JCDecaux SA (OTCPK:JCDXF) Q2 2022 Earnings Conference Call July 28, 2022 7:30 AM ET
Company Participants
Remi Grisard – Head of Investor Relations and Financial Communication
Jean-Francois Decaux – Co-Chief Executive Officer
David Bourg – Chief Financial and Administrative Officer
Jean-Charles Decaux – Co-Chief Executive Officer
Conference Call Participants
Sarah Simon – Berenberg
Catherine O’Neill – Citi
Conor O’Shea – Kepler Cheuvreux
Nizla Naizer – Deutsche Bank
Jerome Bodin – ODDO BHF
Operator
Ladies and gentlemen, welcome to the JCDecaux 2022 Half Year Results Presentation.
I will now hand over the call to Jean-Francois Decaux, Chairman of the Executive Board and Co-CEO. Sir, please go ahead.
Jean-Francois Decaux
Good afternoon, everyone. Good morning for those of you in the U.S. and welcome to our 2022 half-year results conference call which is also being webcast. The speakers on this call will be Jean-Charles Decaux, Co-Chief Executive Officer; David Bourg, Chief Financial, IT and Administrative Officer and I. Remi Grisard, Head of Investor Relations is also attending today’s conference call.
In the first half of this year we have continued our rebound with metrics that are all improving significantly compared to the first half 2021 that were still very difficult due to COVID-19. Revenues grew by 36.3% and 31.7% organically year-on-year. We have again achieved a strong operating leverage, thanks to an ongoing tight management of cost that has allowed us to maintain the increase in the cost base at a much lower pace than the revenue growth.
Our operating margin reach €182 million, our EBIT improved by close to €150 million, and our net income improved greatly, although it remained slightly negative. Our free cash flow improved also with rising funds from operation as the activity picked up combined with our cautious management of CapEx and contained working capital variations, despite the strong revenue increase. Our total debt is close to €200 million lower than last year at the same time. David will give you more details later in his presentation of our financial results.
Moving to the next slide, you can see that our activities have continued to grow significantly compared to last year at 31.7% organically in H1. Of course, the comparison base was not the same for Q1 and Q2. As a reminder, there was a significant improvement of the sanitary situation with the progressive rollout of the vaccine from Q2 last year. Our performance was above our expectation in Q2 at 21.6% in organic revenues.
This shows you that despite the mobility restriction in China, slightly more important and expected when we gave our guidance, our momentum was very strong in all other regions, despite the war in Ukraine and the macroeconomic situation. This shows once again, the strength of our media, especially once restrictions are lifted. China has had a significant impact as you can see as outside China, our Group revenue growth was 43.1% for H1, close to 10 points higher.
As you can see on Slide 5, all segments have recorded high growth rates in H1. Street Furniture has grown the most 37.6% organically year-on-year, thanks to a geographical footprint to urban audiences normalizing and to the good momentum from digitization and strong demand from advertisers for this media.
Transport grew also strongly as air transport was naturally picking up in most regions with easing sanitary restrictions and a very strong will to travel again, But the transport had a more differentiated performance between quarters as it grew by plus 46% in Q1, but grow only by 12% in Q2 due to the impact of lockdowns in China. As you know, all major part of our revenue from China comes from transport activities. Billboard, smaller at the moment for our company, as you know, remains well oriented, especially in the countries where it is the most digitized Australia, where it is above 2019 revenues and in the UK.
All regions grew strongly in H1 except Asia Pacific, which was affected by mobility restriction in China and by some restrictions in Australia. North America is back to a high growth with increase of air traffic and the end of the effect of the loss of our New York airport contracts.
Europe is the strongest performer and is back to levels close to 2019 revenue as a whole and above 2019 for the Street Furniture activity. Some countries in Europe, including Germany and the Netherlands, have traded above the revenue levels of H1 2019. This is very promising and shows you the strengths of our media has not been diminished by the COVID crisis and that our growth drivers, including digital can enable us to offset some of the headwinds due to the current context. Asia Pacific is down single digit due to its high share of transport activity impacted by mobility restrictions this semester.
Due to its faster growth, Street Furniture continues to make up that more than 50% of our revenues, while transport from a typical 40% level has been reduced to 31%, whereas before the COVID close to 50% revenues came from Europe, these figures have reached 59% in H1 due to the rebound of Street Furniture especially in Europe and the impact of mobility restriction in Asia Pacific. Rest of Europe is now our top region at 30.4% of our revenues. Asia Pacific remains the second region at 21.5% and France is now again, our first country. China made up only a bit more than 10%, 10.5% of our revenues in H1 2022.
Looking at our clients now, our client portfolio is diversified with the top-10 clients representing close to 13% of our revenues. As you can see, all top-10 sectors were growing. You can see that our client mix by sectors appear to be pretty solid in case of inflation or other macroeconomic concerns as our biggest category remains fashion, personal care and luxury goods with 16.5% of total revenues, and of retail now at 13.6.
entertainment, which is evolving, fast moving from theaters to streaming platform and video games as on the ad pictures, is the fastest-growing sector at plus 78%. Internet and finance are also growing more than 50% year-on-year. Internet, very data-driven sector and experts in advertising is now clearly a growth 2019 revenues level, which is again demonstrating the strength of our media.
