Universal : 2025 Annual Report
UVV
Published on 07/01/2025 at 15:26
UNIVERSAL CORPORATION
EST. 1918
25
Universal Corporation is a global business-to-business agriproducts company with over 100 years of experience supplying products and innovative solutions to meet our customers' evolving needs. With operations in over 30 countries on five continents, we are uniquely positioned to leverage our worldwide network to access a diverse, reliable supply of plant-based materials. This presence, combined with our supply chain expertise, integrated processing capabilities, and commitment to sustainability, enables us to deliver high-quality, customizable, and traceable, value-added agriproducts essential to our customers' success. We have two primary businesses: leaf tobacco and plant-based ingredients.
Universal is a vital link between farmers and manufacturers of consumer tobacco products, sourcing the crop for our customers and processing it to meet their exact specifications. We are the leading global leaf tobacco supplier and have a presence in all major flue-cured, burley, dark air-cured, and oriental tobacco growing regions. Our Tobacco Operations procure, process, pack, store, and ship tobacco all over the world, as well as perform related services. Our strategy is to maximize and optimize our tobacco business. To do so, we pursue opportunities to increase our sales volumes and market share, expand services across our customers' supply chains, participate in the evolution of next generation products, and improve operating efficiency.
Similar to our tobacco business, our ingredients business sources raw materials globally to provide customers with a consistent, high-quality, and stable supply of plant-based ingredients. Universal Ingredients, our plant-based ingredients platform, processes raw materials through a variety of value-added manufacturing processes to produce high-quality, innovative, specialty plant-based ingredients, including fruits, vegetables, botanical extracts, and flavorings for consumer-packaged good manufacturers, retailers, and food and beverage companies. Our strategy is to grow Universal Ingredients both organically and through disciplined acquisitions to provide customers with a solutions-based portfolio of value-added product offerings.
3.78
3.24
232.8
25 24 23 22 21
25 24 23 22 21
25 24 23 22 21
* Attributable to Universal Corporation shareholders after deducting amounts attributable to non-controlling interests in consolidated subsidiaries.
Operating Income
in millions of dollars
Dividends Declared
in dollars
Net Income Per Diluted Share *
in dollars
1
4.78
4.97
3.47
3.53
3.20
3.16
3.12
3.08
222.0
181.1
160.3
147.8
Fiscal Year Ended
Fiscal Year Ended
Fiscal Year Ended
in thousands, except per share data
March 31, 2025
March 31, 2024
March 31, 2023
Operations
Sales and other operating revenues
$ 2,947,284
$ 2,748,573
$ 2,569,824
Operating income
232,797
222,009
181,072
Segment operating income
252,473
226,288
183,455
Net income
113,269
132,971
130,236
Net income attributable to Universal Corporation
95,047
119,598
124,052
Per Share
Net income attributable to Universal Corporation
shareholders-diluted*
$ 3.78
$ 4.78
$ 4.97
Dividends declared
3.24
3.20
3.16
Market price at year end
56.05
51.72
52.89
At Year End
Working capital
$ 1,405,936
$ 1,391,183
$ 1,360,903
Total Universal Corporation shareholders' equity
1,458,556
1,437,207
1,397,088
BOARD OF DIRECTORS Universal Corporation
Preston D. Wigner 1 * 2 Chairman, President and Chief Executive Oficer Universal Corporation
Diana F. Cantor 2 4 5 *
Partner
Alternative Investment Management, LLC
Lennart R. Freeman 1 3 4 Former President and Chief Executive Oficer, North American Division, Swedish Match AB
Michael T. Lawton 1 3 * 4 ♦
Former Executive Vice President and Chief Financial Oficer Domino's Pizza, Inc.
Fotini E. Manolios Former Managing Vice President,
Head of Total Rewards,
Capital One Financial Corporation
Arthur J. Schick, Jr. 2 3 5
President
Alpha Sierra Global LLC
Thomas H. Tullidge, Jr. 2 3 5
Chief Strategy Oficer,
Legal and Finance,
Managing Director and Co-Founder of Cary Street Partners
Financial LLC
Jacqueline T. Williams 2 3 5
Retired Director, Ohio Department of Commerce
Executive Committee
Finance and Pension Investment Committee
Audit Committee
Compensation and Human Resources Committee
Nominating, Governance, and Risk Committee
* Committee Chairman
Lead Independent Director
Retiring from the Board following the 2025 Annual Meeting of Shareholders
Thomas H. Johnson 1 4 * 5
Chief Executive Oficer
The Taffrail Group, LLC
Robert C. Sledd 2 * 4 5 Managing Partner Sledd Properties, LLC
OFFICERS Universal Corporation
Preston D. Wigner Chairman, President and Chief Executive Oficer
Scott J. Bleicher Vice President and Controller
Wushuang Ma Vice President and Treasurer
Harvard B. Smith
Vice President and
Chief Compliance Oficer
Airton L. Hentschke
Senior Vice President and Chief
Operating Oficer
Benjamin S. Dessart Vice President, External Affairs
J. Patrick O'Keefe Vice President, Ingredients
Nicholas Z. Smith Vice President, Internal Auditing
Johan C. Kroner
Senior Vice President and Chief
Financial Oficer
Steven S. Diel
Vice President, Business Development
E. Blair Powell
Senior Counsel
Catherine H. Claiborne
Vice President,
General Counsel and Secretary
Beth Ann Luther Vice President, Taxes
Jennifer S. Rowe
Assistant Treasurer
2
DIRECTORS Universal Leaf Tobacco Company, Inc. | Universal Global Ventures, Inc.
Preston D. Wigner
Airton L. Hentschke
Johan C. Kroner
Catherine H. Claiborne
Senior Vice President,
General Counsel and Secretary
McKeen Starke
Cesar A. Bünecker
Clayton G. Frazier
Marin Lluka
Rory E. Micklem
Jonathan R. Wertheimer President, Socotab, L.L.C. and Managing Director,
Europe
Richard G. Wood
J. Patrick O'Keefe
Senior Vice President, Universal Global Ventures, Inc.
Steven S. Diel
Director,
Universal Global Ventures, Inc.
Jeff Weidenaar
President,
Silva International, Inc.
Gregory P. Robertson
President,
3
Shank's Extracts, LLC
Universal Leaf Tobacco Company, Inc.
Universal Global Ventures, Inc.
Fiscal year (FY) 2025 was an exceptional year for Universal Corporation. For me, it was my first year as your Chairman, President and Chief Executive Officer. More importantly, it was a year in which we demonstrated our ability to adapt and turn challenges into opportunities. I am proud of our performance - we managed challenging market dynamics, achieved improved results, and continued our history of delivering value to our shareholders with our 55th consecutive annual dividend increase. Universal continued its momentum through FY25, strengthening and growing our business, while serving as a trusted partner to those who serve us.
Preston Wigner
Chairman, President and Chief Executive Officer
As we look back on the year, we successfully executed our business plan, delivered strong financial results, and demonstrated our leading role in the agriproducts industry. In FY25, we grew our consolidated revenues 7% to $2.9 billion, operating income 5% to $232.8 million, and segment operating income 12% to $252 million.
4
Consolidated Revenue
Operating Income
Segment Operating Income
$2.9B
Up 7%*
$233M
Up 5%*
$252M
Up 12%*
* For FY25, compared to FY24.
As we move into FY26, we believe we are poised for success and are expecting continued strong demand for tobacco and more balanced tobacco supply positions. We are also dedicated to continuing our progress with Universal Ingredients and building on the momentum we have already created.
5
Our business strategy focuses on three pillars: maximizing and optimizing our tobacco business, growing Universal Ingredients, and strengthening our organization. Our goal is to drive excellence across the enterprise and position Universal for long-term success and value creation.
1 Maximizing and Optimizing Our Tobacco Business
Improved results for our Tobacco Operations segment were driven by continued strong demand from customers, successful global marketing and procurement efforts, as well as improved volumes and quality of African burley tobacco crops. Building on the strength of our core tobacco business, we continue to look for opportunities to increase our tobacco sales volumes and market share, expand services across our customers' supply chains, participate in the evolution of next generation tobacco products, and improve operating efficiency.
2 Growing Universal Ingredients
Our Ingredients Operations segment achieved higher sales volumes in FY25, and we see opportunities to provide customers with a broader solutions-based portfolio of value-added products. Since setting our strategy in 2018 to build a plant-based food and beverage ingredients business, we have taken a proactive, but deliberate, approach in recruiting a management team, making acquisitions, and setting and executing commercial strategies. We were purposeful as we integrated our three acquisitions to form a coherent platform and made key investments in expanding platform capabilities and capacity. Our sales efforts are supported by increased capabilities from the growth of our corporate sales, marketing and product development teams, as well as the completion of our major expansion project at our Lancaster, Pennsylvania facility that broadens our ability to deliver innovative, custom products to our customers. Our strategy is to grow Universal Ingredients both organically and through disciplined acquisitions to provide customers with a solution-based portfolio of value-added product offerings.
