JDE Peet's N.V. (JDE.F) Earnings Call Transcript & Summary

Good morning and thank you for joining JD JDE Peet's First Half 2020 Results Webcast. My name is Jerry Howell, and I will be your operator for the call. [Operator Instructions] And the conference call is being recorded. [Operator Instructions] At this time, I would like to turn the call over to our first speaker, Robin Jansen, Director of Investor Relations for JDE Peet's.

Thank you, Jerry, and good morning, everybody, and welcome to JDE Peet's earnings call for the first half of 2020. With me are Casey Keller, CEO; and Scott Gray, CFO. In a moment, Casey will take you through the key messages and business performance-related to our half year results. Scott will then tell you more about the segment and financial performance in the first half. We will then take your questions, and after that, Casey will end today's presentation with concluding remarks. Before we begin, I'd like to direct your attention to the disclaimer regarding non-IFRS measures and forward-looking statements on Slide 2. We would like to ask you to please read this information carefully. Our press release and the related slide deck were published at 7:00 a.m. CET this morning. Both documents are now available for download from our Investor Relations website. The full transcript of this conference call will be made available as soon as possible on our website as well. With that, let me hand over to Casey.

Thank you, Robin, and good morning, everyone. Thank you all for joining us for our first earnings call. This morning, we will be covering the first half 2020. Before we get started, I want to acknowledge the extraordinary time we've all been living through and thank all of our JDE Peet's employees worldwide. As the COVID-19 crisis first emerged in China, our teams prepared and planned to ensure our supply chain could adapt, and our employees were protected. As the pandemic spread, we focused on 2 primary objectives: ensure the health and safety of our associates and maintain business continuity. I particularly want to acknowledge our employees in the plants and on the front lines who persevered to keep production levels high, orders flowing and meet the important needs of customers and consumers. At JDE Peet's, we mobilized and donated more than 20 million cups of coffee and tea to healthcare workers and communities in need. Our employees participated in hundreds of community initiatives, ranging from delivering coffee and tea to those in need to volunteering and food banks, to ensuring elderly neighbors were cared for as they sheltered in place. Let's now move to Slide 5. The current environment and first half results reinforce our conviction in the power of the JDE Peet's strategy and pure-play focus and confirms the investment thesis behind our recently completed IPO. The large global coffee and tea category was incredibly resilient during the COVID pandemic. People did not stop drinking their coffee and tea. They moved cups and occasions from out-of-home to in-home. The demand for coffee and tea demonstrated again that it is very inelastic. Our focus at JDE Peet's remains squarely on coffee and tea. We see plenty of opportunities across markets in a relatively fragmented category with many local and regional players. The strength of our portfolio of heritage brands, technologies and routes to market is unique. It allows us to build scale and reach consumers with coffee and tea solutions across price tiers to meet their needs, occasions and budgets. That has been a strength during this crisis and will continue to be an advantage in the post-COVID economic uncertainty, and we are focused on delivering against consumers' rising expectations for coffee experiences, delivering premium offerings with innovations in single serve, premium bean to cup, free [ stride ] instant and mixes and out-of-home barista stations. During the pandemic, we realized high-growth in premium segments, including aluminum capsules as consumers sought better coffee in-home. Let's now move to Slide 6 and share the 3 major takeaways for the first half with you. First, JDE Peet's delivered strong financial performance. We saw record growth in our in-home CPG business across markets. That growth largely offset the significant COVID-19 impact on the away-from-home business, which represented about 25% of our sales last year before the pandemic. Our adjusted EBIT performance was very strong, behind excellent cost discipline and operating efficiencies, and we continue to reduce debt behind strong cash flow generation during the crisis. Second, we successfully kept the business running during the unprecedented disruption of the COVID pandemic. We took proactive steps to ensure the health and safety of our employees and to maintain uninterrupted business operations. Our company's agile response included a wide range of precautionary measures to protect business continuity throughout the supply chain and keep our frontline employees safe. All of our plants continued to produce, and we maintained service and delivery to our customers. Finally, consumer habits