JCDecaux SE (JCDXF) Q4 2022 Earnings Call Transcript

JCDecaux SE (OTCPK:JCDXF) Q4 2022 Earnings Conference Call March 9, 2023 7:30 AM ET

Company Participants

Jean-Charles Decaux - Co-CEO & Chairman

David Bourg - Chief Financial, Administrative & IT Officer

Jean-François Decaux - Co-CEO

Conference Call Participants

Catherine O'Neill - Citigroup

Julien Roch - Barclays Bank

Benjamin Yokyong-Zoega - Deutsche Bank

Operator

Welcome to the JC Decaux 2022 Full Year Results Presentation. I will now hand over to Jean-Charles Decaux, Chairman of Executive Board and Co-CEO. Sir, please go ahead.

Jean-Charles Decaux

Good afternoon, everyone, and good morning to those of you joining from the U.S. Welcome to our 2022 full year results conference call, which is also being webcast. Our speakers today are Jean-François Decaux, Co-Chief Executive Officer, David Bourg, Chief Financial IT and Administrative Officer and myself. 2022 was another year of rebound with significant year-on-year improvements in our metrics. Revenue grew by 20.8%, plus 16.6% organically year-on-year. We achieved strong operating leverage through tight cost management containing the increase of our cost base at a much slower pace than our revenue growth. Our operating margin reached €602.9 million, our EBIT improved by close to €200 million and our net income improved by nearly €150 million and turned positive, reaching €132.1 million. Our free cash flow has remained positive with rising funds from operation as the activity picked up combined with contained working capital valuations despite strong revenue growth and some higher CapEx. Including bolt-on acquisitions of nearly €100 million this year, our net debt grew slightly. David will, as usual, provide you more details later in his presentation of our financial results.

Moving to the next slide, you can see that revenue growth continued throughout the year despite macroeconomic concerns and mobility restructuring in China. The changing comparison base explains the slowdown in year-on-year revenue growth rate by quarter. We have now bridged half the gap with 2019, moving from minus 29.4% in 2021 to minus 14.7% in 2022, despite the historically low levels of mobility in China.

Outside China, our growth is stronger as evidenced by an 8.6% increase for 2022 and less than a 3% decrease in Q4. This demonstrates the resilience of our media as well as our capacity to rebound and grow especially once restrictions are lifted. As shown on Slide 5, revenue growth is balanced across segments, with all segments achieving double-digit growth rates in 2022.

Transport recorded the highest growth with a plus 22.5% year-on-year increase, driven by the recovery of passenger numbers, both in airports and ground transportation systems despite the significant impact of mobility restrictions in China, which explains the large gap of minus 34.3% compared to 2019. Transport is poised to be an important driver of growth once mobility obviously recovers.

Street Furniture growth rate of 21.3% year-on-year has exceeded 2019 levels by plus 3.5% due to strong demand from advertisers on the momentum created by digitization. Billboard, the smaller of our company also grew by 21.3% year-on-year and remains well-positioned, especially in countries with high levels of digitization.

In Australia, revenues have exceeded 2019 levels and growth in the U.K. is strong. All regions grew strongly except Asia Pacific, which was affected again by mobility restrictions in China.

North America is back to high-growth mode with the increase of air traffic in the end of the effect of the loss of our New York airport contract. Europe is the strongest performer and is back to levels close to 2019 revenues as a whole and above 2019 for Street Furniture activity. Some countries in Europe, including Germany or the Netherlands, Belgium have traded above already the level of 2019.

Asia Pacific is down 2.4% due to it's high share of transport activity and the more important is the mobility restrictions going on at that time in the region this year, especially in China. Very resilient in digitizing Street Furniture makes up more than 50% of our revenues, while Transport remains below its usual 40% at 32% for 2022. Whereas before COVID around 50% of our revenue came from Europe. This figure has reached 57.5% this year due to the rebound of Street Furniture, especially in Europe and the impact of mobility restructuring in Asia Pacific.

Rest of Europe is our top region accounting for 29.8% of our revenues. Asia Pacific remains the second largest region accounting for 21.8% of our revenue. France is our top-performing country and China contribution to revenue has fallen to around 11.5% compared to more than 17% in '19 -- in 2019.

