JCDecaux SE

Good afternoon, everyone. Good morning to those of you in the U.S. and welcome to our H1 2023 full year results conference call, which is also being webcast. The speakers on this call will be Jean-Charles Decaux, co-CEO, David Bourg, Chief Financial IT and Administrative Officer, and myself, Rémi Grézard, Head of Investor Relations, is also attending today's conference call. As you can see on slide three, the rebound of our activity continued in H1 2023. We have a revenue increase by plus 7.5%, despite a challenging macroeconomic environment, especially in some geographies such as UK and Germany, as well as a soft recovery in China. Our operating margin and our operating cash flow increased despite inflationary pressures driven by Squid Furniture, which benefited from a full recovery with revenue above 2019 levels, and from the renegotiation of some important concession agreements. David will give you more details later in his presentation of our financial results. Moving to the next slide, you will see that our Q2 organic growth has beaten our expectations at plus 10.3%, versus a guidance of around 9%, as we finished well the quarter, with June reaching plus 12.1% organic growth, stronger than April and May, including some positive impact of late money from digital. China, which decreased double digit in Q1, has increased strongly in Q2, an inflection point from March, as we mentioned in our full year results, but from a lower comparison base. Over the first half, China grew broadly in line with the rest of the group, which implied that growth in other geographies was high single digit, which is good news in the current environment. We continue to bridge the gap with 2019, moving from nearly minus 20% in H1 2022 to minus 14% in H1 2023, and minus 6.5% excluding China. On slide five, you will see that our growth has been driven by our transport segment. Transport grew by plus 19% organically on the back of the recovery in mobility, including air traffic. But it should be noted that transport remains far from 2019 levels at minus 30.9%, partly due to China, which leaves us room for growth. All geographies grew double digit in this activity with the rest of the world already above 2019 levels. Street furniture grew by 4.2% year-on-year and is now plus 4.1% above 2019 levels with a good momentum linked to the digitization and to a solid demand from advertisers for this media. Billboard, our smallest segment, decreased slightly by 0.3% year-on-year Asia Pacific, which is mainly Australia, and North America were already above 2019 levels. On slide six, you can see that all regions grew positively. Rest of the world, including Brazil and Middle East, performed strongly despite its exposure to transport and is already close to 2019 level. Europe had different dynamics. between countries with UK being soft in Q1 and stronger in Q2, while it was the other way around for France, the strong growth in the southern European countries and a soft overall in Germany. North America is doing well at 5.1% above 2019 if we exclude the New York airport contracts. Q1 was soft due to the high comms, but trading in Q2 was strong in line with a strong level of domestic air traffic including from business travelers. Asia Pacific has been growing double digit, but remains far from 2019, minus 35.3%, but minus 31.9% if we exclude the two Guangzhou contracts. Activity is much closer to 2019 in Pacific and the rest of Asia compared to China. On slide seven, the rest of Europe is our top region at 29.7% of our revenue. Asia Pacific remains the second region at 22%, with China representing roughly 11% of our total revenue compared to around 17% in 2019. France remains our top country. Street furniture still makes up more than 50% of our revenue, while transport remains below its usual 40% at 33.9% in H1 2023, mainly due to the slow recovery in the airport advertising business globally, as the situation can be very different from one geography to another, as you can see in the next slide. Indeed, on slide 8, compared to our airport revenue, we outperformed the level of traffic in both the US and the Middle East, now well above 2019. We are lagging behind in Europe and in Asia Pacific as we are more exposed than average to large international airports and as advertisers are often reluctant to take long-term commitments which represent more than half of our airport revenue before a clear recovery of traffic which creates some lag effect. Between those two geographies, international air traffic from and to China remains affected by important capacity constraints and visa delivery delays. Therefore, the return of Chinese travelers at some point should have a major impact, including in Europe. The average spent per passenger remains higher than pre-COVID in airports, which is very good news. On slide nine, you will find our revenue by client categories. Our client portfolio diversification remains steady, with our top 10 clients representing less than 14% of our revenue. As you can see, our number one client category, fashion, personal care, and luxury goods, remain a significant growth driver, growing by plus 27%, well above the group average, and representing now 19% of total revenue, versus 17% in full year 2022. Retail remains solid at 11%, despite the inflationary environment. Travel at plus 47%, and restaurants at plus 17%. still in the recovery phase after COVID, are coming back quickly to our media. Finance and entertainment were flat and internet decreased by 11% year-on-year, but remained above 2019 level, while automotive remained soft and out of the top 10 sectors. On slide 10, you can see that our digitalization continues to be a significant growth driver. With digital revenue now making up 32.7% of