Universal Corporation (UVV) March 1, 2015 Consumer Staples Tobacco Suppliers Stock Rating Sell

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1 The Henry Fund Henry B. Tippie School of Management Kapil Dhingra Universal Corporation (UVV) March 1, 2015 Consumer Staples Tobacco Suppliers Stock Rating Sell Universal Corporation will maintain stable revenue streams and operating margins in the next five years but it operates in an industry with very limited growth opportunities. We expect the company to grow at an overall CAGR of 5.03%. We have assigned a sell rating as there is limited upside potential. The stock has pulled back to some extent but has significantly underperformed the broad market and is now trading at what we believe is its fair value. Drivers of Thesis Growth in demand for Tobacco is expected to come internationally as the cigarette majors look at expansion opportunities in the BRIC nations and the Pacific Rim. The popularity of e-cigarettes is expected to create additional demand for tobacco, but it is unlikely to make up for volume declines for traditional cigarettes in mature markets. Despite being a small-cap stock, it is one of the bigger players in the unstructured and fragmented universe of tobacco suppliers. It operates across the entire spectrum from farm to final supply to cigarette majors enabling it to keep costs down and maintain a healthy operating margin. Risks to Thesis Investment Thesis Target Price $47 - $51 Henry Fund DCF $49.28 Henry Fund DDM $76.12 Relative Multiple $59.05 Price Data Current Price $ wk Range $ Consensus 1yr Target $59.00 Key Statistics Market Cap (M) $ Shares Outstanding (M) Institutional Ownership 92.70% Five Year Beta 1.47 Dividend Yield 4.40% Est. 5yr Growth 5.03% Price/Earnings (TTM) Price/Earnings (FY1) Price/Sales (TTM) 0.50 Price/Book (mrq) 0.95 Profitability Operating Margin 9.68% Profit Margin 6.10% Return on Assets (TTM) 4.53% Return on Equity (TTM) 7.25% There is a lot of uncertainty with respect to government regulations in developing markets that are expected to be drivers for future tobacco demand. Also, the market for e-cigarettes is completely unregulated so far. The lack of diversification of revenue streams for Universal makes it susceptible to firm specific risks and low bargaining power. The three largest US cigarette majors make up 93% of the industry s domestic revenue. As the cigarette majors look to cut costs, there is a possibility of them entering the procurement and manufacturing business which would be detrimental to Universal s business model. Earnings Estimates Year E 2016E 2017E 0 EPS $3.32 $5.05 $5.77 $6.34 $6.56 $6.87 growth % 52.11% 14.26% 9.8% 3.55% 4.74% Source: Yahoo Finance 12 Month Performance Company Description 20% 10% 0% -10% -20% UVV S&P % Source: Yahoo Finance -40% M A M J J A S O N D J F Important disclosures appear on the last page of this report UVV Tobacco Staples P/E ROE Div Yield 2.3 Universal s primary business is procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to, or for the account of, manufacturers of consumer tobacco products throughout the world. It does not manufacture cigarettes or other consumer tobacco products. The flue-cured and burley operations account for 90% of the company s revenues.

