JDE Peet’s: reports full-year results 2020

Amsterdam / NL. (jab) JDE Peet’s (JDE), the world’s largest pure-play coffee and tea group by revenue, reported strong second half-year 2020 financial results. The strong performance reflects resilience of business and brands, the combination of Peet’s Coffee and Jacobs Douwe Egberts (JDE) said in its statement. Highlights:

• Pure-play focus and powerful portfolio drove record In-Home organic sales growth of 9.1 percent in FY-2020
• Total organic sales growth accelerated from -1.1 percent in H1 to 0.7 percent in H2, with In-Home at 9.8 percent and Away-from-Home at -29.8 percent due to new lockdowns in Q4
• Progress across all sustainability commitments, with notable increase in share of third-party certified/verified coffee; 87 percent of packaging designed to be reusable, recyclable or compostable
• Organic adjusted Ebit growth of 6.2 percent to EUR 1,278 million in FY-2020
• Free cash flow of EUR 877 million, after one-off tax and IPO payments of EUR 277 million
• Leverage improved to 3.2x, from 4.2x at the end of FY 19
• Proposal to pay a total cash dividend of EUR 0.70 per share in two equal instalments
• FY 21 outlook: organic sales growth of 3 to 5 percent, with a catch-up on the marketing investment level, will result in a low single-digit organic increase in adjusted Ebit

Chief Executive’s Summary

CEO Fabien Simon: «In an unprecedented year, JDE Peet’s employees and partners worked tirelessly to serve our loved coffee and tea brands to consumers across the six continents. I would like to thank the teams who rallied together, supported communities with initiatives across 30 countries, while ensuring the health and safety of our employees.

JDE Peet’s delivered a strong performance in 2020, demonstrating once again the resilience of the category we participate in, as well as the strengths and agility of our capabilities built over the last 268 years. As the world’s largest coffee and tea pure player, we have become more relevant than ever before. We are evolving our portfolio and channel capabilities towards the fastest growing and more premium In-Home propositions through our unique set of global and local brands. Our strategic choices and investments supported a record In-Home organic growth of 9.1 percent in 2020, with increasing momentum in the second part of the year on sales growth, pricing and in-market performance.

We improved our leverage, and reduced net debt by another EUR 462 million in the second half of 2020. Our confidence in sustained strong free cash flow generation enables us to propose a cash dividend of EUR 0.70 per share.

2021 is expected to be another uncertain year and the long-lasting impacts of the pandemic are unclear and will need to be assessed, in particular the implications for the Away-from-Home channel. We therefore consider it appropriate to adjust our medium- to long-term targets. We are very confident of our growth opportunities to support 3 to 5 percent organic sales growth and mid-single-digit organic adjusted Ebit growth with quality margins, further deleveraging, and funding inorganic growth from our strong cash flow generation. These medium- to long-term targets point to the 2021 outlook of organic sales growth of 3 to 5 percent, combined with a low single-digit organic increase in adjusted Ebit, delivered in a quality way, with A+P trending back towards the FY 19 level.»

Corporate Responsibility

JDE Peet’s’ Corporate Responsibility strategy is built on three pillars: Common Grounds, addressing the priority issues in our supply chain; Minimised Footprint, aimed at reducing our environmental impact; and Connected People, engaging our employees and our communities.

In 2020, we made good progress on our Corporate Responsibility Programme. Under our Common Grounds programme, we increased the share of responsibly sourced coffee, and significantly increased the number of smallholders we reach through our collaborative programmes, despite the pandemic. In 2020, 87 percent of our primary and secondary packaging was either reusable, recyclable or compostable, while 33 percent of our packaging came from recycled materials, which is restricted by current regulations limiting the use of recycled content within packaging which is in direct food contact. We successfully relaunched our leading Senseo brand, with an industry-first compostable coffee pad containing 100 percent certified coffee and low-environmental impact appliances to create a truly sustainable offering for our consumers. Most recently, we partnered with Nestlé in the UK to launch Podback, enabling consumers to return our Tassimo T-discs and L’OR coffee capsules more easily through a variety of methods.

Outlook 2021

While uncertainty remains regarding the future implications Covid-19 may have on global markets, we believe that vaccination programmes around the world will lead to a gradual lifting of lockdown measures in the course of 2021.