changed during the pandemic. We all continue to enjoy our coffee and tea every day but move those occasions into the home from the office, coffee stores, schools, et cetera. In many cases, consumers were unwilling to sacrifice some coffee quality and migrate it to premium solutions in-home. Single-serve options, including aluminum capsules, were the fastest-growing parts of the category. The shelter in place mandates stipulated by governments around the world created extraordinary demand in e-commerce. Our e-commerce business increased by 63% in the first half, more than doubling since the pandemic lockdowns. Consumers gravitated to the ease and convenience of coffee and tea ordered online and delivered direct to their homes. That shift is likely here to stay, and we will continue to invest in and drive our e-commerce platform and capabilities. Moving to Slide 7. Overall, the company performed well during the COVID pandemic in first half of the year. You will hear more details from Scott, but a few important top lines. Our sales were down slightly at minus 1.1%, with very strong in-home CPG growth of 8.3%, largely offsetting the significant impact on the away-from-home business during the COVID crisis. In June, the away-from-home businesses showed significant recovery, lifting total JDE Peet's into positive growth for the month of June. On adjusted EBIT, we delivered organic growth of 10.5% to EUR 642 million. Reported growth was plus 9.1%, reflecting strong cost control and focus. One of our key goals this year was to reduce leverage, and we made excellent progress. We reduced our leverage ratio from 4.2x to 3.4x over the first half 2020, and we generated free cash flow of EUR 402 million for the half year. On the next slide, Slide 8. You can see the shift in sales from away-from-home to in-home. For perspective, around 1/4 of our business is derived from away-from-home and 3 quarters from CPG, including e-commerce. The CPG in-home business accelerated growth to 8.3% in the first half '20, almost doubling the rate in FY '19. By contrast, the away-from-home business declined by minus 30% in the first half, driven by the significant impact of the lockdowns and restricted mobility during the COVID pandemic, particularly in April and May. It's also important to keep in mind that the away-from-home business has an average revenue per cup that is higher than the in-home CPG business. In some cases, coffee stores, for example, substantially higher. However, our EBIT and cash flow is very stable as cups move across in-home and away-from-home. Let's now zoom in on the in-home CPG business on Slide 9. We delivered record organic sales growth in our in-home CPG business worldwide, with strong double-digit growth in many key developed markets. Growth was driven by continued premiumization, with a strong mix towards single-serve and premium beans. As previously mentioned, we also experienced high-growth in e-commerce across platforms and markets. Moving to Slide 10. We see clear signs of recovery in the away-from-home business in June. As lockdown measures and restrictions lifted, coffee stores and other away-from-home business started to recover. Today, we can share that 85% of all our coffee stores across markets are open again and serving customers, and we see similar progress in other away-from-home channels, including offices, schools, bars, restaurants, travel and tourism, et cetera. Even the most hard hit businesses, large corporate offices and hotels are slowly starting to recover. Furthermore, while it is a drag on the top line during the decline, the upside as the away-from-home channels continue to recover will be felt relatively quickly. Finally, on Slide 11, I want to touch on sustainability before turning over to Scott. JDE Peet's has a robust environmental, social and governance framework based on 3 pillars which cover the entire product life cycle. Through our common grounds program founded in 2018 in partnership with the Rainforest Alliance, we are committed to addressing the priority issues within our supply chain and have a road map in place to exclusively procure green coffee, raw tea and palm oil from responsible sources by 2025, but it is not only the ingredients that we are focused on. As a leading packaged goods manufacturer, we also recognize the increasing strain packaging places on our environment. In 2020, we launched Senseo Earth, including 100% UTZ-certified coffee wrapped in a compostable coffee pad brewed in a low impact appliance. Senseo remains the most popular single-serve coffee system in Western Europe and is now the most sustainable platform as well. By the end of 2025, JDE Peet's aims to exclusively sell products that are packaged in recyclable, compostable or reusable materials. And finally, we are proud to be actively involved in local communities around the world and believe a connected society starts at our own workforce. Through our diversity and inclusion program, we are committed to reach gender balance within our teams by 2025. With that, I will hand over the call to Scott, and I'll be back before we go to Q&A.