total revenue, a record level with a growth of digital at 17.1% in H1, 18% organically, in line with our long-term period growth of 16%. Digital revenue breakdown is very much in line with our business mix, which shows that digital is relevant and efficient in all environments. On slide 11, strong and steady development of digital street furniture with an increase in digital inventory. Street furniture has now caught up with the other segments for digitalization. It brings flexibility and efficiency for advertising as well as for non-advertising messages. On slide 12, after the decrease linked to the pandemic, digital transport is back to growth with the record level of 35.6% of revenue. As we have won some tenders that have been put on hold during COVID, we're investing again in this segment, and the rate of digital will continue to increase, including, for example, in metro system in China. Slide 13, digital billboard continues to grow strongly, reaching 30.7% of revenue. Digital is the winning formula for billboard, bringing a lot of additional revenue and gaining in visibility while enabling us to reduce the number of locations. Australia, as pictured on this slide here with the luxury advertiser, is one of the most successful countries in this regard. On the next slide, 14, you will see that 63% of our digital revenue is coming from five countries only, namely UK, US, Australia, Germany, and China. Brazil is another large country, not yet in the top five, but with more than 60% of digital revenue and growing strongly. The strong disparity in digital penetration shows that we still have a lot of room for growth. Moving on slide 15, regarding our contract portfolio, the activity for tenders remains strong in H1. On the first slide, you can see the contracts won from our competitors. As you can notice, all of them include digital, and the most significant one is the contract for Oslo Transport, which is currently operated by Clear Channel. We've won this large contract thanks to our performance on non-financial criteria which is encouraging. Other contracts include Carrefour in Brazil, extending our footprint in the growing space of retail media, and the brand-new beautiful Terminal 2 of Bangalore Airport, one of the leading tech cities of the world, where we have installed innovative rotating LED screens. We have also now renewed some contracts over the period, including the contracts for Guangzhou Airport and Guangzhou Metro, two loss-making contracts, and our contract with the airport of Riyadh. There is no must-win for us, none of our contracts accounting for more than 3% of total revenue, and we will continue to be very selective, focusing more than ever on returns. On slide 16, many renewals and extensions, as you can see on this slide, mainly in street furniture, with, in France, the three contracts for Toulouse, covering all types of street furniture, the bus drivers of London, and the important renegotiations for New York and Chicago. including extended durations and improvements in the financial terms. We have shown once again our ability to win contracts, which include criteria such as ESG and innovation in markets like Norway with Stavanger, Macau, Shanghai Airport in Singapore, or Bangalore Airport. In China, several significant renewals in the airports of Beijing and Chengdu, and of course, Shanghai Metro. On the next slide, 17, we have reached an agreement to acquire the activities of CareChain Italy in Spain. This will reinforce our position in these two markets, the third and the fourth largest in Europe. This acquisition represents a total enterprise value of 75 million euros, including 15.1 million euros for Italy, representing a multiple of 6.7 times for the last 12 months of ABDA before synergies. The closing for Italy has been executed on May 31st. and we are now integrating this activity. Closing for Spain is expected in 2024, subject to the approval by the competition authority. Moving to slide 18, we think that ESG criteria are becoming more important in the tenders for the cities and other partners. It's a new era. 61% of tenders have assessed environmental criteria, encouraging increase versus 25% in 2019. and 18% of tenders have assessed social criteria. In France, the law on climate and resilience will make them compulsory in public tenders, but only in 2026. ESG has a cost and brings value and should be included in all tenders in line with the financial criteria. We've won several contracts thanks to our strong sustainability commitment. As for example, in Toulouse, we have bikes that are designed according to eco-friendly principles and the refurbishment of existing bus shelters and other pieces of street furniture. which enabled us to reduce the carbon emissions very significantly compared to a full renewal. In Oslo, with extra financial criteria that have made us win. So very encouraging, but we need public authorities to speed up this process so that ESG criteria, which have a real ecological but also financial cost, can be assessed fairly in tenders and not only in the financial part. On slide 19, just to confirm, we are making very good progress in deploying our 2030 strategy in all verticals, and our projects for 2023 are moving along well. Without going over all our action points for 2023 on this slide, there are two aspects I would like to highlight briefly. First, as you know, we launched our ambitious climate strategy in June, but Jean-Charles will go into further details about it in his presentation. Additionally, we have been working on our eco design policy, including the development of an eco store, which we aim to make a market preference in the long term. On that note, I will now hand over to David for comments about our financial performance.