On Slide 8, you can see our revenue breakdown by client categories. Our client portfolio is highly diversified with the top 10 clients representing less than 14% of our revenue this year. As you can see, all top 10 sectors were growing, especially our #1 client category, patient, personal care and luxury goods, which is represented here in this picture of the Dubai Airport at 17% of total revenue growing by 41% year-on-year. Sectors benefiting from the post-COVID recovery are quickly returning to our media with, for example, entertainment leisure films growing by 31% and travel by 54%. Finance was also strong at plus 34%. The government category grew by only 1% with the decrease of COVID-related spending but remains above 2019 levels.

Digital out-of-home grew by 41.1% in full year 2022, plus 35.2% on an organic basis, plus 18% in 2022 to reach a record 31.4% of group revenue as we continue to selectively roll out digital screens in prime location, especially in Street Furniture to further develop our data capabilities and to improve programmatic buying. Digital revenue breakdown pretty much aligns with our business mix, demonstrating the relevance of digital in many environments, including Street Furniture, where we have invested the most for digital in the past 2 years.

We will, as usual, continue to digitize very selectively the most premium locations. As I have said, strong and steady development of digital Street Furniture with an increase in digital inventory. Technical innovations have enabled us to integrate screens more efficiently, seamlessly into outdoor environments and the solution highly appreciated by advertisers as well as by city officials who are increasingly relying on this digital technology to convey efficiently their messages for the benefit of citizens.

For digital transport, the digital contribution, which has decreased slightly during the pandemic due to higher reactivity of digital bookings compared to analog is now at a record level of 34%. This segment is expected to remain the most digitized of all as it offers many premium indoor location with a strong potential, especially in subways around the world in metros. We continue to develop our digital capabilities as demonstrated by this impressive giant transparent screens in the airport of Hong Kong.

Digital Billboard now continues to grow strongly, as shown in Slide 12, reaching 29% of revenue. Digital remains the key growth driver on winning formula for billboards, enabling us to be more reactive to reach more advertisers to densify our network and to create scarcity in the environment. Australia, as pictured here, is one of the most successful country in this regard.

On Slide 13, you can see that 2/3 of digital revenue is coming from five countries only, namely the U.K., the U.S., Australia, Germany and China. While the U.K. and U.S. are highly penetrated at 72% and 62%, respectively, Germany is only at 36% and China only at 19%. The strong disparity in digital penetration, even among our top countries, shows that we will still have a lot of room to grow.

The activity in terms of tenders clearly picked up this year around the world after the pause linked to COVID. On this first slide, you can see our new contracts won from competitors this year. Two major contracts are Sao Paulo Metro and Shanghai Metro. Other contracts include, for example, tram shelters in Hong Kong and Street Furniture in the Netherlands in Eindhoven and Delft. As you can see on this slide, we have secured several renewal contracts, mainly in Street Furniture within France, automatic public toilets, Street Furniture in Marseille, in Germany is Dresden, in Australia in North Sydney.

We have shown once again our ability to win contracts based on ESG innovation criteria and services. I think that is especially true after COVID-19 pandemic, where we have built trust with our partners and shown our resilience, which is not the case with many competitors, especially at the local level. So we have won in many innovative transferring context such as Stavanger in Norway, Macau for Street Furniture or Changi Airport in Singapore of Bangalore Airport in India.

In China, several significant renewals in the airports of Beijing and Chengdu and of course, Shanghai Metro.

This leads me to the next slide. We have renewed our contracts for certain lines of the Shanghai Metro and one for five newly constructed lines. The contract will be operated through a 60% JV. It includes a payment over 2 years for the advertising right in line with the amount paid for the previous contracts, 15 years ago, per year of operation. With these contracts for the largest metro system in the world, we strengthened our footprint for Metro in China, and we are the market leader as we operate in eight cities, 90,000 panels within 48 metro lines. With many contracts renewed recently, we have more than 11 years in remaining duration. We will digitize selectively again the most premium location, which will increase revenue.

In Brazil, we are also the #1 metro operator with two key wins this year from an important local competitors, the line 4 and line 5 in Sao Paulo in the Metro as well as in Salvador de Bala. This represents now more than 7.2 million passengers per day with also a lot of digitization in this very dynamic market.

Moving now to the retail media sector, we can see that, as you know, this is a very dynamic segment within the Street Furniture, where today, using data analytics for the advertisers and being close to the point of sale and activate basically the sales dynamically. The total market, including online, is estimated to €39 billion, which is bigger than the total OH industry with a 20% growth forecast. We are already active in 34 countries, and we are still growing our footprint, including with new contracts this year, such as Sierra Sonae in Portugal or Galeries Lafayette in Paris.