3 Strengthening Our Organization
We continue to pursue initiatives to strengthen and support Universal with a focus on efficient financial management, effective human capital management, optimal utilization of technology, and synergies between our business segments. We will continue identifying and implementing strategies which position Universal for long-
term success and value creation.
6
As the largest global leaf tobacco merchant, sustainability is deeply embedded in our DNA. We believe our commitment to setting high standards, promoting a sustainable supply chain, and providing transparency about our sustainability efforts is a strategic part of our business. Sustainability is good for our business and represents our good stewardship in the communities in which we operate.
I am proud of our accomplishments and advances in FY25. During the year, we released our 2024 Sustainability Report, which highlighted our efforts in strengthening supply chain resiliency, continuing to be a strong partner for our farming communities, and advancing energy efficiency. As one of many examples of the dedication we commit to sustainability, our tobacco leaf technicians made over 1.8 million visits and contacts to more than 175,000 contracted farmers to maintain our visibility and traceability in our supply chain. As a result, we reported that we substantially met our existing targets of zero child labor, appropriate labor accommodations, farm worker minimum wage payments, and personal protective equipment access. We believe our commitment to sustainability is a competitive advantage in the global marketplace, and I am confident in our ability to leverage our expertise in this area to further strengthen Universal Corporation in the upcoming year.
On behalf of our Board of Directors and our executive management team, I want to thank our employees, customers, farmers and suppliers, shareholders, and other stakeholders who contributed to our achievements in FY25 and have positioned Universal for success in the future. I am excited about our prospects for the year ahead as we seek to further maximize and optimize our tobacco business, grow our ingredients business, and strengthen our organization to drive increasing value for all Universal stakeholders.
Preston Wigner
7
Chairman, President and Chief Executive Officer
For important factors that could cause actual results to differ materially from those contained in or implied by the forward-looking statements included herein, see "Forward-Looking Statements" in the enclosed Annual Report on Form 10-K.
PERFORMANCE GRAPH Comparison of 5 Year Cumulative Total Return*
Among Universal Corporation, the S&P SmallCap 600 Index, and a Peer Group
$250
$200
$150
$100
$50
$0
3/20 3/21 3/22 3/23 3/24 3/25
* $100 invested on 3/31/20 in stock or index, including reinvestment of dividends. Fiscal year ending March 31. Copyright© 2025 Standard & Poor's, a division of S&P Global. All rights reserved.
The performance graph compares the cumulative total shareholder return on Universal Corporation stock for the last five fiscal years with the cumulative total return for the same period of the Standard & Poor's SmallCap 600 Stock Index and the peer group index. The peer group represents Pyxus International, Inc. The graph assumes that $100 was invested in Universal Corporation stock on March 31, 2020, and in each of the comparative indices, in each case with dividends reinvested. The returns shown are based on historical results and are not intended to suggest future performance.
AT MARCH 31
2020
2021
2022
2023
2024
2025
Universal Corporation
$ 100.00
$ 142.66
$ 148.65
$ 143.84
$ 149.50
$ 173.04
S&P SmallCap 600
100.00
195.33
197.73
180.30
209.02
201.95
Peer Group
100.00
138.26
46.62
38.59
96.46
128.62
8
UNIVERSAL CORPORATION
Universal
((@))
Universal
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE FISCAL YEAR ENDED MARCH 31, 2025
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD FROM TO
Commission File Number: 001-00652
UNIVERSAL CORPORATION
(Exact name of registrant as specified in its charter)
Virginia 54-0414210
(State or Other Jurisdiction of Incorporation or Organization)
9201 Forest Hill Avenue, Richmond, Virginia 23235
(Address of Principal Executive Offices) (Zip Code)
804-359-9311
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(I.R.S. Employer Identification Number)
Title of each class Trading Symbol(s) Name of each exchange on which registered
Common Stock, no par value UVV New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes No
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of "large accelerated filer," "accelerated filer," "smaller reporting company" and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer Accelerated Filer Non-Accelerated Filer Smaller reporting company Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑
If securities are registered pursuant to Section 12(b) of the Act, indicate by check mark whether the financial statements of the registrant included in the filing reflect the correction of an error to previously issued financial statements. ☐
Indicate by check mark whether any of those error corrections are restatements that required a recovery analysis of incentive-based compensation received by any of the registrant's executive officers during the relevant recovery period pursuant to §240.10D-1(b). ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
The aggregate market value of the registrant's voting and non-voting common equity held by non-affiliates, based upon the closing sales price on the New York Stock Exchange of the registrant's common stock on September 30, 2024, the last business day of the registrant's most recently completed second fiscal quarter, was approximately $1.3 billion.
As of May 29, 2025, the total number of shares of common stock outstanding was 24,715,625.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates certain information by reference from the registrant's 2025 Proxy Statement for the 2025 Annual Meeting of Shareholders, which will be filed no later than 120 days after the close of the registrant's fiscal year ended March 31, 2025.
2025
UNIVERSAL CORPORATION FORM 10-K
TABLE OF CONTENTS
Item No.
Page
PART I
1.
Business.....................................................................................................................................................
4
1A.
Risk Factors...............................................................................................................................................
12
1B.
Unresolved Staff Comments .....................................................................................................................
19
1C.
Cybersecurity.............................................................................................................................................
19
2.
Properties...................................................................................................................................................
21
3.
Legal Proceedings .....................................................................................................................................
22
4.
Mine Safety Disclosures............................................................................................................................
22
PART II
5.
Market for Registrant's Common Equity, Related Stockholder Matters
and Issuer Purchases of Equity Securities.................................................................................................
23
6.
[Reserved] .................................................................................................................................................
23
7.
Management's Discussion and Analysis of Financial Condition and Results of Operations....................
24
7A.
Quantitative and Qualitative Disclosures About Market Risk ..................................................................
42
8.
Financial Statements and Supplementary Data .........................................................................................
43
9.
Changes in and Disagreements With Accountants on Accounting and Financial Disclosure ..................
91
9A.
Controls and Procedures............................................................................................................................
91
9B.
Other Information......................................................................................................................................
92
9C.
Disclosure Regarding Foreign Jurisdictions that Prevent Inspections ......................................................
93
PART III
10.
Directors, Executive Officers, and Corporate Governance.......................................................................
94
11.
Executive Compensation...........................................................................................................................
95
12.
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters .
95
13.
Certain Relationships and Related Transactions, and Director Independence..........................................
95
14.
Principal Accountant Fees and Services....................................................................................................
95
PART IV
15.
Exhibits and Financial Statement Schedules.............................................................................................
96
16.
Form 10-K Summary.................................................................................................................................
96
Schedule II - Valuation and Qualifying Accounts ....................................................................................
97
Exhibit Index .............................................................................................................................................
98
Signatures ..................................................................................................................................................
101
Forward-Looking Statements
This Annual Report on Form 10-K ("Annual Report"), contains "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Among other things, these statements relate to Universal Corporation's financial condition, results of operations and future business plans, operations, opportunities, and prospects. In addition, Universal Corporation and its representatives may make written or oral forward-looking statements from time to time, including statements contained in other filings with the Securities and Exchange Commission (the "SEC") and in reports to shareholders. These forward-looking statements are generally identified by the use of words such as we "expect," "believe," "anticipate," "could," "should," "may," "plan," "will," "predict," "estimate," and similar expressions or words of similar import. These forward-looking statements are based upon management's current knowledge and assumptions about future events and involve risks and uncertainties that could cause actual results, performance, or achievements to be materially different from any anticipated results, prospects, performance, or achievements expressed or implied by such forward-looking statements. Such risks and uncertainties include, but are not limited to: product purchased not meeting quality and quantity requirements; reliance on a few large customers; anticipated levels of demand for and supply of our products and services; tobacco growing conditions and customer requirements; major shifts in customer requirements for leaf tobacco; higher inflation rates, tariffs and other pressures on costs; weather and other conditions; exposure to certain legal. regulatory and financial risks related to climate change; industry-specific risks related to our plant-based ingredients businesses; disruption of our supply chain for our plant-based ingredients; success in pursuing strategic investments or acquisitions and integration of new businesses and the impact of these new businesses on future results; our ability to maintain effective information technology systems and safeguard confidential information; our inability to attract, develop, retain, motivate, and maintain good relationships with our workforce; our dependence on a seasonal workforce; epidemics, pandemics or similar widespread public health concerns; government efforts to regulate the production and consumption of tobacco products; government actions on the sourcing of leaf tobacco; economic and political conditions in the countries in which we and our customers operate, including the ongoing impacts from international conflicts; sustainability considerations from governments and other stakeholders; changes in tax laws in the countries where we do business; material weaknesses in our internal control over financial reporting; our inability to use a Form S-3 registration statement; failure of our customers or suppliers to repay extensions of credit; changes in exchange rates; changes in interest rates; and low investment performance by our defined benefit
pension plan assets and changes in pension plan valuation assumptions. For a description of factors that could cause actual results to differ materially from such forward-looking statements, see Item 1A, "Risk Factors." We caution investors not to place undue reliance on any forward-looking statements as these statements speak only as of the date when made, and we undertake no obligation to update any forward-looking statements made in this Annual Report. In addition, the discussion of the impact of current trends on our business in "Management's Discussion and Analysis of Financial Condition and Results of Operations -Other Information Regarding Trends and Management's Actions" in Item 7 should be read carefully in connection with evaluating our business and the forward-looking statements contained in this Annual Report.