Thank you, Casey, and good morning to all of you. I hope that you and your families are all staying well during these unprecedented times. I'll provide some detail about our results for the first half of this year, and then Casey will talk about our outlook before we go to Q&A. Starting on Slide 13. As Casey noted, the first half really reinforced the resilience of our brands, products and overall combined business. We delivered strong growth across the CPG in-home portfolio, which, as Casey mentioned, represents about 3/4 of our total business. Three of 5 segments were in positive growth, driven by in home, and the CPG portfolio for Peet's in the U.S. also exhibited very high growth. The challenge during COVID-19 was our out-of-home business, which was down almost 30% behind the lockdowns and restrictions across markets. However, profitability was very strong across segments. Four of the 5 segments delivered positive adjusted EBIT growth, including Peet's, and despite the significant sales impact during COVID, the out-of-home segment managed cost and customer service to get very close to breakeven on an EBIT basis. Our business in Europe performed very well with almost 5% growth. We saw high-growth in our major markets in Europe, including here in the Netherlands as well as in the U.K., Spain and France. And there has been a move towards premiumization with strong development in premium beans and single-serve during the pandemic. The Larmea segment delivered organic sales growth of 6.3% in the first half, with resilient growth in our key markets despite the COVID economic environment. Freeze-dried instance and single-serve were strong growth drivers across markets. The region also delivered strong adjusted EBIT growth above 30% behind higher sales and strong cost control. Growth in APAC reflects the shifts between in-home and away from home. Australia, New Zealand and China experienced strong in-home CPG growth while the away-from-home businesses, including coffee stores and foodservice, were impacted by COVID-19. Again, we saw improved trends in June and expect continued away-from-home recovery in the second half. The very strong EBIT growth reflects lower operating expenses and a soft comparable basis. Peet's business also contains both CPG in-home and away-from-home. In CPG, Peet's sales grew over 20% over the last 4 consecutive months behind the strength of our DSD system. We also experienced very high-growth on our CPG, e-commerce direct and retailer businesses, reaching more than 10% of Peet's total sales in H1 '20. We did see the impact of COVID on the coffee stores and other away-from-home businesses. Most stores remained open for limited pickup or delivery service to support our customers and communities. Again, we're encouraged by the recent recovery trends in June as stores expand service and more consumers start venturing out to get their coffee and tea. Clearly, our out-of-home segment was heavily impacted in unprecedented waves by the effects and movement restrictions of COVID-19. We saw steep declines in travel and tourism and drop-offs in demand from education and office customers. Our out-of-home teams reacted quickly with agility and flexibility to adapt to a dynamic environment, control cost and pivot to customers' needs and opportunities. We do see encouraging signs and recovery in out-of-home, starting in June, particularly in European markets. Our June out-of-home run rate improved by about 20 percentage points versus the April, May lockdown period, and that progress continues into July. We believe our financial strength, deep capabilities and flexibility will be an advantage as mobility increases and out-of-home channels resume business at different paces. Let's move to Slide 14 and take a closer look at sales. Our diversified portfolio of categories and brands across price points positioned us well as we experienced strong CPG growth. The growth of our CPG business offset the effects of the lockdowns on our away-from-home business, with a slight decline of 1.1% in organic growth, which the volume mix decline was just 0.9%. The foreign exchange impact in the first half was primarily driven by the appreciation of the euro against the Brazilian real, Russian ruble, Australian dollar and the Turkish lira. We had total sales of $3.2 billion for the half. Let's move to Slide 15. We had a very strong performance on EBIT as our adjusted EBIT increased organically by 10.5% to EUR 642 million. This was driven primarily by double-digit growth that we saw in all 3 of our geographic CPG segments as well as Peet's and was clearly offset by declines in our out-of-home segment. In addition to our strong CPG growth, our EBIT was supported by disciplined and proactive cost management. During the early and peak phases of the stay-at-home measures, we very quickly determined that our traditional, promotional and marketing investments would not be an effective use of capital as consumer behavior changed dramatically. At the same time, we accelerated our investments in e-commerce and digital marketing. Furthermore, we captured savings across our discretionary SG&A as our way of working changed, and we leveraged our strong company-wide cost culture. While marketing remains an important component of how we reach customers and consumers, during the lockdowns, this was a prudent decision. As we see recovery in channels, we are resuming our investments and will have a higher level of spending in H2 compared to H1, while maintaining our discipline. Our business also delivered very steady and consistent cash flow. In the first half, we had 2 atypical events that you see coming through in the cash flow: First of all, we incurred costs related to our IPO, which you also see in our net income; secondly, we increased inventory as part of our COVID crisis management in order to have safety stock on hand during the period of disruption to ensure business continuity. We returned back to normalized levels of inventory, especially as our CPG business accelerated, but the average inventory level was higher in the first half. Otherwise, the underlying drivers of our operating working capital were consistently strong in the first half, a trend we've seen for many years. Moving to Slide 16. On leverage, one of our top priorities is deleveraging. In the first half, we materially reduced our leverage by 0.8 turns to 3.4x net debt to adjusted EBITDA from 4.2x at the beginning of the year. This shows the effects of our strong EBIT and robust cash flow generation even with some currency headwinds, in addition to the positive contribution from the primary proceeds from the IPO. Reducing our leverage will continue to be important and remains a priority for the business. We are well on track to reaching our objective of having a leverage ratio below 3x by the end of H1 2021. While we have an investment-grade business profile today, we want to be a strong investment-grade rated company. We have a very strong balance sheet. Our liquidity position at the end of June was over EUR 1.2 billion, we had EUR 504 million of cash available on hand and EUR 718 million of capacity under our committed revolving credit facilities. Furthermore, our average cost of debt is about 2.4%. Even with our high cash flow generation, during periods of uncertainty, a strong balance sheet, including a high level of liquidity is prudent. Let me now hand back to Casey, who will provide you with an update on our outlook, then we will open up the call for Q&A.