ESG has been at the heart of our DNA ever since the invention of our highly positive business model in 1964, favorable infrastructure for public transport, soft mobility, useful services in cities and the development of launch transport are at the forefront of JCDecaux activities.

JCDecaux is a real partner of the transition since 52.4% of our turnover is eligible to the taxonomy and 49.5% of our revenues are aligned with the latter, meaning that 95% of our eligible revenues can consider as sustainable, a clear confirmation in light of the major issue of climate change issue, the usefulness of our business model. Our taxonomy-eligible activities considered in 2022, a favorable infrastructure for public transport. Bus shelter represents a lever for attracting users to the public transit system. Soft-mobility, the self-service bicycle activity by nature contribute to the mitigation of climate change. Thus, JCDecaux has been a pioneer in self mobility since 23 activity that today is present in 10 countries and 73 cities.

Development of land transport, JCDecaux considered two other eligible activities this year, the financing of urban and suburban transport and the financing of [indiscernible] transport considered as the land transport. Useful services in cities, JCDecaux [indiscernible] to present a voluntary eligibility ratio, highlighting the role played by Kiosk, urban furniture for information called MUPIS, our CIP and information system relating to air quality in educating and raising public awareness of environmental issues through the marketing of print media dealing with this issue of the dissemination of information messages on this topic.

On this Slide 20, we present our ratings by different external ESG agencies, external where we are basically clearly recognized as best-in-class in our industry. CDP leased A- versus C on average for our category, ecovadis highest grade possible platinum medal improving from our gold medal in 2021. JCDecaux is thus in the top one of companies evaluated. MSCI since 2013, JCDecaux has been rated by MSCI and in 2022 remains at one of the highest score, AA.

On the next slide, placing sustainability at the heart of JCDecaux business model has helped the group achieve a very high environmental standard, including in 2022, 100% of our electricity consumption covered by green electricity. We have thus achieved our goal for this year in accordance with our commitment to [indiscernible]. Consumption of our 2 square meter furniture reduced by 70%, thanks to lead technology and smart lighting. Our vehicle consumption in CO2 emissions per kilometer has been reduced by 6.3% versus 2019. And greenhouse gas emissions scope 3 emissions were measured for the first year and certified by Ernst & Young. Thanks to the group actions on environmental issues, total greenhouse gas emissions decreased by 27.1% in 2022 versus 2020, 19; Scope 1, 2 and 3 being obviously market-based. Last, our waste recovery rate has increased at 85%, and our yearly objective has been exceeded for the fourth consecutive year.

This result demonstrates that practices have been firmly established in all subsidiaries around the world. With over 11,200 partners worldwide and having relationships with a diverse ecosystem, local authorities, obviously, and suppliers, in particular, subcontractors. JCDecaux considered its social and societal commitment, and those are key factors to its success. Our social and societal impact was quite strong this year. Just maybe to highlight our important decision to increase ESG criteria on the variable compensation of all our executives from 10% in 2021 to now 15% in 2022, showing our strong commitment to ESG, which is for us, crucial. The frequency rate of employees' operational accidents. 14 accidents per million hours worked in 2022 is continuously down and again this year by 26% from 2019 confirming or potentially reinforcing the effectiveness of the group health and safety policy implemented since 2014.

Moving to Slide 23. ESG criteria are still not considered enough from our perspective in the tenders from cities or from other partners. 61% of tenders have assessed environmental criteria encouraging versus 2019, but still too slow and only 18% of tenders have said social criteria. In France, the low climate and resilience will make them convinced sorry, in public tender, but only in 2026. ESG has a cost and bring value and should be included in all tenders around the world in line with the financial criteria. Our recent -- our most recent renewals in Marseille or Italian are good examples of tenders including ESG criteria.

For the city of Tallinn, the final tender evaluation was 100% based on nonfinancial criteria such as design, including functionality and quality -- while JCDecaux was the best responder. We can see that when they are seriously considered, it is a key competitive advantage in improving the state of the world. So very encouraging, but too slow. The emergency is now and it is time for public to act sooner, faster than ever. I will now I hand over to David for comments about our financial performance in 2022.