Digital out-of-home grew by 80% in H1 to reach a record level of 30% of Group revenues, as we continued to roll out digital screens, especially in Street Furniture to develop our data capabilities and to improve programmatic buy. Digital revenue breakdown was very much in line with our business mix, which was not the case before. We will use as usual continue to digitalize actively the most premium location of our inventory. Digital Street Furniture is the activity where the share of digital increased the most as we have continued to increase as discussed our digital inventory, despite COVID-19.
Technical innovation has clearly enabled us to integrate more efficiently screens in outdoor environments, a solution which is not only appreciated by the advertisers, but as well by city officials with our relying more and more on this digital technology to convey efficiently their messages for the benefit of citizens.
For Digital Transport, the digital contribution has decreased slightly during the pandemic due to higher reactivity of digital bookings compared to analog. But now the natural growth of the digital contribution is back on this segment should remain the most digitalized of all as it offers many premium locations. We continued to develop our digital capabilities, such as this feature of the first programmatic campaign at the Heathrow Airport in the UK.
Digital billboard continues to grow strongly as you can see in Slide 12. Digital remains the key growth driver in winning formula for billboards. It enables us to be more reactive with more advertisers to identify, sorry, our network to create scarcity. The UK and Australia has pictured here are the most successful countries in this regard. Five countries generated 69% of digital revenue in H1 2021 and about two third of our digital revenues is coming from five countries only, which are the UK, the U.S., Australia, Germany, and China. While the UK and U.S. are highly penetrated at 74% and 65% respectively, Germany and China are only 32% and 18%. The strong disparity in digital penetrations, even among our top countries shows you that we have a lot of room for growth in the future.
The activity in terms of tenders clearly picked up in H1 and we have had good success rate. We have recorded important wins of contracts in H1 with in terms of new contracts in Australia, in North Sydney and in Hong Kong, the Tram shelters. For renewals in France, the automated public toilets in Paris announced on Tuesday, Street Furniture ex-Marseille, Dresden in Germany and significant renewals in China, the airport of Beijing and Chengdu.
We have also renewed our contract of 13 lines in — of the Shanghai Metro on top of the five newly constructed lines that we have announced at our full year results presentation in March. With that strengthen our footprint in the largest Metro system in the world and reaffirm our leading subway operations in China. We will make an upfront payment for the advertising rights, which is in line with the amount paid before for the previous contracts per year of operation. The contracts will be operated through a 60 40 joint venture with Shentong Metro.
Our financial solidity and our track record with the Shanghai Metro have enabled us to renew this contract with satisfactory conditions after a full tender of processes even though we were not the highest bidder financially. The contract will include a high share of digital revenues with innovative displays, including job displays as you can see on this picture. About these tender we would like to stress again, that we remain strongly committed to ESG goals, which are part of our DNA since the creation of our company. But ESG criteria are still not considered enough in the tenders from cities and from other partners. Only 36% of tenders have assessed environmental criteria. Only 10% of tenders have assessed social criteria.
In France, the law on climate and resilience will make them compulsory in public tenders in 2026. ESG has a cost and brings value and should be included in all tenders in line with the financial criteria. Our recent renewals in Marseille and Aalborg are good examples of tenders, including ESG criteria up to 90% of the scoring was done financial in Aalborg. We can see that when we seriously consider it is a clear competitive advantage for JCDecaux. So very encouraging, but too slow at this stage, emergency is now, and it is time for public procurement to act sooner than later.
We have also in these first semesters conveyed our 2030 ESG roadmap in March. We communicated on it externally as well as internally during the world semester and we have continued to deliver on these different objectives in three categories, more sustainable living spaces, optimized environmental footprint and responsible business environment. This includes project on eco-design, biodiversity, code of ethics, and improved work environment. Our ESG performance is clearly recognized by the different ESG agencies as best-in-class in our industry.
I will now hand over to David for comments and presentation about our financial performance.
David Bourg
Thank you, Jean-Charles. Hello everyone. Happy to be with you this afternoon to report on our H1 financial results. To start this financial presentation, I would like to come back first on the summary of our financial results. As you can see on this Slide, page 19, the set of results marked by a significant improvement of all our KPIs over the period, reflecting the continued rebound of our activities, although we are still behind 2019, our record year.
The significant improvement indeed in our revenue at plus 36.3% year-on-year, plus 31.7% on an organic basis, despite the situation in China, the war in Ukraine, and the macroeconomic uncertainties. No impact from change of perimeter over the period, but a positive impact from FX of €49 million with no material effect on our margins as our operating expenses are mainly in local currencies, providing us with a form of natural hedging.
The significant improvement in our operating margin as well, by €152 million to reach 183.6 million almost, plus 500% year-on-year reflecting a good operating leverage, but I will come back on it in the next slide. The significant improvement accordingly in all our operating key operational metrics by more or less €150 million leading to an EBIT and net figure, slightly negative, almost breakeven at this level of activity, but with the funds from operations turning positive at €80.7 million and improvement of the free cash flow of €20 million due to an ongoing selective CapEx allocation and contained working capital requirements despite the significant increase in revenue of almost €400 million. Finally, a significant improvement in the net financial debt decreasing by €186.4 million compared to June 2021.