Thank you, Jean-François. Hello, everyone. If we come back for a moment to the summary of the financial results, as you can see in this table, The rebound of our activity continued in H1 2023. Revenue increased by plus 7.5% despite a challenging macro and a soft recovery in China, including a decline in Q1 as already pointed out by Jean-Francois. Revenue growth increased to 7.8% on an organic basis, excluding negative FX effect for 20 million euros and a positive scope effect for 15 million with no significant impact on the operating margin. Our operating margin and operating cash flow which reflects the best our recurring activity increased despite inflationary pressures driven by strict furniture which benefited from a full recovery in revenue above 2019 and the renegotiation of some concession agreements. These contract renegotiations marked indeed this first half, with long-term business benefits from substantial improvements in financial commitments and contract durations, but with a short-term negative impact on our working capital requirements, leading to a decrease in free cash flow and increase in our net debt over the period, as you can see on this slide, but I will come back to this later. A quick focus now on the evolution of the operating margin, which is at 203 million in the first half, an increase of 10.7%, 1.4 times the revenue growth, a reasonable operating leverage given the inflationary context, and the level of activity still low compared to normal in our transport activity, and particularly in China. The increase in rents and fees was limited to 4.5%, lower than the revenue growth, which is at 7.5%, as you can see on this slide, partly due to the renegotiation of some street furniture contracts, especially in the US, partly related to COVID. This allowed to offset the higher increase in rents than the revenue growth in the transport segment, due in particular to the soft recovery in China, with a level of activity still below 2019 as I mentioned previously, while rents have almost returned to a normalized level in connection with the lift of mobility restrictions. On the other hand, other operating costs increased more than our revenue growth at almost 10%, amounting to nearly 60 million euros, as you can see on this chart. Half of this increase came from our staff costs, which managed to be contained at 8.1%, despite facing inflationary pressures in most of our geographies. and talent challenges, especially in our commercial functions and expertise related to our digital transformation. Additionally, the full year effect of 2022 recruitment and the end of governmental aid related to COVID, which were still in effect during the first half of 2022, contributed to this rise. Our other operating expenses, excluding staff costs, increased by 12.1% compared to 2022, in line with the recovery of our activities, but with an increase in our electricity costs contained to 17%, thanks to our hedging strategy and the energy efficiency measures we implemented. Adding a look now to our H1 EBIT, as you can see on this chart, it becomes positive again at 12.5 million before impairment, 34.4 million after impairment, an increase of almost 50 million mainly due to the increase in the operating margin of 19.6 million, and some one-off items for nearly 30 million. Regarding the one-off items, we can note on this chart a positive impact of 29 million related to the finalization over the period of some contract renegotiations, including a reversal of provision for dismantling for 15 million and a reversal of a provision for onerous contract for 16 million following the improved financial terms of one of the renegotiated contracts. Some termination costs for 11.6 million euros in China related to the end of our transport concessions in Guangzhou. We have therefore reversed the provision for impairment on these contracts, which was recorded at the end of 2022 for 17.4 million, as you can see on the right-hand side of this slide. This resulted in a positive net impact over the period related to Guangzhou of almost 6 million. Last point, in the bar other, an increase in charge of 9 million corresponding to non-recurring provisions covering specific risk and litigation in various geographies. If we now turn to the evolution of our margins by business segment, we see a favorable variation for the group overall of 40 basis points on operating margin and 200 basis points on EBIT, driven mainly by street furniture, the two other segments being down. Looking at the ratio operating margin to sales on the left of the slide, The increase in street furniture of 190 basis points comes from the combined effect of revenue growth and a favorable evolution of the rents, which benefited from the contract renegotiations. The decrease in the margin rate of the transport business segment by 90 basis points is explained by a higher increase in rents than the revenue growth for the reasons already pointed out. And finally, the decrease in margin rate on the billboard segment for 40 basis points results mainly from the decline in revenue. Regarding the evolution of the EBIT margin before impairment, on the right of the slide, the trajectory is globally in line with the one of the operating margin rate, more pronounced, however, on street furniture at plus 450 basis points, a segment that benefited from the reversal of the one-off provision related to the contract renegotiation mentioned before at EBIT level. Next slide. We can see that the net result group share came back to positive territory at 37.8 million, an increase of 49.5 million in line with the improvement of the EBIT as you can see on this graph. However, you can note a positive impact of IFRS adjustments for 35.5 million, mainly related to the reversal of the net lease liabilities resulting from the contract renegotiations, a decrease in tax, which was a net income in H1 2022 of 36.9 million, in line with the improvement of our results including the one of items of the period a slight improvement in our financial result of almost 3 million quite counter-intuitive given the increase in our gross debt of 600 million at the beginning of the year but we benefited from the increase in interest rates on the placements of our liquidities while our debt is mainly at fixed rates. And finally, an increase of 1.5 million in the net result from equity affiliates, mainly related to the improvement in the performance of our ventures under joint control, the contribution from our associates being down due to clear media in China, which is still lagging behind, and has not yet benefited from the mobility recovery. Turning now to the cash flow statements, first of all, in the middle of the table, our operating cash flow stood at 140.3 million, an increase of 33.6 million coming from the operating margin for 19 million, and a decrease in net interest paid for 13 million due to the increase in interest received on our cash as pointed out in the previous slide. With a net investment amounting to 121 million over the period, as you can see at the bottom of the table, which remained stable compared to H1 2022, the negative free cash flow of 179.7 million over the period is therefore mainly driven by the unfavorable change in working capital requirements for 172.8 million. This change was mainly due to the payment of past rents resulting from the finalization of the contract renegotiation and to a lesser extent to the increase in trade receivables and in inventory in line with the ongoing recovery of our activities. Regarding our net investment for 121 million, it should be noted that they include a payment of advertising rights on Shanghai Metro for 26.7 million, as well as the sale of non-core assets for 32.5 million. The net capex for the period remains down 11.3% compared to 2019, a 7.6% of the revenue. If we look now at the evolution of our net financial debt, an increase of 193.4 million over the period in line with the evolution of the free cash flow that I have just commented on. Therefore, our net debt stands at 1.1 billion at the end of June 2023. To finish this presentation, And before handing over to Jean-Charles, an update on our financial structure, which is very solid, with a strong liquidity, nearly 1.5 billion cash after repayment in June of a bond maturity of 750 million, and 825 million in confirmed revolving credit line, and drawn with a maturity in mid-2026. a well-secured debt profile as well, with bond maturity largely covered by available cash until 2028, an optimized management of our net debt, allowing us a reduction in financial expenses over the period, and a net financial debt to operating margin at 1.9 times, which is quite appropriate for our industry. On that note, I hand over now to Jean-Charles for the outlook.