2 EXECUTIVE SUMMARY The Tobacco industry is characterized by inelastic individual demand. However, the total population of tobacco and cigarette consumers domestically has been in steady decline for the last 50 years. The percentage of adults who smoke has decreased by almost 60% from the 1960 s to The consumer base is in the growth stage in countries like Russia, China and India and these regions are expected to be the drivers for volume growth. The favorable demographics as well as rising per capita incomes in these nations will help support volume growth in the near term. The growth in these markets is subject to a major risk with respect to government regulation and as knowledge of the ill-effects of tobacco consumption grows, it will become harder to sustain the current rate of growth. Due to the limited scope for volume growth, companies in the industry often look to improve margins by optimizing the product mix and being really aggressive with respect to mitigating costs. However, this can be done only up to a certain degree and we believe UVV is at that level already. This has also led to high consolidation as companies look to gain synergies, operational efficiency and economies of scale to generate cost savings. An interesting aspect due to the high degree of consolidation is that the top five firms being legacy carriers have to face the bulk of litigation. Universal is largely protected from the threat of direct litigation but as a tobacco supplier to the cigarette majors, it is highly dependent on the financial health of its customers. Due to the size of the top three cigarette majors in the domestic market, UVV has little to no bargaining power with respect to prices. We expect Universal to be able to sustain its steady stream of revenues and maintain its current operating margin of approximately 10% going forward but will find it incredibly hard to achieve bottom-line growth as the industry faces increasing taxation and legal complications. We recommend a sell rating for UVV due to the unfavorable environment the industry faces and the limited potential for further growth. COMPANY DESCRIPTION Universal engages in the business of procuring, financing, processing, packing, storing, and shipping leaf tobacco for sale to manufacturers of consumer tobacco products throughout the world. It does not manufacture cigarettes or other consumer tobacco products directly. Through various operating subsidiaries and unconsolidated affiliates located in tobacco-growing countries around the world, UVV sells processed flue-cured and burley tobaccos, as well as dark air-cured and oriental tobaccos. It also provides value-added services, including blending, chemical and physical testing of tobacco, service cutting for select manufacturers, manufacturing reconstituted leaf tobacco, and managing just-in-time inventory. REVENUE BY GEOGRAPHY All Other Countries 56% Source: UVV Annual Report 2014 RECENT DEVELOPMENTS Electronic-Cigarettes United States 12% Belgium 9% China 8% Netherlan ds Germany 8% 7% The invention and commercialization of e-cigarettes has been the single largest innovation in the tobacco industry. As previously mentioned, the tobacco industry is constantly under investigation for the adverse health effects associated with its consumption and the government regulation that brings. E-cigarettes were born out of the need to find an alternative to traditional cigarettes that is not as unhealthy or is at least perceived so. Research that conclusively determines the exact level of health risks associated with using e-cigarettes is still ongoing. However, it s commonly accepted as being safer than traditional cigarettes and tobacco products, primarily because it produces vapor instead of smoke like in cigarettes. E-cigarettes have so far not been subject to any sort of litigation but as their consumption grows, it is expected that regulatory agencies around the world would start imposing major restrictions similar to traditional cigarettes. Universal will benefit from the growing popularity of e-cigarettes and it should help to maintain the cumulative level of demand for tobacco products. Page 2

3 Possible ban on Menthol Cigarettes As menthol cigarettes are milder, they are more addictive and are often the first tobacco product that younger people experiment with. Due to this, the FDA has said that there are higher risks for public health associated with menthol cigarettes than traditional ones. A possible ban on Menthol cigarettes has been under consideration for more than five years now although it has not been implemented in any state so far. In line with the recommendations of the Tobacco Products Scientific Advisory Committee and the findings of the FDA, a complete ban on menthol cigarettes is unlikely but possible in the long run. Menthol cigarettes account for about one-third of the total market for cigarettes and therefore any such ban would have an extremely negative effect on the demand for tobacco products that Universal sells. INDUSTRY TRENDS Consolidation and Acquisition Activity The tobacco industry is already highly consolidated with the top three firms accounting for 93.6% of domestic revenues. We expect this trend to continue as firms look for cost savings to drive margin growth. The increased acquisition activity in the sector is further proof of this being a continuing trend. There have also been a number of acquisitions of smaller e-cigarette makers as the bigger players try to maintain their stronghold over the industry across the entire product spectrum. Source: IBIS World Taxation Due to the nature of the industry and the high degree of government regulation surrounding it, the tobacco industry has been subjected to constantly increasing taxation. Tobacco firms are known to increase pricing as a means of keeping strong margins and have implemented this strategy successfully for a long time. International Growth The overall domestic demand has been in a state of steady decline for more than five decades. The industry is dependent on developing markets such as China, Russia and India to drive volume and revenue growth. In addition to favorable demographics, these markets have increasing per capita incomes and increasing social acceptance for consumption of tobacco products. ECONOMIC OUTLOOK Universal operates in a non-cyclical industry and demand as such does not have a high degree of correlation with the direction of GDP movement. Historically, staples stocks have known to be a defensive play and tend to hold value during market corrections. Interest rates, however, do play a significant part as the industry is capital-intensive and also requires reinvestment activity to maintain operational efficiency that is so critical to the success of a tobacco company. The dividend yield for Universal also becomes unattractive if interest rates run up too high. However, we estimate the current low interest environment to continue into the latter part of 2015, followed by minimal increases that will not have a significant impact on the profitability for Universal. Inflation has minimal effects on the demand for tobacco as companies in this sector are able to pass on cost increases to the end consumer. However, Universal not being a direct seller to the final customer cannot pass on the burden to its customers. As per Henry Fund consensus, an increase in inflation levels over the next two years to the 2% level would hurt UVV as cigarette majors would look to cut costs to protect their margins. We expect consumer sentiment to improve marginally over a two year period, which could help some consumer s trade up but is not expected to have any significant impact on total sales. Page 3