Thanks, Scott. Before we go to Q&A, let's address our outlook on Slide 18. We believe our first half results reinforce our resiliency. The strength of our portfolio of trusted brands, combined with strong execution in our global manufacturing and supply chain during the crisis, make us well positioned moving forward. While uncertainty remains on the future implications of COVID-19 may have on global markets, we have seen, as I've mentioned before, positive signs of improvement starting in June as markets began to reopen. Assuming this trend continues, we expect positive organic sales growth for FY '20. We also expect that our adjusted EBIT growth for FY '20 will be within our medium- to long-term range of 5% to 8%, with increased marketing promotions in the second half. And as previously stated, we are well on track to achieve our leverage goal of below 3x by the end of first half 2021. Thank you, and I'll turn it over to the operator to start Q&A.

[Operator Instructions] Our first question comes from the line of Celine Pannuti of JPMorgan.

So my first question is, thank you for providing color on the out-of-home run rate in June and July. Could you provide similar run rate into the at-home market, especially in Europe, what kind of growth have you seen and as you've seen, the lockdown coming off, can you talk as well about how the CPG market demand has done in June and July? And my follow-up is as well on CPG Europe could you provide a bit more granularity on the building block of growth? You mentioned that single-serve and premium beans have been driving this. Can you put any color on that. Also, if I remember correctly, you've run out of capacity in single serve, is that correct? And how is the situation now?

Okay. There were several questions in there, Celine. So let me try and answer those. So first, our Europe business, I think you reported strong growth for the first half, and we saw an acceleration of that growth during the -- during the COVID pandemic lockdowns starting in March, but we still see very strong growth, mid-single digits in our Europe CPG business in June. So we're expecting that we will continue to see higher growth on our CPG businesses in Europe and other places as the COVID recovery gradually happens. Remember, our share in the CPG in-home channels, our share is higher than our share in the out-of-home channels, which it still remains very, very fragmented. So I think you also asked about what do we see driving the growth, particularly in Europe, I think realistically, we would expect higher income consumption through the COVID recovery period across all the segments, but as we said before, we expect to see some volume growth in Europe, but a lot of growth driven by mix as we see the fastest-growing parts of the category are the premium segments. So single serve, obviously, was very fast-growing prior to COVID, but even accelerated post-COVID, all of our single-serve technologies, Senseo, Tassimo and aluminum capsules are all growing very rapidly into double digits. Aluminum capsule since the COVID dynamic began is -- actually, for the first half is growing over 30%. So we're seeing very strong growth in -- that's what's driving the mix. Overall segments are showing some growth, but those, in particular, are driving the way forward. We have talked about on our single-serve technologies. For the most part, we're pretty good in terms of Senseo and Tassimo, I think we've said before that we are tight on capacity in aluminum capsules, and we were on some allocation for the last couple of months, but we've been able to meet demand. We've been able to manage through that, and we have additional capacity coming online in the start of next year. So the very first part of 2021, we'll have additional capacity. So we feel very comfortable we'll be able to meet the needs of customers and consumers going forward in single-serve across the board, but in particular, in capsules as we add capacity.