Within this context, we expect organic sales growth of 3 to 5 percent in FY 21, assuming a moderate recovery in Away-from-Home. To fully capture the growth opportunities we see in the coming years, we will step up our investments for growth in 2021, notably in marketing and innovation support. With these investments in growth, we expect organic adjusted Ebit growth to be in the low single-digit range in FY 21.

We remain committed to reducing our leverage to below 3x net debt to adjusted Ebitda.

Medium- to Long-Term Targets

Following the unprecedented developments related to the Covid pandemic and the long-lasting changes the company expects they will have on consumer behaviour, the company has reviewed its strategy in recent months.

While management has concluded that the company’s strategy will not be subject to any material changes, we are further encouraged by the future growth opportunities the team has identified. Consistent with JDE Peet’s commitment to focus on the quality and sustainability of its organic sales growth and profitability, the company has decided to link its profitability target more closely to its organic sales growth target.

As a result, the company targets for the medium- to long-term to deliver organic sales growth of 3 to 5 percent and mid-single-digit organic adjusted Ebit growth with quality margins. In addition, the company continues to target a Free Cash Flow conversion of approximately 70 percent.

More information about the company’s strategy and future growth opportunities will be shared with institutional investors and equity research analysts during a virtual Strategic Update meeting on Thursday 31 March 2021.

Dividend

JDE Peet’s’ Board proposes to pay a dividend of EUR 0.70 per share in cash related to FY-2020. The dividend will be paid in two instalments of EUR 0.35 each. The first payment date will be on Friday 16 July 2021, with the ex-dividend date on Monday 12 July 2021 and the record date on Tuesday 13 July 2021. The second payment date will be on Friday 28 January 2022, with the ex-dividend date on Monday 24 January 2022 and the record date on Tuesday 25 January 2022. The dividend proposal is subject to approval by the Annual General Meeting of Shareholders to be held on Thursday 17 June 2021.

Financial Review Full-Year 2020

(in million Euros unless otherwise stated)	FY-2020	FY-2019	Organic change		Reported change
Sales	6,651	6,945	-0.2	%	-4.2	%
Adjusted Ebit	1,278	1,255	6.2	%	1.9	%
Underlying profit for the period	787	801	–		–
Underlying EPS1,2 (EUR)	1.57	–	–		–
Reported EPS (EUR)	0.80	–	–		–
(1)Underlying earnings (per share) excludes all adjusting items (net of tax)
(2)Based on a pro-forma average number of shares of 499,709,030

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In FY-2020, total sales decreased by 0.2 percent on an organic basis. Our In-Home businesses delivered record-high organic sales growth of 9.1 percent as lockdown measures shifted a significant part of Away-from-Home consumption to In-Home. The Away-from-Home activities showed a relatively stable organic sales performance in H2 versus H1, despite a wave of new lockdown measures in Q4, resulting in a full-year organic sales decline of -30.0 percent.

Total organic sales growth reflects a volume/mix effect of -1.0 percent and 0.8 percent in price. Changes in scope and other changes decreased sales by 0.4 percent while foreign exchange had a negative impact of 3.6 percent. Total reported sales decreased by 4.2 percent to EUR 6,651 million.

Adjusted Ebit increased organically by 6.2 percent to EUR 1,278 million driven by strong double-digit growth in all three CPG segments and Peet’s, partially offset by a decline in the Away-from-Home businesses. Including the effects of foreign exchange and scope changes, adjusted Ebit increased by 1.9 percent.

Underlying profit – excluding non-recurring items – decreased by 1.7 percent to EUR 787 million as a higher operating profit was offset by greater adjusted net financial expenses.

Free cash flow of EUR 877 million included EUR 84 million of payments related to the IPO and EUR 193 million of future tax payments brought forward.

Net leverage improved to 3.2x net debt to adjusted Ebitda from 4.2x at the end of FY 19. We continue to make significant progress on our deleveraging priority and we are well positioned to reduce our leverage to below 3x. On 11 November 2020, Fitch assigned an investment grade rating to JDE Peet’s underscoring our operating strength, strong financial discipline, and continued progress on deleveraging.

The liquidity position remains strong, with total liquidity of EUR 1,064 million consisting of a cash position of EUR 389 million and available committed RCF facilities of EUR 675 million.