I think a look now to the evolution of the operating margin, Page 20, the significant rise by €152 million from €31.4 million in H1 2021 to €183.6 million in H1 2022 that we can see on this slide reflects the strong operating leverage, mainly due to a cost base under control, growing at a much slower pace than the revenue growth. For revenue growth of 36.3% rent and fees and other operating cost, including staff cost and overhead increased by plus 28.3% and plus 17.2% respectively. In the context of the pickup of our activities and the end of most rent reliefs, mainly on roadside activities and government aids linked to COVID-19, this illustrates that our cost remained well under control despite the inflationary pressures.
On the next slide we can see that the EBIT has increased by €148.5 million in line with the operating margin improvement, the charges between operating margin and EBIT mainly amortization, maintenance, spare parts and provision were globally stable year-on-year. EBIT was nevertheless slightly negative at minus €14.9 million, mainly due to the seasonality of our activity, less important in the first half of the year while authorization of our investments are quite straight lining over the period.
Next slide, as a consequence of this good operating leverage, our margin ratios improved significantly over all and across all business segments. Regarding the operating margin ratio on the left hand side of the slide, it represented a 12.4% overall against 2.9% in June 2021, an enhancement of 950 basis points. Transport and billboard improved more moderately, obviously as the revenue growth was lower, but the ratio turned positive at almost 5%. For the billboard the enhancement by 890 basis points was mainly driven by the countries most digitized, meaning Australia and UK.
As far as transport is concerned, the ratio enhancement is impacted by the situation in China with the operating margin declining to the mobility restrictions in Q2. And finally Street Furniture operating margin ratio is increasing by more than 1000 basis points to reach 19.1%. Regarding now the EBIT margin on the right hand side of the slide, it’s improved in line with the operating margin, but more significantly, mainly due to a much lower base. Also the overall EBIT margin is still negative. It is worth noting that the Street Furniture EBIT margins turned positive versus H1 2021 to 2.9%.
Let’s move now to the net result, page 23 and as you can see on this bridge, the improvement in the net result by €142.6 million mainly comes from the EBIT improvement that I have just commented. You can note on this bridge that the corporate tax, which is an income of €32.7 million was stable year-on-year, while we could have expected a decrease along with improvement of our operational performance. This is mainly due to the reverse of the provision on deferred tax assets in the U.S. for €28 million due to the improved results and outlook in this country.
Regarding the bar on financial results, the net increase in financial charges by €4.6 million is mainly due to the €500 million bond placed in January 2022 and the impact of the inflation on discontinuing charges on dismantling provision and employee benefits. The net result of Group share is therefore almost breakeven slightly negative at minus €11.9 million, which is quite encouraging for the rest of the year due to the seasonality effect that I’ve mentioned at the EBIT level.
Moving now to the cash flow statements, page 24, we can note first the positive funds from operation at €80.7 million against a negative one at €56.2 million for the same period last year, the positive valuation of €155 million in line with the operating margin improvement. Regarding the lines between operating margin and funds from operation, the increase in maintenance spare parts and tax by €4.9 million and €11.5 million respectively is due to the rebound of our activity.
The improvement in the line other items for €20.7 million is mainly due to the increase of dividends received from equity affiliates as their results have improved in 2021 with the recovery of the activities and to some one-offs in 2021, not repeated in H1 2022, such as some restructuring cost. Just below the funds from operation, working capital requirement had almost no impact on the cash position of those periods, minus €1.4 million despite a significant increase in revenue, thanks to a tighter working capital management, especially with the cash collection with a decrease of the DSO by 10 days compared to 2021.
Finally, after our net CapEx at €122 million free cash flow was at minus €43.1 million over the period, an improvement of €20 million compared to H1 2021. Net CapEx increased by €62.6 million compared to H1 2021, but includes €42.3 million of a net upfront payment for advertising rights related to the renewal and extension of our long-term partnership with Shanghai Metro that has been presented by Jean-Charles.
As you can see on this slide, this specific payment excluding this specific payment, the increase in net CapEx is limited to almost 34% year-on-year in line with the pickup of our activity. The renewal CapEx is flat versus 2021 and the net CapEx to sales remained at about 5.5% while it is at 8.3%, including the upfront payment from Shanghai Metro. To be noted that the advertising rights remaining to be paid on Shanghai Metro amounts to about €100 million. €42 million will be paid in H2 2022, and about €58 million in 2023.
Turning now to our financial debt Page 26, it is at €976.9 million at the end of June 2022, an increase by €52.4 million compared to December of 2021, mainly due to the negative free cash flow of €43.1 million that I have just commented and the financial investment over the period for €13.6 million and €6 million for the acquisition of the stake of one of our minority partners in UAE and €7 million for the payment of part of the remaining loan due on our stake in our Beijing Metro following the restructuring implemented in 2020. Compared to June 2021, the net debt, as I said in the introduction, decreased by €186.4 million reflecting the strong cash flow generation over the last 12 months.
