JCDXY - JCDecaux SE (JCDXF) Q2 2023 Earnings Call Transcript

2023-07-28 23:14:06 ET

JCDecaux SE

Q2 2023 Earnings Conference Call

July 27, 2023 07:30 AM ET

Company Participants

Jean-Francois Decaux - Co- Chief Executive Officer

David Bourg - Chief Financial, IT & Administrative Officer

Jean-Charles Decaux - Co- Chief Executive Officer & Chairman

Conference Call Participants

Catherine O'Neill - Citi

Benjamin Yokyong-Zoega - Deutsche Bank

Nizla Naizer - Deutsche Bank

Presentation

Jean-Francois Decaux

Good afternoon, everyone. Good morning to those of you in the US 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 & Administrative Officer, and, myself, Remi Grisard, 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 with a revenue increase by plus 7.5%, despite a challenging macroeconomic environment, especially in some geographies, such as UK in Germany, as well as a soft recovery in China. Our operating margin and our operating cash flow increased despite inflationary pressures driven by Street Furniture, which benefited from a full recovery of 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 declared double digit in Q1, has increased strongly in Q2, and inflection point from March, as we mentioned in our full year results, but from a lower comparison rates. Over the first half, China grew broadly in line with the rest of the group, which implies 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 grow 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 with a 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 comps but trading in Q2 were 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 one of 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’s team 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 as doing 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 eight 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 points should have a major impact, including in Europe. The average spend per passenger remains higher than pre-COVID in airports, which is very good news.

On slide nine, you will find that 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 digitization continues to be a significant growth driver. With digital revenue now making up 32.7% of total revenue, a record level with the 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 our -- 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 digitization. It brings flexibility and efficiency for advertising, as well as for non-advertising messages.

On slide 12, after the decreased 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 are 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 getting in visibility while enabling us to reduce the number of locations. Australia, has pictures on the 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 you will still -- that we still have a lot of room for growth.

Moving on slide 15 regarding our contract portfolio, the activity for tenders remain 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 [Indiscernible]. We have 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 of Guangzhou in Guangzhou Metro, two loss making contract 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 selecting focusing more than ever on returns.

On slide 16, many renewals and expansion, as you can see on the slide, mainly in Street Furniture, within France, the three contracts for Toulouse, covering all types of Street Furniture, the bar shelters 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 Sandnes, Macau, Changi Airport in Singapore or Bangalore airport. In China, several significant renewals in the airport of Beijing and Chengdu and of course Shanghai Metro.

On the next slide 17, we have reached an agreement to acquire the activities of clear channel in Italy and Spain. This will reinforce our opposition 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 EBITDA before synergies. The closing for Italy has been executed on May 31 and we are now integrating this activity. Closing for Spain is expected in 2024, subject to the approval by the competition authorities.

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 & 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 with 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 the real ecological but also financial costs, 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 detail 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 reference in the long term.

On that note, I will now turn it over to David for comments about our financial performance.

David Bourg

Thank you, Jean-Francois Decaux. 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 the challenging macro, and a soft recovery in China, including a decline in Q1 as already pointed out by Jean-Charles. Revenue growth increased to 7.8% on an organic basis, excluding negative FX effect for 20 million Euros and a positive [Indiscernible] 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 Street Furniture which benefited from the full recovery in revenue above 2019 and the renegotiation of some concession agreements. This contract negotiations marked indeed this first [Indiscernible] 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 barrier as you can see on this slide, but I will come back to this later.

Real quick focus now on the evolution of the operating margin which was 203 million in the first half, an increase of 10.7%, 1.4 times the revenue growth. These are the board operating leverage given the inflationary context and delivery of activities 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 goals, which is that 7.5% as you can see on this slide, partly due to the [Indiscernible] of some Street Furniture contracts, especially in the US, partly related to COVID. This followed to offset the earlier increase in rents than the revenue goals in the transport segment, due in particular to the softness In China. We delivered a lot of activities still below 2019, as I mentioned previously, while rents have almost returned to a normalized level in connection with relieved of mobility restrictions. On the other hand, other operating cost increased more than our revenue was at almost 10% amounting to nearly 60 million Euros as you can see on this slide and this increase came from our staff cost which managed to be contained at 8.1% despite facing inflationary pressures in most of our [Indiscernible] and talent challenges, especially in our commercial functions and expertise related to our digital transformation. Additionally, the full year effect of 2022 recruitments and the end of governmental aid related to COVID, which were still in effect during the first half of 2022, contributed to these highs.