4 Demographic changes, especially in countries that are growth markets for the industry (BRIC nations) are expected to have a favorable effect on the industry. Globally, all the volume growth is expected from these markets that have favorable demographic trends. In addition to population, rising incomes will also help drive growth and margins for the industry. CATALYSTS FOR GROWTH manufacturers, manufacturing reconstituted leaf tobacco, and managing just-in-time inventory. It also formed a joint venture with Avoca International to supply liquid nicotine to the e-cigarette industry and a new business to produce high-quality dehydrated and juiced fruit and vegetable products. Alternative Uses: Research on the use of tobacco as a bio-fuel and in biotechnology/drug development is ongoing and could lead to a spurt in demand for tobacco. International growth: There is significant potential for both revenue and volume growth in developing countries in South East Asia and the BRIC nations due to favorable demographics, increased social acceptance for smoking and increase in spending capacity. Electronic Cigarettes: Growth in the consumption of e- cigarettes can act as a major growth driver for Universal and tobacco demand at large. Alternative Uses: If conclusive development can be made on the use of tobacco as a bio-fuel or in biotechnology & drug-development, it could prove to be a major growth driver for Universal. INVESTMENT NEGATIVES Concentrated revenue base: The five largest customers make up approximately 60% of Universal s revenue base. If a single customer changes its supplier for any reason or makes a larger foray into selfprocurement, it could hurt Universal in a big way. Uncertain regulatory environment: The impact of regulation is unpredictable especially in international markets, the use of e-cigarettes is still largely unregulated and a ban on the use of menthol cigarettes in the US is being considered. All of these could possibly have a significant negative impact on Universal s volume and revenue growth. INVESTMENT POSITIVES Scope for International growth: There is significant growth potential for consumption of tobacco products in developing nations from a population and pricing (income growth) standpoint. Healthy balance sheet: Universal has high cash levels giving it flexibility in terms of its dividend and expansion policy. It also has favorable inventory turnovers and steady margins. Responsiveness: Universal has been attempting to respond to a lack of diversification and a changing business environment. In addition to its main business as a tobacco supplier, it now offers value-added services, including blending, chemical and physical testing of tobacco, service cutting for select Health Concerns and Litigation: As awareness about the adverse health effects of tobacco consumption increases, demand for tobacco will decrease and follow the trajectory of domestic volumes in current growth markets internationally. Although Universal is not an end product manufacturer or a legacy carrier and is not directly susceptible to major litigation, it is highly dependent on the health and growth trends of the cigarette majors. Strengthening Dollar: The strength of the dollar against all major currencies of late will have an adverse impact on UVV s reported earnings. Universal is partially hedged against currency fluctuations as it purchases raw material in all the countries it operates in but with only 12% of the revenue coming from the domestic market, the translation effect on earnings bought back to the US will be felt. Page 4

5 Models Used VALUATION developing countries will be an important indicator to follow. It is the only growth story in an otherwise stagnant industry sector. We believe the DCF/EP valuation technique offers the most reliable approach to find the intrinsic value of UVV stock. Universal has produced consistent cash flows in the past and its ability to continue that trend is the single largest factor in determining future stock price. The dividend yield for Universal is comparable to its peers but considering the minimal R&D expense required in the business and the excess cash position, there is a scope for it to be increased. For the relative P/E model, there are not any perfect peers comparable to Universal in terms of its size and line of business. We have considered the cigarette majors as they operate in the same industry and have some exposure to tobacco procurement and a commodity company that although is much bigger but operates in the same line of business for other commodities and grains. Historically, firms in this sector have lower than market P/E multiples, which makes the valuation from this model seem expensive. Valuation Metrics & Forecasting Regulation governing the tobacco industry is a reality that players and investors in this sector have to live with. The degree of regulation for high growth products like e-cigarettes and markets like Russia & China are especially significant to watch. The decision of the European Commission with respect to packaging will also be critical in determining future government policy and the impact it has on sale of tobacco products and consequently Universal s bottom-line. In case any alternative uses of tobacco can be commercialized, firms with specific technologies that make that commercialization possible will have first mover advantage and will grow at a fast pace. Universal will benefit from this development irrespective of who these firms are. Revenue Growth: For the next five year period, we estimated a growth of 2.25% in revenues. Higher growth is expected in China (3%) and developing markets (2.5%), while domestic markets are expected to have minimal growth (1%). COGS and SG&A: Kept constant at 81.75% and 10% of sales respectively in line with historical averages. Estimated that it would be hard to gain more operational efficiencies from current levels. Cash Levels: Large cash balances ($5.3 per share) with minimal debt, making the company less vulnerable to interest rate and other systemic changes. Growth rate: A steady state growth rate of 2% has been used reflecting marginal under performance with respect to the broader economy. KEYS TO MONITOR The growth data and trends for tobacco consumption emerging out of the high growth markets in REFERENCES 1. Mergent Online 2. Yahoo Finance 3. FactSet: Peer Comparisons 4. IBIS World Report for Tobacco Manufacturing 5. S&P Capital IQ NetAdvantage 6. Ernst & Young talking tobacco report: vx.com/2135/31309/landing-pages/talking-tobacco- 29-nov-2014.pdf 7. Euromonitor International, Market Research for Tobacco: 8. Bloomberg terminal: For Beta Values and Peer Comparisons 9. Centre for Disease Control: rends/cig_smoking/ 10. Securities and Exchanges Commission: Company Filings (10-K s ): Page 5

