Alliance One International Reports Improved Gross Profit and Gross Profit as Percentage of Sales in Fiscal Year 2017 First Quarter Results

MORRISVILLE, N.C., Aug. 8, 2016 /PRNewswire/ -- Alliance One International, Inc. (NYSE: AOI) today announced results for its fiscal quarter ended June 30, 2016.

Highlights

• Gross profit for the quarter increased 15.8% versus last year to $34.1 million and gross profit as a percentage of sales also improved to 13.0% from 11.0% as a result of increased volume, product mix, currency movements and the impact of efficiency improvement and cost cutting initiatives.
• Net loss for the quarter increased to $31.5 million from a net loss of $26.0 million last year and included $3.6 million of legal and professional costs for the Kenya matter and $0.9 million of loss related to Kenya green leaf sourcing mainly for storage as the operation continues to wind down.
• Net income attributable to Alliance One International, Inc. aggregated over the last four quarters ended June 30, 2016 was $60.0 million and included a $106.2 million gain related to the reconsolidation of AOI's Zimbabwe subsidiary. Net loss attributable to Alliance One International, Inc. aggregated over the four quarters ended June 30, 2015 was $30.1 million.
• Adjusted EBITDA that excludes the Zimbabwe reconsolidation gain and aggregated over the last four quarters ended June 30, 2016 decreased 5.4% to $183.2 million versus the four quarters ended June 30, 2015, while total adjusted debt net of cash divided by Adjusted EBITDA remained consistent at approximately 6.2x.

Pieter Sikkel, Chief Executive Officer and President, said, "Fiscal year 2017 has started as anticipated, with similar sales to last year's first quarter at $261.1 million and improved gross profit.  Gross profit increased 15.8% to $34.1 million, driven mainly by increased volumes, product mix, and currency movements, as well as the impact of efficiency improvement and cost cutting initiatives. These same factors also improved gross profit as a percentage of sales to 13.0% this year from 11.0% last year.

"As we move through this fiscal year we expect each quarter's results to be improved versus the prior quarter, thus building through the year with internal forecasts anticipating improved sales and adjusted EBITDA when compared to last year. Global markets are still tightening with undersupply developing in certain origins in higher quality. The strong U.S. dollar, El Nino weather conditions, smaller crops in certain markets, as well as slowly correcting oversupply leaf trading conditions continue to be factors. In particular, El Nino driven increased rain-fall levels in Brazil this year related to the crop we are now buying and will sell later this fiscal year has reduced leaf weight. At the same time the reduced crop size has caused pricing to suppliers to increase in Brazilian Real terms versus last year.

"Our restructuring and efficiency improvement program that began implementation in March 2015 remains on track to deliver over $35.0 million of anticipated recurring annualized savings with approximately 95.0% of targeted actions enacted and the remainder to be achieved over the next 15 months. During the first quarter this year, there was a positive impact from this program in cost of goods sold that helped to improve gross profit and gross profit as a percentage of sales versus last year. However, the improvement and related impact in SG&A was over shadowed in the current quarter by two main factors.

"First, during the quarter we experienced approximately $3.6 million of legal and professional costs associated with the Kenya matter. We began this work in October last year and believe we are nearing the end of the majority of the associated costs. Secondly, our teams around the world dedicated themselves to the additional work required to push through the Kenya matter and related investigation as well as other significant contributions - in many cases sacrificing important work/life balance. As a result we decided to make incentive payments of $4.6 million to help retain talented employees and thank them for their dedication. So as we continue through this fiscal year the restructuring and efficiency improvement impact on SG&A should become more evident.

"Consistent with our stated plan we anticipate reducing long-term debt by $35.0-$50.0 million per year with surplus cash focusing on purchasing our 9.875% Senior Secured Second Lien Notes with $720.0 million of face amount outstanding at quarter end.  Our liquidity at quarter end was in line with our expectations with available credit lines and cash of $632.7 million not including available letters of credit. The rating agency Standard and Poor's ("S&P") has indicated that our debt reduction plan and potential for purchases below par were key drivers in their recent one notch downgrade of our credit ratings, based on an academic premise that the Company ultimately will be repaying less than the face amount of the debt as of issuance, if purchases occur below par.

"We continue to work with our customers to meet their dynamic requirements and encourage supply chain simplification strategies that present opportunities for our business with them. Focus on increased utilization of our assets driven by reversing manufacturers' partial vertical integration strategies and leveraging our value added services capability are solid growth areas. Additionally, our sustainability programs essential to our Company, our customers and local communities where we operate continue to differentiate our Company and provide further growth opportunities. 

Mr. Sikkel, concluded, "We are off to a good start for the year and anticipate reduced working capital requirements by yearend based on supply and demand and forecasted crop sizes this year. In turn this should help to reduce our debt outstanding by fiscal yearend. As such, we anticipate that our leverage will also decrease to approximately 4.9x by March 31, 2017 versus approximately 5.9x achieved at last fiscal yearend. We will continue to drive our business with customer focus and execute on our plans that enhance our position as a preferred global supplier. We believe our balanced strategy is well measured and should improve shareholder value."  