Finally, this slide to conclude the presentation, the financial presentation, to give you a quick update on our financial structure, which is very strong, with as you can see on the left side of the slide, solid profile of our debt maturity with an average maturity of 3.5 years. The cost of funding already secured with 90% of the debt at fixed rate protecting us against rate increases over the next few months, and a very strong liquidity with €2 billion cash as of June 2021, plus €825 million currently the revolving facility, which is fully undrawn.
The financial structure, which was reinforced, as you know, in January, when we decided given the macro uncertainties to take advantage of the good market conditions to issue €500 million bond with age of maturity and a coupon at 1.6%.
On that note, I leave the floor now to Jean-Francois for the outlook and strategy of the company.
Jean-Francois Decaux
Thank you, David. If we take a step back, we believe the fundamental growth drivers of out-of-home media remain very strong. First, the urbanization remains a major trend worldwide with already 56% of the world population living in urban areas. Second, the quality of our media stands out in the current media landscape.
Out-of-home is a very powerful media to reach young, wealthy audiences that are not using other traditional media and for brand building. That is why we are very attractive for premium and growing sectors, such as luxury brands, as well as for internet companies and startups. With digital out-of-home out of home, as you know, we now add flexibility and targeting for branding.
Third, mobility will continue to recover and rise. Everybody wants to travel as much as possible currently. Besides air travel, people are overall on the move. Time spent out of home continues to grow, and we are as you know, positioned everywhere to capture this moving audience from local places in city centers, retail areas, to short and long hauls with billboards on the roads, train stations and airports as well.
All-in-all we are the structurally growing media as acknowledged by recent independent market studies at 17% compound growth for annual growth for digital out-of-home, not far behind online, and at 8% growth, annual growth for out-of-home as a whole in the coming years until 2024 according to the latest estimate from Zenith in June, which takes into account the current macro context.
On Slide 30, the airport recovery is more and more visible. As you can see, North America is only at minus 10% below 2019 levels, including both domestic and international flights. And we are at 90% or even 95% of our airport advertising revenue compared to 2019. Regarding Middle East, air traffic is at 75% catching up very quickly, and our airport advertising revenue is already above 90%. Asia is still lagging for obvious reasons.
But let me remind you that at the end of last year, before the renewed lockdowns, domestic air travel in China was above 2019 with our advertising revenue in Chinese airports being very close to 2019, excluding international terminals. This is very promising for the potential of the airport advertising business. Full airport recovery globally, sorry, full airport and recovery globally to 2019 levels in terms of numbers of passengers is now projected for the end of 2023 by major forecast sooner than before.
On Slide 31, as you know, our digital strategy is based on three pillars; our digital rollout, programmatic to optimize the trading through a real-time being platform, but also data, which is key to increase the accuracy of measurements and the efficiency of campaigns that are more and more data driven. In this ecosystem, we continue to invest in data. We have more than 60 people dedicated centrally for building our data driven solutions, and all this data science is used for programmatic campaigns.
Moving on to Slide 32, programmatic is a very strong opportunity. As you know, the total out-of-home revenue pool stands at about $40 billion globally, whereby programmatic online advertising is worth close to $150 billion and growing at 15% year-on-year. It is already 70% of global online advertising and 90% in the most advanced countries, such as the UK. We can address this revenue pool as programmatic trading in out-of-home as many benefits for advertisers. It is more quickly traded, and it can be automatically adjusted depending on triggers and efficiency metrics.
Moving on to Slide 33, we have now 11,000 screens, which are connected via VIOOH, which is an SSP platform in 17 countries. In H1 2022 we’ve already launched programmatic in Brazil and at Heathrow Airport. Revenues are growing fast, 2.4 times. H1 2021 versus the same period last year, they stood at around 30 million in full year 2021 as a reminder, and we expect to grow significantly over the coming years. The VIOOH platform is today the most connected platform in the out-of-home media world. They have more than 150 staff working in London to build the best platform open to the third parties for the benefit of advertisers and out-of-home media firms.
Moving on to Slide 34, with programmatic we can target the long turn of advertisers with which we are not very active in out-of-home traditionally. New money makes up the majority of revenue so far, more than 80% in the UK for example, for JCDecaux. This broadened client universe increases demand and should generate higher prices for our digital inventory. You have here three examples of campaigns with different types of targeting, mainly based on mobile data, budgets, adjusting automatically and different types of trigger events.
Moving on to Slide 35, platforms are a way to offer our inventory more directly to advertisers through a partnership with Displayce, which is a leading demand side platform called DSP, including a major stake, we will add an important brain to our offer. Displayce will remain independent and open. It will continue to give access to 600,000 screens including JCDecaux, but also many other out-of-home media companies. But for us, it will be a way to offer a complete buying path to advertisers from the DSP to the SSP, and to continue to evangelize the market, to develop the programmatic ecosystem, which in the end will generate through growth, more revenue for out-of-home media owners in our opinion.
Moving on to Slide 36 called main tenders, the activity in terms of tenders is picking up clearly with higher visibility after COVID-19. ADP Group and the advertising railway franchise in the Netherlands are among the important tenders live at the moment, most of them into an important share of digital, as you know.
