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Item 1. Business

2024-05-29 compared with 2023-05-25 · 148 added, 184 removed, 111 unchanged (75% of the section changed)

We are a global business-to-business agri-products supplier to consumer product manufacturers, operating in over 30 countries on five continents.

We strive to be the supplier of choice for our customers by leveraging our farmer base, our commitment to a sustainable supply chain, and our ability to provide high-quality, customized, traceable, value-added agri-products essential for our customers’ requirements.

We find innovative solutions to serve our customers and have been meeting their agri-product needs for more than 100 years.

Our principal focus since our founding in 1918 has been tobacco, and we are the leading global leaf tobacco supplier.

The largest portion of our business involves procuring and processing flue-cured, burley, and dark air-cured leaf tobacco for manufacturers of consumer tobacco products.

Through our plant-based ingredients platform, we provide a variety of value-added manufacturing processes to produce high-quality, specialty vegetable- and fruit-based ingredients as well as botanical extracts and flavorings for human and pet food end markets.

We do not manufacture any direct-to-consumer products.

Rather, we support consumer product manufacturers by selling them agri-products and performing related services for them.

Recognizing that leaf tobacco is a mature industry, we have been positioning our company for the future by investing in and strengthening our plant-based ingredients platform, while maintaining our position as the leading global leaf tobacco supplier.

In fiscal year 2023, we continued to enhance and increase the capabilities of our plant-based ingredients platform.

We have been achieving operational synergies across the platform among our acquired businesses, FruitSmart, Inc.

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.

Recognizing that leaf tobacco is a mature industry, we have been positioning our company for the future by investing in and growing Universal Ingredients, our plant-based ingredients platform, while leveraging our position as the leading global leaf tobacco supplier to maximize opportunities in the leaf tobacco business.

In fiscal year 2024, we continued to enhance and increase the capabilities of Universal Ingredients to drive value creation.

We have been achieving operational synergies across the platform among our acquired businesses, including FruitSmart, Inc.

(“FruitSmart”), acquired on January 1, 2020, Silva International, Inc.

(“Silva”), acquired on October 1, 2020, and Shank’s Extracts, LLC (“Shank’s”), acquired on October 4, 2021.

We have also made considerable progress on our vision for the segment, providing a total solution-based approach for our customers that utilizes our broad spectrum of capabilities in fruits, vegetables and botanical extracts and flavorings.

We have also made considerable progress on our vision to provide a total solutions-based portfolio of value-added product offerings to our customers.

Additionally, we intend to continue to enhance our product offerings over the longer term by leveraging Universal’s existing global sourcing capabilities, strong relationships with our farmer base, sustainability practices, and agronomic expertise.

We generated approximately $2.7 billion in consolidated revenues and earned $222.0 million in total operating income and $226.3 million in total segment operating income in fiscal year 2024.

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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 Committee, the Executive Committee, the Finance and Pension Investment Committee, and the Nominating and Corporate Governance Committee are available free of charge to shareholders and the public through the “Corporate 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, www.universalcorp.com.

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Tobacco Operations

Our primary business is contracting, procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to manufacturers of consumer tobacco products throughout the world.

Procuring leaf tobacco involves contracting with, providing agronomy support to, and financing farmers in many origins.

We do not manufacture cigarettes or other consumer tobacco products.

Rather, we support consumer product manufacturers by selling them processed leaf tobacco and performing related services for them.

Through various operating subsidiaries and unconsolidated affiliates located in tobacco-growing origins around the world, we contract, purchase, process, and sell flue-cured, burley, and dark air-cured tobaccos, as well as oriental tobaccos.

Flue-cured, burley, and oriental tobaccos are used principally in the manufacture of cigarettes as well as in shisha, while dark air-cured tobaccos are used mainly in the manufacture of cigars, natural wrapped cigars and cigarillos, smokeless, and pipe tobacco products.

Some of these tobacco types are also increasingly used in the manufacture of next generation tobacco products that are intended to provide consumers with a reduced-risk alternative to traditional combustible tobacco products.

We also provide value-added services to our customers, including blending, chemical and physical testing of tobacco, service cutting for select manufacturers, manufacturing reconstituted leaf tobacco, and managing just-in-time inventory.