David Bourg

Thank you, Jean-Charles. Hello, everyone. If we go back for a moment to the summary of the financial results, as already mentioned by Jean-Charles, this picture actually reflects quite well the continuation of the rebound of our activity with a strong increase in all our operational indicators, revenue operating margin, EBIT and operating cash flow, except for the free cash flow, which is impacted by a higher than normal level of CapEx, mainly due to the third batch of payments for the advertising rights relating to the renewal and extension of our Shanghai Metro concession for 15 years, an important contract for our future growth, as explained by Jean-Charles. But I will come back to it in more detail in the next slides.

Our net income group share is back to positive territory at €130 million, consistent with the improvement of our operational performance, our net financial debt stands at €975 million, a slight increase of €50 million, mainly driven by bolt-on M&A investments. Overall, a good set of results given the historically low level of activity in China due to mobility restriction, the war in Ukraine and the inflationary pressures.

Having a look now to the evolution of the operating margin, strong increase of €181 million to €603 million, a growth of 42.8% or twice more than the revenue growth, reflecting in a strong operating leverage due to an increase in our cost base contained and so at a slower pace than the revenue growth. As you can see on this slide, strong revenue growth indeed of 20.8% of €572 million with no significant scope effect over the period, but benefiting from foreign exchange effect of approximately €110 million with limited impact on our margin as our operating expenses are mainly denominated in local currencies, providing us with a form of natural hedge.

The increase in rents and fees is limited to 18.1% plus €222 million. We have continued to benefit from rent release. On the fixed rental and minimum guarantees, mainly on the transport activity in Asia and especially in airport and in China, given the situation due to ongoing mobility restrictions. Other operating costs, including staff costs and overheads, increased by 15.5% due to the recovery of our activity and the end of governmental aid related to COVID. Compared to 2019, the new leverage remained down by nearly 4% reflecting rigrous cost management in the context of inflationary pressure.

On the next slide, we can see that the EBIT has improved by €195.7 million, mainly driven by the improvement of the operating margin. Regarding the charges between operating margin and EBIT, as you can see on this waterfall shot, depreciation and amortization expenses increased by €9.7 million due to an increase in dismantling depreciation related to inflation and right-of-use depreciation of real estate and vehicle in line with the recovery of the activity, an increase of 2.5% year-on-year, which remain nevertheless moderate compared to the revenue growth. Maintenance spare parts increased by €8.6 million. plus 22.4% year-on-year, consistent with the recovery of the business especially in the Street Furniture segment.

And finally, a positive impact of €42.2 million from the accounting rate division of our initial stake in our JV in Chicago. Interstate is going to go following the buyout of our partner. This resulted in EBIT before impairment of €212 million, €183 million after a net impairment charge of €19 million mainly on some tangible and intangible assets in China reflecting the historically low level of activities due to mobility restriction in 2022.

Next slide, as a consequence of this good operating leverage, our margin rates improved significantly overall and across all business segments. Regarding the operating margin ratio on the left of the slide, it is worth highlighting the rate of the Street Furniture, which increased by 140 basis points at a lower pace than the other business segments. This is due to the end of the governmental aid which were mainly in Europe, the region which is contributing the most to this business segment and also to some contracts in ramp-up phase, especially in Belgium and Australia.

The margin rate of the Street Furniture amounted to 23.9%, which remains lower than 2019. This is mainly explained by the level of revenue still below 2019 in some countries in the rest of the world. In Asia Pacific, we have high margins normally and the new contract in startup phase that I have just mentioned. Unlike Street Furniture, the margin rate of the large format at 13.5%, an increase of 40 basis points year-on-year is August 2019 level, while revenue is still lagging behind. This is mainly driven by the most digitized countries such as Australia, U.K., Mexico, countries which were able to restore the profitability of their large format business and to enhance their margins significantly and quickly, thanks to conversion of the time and large-format locations into digital.

Regarding transport, significant improvement of 440 basis points to reach 11% of the revenue despite the situation in China whose margin was declining due to the impact of the mobility restrictions form Q2, that remaining positive thanks to rent release obtained in 2022, as indicated before. If we look now at the EBIT margin on the right-hand side of the slide, the overall rate goes from 0.6% in 2021 to 6.4% in 2022, an increase of 580 basis points, twice higher than the increase in the operating margin rate because it benefited from the accounting revaluation of our initial stake in our JV in Chicago, as mentioned before.

Restated from this item, the overall margin would be 5.1% with an increase of 450 basis points that would remain above the increase in the operating margin rate as expenses position between operating margin and EBIT, go at a lower pace than the revenue and other operating costs. Since the revaluation impact is related to the large format activity. It is, therefore, this business segment that has the highest EBIT rate at 9.1% before Street Furniture at 7.5% and Transport at 3.3%. Restated from these items, EBIT margin of the large format segment would represent 0.5% of the revenue demonstrating the necessity to pursue and accelerate the digitalization of this business segment wherever is possible.