Performance Summary for the Fiscal Quarter Ended June 30, 2016 

Total sales and other operating revenues decreased slightly by 2.0% to $261.1 million primarily due to lower average sales prices attributable to product mix and lower prices paid to tobacco suppliers across most regions. Partially offsetting the impact of lower prices is a 10.1% increase in volumes from increased customer demand and the timing of shipments in North America.  The impact to volumes from the short crop in Brazil this year was partially offset by opportunistic sales and timing of shipments that shifted from last fiscal year into the current quarter due to the availability of ships from Africa. Changes in product mix and lower prices paid to tobacco suppliers in most regions, as well as the positive impact of currency movements in most regions lowered average tobacco costs on a per kilo basis. 

Gross profit increased 15.8% to $34.1 million primarily driven by increased volumes, product mix, and currency movements, as well as the impact of certain efficiency improvement and cost cutting initiatives.  These impacts also improved gross profit as a percentage of sales to 13.0% this year from 11.0% last year. 

Selling, general and administrative expense ("SG&A") increased 29.7% to $38.8 million mainly due to Kenya-related legal and professional fees and increased incentive compensation costs. 

Restructuring and asset impairment charges of $2.9 million last year were primarily related to impairment of advances to tobacco suppliers and real property in Africa and were less than $0.1 million this year. 

Operating loss increased $2.4 million to $5.3 million, mainly due to increased SG&A costs.

Interest costs increased 10.2% from the prior year to $30.6 million driven by higher average borrowings on our seasonal lines of credit and increased amortization of debt issuance costs. 

Cash taxes paid decreased to $3.7 million this year from $6.2 million last year.

Earnings Per Share

For the first quarter ended June 30, 2016, the Company reported a net loss of $31.5 million, or $(3.54) per basic share, compared to a net loss last year of $26.0 million, or $(2.93) per basic share. Included in net loss this year was $3.6 million of legal and professional costs for the Kenya matter and $0.9 million of loss related to Kenya green leaf sourcing mainly for storage as the operation continues to wind down. After adjusting for tax, the net impact of these items negatively impacted earnings per basic share by $0.47 this year.

Liquidity and Capital Resources

As of June 30, 2016, available credit lines and cash were $632.7 million, comprised of $158.2 million in cash and $474.5 million of credit lines, of which $10.3 million was available under the U.S. revolving credit facility for general corporate purposes and $464.2 million of foreign seasonal credit lines excluding $10.7 million exclusively for letters of credit.

Additionally, in the future, the Company may elect to redeem, repay, make open market purchases, retire or cancel indebtedness prior to stated maturity under its various global bank facilities and outstanding public notes, as they may permit.

Financial Results Investor Call

The Company will hold a conference call to report financial results for its fiscal quarter ended June 30, 2016, on Tuesday, August 9, 2016 at 8:00 A.M. EDT. The dial in number for the call is (800) 533-7954 or outside the U.S. (785) 830-1924 and conference ID 3610992. Those seeking to listen to the call may access a live broadcast on the Alliance One website. Please visit www.aointl.com 15 minutes in advance to register.

For those who are unable to listen to the live event, a replay will be available by telephone from 11:00 A.M. EDT, August 9 through 11:00 A.M. EDTAugust 14. To access the replay, dial (888) 203-1112 within the U.S., or (719) 457-0820 outside the U.S., and enter access code 3610992. Any replay, rebroadcast, transcript or other reproduction of this conference call, other than the replay accessible by calling the number above, has not been authorized by Alliance One and is strictly prohibited.  Investors should be aware that any unauthorized reproduction of this conference call may not be an accurate reflection of its contents.

Cautionary Statement Regarding Forward-Looking Statements

This press release contains "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on current expectations of future events. Such statements include, but are not limited to, statements about future financial and operating results, plans, objectives, expectations and intentions and other statements that are not historical facts.  Such statements are based on the current beliefs and expectations of management and are subject to significant risks and uncertainties.  If underlying assumptions prove inaccurate or known or unknown risks or uncertainties materialize, actual results may differ materially from those currently anticipated expected or projected. The following factors, among others, could cause actual results to differ from those expressed or implied by the forward-looking statements:  changes in the timing of anticipated shipments, changes in anticipated geographic product sourcing, political instability, currency and interest rate fluctuations, shifts in the global supply and demand position for tobacco products, changes in or the interpretation of tax laws and regulations, resolution of tax matters, adverse weather conditions, changes in costs incurred in supplying tobacco and related services, factors affecting AOI's ability to reduce its corporate debt, including factors that would restrict it from purchasing its 9.875% Senior Secured Second Lien Notes, and the impact of regulation and litigation. Additional factors that could cause AOI's results to differ materially from those expressed or implied by forward-looking statements can be found in AOI's most recent Annual Report on Form 10-K and the other filings with the Securities and Exchange Commission (the "SEC") which are available at the SEC's Internet site (http://www.sec.gov).

About Alliance One International, Inc.

Alliance One is a leading global independent leaf merchant. For more information on Alliance One, visit the Company's website at www.aointl.com.