General
This Annual Report uses the terms "Universal," "the Company," "we," "us," and "our" to refer to Universal Corporation and its subsidiaries when it is not necessary to distinguish among Universal Corporation and its various operating subsidiaries or when any distinction is clear from the context in which it is used.
See the "Results of Operations" section in "Management's Discussion and Analysis of Financial Condition and Results of Operations" in Item 7 for a discussion of adjusted operating income (loss), adjusted net income (loss) attributable to Universal Corporation, adjusted diluted earnings (loss) per share, segment operating income (loss), net debt, net capitalization, and net debt to net capitalization ratio, non-GAAP financial measures that we refer to in this Annual Report and consider useful in understanding our business results and trends.
PART I
Item 1. Business
The Company
Overview
Universal Corporation is a global business-to-business agriproducts company with over 100 years of experience supplying products and innovative solutions to meet our customers' evolving needs. With operations in over 30 countries on five continents, we are uniquely positioned to leverage our worldwide network to access a diverse, reliable supply of plant-based materials. This presence, combined with our supply chain expertise, integrated processing capabilities, and commitment to sustainability, enables us to deliver high-quality, customizable, and traceable value-added agriproducts essential to our customers' success.
We have two operating segments: Tobacco Operations and Ingredients Operations. Our Tobacco Operations segment involves procuring and processing flue-cured, burley, dark air-cured, and oriental leaf tobacco for manufacturers of consumer tobacco products and performing related services. We are the leading global leaf tobacco supplier. Through our Ingredients Operations segment, we procure raw materials globally and process the raw materials through a variety of value-added manufacturing processes to produce high-quality, innovative, specialty plant-based ingredients, including fruits, vegetables, botanical extracts, and flavorings for consumer-packaged goods manufacturers, retailers, and food and beverage companies. We do not sell any direct-to-consumer products. Rather, we support consumer product manufacturers by selling them transformed agriproducts and performing related services for them.
Our business strategy focuses on three pillars: maximizing and optimizing our Tobacco Operations segment, growing our Ingredients Operations segment, and strengthening our organization. In our Tobacco Operations segment, we continue to look for opportunities to increase our sales volumes and market share, expand services across our customers' supply chains, participate in the evolution of next generation products, and improve operating efficiency. In our Ingredients Operations segment, we seek opportunities to grow Universal Ingredients, our plant-based ingredients platform, both organically and through disciplined acquisitions to provide customers with a solutions-based portfolio of value-added product offerings. Under our corporate pillar, we continue to pursue strategies and initiatives to strengthen and support our organization for the future. These strategies and initiatives are expected to focus on efficient financial management, effective human capital management, optimal utilization of technology and operational synergies between our business segments. Our goal is to drive excellence across the company and position Universal for long-term success and value creation.
We generated approximately $2,947.3 million in consolidated revenues and earned $232.8 million in total operating income and $252.5 million in total segment operating income in fiscal year 2025. We are a holding company that operates through numerous directly and indirectly owned subsidiaries. Our primary subsidiaries are Universal Leaf Tobacco Company, Incorporated ("Universal Leaf"), which is associated with our Tobacco Operations segment, and Universal Global Ventures, Incorporated, which is associated with our Ingredients Operations segment.
Additional Information
Our website address is https://www.universalcorp.com. We post regulatory filings on this website as soon as reasonably practicable after they are electronically filed with or furnished to the SEC. These filings include annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, proxy statements, Section 16 reports on Forms 3, 4, and 5, and any amendments to those reports filed with or furnished to the SEC. Access to these filings on our website is available free of charge. Copies are also available, without charge, from Universal Corporation Investor Relations, 9201 Forest Hill Avenue, Richmond, VA 23235. Reports filed with the SEC may be viewed at https://www.sec.gov. We also post our press releases on our website. Information on our website is not deemed to be incorporated by reference into this Annual Report.
In addition, our Corporate Governance Guidelines, Code of Conduct, and charters for the Audit Committee, the Compensation and Human Resources Committee, the Executive Committee, the Finance and Pension Investment Committee, and the Nominating, Governance and Risk Committee are available free of charge to shareholders and the public through the "Investors-Governance" section of our website. Printed copies of the foregoing are available to any shareholder upon written request to our Treasurer at the address set forth on the cover of this Annual Report or may be requested through our website, https://www.universalcorp.com.
Description of Business Tobacco Operations
Universal is a vital link between farmers and manufacturers of consumer tobacco products, sourcing the crop for our customers and processing it to meet their exact specifications. We are the leading global leaf tobacco supplier and have a presence in all major flue-cured, burley, dark air-cured, and oriental tobacco growing origins. Our Tobacco Operations procure, process, pack, store, and ship tobacco all over the world for use in international consumer tobacco brands. We also provide specialty services to our customers like custom blending, chemical and physical testing of tobacco, service cutting, reconstituted leaf tobacco manufacturing, and just-in-time product delivery. In addition to our leaf tobacco business, we are involved in other tobacco-related opportunities, including liquid nicotine for manufacturers of next generation tobacco products and recycled waste materials from tobacco production.
We contract directly with farmers and farmer organizations in many of the countries in which we operate. Partnering with Universal offers most growers the added benefit of access to crop input packages (including advances of seeds or seedlings and fertilizer) that may not otherwise be readily available. As we are dedicated to promoting a sustainable farmer base, Universal provides significant agronomic support throughout a growing season, including educational programs in such matters as good agricultural practices ("GAP"), the reduction of non-tobacco related materials, product traceability, environmental sustainability, agricultural labor standards, and social responsibility.
Before each growing season, we use customer indications of tobacco type, style, and volume requirements to help us determine our farmer contracting needs in each region. Discussions of a customer's needs may begin as early as one to two years in advance of a particular crop purchase. Ultimately, sales agreements specifying quantity, quality, grade, and price are executed, leading to inventory allocations of purchased "green" and processed leaf as well as packed leaf that we have acquired. Revenues for our Tobacco Operations are generated from product sales of green and processed leaf as well as packed tobacco that we source; from processing fees for tobacco owned by third parties; and from fees for other services.
Timely processing is an essential service to our customers because "green" or unprocessed tobacco leaf is a perishable product. Processing leaf tobacco includes grading in the factories, blending, removing of non-tobacco material, separating of leaf from the stems, drying, packing to precise moisture targets for proper aging primarily in corrugated cardboard cases, as well as temporarily storing packed tobacco. Processing generally requires investments in factories and machinery in the geographic areas where tobacco is grown. Processed tobacco that has been properly packed can be stored by customers for several years prior to use, but most processed tobacco is used within two to three years.
We conduct our tobacco business in varying degrees in a number of countries, including Bangladesh, Brazil, Canada, the Dominican Republic, Ecuador, France, Germany, Guatemala, Hungary, India, Indonesia, Italy, Malawi, Mexico, Mozambique, the Netherlands, Paraguay, the People's Republic of China, the Philippines, Poland, the Republic of South Africa, Singapore, Spain, Switzerland, the United Arab Emirates, the United States, and Zimbabwe. In addition, our oriental tobacco joint venture, Socotab, L.L.C. ("Socotab"), has operations in Bulgaria, Greece, the Republic of North Macedonia, and Türkiye. We also operate in major dark tobacco producing countries, including the United States, the Dominican Republic, Ecuador, Indonesia, Paraguay, the Philippines, and Brazil.
We are a major purchaser and processor in the primary exporting regions for flue-cured and burley tobacco throughout the world. Africa, Brazil, and the United States produce approximately two-thirds of the flue-cured and burley tobacco grown outside of the People's Republic of China. We estimate that over the last five years we have handled, through leaf sales or processing, on average between 20% and 30% of the annual production of such tobaccos in Africa, between 15% and 25% in Brazil, and between 35% and 45% in the United States. These percentages can change from year to year based on the size, price, and quality of the crops.
We believe that our leading position in the leaf tobacco industry is based on our volumes handled; our operating presence in all of the major sourcing areas; our ability to meet customer style, volume, and quality requirements; our experience in dealing with large numbers of farmers; our expertise in delivering a sustainable supply of compliant, traceable, competitively-priced leaf tobacco; and our long-standing relationships with customers. We believe that our ability to market most styles and grades of leaf to a diverse customer base, and the efficiencies we offer customers due to our operational expertise and established infrastructure, are also key to our success.
We believe our Tobacco Operations will continue to produce solid financial returns and enhance shareholder value through the following key operating principles:
Strategic market position. By working closely with both our customers and our suppliers throughout the year, we seek to ensure the consistent delivery of a product that meets our customers' needs and cultivate a strong, sustainable supplier base. We also aim to maximize supply chain efficiencies by balancing product purchases against indicated customer demand and maintaining global procurement and production operations.
Strong local management. Empowered and experienced local management in our supply origins, coupled with global coordination, affords us the flexibility to quickly and successfully adapt to constantly shifting market conditions, while continuing to deliver high-quality, competitively-priced products and services.