Looking now at the net results, it has now returned to positive territory, as mentioned in introduction, reaching €132 million, a significant increase of €146.4 million, which comes mainly from the improvement of our operational performance. As you can see on the waterfall chart on the right of the slide, the positive accounting impact from the revaluation of our JV in Chicago on our EBIT was partially offset by the impairment charges over for the period, mainly on our activities in China given the mobility restrictions.

It is also worth noting on this waterfall because net profit from equity affiliates shows a decrease of €40.2 million, mainly due to an impairment charge on our investment in Clear Media for about €28 million in connection with a low level of activity in China. The contribution of equity affiliates nevertheless remains positive at €8.4 million. The bar, financial results, which correspond net charge shows an unfavorable evolution of €14.1 million, which is mainly due to the impact of currency hedges and financial interest related to the new bond issued in February 2022.

Finally, the bar, tax which is a net income of €22.3 million shows a favorable variation of €8.7 million compared to 2021 the income from deferred tax asset is growing faster than the current tax charge due to the reversal of provision on tax loss carry forward from countries perspectives have improved.

Moving now to the cash flow statement. Operating cash flows amounted to nearly €400 million, 2/3 of the operating margin, a strong increase of €161.8 million driven by the improvement in the operating margin. Regarding the lines between operating margin and operating cash flow, the increase in spare parts expenses and tax paid by €29.8 million and €9.2 million, respectively, is mainly due to the activity recovery. On the other hand, the favorable variation on the line other items of this table is driven by higher returns received from equity affiliates as their results have improved in 2021.

Below the line operating cash flows, the change in working capital has a limited impact on the group's cash position, minus €6.4 million despite a significant increase in revenue, thanks to our ongoing tight management over working capital requirements. After CapEx for nearly €350 million, we delivered a positive free cash flow of €43.2 million, down €168 million compared to 2021 due to the increase in net CapEx for €192 million and less favorable evolution to the change in working capital requirement for €137.8 million, which is mainly due to an increase in inventories in connection with our CapEx program and the payment in 2022 of rents and fees retained at the end of 2021 due to late finalization of some contractors negotiations related to COVID.

If we focus now a moment on our net CapEx on the next slide. It amounted in 2022 to 10.5% of our revenue against 8% on a average over the last 10 years, this is mainly due to the payment of €85 million of advertising rights for the renewal extension of our concession with Shanghai Metro for 15 years, as already mentioned. If we exclude this amount, our CapEx to sale ratio is aligned with our historical average of 8% with Digital representing almost 50% of this CapEx. Finally, it is worth noting that the final batches of advertising rights for Shanghai Metro should be paid in 2023 for about €60 million.

Moving now to the evolution of our net financial debt, we see on this slide an increase of the net financial debt over the period by €50 million, which combined with the free cash flow of €43 million that I have just commented was entirely allocated to our M&A activities for €94 million and to a lesser extent, to a dividend for €17.8 million to remunerate our minority partners in some of our subsidiaries. Our financial investment for the period are mainly related to the acquisition of our partners share in Interstate JCDecaux in Chicago, Pisoni in France at the end of the year and displays in July. This results in a net financial debt of €975 million at the end of December.

To conclude this presentation, a quick update on our financial structure, which can be described as robust. We have a strong liquidity with nearly €2 billion in cash and confirmed revolving credit facility of €825 million, which remains undrawn and matures in mid-2026. Furthermore, our debt portfolio is well-secured with our 2023 and 2024 bond maturities largely covered by our cash in hand and strengthened with a bond of €600 million issued at the beginning of 2023 and maturing in 2029. This new bond allow us to extend the average maturity of our debt in nearly 4 years at an average cost of around 2% after the repayment of the bond maturity in June 2023. And finally, our net financial debt to OM is now at 1.6 compared to 2.2 at the end of 2021. On that note, I will now pass the floor to Jean-François Decaux.

Jean-François Decaux

Thank you, David. On Slide 35, you can see based on the forecast from GroupM, the largest media buying agency in the world at the end of December, that OOH media, including digital out-of-home, remains clearly a growth media for the coming 5 years, which includes, of course, some recovery after COVID for our media but also long-term structural growth.