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 cost contained to 17%, thanks to our hedging strategy and energy efficiency measures we implemented. Adding a loop now to our H1 EBIT, as you can see on this chart, it becomes political gain at 12.5 million before impairment, 34.4 million after impairment, an increase of almost 16 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 of as a period of some contract negotiations, including a reversal of provision for dismantling for 15 million and a reversal of provision for [Indiscernible] contract for 16 million following the improved financial terms of one of the renegotiated contracts. Some termination cost 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 of those periodic related to Guangzhou of almost 6 million. Last point in [Indiscernible], an increase in charge of 9 million corresponding to non-recurring provisions covering specific fields can litigation in values [Indiscernible].

If we now turn to the evolution of our margins by business segments, we see several evolution 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 sale on the left of the slide, the increase in Street Furniture of 190 basis point comes from the combined effect of revenues growth and several evolution of 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 either 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 slide, the trajectory is globally in line with one of the operating margin rate [Indiscernible] however on Street Furniture at plus 450 basis points, a segment that benefited from sort 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 cannot -- the 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 the net income in H1 2022 of 36.9 million in line with the improvement of our results, including the one-off items of the [Indiscernible]. The slight improvement in our financial result of almost 3 million quite counterintuitive, given the increase in our gross debt of 600 million at the beginning of the year, that we benefited from the increase in interest rate 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 and joint control, the contribution from our associates being done due to Clear Media in China which is still lagging behind and has not yet benefited from the morbidity 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 90 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 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 renegotiations and to a certain extend to the increase in trade receivables and inventory in line with the ongoing recovery of our activities. Regarding our net investment for 121 million, it should be noted that they include the payment of advertising rights on Shanghai Metro for 26.7 million as well as the sale of non-core asset for 32.5 million. The net CapEx for the period remains down 11.3% compared to 2019, 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've just commented on. Therefore, our net debt stands at 1.1 billion at the end of June 2020. To finish this presentation, and before handing over to Jean-Charles, an update on our financial structure which is really solid with strong liquidity, nearly 1.5 billion cash after repayment in June of a bond maturity of 760 million and 825 million in confirmed revolving credit line undrawn with maturity in mid-2026. A well secured debt profile as well with bond maturity largely cover by variable cash until 2028, and optimized management of our net debt allowing us a reduction in financial expenses over the period and the 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.

Jean-Charles Decaux

Thank you, David, and talking about now the outlook of the strategy. You can see on slide 30 that we present the latest forecast for revenue growth yearly, over the next three years by ZenithOptimedia, the study that has been released recently in June 2023. You will see that even with the current changing macro environment, including a slowdown of online advertising, always 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 a fragmented media universe, this digitization and the long-term rise of globalization and mobility leading to structurally growing audiences. It should also be noted that traditional OOH or analog/slash paper is growing positively at 2.9% per year. What we observe also at the historical record level was DOOH 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 experts forecast, as flight traffic was already at 92% in H1 versus a forecast of 92% for the full year. As you can see on this chart, on the right hand side, traffic will soon rise above the level of 2019 globally, most likely in 2024, and in advance of all the projections done before.

Moving now to the slide 32, other key transport activity in Metro 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 [Indiscernible] 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 the COVID with two hours and 30 minutes exposure per commuter on average per week. And they're 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 these campaigns. So very encouraging for this environment that we continue to upgrade to digitize selectively in key ads, as you can see on this picture, we launched 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 restriction in China at the end of last year, the mobility at first dropped before recovering progressively since March. In Q1, we had suffered a net organic double digit revenue decrease compared to 2022 from Q2, with an inflection 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. The 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 improved slightly in Q2 to reach 40% of pre-COVID. In this environment, consumers or 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 key acceleration on the recovery. We expect China to grow positive even below the group average of 7% [Phonetic] organic growth in Q3, as stated in our agenda earlier.

Moving now to our digital opportunities with the next slides. Compared to total OOH 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 updating the US for example. Programmatic DOOH can be traded on online platforms such as [Indiscernible] or specific DOOH DSP, such as display, and with the same speed and KPIs as online advertising, which opens up a vast revenue opportunity for OOH players. Also for advertisers, programmatic DOOH 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 DOOH with online, one in the UK with a client called Aptamil, generating a 15% increase in sales, thanks to programmatic DOOH; the other with Tourism Tasmania from Australia, which recorded a 31% uplift in visit to its website due to programmatic DOOH campaign. On the next slide, you can see how this translated into our revenues.