Several important operating factors characterize our Company and our primary business, leaf tobacco:

• Experience dealing with large numbers of farmers,

• Expertise in delivering a sustainable supply of compliant, traceable, competitively priced leaf tobacco,

• Capability to meet unique customer requirements for style, volume and quality,

• Longstanding customer, farmer and community relationships,

• Presence in all major leaf tobacco sourcing areas, and

• Financial strength and flexibility.

In addition to our leaf tobacco business, we are involved in other smaller-scale tobacco opportunities.

Our wholly-owned subsidiary, AmeriNic, Inc., produces liquid nicotine for next generation tobacco products.

AmeriNic’s products are manufactured under stringent United States Pharmacopeia standards.

Global Laboratory Services, Inc., another wholly-owned subsidiary, provides testing for crop protection agents and tobacco constituents in seed, leaf, and finished products, including e-cigarette liquids and vapors, and has capabilities for testing non-tobacco products.

Analytical services include chemical compound testing in finished tobacco products and mainstream smoke.

We also have a U.S.

based business that recycles waste materials from tobacco production.

We believe that by following several key operating principles in our tobacco operations we can continue to produce good financial returns and enhance shareholder value.

These key operating principles are:

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 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.

This 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 flue-cured and burley 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.

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.

We work closely with both our customers and our suppliers to ensure that we deliver a product that meets our customers' needs while cultivating a strong, sustainable supplier base.

We balance product purchases against indicated customer demand and maintain global procurement and production operations to maximize supply chain efficiencies.

By working closely with both our customers and our suppliers throughout the year, we ensure the consistent delivery of a product that meets our customers' needs and cultivate a strong, sustainable supplier base.

We also maximize supply chain efficiencies by balancing product purchases against indicated customer demand and maintaining global procurement and production operations.

• Strong local management .

Having strong local management in all of our key supply origins allows us to identify and react to constantly shifting market conditions.

Empowered and experienced local management, coupled with global coordination, affords us the flexibility and knowledge necessary to adapt quickly in order to continually deliver high quality, competitively priced products and services.

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 product, and we believe that we lead in delivering these products.

Among other initiatives, we invest in training farmers in good agricultural practices ("GAP") that encompass crop quality, sustainability, environmental stewardship and agricultural labor standards.

Customers expect a sustainable supply of compliant, traceable, competitively priced products, and we meet this demand through our investment in GAP training for farmers which encompasses crop quality, environmental stewardship, and agricultural labor standards.

• Diversified sources.

Our business is reliant on a strong and resilient supply chain, which enables us to deliver a stable supply of quality products to our customers.

We operate in over 30 countries on five continents and maintain a presence in all major flue-cured, burley, oriental, and dark air-cured tobacco origin markets.

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 and enables us to fund our global operations efficiently and to facilitate investment when suitable opportunities arise.

Management of liquidity, interest expense, 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.

With respect to our leaf tobacco business, we generate our revenues from product sales of processed, packed tobacco that we source, from processing fees for tobacco owned by third parties, and from fees for other services.

Sales to our largest customers, with whom we have longstanding relationships, have accounted for more than 60% of our consolidated revenues for each of the past three fiscal years.

Our sales consist primarily of flue-cured, burley, and dark air-cured tobaccos.

For the fiscal year ended March 31, 2023, our Tobacco Operations segment accounted for 88% of our revenues and 94% of our segment operating income.

We conduct our leaf 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 Turkey.

Because unprocessed, or “green,” leaf tobacco is a perishable product, timely processing is an essential service to our customers.

Our processing of leaf tobacco includes grading in the factories, blending, removal of non-tobacco material, separation of leaf from the stems, drying, packing to precise moisture targets for proper aging, as well as temporary storage.

This generally requires investments in factories and machinery in areas where tobacco is grown.

Processed tobacco that has been properly packed can be stored by customers for a number of years prior to use, but most processed tobacco is used within two to three years.

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 China.

We estimate that over the last five years we have handled, through leaf sales or processing, on average between 25% and 35% of the annual production of such tobaccos in Africa, between 35% and 45% in the United States, and between 15% and 25% in Brazil.

These percentages can change from year to year based on the size, price, and quality of the crops.

We participate in the procurement, processing, storage, and sale of oriental tobacco through ownership of a 49% equity interest in Socotab, a leading supplier of oriental tobaccos.

In addition, we maintain a presence, and in certain cases, a leading presence, in all other major tobacco growing regions in the world.

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, our long-standing relationships with customers, our development of processing equipment and technologies, and our financial position which enables us to make strategic investments in our business.