Moving on to Slide 37, the competitive landscape on Slide 37 hasn’t changed. We are, as a reminder, the clear leader at out-of-home media, but besides out-of-home, we are the second largest European media owner and among the top 15 media owners worldwide. Our unique worldwide position will in our view become more and more differentiating in the age of digital and programmatic.
The current micro environment might bring opportunities for consolidation, but more important for market rationalizations. We will continue to be pragmatic in terms of acquisitions and to monitor the competitive situation sizing opportunities when they come, but bearing in mind that there is no must do deal for us and that we will still have a lot of organic growth opportunities ahead.
In conclusion, I would like to highlight the following. Our strong revenue growth despite the difficult environments, with a strong rebound of revenues, despite mobility restrictions in China with Street Furniture already back to pre-COVID levels, a strong operating leverage with a significant improvement in operating margin and positive funds from operations, decreasing net financial debt.
Second, we continue to focus on our key priorities. Our digital transformation selectively developed the digital out-of-home media inventory, putting data at the heart of our business development, expanding new sales channels, including digital out-of-home programmatic ecosystem, further organic growth through tenders and consolidation opportunities, and a very strong commitment to ESG with our ESG Roadmap 2030.
And finally, we are well positioned for the recovery with a unique worldwide leadership position, a well-diversified geographical and advertisers exposure, we are the most digitized and data-driven global digital out-of-home media company, and we focus very strongly on innovation.
Lastly, our outlook for Q3 2022, as far as Q3 is concerned, organic revenue growth rates continue to be either a high single digit or double digit in most countries, while in China, our advertising revenue remains negatively impacted by mobility restrictions. We now expect an organic revenue growth at a rate at around plus 7% with Street Furniture revenue above the same quarter of 2019.
Thank you very much and we are now ready to take your questions.
Question-and-Answer Session
Operator
Thank you. [Operator Instructions] We have a first question from Sarah Simon from Berenberg. Please go ahead.
Sarah Simon
Yes, good afternoon. I’ve listened to a lot of results call today. So apologies if you’ve actually said the answer to this already. But can you just confirm, you said China is negatively impacted by the lockdowns. Do you mean that China is negative year-on-year in Q3 or just that it’s underperforming the rest of the group, which is obviously doing very well? Thanks.
Jean-Charles Decaux
Yes, good afternoon, Sarah. Thank you for your questions. And yes, China, if things continue like that we’ll be negative year-on-year. But that could change, obviously, overnight because as you know, lockdown are black or white. And when the lockdown are lifted, basically, the business comes back relatively rapidly, especially in the transport environment, especially in the metro environment. Business is back metro — rather in metro than it is in airports. So yes, we confirm that so far the business continues to be year-on-year negative versus last year.
Sarah Simon
And if you look at kind of where you’re trading now versus where you were in Q2, there have obviously been theoretically, if we read the press here, which may or may not be true, some relaxation in China since the end of the quarter. Have you seen that translate into less bad trading in China or is it not having an effect yet?
Jean-Charles Decaux
No. We have seen some, I would say, green shoots, but not really so far meaningful except Hong Kong, where the business is really picking up, obviously, since the measure where we lacked some weeks ago, so it’s to be seen. But now that Shanghai is basically the lockdown is lifted, the audience in the metro system is back. And so we are seeing basically an improvement in our basically daily trading conditions. So yes, business is slightly improving, but it really much depends on how far if the lift — the lockdown lift will remain in the future. So that’s where we have some — basically we are at the moment, monitoring carefully the situation, but the business should improve in the weeks to come and is improving as we speak slowly maturing.
Sarah Simon
Okay, great. Thanks a lot.
Operator
Thank you. We have a next question from Catherine O‘Neill from Citi. Please. Go ahead.
Catherine O’Neill
Great, thank you. I’ve got a few questions, actually. One was on 3Q again, I just wondered what kind of visibility you’ve got through the quarter, especially into September, which I guess, tends to be one of the larger months within the quarter? And within your 3Q guidance, how much of a drag is China? So if you were to look at your 3Q guidance ex-China, what kind of number we would be looking at? I’ll start with that, and then I’ll come back with some of the others.
Jean-Charles Decaux
So yes, your right, September is our biggest month in the quarter, that’s for sure, I can confirm that. We can confirm that. Visibility remains quite basically in line with historical numbers, so six to six weeks, four to six weeks, no more than this as we speak. We will not be disclosing basically the breakdown between the — within the guidance of around 7% growth especially on China, because as it was answered to Sarah Simon’s questions previously, it’s very difficult to do the — assess the right assessment in the Chinese situation because of the lockdown that are lift up basically or reinforced.
So, so far, we think that the situation is gradually improving slightly in the Chinese context, as it was said. And the rest of the regions are really trading in a quite, I would say robust environment, even though last year at the same time, the business were already rebounding quite strongly. So, all the regions are doing well for the Q3 numbers. The Chinese situation remains basically obviously quite basically quite negative given the situation. But we can’t disclose you as we speak the numbers of the Chinese situation for Q3.
Catherine O’Neill
Okay. The other thing I wanted to ask about was cost. And if you could just go into a bit more detail on what you’re seeing on the cost inflation side of things, and specifically if there’s any elements of your cost base or inflation link and how we should think about that feeding through?
