Jde Peet'S Nv

Good morning and thank you for joining J.D.E. Pitt's full year 2023 earnings call. My name is Laura and I will be your operator for the call. For the duration of the presentation, all participants will be in listen-only mode and the conference call is being recorded. Following the presentation, there will be an opportunity to ask questions. If you do have a question, please press star 1 on your telephone keypad. If you wish to withdraw your question, you may do so by pressing star 2 to cancel. At this time, I would like to turn the call over to our first speaker, Robin Jensen, Director, Investor Relations for J.D. Peets.

Thank you, Laura, and good morning, everyone, and welcome to J.D. Peets' earnings call related to our financial performance of 2023. With me are Fabien Simon, CEO, and Scott Gray, CFO. In a moment, Fabien will take you through the operational and financial highlights related to our business performance in 2023, followed by our outlook for full year 2024. After that, Scott will tell you more about the financial performance in 2023, and after that, we will be happy to answer your questions. Our press release was published at 7 a.m. CET this morning. The release, as well as the slide deck related to this call, are also available for download from the investor section on our website. A full transcript of this conference call will also be made available in that same section on our website as soon as possible after this call. Before I hand over to Fabien, I'd like to direct your attention to the disclaimer regarding non-IFRS measures and forward-looking statements on slide three. We would kindly like to ask you to read this information carefully. And with that, I gladly hand over the call to you, Fabien.

Thank you, Robin. Welcome, everyone, and thank you for joining the call today. Looking back at 2023, I am pleased with the progress we have made on many fronts and how we successfully navigated another dynamic environment. Our achievements in 2023 not only reflect our resilience and agility to perform in an increasingly complex world, but it reflects as well the positive results of the transformation we initiated at the back end of 2020 when we committed to profitable growth in a quality and sustainable way. Throughout the years, our people and partners across the globe worked tirelessly to pursue our company's purpose to unleash the possibilities of our category and the power of our brands. Their ongoing effort and passion enabled us to deliver profitable growth while maintaining the high-quality standards that consumers and customers expect from us. 2023 clearly marked an inflection point for GDPs. we closed the year with the strongest organic semester of the company since we became public. We delivered in H2 an organic sales growth of plus 4.3% on the back of positive volume momentum in H2, and the adjusted EBIT increased organically by 5.5%. We delivered well against the commitment we set at the start of the year, while coping with persistent high inflation and operating in an unusual declining category that was still adjusting globally following the pandemic. When taking a closer look at our financial results for the full year, you can see that our performance excluding Russia is now back to the long-term profitability algorithm that we committed to in 2021. In parallel, we remained very disciplined to deliver on the capital allocation priorities we set. We reduced further our net debt And despite meaningful currency headwinds this year, we achieved a net leverage of 2.7 times, very close to our optimal leverage, with half a billion euros of free cash flow generated in H2 2023. I referred earlier to the transformation we started three years ago. Since then, we closed five operating facilities. We reduced our SKU by more than 20%, and our workforce by 10% on a like-for-like basis. This was achieved while delivering our best customer service level, lowest consumer compliance, and historically highest employee engagement in 2023. JDE became as well during this time frame an investment-grade company with strengthened capital structure. This overall transformation enabled us to become simpler, more focused, and to regain cost competitiveness, which was reinvested to fuel our long-term goals. We reinvested in working media that in 2023 almost doubled in absolute versus the low level of 2020. We invested in R&D, in product innovations, in coffee appliances, and in sustainability. We as well built new capabilities like digital e-commerce. That reset agenda is now behind us. And we are very pleased to have become a leaner and well-invested company with brands and consumers at the higher end of our priorities. As a consequence, our competitiveness in the premium side of the coffee category increased greatly. And explain why in 2023, we are likely among the rare branded scale players in coffee, which can claim gaining market share globally in our geographies, in single-serve, in instant, and in beans. At the same time that we strengthen the company fundamental, We step-change our sustainability credentials, and we are pleased to have turned an historical laggard company on sustainability into a recognized leading one. One of the latest recognition we received in 2023 is the inclusion into a Don Jones Sustainability Index, which, to our knowledge, puts J.D. Epitz as the only company operating at scale in coffee or tea globally in such an important index. Because our organic core business was getting back in shape and supported by a robust capital structure, we could now amplify the company performance with disciplined inorganic moves. We are entering 2024 with two transactions to be completed in the first quarter. One we discussed in our previous earnings, which is Marata Coffee & Tea in Brazil, and the second that we announced in January of this year, which is a global CPG license of Caribou Coffee. And I will come back on those two later in my presentation. Finally, on the highlights, we want to share that we are planning a Capital Markets Day at the end of April in our Aluminium Capsules Factory in France, where we will zoom in on a number of interesting topics and developments for GDI PITS. Let's now move to the next slide to take a closer look at various elements of our operational performance of 2023. Over the course of 2023, we saw an improvement in our volume mix performance, resulting in plus 1.8% growth in H2 compared to minus 3.3 in H1. This was a