On Slide 36, the benefits of out-of-home media are recognized in many countries such as Brazil, a very dynamic country, which is today the eighth largest advertising market in the world. From a low level of around 3% in 2012, the market share of out-of-home media has risen to more than 10% today, including some digital panels, as you can see here in Sao Paulo as it brings value to partners, citizens and advertisers.

On Slide 37, the airport recovery is more and more visible. As you can see on this chart, by geographies, North America is only 10% below 2019 levels, including both domestic and international flags. Miami Airport, for example, was already at 112 of passenger traffic versus 2019. Europe is now at 77%, Middle East, 8%; and Asia Pacific only 51% due to mobility restrictions.

Globally, air passengers, were still 28% below 2019 levels this year, but the recovery has been faster than anticipated by previous forecast. If we look at the current forecast, you can see that the Airport Council International is expecting to reach 92% of pre-COVID levels in 2023, which would mean a 22 point recovery as a spectacular '23 as it is in '22 and a full recovery above pre-COVID levels from 2024.

Now on Slide 38, if we compare to our revenue, you can see that in some regions, we are above such for example, in the U.S. or in the Middle East, while in Europe is slightly behind. Currently, the average spend per passenger is higher than pre-COVID in airports, which is also very encouraging. The Chinese travelers are going to come back and should have a major impact, including in Europe.

Moving now to Slide 39. As you know, China has put an end to COVID mobility restriction measures at the beginning of December for local mobility restrictions and at the beginning of January for international mobility. This good news triggered a lot of COVID cases, impacting negatively the mobility levels in the country, as you can see on the chart on the right part of the slide. Q4 has been the second worst quarter for mobility in China since the beginning of the COVID crisis.

The situation has also impacted Q1 where we forecast a double-digit revenue decline year-on-year. But the situation is improving quickly and we see an inflection point from March as the mobilities returning to normal, at least for domestic as international mobility remains impacted by capacity constraints.

Moving on to programmatic. Programmatic online advertising now represents 85% of the global online display advertising and is now close to $200 billion of revenue, growing by approximately 15% yearly. This is a huge opportunity for out-of-home media that we can address as programmatic trading has many benefits for advertisers.

On the next slide, 41, you can see that this opportunity is already turning to a reality as programmatic revenue booked through the VIOOH platform have doubled this year to reach €61 million, which is 5.9% of our digital revenue. We currently have more than 16,000 screens trading in programmatic through -- in 19 countries. What's important to notice is that the revenue is mainly incremental coming from what we call new money. With programmatic, we can target the long tail of advertisers, campaigns and advertisers that would not have used out of home media without programmatic trading. We have a few examples of campaigns and advertisers on this slide. This broadened client universe increased demand and generate higher prices for our digital inventory.

Moving on to Slide 42. You can see that some countries already had in 2022, a double-digit share of programmatic out of their total digital revenues, more than 20% in the Dutch market and in Germany, for example compared to 5.8% for the group average, and this illustrates our room for growth in programmatic as we think it will reach, by 2025, 20% to 30% of digital revenue with still more than 50% of incremental revenue.

Moving on to the main tenders now, which is a key growth driver for us. The activity in tenders remain quite strong with higher visibility after COVID-19. Oslo Transport, Singapore, Street Furniture, Riyad Airport and HongoMetro, just to name a few, are among the important tenders coming up soon or already ongoing. Most of them now include an important share of digital.

Moving on to Slide 44. And in order to reduce its carbon -- and carbon footprint, JCDecaux defined last year, a group-wide climate strategy following a panel realized in 2021 for our business in France. JCDecaux's goal is to align itself with the ambitions of the Paris agreement and to achieve net zero carbon by 2050 by committing to a science-based target called SBTI trajectory.

It is worth mentioning that our efforts in place for several years to reduce our environmental impact enable us to show in 2022, a 27.1% reduction versus 2019 in our carbon footprint.

Now looking at Slide 45 and the competitive landscape. We are the clear leader in other worldwide and especially outside the U.S. Our unique international global position will, in our view, become more and more differentiating in the age of digital and programmatic. The current environment with macro headwinds in certain regions, higher interest rates could bring some opportunities for consolidation, but more importantly, for market rationalization as competitors and partners are progressively getting more rational as liquidity tightens. We will continue to monitor the competitive situation, especially for small bolt-on opportunities as we did for Pisoni in France and Chicago last year.