The efficiencies that we offer our customers, due to our established network of operational expertise and infrastructure on the ground and our ability to market most styles and grades of leaf to a diverse customer base, are also key to our success.

We also have a leading position in worldwide dark tobacco markets.

Our dark tobacco operations are located in most of the major producing countries and in other smaller markets.

We operate in major dark tobacco producing countries, including the United States, the Dominican Republic, Ecuador, Indonesia, Paraguay, the Philippines, and Brazil.

Dark tobaccos are typically used in the manufacture of cigars, pipe tobacco, and smokeless tobacco products, and as components of certain “roll-your-own” cigarette products.

Sales are made by our sales force and, to a much smaller degree, through the use of commissioned agents.

Most customers are long-established tobacco product manufacturers.

Customer contract arrangements vary around the world and include negotiated pricing as well as cost plus arrangements.

Discussions of a customer’s longer-term needs may begin as early as one to two years in advance of a particular crop purchase.

These discussions are key to our future crop production planning.

Prior to planting each year, we use early customer indications for type, style, processing, and volume requirements for the upcoming season’s crop to help us determine our farmer contracting and grower input needs in our origins.

We work with our farmers and customers continually throughout the crop season.

As crops progress through the growing season, customers will inspect the crop, and a customer’s early indications may be refined based upon emerging crop qualities and quantities and market pricing expectations.

Ultimately, purchase agreements specifying quantity, quality, grade and price are executed, leading to inventory allocations of harvested green or processed leaf that we have acquired.

In the majority of the countries where we operate, we contract directly with tobacco farmers or tobacco farmer cooperatives.

In most countries outside the United States and the European Union, we advance seed or seedlings, fertilizer, and other agricultural inputs to farmers.

These advances are repaid by farmers with the tobacco they produce.

We are dedicated to promoting a sustainable farmer base and provide our farmers with agronomy support.

Our GAP programs educate farmers in such matters as the reduction of non-tobacco related materials, product traceability, environmental sustainability, agricultural labor standards, and social responsibility.

Our foreign operations are subject to international business risks, including unsettled political conditions, expropriation, import and export restrictions, exchange controls, and currency fluctuations.

During the tobacco season in many of the countries listed above, we advance funds, guarantee local loans, or do both, each in substantial amounts, for the eventual purchase of tobacco.

The majority of these seasonal advances and loan guarantees mature in one year or less upon the farmers’ delivery of

contracted tobaccos.

Most advances to farmers are denominated in local currency, which is a source of foreign currency exchange rate risk.

Most tobacco sales are denominated in U.S.

dollars, which reduces our foreign currency exchange risk after the tobacco has been purchased.

See Item 1A, “Risk Factors” for more information about our foreign currency exchange and other international business risks.

Financial strength is critical to our existing global operations and enables us to invest in suitable opportunities when they arise.

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.

Our tobacco operations are seasonal in nature.

Tobacco in Brazil is usually purchased from January through July, while buying in Malawi, Mozambique, Zimbabwe, and other African countries typically begins around April and continues through November.

Farmers begin to sell U.S.

flue-cured tobacco in late July, and the marketing season lasts for approximately four months.

We normally operate each of our tobacco processing plants for seven to nine months of the year.

During this period for each region, inventories of green tobacco, inventories of processed tobacco, and trade accounts receivable normally reach peak levels in succession.

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.

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A material part of our tobacco business is dependent upon a few customers.

Our largest customers are Altria Group Inc., British American Tobacco plc, China Tobacco International, Inc., Imperial Brands plc, Japan Tobacco, Inc., Philip Morris International, Inc., and Swedish Match AB.

In the aggregate, these customers have accounted for more than 60% of our consolidated revenues for each of the past three fiscal years.

For the fiscal year ended March 31, 2023, each of British American Tobacco plc, Imperial Brands plc, and Philip Morris International, Inc., including their respective affiliates, accounted for 10% or more of our revenues.

The loss of, or substantial reduction in business from, any of these customers could have a material adverse effect on our results.

We have longstanding relationships with all of these customers.

We had commitments from customers for approximately $743 million of the tobacco in our inventories at March 31, 2023.

Based upon historical experience, we usually expect that about 90% of such orders will be delivered during the following fiscal year.

Most of our products require shipment via trucks and oceangoing vessels to reach customer destinations.

Delays in the delivery of orders can result from such factors as truck and container availability, port access and capacity, vessel scheduling, and changing customer requirements for shipment.