Thank you, David. And talking about now the outlook and the strategy, you can see on slide 30 that we present the latest forecast for revenue growth yearly over the next three years by Zenith Optimedia, a study that has been released recently in June 2023. You will see that even the current challenging macro environment, including a slowdown of online advertising, OOH remains a growth media. It is not only forecasted to grow by more than 5% per year over the next three years, thanks to the very strong fundamentals of the media which include the high quality and trust level of our media for advertisers in the fragmented media universe, its digitization and the long-term rise of urbanization and mobility leading to structurally growing audiences. It should also be noted that traditional OOH or analog is growing positively at 2.9% per year, what we observe also at the G-Celico level, while DOH is the fastest-growing media type, growing by 10% per year, faster than online advertising. On the next slide, 31, you will see that you can find basically an update about the level of recovery of air traffic in the different regions of the world. As pointed out by Jean-Francois, North America and Middle East Africa are now back to 2019 level. Business travelers are also strongly back in the first half of 2023, especially in this region, which is very encouraging. Asia and Europe at the moment are slightly behind. However, the global air traffic recovery continues to outpace the express forecast, as flight traffic was already at 92%, in H1 versus a forecast of 92 for the full year. As you can see on the chart on the right-hand side, traffic will soon rise above the level of 2019 globally, most likely in 2024, and in advance versus other projections done before. Moving now to the slide 32, Our other key transport activity, metro and rail advertising, is also picking up to levels that are now close to 100% in some regions, like in Brazil and Spain for metro, and Norway for trains, with revenue that are close or even above 2019. This is due to high effectiveness demonstrated by a recent study covering 14 countries. In fact, most commuters are still using intensively this transportation means even after COVID with two hours and 30 minutes exposure per commuter on average per week. And they are also, as you know, receptive to advertising messages as 90% of them will notice the ads and 72% have taken at least one action following this campaign. So very encouraging for this environment that we continue to upgrade to digitize selectively In key hubs, as you can see on this picture, with large digital panels in Shanghai Metro, bringing to metro users the spectacular experience most often found in airports or shopping centers. Moving to slide 33, an update on the situation in China. As you know, after the end of mobility restrictions in China at the end of last year, the mobility has first dropped before recovering progressively since March. In Q1, we have just suffered a net organic double-digit revenue decrease compared to 2022 from Q2 with an infection point starting in March as anticipated in our release. Our revenue bounced back year on year, but remained well below still 2019. As you can also see, the recovery has been strong for domestic transport, including metros and domestic airports, now close or above 2019 levels. But international air traffic remains affected by important capacity constraints and visa delivery, and so remain at only 30% of its pre-COVID level in the first half of the year. The level improves slightly in Q2 to reach 40% of pre-COVID. In this environment, consumers and advertisers remain cautious In fact, consumer spending remains below 2019 revenue levels, and advertisers are sometimes reluctant to make an important commitment in advance. We are obviously monitoring the situation carefully, and in Q3, we have some traction, but so far no clear acceleration of the recovery. We expect China to grow positively, but below the group average of 7% organic growth in Q3, as stated in our guidance earlier. Moving now to our digital opportunities with the next slide. Compared to a total OH revenue pool of roughly 40 billion US dollars globally, programmatic is already a huge 200 billion US dollars revenue pool, representing more than 90% of online advertising in the US, for example. Programmatic DOH can be traded on online platforms such as DV360, the Trade Days, or specific DOH DSPs such as Displays, and with the same speed and KPIs as online advertising, which opens up a vast revenue opportunity for OH players. Also for advertisers, programmatic DOH has many benefits. It is reactive, targeted, cost efficient, and can be a booster for sales and for traffic. We have here two recent examples of campaigns combining DOH with online, one in the UK with a client called Appatmeal, generating a 15% increase in sales thanks to programmatic DOH. The other with Tourist Tasmania from Australia, which recorded a 31% uplift in visits, to its website due to programmatic DOH campaign. On the next slide, you can see how this translates into our revenues. Programmatic advertising sales booked through the VIEW platform have increased by 63% to reach 36.9 million euros, EA 7.1% of our digital