Compliant products. Customers expect a sustainable supply of compliant, traceable, competitively priced products, and we seek to meet this demand through our investment in GAP training for farmers which encompasses crop quality, environmental stewardship, and agricultural labor standards.
Diversified sources. We operate in over 30 countries on five continents and maintain a presence in all major tobacco origin markets. This global presence allows us to meet our customers' diverse product requirements while minimizing the effects of adverse crop conditions and other localized supply disruptions.
Financial strength. Financial strength is critical to our existing global operations and enables us to invest in suitable opportunities when they arise. We believe management of liquidity, borrowings, and capital costs provides us with a competitive advantage, affords us flexibility when responding to customer requirements and market changes, and allows us to enhance shareholder value.
Seasonality
Our tobacco operations are seasonal in nature. While the growing, marketing, and purchasing cycles differ from region to region, we typically operate each of our tobacco processing plants for seven to nine months of the year. During this period for each region, inventories of "green" or unprocessed tobacco, inventories of processed tobacco, and trade accounts receivable normally reach peak levels in succession. We normally finance this expansion of current assets with cash, short-term borrowings from banks, and customer advances, and these funding sources normally reach their peak usage in each region during its respective purchasing or processing period. Our balance sheet at our fiscal year end reflects seasonal expansions in working capital in South America and Central America. Our financial performance is also impacted by the seasonality of our business. Due to global tobacco growing cycles, as well as customer shipment preferences, we typically ship a larger portion of our volumes in the second half of our fiscal year. Changes in customer shipment schedules or changes in crop timing in a season can shift recognition of revenue in a given fiscal year or between fiscal years.
Customers
A material part of our tobacco business is dependent upon a few customers. Sales to our top five customers, with whom we have long-standing relationships, have accounted for more than 50% of our consolidated revenues for each of the past three fiscal years. For the fiscal year ended March 31, 2025, each of Imperial Brands plc and Philip Morris International, Inc., including their respective affiliates, accounted for 10% or more of our revenues.
Competition
Competition among leaf tobacco suppliers is based on the ability to meet customer specifications in the growing, buying, processing, and financing of tobacco, and on the prices charged for products and services. The number of competitors varies in each operating country, but there is competition in most areas to buy and sell the available tobacco. Our principal competitor is Pyxus International, Inc. ("Pyxus"), and we consider ourselves and Pyxus to be the only global leaf suppliers based on our worldwide scope of operations. However, Universal is the only global leaf tobacco supplier with operations in the Dominican Republic, Ecuador, Hungary, Italy, Mexico, Mozambique, Paraguay, the Philippines, and Poland and that participates in the sale and production of dark air-cured tobaccos. Most of our major customers are partially vertically integrated, thus they also compete with us for the purchase of leaf tobacco in several of the major markets. However, each of our customers generally has specific preferences for certain styles of tobacco leaves and only utilizes certain stalk positions of the tobacco plant. In contrast, we have the ability to commercialize the entire tobacco plant and supply all major varieties of tobacco.
In most major leaf tobacco markets, smaller competitors are active and typically are opportunistic and have lower overhead requirements, but they generally provide less agronomic support to farmers. Due to their lower cost structures, they tend to offer a lower price, but amongst others our long-term presence, our investments in employees, facilities and communities, our GAP and Agricultural Labor Practices ("ALP") programs, our sustainability efforts and supply chain monitoring as well as our quality controls add value for our customers in an increasingly regulated world. Our GAP training supports an approach to farming that is focused on sustainability, sound field production, and fair labor management practices that promote farmer profitability and reflect environmental sensitivity. We provide comprehensive training, technical support in the field, and crop analytics through ongoing research and development. Our major customers increasingly require these services, and we believe our programs increase the quality and value of the products and services we offer. In addition, our customers value the security of supply that we can provide due to our strong relationships with our farmer base and our global footprint.
Ingredients Operations
Similar to the tobacco side of our business, our Ingredients Operations source raw materials globally to provide our customers with a consistent, high-quality, and stable supply of plant-based ingredients. A variety of value-added manufacturing processes are then used in these businesses to convert such raw materials. We produce a wide spectrum of fruit and vegetable juices, concentrates, dehydrated products, botanical extracts, flavorings, and innovative, value-added ingredients utilizing products and capabilities across the entire Universal Ingredients platform.
We strategically invested in established companies with strong financial records. These businesses operate in different markets (fruits, vegetables, and flavors) and offer value-added services that can apply broadly to multiple parts of our Ingredients Operations to better meet our customers' needs for unique, plant-based ingredients. By diversifying our portfolio in the ingredients space through the acquisitions of FruitSmart, Inc. ("FruitSmart"), Silva International, Inc. ("Silva"), and Shank's Extracts, LLC d/b/a Universal Ingredients-Shank's ("Universal Ingredients-Shank's"), we are positioned to deliver customizable products and solutions to our customers.
FruitSmart supplies a broad set of juices, concentrates, pomaces, purees, fruit fibers, seeds, seed powders, and other value-added products to food, beverage, and flavor companies throughout the United States and internationally. Its top products are not-from-concentrate apple juice as well as apple, blueberry, concord grape, and raspberry juice concentrates. We believe that FruitSmart is well positioned to benefit from growing consumer preferences for better-for-you premium ingredients, including custom blends, not-from-concentrate and dry products, and strong growth in targeted end markets including ciders, purees and nutraceuticals. FruitSmart is headquartered in the Yakima Valley in Washington State and has approximately 200 employees. FruitSmart operates two separate manufacturing facilities: one that produces liquid products and one that produces dry products. In fiscal year 2025, FruitSmart embarked on several automation projects that utilize robotics to increase efficiency, enhance capacity, and increase health and safety protocols.
Silva procures over 60 types of dehydrated vegetables, fruits, and herbs from over 20 countries around the world and specializes in processing natural materials into custom designed dehydrated vegetable and fruit-based ingredients for a variety of end products. Its top five ingredients product categories are vegetable blends, peppers, spinach, carrots, and pumpkin. Headquartered in Momence, Illinois, Silva employs over 200 people and has a 380,000 square foot manufacturing facility. Silva has established a reputation as the go-to provider of clean, natural, specialty dehydrated vegetable and fruit-based ingredients due to its unique competencies and significant capacity to source, process, and manufacture materials. Silva also has longstanding relationships with suppliers and their farmers around the world and maintains strong quality control procedures to ensure a consistent, high-quality supply of ingredients.
Universal Ingredients-Shank's offers a diversified portfolio of over 2,400 botanical extracts, distillates, natural flavors, and colors for industrial and private label customers worldwide, and is known for significant vanilla expertise. Universal Ingredients-Shank's is also equipped to offer customers custom bottling and packaging for their products. Universal Ingredients-Shank's employs more than 300 people at their 194,000 square foot manufacturing campus in Lancaster, Pennsylvania. In fiscal year 2025, Universal completed a major expansion project at the Lancaster, Pennsylvania facility. The project added an industry-leading combination of extraction, blending, and aseptic packaging. The investment also added refrigerated storage and enhanced capabilities to support additional customer demand and growth into new product categories and markets.
To support Universal Ingredients, we have invested in building out our sales, marketing and product development teams focused on creating value across the entire platform. This platform-level support enables us to deliver unique, custom products to our customers. Our research and development function includes highly trained food scientists and professionals who are skilled in the creation of various food and beverages to showcase the value of our ingredients. Some examples of the concepts developed by our research and development group include ready-to-drink teas and coffees, carbonated soft drinks, nutritional smoothies, and bakery items. The commercial sales team consists of seasoned sales professionals who work closely with the research and development team. This platform team is tasked with becoming subject matter experts on the entire suite of products to help leverage the full potential of the ingredients portfolio and drive earnings growth. Longer term, we believe we will be able to enhance our overall product offerings and achieve significant operational synergies by leveraging Universal's existing global sourcing capabilities, strong relationships with our farmer base, and agronomic expertise.
Customers
Our Ingredients Operations primarily service the food and beverage industry, which is diverse and encompasses a variety of companies that cater to different market segments. These companies can range from small, privately held regional food and beverage brands to multinational food and beverage companies. The food and beverage market is segmented into many different categories including retailers, food service providers, consumer packaged goods companies, and beverage companies. Silva also has a large presence in the pet food market. With our most recent investments in our Lancaster, Pennsylvania facility, we will be focusing heavily on the food service, beverage and casual dining markets. Our investment in the research and development function in Lancaster, Pennsylvania, supports our ability to meet the demands of such a large and diverse group of customers.
Competition
Universal Ingredients serves the human and pet food markets as well as the beverage market, one of the largest industrial categories in the United States. There are thousands of companies represented in the plant-based ingredients segment and hundreds that offer similar or competitive types of products. The market remains highly fragmented with many competitors being relatively small, privately-owned, entrepreneurial companies that lack corporate level support for product development, platform sales, and capital investments. We distinguish ourselves in this market by offering high-quality, innovative, customized product solutions with global sourcing capabilities and having strong, long-standing customer relationships.