As more fully described in Note 1 and Note 3 to the consolidated financial statements in Item 8 of this Annual Report, we recognize revenue from the sale of tobacco when we complete our contractual performance obligation for the transfer of the tobacco, which is generally when title and risk of loss is transferred to our customer.

Individual shipments may be large, and since the customer typically specifies shipping dates, our financial results may vary significantly between reporting periods due to timing of sales.

In some markets, including Brazil, Italy, the Philippines, Poland, and the United States, we process tobacco that is owned by our customers, and we recognize the revenue for that service when the processing is completed.

Sales to our largest customers, with whom we have long-standing relationships, have accounted for approximately 60% of our consolidated revenues for each of the past three fiscal years.

Our largest customers are Altria Group Inc., British American Tobacco plc, China Tobacco International, Inc., Imperial Brands plc, Japan Tobacco, Inc., and Philip Morris International, Inc.

For the fiscal year ended March 31, 2024, each of Imperial Brands plc and Philip Morris International, Inc., including their respective affiliates, accounted for 10% or more of our revenues.

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.

Competition varies depending on the market or country involved.

The number of competitors varies from country to country, but there is competition in most areas to buy and sell the available tobacco.

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”) (formerly Alliance One International, Inc.).

Pyxus operates in some of the countries where we operate.

However, we are 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.

We also have reconstituted tobacco sheet facilities and operations that handle dark air-cured tobacco and other tobaccos.

We consider ourselves and Pyxus to be the only global leaf suppliers based on our worldwide scope of operations.

Most of our major customers are partially vertically integrated, and thus also compete with us for the purchase of leaf tobacco in several of the major markets.

In most major leaf tobacco markets, smaller competitors are very active.

These competitors typically have lower overhead requirements and provide less support to customers and farmers.

Due to their lower cost structures, they can often offer a price on products that is lower than our price.

However, we believe that we provide quality controls and farm programs that add value for our customers in an increasingly regulated world and make our products highly desirable.

Our GAP support an approach to farming that is focused on sustainability, employing sound field production and labor management practices that meet our customers’ needs, promote farmer profitability, and reflect environmental sensitivity.

(“Pyxus”) (formerly Alliance One International, Inc.), 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.

Our customers value the security of supply that we are able to provide due to our strong relationships with our farmer base and our global footprint.

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

Our ingredients businesses provide our business-to-business customers with a broad range of plant-based ingredients for both human and pet consumption.

A variety of value-added manufacturing processes are used in these businesses to convert raw materials into a wide spectrum of fruit and vegetable juices, concentrates, dehydrated products, botanical extracts, and flavorings.

Our plant-based ingredients platform serves the food and beverage market, one of the largest industrial categories in the United States.

There are thousands of companies represented in this segment and hundreds that offer similar or competitive types of products.

We distinguish ourselves in this market by offering high-quality, customized product solutions with global sourcing capabilities and by having strong, long-standing customer relationships.

Customers of our ingredients businesses include large multinational food and beverage companies, as well as smaller independent entities.

No customer accounted for more than 10% of our Ingredients Operations segment revenues in fiscal year 2023.

We have been achieving operational synergies across the platform among our businesses and have also made considerable progress on our vision for the segment, providing a total solution-based approach to plant-based ingredients to our customers that utilizes our broad spectrum of capabilities in fruits, vegetables and botanical extracts and flavorings.

FruitSmart, Silva, and Shank's are the primary operations for the Ingredients Operations segment.

FruitSmart supplies a broad set of juices, concentrates, pomaces, purees, fruit fibers, seed and seed powders, and other value-added products to food, beverage and flavor companies throughout the United States and internationally.

FruitSmart processes apples, grapes, blueberries, raspberries, cherries, blackberries, pears, cranberries and strawberries as well as other fruits and vegetables.

Its top five products are apple juice concentrate, not from concentrate apple juice, concord grape, raspberry, and blueberry juice concentrates.

The business is headquartered in the Yakima Valley of the state of Washington, where it has approximately 200 employees and two manufacturing facilities:

one produces liquid products and one produces dry products.

FruitSmart is well-positioned to capitalize on recent shifts in market dynamics and consumer behavior including a secular shift towards health and wellness, favoring natural clean-label ingredient producers and the rise of fruit as a natural clean-label sweetener alternative to processed sugar.

