Good afternoon, and thank you for attending today's Universal Corporation Fourth Quarter and Fiscal Year 2023 Earnings Conference Call. My name is Daniel, and I will be the moderator for today's call. . It is now my pleasure to pass the conference over to our host, Jennifer Rowe, Assistant Vice President. And Jennifer, the floor is yours.

Thank you for joining us. 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 August 24, 2023. Other than the replay, we have not authorized and disclaim responsibility for any recording, replay or distribution of any transcription of this call. The 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, 2022, as well as our Form 10-K for the fiscal year ended March 31, 2023, which we expect to file later this week. Such risks and uncertainties include but are not limited to, impacts of the 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 of these measures, including reconciliations…

. The first question comes from the line of Ann Gurkin of Davenport. You may proceed.

Good evening, everybody. Congratulations on the building of Brazil, but it's nice to see. If I could ask a question starting with the tobacco segment. So, sales were stronger than we were looking for, margin was lower, I think reflecting mix in the carryover of lower-margin tobacco. Two questions on the tobacco segment. And how do I think about sales for fiscal '24? Was there some pull forward in volume or sales into fiscal '23 from fiscal '24 from customers due to concerns about security of supply? And then second, how do I think about the margin progression for tobacco, if you can help me at all for fiscal '24.

What we have seen is, as it was stated, we see increased crop size out there for this fiscal year '24, and that applies for flue-cured and burley. What we are seeing also is firm demand and good indications from our customers. So, this is what we can say about the volume side.

Yes. The other thing, of course, Ann with we '23, again, we brought in a lot of carryover tobaccos into fiscal year '23. Those carryovers do not exist for '24. We didn't really pull anything forward, okay? With regard to the margins, again, '23 was hurt because of the write-downs that we took earlier in the year as well as in fiscal year '22. So, we do expect improved margins, but it's very early in the season. So hopefully, that will come to fruition.

Okay. So, it was my understanding that there was some pull forward in customer orders over concerns about the macro tightness of tobacco. So, I was just worried some of that volume from '24 had shifted into '23 -- tobacco.

There was just very little to do that anyway. But at the end of the day, yes, we are shipping it certainly if we have it, but we don't have.

Great. Switching to the plant-based ingredients segment. I got back to my question, why are you in this business when you had $6 million decline in operating profit. You had a margin that came in way below expectations. I know you outlined cost and you outlined customer order patterns, outline allocation or hiring sales folks, but that volatility, why are you taking that volatility in your business at this stage?

And again, the margins were stable. The gross margins were stable as compared to...

Nonoperating margins at all.

Excuse me.

Gross maybe, but nonoperating margin.

Because you are looking at segment operating income, correct? And secondly, operating income includes corporate overhead allocation. So, there is a piece in there that relates to corporate overhead. In addition, we have laid out previously that we are growing and trying to build that business. So, we're actually incurring some costs associated with sales and R&D efforts that we're going through, that will add cost, but you don't see the benefit of those yet. But that's just part of building that platform. We are actually very excited about what's going on there, okay? We just announced the expansion that we're doing in Lancaster, Pennsylvania, and we are on our way to achieving the goal that we have set for ourselves. So yes, it's down by $6 million. But keep in mind, the total segment operating income for the organization was up by $9 million, okay? So, keep in mind that the corporate overhead piece is a portion of that, and that's why some of that thing -- yes, it looks very large, but that's just the way it is.

So, going forward, how do I model margins? I mean I don't -- it was down -- was weaker at the beginning of the fiscal year, then it seemed to get a little bit better midyear and now it seems to be worse at the end of the year. So, I don't know how to model this going forward. You got to give us some more information.

Well, again, the margins are very, very good for what we're doing Yes, there is certainly pushback currently on those margins, okay? But we are seeing pickup in certain segments of the business. And again, the margins are stable as compared to the prior year. So, we are not at all worried about that piece of the business. We need to grow it and we understand that. Now what you do with regard to your model, yes, that's difficult because at the end of the day, that corporate overhead piece you will never ever be able to figure that out, but that's just part of the total.

So, can you get to an operating margin that I can capture in the high single-digit range, including that corporate overhead, can you get back to that number? mid- to high single digits, 5%, 6%, 7%.

I can't tell you that at this point in time. And again, it's I don't think that way. Because we -- in 2018, did a strategic -- we made a strategic decision to diversify. And we strongly believe in what we have started at that point in time. We have spent quite a bit of money, but you can just look at this in isolation. You have to see it as a total. And this is a journey, and we need to spend some money to grow this thing and that's just the way it is. Again, the margins are very positive, okay? From a corporate allocation overhead, you could put corporate allocation and also the tobacco business that's where it was in the past. So again, that's the way the U.S. GAAP rules work.

Okay. And then can you give me a CapEx number for fiscal '24. It looks like fiscal '23 was a little bit below your target range was that a timing of projects? Or is there something else here than what's the number to use in '24.

Yes, that's certainly what we thought is going to be slightly higher for '24, we're between $65 million and $75 million.

Okay. And SG&A number for fiscal '24 is $2.77 for fiscal '23. Should we use that number or take it up because you're investing in the business?

Well, if you go back a couple of years and you go prove it and all that, we were around that same number. So, it's in the ballpark. But yes, we are spending some additional monies and inflationary pressures are everywhere. So, people make more money and it's just the way it is. So, it probably will go up slightly, but we're looking in that same range at the moment.

Okay. Great. And it looks like there's a five-year term loan coming due in December of '23. Can you comment on how you're going to approach that?

No. We refinanced all that, Ann, in December -- finance in December. I think fiscal year '28.

Fantastic. Good news. Okay. And an uncommitted worldwide if number. Jennifer, do you have that?

Sure. 17 million kilos as of March 31 is down 30 million from December's number.

There are currently no additional questions registered at this time, so I will pass the conference back over to the management team for any closing remarks.

Thank you for joining us on our call today.

And with that, we will conclude today's call. Thank you for participating. You may now disconnect your lines.