6 11. University of California at Berkeley: Berkeley CBS News: NASDAQ: IMPORTANT DISCLAIMER Henry Fund reports are created by student enrolled in the Applied Securities Management (Henry Fund) program at the University of Iowa s Tippie School of Management. These reports are intended to provide potential employers and other interested parties an example of the analytical skills, investment knowledge, and communication abilities of Henry Fund students. Henry Fund analysts are not registered investment advisors, brokers or officially licensed financial professionals. The investment opinion contained in this report does not represent an offer or solicitation to buy or sell any of the aforementioned securities. Unless otherwise noted, facts and figures included in this report are from publicly available sources. This report is not a complete compilation of data, and its accuracy is not guaranteed. From time to time, the University of Iowa, its faculty, staff, students, or the Henry Fund may hold a financial interest in the companies mentioned in this report. Page 6

7 Universal Corporation Key Assumptions of Valuation Model Ticker Symbol UVV Current Share Price $47.75 Current Model Date 4/15/2015 Fiscal Year End Mar. 31 Pre-Tax Cost of Debt 6.19% Beta 1.44 Risk-Free Rate 2.63% Equity Risk Premium 4.85% (Henry Fund Consensus: Average of 87 year Geometric avg and Damodaran March 2015 figure) CV Growth of NOPLAT 2% CV Growth of EPS 2% CV Growth 2% Current Dividend Yield 4.40% Marginal Tax Rate 35% Effective Tax Rate 33% Return on cash balances 0.50% Cost of Debt 6.00% WACC 8.87% COGS (as % of sales) 81.75%

8 Revenue Decomposition Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E 2020E Flue-cured and burley leaf tobacco operations North America North American growth -7.67% 6.50% 4.17% 1.00% 1.00% 1.00% 1.00% 1.00% Other regions 1, , , Other regions growth -2.62% -1.14% 3.22% 2.50% 2.50% 2.50% 2.50% 2.50% Other tobacco operations Other tobacco operations growth % 6.65% 2.40% 2.00% 2.00% 2.00% 2.00% 2.00% Total 2, , , Total Growth -4.85% 0.61% 3.27% 2.24% 2.25% 2.25% 2.25% 2.25% Country wise trends United States United States Growth -7.26% 2.75% -6.09% 1.00% 1.00% 1.00% 1.00% 1.00% Belgium Belgium Growth % -3.27% 7.37% 2.00% 2.00% 2.00% 2.00% 2.00% China China Growth 8.87% -7.92% 3.00% 3.00% 3.00% 3.00% 3.00% Netherlands Netherlands growth 6.06% 19.23% 2.00% 2.00% 2.00% 2.00% 2.00% Germany Germany growth % % 35.68% 2.00% 2.00% 2.00% 2.00% 2.00% All Other Countries 1, , , All Other Countries growth % 5.02% 1.71% 2.50% 2.50% 2.50% 2.50% 2.50% Consolidated Total 2, , , Total Growth -4.85% 0.61% 3.27% 2.24% 2.25% 2.25% 2.25% 2.25%

9 Income Statement All figures in millions of $'s apart from per share data Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E Sales & other operating revenues Cost of goods sold Depriciation Amortization Selling, general & administrative expenses Other income Restructuring & impairment costs European commission fines Operating income (loss) Equity in pretax earnings of unconsolidated affiliates Interest income Interest expense Income (loss) before income taxes Income taxes Minority interests, net of income taxes Net income (loss) Less: net (income) loss attributable to noncontrolling interests in subsidiaries Net income attributable to Universal Corporation Dividends on Universal Corporation convertible perpetual preferred stock Earnings available to Universal Corporation Common shareholders Weighted average shares outstanding Net income (loss) per share Dividends per share Dividend Payout Ratio