Our next question comes from the line of Jon Cox of Kepler Cheuvreux.

Jon Cox, Kepler Cheuvreux. A couple of questions for you. I'll try and make it one and then just the follow-up. Was I right in hearing, you said in June, overall, the group was now positive? Maybe I've misunderstood that when you -- when you were talking -- I'm talking about the group overall. And as a follow-up, you're talking about organic growth this year rather than focusing on the volume mix, which was the basis for the targets, have you now shifted targets to organic? That's just more of a technical question, and then another follow-up, trying to put it all together. Just on the out-of-home, I wonder if you can give us a bit of a breakdown in terms of share to which segment, whether that's in the office, hotels, restaurants. You're also talking about a 25% now is out-of-home. I think originally, you were talking about 20%, I guess there's some foodservice you found in parts of the business. Give us any sort of color on that because, obviously, that's a key component what will happen to sales as we go forward?

Okay. I think that just -- thank you, Jon, for the question, on the total business in June, we were in growth. So the total group was in growth in June, just to clarify, just to make sure you heard that right. And I think I also said that, that was driven by continued growth in CPG, but importantly, a recovery of 20 percentage points in our out-of-home business, and we're seeing a similar recovery in out-of-home in July as well. I think the -- on the out-of-home business, we did quote the 25% number today, and that is an accurate number. So as we look at the -- where our out-of-home businesses are, we clearly have a segment called out-of-home, but we do have away-from-home business in all of our segments. Peet's obviously has a significant portion in coffee stores and away-from-home, but also in our APAC region, we have quite a bit of out-of-home business. We have old town coffee restaurants. We have a foodservice and foodservice ingredients business. In APAC itself, that's probably about the same as the total group of 25%. We do see growth in -- happening at different rates and different channels. We haven't really commented on it yet, but I'm seeing the [ Baraka ] business coming back faster. I'm seeing small and medium businesses coming back faster. We can see the pattern in China where our Peet's coffee stores are now kind of over about -- at or above 90% of their run rate prior to COVID. So we are seeing that -- it coming back at different speeds. I'd say the places that have been most challenged, but still showing recovery in June would be large offices and travel and tourism. Honestly, our approach in the out-of-home business is we have pretty broad capabilities. We have reach and routes to market across all the channels and out-of-home, and we're trying to pivot and move to where we see the business coming back faster. So we're working with customers as they resume operations to get onboard quickly. We're even seeing some new customer opportunities in a very fragmented marketplace where we can provide service that maybe others can't. So we're trying to manage our resumption and our -- we start a business, not only just restarting our current customers, but also looking for where the opportunities are as different channels come back at different rates. I think that hit all of your questions.

Jon, just to touch based on your one comment around organic sales versus volume and mix, we did quote to organic sales, but we also quoted volume and mix and volume and mix for the segment. So underlying volume and mix will continue to be something that we will talk about a lot. So it will be both, but volume and mix is still important, and we did disclose that information on the segments.

And is that because you're thinking you're going to see positive pricing in the second half of the year? I'm just wondering why you mentioned organic in, obviously, all the way through the IPO is all about volume mix and now today...

In the IPO, we also quoted organic or what we called like-for-like as you remember -- especially when we gave a Q1 update, so we're showing consistency there, but also quoting underlying volume and mix. So we continue with both of us.

And the goal is 3% to 5% for both organic mix, volume mix and the organic like-for-like. I'm talking about the mid-long-term goals?

The long-term range was 3.5% at the constant commodity -- sorry, 3% to 5% at constant commodity on top line, you're correct on the medium to long-term range.

Our next question comes from the line of John Ennis of Goldman Sachs.