Jean-Charles Decaux
Yes, David?
David Bourg
Yes, thank you, Catherine. No, as you can see so far, we have not been affected to much by the inflation, even though our cost base has increased year-on-year by the percentage points I have mentioned during the presentation, but this is coming mainly from if you look at our staff cost and overhead from the government aids that we obtained in 2021 and 2020, which are almost not anymore in 2022.
It’s clear that we are mainly exposed on inflation on our operating expenses, excluding rents and fees, because when you look at our — the structure of our rents and fees, the major part of it is fixed and only one third of our fixed rental is linked to inflation. And about 10% or one third of this one third is the inflation is capped. So on our rents and fees 70% is fixed, 30% is variable linked to the revenue variation. Rents and fees represent about 55% of the total OpEx. I have to say that we are not too exposed to the inflation.
Regarding the rest of our operating expenses is for the moment under control, but we are not completely immune for sure. And we are looking at it very carefully and keeping in mind the saving that we, that we had in 2020, and especially the structured saving that we had in mind after all the measure that we implemented to face the COVID situation, we saved about 80 to 100 million due to the inflationary context. There is probability that we cannot fully keep 100% of those of those savings when the revenue would be back to normal.
Catherine O’Neill
Okay. Thank you. And on CapEx, I think you mentioned the cost of the Shanghai Metro upfront payments. Could you just give us a sense of how we should think about CapEx for the second half or for this year overall, given there’s a number of new contracts that have come in on stream?
David Bourg
No, as we said on the call this morning in French, we the CapEx for 2022 landing between 300 million to 350 million and for 2023, we are not providing any guidance. And it’ll depend a lot on the new contract that we will secure. So it’s not possible for the moment to give sales forecast, but we are still working, you know, on the same range of CapEx to sell between 6% to or 7% to 10% more in the year end of the range due to the fact that we have postponed some commitments over the last two years, but this is the envelope on which we are working for 2023 without providing any guidance, obviously at this stage, it’s too early to say.
Catherine O’Neill
Okay, yes. And so my final question is on debt, where you’ve got a relatively large gross balance. What — I don’t think I caught it, I think you did mention it earlier, but I didn’t catch what proportion of that is fixed versus floating rates, and if there’s any implications for interest costs as rates rise?
David Bourg
No, we have, I think I mentioned it more than 90% of our debt, which is at fixed rate with an average duration of 3.5 years. So meaning on our financial cost we are quite well protected against interest rate increase in the next three to four years, I have to say. But yes, I don’t know if I have answered your question, but…
Catherine O’Neill
Yes, no that, yes, I just didn’t catch the number you said earlier, so that’s great. Thank you very much.
Jean-Charles Decaux
And maybe last point on your question on inflation is regarding CapEx, yes we are obviously exposed like everybody on our CapEx on inflation, from inflation, but as you know, we are long-term business, long-term contract. We are depreciating our CapEx over 15 or 10 to 20 years, which allow us to get some protection on CapEx related to inflation.
Operator
Thank you. We have a next question from Conor O’Shea from Kepler Cheuvreux. Please go ahead.
Conor O’Shea
Yes, thank you. Good afternoon, everybody. Three quick questions from my side as well. First question first, probably first two questions for David. I think David you mentioned government aid that you had received along with a lot of other companies during the pandemic in 2020 and 2021. Can you remind us of the amount please?
And then second question on the margins. Obviously a lot of moving parts as usual, but you know, as you see from the visibility that you see for Q3 and the mix and tougher comps in Q4, if we assume a mid-single digit growth in Q4 do you think overall that your margins will grow in the second half of 2022 versus 2021?
And then the third question, just in terms of the current kind of disruption in the airports, kind of experience for travellers would have, you know, a lot of cancelled flights and lost luggage, and so on and so forth, how does that impact your transport business, if at all and it would be interesting to know? Thank you.
Jean-Charles Decaux
So, David, Conor, good afternoon. David, will take your first two questions and I will take your last question.
David Bourg
Conor, regarding the government aid, as you know, we didn’t disclose the number last year. What I could say or compare if I take what we got in 2021, our operating expenses, excluding rents and fees increased by about 17%. The staff cost increased by the same range. But if we exclude it’s another way to answer to you, and if we exclude the government aid that we got in 2021 and that we do not have any more, the increase in our staff cost would have been 8%. So 50% of what we have today disclosed in the numbers. So it’s another way to answer to your question, but you can see that the impact was significant. But now that we are coming to a more normal level, you can see that our cost remains under control, and it is one, it is a way that I answered also to the question of Catherine.
Regarding the margins, Conor as you know, we do not provide any guidance on margins, but as you know as well we delivered a major part of our revenue in H2, normally it is between let’s say 54%, 55% in H2 compared to 45%, 46% in H1. Due to the fact that we are a business with a major part of our cost which are fixed, if the trading momentum, excluding China continue as it is, and mainly on our Street Furniture business for the rest of the year, I will let you guess what would be the impact on our margins for the second part of the year, which should be positive.
Conor O’Shea
Okay, understood.