10 Balance Sheet All figures in millions of $'s apart from per share data Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E Assets Current Assets Cash & cash equivalents Accounts receivable, net Advances to suppliers, net Accounts receivable: unconsolidated affiliates Inventories Tobacco Lumber & other Agri products Other inventories Prepaid income taxes Deferred income taxes Other current assets Total current assets 1, , , Property, plant & equipment Land Buildings Machinery & equipment Gross property, plant & equipment Less accumulated depreciation Property, plant & equipment, net Goodwill Other Intangibles Investments in unconsolidated affiliates Deferred income taxes Other noncurrent assets Total other assets Total assets 2, , , Liabilities & Shareholder's Equity Current Liabilities Notes payable & overdrafts Accounts payable & accrued expenses Accounts payable: unconsolidated affiliates Customer advances & deposits Accrued compensation Income taxes payable Current portion of long term obligations Current liabilities of discontinued operations Total current liabilities Long term debt/obligations Pensions & other postretirement benefits Other long term liabilities Deferred income taxes Total liabilities 1, , Shareholders Equity Minority interests Series B convertible perpetual preferred stock Common stock Retained earnings (accumulated deficit) Accumulated other comprehensive income (loss) Total Universal Corporation's shareholders' equity 1, , , Non controlling interests in subsidiaries Total shareholder's equity 1, , , Total Liabilities and Shareholders Equity 2, , ,

11 Cash Flow Statement All figures in millions of $'s apart from per share data Fiscal Years Ending Mar Cash Flows from Operating Activities Net income (loss) Net loss (income) from discontinued operations Depreciation Amortization Inventory valuation allowances & accrued losses on firm purchase commitments Provision for losses on advances & guaranteed loans to suppliers Inventory write-downs Stock-based compensation expense Foreign currency remeasurement loss (gain), net Deferred income taxes Minority interests Equity in net income of unconsolidated affiliates, net of dividends Loss (gain) on favorable international settlements and sales Restructuring & impairment costs Charge for (reversal of) European Commission fines in Italy & Spain Other net income adjustments, net Accounts & notes receivable Inventories & other assets Income taxes Accounts payable & other accrued liabilities Customer advances & deposits Net cash flows from operating activities Cash Flows from Investing Activities Purchase of property, plant & equipment Proceeds from sales of property, plant & equipment Other investing activities Net cash flows from investing activities Cash Flows from Financing Activities Issuance (repayment) of short-term debt, net Issuance of long-term obligations Repayment of long-term obligations Dividends paid to noncontrolling interests Issuance of common stock Repurchase of common stock Dividends paid on convertible perpetual preferred stock Dividends paid on common stock Proceeds from termination of interest rate swap agreements Debt issuance costs & other financing costs Net cash flows from financing activities Net increase (decrease) in cash & cash equivalents Cash & cash equivalents at beginning of year Cash & cash equivalents at end of year Supplemental Information- Cash paid for: Interest expense paid Income taxes paid, net of refunds

12 Cash Flow Forecast 2015 E 2016 E 2017 E 2018 E 2019 E Net Income Depriciation Amortization Accounts Receivable Advances to Suppliers Accounts Receivable (unconsolidated) Tobacco Other inventories Prepaid Income Taxes Deferred Income Taxes Deferred Income Taxes (Long term assets) Accumulated Depriciation Accounts Payable & Accrued Expenses Accounts Payable (unconsolidated) Customer Advances and Deposits Other Current Assets Cash flows from Operating Activities Property, Plant & Equipment Goodwill Other Intangibles Investments in unconsolidated affiliates Deferred Income Taxes (liabilities) Non-current Assets Cash flows from Investing Activities Notes payable Accrued Compensation Income Taxes Payable Current Portion of long term debt Long term obligations Payment of Dividends Pensions and other long term benefits Other long term liabilities ESOP Repurchase of Stock Cash Flows from Financing Activities Net Increase in Cash Beginning Cash for the year Ending Cash for the year

