Good afternoon, ladies and gentlemen, and welcome to the Universal Corporation Second Quarter Fiscal Year 2024 Earnings Conference Call. At this time, all lines are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Thursday, November 2, 2023, and I would now like to turn the conference over to Miss Jennifer Rowe, AVP of Capital Markets. Thank you. Please go ahead. 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 February second, twenty twenty-four. 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, 2023. Such risks and uncertainties include, but are not limited to, impacts of pandemics, 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 allocation 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 current earnings press release. Our fiscal year 2024 is developing very well, with operating income for the six months and quarter ended September 30, 2023, up 30% and 46% respectively, compared to the six months and quarter ended September 30, 2022. Gross profit margins also rebounded nicely in the first half of fiscal year 2024 compared to the same period in fiscal year 2023, with our ingredients companies making a positive contribution. Our tobacco operations segment delivered strong performance in the first half of fiscal year 2024 on robust, robust demand for leaf tobacco from our customers. Results for the ingredients operations segment were also up in the second quarter of fiscal year 2024 compared to the same quarter in the prior fiscal year. The segment saw some supply chain normalization, which stabilized demand from certain of our customers and generated better results in the second quarter of fiscal year 2024 compared to the first quarter of 2024, when the segment experienced soft customer demand. Strong demand for leaf tobacco from our customers and a favorable tobacco product mix benefited our results for the first half of fiscal year 2024. Leaf tobacco margins improved in the first half of fiscal year 2024, despite lower leaf tobacco sales volumes, as we had fewer shipments of lower-margin tobacco compared to the first half of fiscal year 2023. Segment operating income for our tobacco operations segment was up 46% and 55% for the six months and the quarter ended September 30, 2023, respectively, compared to the six months and quarter ended September 30, 2022. Our uncommitted tobacco inventory levels of 12% at September 30, 2023, remained low, and global leaf tobacco supply continues to be tight for all types of tobacco. Looking ahead, we continue to expect that similar to fiscal year 2023, our tobacco shipments will be strongly weighted to the second half of fiscal year 2024. We also believe our uncommitted tobacco inventory levels will remain low for the rest of fiscal year 2024. We were pleased to see demand from certain customers for our ingredients products stabilizing in the quarter ended September 30, 2023. Although results for the ingredients operations segment were lower in the six months ended September 30, 2023, compared to the six months ended September 30, 2022, we believe that our customers have been working through their excess inventory levels, and raw material prices, such as apple prices, are coming down. While navigating evolving market dynamics, we remain focused on and encouraged by both our core and new business opportunities with existing and first-time ingredients customers. We continue to strongly believe that our commercial and research and development efforts, coupled with our expanded range of capabilities that we can offer our customers due to our ongoing investments in our ingredients platform, will strengthen our business for the future. Some financial highlights for the six months ended September 30, 2023. Net income for the six months was $26.1 million, or $1.04 per diluted share, excluding certain nonrecurring items detailed in today's earnings press release, net income increased by $0.2 million, and diluted earnings per share were flat for the six months ended September 30, 2023, compared to the six months ended September 30, 2022. Operating income of $66.3 million for the six months ended September 30, 2023, increased by $15.2 million. Segment operating income for the tobacco operations segment was up $19.4 million, while segment operating income for the ingredients operations segment was down $6.3 million for the six months ended September 30, 2023, compared to the six months ended September 30, 2022. Selling, general, and administrative expenses were up $10.5 million in the first half of fiscal year 2024, compared to the first half of fiscal year 2023. Some financial highlights for the quarter ended September 30, 2023. Net income for the quarter was $28.1 million or $1.12 per diluted share. Excluding certain nonrecurring items detailed in today's press release, net income and diluted earnings per share increased by $8.4 million and $0.33, respectively, for the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022. Operating income of $55.3 million for the quarter increased by $17.4 million. Segment operating income for the tobacco operations segment was up $18.6 million, and segment operating income for the ingredient segment was up $0.3 million for the quarter ended September 30, 2023, compared to the quarter ended September 30, 2022. Our costs continued to be elevated in the first half of fiscal year 2024 compared to the first half of fiscal year 2023. Interest expense was up over $13 million, primarily on higher interest rates, and green tobacco prices were also higher. Despite the higher costs, we have been able to reduce our debt levels in fiscal year 2024. At September 30th, 2023, our net debt levels, which we define as the sum of notes payable and overdraft, long-term debt, and customer advances and deposits, less cash and cash equivalents, declined by about $70 million compared to our net debt levels at September 30th, 2022. Universal has a fundamental responsibility to its stakeholders to achieve high standards of environmental performance to support sustainable operations, which we demonstrate through our supplier engagement and disclosures on climate change, water stewardship, and forestry. Our record is highlighted by 15 years of