Jean-Charles Decaux
Regarding your self-question Conor on the airport, let’s say environment post COVID situation, first of all and I think this is something that we should all agree upon is that basically recovery is much faster, stronger than everyone expected six months ago. And that’s part of the reason why you are I think asking also that questions and that also one of the reason why there is some so much operation issues at the moment is that the comeback is much stronger, both in terms of quantity and also in terms of yield per seats on the airplanes and as well as also duty free consumptions. So I think this will translate rapidly and that also that this is also the case already in the United States, where as you have seen our basically announcement this morning with 90%, basically domestic travel back in the United States, we are already doing 90% of our revenue pre-COVID level.
And even more impressive is in the Middle East, where basically we are almost to pre-COVID level in revenues where the air traffic passengers are back to 75% to pre-COVID. So it shows the strength of the industry I think despite the fact that everybody a year ago was saying life will be different. People will not come back as before. People are coming back. Not exactly as before this is for sure, but the number of people and the quality of the people passing by the airport today is quite impressive.
Now, having said that, the — I would say the disorder, the operational tension that you described in your question is real. I think we all have to both obviously at the first stage airport authorities and should really fix that rather rapidly, because this is important for the mobile industry and it’s not, obviously it’s not great news to see basically those operational issues, but I think airports are very conscious that this is important and that needs to be fixed. But the good news is that the number of people is quite impressive coming back in airports, once basically life is coming back to a certain normality if I may say so.
The — and even if you look at Singapore, for example, Singapore is today at 50% capacity versus pre-COVID and already our revenues are really ramping up very fast. So, and faster than what we changed to COVID, we expected even a month or two months ago. So I think it’s a reset, but it’s more positive than negative even though it’s a point of attention for all industry, as we speak to make sure that the people that are passing by the airports are well welcomed first and well treated. second, which is not exactly the case as we speak in most of the airports around the world. But I need, I think by the end of the year that should be back to normal. Obviously most of our partners are really working hard on this, and I can promise you that they are really conscious of the urgency of the situation.
Conor O’Shea
Many thanks.
Jean-Charles Decaux
And, and then maybe one more comment on this, don’t forget that in the airport business, depending on the region around the world, the structure is, could be slightly different. So because it’s an industry where most of the campaigns are built on a yearly basis, on a quarterly basis, which is not the case on Street Furniture, which is not the case on the billboard with some exceptions around the world, in transport, especially in airports, those are most of the big clients are committing themselves for the year. This is the case for skincare products, luxury brands and basically leisure or other media, the other advertisers that are using the airport media an important one. And so, because last year’s business was in trouble, still in Autumn 2021 they were not committed as they used to be in the past.
We think that this year, which is starting now for the campaign of last quarter 20 21, 2022 and first quarter, and the year of 2023, things might be different for next year and will be different for next year. We start filling basically the people coming back, especially in Europe with the big luxury brands reopening basically the airport channel with obviously for the time being a question mark on the Chinese situation, obviously, but Southeast Asia is reopening, Bangkok is reopening. Singapore is reopening. Most of the Southeast Asian markets are reopening. So this is good for luxury brands, as we all know. Japan is reopening. Korea is reopening. So, and the U.S. is back to normal or almost back to normal. So I think the dynamic is good with the exception obviously, of the quality of service that we’re referring to. So we are quite, I would say optimistic about the 2023 as we speak, if things continues like this.
Conor O’Shea
Okay, understood. Many thanks, Jean-Charles.
Operator
Our next question is from Nizla Naizer from Deutsche Bank. Please go ahead.
Nizla Naizer
Thanks. I have a couple of questions. The first is on the organic growth outlook for Q3. I mean, 7% factoring the China slow down, but beyond China, I’m curious to understand given how many industries you have exposure to, are there any sectors sort of rationalizing their spending on, you know, fears of macro slowdown where they’re worried that consumer demands would slow down and they’re having these conversations with you about upcoming campaigns, or is that something you’re not really seeing? I’m just trying to understand how much of that is also factored into your outlook in Q3.
My second question is on your digital investments as well. What are you sort of investing on in terms of developing the digital offering for programmatic buying, et cetera, that JCDecaux is offering, and is that expense or is that capitalized the size of the investment and what to expect in H2 on that would also be great? Thank you.
Jean-Charles Decaux
Thank you. Jean-Francois will take your first question and David, the second one. Jean-Francois?
Jean-Francois Decaux
Yes. So if you take a look at the breakdown of categories in our advertising spend, you will notice that all categories are up very strongly in H1. So your question, if I understand the question well is whether some of the categories are slowing down in Q3. What I can tell you that it’s not the case. We don’t have a big exposure to FMCG, which according to newspapers and have reduced some of their TV spend given the strong increase in the cost of living, but we don’t have that much of an exposure. The only category, which, and by the way, this category disappeared from the top 10 is the automotive industry, simply because they are late in getting some components and they are not able to deliver the cars that have been purchased by customers. And as a result of that, we’ve had some campaign postpones from the automotive industry.
So this is the only category where it’s hard to tell whether it’s a postponement because of the spare parts, which is what we are being told, or whether it’s because automotive sales are in many countries not doing so well for certain automotive companies, not all of them. But with the exception of the automotive, all categories are up pretty strongly and the fact that we, that our first category luxury and personal care is now more than — it’s our biggest category and their sales are doing extremely well as you know, in the luxury sector. So their spend is increasing as well. And a lot of them take the view that out-of-home is the best media for branding because of the fragmentation of the audience on even on online. So we see quite a strong trend from increased spend from the luxury sector.