Sustainability
As a global agricultural company, we believe that the success of our business is linked to the health and resiliency of the environments in which we operate, and we have a fundamental responsibility to our stakeholders to set high standards of social and environmental performance to support a sustainable supply chain. We consistently disclose our operational activities and sustainable practices in a transparent manner through our annual Sustainability Report, which can be found on our website. Our Nominating, Governance and Risk Committee has primary oversight of our sustainability programs. We continue to further strengthen our approach to sustainability throughout the organization in alignment with recognized best practices, regulatory compliance, and shareholder interests.
We are a global agriproducts supplier operating in numerous countries around the world, and we primarily focus our sustainability efforts on our own operations and the farmers in our supply chain with whom we contract for raw materials. Sustainability efforts with respect to our facilities around the world involve the adoption and implementation of policies and procedures related to environmental impacts, workforce protections and programs such as those we address in "Human Capital Management" below, and other important considerations. Sustainability efforts in our supply chain emphasize important issues related to the countries and communities in which we operate and include the protection of farm worker rights through appropriate agricultural labor practices and monitoring the reduction of environmental impacts through compliance with industry-recognized GAP programs, as well as our own environmental programs and initiatives.
Agricultural Labor Practices ("ALP")
Throughout the world, we work side-by-side with our contracted farmers to produce a sustainable tobacco crop that adheres to GAP and appropriate ALP. As part of our ALP program, we train contracted farmers on the ALP Code principles and monitor their adherence through multiple in-person visits during the tobacco growing season. The significant investment of time and resources we commit each year to our ALP program evidences the importance of sustainable labor practices to our business. Our global ALP Code consists of seven principles that set forth human rights expectations for our contracted farmers to meet:
Progressive elimination of child labor.
Adherence to income and work hour requirements.
Fair treatment of workers.
Prohibition of forced labor.
Providing safe working environments.
Recognition and respect of workers' rights to freedom of association and collective bargaining.
Compliance with local employment laws.
Environmental Impacts
Universal is committed to abiding by environmental laws and regulations, monitoring our supply chain activities, and cooperating with supply chain partners to implement strategies that mitigate and reduce environmental impacts that may be associated with our business. We recognize three primary environmental responsibilities throughout our global footprint: responsible consumption of water and natural resources; responsible forestry management; and minimizing greenhouse gas emissions.
Recent Initiatives
Universal released our 2024 Sustainability Report in December 2024, highlighting our efforts in strengthening supply chain resiliency, maintaining our strong partnerships with our farming communities, and advancing energy efficiency. Responsible business practices are integrated into Universal's business strategy.
As disclosed in our 2024 Sustainability Report, we continued to support our supply chain sustainability goals and substantially met our existing targets of zero child labor, appropriate labor accommodations, farm worker minimum wage payments, and personal protective equipment access. Our leaf technicians made over 1.8 million visits to more than 175,000 contracted farmers to maintain our visibility and traceability in our supply chain. Our operations continue to enhance transparency and collaboration with our stakeholders by reporting to the Sustainable Tobacco Program and training over 175,000 farmers on GAP and ALP to advance environmental and human rights best practices throughout our contracted farmer base.
Universal's climate transition plan includes reducing fossil fuel use, purchasing renewable forms of electricity, and enhancing operational efficiencies throughout our operations and value chain. These actions support the Company's goal of reaching net-zero greenhouse gas ("GHG") emissions across the value chain by 2050. Universal is actively transitioning to cleaner fuels around the world. Diesel and coal fuels are being replaced with electricity and biomass where possible to reduce our GHG emissions footprint. Renewable energy plays a significant role in our journey to net-zero, so we have developed plans to purchase Renewable Energy Credits where possible and have signed a Virtual Power Purchase Agreement ("VPPA") for solar-powered energy that we expect to reduce our total scope 1 and 2 emissions in North America by 45%.
For a discussion of recent developments and trends in our businesses, along with factors that could have a material adverse effect on our businesses see Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operations," and Item 1A, "Risk Factors."
Human Capital Management Workforce Overview
Our employees are among our most important resources, and we rely on them to execute our business plan with integrity and efficiency. We believe that investing in human capital is critical to our continued success. Our employees enable us to be a leading global supplier of leaf tobacco and other agriproducts. We strive to foster an inclusive workplace; attract, retain, and develop talented personnel; and keep our employees safe and healthy.
As of March 31, 2025, we employed more than 28,500 employees, operating in over 30 different countries across five continents. Approximately 60% of our employees are seasonal and approximately 40% are full-time employees. Almost 50% of our employees are female and more than 20% of our managers are female. Globally, Universal has 13 collective bargaining agreements in place, covering approximately 40% of our workforce. The sizeable seasonal nature of our global workforce makes these numbers fluctuate throughout the year.
We are a multinational and multicultural organization, with employees and operations located around the world, and we are committed to maintaining an inclusive workplace. Only around 4.8% of our employees are located in the United States. Almost all of our employees are from the same country in which our related operations are located. Our expatriate hires represent less than 0.3% of our workforce, and they are hired due to their essential professional knowledge necessary for the operation of our business.
Board of Directors' Role in Human Capital Management
Our Board of Directors believes that human capital management is an important component of our continued growth and success and is essential to our ability to attract, retain, and develop talented and skilled employees. We pride ourselves on a culture that respects co-workers and values concern for others. The recent name change of the Compensation Committee to the Compensation and Human Resources Committee reflects the importance of human capital management to the Company.
Our Nominating, Governance and Risk Committee and our Compensation and Human Resources Committee both have important roles with respect to human capital management. The Nominating, Governance and Risk Committee oversees and reviews our sustainability programs, which include important policies and practices related to human rights, prohibitions against discrimination, employee health and safety, and other policies related to our workforce. The Compensation and Human Resources Committee oversees administration of the Company's human resource programs and has oversight of compensation, benefits, and retention and development processes of senior management, including an annual review of the Company's succession planning and leadership development program.
We are committed to protecting the human rights of our employees and have policies in place to support this effort, including those relating to whistleblowing, harassment, equal employment, and compliance with local labor laws. Our Board of Directors also adopted our Code of Conduct (the "Code") and Anti-Corruption Compliance Manual (the "Manual") to promote ethical behavior throughout the Company and address violations of ethical standards. The Code and Manual have been translated into 16 languages and apply directly to all officers, directors, and non-seasonal employees in the Universal family of companies. The Board of Directors also adopted our Human Rights Policy, which defines the high ethical and social standards we implement across our global operations. We support these rights and programs through compliance communications, face-to-face and online training, and an anonymous compliance hotline that we maintain globally. Our compliance hotline is available to all our employees and any other interested parties 24 hours a day, 7 days a week, by internet or phone. The Board of Directors oversees our global compliance program and receives reports from our Chief Compliance Officer at each quarterly Board of Directors meeting.
Employee Compensation and Benefits
We offer our employees competitive base salaries and wages, and we have a salary administration process where we regularly review and adjust our employees' total compensation and benefits when warranted to ensure they are competitive in our industry and are aligned with our performance. In addition, we believe employee benefits are an essential component of our total compensation package. Each of our global operations provides benefits that are designed to attract and retain our employees. These benefits vary depending on the location, seniority, and employment status of our employees, and can include medical insurance, long-term disability insurance, retirement benefits, and similar programs.
In the United States, benefits to our employees include medical, dental, disability and life insurance, flexible spending accounts, and a 401(k) Retirement Plan with a 5% match and immediate vesting. We provide a health care advocacy service to assist our employees with various medical needs as they make these decisions, and we provide a mental health and financial counseling program for our employees and their families. We also offer other benefits which may vary by location, but which include performance, holiday, attendance and other bonus opportunities, a tuition assistance program (offering assistance up to 75%) as well as a 501(c)(3) matching gift program to benefit communities in which our employees work and reside.
We support our employees outside of work through a variety of initiatives and strongly believe that our success relies on the prosperity of the communities in which we operate. We fund various programs that enhance local communities, economies, and cultures. For example, in numerous locations we support projects designed to impact our employees and their families such as establishing health clinics and wellness programs to assist our employees, administering after school care for schoolchildren, or funding local cultural events. Ultimately, we recognize our impact extends beyond the workplace and are proud to engage as both active corporate citizens and leaders in our neighborhoods, communities, and countries. We publicly disclose additional information about our community support activities each year in our Sustainability Report.
Talent Development and Training
Employee training and development of both technical and leadership skills are integral aspects of our human capital strategy. We provide employees with a range of development opportunities that vary by location and seniority of employees, such as online training and live classes. These programs often include safety and technical job skill training as well as programs focused on soft skills such as effective communication. Development of leadership skills is also a priority and is specialized for different levels of employees. For example, members of management in our global operations participate in our succession planning programs, which include the identification of employees who are offered development opportunities for career advancement. To further develop leadership skills, we also maintain some specific leadership programs for aspiring leaders and new supervisors, managers and directors.