participation in CDP disclosure, the establishment of science-based targets, and recognition by CDP as a supplier engagement leader. To add to our commitment to environmental sustainability, we have committed to water stewardship throughout our operations. To Universal, water stewardship is water usage that is socially and culturally equitable, environmentally sustainable, economically beneficial, and achieved through a multi-stakeholder process. Our Nominating and Corporate Governance Committee and our management team have approved a water stewardship policy to guide and publicly commit to water stewardship through our global operations. At this time, we are available to take your questions. Thank you. Ladies and gentlemen, we will now begin the question-and-answer session. Should you have a question, please press star followed by the one on your telephone keypad. You will hear a three-tone prompt acknowledging your request. Questions will be taken in the order received, and should you wish to cancel your request, please press the star followed by the two. If you're using a speakerphone, please leave your handset before pressing any keys. Once again, that is star and one to ask a question. Your first question comes from the line of Ann Gurkin from Davenport & Co. Please go ahead. Good evening to everybody. Hey. Good evening, Ann. It was nice to see your debt reduction in the quarter, and you bought back shares. I was wondering if you could help me, how to think about both of those measures for the back half, and within that conversation, expected working capital needs for the full year? Yeah, and I think that certainly with regard to debt, we are looking at, you know, monetizing the sales that we have. You know, we still have inventory that we expect to ship quite a bit of during the latter half of the year. Receivables, and of course, all, so we hope that debt to be down later this year. With regard to the stock buyback, that is something that we just do to, you know, take out the dilution with regard of the comp for executives. Okay. And then it looks like the CapEx was trimmed a little bit, $60-$70 versus the prior $65-$75. Is there anything in that I should know about? At the end of the day, that is purely a bit of a shift there with regard to the ingredients expansion that we're doing in Lancaster, Pennsylvania. You know, we were hoping that that number would come down a little faster, but you know, we're thinking that 60-70 is the right range for the next twelve months. Okay. Switching to tobacco, you referenced in the comments that customer demand... Our demand for leaf remains strong from customers. I guess, can you reconcile the latest domestic cigarette industry volume drop of low double digits, and the path that large customers on to generate two-thirds of their revenues from smoke-free tobacco? The shift in kind of the both of those metrics and how you are working on your leaf supply-demand balance over the next two, three, five years. Any kind of comments you can share? Yeah, first of all, the US domestic market represents less than 5% of the overall market, China. Every customer here, we have relationships, and every customer is important, and we continue supplying services and product here. With regards to the demand, yes, we continue seeing a strong demand for our portfolio of products, different varieties of tobacco. We stated that we see under supply basically in every one of these categories, and we believe that it will continue into the next, the next year. So with regards as new generation products, as I stated also before, we basically participate in all these categories as well, supplying service and raw products for the heat- not- burn, for the vaping, shisha, smokeless, oral products, and that is where how we see that we continue seeing opportunities in all the segments where we operate. Great. And in the latest leaf market update, it looks like expected crop production in South America was reduced for both Flue-cured and Burley. Can you help me understand what's going on with those crops? Yeah, what we are facing this year is El Niño phenomenon, and the El Niño affects agriculture in general and is not different for tobacco. And the whole phenomenon is about warmer waters are pushed closer to the eastern coast of the Americas, so producing excessive or above average rainfall in south of Brazil, where tobacco is produced. We see an opposite phenomenon in Africa, where the El Niño there means a drier and a warmer environment. What is important here also, Ann, is that as we knew that that phenomenon was building up at the beginning of the year, we are proactively working with our leaf technicians and agronomy team that are working with our farmer base to mitigate some of these effects. So just for example, we issue additional or we are growing additional seedlings, you know, to make sure that we have... our farmer base have enough material to replace some of the losses that they're facing. Also, positioning ourselves with having additional fertilizer to supply, for the farmers and also working with them or anticipating or delaying the transplanting season. But yes, we already see the effect there in Brazil, and we reduced our belief. As of today, is that, that flue-cured crop in Brazil has been already affected by 10%, and that is all related to farmer yield. Okay, great. That helps. Thank you. It's nice to see the sequential improvement and the results for the ingredient segment. Can you highlight the key factors that are driving that improvement? I know you referenced inventory, customers working through inventory levels. Is there anything else we can point to in terms of the recovery, and how should we think about that pace of recovery in the back half of the year? It's mainly just the normalization of demand, really. And we're working really hard on new business, you know, with the new capabilities that will hopefully come online in the summer of next year in Lancaster, Pennsylvania, where we will be able to do, you know, additional—produce additional products, different products, have additional capabilities there. You know, we have told you already that, you know, SG&A is up because we