My question is on A&P spend. It fell by 200 basis points in the first half. So I guess that implies before we get down at least 100 bps, I just wondered what you think will happen in 2021. Do you step up investments again, reverse this cut? Or do you think you can sustain this lower level of investment?

Yes, why don't I go ahead and start. Thanks, John. I think as Scott talked about, during the COVID pandemic, we did reduce marketing and promotions. We saw less need for promotions, in-store activations. We saw less consumer promotions. Honestly, we spent quite a bit on our single-serve machines and developing those in stores, but a lot of the electronic retailers were closed, and I talked a little bit about capsules being on allocation. So we pulled back some demand generation on that. Honestly, brand -- and we've disclosed that we're going to increase our marketing promotion in the second half versus the first half. We believe that advertising, promotion and marketing is important to drive the business. It's an important driver of our brands. So we will move back and step back into investment on our brands as we move forward in the second half and then in 2021. We think it's an important component of our business. I mean we're always going to be looking for generating positive returns behind marketing investment. We'll always be looking for efficiencies. We're working on some programs now to get more efficiencies in our media and advertising and digital spend. And by the way, digital has been one area where we've really maintained strong support and strong investment because we believe it's so critical for our business and you can see the growth of e-commerce, 63% in the first half, we want to continue to drive that. So we'll continue to look for ways to optimize our spending, but we do believe it's an important component of our business going forward, but we'll make sure that as we put the spending back in that it's effective, that it's producing the right return and that it's focused on the places that we want to grow.

Can I just follow-up on something you said there on the aluminum capsule side, what proportion of your business is that now?

Yes. We don't -- I don't think we disclose the total percentage of the business from aluminum capsules, but it is one of our fastest growing segments. It's -- obviously, there's very high development in our European markets. And I think we talk about our share overall in capsules as kind of 43% to 45% in the traditional CPG retail outlets.

Our next question comes from the line of Tom Sykes of Deutsche Bank.

Just wanted to ask about the revenue split. And when you give the other food and beverage category, and that's obviously gone from 13% to 10% of sales, whereas you've obviously seen much more stability in -- well, an increase in the proportion of sales coming from coffee and tea. Could you maybe just give us a bit more detail of what goes into that and then when you've seen a recovery, are you seeing that uniformly across -- in out-of-home, sorry, in coffee, tea and the other food and beverage category and perhaps in addition to the comments on out-of-home. Could you maybe just talk about the impact of any government support furloughing and the dynamic of those cost savings as out-of-home is coming back, please?

Okay. Tom, I believe you had 3 questions there. So why don't I start on the first one, which is your question about the other food and beverage that we disclosed in the financial statements and has reduced. I mean, this other food and beverage category is made up of some of the dynamics that we talked about on the away-from-home business. So this is non-coffee and tea. This is food service. Casey was talking briefly about some of the away-from-home, for example, in APAC and throughout the company. So we have some non-coffee and tea that is in this category. And this breakdown that you talked about in terms of revenue breakdown, and as the away-from-home business was obviously impacted during COVID-19, that is why you see a decline in this, while coffee and tea is obviously a lot driven by nonexclusive, but as we have an uplift in the CPG in-home business, that's where you see the overall benefit of growth there. So that's why you see a little bit of change in terms of the balance that we have in the revenue split then I'll let Casey...

Yes. And I think I -- it's important to remember, I mean, the coffee and tea category is there also include out-of-home. So the other food and beverage would be other products sold as part of our operations. So I think your second question was about more color on the coffee and tea business coming back and out-of-home. We talked about it quite extensively. But obviously, the depth of the lockdowns was in April and May. So when things were pretty much shut down in the out-of-home business in April, that was our steepest declines on that business. And as I talked about June, we saw kind of a 20 basis -- 20 percentage points recovery in our run rate versus what we were seeing in kind of April, May. So that was encouraging news for us, and we're seeing that progress continue into July. So I mean, overall, it gives us confidence that we're on the right track. I mean, a lot of uncertainty around how channels will reopen and other things -- will there be some -- will partial restrictions come back in some places where you see a flare-up in the pandemic. Yes, but we're prepared to kind of deal with that. And honestly, one of the things we've learned in this April, May, June period is how to adapt our operations and our service and our business in the [ auto ] environment to try and optimize our ability to get business while the restrictions are in place. So I think we'll be -- we'll have learned some things in terms of how we move forward if there is a second wave of partial restrictions that we need to contend within our business. I think the last question you asked was about government support. So obviously, in our out-of-home businesses, we did furlough some of our -- some of our employees that did service and maintain our operations in the out-of-home environment. We didn't actually -- we took some government support to support where it was possible, but it's pretty small. It was pretty small in the scheme of things, and we did not take support where it would have restricted our ability in the future to kind of shift resources or to pay dividends, for example. So it was -- in terms of cost savings, it was there. But for the most part, it wasn't a huge part of our cost reduction during the pandemic.