13 Common Size Income Statement Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E Sales & other operating revenues % % % % % % % % Cost of goods sold 78.92% 79.38% 81.43% 81.75% 81.75% 81.75% 81.75% 81.75% Depriciation 1.72% 1.76% 1.47% 1.52% 1.37% 1.26% 1.16% 1.07% Amortization 0.07% 0.07% 0.06% 0.06% 0.05% 0.05% 0.04% 0.04% Selling, general & administrative expenses 10.28% 9.56% 10.31% 10.00% 10.00% 10.00% 10.00% 10.00% Other income 0.85% 0.00% 3.21% 0.00% 0.00% 0.00% 0.00% 0.00% Restructuring & impairment costs 0.48% 0.17% 0.27% 0.38% 0.38% 0.37% 0.36% 0.35% European commission fines 2.01% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Operating income (loss) 7.37% 9.06% 9.68% 6.29% 6.45% 6.58% 6.69% 6.78% Equity in pretax earnings of unconsolidated affiliates 0.13% 0.23% 0.15% 0.27% 0.26% 0.26% 0.25% 0.25% Interest income 0.05% 0.03% 0.04% 0.01% 0.01% 0.06% 0.04% 0.04% Interest expense 0.93% 0.89% 0.80% 0.55% 0.63% 0.62% 0.62% 0.61% Income (loss) before income taxes 6.62% 8.42% 9.07% 6.02% 6.10% 6.28% 6.37% 6.46% Income taxes 2.50% 2.70% 2.97% 1.99% 2.01% 2.07% 2.10% 2.13% Minority interests, net of income taxes 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% Net income (loss) 4.12% 5.72% 6.10% 4.03% 4.08% 4.21% 4.27% 4.33% Less: net (income) loss attributable to noncontrolling inte 0.36% 0.33% 0.24% 0.31% 0.30% 0.29% 0.29% 0.28% Net income attributable to Universal Corporation 3.76% 5.39% 5.86% 3.72% 3.78% 3.91% 3.98% 4.04% Dividends on Universal Corporation convertible perpetua 0.61% 0.60% 0.58% 0.57% 0.56% 0.55% 0.53% 0.52% Earnings available to Universal Corporation Common sh 3.16% 4.79% 5.28% 3.15% 3.22% 3.36% 3.44% 3.52% Weighted average shares outstanding 0.95% 0.95% 0.91% 0.89% 0.87% 0.86% 0.84% 0.82% Net income (loss) per share 0.14% 0.21% 0.23% 0.14% 0.14% 0.14% 0.15% 0.15% Dividends per share 0.08% 0.00% 0.00% 0.08% 0.08% 0.08% 0.08% 0.08%

14 Common Size Balance Sheet Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E Assets Current Assets Cash & cash equivalents 10.70% 14.94% 6.43% 19.39% 18.26% 20.94% 30.06% 29.91% Accounts receivable, net 15.97% 16.32% 18.41% 14.89% 14.89% 14.89% 14.89% 14.89% Advances to suppliers, net 5.53% 5.37% 5.30% 5.20% 5.20% 5.10% 5.10% 5.00% Accounts receivable - unconsolidated affiliates 0.30% 0.02% 0.29% 0.30% 0.30% 0.30% 0.30% 0.30% Inventories Tobacco 27.88% 25.32% 25.17% 25.00% 24.50% 24.00% 23.50% 23.00% Lumber & other Agri products Other inventories 2.17% 2.35% 2.64% 2.50% 2.50% 2.50% 2.50% 2.50% Prepaid income taxes 0.85% 0.25% 1.10% 0.69% 0.69% 0.69% 0.69% 0.69% Deferred income taxes 2.09% 1.31% 0.87% 1.00% 1.00% 1.00% 1.00% 1.00% Other current assets 3.61% 5.05% 5.62% 4.00% 4.00% 4.00% 4.00% 4.00% Total current assets 69.09% 70.93% 65.82% 72.97% 71.34% 73.42% 82.04% 81.29% Property, plant & equipment Land 0.70% 0.70% 0.68% 0.70% 0.70% 0.70% 0.70% 0.70% Buildings 9.36% 9.53% 9.44% 10.00% 10.00% 10.00% 10.00% 10.00% Machinery & equipment 21.95% 22.16% 22.13% 21.50% 21.50% 21.50% 21.50% 21.50% Gross property, plant & equipment 32.00% 32.39% 32.25% 32.20% 32.20% 32.20% 32.20% 32.20% Less accumulated depreciation 19.61% 20.71% 20.58% 21.65% 22.55% 23.31% 23.95% 24.50% Property, plant & equipment, net 12.39% 11.68% 11.67% 10.55% 9.65% 8.89% 8.25% 7.70% Goodwill 1.26% 1.25% 1.21% 1.19% 1.16% 1.14% 1.11% 1.09% Other Intangibles 2.80% 2.77% 2.70% 2.64% 2.57% 2.51% 2.45% 2.39% Investments in unconsolidated affiliates 3.81% 3.83% 3.75% 3.67% 3.59% 3.51% 3.43% 3.35% Deferred income taxes 0.97% 0.97% 0.57% 0.56% 0.55% 0.54% 0.52% 0.51% Other noncurrent assets 2.32% 2.25% 3.61% 4.00% 4.00% 4.00% 4.00% 4.00% Total other assets 11.16% 11.08% 11.85% 12.05% 11.87% 11.69% 11.51% 11.35% Total assets 92.65% 93.68% 89.33% 95.58% 92.87% 94.00% % % Liabilities & Shareholder's Equity Current Liabilities Notes payable & overdrafts 5.23% 4.28% 2.47% 4.86% 4.81% 4.75% 4.70% 4.64% Accounts payable & accrued expenses 7.67% 9.17% 8.36% 8.80% 8.80% 8.80% 8.80% 8.80% Accounts payable - unconsolidated affiliates 0.01% 0.19% 0.00% 0.10% 0.09% 0.09% 0.09% 0.09% Customer advances & deposits 0.69% 1.01% 0.62% 1.00% 1.00% 1.00% 1.00% 1.00% Accrued compensation 1.25% 1.49% 1.25% 1.25% 1.25% 1.25% 1.25% 1.25% Income taxes payable 0.53% 0.57% 0.62% 0.42% 0.42% 0.43% 0.44% 0.45% Current portion of long-term obligations 0.66% 8.58% 4.57% 4.47% 1.03% 1.38% 8.39% 6.16% Current liabilities of discontinued operations Total current liabilities 16.05% 25.29% 17.90% 20.90% 17.41% 17.71% 24.67% 22.38% Long-term obligations 16.04% 7.36% 9.44% 10.72% 10.62% 10.50% 10.40% 10.28% Pensions & other postretirement benefits 5.74% 5.51% 3.35% 5.00% 5.00% 5.00% 5.00% 5.00% Other long-term liabilities 3.70% 1.50% 1.36% 1.50% 1.50% 1.50% 1.50% 1.50% Deferred income taxes 1.82% 1.71% 1.79% 1.19% 1.21% 1.24% 1.26% 1.28% Total liabilities 43.36% 41.37% 33.83% 39.30% 35.73% 35.94% 42.82% 40.44% Shareholders Equity Minority interests Series B convertible perpetual preferred stock 8.71% 8.65% 8.38% 8.20% 8.02% 7.84% 7.67% 7.50% Common stock 8.02% 8.23% 8.12% 8.10% 8.07% 8.05% 8.01% 7.98% Retained earnings (accumulated deficit) 34.93% 37.31% 39.07% 40.14% 41.21% 42.33% 43.45% 44.58% Accumulated other comprehensive income (loss) -3.28% -3.07% -1.35% -1.32% -1.29% -1.26% -1.24% -1.21% Total Universal Corporation's shareholders' equity 48.37% 51.13% 54.22% 55.12% 56.01% 56.95% 57.90% 58.85% Non-controlling interests in subsidiaries 0.92% 1.18% 1.28% 1.15% 1.13% 1.10% 1.08% 1.06% Total shareholder's equity 49.29% 52.31% 55.50% 56.27% 57.14% 58.06% 58.98% 59.90% Total Liabilities and Shareholders Equity 92.65% 93.68% 89.33% 95.57% 92.87% 94.00% % %