Programmatic advertising sales books with a VIOOH platform had increased by 63% to reach 36.9 million Euros with 7.1% of all 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 than two thirds of our programmatic revenue are incremental in H1. This broadens clients universe increases, demand and enables us to generate our yield for our digital inventory. Programmatic is already much more important than 7.1% of digital revenue in some important geographies reaching for example, close 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 from revenue by 2025.

Moving now, to another key growth driver for us, the main tenders. The level of activity remained important, including among the most important the Street Furniture. In Street Furniture the purchase of the [Indiscernible] in Singapore, in transport [Indiscernible] metro of Hong Kong and twin tenders in Sydney, Sydney bus and Sydney Light Rail most of them now include a significant share of digital. As already mentioned by Jean-Francois, as 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 ambitions of the Paris Agreement 1.5 degrees scenario, and we are committed to a science-based target is BTI 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 NBTI. The filing process is underway at the moment with the 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 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 JCDecaux. It is clear that we will not succeed on our own without a radical change in public procurement that incorporates the 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, as a tradition now at our competitive landscape on slide 40. We are the clear leader in OOH worldwide and especially outside of the US. Our unique international global position will, in our view, become more and more differentiating in the age of digital and programmatic. We will continue to monitor closely this market as the current environment including macro headwinds, higher rate in recovery will likely continue to bring 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 has increased by 7.5% year-on-year despite the challenging macro environment on this key limited traction and 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 benefit but with short term impact on free cash flow, as highlighted right there. Our ESG performance remains best in class. We think we are also well positioned to benefit from the ongoing recovery with a unique worldwide leadership position, well diversified geographical and advertiser’s, the most digitized and data driven global OOH company, and we will continue to focus on innovation announcing our ESG 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 upgrade to improve our quality of service. We have powerful data driven training offers reinforced by our JCDecaux data solution as well as our alliance with displays. 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 in ESG performance, and we also will continue to monitor and consider carefully the consolidation opportunities, especially from bolt-on acquisitions.

Lastly, and before moving to the Q&A, 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 all Guangzhou Metro and airport contracts.

We thank you for your attention and we are obviously now ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] The first question comes from the line of [Indiscernible]. Your line is open. Please ask the question.

Unidentified Participant

Yes, thank you. Good afternoon, everybody. So a couple of follow up questions from me, maybe more for David. Just firstly 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 and that will 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.

David Bourg

So, I will take the question for answers. So, first question, on working capital, as you know, we do not provide any guidance for the end of the year. What I can say is if look at the valuation in -- the valuation of the working capital requirements from H1 2023 compared to H1 2022, if you take the valuation for the year, two-third of that is coming from the past rental payment that I've 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 that we should be on a more normalized working capital requirement coming from increasing the activity impact on our credit receivable and let's say will contain the evaluation of the inventory according to our CapEx pull up. So this is what I can see 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 recovery. 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 normal level and faster than the revenue recovery which is seen in income spot in general and in China especially. And in the transport, it is mainly on the airport advertising related to the international traffic and this is a reason why despite the revenue increase in the transport business segment, it doesn't allude to absorb increasing the rental for the moment and we have a decline in our operating margin rate in the transport business segment.

Regarding the sale of non-core assets, it is trending to 32 million, 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 we could expect -- because when you look at the CapEx -- the net CapEx in H1, 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 any more benefit from this one-off impact.

Unidentified Participant

Okay. Understood. Many thanks.

David Bourg

It's really non-core and so nothing to do with our advertising business and the tool.

Unidentified Participant

Okay, great. Understood. Thank you, David.

Operator

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

Catherine O'Neill

Great, thank you. I wanted to ask actually, about Street Furniture, given the high drop fee rate you saw there, which I think seems 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. And 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 [Indiscernible], just wanted an idea of what's going on in that region, given the potential growth and 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?

Jean-Francois Decaux

Thank you, Catherine for your four questions. I would take the first one on Street Furniture, Jean-Charles will take the second one on Riyadh, and David will take the third one on CapEx and now 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 Street Furniture in prime locations in New York, which would help the top line as well. Because right up until recently, before finding this extension agreement, we were kept in a number of prime locations that we could build in New York and the way our ad is being sold in New York is -- in the States, in general, it's very much line by line, location by location, try 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 revenue level in Street Furniture, which is mostly a European business, the business model was born in France and it's mainly a European business. And despite what they 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 pre-COVID and above pre-COVID revenue level in Street Furniture, including in France, where for zoning regulations, we cannot digitize as much as we would love to and then France is very resilient and the margins are back to -- almost back to pre-COVID. So it's a combination of top line and 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 our funds [Phonetic], 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 contract renegotiations, not only but mainly in New York and Chicago, which was also linked to COVID, not only but it was part of -- the renegotiation was due to the COVID impact on those businesses. Next question?