result of recovery in Europe, share gains globally on the most attractive segment in Nielsen measure channels, and acceleration in some faster-growing channels that are either tracked or untracked, such as online, clubs, or art discounters. As we expected, inflation persisted across a large part of our cost base throughout 2023. Certain input costs, such as green coffee, labor, and freight, actually witnessed further inflation. As a result, we saw a high single-digit increase in our cost of goods sold on top of the 30% COGS inflation we had to deal with in 2022. But again, in 2023, we were disciplined in pricing for commodity inflation. and in revenue management optimizations. Despite the negative category trend, we increased the absolute gross profit from strong efficiencies, simplifications, and premiumizations. In H2 alone, our absolute gross profit increased by almost 5% versus a year ago. And importantly, this was achieved without any compromise on the income quality, which we know can be used in the industry by lower cheaper quality blend. And similarly, we self-funded additional investment in sustainability. And our compounded effort on sustainability in recent years are paying off, as you can see on the right-hand side of this slide. The part of the green coffee we buy today that is responsibly sourced quadrupled over the last three years from 21% in 2020 to 84% in 2023. including 98% responsibility sourced into Europe. As part of this effort, we had 63 active projects at the end of 2023, through which we have reached more than 110,000 additional smallholder farmers during the year. And when it comes to reducing our greenhouse gas emissions, we have also made progress in 2023 with a reduction of 6% in scope 1 and 2 and 10% in scope 3, which consolidated into 9.3% reductions for 2023 alone. And sustainability is embedded across all layers and functions of the organizations and plays an integral part in innovations and new product introductions. One example I would like to call out here is the launch of a new breakthrough home recyclable paper pack for our soluble coffee range, which is the first of its kind in the coffee market. And this new Packaging generates the lowest carbon footprint within our existing range and is aimed to foster a more sustainable ecosystem in the soluble coffee market. At the same time that we managed 2023 well operationally, we did not lose sight of our strategic imperatives to become more global, more digital, and more sustainable. Let me now go to the next slide, slide seven. to share a selection of the most important achievements there in 2023. First of all, we continue to morph into a more global enterprise. Although we all ground in Europe and with a solid performance there in 2023, Europe now represents less than 50% of the total company volume, with a meaningfully lower weight of roasting ground than two years ago. In emerging markets, we continue to grow at a faster pace than in developed markets, with a combination of market momentum, but more importantly this year like last year, on the back of market share gain in the last majority of our countries. In China, we keep growing double-digit thanks to our premium portfolio. In the US, the category was softer in 2023, but we remain optimistic about its long-term growth prospects. This is why We set up a new venture there, which is a launch of law brand and barista appliance that I will cover in a minute. We also advanced in our aim to become more digital in an increasingly channel-blurring environment where consumer-facing and relationships are key. Our targeted digitalization efforts and investment resulted again in double-digit organic growth in e-commerce, And digital marketing now makes up about 40% of total working media spent. And to enable a true omni-channel approach in Europe, like we already successfully applied in all other regions, we combined in 2023 our out-of-home and CPG Europe segment into one European segment. At first, it enables simplifications and cost efficiency, but this is as well a gross agenda for our brand. And next to that, we have initiated multiple automation and AI pilots in our supply chain, in marketing, and across our back offices as part of our ongoing digitalization and efficiency ambitions. Third, when it comes to our long-term commitment to deliver sustainable growth that creates both shareholders' return and societal value, we have made strong progress in ensuring our supply chain is inclusive, regenerative, and authentic through our Common Ground Sustainability Program. This year, we embedded our advanced carbon accounting tool that we developed in 2022 to measure automatically our CO2 emissions per cup across the organization as an additional measure used on how we optimize our operations, prioritize our portfolio, and drive innovation forward. Next to that, we are, with the support of our partner and NGO Anderitas, leading a global effort to fight coffee-related deforestation. We are leveraging a very unique combination of satellite imagery, artificial intelligence, and on-the-ground verification to measure the extent of coffee-related deforestation. This innovative new program, which is aligned with the EU's regulation on deforestation-free products, will ensure continued access to the EU market for the millions of smallholder farmers we work with around the world. And as you can see on the next slide, slide eight, the progress we've made in sustainability has not gone unnoticed by the ESG . Over the course of 2023, we received updated ESG rating from S&P Global, Sustainalytics, and ISS. In all three cases, we improved our scores and rankings, resulting in leading position in the respective categories and in special mentions by each letter that you can see on the right-hand side of this slide. Within the CSA rating of S&P Global, which is probably the most extensive ESG assessment that currently exists, we were called out as the biggest mover in the food products industry, comprising of 260 companies. Let's now go to the next slide, slide 9, to provide you with some more color about our positions, initiatives, and achievements in the portion espresso category that continues to offer long-term growth opportunities. Since we democratized the access to aluminum capsule in 2016-17, we became the undisputed leader in this segment in modern trade. But in 2020, there had been some external concerns raised about the ability for GDPs to keep leadership and