FruitSmart also stands to benefit from growing consumer interest in better-for-you premium ingredients, including custom blends, not-from-concentrate and dry products, and strong growth in targeted end markets utilizing FruitSmart products, including ciders, purees and nutraceuticals.

Silva procures over 60 types of dehydrated vegetables, fruits and herbs from over 20 countries around the world.

In addition to sourcing, the company specializes in processing natural materials into custom designed dehydrated vegetable and fruit-based ingredients for a variety of end products.

Its top five ingredient product categories are vegetable blends, peppers, spinach, carrots, and pumpkin.

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, Silva, and Shank’s, we are positioned to deliver deeply customizable products and services 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.

Their top products are not-from-concentrate apple juice as well as apple, blueberry, concord grape, and raspberry juice concentrates.

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 2023, FruitSmart implemented several projects to improve refrigeration efficiency and installed a central refrigeration control system that substantially reduced year-over-year energy use – an approximately 15% decrease on average per month.

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 for ‘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 farmers and suppliers around the world and maintains strong quality control procedures, ensuring consistent, high-quality supply.

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.

Silva’s manufacturing facility was recently expanded and enhanced.

As a result, the business is well positioned to take advantage of increasing demand for natural and clean-label products across the end markets it serves, including within the attractive and growing savory and pet food end markets.

Shank’s produces botanical extracts, flavorings and has bottling capabilities.

Shank’s has a strong presence within the botanical extracts, flavorings, and bottling marketplace, with significant vanilla expertise.

In addition to pure vanilla extract products, Shank’s offers a robust portfolio of over 2,400 other botanical extracts, distillates, natural flavors and colors for industrial and private label customers worldwide.

Shank’s employs more than 200 people and has a 191,000 square foot manufacturing campus in Lancaster, Pennsylvania.

The acquisition of Shank’s added flavors, custom packaging and bottling, and product development capabilities to our plant-based ingredients platform.

As a result, the business is well positioned to take advantage of increasing demand for natural and clean-label products across the end markets it serves, including the growing savory and pet food end markets.

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.

Shank’s is also equipped to offer customers custom bottling and packaging for their products.

Shank’s employs more than 200 people at their 191,000 square foot manufacturing campus in Lancaster, Pennsylvania.

In May 2023, Universal announced a major expansion project at the Lancaster facility.

Upon completion, the project is expected to add an industry-leading combination of extraction, blending, and aseptic packaging.

The investment will also offer refrigerated storage and enhanced capabilities to support additional customer demand and growth into new product categories and markets.

The expansion project is expected to be fully operational by the second half of fiscal 2025.

To support Universal Ingredients, we have invested in an Ingredients Operations commercial team and a fully staffed product research and development group.

This platform-level support enables us to deliver unique, custom products to our customers.

Our newly created research and development function includes highly trained food scientists that are skilled in the creation of various food and beverages to showcase the value of our ingredients.

The commercial sales team consists of seasoned sales professionals that 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.

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, beverage companies, and many others.

Silva, our company that provides custom dehydrated vegetables, also has a large presence in the pet food market.

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.

No customer accounted for more than 10% of our Ingredients Operations segment revenues in fiscal year 2024.

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

We have a fundamental responsibility to our stakeholders to set high standards of social and environmental performance to support a sustainable supply chain and operations.

Universal is proud of the commitment we made to stakeholders in 2019 to report annually on sustainability topics that impact our business so stakeholders could better understand how we meet the high standards we set.

In the same year, our Board of Directors further evidenced our commitment to sustainability by amending our Nominating and Corporate Governance Committee charter to give the Committee oversight of our Environmental, Social and Governance ("ESG") programs.

Since that time, we have made strategic acquisitions, witnessed a global pandemic, and further strengthened our approach to sustainability at the corporate level while continuing to report annually on sustainability.

Our commitment to sustainability encompasses a wide array of programs and initiatives.

As a global agri-products supplier operating in numerous countries around the world, we primarily focus our sustainability efforts on our own operations and the farmers from whom we purchase leaf tobacco and other food 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 with respect to our supply chain emphasize important issues related to the countries and communities in which we operate.

Some of the most important issues include the protection of farm worker rights through appropriate agricultural labor practices, and the monitoring and reduction of environmental impacts through compliance with industry-recognized GAP” programs and our own environmental programs and initiatives.

As a global agricultural company, 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 and Corporate Governance Committee has primary oversight of our Environmental, Social, and Governance ("ESG") programs.