have hired quite a few R&D people. We have hired quite a few commercial people to assist us in that effort. So, you know, that's where, you know, we see all these things going. We're really positive. We're happy that we finally see some of this stabilization in the market. So hopefully, that will continue, and we'll just, you know, continue to have very good results for the ingredients platform. So are customer inventory levels more at more balanced positions right now? Last quarter, you called out that the inflated inventory positions with customers. So where are you in that recovery? Yeah. Well, what we are seeing is that certain customers are back. I'm not saying all, you know, because earlier in the quarter it was still a bit slow, and we're still seeing some customers that are hesitant, but we certainly are out of the worst of it, it appears, and, you know, we hope that that trend continues. So should we expect continued sequential improvement in profit and margin in the back half of the fiscal year? We certainly hope so. That's fantastic. That's great. And then can you outline, you referenced this a little bit, the investment in the sales force and the opportunity to cross-sell across the business, the ingredient businesses. How should we think about potential revenue synergies over the multi-year period? What are you targeting for opportunities to cross-sell and drive higher top-line growth for these businesses? Well, and what we are trying to achieve here, we bought three separate businesses. What we're trying to achieve is through the additional commercial folks as well as the R&D platform, to use- ... For example, an apple beverage and put a flavor in that beverage, go to our customers and say, "Look, this is what we, what we can produce." So you know, that, those solution-based things, we, we're going to customers with, instead of just going to them with some apple juice and say, "Why don't you buy our apple juice?" So we will, we wanna drive the value up there, you know, which it will should improve margins. And then on top of that, of course, you know, the, the investment that we are making in Lancaster, Pennsylvania, at our Shank's facility there, you know, will give us completely different capabilities that we did not have before. So we have really high hopes for that. Again, we're talking to customers about that, and that's what we're also using, you know, those R&D folks for, as well as the commercial folks that, you know, are already going out today to try to sell some of that capacity that will come online hopefully the summer of 2024. Shank's is vanilla. What else are you adding? It's primarily vanilla. We do lots of extracts and botanicals at Shank's. It's not just vanilla, okay? They have a library of something, 2,000 products that they can make. But some of the things that our folks have pointed out to us is, "We can't make these, or we can make it better." So that's where we why we have made the investment, are making the investment in that facility to do some of those things that we believe will really enhance the platform. But, multiyear synergy, top-line synergy target, driving 10% growth, 10%, 20%, 30%? Again, again- Can you give me a range? Yeah, no, we're not talking. I'm. I can't give you a range too, and we're not exactly talking about synergies as such, okay? This is really over and above. The synergies among the groups are limited, and we told you that when we actually bought this. Yeah, but top-line growth, so driving cross-selling opportunities. Yeah, no, top line, top line growth, again, that's certainly expected, else we wouldn't have bought this, and that's why we're making all these investments. So you know, I don't know exactly what those numbers are, but certainly, you know, we're making significant investments. We're making a $30 million investment that we announced in May this year in Shank's. So, you know, we certainly expect, you know, high results. You certainly expect a return on that $30 million. I'm sure you'd outlined that, yeah. Yeah, exactly. So, that's where we're what we're shooting for, you know. But we need to get our people out there now to market that, and then we go from there. So, you know, hopefully in fiscal year 2025, we'll be able to show the results of that. And again, we're really high on that. Great. And then SG&A was a little bit lower than I was looking for for the whole company for the second quarter. Should I think of that number as a good run rate for the second half? You know how that works. At the end of the day, you know, depending on currency, where it's at, you know, we were happy with it. We always look at opportunities to cut costs if we can. You know, that's certainly what we're looking at. But inflation, air travel, all compensation, all of that is adding to the cost, but we look at that on a continuous basis and try to do the best we can there. Okay, and then, Jennifer, do you have a worldwide uncommitted leaf inventory number? Yeah. This is the quarter that we do not update that. The last number we have is $26 million as of the end of June. We believe it's probably lower than that now. Okay, that's great. And then, one more question, I'm sorry. Interest expense, $17 million, in the quarter, but with your debt pay down, I haven't gone through what you've paid down in terms of rates, but can you help me think about that number for the back half? Well, as I said before, we hope to be able to reduce the net debt going forward. We have made some arrangements, as you could see, that, you know, we have some additional customer advances. So we have made some arrangements with some customers to do that, which should help us as well going forward. So hopefully, those numbers will come down a bit. That's great. Thank you all very much for your time. I appreciate it. Thank you. Thank you. Thank you. Once again, should you have a question, please press star then the number one on your telephone keypad. There are no further questions at this time. Please proceed. Thank you all for joining us on our call today. Thank you, ladies and gentlemen. That does conclude our conference for today. Thank you all for participating. You may all disconnect.