15 Value Driver Estimation Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E NOPLAT Revenues 2, , , , , , , , Less: Cost of Goods Sold 1, , , , , , , , Less: Depreciation Less: Amortization Less: SG&A Add: Interest expense on PV of Operating Leas EBITA Less: Adjusted Taxes Income Taxes Expense Add: Tax Shield on Interest Expense Add: Tax Shield on Operating Lease Interest Less: Tax Shield on Interest Income Less: Tax on Other income Less: Tax Shield on Restructuring & Impairmen Less: Tax Shield on European Commission Fine Less: Adjusted Taxes Plus: Net Change in Deferred Tax Liability Change in Net Deferred Tax Liability NOPLAT INVESTED CAPITAL: Normal Cash (lesser of actual or 2% of sales) Add: Accounts Receivable Add: Other Current Assets Add: Inventories Add: Advances to Suppliers Add: Prepaid expenses Operating Current Assets 1, , , , , , , , Non Interest Bearing Current Liabilities Accounts Payable and Accrued Expenses Add: Customer advances and deposits Add: Accrued Compensation Add: Other Current Liabilities Add: IT Payable Non Interest Bearing Current Liabilities Net Operating Working Capital 1, , , , , , , , Add: Net PPE Add: Non Goodwill Intangibles Add: PV of Operating Leases Add: Net Other Operating Assets Less: Other Operating Liabilities Invested Capital 1, , , , , , , , NOPLAT Beginning Invested Capital 1, , , , , , , , ROIC (NOPLAT/Beg Invested Capital) 10.01% 8.94% 7.60% 5.52% 7.41% 7.73% 7.99% 8.24% NOPLAT Change in Invested Capital FCF (NOPLAT-Change in Invested Capital) Beginning Invested Capital 1, , , , , , , , ROIC 10.01% 8.94% 7.60% 5.52% 7.41% 7.73% 7.99% 8.24% WACC 8.87% 8.87% 8.87% 8.87% 8.87% 8.87% 8.87% 8.87% Economic Profit