We continue to further strengthen our approach to sustainability throughout the organization in alignment with recognized best practices, regulatory compliance, and shareholder interests.

As a global agriproducts supplier operating in numerous countries around the world, 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

Throughout the world, we work side-by-side with our contracted farmers to produce a sustainable tobacco crop that adheres to GAP, including appropriate agricultural labor practices.

We are committed to extending our human rights standards to our contracted farmers and their workers, so we monitor each contracted farmer for safe and fair working conditions on their farms.

Our global Agricultural Labor Practices (“ALP”) program code, or ALP Code, consists of seven principles that set forth human rights requirements for our contracted farmers to meet.

The ALP Code requires the progressive elimination of child labor;

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 so they are free from abuse;

Fair treatment of workers.

Prohibition of forced labor.

safe working environments;

Providing safe working environments.

Recognition and respect of workers’ rights to freedom of association and collective bargaining.

and compliance with local employment laws.

As part of our ALP program, we train contracted farmers on the ALP Code requirements and we monitor their compliance through multiple in-person farm 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.

Compliance with local employment laws.

Environmental Impacts

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We recognize three primary environmental responsibilities throughout our global footprint:

responsible consumption of water and resources, responsible forestry management, and minimizing greenhouse gas emissions.

In fiscal year 2023, several environmental projects and programs were expanded and implemented to further minimize our environmental footprint, including GAP program initiatives to address environmental risks on contracted farms.

In addition, we continued to work towards our Company’s science-based greenhouse gas emissions reduction target of 30% by 2030 through the Science Based Targets Initiative.

responsible consumption of water and natural resources;

responsible forestry management;

and minimizing greenhouse gas emissions.

In fiscal year 2024, Universal continued making progress towards our sustainability goals as outlined in our annual Sustainability Report.

We made progress towards our operational emissions targets.

We also entered into a virtual power purchase agreement, which will generate renewable electricity equal to our North American footprint beginning in 2026, and entered an emissions reduction agreement expected to provide benefits to tobacco growing areas in the Philippines, which will offset a portion of our emissions in Asia beginning in 2025.

We also continued monitoring for our social supply chain targets, and for the second year in a row, we substantially met our personal protective equipment distribution, child labor elimination, farm labor accommodation, and farm labor payment goals for our contracted tobacco growers.

For a discussion of recent developments and trends in our businesses, along with factors that may affect our businesses see Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and Item 1A, “Risk Factors.”

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Workforce Overview

Our employees are among our most important resources and rely on them to execute our business plan with integrity and efficiency.

Our employees are among our most important resources, and we rely on them to execute our business plan with integrity and efficiency.

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 agri-products.

Our employees enable us to be a leading global supplier of leaf tobacco and other agriproducts.

We strive to foster a diverse and inclusive workplace;

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Almost all of our employees are from the same country in which our operations are located.

Our expatriate hires represent less than 0.5% of our workforce, and they are hired due to their essential professional knowledge necessary to the operation of our business.

Our expatriate hires represent less than 0.4% of our workforce, and they are hired due to their essential professional knowledge necessary for the operation of our business.

Universal Corporation’s Board of Directors’ Role in Human Capital Management

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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 through an anonymous compliance hotline that we maintain globally.

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.

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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, live classes, and mentoring to assist with career advancement.

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 soft-skill programs focused on communication and change management.

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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 specific leadership programs for aspiring leaders and new supervisors, managers and directors.

To further develop leadership skills, we also maintain some specific leadership programs for aspiring leaders and new supervisors, managers and directors.

Health and Safety

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Our programs are designed to influence our Company’s culture through employee engagement and leadership behavior.

We pair our improved 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.

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.

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In addition to corporate audits, we encourage this regional cross-auditing to promote a collaborative framework and drive our employee safety programs forward.

Our commitment to our employees’ health and safety was effectively demonstrated in our global response to the COVID-19 pandemic.

Management at all levels of the Company closely monitored developments and took steps intended to mitigate the potential risks to our employees, including taking precautions with regard to employee and facility hygiene, imposing travel limitations on our employees, and directing certain employee groups to work remotely whenever possible.

Universal was committed to employee protection and limiting the physical and mental impacts of the pandemic as much as possible on our global workforce.

Legal compliance is a fundamental aspect of our health and safety practices.

Universal companies 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

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Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 1. Business