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JDE Peet's Posts 2% Rise In Core Profit, Says It Will Cope With Inflation In 2022

By Dave Simpson

JDE Peet's NV JDEP.AS, one of the world's largest coffee companies, has reported a 2% rise in full-year core profit that beat analysts' expectations, and forecast "stable" gross profit for 2022 despite strong inflation.

Full-year earnings before interest, taxes, depreciation and amortization (EBITDA) came in at €1.30 billion. Analysts in a company-compiled poll had expected EBITDA to be unchanged from 2020, at €1.28 billion.

JDE Peet's chief executive officer Fabien Simon said he was confident that the company, which owns a range of coffee and tea brands including Pickwick, Senseo, Tassimo, TiOra and L'OR, would "successfully navigate an unprecedented year of inflation in 2022."

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In a note on the earnings Jefferies analyst Martin Deboo said both earnings and sales were better than expected in 2021.

However he noted the company had forecast stable gross profit in 2022 rather than its usual metric, operating profit, which "implies presumably material uncertainty" around marketing and wage costs.

Deboo said that Jefferies expects operating profit will decline in 2022 and rates shares "underperform".

Demand for coffee is inelastic, and JDE Peet's has some pricing power due to its strong brand names. But it must strike a balancing act in passing on higher green coffee costs on to consumers to prevent them from defecting to other brands.

Most of its coffee is sold at supermarkets, though it also has a smaller business in coffee shops led by Peet's, a prominent brand in the United States, which got a boost after markets reopened in the second half of 2021.

The company forecast double-digit sales growth in 2022 but "stable" gross profit. It kept medium term targets of 3%-5% sales growth and single digit operating profit growth in place.

Coffee Traders Seeking Advance Payment In New Deals With Russia

The above news was followed by news that coffee traders are seeking advance payment in any new deal to sell beans to Russia as Western sanctions hit the financial system of the world's sixth largest importer.

Traders in Brazil, the world's largest exporter and No. 1 supplier to Russia, said they have added the country to a list of risky and sanctioned destinations that require pre-payment, including Syria, Lebanon and Iran.

Three Europe-based coffee traders at a major commodities trade houses told Reuters they would not take on any new supply orders with Russian roasters, adding business has in any case slowed as the Russian rouble has plunged.

The Russian invasion of Ukraine - the biggest assault on a European state since World War Two - has triggered a Western political, strategic, economic and corporate response unprecedented in its extent and coordination.

"Too many uncertainties right now in terms of their ability to pay, so new deals only with 100% payment upfront," said coffee broker Thomas Raad, who owns a trading company that ships regularly to risky destinations.

Jose Marcos Magalhaes, head of the Minasul coffee co-op, said advance payment would be required in any new order for Russia, a regular client.

He added that the co-op would also need assurances regarding shipping as container lines are restricting deliveries to Russia since its invasion of neighboring Ukraine.

Raad said that he is currently negotiating with a Russian buyer, having sent coffee samples for approval, but had yet to discuss payment.

SWIFT, the international banking messaging system used for money transfers, said on Tuesday 1 March that it was waiting for instructions regarding which Russian banks should be disconnected from the system under the sanctions.

Brazil exporters association Cecafe said changes to SWIFT could certainly impact transactions but the situation was still unclear. It said Russia bought 1.2 million bags of Brazilian coffee in 2021 valued at $177 million.

Raad said that crypto currency could be a payment option.

"I would take crypto because I am familiar with it, but many exporters wouldn't", he said.

For that to work, Raad said, the Russian importer would need access to a crypto broker that can complete both legs of the payment preferably using the USD Coin, a digital stablecoin pegged to the US dollar.

Ivory Coast Tests New Cocoa Traceability System To Fight Deforestation

All of the above news was followed by news that Ivory Coast will launch a pilot project in April to trace cocoa beans from farm to market, aiming to tackle issues such as deforestation and child labour, the head of the West African nation's cocoa regulator has said.

The new system will allow manufacturers and consumers to know the exact origin and production conditions of cocoa beans, the main ingredient in chocolate.

It will also introduce a new payment system aimed at ensuring farmers get a fair wage.

The move comes in response to plans by the European Union to ban imports of commodities and products linked to deforestation and human rights abuses.

"The objectives of our traceability system is to control the origins and the entire circuit of beans, fight against deforestation and pay the guaranteed price to farmers," said Yves Brahima Kone, head of the Cocoa and Coffee Council (CCC).

Currently, exporters have their own traceability systems that are not compatible with one another and do not make it possible to accurately determine the route of Ivorian beans from production to market.

The world's top cocoa producer, which accounts for around 40% of global output, has been criticised over the years for using thousands of child labourers in farms, and destroying large areas of forests and national parks to expand production.

Kone said the CCC had been developing software to trace cocoa beans from farms to storage centres and then to ports, but the missing link had been from farms to storage centres.

"Now that we have a reliable database on all farmers, the geographic location, dimensions and GPS coordinates of their farms, we can trace the origin of beans from the plantations to close the loop," Kone said.

He added that the new system, backed by partners including chocolate makers, environmental groups and non-governmental organisations, would enable farmers to get the guaranteed farmgate price following the integration of an electronic payment system in partnership with Visa V.N.

Rain In Parts Of Ivory Coast Boosts Hope For Cocoa Mid-Crop

All of the above news was followed by news that above-average rain in parts of Ivory Coast's cocoa-growing regions last week could boost the size and quality of the upcoming April-to-September mid-crop, farmers said on Monday 7 March.

Ivory Coast, the world's top cocoa producer, is in the midst of its November-to-March dry season, when downpours are scarce.

Farmers across the country said the rain would help pods recover from weeks of dry weather, which makes beans too small. Adequate rainfall over the next two weeks will improve growing conditions and help trees grow enough pods by May, they added.

Rainfall was above average in the western regions of Soubre and Man, in the southern region of Divo and in the central region of Yamoussoukro.

"The rain has arrived on time. Many of the trees were wilted," said Jonas Koffi, who farms on the outskirts of Yamoussoukro. The region got 21.7 millimetres (mm) of rain last week, 8.8 mm above the five-year average.

The centre-western region of Daloa also had sufficient downpours to boost the crop, farmers said. The region received 14.5 mm of rain, 0.2 mm below average.

But rain remained scarce in the southern region of Agboville, the eastern region of Abengourou and the central region of Bongouanou, where farmers feared the mid-crop would be smaller than usual.

"Trees produce little because the (weather) conditions are dry," said Basile Lavry who farms near Bongouanou, where 8 mm of rain fell last week, 4.5 mm below the average.

Farmers said local buyers were paying 650 CFA francs ($1.07) per kg of cocoa beans, less than the official farmgate price of 825 CFA francs per kg, because of their small size.

Average temperatures ranged from 28.1 to 32.3 degrees Celsius in Ivory Coast last week.

News by Reuters, edited by Hospitality Ireland. Click subscribe to sign up for the Hospitality Ireland print edition.

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