

And over the years and whats.

The positive trend however, the numerous customer R&D efforts.

We worked through.

Didn't pan out.

The challenge of just became interim Mountable. So what we can say that and keep in mind that we review underperforming businesses. All the time and if we need to do some people will do something thats, what happened with regard to <unk>.

Okay.

Okay got.

And that goes.

Really was the.

The equipment really was very specific for sweet potatoes, and not really usable for other products.

And then certainly we brought in experts <unk> as well as external experts take a look at it and at the end of the day like I said the challenges and dramatically. So we just have to make that call, which was tough because we thought and start Mike.

And this happened and index and workforce sure. Okay, and then you're still reviewing synergy opportunities are you willing to give a number on projected synergies from.

The other businesses your and your.

The consolidated.

Israel early there and with regard to throwing out numbers certainly on the margin side of the commercial side, there's certainly opportunities there and there is little overlap with regard to customers and products. So those teams are all talking to each other and seeing what is out there it's hard with the COVID-19 because again.

And lot of that business is being done and to.

The Vegas showrooms and these type of thing so, but we're working on that and it is.

Gone quite well.

Okay. And then you are running ahead of of reaching our 10% to 20% of EBITDA from your.

The adjacent or capability of businesses does that mean, you'll slow down your potential M&A opportunities or are you changing your focus on that segment.

And we're going to integrate these two first with <unk>.

Spend a lot of money and the last 12 months and we got to get those two under our belt and make sure that we are.

The ready to go forward and we just wanted to deliver shareholder value and so one of the wood right.

Okay, Great Great and then Capex plans for fiscal 'twenty, one and fiscal 'twenty, two can I get numbers.

I think the numbers for the next 12 months is between $45 million to $55 million.

Okay.

And then are you all and no longer going to breakout the tobacco by the different operating segments and you can do tobacco operations or is it and the Q and I havent seen on it going forward is going to be tobacco operations and ingredients operations.

Okay. So less detail, okay, great and then Candace do you have and uncommitted worldwide leaf.

Inventory number.

Yes, and the worldwide unsold flue cured and barley stocks. We have is 105 105 million kilos at 12, 31, 20, which is about 10 million down I think from the June number that we gave you last.

Alright, Okay, and then you're on.

You're targeting.

Operating income to be up significantly versus fiscal 'twenty, how does that compare to the fiscal 19 cause fiscal 'twenty reflected the mix of carryover and there. So how does the comparator of fiscal 19.

And.

We don't want to really go into details really you know the.

The net 90 watts.

We will.

And B there again, so thats why we came out with that statement that strong statement that we believe certainly debt and this year is going to be better than that.

Alright, how about expectations now versus what you were seeing in November.

For the business and for 'twenty, one expectations haven't changed we were quite and.

And we put it out there and Thats why my time already and the last quarter and Thats, where we are and what we did see is we thought the more shipments of going into the fourth quarter and if Jamie.

Jamie pointed out net debt came as a bit of of surprised it caused certain customers were willing to ship it and the third quarter versus the fourth so we had a very strong third quarter and.

I believe the fourth quarter is going to be strong shipping quarter as well.

Great Great Congratulations and nice to see thank you. Thank you very much.

Yes.

We have our next question coming from the line of Lisa <unk>.

President of leases rope and co. Your line is open.

You all of them.

The question on the plant based business.

You have spent a fair amount of money over the past year on those two new businesses and it looks like on an EBITDA basis, they're profitable, but on operating basis Theyre not.

And so you basically trade it in cash for debt.

Mrs that need to ultimately become profitable and.

And I guess the question I ask is.

Are you I mean do you.

Are you trying to transform the company away from a tobacco company I mean, and just a very profitable business and it throws off a lot of cash.

The most recent quarter.

I mean, I guess I wanted to know what your long term thinking is because it appears to me you're using of cash on the balance sheet to buy businesses that.

You know there.

And there are clearly not not anywhere near as profitable and the second question I have is related to that is your dividend policy.