Health and Safety
The health and safety of our employees is at the forefront of our business efforts. We are committed to the prevention of injury and illness in the workplace through strong health and safety management, employee empowerment and accountability, and strict compliance with health and safety regulations. Our programs are designed to influence our Company's culture through employee engagement and leadership behavior. We pair our health and safety management system with a strong database reporting tool to allow all Universal facilities to track their local occupational health and safety performance and that of the entire company. These reports allow our global teams to analyze the insights collected from our health and safety system immediately to support compliance and promote continuous improvement.
Additionally, we utilize other health and safety initiatives to ensure our facilities remain safe for our employees. We established health and safety metrics across our tobacco factory and agronomy operations. Each factory carries out an in-depth data analysis of prior data and implements health and safety metrics for improvement and monitoring. By giving employees a goal to achieve and monitor, they will be more engaged in what they do and better able to help us succeed. Our "fresh eyes" approach to workplace safety involves inviting colleagues from different facilities to share in cross-auditing tasks. In addition to corporate audits, we encourage this regional cross-auditing to promote a collaborative framework and drive our employee safety programs forward.
Legal compliance is a fundamental aspect of our health and safety practices. Universal companies seek to adhere to full compliance with health and safety laws and regulations and cooperate with local authorities to maintain strong health and safety programs. As part of our commitment to a robust supply chain, our policies require our suppliers and partners to uphold healthy and safe work environments in compliance with all relevant regulations.
Research and Development
While we invest in research and development activities in both our Tobacco Operations and Ingredients Operations segments, these costs as a portion of global expenditures were not material during the fiscal years ended March 31, 2025, 2024, or 2023.
Intellectual Property
We hold no material patents, licenses, franchises, or concessions.
Government Regulation, Environmental Matters, and Other Matters
Our business is subject to general governmental regulation in the United States and in foreign jurisdictions where we conduct business. Such regulation includes, but is not limited to, matters relating to environmental protection. To date, governmental provisions regulating the discharge of material into the environment have not had a material effect upon our capital expenditures, earnings, or competitive position. See Item 1A, "Risk Factors" for a discussion of government regulations and other factors that could have a material adverse effect on our business.
Information About Our Executive Officers
See Item 10. "Directors, Executive Officers, and Corporate Governance" of this Annual Report.
Item 1A. Risk Factors
The risks and uncertainties described below are those that we currently believe could materially adversely affect us. Other risks and uncertainties that we do not presently consider to be material or of which we are not presently aware may become important factors that affect us in the future. If any of the risks discussed below actually occur, our business, financial condition, operating results or cash flows could be materially adversely affected. Accordingly, you should carefully consider the following risk factors, as well as other information contained in or incorporated by reference in this Annual Report.
Operating Factors
In areas where we purchase leaf tobacco directly from farmers, we bear the risk that the tobacco we receive will not meet quality and quantity requirements.
When we contract directly with tobacco farmers or tobacco farmer cooperatives, which is the method we use to purchase tobacco in most countries, we bear the risk that the tobacco delivered may not meet customer quality and quantity requirements. If the tobacco does not meet such market requirements, we may not be able to fill all of our customers' orders, and such failure could have a material adverse effect on our profitability and results of operations. In a contract market our obligation is to purchase the entire tobacco plant, which encompasses many leaf styles, therefore, we also have a risk that not all of that production will be readily marketable at prices that support acceptable margins. In addition, in many countries where we purchase tobacco directly from farmers, we provide them with financing for crop advances. Unless we receive marketable tobacco that meets the quality and quantity specifications of our customers, we bear the risk that we will not be able to fully recover our crop advances or recover them in a reasonable period of time.
The leaf tobacco industry is competitive, and we are heavily reliant on a few large customers.
We are one of two major independent global competitors in the leaf tobacco industry, both of whom are reliant upon a few large customers. The loss of one of our large customers or a significant decrease in their demand for our products or services could significantly decrease our sales of products or services, which could have a material adverse effect on our results of operations. The competition among leaf tobacco suppliers and dealers is based on the ability to meet customer requirements in the buying, processing, and financing of tobacco, and on the price charged for products and services. Since we rely upon a few significant customers, the consolidation or failure of any of these large customers, or a significant increase in their vertical integration, could contribute to a significant decrease in our sales of products and services.
We compete for both the purchase and sale of leaf with smaller leaf tobacco suppliers in some of the markets where we conduct business. Some of these smaller leaf tobacco suppliers operate in more than one country. Since they typically provide little or no support to farmers, these leaf tobacco suppliers typically have lower overhead requirements than we do. Due to their lower cost structures, they often offer prices on products and services that are lower than our prices. Some of our customers also directly source leaf tobacco from farmers to meet some of their raw material needs. Direct sourcing provides our customers with some qualities and quantities of leaf tobacco that they prefer not to use in their existing blends and that may be offered for sale. This competition for both the sale and purchase of leaf, both with smaller leaf tobacco suppliers and direct sourcing, could reduce the volume of the leaf we handle and could have a material adverse effect on our financial results.
Our financial results can be significantly affected by changes in the balance of supply and demand for leaf tobacco.
With respect to our leaf tobacco operations, our financial results can be significantly affected by changes in the overall balance of worldwide supply and demand for leaf tobacco. The demand for leaf tobacco, which is based upon customers' expectations of their future requirements, can change from time to time depending upon factors affecting the demand for their products. Our customers' expectations and their demand for leaf tobacco are influenced by a number of factors, including:
trends in the global consumption of cigarettes,
trends in consumption of cigars and other tobacco products,
trends in consumption of alternative tobacco products, such as electronic nicotine delivery systems ("ENDS") and non-combustible products,
levels of competition among our customers, and
regulatory and governmental factors.
The world supply of leaf tobacco at any given time is a function of current tobacco production, inventories held by manufacturers, and the stocks of leaf tobacco held by leaf tobacco suppliers. Production of tobacco in a given year may be significantly affected by such factors as:
demographic shifts that change the number of farmers or the amount of land available to grow tobacco,
decisions by farmers to grow crops other than leaf tobacco,
volume of annual tobacco plantings and yields realized by farmers,
availability of crop inputs,
weather and natural disasters, including any adverse weather conditions that may result from climate change, and
crop infestation and disease.
Any significant change in these factors could cause a material imbalance in the supply of and demand for tobacco, which could have a material adverse effect on our results of operations.
Our financial results will vary according to tobacco growing conditions, customer requirements, and other factors. These factors could also limit the ability to accurately forecast our future performance and increase the risk of an investment in our common stock or other securities.
Our financial results, particularly our year-over-year quarterly comparisons, may be significantly affected by variations in tobacco growing seasons and fluctuations in crop sizes. The timing of the cultivation and delivery of tobacco is dependent upon a number of factors, including weather and other natural events, and our processing schedules and our results of operations can be significantly altered by these factors. In addition, the potential impact of climate change is uncertain and may vary by geographic region. The possible effects of climate change could include changes in rainfall patterns, water shortages, changing storm patterns and intensities, and changing temperature levels that could increase our costs and adversely impact our business operations and the supply and demand for leaf tobacco. Our operations also rely on dependable and efficient transportation services. A disruption in transportation services, as a result of climate change or otherwise, could also significantly impact our results of operations.
Further, the timing of customer orders and shipments may vary and could require us to keep tobacco in inventory for longer than we initially anticipated and also result in variations in quarterly and annual financial results. We base sales recognition on meeting our performance obligation under our contract with the customer, which generally occurs with the passage of ownership of the tobacco. Since individual shipments may represent significant amounts of revenue, our quarterly and annual financial results could vary significantly depending on the timing of needs and shipping instructions of our customers and the availability of transportation services. These fluctuations result in varying volumes and sales in given periods, which also reduce the comparability of our financial results.
Major shifts in customer requirements for leaf tobacco supply could significantly affect our operating results.
If our customers significantly alter their requirements for tobacco volumes from certain regions, we may have to alter our fixed asset base in certain regions. Permanent or long-term reduction in demand for tobacco from regions where we have operations may trigger restructuring and impairment charges. We may also need to make significant capital investments in other regions to develop the needed infrastructure to meet customer supply requirements.
We may not be able to increase prices to fully offset inflationary, tariff, and other pressures on costs, such as raw products, packing materials, labor, energy, and distribution costs.
As a supplier of leaf tobacco and plant-based ingredients, we source our raw materials globally and rely on labor, energy, packing materials, and distribution resources to produce and distribute our products. Many of these materials and inputs are subject to price fluctuations from a number of factors, including changes in crop sizes, crop qualities, crop disease, product scarcity, fertilizer costs, energy costs, labor costs, currency fluctuations, import and export requirements (including tariffs), adverse weather events, pandemic illness, political instability or military conflict, and other factors that may be beyond our control.
Recently, the U.S. has announced or implemented significant new tariffs on imports from a wide range of countries, which has prompted retaliatory tariffs by a number of countries and a cycle of retaliatory tariffs by both the United States and other countries. In early April 2025, actions were taken by the United States and certain other countries to delay the effective date of certain of these tariffs; however, as of the date of this Annual Report a number of new tariffs remain in place. These actions have resulted in, and are expected to continue to result in, retaliatory measures on U.S. goods.