revenue, compared to 5.9% in full year 2022. We currently have more than 20,000 screens trading programmatically in 19 countries. Programmatic revenues are so far mainly incremental, new money coming from targeted campaigns and from the long tail of advertisers. We estimate that two-thirds of our programmatic revenue were incremental in H1. This broadens clients' universe increases, demand, and enables us to generate higher yields for our digital inventory. Programmatic is already much more important than 7.1% of digital revenue in some important geographies, reaching, for example, to 35 in Germany, 27.1 in the Netherlands. And we think that the penetration of programmatic will continue to increase to reach 20% or even 30% in the coming years, probably by 2025. Moving now to another key growth driver for us, the main tenders. The level of activity remains important, including among the most important, the street furniture. In street furniture, the buses of Rotterdam and Singapore. In transport, we can highlight the Metro of Hong Kong and two tenders in Sydney, Sydney Bus and Sydney Life Rail. Most of them now include a significant share of digital. As already mentioned by Jean-Francois, we have defined and communicated in June our group climate strategy with strong commitments to reduce our carbon footprint and address the risk of climate change. We are obviously aligned with the ambitious of the Paris Agreement 1.5 degree scenario, and we have committed to a science-based target SBTI trajectory to achieve net zero by 2050. Three steps. one measure, two reduce, three contribute, will help to achieve this ambitious goal. In 2022, we signed our commitment letter to SBTI. The filing process is underway at the moment with a submission plan for September. I must also stress that the scope of our contracts will obviously play a major role in this reduction as most of our carbon emissions come from the installation of our street furniture. We must, with our partners, promote the refurbishment of existing furniture which we maintain to very high standards and which can be used well after the end of post-contracts, given the quality of our inventory at JC Decaux. It is clear that we will not succeed on our own without a radical change in public procurement that incorporates these non-financial criteria. 2030 is now just around the corner, and given the climate emergency, it is essential for all stakeholders, especially the contracting authorities, to get involved sooner rather than later. Looking now again at the tradition now at our competitive landscape on slide 40. We are the clear leader in OOH worldwide, and especially outside of the U.S. Our unique international global position will, in our view, become more and more differentiating in the age of digital and of programmatic. We will continue to monitor closely this market as the current environment, including macro headwinds, higher rates, and recovery will likely continue to bring us bottom investment opportunities such as the one we did with the Clear Media, the Clear Channel Italy and Spain transaction. In conclusion, we have presented today a good set of results reflecting the rebound of our activity. Revenue, in fact, have increased by 7.5% year on year despite the challenging macro environment on the still limited traction on our activity from China. Our operating margin and operating cash flows have improved respectively by 10.7% and 41.6% driven by street furniture. We have also achieved significant street furniture contracts renegotiation with long-term benefits but with short-term impact on free cash flow as highlighted by David. Our EHE performance remains best in class. We think we are also well-positioned to benefit from the ongoing recovery. We have a unique worldwide leadership position, a well-diversified geographical and advertiser exposure, the most digitized and data-driven global OH company, and we will continue to focus on innovation and enhancing our EEG roadmap, which now includes an ambitious, as you have seen, climate strategy. We see more opportunities, obviously, for sustainable and profitable growth in the future. We will continue to be very selective, digitalizing our prime locations. We will also make sure that we are growing our programmatic training state-of-the-art platform view with continuous upgrades to improve our quality of service. We have powerful data-driven training offers reinforced by our GCDECO data solution as well as our alliance with this place. We will continue to grow selectively through tenders as we are often the best place to grow advertising revenue and to achieve a high innovation and ESG performance. And we also will continue to monitor and consider carefully the consolidation opportunities, especially for Bolton acquisitions. Lastly, and before moving into the Q&A, our outlook for Q3 2023. As far as Q3 is concerned, we now expect an organic revenue growth rate of around plus 7%, with China lagging behind the group average growth rate due to the slow recovery as discussed of international air traffic and the impact of the non-renewals of our Guangzhou metro and airport contracts. We thank you for your attention, and we are obviously now ready to take your questions.

Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad and wait for a name to be announced. To withdraw your question, please press star 11 again. Please stand by while we will compile the Q&A. This will take a few moments. Now we're going to take our first question. And the first question comes from the line of Kona O'Shea from Kepler Chevron. Your line is open. Please ask a question.

Yes, thank you. Good afternoon, everybody. So a couple of follow-up questions for me, maybe more for David. Just first on the working capital, obviously normal seasonal outflow in the first half of the year with business picking up and so on, but can you give us sort of a range in mind for the full year? That would be helpful. Secondly, just if you could go back on your comments on the margins, The margin decrease in transport business, just to explain that again, why that's down in a half where the business has rebounded so significantly. And then just on the non-core assets, you mentioned, I think, 32.5 million of disposals. Can you give us a sense of what those assets were, what activities do they relate to, and if there's maybe some more non-core pending in the second half? Thank you.

So I will take the question for the answer. So the first question, working capital, as you know, we do not provide any guidance for the end of the year. What I can say, if you look at the variation in in the variation of the working capital requirement from H1 2023 compared to H1 2022. If you take this variation globally, two-thirds of that is coming from the past rental payments that I have mentioned before. And so this is a one-off. It will continue to impact the working capital until the end of the year, but excluding this impact, we should be on a more normalized working capital requirement coming from the increase in the activity, impact on our trade receivable, and let's say contained evolution of the inventory according to our CAPEX program. So this is what I can say on the working capital regarding the margin. On the transport segment, you know well the weight of the transport in our activity in Asia. And as I mentioned before, Asia is recovering on the top line, but it is a soft recovering. Mobility, we are lifted at the end of 2022, beginning of 2023. So our rental in our transport contract in China are getting back to a normal level and faster than the revenue recovery which is still soft in transport in general and in China especially. And in the transport is mainly on the airport advertising related to the international traffic. And this is the reason why. Despite the revenue increase in the transport business segment, it doesn't allow to absorb the increase in the rental for the moment. And we have this decline in our operating margin rate in the transport business segment. Okay. Regarding the sale of non-core assets, it amounted to 32 million. It is... It is a one-off item. It is not supposed to be repeated in H2 of the year, so we won't have a significant impact from non-core asset sales in H2. So that's why you could expect, because when you look at the capex, the net capex in H1 is, as I mentioned, at minus 11% compared to 2019. but you could expect an increase of our net capex intensity in the second part of the year because we won't have anymore the benefit from this one-off impact.

Okay, understood. Many thanks.

Thank you. It's really non-core, so nothing to do with our advertising business and that's all.

Okay, great. Understood. Thank you, David.

Thank you. Now we're going to take our next question. And the next question comes from the line of Catherine O'Neill from City. Your line is open. Please ask your question. Great. Thank you.

I wanted to ask actually about street furniture, given the high drop-through rate you saw there, which I think seem to be mostly to do with renegotiation of contracts. So I just wondered if we should assume that that continues like that as we go through the year. That was the first question on the margins. The second question, I think you mentioned the loss of the Riyadh airport contract in Saudi. I just wondered what the background was there. I think Al Arabiya won it. And I just wanted an idea of what's going on in that region, given the potential growth in whether you're seeing any change in the sort of competitive landscape. And then my other question is on capex, whether you could give us any sort of steer on capex levels for this year, given it was flat in the first half year on year. And then finally on utilization, I just wondered where you're at on utilization now relative to sort of pre-COVID average levels.