Because you've been of cash flow of business, it's afforded them universal the payout of nice dividend on <unk>.

Forward using the cash to buy businesses that are not profitable.

Does there come of change with that dividend.

Yes, let me take those one at the time.

I do believe that the the current quarter and which we purchased silver so that includes some purchase accounting.

As well as the closure of the wind down of safety, we will have a significant impact on the ingredients business. So I don't believe that you should take the current quarter on.

On the space.

And the shown so you got to you got to read a little bit deeper into the numbers and you will be able to figure out.

What it looks like going forward, because as we reduce trading cash and and we wouldn't have done it.

And then with regards to your question.

And the.

Tobacco business is extremely important to us.

That's why we have only.

Capital allocation strategy put out a number of between 10 and 20% of EBITDA. So we still believe that the tobacco business and he's going to be very profitable for us going forward and there's certainly a lot of opportunity still there and.

And as part of the capital allocation strategy dividends.

As part of that strategy. So we certain we will be looking at and together with the board.

Look it increases and the future with regard to our dividend and today, we came out and certainly with our regular quarterly dividend income.

I think debt going forward all of that looks positive and our view.

Okay, and then I just have another question regarding your balance sheet, you've historically had a really strong balance sheet and.

Again, using cash to make purchases.

There has to be some kind of return for that and so long term I mean, how do you see leveraging up your balance sheet or not I mean, how do you how comfortable do you feel with that.

Well, you count and combination with the rating agencies, who have confirmed our ratings, we are quite happy where we're at but again euro of 100% right. We just spent $250 million. So we have to.

Keep an eye on our balance sheet and make sure that you know.

We don't Overleverage and do anything.

Okay. Thank you.

Certainly.

All of our next question coming from the line of Steve Marotta with capital Securities. Your line is open.

Good afternoon, congratulations on the good quarterly results. Thanks, Helane Thanks, Doug.

Just one question you mentioned that Youre looking in 2022 to about 10% to 20% of EBITDA coming from the ingredients operations, what type of scenario does that involve and terms and.

Terms of pent the recovery from the pandemic and.

Businesses reopening I mean, what if you kind of factored into that and whether you're just assuming a full blown wide open economy and 2022.

Yes.

Steve This is really based on the current numbers.

And the way.

We are currently doing business with low silver as well as fruit smart.

Which <unk> has been impacted a little bit more than fuel per certainly.

But those are the numbers that we're looking at.

If the pandemic.

This appears which we're all hoping.

And then there might be some some some upsides of that yes.

We're just looking at debt right now and we.

We're very happy where everything is going and.

We'll see where we go.

Okay. Thank you very much.

And when.

And of our last question coming from the line of Chris Reynolds with Neuberger Berman. Your line is open.

Good evening and congratulations on the positive results.

And I do have a follow up question.

To the questions that we're on.

I asked about acquisitions.

Have you considered and the diversification.

Strategies that you have to buy.

The shares and other publicly traded food and ingredients companies because there are many of them their debt.

Our trading at modest multiple similar to your company and pay dividends.

And as a way to the <unk>.

Diversify into other faster growing and strategic areas.

It seems like there are so many opportunities to buy into.

And the other.

Food and commodity companies and restricting yourself, the private companies where you.

Well you have to integrate and operate debt.

Cumbersome and some ways and I understand the need for control and.

And the value associated with with having 100% ownership, but the there is precedent historically and <unk>.

Copies of diversifying by acquiring other other companies and not necessarily having.

The 100% ownership.

And of a long winded question, so I apologize for that.

No worries.

Steve.

We have.

We have added and zone from.

The businesses that did not only of 100% not all of those worked out as well.

And.

So we certainly contemplated it at the point in time, but decided to go with different growth.

Okay.

Okay. Thank you.

Thanks, Chris.

And there are no further question and at this time presenters. Please continue.

Yes.

And.

Thank you and that's all we happy to sort of a nice evening and we look forward.

And next quarter.

Thanks, everybody and thanks, everyone.

Yes.

And.

This concludes today's conference call you may now disconnect.

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