While we try to mitigate some or all cost increases in the supply chain, we may not be successful in sufficiently mitigating the impacts of cost increases and may be required to absorb the cost increases. To the extent that price increases are not sufficient to offset the cost increases or we experience reductions in sales volumes due to tariffs or other factors outside of our control, our business results and financial condition may be materially and adversely affected.
Weather and other conditions can affect the marketability of our products.
Tobacco and other agricultural crops are subject to vagaries of weather and the environment that can, in some cases, change the quality or size of the crops. Severe weather conditions may occur with higher frequency or may be less predictable in the future due to the effects of climate change. If a weather event or other event is particularly severe, such as a volcanic eruption, major drought, hurricane, cyclone, typhoon, windstorm, or extreme temperatures or precipitation, the affected crop could be destroyed or damaged to an extent that it would be less desirable to our customers. Any reduction in our sales of a crop due to weather or other event could have a material adverse effect on our results of operations. If such an event is also widespread, it could affect our ability to acquire the quantity of tobacco or plant-based ingredients required by our customers or could prevent or
impair our ability to process or ship products as planned. In addition, other factors could affect the marketability of our products, including, among other things, the presence of excess residues of crop protection agents or non-crop related materials. A significant event impacting the condition or quality of a large amount of any of the crops that we buy could make it difficult for us to sell these products or to fill customers' orders, which could have a material adverse effect on our results of operations.
Legal, regulatory, or other market measures to address climate change could negatively affect our business operations.
The increasing concern over climate change may result in more regional, federal, foreign or global legal and regulatory requirements to reduce or mitigate the effects of greenhouse gases. In the event that such regulation is enacted and is more aggressive than the sustainability measures that we and our suppliers are currently undertaking to monitor our emissions and improve energy and resource efficiency, we could experience significant increases in our material and production costs. Our suppliers would likely pass all or a portion of their increased costs along to us. We may not be able to pass all resulting cost increases to our customers. Furthermore, we may be required to make additional investments of capital to maintain compliance with new laws and regulations. As a result, climate change or increased concern over climate change could have a material adverse effect on our business or results of operations.
Our plant-based ingredients business is subject to industry-specific risks which could have a material adverse effect on our results of operations.
Our plant-based ingredients business is subject to risks applicable to the food and beverage industry such as those posed by food spoilage or food contamination; shifting consumer preferences; federal, state, and local food processing regulations; product tampering; and product liability claims. If one or more of these risks were to materialize, our results of operations could be materially and adversely affected, and our reputation could be damaged.
Disruption of our supply chain for our plant-based ingredients operations could have a material adverse effect on our business.
Damages or disruption to raw material supplies or our manufacturing or distribution capabilities due to weather, climate change, natural disaster, fire, terrorism, cyber-attack, pandemics, governmental restrictions or mandates, strikes, import/export restrictions, tariffs, political instability or military conflict, or other factors could impair our ability to produce or sell our plant-based ingredients products. Many of our plant-based ingredients product lines are manufactured at a single location or require raw materials that are currently sourced from a limited number of regions. The failure of third parties on which we rely, including those third parties who supply our raw materials, packaging, capital equipment and other necessary operation materials, to meet their obligations to us, or significant disruptions in their ability to do so, could negatively impact our operations, as well as require us to use additional resources and incur additional expenses to restore our supply chain.
We may not be successful in pursuing strategic investments or acquisitions or realize the expected benefits of those transactions because of integration difficulties and other challenges.
While we may identify opportunities for acquisitions and investments to support our growth strategy, as well as divestiture opportunities, our due diligence examinations and positions that we may take with respect to appropriate valuations for acquisitions or divestitures and other transaction terms and conditions could hinder our ability to successfully complete business transactions to achieve our strategic goals. We compete with other acquisitive entities for suitable acquisition candidates. This competition could increase the price for acquisitions and reduce the number of acquisition candidates available to us. As a result, our ability to acquire businesses in the future, and to acquire such businesses on favorable terms, could be limited. In addition, our ability to realize the anticipated benefits from acquisitions will depend, in part, on successfully integrating each business with our Company as well as improving operating performance and profitability through our management efforts and capital investments. The risks to a successful integration and improvement of operating performance and profitability include failure to implement our business plan, unanticipated issues in integrating operations with ours, unanticipated changes in laws and regulations, regulatory, environmental and permitting issues, unfavorable customer reactions, the effect on our internal controls and compliance with the regulatory requirements under the Sarbanes-Oxley Act of 2002, and difficulties in fully identifying and evaluating potential liabilities, risks and operating issues. Additionally, in order to finance any future acquisitions, we may need to obtain additional funds either through public or private financings, including bank and other secured and unsecured borrowings and the issuance of debt or equity securities. There can be no assurance that such financings would be available to us on reasonable terms or that any future issuances of equity securities in connection with any future acquisitions will not be dilutive to our shareholders. The occurrence of any of these events could adversely affect the expected benefits of any acquisitions and could have a material adverse effect on our financial condition, results of operations or cash flows.
We may be adversely impacted if our information technology systems fail to perform adequately, including with respect to cybersecurity issues.
The efficient operation of our business depends on our information technology systems. We rely on our information technology systems, some of which are managed by third parties, to effectively manage our business data, communications, supply chain, order entry and fulfillment, and other business processes. The failure of our information technology systems (including those managed or provided to us by third parties) to perform as we anticipate could disrupt our business and have a material adverse effect on our results of operations.
In addition, our information technology systems may be vulnerable to damage or interruption from circumstances beyond our control, including fire, natural disasters, systems failures, security breaches or intrusions (including theft of confidential data), and viruses. Cyber-attacks, data breaches or other breaches of our information security systems could cause equipment failures or disruptions to our operations. Our inability to operate our networks and security information systems as a result of such events, even for a short period of time, could result in significant expenses or operating disruptions. No cybersecurity incidents that we have experienced to date have resulted in, or are reasonably likely to result in, a material adverse effect on our financial condition, results of operations, or business strategy. If we are unable to prevent physical and electronic break-ins, cyber-attacks and other information security breaches, we could suffer financial and reputational damage, be subject to litigation, or incur remediation costs or penalties because of the unauthorized disclosure of confidential information belonging to us or to our partners, customers, suppliers, or employees.
We have invested and expect to continue to invest in technology security initiatives, information technology risk management, and disaster recovery plans. The cost and operational consequences of implementing, maintaining, and enhancing further data or system protection measures could increase significantly to overcome increasingly frequent, complex, and sophisticated cyber threats. Our efforts to deter, identify, mitigate, or eliminate future cyber threats could require us to incur significant additional expense and may not be successful.
The inability for us to attract, develop, retain, motivate, and maintain good relationships with our workforce, including key personnel, could have a material adverse effect on our business and our profitability.
Our future success depends on our ability to attract, develop, retain, motivate, and maintain good relationships with qualified personnel, particularly those who have extensive expertise in leaf tobacco or plant-based ingredients operations and who may also have long service with our Company. We have such personnel in our senior executive leadership as well as in other key areas throughout our U.S. and international operations such as procurement, manufacturing, and sales.
Changes in labor markets and other socioeconomic and demographic changes have increased the competition for hiring and retaining talent. As a result of this competition, we may be unable to continue to attract, develop, retain, motivate, and maintain good relationships with suitably qualified individuals at acceptable compensation levels who have the managerial, operational, and technical knowledge and experience to meet our needs. Furthermore, the failure to execute on internal succession plans or to effectively transfer knowledge from exiting employees to others in the organization could have a material adverse effect on our business and results of operations. Even if we succeed in hiring new personnel to fill vacancies, lengthy training and orientation periods may be required before new employees are able to achieve necessary productivity levels. Any failure by us to attract, develop, retain, motivate, and maintain good relationships with qualified individuals could have a material adverse effect on our business and results of operations.
We are dependent on a seasonal workforce to meet our operational needs.
Our operations depend in part on our ability to attract, train, motivate and retain qualified employees, many of whom are seasonal employees. We seek to manage seasonal wages and the timing of the hiring process to have the appropriate workforce in place for peak and low seasons. Many of our operations are located in rural communities that may not have sufficient labor pools. If we are unable to hire sufficient personnel or successfully manage our seasonal workforce needs, we may not be able to meet our operational needs, which could have a material adverse effect on our financial results.
Epidemics, pandemics or similar widespread public health concerns could have a material adverse effect on our business, financial condition, results of operations and demand for our products and services.
Epidemics, pandemics or similar public health concerns could cause a widespread health crisis and significantly disrupt the U.S. and global economies, markets and supply chains. The ultimate impact of any future pandemic or disease outbreak on our business, financial condition, results of operations and the demand for our products and services in the future is uncertain, and it is impossible to predict whether any impacts we have experienced to date would continue or worsen in the future. The extent to which any pandemic or disease outbreak will impact our business, financial condition, results of operations, and demand for our products and services will depend on future developments including the geographic spread of the health crisis, the impact of disease mutations, the severity and duration of the health crisis, and the type and duration of actions that may be taken by various governmental authorities in response to the pandemic or disease outbreak and the impact on the U.S. and the global economies, markets, and supply chains. Adverse public health developments in countries and states where we operate, therefore, could have a material adverse effect on our business, financial condition, results of operations, and the demand for our products and services. These effects could include a negative impact on the availability of our employees, temporary closures of our facilities or the facilities of our business partners, customers, suppliers, third-party service providers or other vendors, and the interruption of domestic and global supply chains, distribution channels, liquidity and capital markets. While we have business continuity plans and other safeguards in place to mitigate the results of adverse public health developments in the countries where we operate, the business continuity plans and safeguards may not be effective to mitigate the results of epidemics, pandemics, or similar widespread health concerns.