16 Weighted Average Cost of Capital (WACC) Estimation Risk Free Rate (30 year treasury) 2.63% Risk Premium 4.85% Beta 1.44 Cost of Debt 6.00% Tax rate 33% After Tax Cost of Debt 4.02% Mkt value of Equity Mkt value of Debt PV of Operating Leases Total Value Total Shares Outstanding 23,239,000 % of Equity 78.49% % of Debt 21.51% WACC 8.41% In Millions

17 Discounted Cash Flow (DCF) and Economic Profit (EP) Valuation Models Key Inputs: CV Growth 2.00% CV ROIC 11% WACC 8.41% Cost of Equity 9.61% Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E DCF Model NOPLAT Invested Capital ROIC 5.52% 7.41% 7.73% 7.99% 8.24% NOPLAT Change in Inv Capital FCF CV Cash Flows Discounting Periods Discounting Factor DCF Value of Operations Less: Total debt Less: Operating leases Less: Underfunded pensions Less: Non controlling interests Value of Equity Shares Outstanding Intrinsic Value As of March 31, 2014 Partial year adjustment As of Feb 28, 2015 EP Model Invested Capital ROIC 5.52% 7.41% 7.73% 7.99% 8.24% WACC 8.87% 8.87% 8.87% 8.87% 8.87% Economic Profit CV Economic Profit Discount Period Discount Factor PV of Economic Profit Sum of PV of EP Add: Beg IC Less: Total debt Less: Operating leases Less: Underfunded pensions Less: Non controlling interests Value of Equity Shares Outstanding Intrinsic Value As of March 31, 2014 Partial year adjustment As of Feb 28, 2015

18 Dividend Discount Model (DDM) or Fundamental P/E Valuation Model Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E EPS $ 3.53 $ 3.69 $ 3.93 $ 4.12 $ 4.30 Key Assumptions CV growth 2.00% CV ROE 4.52% Cost of Equity 9.61% Future Cash Flows P/E Multiple (CV Year) EPS (CV Year) $ 4.30 Future Stock Price $ Dividends Per Share Discounting Periods Discounting Factor Discounted Cash Flows Intrinsic Value $ (as of Mar 31, 2014) Partial year adjustment $ (as of Feb 28, 2015)

19 Relative Valuation Models EPS EPS Ticker Company Price 2015E 2016E P/E 15 P/E 16 PM Philip Morris International $81.71 $4.33 $ MO Altria Group Inc. $55.50 $2.79 $ BG Bunge Limited $82.30 $6.20 $ LO Lorillard Inc. $55.50 $3.71 $ Average UVV Universal Corporation $47.75 $3.53 $ Implied Value: Relative P/E (EPS15) $ Relative P/E (EPS16) $ 58.00

20 Key Management Ratios Fiscal Years Ending Mar E 2016E 2017E 2018E 2019E Liquidity Ratios Current Ratio (CA/CL) Quick Ratio ((Cash+A/R)/CL) Activity or Asset-Management Ratios Asset to Sales Asset Turnover (Sales/Assets) A/R Turnover (Sales/A/R) Inventory Turnover (COGS/Inventory) Financial Leverage Ratios Interest Coverage (Op Inc/Int Expense) Debt Ratio (Total Liabilities/Total Assets) Profitability Ratios Gross Margin ((Sales-COGS)/Sales) 21.08% 20.62% 18.57% 18.25% 18.25% 18.25% 18.25% 18.25% Net Profit Margin (Net Income/Sales) 4.12% 5.72% 6.10% 4.03% 4.08% 4.21% 4.27% 4.33% Operating Margin (Operating Profits/Sales) 7.37% 9.06% 9.68% 6.29% 6.45% 6.58% 6.69% 6.78% Return on Assets (Net Income/Beg Assets) 4.53% 6.22% 6.73% 4.61% 4.37% 4.63% 4.64% 4.34% Payout Policy Ratios Dividend Payout Ratio

21 Sensitivity Testing CV Growth rate WACC Beta Cost of Debt $ % 8.62% 8.87% 9.12% 9.37% $ % 5.90% 6.19% 6.50% 6.80% 1.50% % % % % Beta Risk Free Rate Beta Equity Risk premium $ % 2.43% 2.63% 2.83% 3.03% $ % 4.60% 4.85% 5.10% 5.35% COGS WACC Rf Risk Premium $ % 8.62% 8.87% 9.12% 9.37% $ % 4.60% 4.85% 5.10% 5.35% 80.25% % % % % % % % % %