As a conclusion, I would like to highlight the following: A good set of results, reflecting the rebound. All geographies and business segments growing double digit, except China, impacted by historic low mobility levels, strong improvement in all operational indicators, a positive free cash flow, including exceptional payments for advertising rights to renew and expand our 15-year franchise with Shanghai Metro and best-in-class ESG performance.

We are well-positioned to benefit from the recovery with a unique worldwide leadership position, a well-diversified geographical and advertisers exposure, we are the most digitized and data-driven global out-of-home media company. We have an ongoing focus on innovation and an enhanced ESG road map, including our climate strategy. There are more opportunities for sustainable and profitable growth, digitization of prime locations, programmatic trading state-of-the-art platform, which continues upgrades, data-driven trading reinforced with JCDecaux Data Solutions, future organic growth through tenders, consolidation opportunities. And as a -- and for all these reasons, our proposal to the next shareholders meeting in May is not to pay any dividend in 2023 for 2022 to strengthen our capacity to seize opportunities for future growth in this recovery phase.

Finally, before we move into the Q&A, our outlook for the first quarter of this year. As far as this quarter is concerned, we now expect an organic revenue growth rate at around plus 2.5%, including a double-digit revenue decline in China, where we start seeing an inflection point from March as mobility is returning to normal.

Thank you very much, and we are now ready to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions]. So we have a question from Julien Roch from Barclays.

Julien Roch

I believe you said that the reason you were not paying a dividend is because there was some region where there were some distressed assets. So I doubt you're going to tell us what you have in mind in terms of M&A. But if you could give us some color on which region you feel this potential M&A? That is my first question.

And then the second one for David, which will get the answer in the actual annual report, but you'll have to wait a month or so. So could you tell us how much factoring you did in 2022 to help working capital? Because you said this morning, it was bigger than '21, but you didn't give a number.

Jean-Charles Decaux

Thank you, Julien, for your questions. I will take the first one, and David will take the second one. On the first one, M&A bolt-on acquisition, as you know, it's part of our strategy for quite some time now. You've seen that in -- basically in the past, you've seen that through the -- basically the pandemic also with some small but regional or local acquisitions, even though we -- distress -- basically I'm not so sure we use the distressed situation, but we just said we will have to size some opportunities around the world. I think we will see -- we could see things in most regions with some exception. For example, I will start with the exception, I don't think we will see anything in the Africa or in the Middle East as we speak, but it is clear that you have some -- you could see some further, I would say, consolidation in Europe, but you will see also -- you could see some also in other regions.

So we can't give you obviously targets or group lease, but you can see that this is certainly a moment if you take the combination of the outcome of the COVID situation where some companies have been financially impacted on their balance sheet on one side. And on the other side, the shift into digital, but not only into the hardware of digital, but also the new software, the programmatic buying movement.

This is certainly creating some further opportunities because the clock is ticking for some of those million small-sized companies to really actually change gears or being quite affected by this new environment, this new programmatic, let's say, or digital ecosystem.

So that's why we still believe that JCDecaux can continue to grow, and this is a clear moment where we could see and size some quite good acquisitions in that moment if things happen, nothing major in terms of size, but yes, good bolt-on acquisition as we did at some point in Asia as we did in Latin America, as we did also in some European countries in the past during tough times or after tough times.

David Bourg

Julien, regarding the factoring in 2022, we did a bit more than €200 million, and we did last year, a bit more than €160 million. So a difference between 2022 and 2021 of about €40 million.

Operator

We have another question from Catherine O'Neill from Citi.

Catherine O'Neill

I just wondered if you could give us a bit more detail on the geographical trends you're seeing in the first quarter and what kind of pickup you've started to observe in China. Because when I look at your guidance, I was just wondering if some of the geographies have started to soften in other regions.

And the other question I had is on CapEx. If you could give us there for 2023, including the €60 million for Shanghai and also working capital. And then finally, on the new contract wins, I just wondered how much you'd expect them to contribute to growth for 2023?

Jean-Charles Decaux

Thank you, Catherine, Jean-François will take the first one, and David will take the second one.

Jean-François Decaux

As far as Q1 is concerned, just to give you a bit of color, U.K. is soft, soft meaning flattish. Germany is slightly behind last year as a result of the tobacco ban. And so these are obviously important markets for us. But having said that, we have other markets, for example, in the southern part of Europe, which are up double digit, Brazil double digit and Latin America. So it's a mixed bag of high and double digit in some countries. And in some big markets like Germany and U.K. soft, U.S. is strong in airport, a bit soft in Street Furniture, for example, and just to give you a bit of a flavor. And the rest of Asia is pretty good. And France is also well-oriented as well in Q1.

