Universal Discontinuing Tobacco Processing at Factory in Hungary

Source from:  Richmond Times-Dispatch 07/12/2016

Universal Corp., a Richmond-based tobacco leaf supplier, said Monday that it plans to discontinue operations at one of its European tobacco processing plants.

The company said its subsidiary Universal Leaf Tobacco Hungary will immediately stop processing tobacco in its factory in Nyíregyháza, Hungary, in part because of declining demand for Hungarian-produced tobacco.

The company said it will concentrate the processing of Hungarian tobacco at its plants in Italy, which it expects will help improve supply-chain efficiency in the European market.

Universal conducts business in more than 30 countries and has tobacco processing and storage operations in the U.S. and multiple countries in Europe, Africa, South America and Asia.

The company buys tobacco leaf from farmers, processes the leaf and supplies it to manufacturers of consumer tobacco products.

It reported profit of $109 million on revenue of $2.12 billion for its most recent fiscal year that ended March 31. That was down from profit of $114.6 million on revenue of $2.27 billion in the previous fiscal year.

The decision to end processing at the Hungarian factory was made after "an exhaustive review of strategic alternatives for the Hungary processing operations," said Domenico Cardinali, managing director for the company's Europe region, in a statement.

Universal said it has reached a planned settlement agreement with representatives of the factory employees. In a filing with the U.S. Securities and Exchange Commission, the company said it expects to take charges estimated at $1 million for employee termination benefits.

It expects to take an impairment charge on the subsidiary's property and equipment. The current book value of the property and equipment is about $5 million, and an appraisal of the assets is underway.
The company said it will continue to buy flue-cured and burley tobacco in Hungary.

The company also said it is evaluating the accounting recognition of an accumulated, non-cash foreign currency translation loss of about $16 million as a result of the decision to discontinue processing at the factory and a liquidation of the assets of the subsidiary. The company said it has not determined the amount or when it will recognize the translation loss in earnings. Enditem