Alliance pays lower tobacco prices but seeks to improve social responsibility

The prices paid for farmers’ tobacco by Alliance One International during the second quarter of this financial year were generally below those of ‘last season’.

In announcing the company’s second quarter results to the end of September, CEO Pieter Sikkel said that the challenging conditions identified at the end of fiscal year 2014 had continued during the first half of this year. “These included adverse weather in some regions during growing and harvesting that delayed purchasing tobacco from suppliers and building global oversupply,” he said. “Market prices paid for tobacco from suppliers remains generally below last season resulting in a reduction in cost per kilo this quarter of approximately 2.1 percent to $4.60 per kilo.

“As anticipated, the slow start to buying reduced first quarter sales versus last year and has had the same impact through the second quarter. For the second quarter, kilos sold reduced 16.7 percent to 107.1 million and revenues declined 15.8 percent to $589.8 million versus last year, which are in line with internal expectations. Our internal forecast for the full year estimates similar revenue and improved core income before taxes and other items.”

For the quarter, it was stated that income before taxes and other items improved $45.6 million to $8.4 million and included a $5.5 million reserve for customer receivables and lower cost or market adjustments on inventory. Last year’s results had included $55.6 million of debt retirement expense mainly related to Alliance’s refinancing.

“Tobacco markets, globally, are in oversupply and we are well positioned with a controlled quarter end inventory level of $976.4 million, down $8.4 million compared to last year,” Sikkel said. “Our net debt this year also decreased $130.6 million to approximately $1,230.7 million and we plan to work on further year-over-year reductions as we move forward.”

Sikkel said Alliance would continue to invest carefully where appropriate returns were achievable, incorporating further improvements to sustainability and social responsibility initiatives. “Many key customers value these global initiatives and are beginning to monitor how we measure our success and areas for improvement,” he said.

“Developed sustainability and social responsibility programs are becoming requirements to be a leaf supplier for many manufacturers. As such, controlled investment in these core areas with focus on our customers’ longer term requirements should improve our results and increase shareholder value.”