Regulatory and Governmental Factors
Government efforts to regulate the production and consumption of tobacco products could have a significant impact on the businesses of our leaf tobacco customers, which would, in turn, have a material adverse effect on our results of operations.
Governments continue their efforts to reduce the consumption of tobacco products globally by advancing regulations that, among other things, restrict or prohibit tobacco product use, advertising and promotion, increase taxes on tobacco products, limit nicotine levels in tobacco products, or eliminate the use of characterizing flavors.
A number of such measures are included in the World Health Organization ("WHO") Framework Convention on Tobacco Control ("FCTC"), which entered into force on February 27, 2005, and currently has 183 Parties to the Convention. While the U.S. is a signatory of the FCTC, it is not currently a party to the agreement, as the agreement has not been submitted to, or ratified by, the U.S. Senate. The Conference of the Parties ("COP"), which is the governing body of the WHO FCTC and is comprised of all Parties to the Convention, meets every two years to consider amendments to the agreement and track progress in the implementation of the treaty's 38 articles. It is not possible to predict how the signatories to the FCTC may choose to fulfill their obligations or the manner or the pace with which they may implement the FCTC articles, and they may take actions that could restrict or prohibit tobacco usage that could materially affect our business and our results of operations.
We also cannot predict the extent or speed at which the efforts of governments or non-governmental agencies to reduce tobacco consumption might affect the business of our primary customers. However, a significant decrease in worldwide tobacco consumption brought about by existing or future laws and regulations would reduce demand for tobacco products, which could have a material adverse effect on our results of operations.
Government actions on the sourcing of leaf tobacco could result in increased barriers in meeting our customers' requirements, which could have a material adverse effect on our performance and results of operations.
A variety of government actions may have a significant effect on the sourcing and production of leaf tobacco. For example, the WHO, through the FCTC, has specifically issued policy options and recommendations to promote crop diversification initiatives and alternatives to growing leaf tobacco in countries whose economies depend upon tobacco production. If certain countries were to follow these policy recommendations and seek to eliminate or significantly reduce leaf tobacco production, we could encounter difficulty in sourcing leaf tobacco from these regions to fill customer requirements, which could have a material adverse effect on our results of operations.
Certain recommendations by the WHO, through the FCTC, could also cause shifts in customer usage of certain styles of tobacco. In countries such as Canada and Brazil and in the European Union, efforts have been taken to eliminate certain ingredients from the manufacturing process for tobacco products. The FCTC and national governments have also discussed formulating a strategy to place limitations on the level of nicotine allowed in tobacco and tobacco smoke. Such decisions could cause a change in requirements for certain styles of tobacco in particular countries. Shifts in customer demand from one type of tobacco to another could create sourcing challenges as requirements move from one origin to another.
Regulations impacting our customers that change the requirements for leaf tobacco or restrict their ability to sell their products would inherently impact our business. We have established programs that begin at the farm level to assist our customers' collection of raw material information to support leaf traceability and customer testing requirements, including the identification of nicotine levels. Additionally, given our global presence, we also can source different types and styles of tobacco for our customers should their needs change due to regulation. Despite our programs, the extent to which governmental actions will impact our business, financial condition, results of operations and demand for our products and services will depend on future developments, which are highly uncertain and cannot be predicted.
Changes in bilateral, multilateral, and international trade agreements also have the potential to disrupt or impact our operations. For example, some trade proposals have included provisions that could effectively allow governments to regulate tobacco products differently than other products. These carve outs could negatively impact the industry and impact requirements for leaf tobacco, which could have a material adverse effect on our business and our results of operations.
We conduct a significant portion of our operations internationally, so political and economic uncertainties in particular countries could have a material adverse effect on our business and results of operations.
Our international operations are subject to uncertainties and risks relating to the political stability of certain foreign governments, principally in developing countries and emerging markets, as well as to the effects of changes in the trade policies and economic regulations of foreign governments. These uncertainties and risks, which include undeveloped or antiquated commercial law, the expropriation, indigenization, or nationalization of assets, and the authority to revoke or refuse to renew business licenses and work permits, could adversely impact our ability to effectively manage our operations in those countries. We have substantial capital investments in South America and Africa, and the performance of our operations in those regions can materially affect our earnings.
Our customers' operations are subject to similar uncertainties and risks relating to the political stability of the foreign governments in the countries in which their operations are located. Political or economic instability in those countries could impede or disrupt our ability to meet our customers' needs in or our ability to source raw materials from those impacted countries.
If the political situation in any of the countries where we conduct business were to deteriorate significantly, our ability to recover assets located there could be impaired. To the extent that we do not replace any lost volumes of leaf tobacco with leaf tobacco from other sources, or we incur increased costs related to such replacement, our financial condition or results of operations, or both, could be materially and adversely affected. In addition, if we are unable to supply leaf tobacco to our customers' locations or otherwise conduct business with our customers due to political stability or interference in their countries of operation, or if we incur increased costs related to such challenges, our performance and results of operations could be materially and adversely affected.
Increasing scrutiny and changing expectations from governments, as well as other stakeholders such as investors and customers, with respect to our sustainability considerations may impose additional costs on us or expose us to additional risks.
Governments, the non-governmental community, and industry increasingly understand the importance of implementing comprehensive environmental, labor, and governance practices. Our commitment to sustainability remains at the core of our business, and we continue to implement what we believe are responsible sustainability practices. Government regulations, however, could result in new or more stringent forms of sustainability oversight and disclosures. These may lead to increased expenditures for environmental controls, land use restrictions, reporting, and other conditions which could have a material adverse effect on our business and results of operations.
In addition, a number of governments are considering due diligence procedures to ensure strict compliance with environmental, labor, and government regulations. The European Union has recently adopted broad due diligence reporting requirements for all industries operating within Europe. The United States has called for a broader and more robust approach to labor compliance in foreign jurisdictions, which could include some of our strategic origins. Due to general uncertainty regarding the timing, content, and extent of any such regulatory changes in the United States or abroad, we cannot predict the impact, if any, that these changes could have to our business, financial condition, and results of operations.
Changes in tax laws in the countries where we do business could have a material adverse effect on our results of operations.
We operate globally and are subject to the tax laws of multiple jurisdictions in the United States and abroad. Changes in tax laws or the interpretation of tax laws can affect our earnings, as can the resolution of various pending and contested tax issues. For example, multiple countries in which we operate have enacted or are in the process of enacting legislation to adopt the Global Anti-Base Erosion Model Rules (Pillar Two) issued by the Organization for Economic Co-operation and Development (the "OECD"). For those jurisdictions that have legislation with an effective enactment date of January 1, 2024, these rules apply beginning with the current fiscal reporting year. We continue to evaluate, interpret, and apply the new rules and will review any
subsequent changes that may be retroactive. We will continue to monitor potential and enacted tax changes in the jurisdictions in which we operate. The impact of the changes in tax rules and regulations could have a material adverse effect on our effective tax rate.
Financial Factors
We have identified a material weakness in our internal control over financial reporting and, if we are not able to remediate the material weakness, or if we identify additional material weaknesses in the future or otherwise fail to design and maintain effective internal control over financial reporting, we may be unable to accurately report our results of operations, meet our reporting obligations or prevent misstatements due to fraud or error.
Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of March 31, 2025. Based on this assessment, our management concluded that our internal control over financial reporting was not effective as of March 31, 2025 as a result of certain deficiencies that were determined to constitute a material weakness in our internal control over financial reporting. Specifically, we determined that the internal controls at one of our tobacco subsidiaries were not effectively documented and executed to ensure that the existence of all dark air-cured tobacco inventories subject to physical inventory counts were appropriately counted, and that the controls related to the compilation and reconciliation of the related inventory to ensure complete and accurate reporting of inventory in the consolidated financial statements were not effective. Under standards established by the Public Company Accounting Oversight Board, a material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of a company's annual or interim financial statements will not be prevented or detected on a timely basis.
While this material weakness did not result in a material misstatement of our consolidated financial statements for the fiscal year ended March 31, 2025, these control deficiencies had not been remediated as of March 31, 2025, and there is a reasonable possibility that they could have resulted in a material misstatement in our annual or interim consolidated financial statements that would not be prevented or detected. We, under the oversight of the Audit Committee, have taken steps to implement our remediation plan. However, the material weakness will not be considered remediated until the enhanced controls
Disclaimer
Universal Corporation published this content on July 01, 2025, and is solely responsible for the information contained herein. Distributed via Public Technologies (PUBT), unedited and unaltered, on July 01, 2025 at 19:25 UTC.