Okay. Sorry, just a very quick follow-up. The reason for asking on the difference and the mix of the businesses as it comes back, are you seeing that the margin dynamic on what out-of-home business comes back is the same as the margin dynamic as we were going into COVID? Because just looking at whether that business mix of the out-of-home business and what's coming back is the same?

Yes. So I think what I tried to explain a little bit is that from an EBITDA and a cash flow standpoint, we're relatively indifferent with the movement of the business across out-of-home to in-home or in-home to out-of-home. Just because we have pretty good margins and good profit on both sides of the house. I think the dynamic that you do have to understand is that in the out-of-home environment, the revenue -- the revenue kind of per cup is higher than in the in-home CPG business. And that's because of all the cost to service and deliver coffee in the out-of-home environment, there's a lot more cost there below the revenue line to enable that. So I think you'll see -- as the business shifted from in-home to out-of-home, you see a little bit of an impact from that revenue per cup difference, but I think, honestly, on the other side is the out-of-home business begins to recover, you'll see an accelerated effect from the revenue per cup increasing as out-of-home -- as more cuts go into out-of-home or recover back into out-of-home as things normalize.

Our next question comes from the line of [ Mia Cubadoko ] of Bank of America.

The first one is on coffee stores. I think you flagged around 85% of coffee stores were open in June. I might have missed this, but do you -- can you give us the same sort of figure for July as well? And also can you give us some indication of capacity for those stores. So 85% stores open operating at what capacity? The second question is, if you can quickly give us some color on the rollout of aluminum captions for illy? So anything you can say in terms of where you are in terms of your target universe or how many countries you've rolled out so far?

Sure. Okay. On Coffee store, I think we disclosed the 85% open in June. I think that number is increased a little bit in July. So we are continuing to see more stores open, but I think a lot of stores went back into operation in June. Remember that we kept quite a few stores open even during the April, May period with very limited service. So pick up mobile order or delivery. So we tried to have some limited operation as much as possible to serve our communities, to serve our customers, for instance, Peet's and some of our other coffee stores in Europe and in Asia. But we -- as June came back, we were able to bring some customers inside and to have interior business, even if it was just to come inside and order at the counter. And then take it away or whatever. So we saw more and more kind of service operations resuming in June in addition to opening more stores. And I think we're hoping in July that we'll see more and more kind of more and more traffic in our stores coming in as we saw early in July, we'll check that and keep going into August, but I think as we resume more and more service, you'll see an improved recovery in that business as well as stores coming back open. I think you asked about -- I think you asked about the rollout of illy capsules. That's been a success. We've been very happy with the results. We've largely launched in most European markets and traditional CPG retail outlets in the last a year, 1 year, 1.5 years. It's a super-premium offering, high-quality offering. We've been able to get great distribution. We've seen we were able to get share with that proposition. And we see it as a real strength in our portfolio operating at the super premium element within the marketplace. So we're quite happy with what's happened with the illy capsules rollout. And we're looking to -- we're probably in the process right now of looking at a couple of new markets that we would like to roll out in as well.

Our next question comes from the line of Martin Deboo of Jefferies.

Martin Deboo at Jefferies. Just one question, please. Margin. Margins went up a striking amount given that both price and volume mix was negative in the half. So can you please give us some color on the moving parts of margin in H1, specifically, what happened to green coffee prices during the half? And secondly, I think on John Ennis' question, there was mentioned that A&P was down 200 basis points in H1. Can you confirm that? And any other moving parts like SG&A?