Thank you, Catherine, for your four questions. I will take the first one, street furniture. Jean-Charles will take the second one on Riyadh. David will take the third one on CapEx, and I will take the fourth one on utilization. On street furniture, it's fair to say that the renegotiation of both New York and Chicago street furniture concessions have had a positive impact on margins, and this will be recurrent. and we expect also to build more split furniture in prime locations in New York, which would help the top line as well, because up until recently, before signing this extension agreement, we were capped in a number of prime locations that we could build in New York, and the way our out-of-home is being sold in New York, in the States in general, It's very much line by line, location by location, trade picking the best locations and clients being prepared to pay a huge premium for the top locations. The sale of street furniture in the States is very different from Europe where we are selling prepackaged network. But the other reason is that we are back to and above 2019 the revenue level in um in street furniture which is mostly a european business the business model was born in france and and is it's mainly a european business and despite what i just said about the us and we have also concessions in other parts of the world including in south america but it's mainly european business and the good news is that we are back to a pre-covered and above pre-covered revenue level in in street furniture, including in France where for zoning regulations, we cannot digitize as much as we would love to. And France is very resilient and the margins are almost back to pre-COVID. So it's a combination of top line. This is the best performing segment in terms of returning back to pre-COVID and being above pre-COVID. Despite in H1, the non-renewal of the City of Los Angeles, which was a joint venture with Art France. So we haven't highlighted this, but this has a negative impact on organic growth in H1 of 2023. So street furniture is performing because of those two main reasons, top line and and contract renegotiations, not only, but mainly in New York and Chicago, which was also linked to COVID. Not only, but part of the renegotiation was due to the COVID impact on those businesses. Next question, Riyad.

Regarding Riyad Airport, in fact, as you know, one, JC Decaux, is always taking a very disciplined approach on our way to bid on on basically new contracts or even on renewal. In this case, we put a pretty compelling business proposition for the Riyadh Airport renewal. It was a renewal, in fact. But it looks like we were not basically in terms of on the financial points, it looks like we are not the highest bidder in this case. And so we don't have... basically any information at this stage, but what we understand is that basically Al Arabiya, a local competitor, has been selected as the company to operate now the contract. We don't know yet if the contract has been signed. We understand that it's not yet the case. So that's what it is. We are operating basically the rest of the airport in Saudi Arabia. We will not be operating most likely the Riyadh Airport in the future. But we don't have much more information than the one I'm providing you this afternoon. So that's what we know at the moment on this Riyadh Airport table.

Regarding the CAPEX, Catherine, as we said in March, our net capex to sales is normally between 7% to 10%. This year we will be on the high end of the range. We are below at the end of June, but for the reasons that I have pointed out before, we should catch up in the second part of the year, keeping in mind that in the second part of the year we will have the last payment of the advertising rights for Shanghai Metro, which amounts to about 25 million euros. But obviously we will do everything we can in order to stay in this range, but as I said before, We will be in the high end of the range.

This is what I can say on CAPEX. On utilization, which we call internally occupancy rate, which we mainly measure in street furniture, France, which is the biggest street furniture market for the group, is back to pre-COVID occupancy rate, roughly at about 90%. So the increase of street financial revenue in France is driven by the pricing power that we were able to implement around mid single digit to high single digit price increase, which was accepted by the clients, hence the revenue increase with a similar occupancy rate versus 2019. In other regions, the occupancy rate is historically always lower than in France. It's around between 60, 65, 70%. It varies from one country to another. And we are almost back to pre-COVID occupancy rate. It's fair to say that we've been able to increase rates across the board in street furniture between mid to high single digits. And in billboard and transport, we don't really measure occupancy rate as we do in street furniture.

Great. That's really helpful. Thank you. I just wanted to come back actually on, not Riyadh specifically, but just Saudi and more broadly within the MENA region, just to understand a bit more about whether you are seeing a change in competitive dynamic when it comes to tenders. or whether actually it was a fairly rational tender in Riyadh and we shouldn't expect any dramatic changes there.

Yeah, I think, as you know, in the Middle East we are basically a multi-country operator. So we operate in the Emirates, we operate in Saudi, we operate in Qatar, we operate in Oman, so mainly in the Gulf region. Pretty sound dynamic, commercially speaking. both 2019 level as it was highlighted in the presentation a few minutes ago. So very strong dynamic, not a lot of tenders at the moment because we renewed most of our basically tenders recently or just pre-COVID or during COVID, especially the extension in Dubai, the new airport in Abu Dhabi. It is fair to say that Saudi is really booming at the moment. um and it's clear that the rehab airport um you know it's sometimes when you don't renew a contract it's easy to say the other one has outbid we don't like to uh to say that because as i told you in the previous sponsor we don't have the the the the the final figures we will get them we will get the those figures but at the moment we don't exactly know uh but the market remains a very uh very dynamic. Can we say that it was an irrational bidding from Al Arabiya? Maybe yes, but I'm not sure. I don't have the figures. So I would say that, you know, we have seen that in many countries around the world already. We have seen that in China in the past. We have seen that in Brazil in the past. We have seen that in some U.S. markets where sometimes you can see very aggressive people, but it doesn't really last very long. If you look at the Most of our American basically competitors in Europe at least or even in Asia or even in the Middle East, they are all gone from those regions or about to be gone and with major losses over the last 25 years. So at the end of the day, if there is one company that is very disciplined, Going forward and globally speaking in our way we bid, I think GCDECO is one of them and doesn't prevail us to be the largest operator in those markets. We sound basically returns and that's the reason why we have no reason to change our way we bid. We can regret obviously not to renew some contracts sometimes. It also reminds me the situation of Paris few years ago. Well, basically, Clear Channel, not to name them, they won the contract, but they put some losses since then. And as you've seen, they just announced a deal. Not so sure it was a very good deal in terms of value creation. And at the end of the day, we have been able to be above 2019, despite the fact that we didn't renew that contract. So at the end of the day, the beauty of our business model is that it's kind of, as we say, a mosaic, that no contract is making more than 2.5% of our total revenues. And if sometimes you can lose one of them, it's not the end of the world. And so that's the reason why we will continue to carry forward on being quite disciplined in our billing strategy. Having said that, we have to sometimes defend position, obviously. But I think that's the way we have been able to consolidate further our businesses in all those regions around the world without basically having major depreciation of assets so far and having no major losses in our operations. Okay, great.