pace of growth, given the new entrance of a well-known global coffee shop brand into modern trade. Four years down the road, I would like to bring some data and lights of GDPs' performance there. In 2023, our aluminum capsules grew by 10%. with a high mid-single-digit growth in volume mix. And over the last four years, we delivered a double-digit compounded organic growth. We kept as well our leadership in modern trade, and our law brand is about two times bigger than our next best competitor. This is a result of innovations, quality activations, and offering a portfolio of choices appealing to consumers. And our... Capsules technology and variety of offering is well recognized. And we continue to attract partner brands. After Ely or Tim Hortons a few years back, we have now just announced last week a new partnership with Costa Coffee, the UK's favorite coffee shop brand, whereby GDEPs will manufacture, distribute, and sell Costa Coffee branded aluminum capsules in Great Britain from September, October of this year. The other concern raised since 2020 was GDP's ability to keep operating an espresso pack long-term, especially following a competitor move to a closed system with a new, not retro-compatible espresso plant. And we worked diligently and with a great sense of urgency on this matter since H2 2020, as it would have posed indeed a real risk for us. We innovated and invested behind a new proprietary espresso appliance, Lor Barista, with one of the variants you see on the left side of this slide here. The consumer feedback went above our expectations. For obvious competitive and confidential reasons, I can't disclose the exact number of Lor Barista we sold since 2021, but I can mention that it is over a million machines. And in 2023, about 50% more L'Or Barista were purchased in 2022, which was already a very good year. We launched now L'Or Barista in 14 markets. And in the latest consumer panel, L'Or Barista is reported to be the fastest growing single-serve espresso appliance in 2023 in our core market outside of the US. That meaningful strategic evolutions explain why we were successful to sustain our double-digit compounded growth rate for aluminum capsules. We believe that the category continues to offer long-term growth opportunities. Not only do we have the technology, brand portfolio, and leadership in modern trade on the capsule side, but we now have as well a compelling coffee appliance platform for consumers. And over the last three years, we have regained our freedom to long-term growth in espresso and are now confident in our ability to capture our fair share in one of the fastest segments for in-home coffee consumptions going forward. While we confirmed long-term freedom in our established espresso markets, we realized that there was an ascent, but possibly a meaningful, future espresso-based market where lore is not present. which is the US. We noted that the fastest-growing single-serve segment there is aluminum captions. But we were realistic that entering there would require new infrastructures, go-to-market, brand equity, and appliance capabilities. We therefore decided to set up a new venture in 2023 to test at scale the opportunity of Lord Barista in the U.S. market online on both Amazon and a dedicated new direct-to-consumer channel. And it's fair to say there as well that we were quite positively surprised by the consumer response. Our Lord Barista coffee appliance received a best-seller badge during the important holiday season in December. And on the capsule side, JDIP reached a double-digit level of market share in 2023 on Amazon. And when we look at the month of January of this year, this continues to progress further. So next to those initiatives, we are amplifying growth and globalization inorganically, as described on the following slides. As shared earlier, we have proceed with two transactions, one in Brazil and one in the US, two very important markets for coffee, in cups and in value. In Brazil, the acquisition of Marata will enable GDPs to extend its footprints in the north and northeast part of the country. We will become a stronger number of players nationally in Brazil, from below 20% market share today to above 25% market share. And in addition, we are expecting synergies on the short term, and over time, premiumization opportunities from category development. And the transaction has been successfully closed in January. The second is a global CPG license agreement and the Rose Tree acquisitions of Caribou Coffee. Caribou Coffee is an iconic premium brand in the Midwest, and is expanding its retail coffee stores footprint in the U.S. and in the Middle East, with more than 800 stores now, and stores that will remain under Caribou's leadership. Three years ago, we declared the U.S. as a key priority for GDB. And we are very excited about these transactions, which will expand further our portfolio of pure premium players in the U.S., with Spitz, Stemtown, Intelligencia, as well as L'Or Barista we have just discussed. I do believe that we have now the perfect portfolio of premium brands and technologies in our hands to double the size of our US business in revenue organically in the next five to six years. Some additional financial detail on both transactions can be found on this slide. and the purchase considerations can be found in the subsequent events of our financial statements. Before I hand over the call to Scott, I would like to share our outlook for 2024 with you. While we expect the environment in which we operate to remain complex and to continue to pose challenges, we have entered 2024 with both momentum and optimism as we believe the progress we have made over the last three years positions us well to deliver on our medium-term algorithm. We expect our organic sales growth to come in at the lower end of our medium-term target of 3% to 5%, with a mid-single-digit organic growth in adjusted EBIT when excluding Russia's performance. When also including Russia's performance, We expect our organic adjusted EBIT to grow low single digit in H1 and mean single digit in H2 as an ongoing trajectory forward. Our net leverage is expected to be around three times at the end of 2024, taking into account the Maraca and Karibu transactions, and a free cash flow that is expected to exceed the level of 2023. Lastly, we continue to aim for a stable dividend. So with that, I will hand over the call to Scott, and I will be back when we start the Q&A.