Ladies and gentlemen, thank you for standing by and welcome to the Universal Corporation Third Quarter Fiscal Year 2020 Earnings Call. At this time, all participants are in a listen-only mode. After the speakers; presentation, there will be a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to your speaker today, speaker Candace Formacek, the Vice President and Treasurer. Thank you. Please go ahead.

Thank you, Rochelle and thank you for joining us today. George Freeman, our Chairman President and CEO; Airton Hentschke, our Chief Operating Officer; 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 our website through May 4th, 2020. 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. 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, 2019 and the Form 10-Q for the most recently ended fiscal quarter. 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 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…

[Operator Instructions] Your first question comes from the line of Ann Gurkin. Your line is open.

Hello, everyone. I wanted to start with the crop outlook for 2020 looks like, it's tightened a little bit. How should I think about supply and demand for the crop both flue-cured and burley as we look out to 2020?

Yeah. We do see an adjustment a little decline on the overall production for flue-cured and burley. Given the recent – the 2019 slight oversupply in flue-cured, we believe that we still going to see a little oversupply there, which is different in the – on the burley market. The burley we see a more stable market equilibrium between supply and demand.

Okay. Great. And then as this year has unfolded has demand been weaker than you expected creating more oversupply as we face the back half of the year than an initial expectations?

Yeah. Normally in the oversupply situation, volumes and margins get affected. And yes we have seen this situation developing throughout the year.

Okay. And then the CEO of one of your large customers has been very vocal out talking at Davos and talking to Bloomberg that that company's mission is to replace cigarettes with smoke-free products. And how do we think about your – how you position your business long-term when you have a major customer out there being very vocal about their strategy to move towards a smoke-free environment? I was just curious about your thoughts on that.

Yeah. The industry is definitely in a transformation mode offering a new range of products for our existing and a new generation of consumer. What is important to keep in mind in the long-term, a more sustainable in compliance raw material will be required. And universally with well positioned in the supply chain with our programs of sustainability to be the preferred supplier for the industry and we are placing a – playing a role in that segment in the market as of today.

And in the release, I'll talk about managing your operations for efficiencies and processing capacity. Is the industry – is Universal facing a need right now for a major step down in terms of capacity? Like you need to shut down a bunch of capacities to meet this changing transformation of the industry?

No. Ann, what we have seen and over the years we have worked hard and be proactive to face that situation where we consolidated processes in many of our operations. We recently now, we had two operations in Malawi, one for specialty products in Limbe. We are closing down that operation and concentrating everything in Lelong. Those are examples of being proactive with a objective to remain efficient, competitive and supplying a compliant product for our customers.

Okay. Great. Uncommitted inventories, it looks like we're slightly above your target range. Is that again a reflection of demand softened more than you expected or is it more of a function of timing?

Yes. We are in the higher, higher range of our targets there. But what is important here is to say that, Universal, if this does not speculate with tobaccos we contract our crop and we buy a crop according to the contracts that we have in place. And yes timing. Timing is one of the effects that we see in our current and committed levels.

All right. And you all talked about SG&A being down on large part due to currency? How should I think about Q4 and fiscal 2021 SG&A? Anything you can help me there?

Difficult to say, Ann. With – there's lots of variables there, certainly currency moves and it will be all of the place. Certainly, we need to look at what the exchange rates are going to go to in the fourth quarter as well as in 2021.

Okay. But it's more a function of currency not like underlying efficiencies or are there efficiencies to gain in SG&A over the next 12 to 18 months under -- not current taking out the currency piece?

As Airton pointed out, we are always looking at improving and looking for efficiencies and we will continue to do that. And do we have specific programs in place? No, it's an automatic thing that we do every year and we look at things and make some reasonable assumptions what we can and can't do and then we'll go from there.

All right and then in North America, North America margin was way lower than I would have thought? And how should I think about that margin? Can you get some of that back in the fourth quarter or what is your thoughts on kind of the margin projection in North America -- operating margin?

The operating margins again it was down a little certainly, again we have had less throughput in North America, it is last crop and we'll have to see how this all pans out again in the fourth quarter. In the fourth quarter, we don't run an awful lot of tobacco. It's just tobacco that we have some brewery that we run in some of those sales will fall into the fourth quarter and some will go into the next year. So can't really go anywhere with that at this point in time.

Great. Okay that's great. And then FruitSmart can you give us any details like is that going to be accretive to income over the next couple of years or fiscal 2021? Or can you give us any kind of update on how to think about the FruitSmart acquisition?

Yes, certainly Ann. With regard to FruitSmart and any of the businesses that we have in our pipeline we're looking for accretion as soon as possible. And the pipeline is a pipeline that has established businesses in them with very well developed and expert management teams and that's what we're looking for. So it's accretion. Yes that's certainly one of the drivers of any acquisition that we would look at.

The accretion in fiscal 21? Is that possible?

Yes it would be.

Thank you all for your comment. Appreciate it.

Thank you, Ann.

[Operator Instructions]. We don't have any further questions over the phone. Please continue.

That's fine. Thank you Rachel and thank you all for joining us on our call today.

Have a nice evening.

Ladies and gentlemen this concludes today's conference call. Thank you for participating. You may now disconnect.