Thank you very much. Thank you. Dear participants, as a reminder, if you wish to ask a question, please press star 11 on your telephone keypad. Now we're going to take our next question. And the question comes from the line of Benjamin Jocon-Zueger from Deutsche Bank. Your line is open. Please ask your question.

Hi, thanks very much. I just had a question on the Q3 outlets. I'm trying to understand what states into the guidance in terms of China, and in particular, what level of international air traffic are you expecting? You know, traffic was only 30% of pre-COVID levels over H1.

Benjamin, sorry, but we can't hear you very well. There is a kind of echo, kind of, we can't hear you. Could you pick up the phone, maybe?

Excuse me, dear speakers, I believe Benjamin just disconnected. Now we're going to take the next question. Just give us a moment. And the next question comes from the line of Nizla Nizer from Deutsche Bank. Your line is open. Please ask your question.

Hi, this is Nizla. I'll ask the question on behalf of Ben. Basically, we were trying to understand what's baked into the guidance in terms of China. What level of international air traffic are you expecting, given it was only sort of 30% levels over H1? Are you assuming sort of a further improvement over Q3 from the 40% level in June? Any color that you can provide in terms of how China sort of feeds into that outlook would be great.

So if you take the first six months, if you take a look at the first six months, we reported... this morning an organic growth rate of 7.8. China was at 9%. So the group excluding China was at 7.7. So China was accretive to the organic growth rate in H1. In Q3, what we said in our guidance is that China, the growth rate of China is below the guidance of around plus 7%, implying that China won't be accretive on our growth rate for Q3. And this is based on an assumption that international air traffic does not rebound. It's right now at below 20% of pre-COVID level, and we are not expecting in Q3 a rebound in international air traffic. As Jean-Charles explained, the capacity constraints on flights, the visa delays are kind of postponing the rebound of international air traffic in our opinion, but not only in our opinion, in the opinion of the air travel experts. So that's our answer to your question.

Very helpful. And I guess we had one more question on capital allocation. Could you give us some color on how you all think about organic growth, inorganic growth, and opportunities to return cash to shareholders as well when you think of capital allocation going forward?

In terms of capital allocation, we are still targeting an internal rate of return between around 15 plus percent. on on organic um organic growth um when you buy clear channel in italy and spain at less than seven times three synergies it means that we are probably around three times post synergies given that the synergies are quite significant i think it will be a creative in in in the near future so that's what we well that's why we like this kind of bolton acquisitions we did two in france last over the last two years, Pisoni in the south of France and Abris Service in the western part of France, which have been integrated very quickly. So capital allocation and return to shareholders, that's basically part of the answer to your question. The second part is obviously the dividend. We will reinstate the dividend as as soon as possible. I think it was wise from us to cut the dividend, to stop paying dividends during the COVID period to maintain our financial flexibility. And as we predicted, the consolidation is now restarting, which is why we want to keep maximum firepower. But having said that, If we generate sufficient cash and depending on the profile of the organic projects, potential organic projects as well as the consolidation, we will again reinstate the dividend as soon as possible, bearing in mind that the family is fully aligned with shareholders because we we own nearly 67 of the equity of jc doco se so we take 67 cents on the on on every dollar of dividends so um the dividend is important for the as much as important for the family as for the external shareholders so um there is no commitment don't get me wrong but the um we are we are we will be reinstating the dividend as soon as it is in our opinion and feasible very clear thank you very much thank you there are no further questions I would now like to hand the conference over to our management team for any closing remarks no no further comment thank you for your questions and on behalf of our executive board I wish you and your families a very nice break and well we'll see each other probably when we start our roadshow in September. So have a good vacation and see you or speak to you soon. Goodbye everyone.