Yes, absolutely. Why don't I start on that, Martin. So on margin, in terms of some of the moving pieces, you're right, there's a number of moving pieces overall on margin. If I look at gross margin, we had some decline in gross margin. This was primarily related to the shift from the away-from-home to the in-home at gross margin level, the away-from-home does have high margins as you had to shift into the in-home, you had a little bit of margin decline there, but that was -- had a big offset from also category mix that we had in there related to the increase in single serve, the premiumization effect that we had in the in-home in CPG. So a couple of dynamics going on there. And then at the EBIT level, I mean, we have -- as we had those shifts from the away-from-home into the in-home, we have very steady EBIT and cash flow, and that's the dynamic that you saw. At the same time, the -- at EBIT level, we were supported by a couple of dynamics. One of them you talked about in terms of the A&P reduction and the 200 basis points, which is correct in terms of the A&P level. And then also, we had strong cost control, both in terms of operational efficiencies as well as just control of our discretionary spend that we had in the first half as we had the kind of changing dynamic that was going on. So we made sure to capture costs there appropriately. So you had a number of dynamics going on as you look at the overall change in margin, but again, very, very steady EBIT and cash flow. And then, of course, CPG driving the overall EBIT growth that we saw in terms of organic EBIT growth.

And green coffee prices during the half?

Sorry, yes, I left. Absolutely. So I left off one of your questions. On green coffee prices, in terms of H1, as you see in terms of market there wasn't a lot of change in terms of green coffee prices. So in the first half, not a lot of changes there, quite a lot of stability there. So not a huge dynamic going on in terms of coffee prices.

We will now take our last question from Jeff Stent of Exane BNP Paribas.

Just -- well, on observation this last question. But yes, it's just very unusual, I guess, that you don't hear any talk about market shares from a consumer staples company. So on that note, I was wondering whether you could perhaps shed some color on the market share development, particularly in the CPG business and particularly in Europe?

Yes, absolutely. We're happy to talk about shares. So if we look at shares in Europe, we saw sequential improvement from Q1 to Q2, almost a whole point. So we feel very good about our share position and our share progress. I think even if you look at the most recent period, we have strong share development and we did have a little bit of impact in Q1 from retail negotiations, which resulted in lower promotions, but we resolved our annual negotiations by March. So we feel very good about where we are now and our share development and our share growth. And honestly, I think we see some strong parts of our portfolio still growing at rapid rates and building share. And so we've had good progress. I think if you look at beyond Europe, if you look at either the U.S. Peet's, the CPG business and traditional retail in Peet's, the DSD operation has shown very strong share growth even post-COVID pandemic, but even prior to that. So we are growing share in the premium side of the coffee category there. Peet's had very strong growth in the CPG e-commerce business. So we feel good about kind of our share position in the U.S. [ within Peet's ]. We feel great about how we're progressing with our share in Europe. And as we've talked about before, we see lots of opportunity to continue to grow our share position. This is still a very fragmented category with lots of local and regional players. And so we see opportunities in the future to continue to expand not only our presence, but our development in our portfolio in markets.

Okay. And maybe just one follow-up, if I may. But I think around about the time of the IPO, you were quoting some share numbers for aluminum capsules and sort of traditional retailers. Could you tell us what your -- and I think that data was from October, if I recall correctly, could you maybe just shed some light on what that share is now? So what the share is of aluminum capital in sort of main markets?

Yes, absolutely. So I think if we look at the markets that we compete in today, our share is about a 43%. I think I said before, about a 43% share of the traditional CPG measured channels. So very high, very high, very strong share position in that -- and it's developed quite a bit, I think, over the last 2 years.

That was the last question. I'll now hand the floor back over to Casey for his closing remarks.

Thanks, Jerry. I just want to reiterate that we are pleased with our results for the first half of the year in the midst of such global uncertainty. The impressive performance of our CPG business and the recovery that we're seeing starting in June of our out-of-home business bode well for the remainder of the year, and we are confident that we have the plans in place to build on our first half. Thank you again for joining us today. Scott, Robin and I look forward to speaking with you in the days ahead. Stay well. Stay safe, and have a great day.

Ladies and gentlemen, this concludes the JDE Peet's first half 2020 results webcast. You may now disconnect your lines. Goodbye.