Jean-Charles Decaux

Regarding Riyadh airport, in fact, as you know, one JCDecaux is always taking a very disciplined approach on our way to be done on basically new contracts or even on renewal. In this case, we put a pretty compelling business proposition for the Riyadh airport, we knew well, it was a renewal, in fact, but it looks like we were not basically the -- 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 that basically, Al Arabiya, a local competitor has been selected as the key company to operate now, [Indiscernible]. 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 the Riyadh airport terminal.

David Bourg

Regarding to CapEx, Catherine, as we said in March, our CapEx to sales -- 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 get catch up in the second part of the year, but 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, because I said before, we will be in the high end of the range. This is what I can say on CapEx.

Jean-Francois Decaux

On utilization, which we call internally occupancy rate, which we mainly measure in Street Furniture, France, which is the biggest split financial market for the group is back to pre-COVID occupancy rate, roughly at about 90%. So the increase of Street Furniture 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 rates. It's fair to say that we've been able to increase rates across the board in Street Furniture between mid to high single digit. And in Billboard and transport, we don't really measure occupancy rate as we do in Street Furniture.

Catherine O'Neill

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

Jean-Francois Decaux

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 airports in Abu Dhabi. It is fair to say that Saudi is really booming at the moment and it's clear that the Riyadh airport -- sometimes when you don't renew a contract, it's easy to say the other one as outbid, we don't like to say that because as I told you, in the previous answer, we don't have the final figures, when we get them, we will get those figures, but at the moment, we don't exactly know. But the market remains a very, very dynamic. Can we say that it was an irrational bidding from Al Arabiya, maybe yes, but not sure, I don't know. I don't have the figures.

So I will say that, 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 US 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, there is one company that is very discipline going forward and globally speaking in the way we bid, I think [Indiscernible] is one of them, and doesn't prevail us to be the largest operator in those markets with 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 a few years ago, where basically [Indiscernible], they won the contract, but they put some losses since then and they, as you've seen, they just announced a deal, not so sure it was a very good deal in terms of value creation. But 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, [Indiscernible] 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 in our bidding strategy. Having said that, we have to sometimes different 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.

Catherine O'Neill

Okay, great. Thank you very much.

Operator

Thank you. [Operator Instructions] Now we're going to take the next question and the question comes from line of Benjamin Yokyong-Zoega from Deutsche Bank. Your line is open, please ask your question.

Benjamin Yokyong-Zoega

Thanks very much. I just had a question on the Q3 outlook. I was trying to understand what's baked 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% COVID level --

Jean-Francois Decaux

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?

Operator

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

Nizla Naizer

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 inch 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?

Jean-Francois Decaux

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% and China was up 9%. So the group excluding China was up 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 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.

Nizla Naizer

Very helpful. And I just we had one more question on sort of capital allocation. Can you give us some color on how you're thinking about organic growth, inorganic growth and opportunities to return sort of cash to shareholders as well, when you think of such capital allocation going forward?

Jean-Francois Decaux

In terms of capital allocation, we are still targeting an internal rate of return between around 15% plus on organic growth. When you buy cash only in Italy and Spain at less than seven times pre-synergies, it means that we are probably at around three times post-synergies given that the synergies are quite significant. I think it will be accretive in the near future. So that's what we -- that's why we like this kind of bolt-on acquisitions. We did two in France over the last two years, Pisoni in the south of France and Abri Services in the western part of France, which has been integrated very quickly. So capital allocation and return to shareholders, that's basically part of my plan. This is part of the answer to your question.

The second part is obviously the dividend, we will reinstate the dividend as soon as possible. I think it was a wise from us to cut [Phonetic] the dividend than 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 organic -- potential organic project 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 the shareholders because we own nearly 67% of the equity of JCDecaux SE so we take $0.67 on every dollar of dividends. So the dividend is important for -- as much as important for the family as for the external shareholders. So there is no commitment don't get me wrong, but we will be reinstating the dividend as soon as it is, in our opinion, feasible.

Nizla Naizer

Thank you. Thank you very much.

Operator

Thank you. There are no further questions. I would now like to hand the conference over to our management team for any closing remarks.

Jean-Francois Decaux

No further comments. Thank you for your questions and on behalf of our executive board I wish you and your families a very nice break and we'll see each other probably when we start our road show in September. So have a good vacation and see you. I'll speak to you soon. Goodbye everyone.

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