David Bourg
Regarding your question on digital investment, 40% of our total investment, more or less, it depends, but for this first half is coming from digital. This part of the CapEx is composed by hardware. It is a major part of the investment and the other part is obviously the software part with our VIOOH initiatives, but not only all the IT investment that we are doing in our back office and front office tools in order to streamline our business position regarding VIOOH, because I guess it was more your questions, your question was more focusing on VIOOH. Well, we are not disclosing the amount of CapEx that we are investing so far in this entity. The amount that we are investing there are about [indiscernible] which is capitalized and the remaining part is more considered as OpEx. This is the reason why we are more looking at it as a cash out, but we are not unfortunately communicating on the amount or disclosing the amount.
Nizla Naizer
Understood, very helpful. Thank you.
Operator
Thank you. We have a next question from Jerome Bodin from ODDO BHF. Please go ahead.
Jerome Bodin
A quick followup on programmatic and especially the acquisition that you made, so Displayce, if my conversation is the right one…
Jean-Charles Decaux
Jerome, Jerome, Jerome, Jerome, we can’t hear you very — sorry to interrupt you, but we can’t hear you very well on this side of the call. So could you speak a bit higher, please?
Jerome Bodin
Yes. Is it better now?
Jean-Charles Decaux
It is much better. Thank you.
Jerome Bodin
Okay, sorry. So yes, my question is on Displayce the acquisition you made around programmatic, so which is on the demand side platform, so on the buy side. You used to be only on the sales side. So could you elaborate a bit on the synergies between the two, between demand and the sales side? And more generally what brings you Displayce on your overall stack?
And my second question is, it seems to me that your stack now on programmatic is almost complete full, so is it the case, or should we expect further acquisition on programmatic? Thank you.
Jean-Charles Decaux
Thank you, Jerome. I will take these questions and I think your assessment is the right one is, means that first of all, I would like to remind basically all of you that through our programmatic strategy, we always said that we would like to create an open environment, obviously for basically the all out of sector in which we think more than ever before, it’s appropriate to grow and further develop our industry in the future.
Even the unique space as it was reminded before we in basically now to advertising, we are in, so we think the strength of our media is very strong in this new basically modern advertising. We think that the SSP that we find in VIOOH, which is an open and as independent as possible platform is covering, as you said, the SSP Displayce respond to the same logic to pioneers and foster and further develop basically a full stack proposition for all industry, not just JCDecaux.
As we know, we are in the [indiscernible] industry. Yes, we are the worldwide leader. Yes, we are we think the most innovative basically player in the industry. And that’s the reason why we think that we should basically push forward the boundaries of our industries through those initiatives instead of plugging us or plugging basically our inventory into third party operators. So yes, now we think that we have a good ecosystem, which is not completed yet, because we are looking at the evolution of the industry.
We think also to answer your questions on the synergy, we think that on data, obviously we will help and basically push forward Displayce, but they will be autonomous. They will continue basically to operate the business. We will help them to push forward to further develop, to strengthen from a human being as well as from obviously financially. But we think that they’re already connected to roughly 600,000 screens around the world, 50 countries. But if we have to recruit more people and grow the business, we think that the convergence will be made through also a much stronger data management platform to ease basically the access to outdoor.
One of the key messages we want to convey to the industry is that we have to ease as much as we can the access to buy and basically book on outdoor advertising, and that’s the reason why our ecosystem, we think start basically pushing new clients where as we see today through VIOOH there’s not only fortunately the COVID, also for all the VIOOH partners, basically this is new money.
And, and this is quite interesting because before we were not fishing, basically into this programmatic pie, and because obviously VIOOH now is responding to those programmatic basically advertisers that wants to use programmatic platforms, they are using it on digital 90% in the UK is made through programmatic now, 70% in the online advertising. Why not a bit, let’s say in outdoor advertising, even though the media is not exactly the same to digital online, obviously, but the strengths of outdoor is unique.
Scarcity, premium locations, major audiences, growing in most of the environment, which we put up the sign in COVID situation data now, and targeting much more accurate than before, thanks to technology and further investment is really something that is now making our media a much more attractive media for advertisers. That’s the reason why basically we see new money coming in through those platforms and especially VIOOH.
And on Displayce, we think that they will continue to be run autonomously and develop their business basically with their different business partners in Europe, but also elsewhere around the world to have easy access and easy buy on outdoor advertising. So we must continue to develop our ecosystem, but those are the pillars where we want to be in at the moment on the SSP and DSP and DNP [ph] going forward.
Jerome Bodin
Thank you very much.
Operator
Thank you. We have no further questions for the moment. [Operator Instructions]
Jean-Charles Decaux
So if there is no further questions then on behalf of JCDecaux we would like to thank you for being with us this afternoon and we wish you a good break for those who are taking some days off in the weeks to come. And we look forward to seeing you very soon. Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes this conference call. Thank you all for your participation. You may now disconnect.
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