David Bourg

Catherine, regarding CapEx for 2023. As you know, we do not provide any guidance. But this year, in 2022, as I mentioned, including Shanghai Metro, we were at 10.5% of our revenue. Excluding Shanghai Metro, we were at 8%. And for 2023, we are working in the same range of CapEx, including Shanghai Metro. And despite the increase in number of contract wins, as you have seen during the presentation.

Catherine O'Neill

Okay. Can I -- sorry, on the CapEx point, can I just clarify. So when you say you're working in the same range, you mean including the €60 million of Shanghai, you'd expect to be somewhere around the 8% mark?

David Bourg

Yes. We are working on this range, including Shanghai Metro.

Catherine O'Neill

Okay. And just going back to the first question on China. Can you just give us a bit more detail on the trends in China and what kind of inflection you're seeing in March and that pace of recovery?

Jean-Charles Decaux

Yes. I think the picture is quite getting clearer, Catherine, at the moment. As you know, in China, since the beginning of the pandemic, it has been a quite patchy situation where 2020 difficult, then midyear of 2020 a bit better, reopening of the economy and then obviously, the issue of the high mobility restriction that has been implemented over 20 -- end of 2020 and almost all 2021 and part of 2022, that has put the situation in China very difficult.

I would like to say two things. First, despite this very, very harsh environment on the revenue side because you can imagine that the metro like Shanghai Metro was closed for almost 3 months in a row. We have been able, obviously, to manage our financial resources where we have been able to stay in positive numbers at the bottom line. We -- basically, we didn't increase -- we didn't consume cash in that situation. And we managed to mitigate basically the dramatic slowdown in revenues, not to say more, by optimizing, obviously, not only our financial situation, but also keeping our talent and keeping our people.

So we haven't managed the situation by slashing obviously headcounts or slashing talent within our firm, which gives us now a position where from mid-March, I would say, so as we speak, literally as we speak, the situation in China is now getting into a much better mode, which is a bit lagging the overall reopening of the economy, obviously, that was what we always kept on saying that we are always lagging a bit when the economy is reopening. And in China now, what we see is from the second part of March what we could call a kind of an okay , where we see a rebound on our different basically sectors.

First, airport, obviously, domestic airport is now quite dynamic. International travel is a bit lagging the domestic as we could all understand, but this is also coming back quite rapidly. And on Metro, now I'm pleased to report to you and to the whole -- basically all the guests today on the call is that we have -- we are now in terms of audience now back for the first time at the level of the pre-COVID situation.

So we will have -- we think, a quite good Q2 in China. And as we speak, we see it -- we see it also, obviously, in the different cities where we are. So the really the inflation point, that's why we said as we are used to say very clearly in our call this morning and in our guidance, that even though the 2.5 is obviously very much impacted by slow China in January and February as expected. Now the turning point is clearly in March across the board and across the different segments, including airports as well as buses as well as metro advertising.

So we feel confident that the shape of our Chinese business from Q2 onwards will be back on track. It is a bit early to say when we will be reaching again 2019. But I remind you that in 2021, in first quarter 2021, we were back in 2019 already, but then the economy basically suffered again and closed again. But that was the fastest recovery in our big markets around the world when the market was reopening at that time. So we feel confident, not overconfident because this is not our side, but we clearly see today that the situation is getting good traction from mid-March onwards...

Catherine O'Neill

Okay. And just on the new contracts, if you -- what kind of contribution you'd expect them to have for growth this year?

Jean-Charles Decaux

As you know, we don't really disclose new contracts, but I'm pleased to report to you that we have won more basically new contracts that we lost position last year. So the net-net-net will be again positive, obviously, because even if we have won some contracts, we also -- we have lost some contracts. The net is positive to the old -- but not basically absolutely meaningful at the group level because, as you know, you need to start having the ramping up of the revenues. So nothing dramatic for 2023.

The most -- obviously, the most important will be also digitization across some renewals because the difference now between today's world and I would say the last few years is that we are starting to digitize obviously big metros in China and that will start to contribute by 2023 and onwards, as you have seen on our slide on the leading metro slide on China. That slide was made to show you that not only we have renewed, but we have also extended and we are now in the process to digitalize where China is at 20% -- roughly 20% digitization rate, and that will start to ramp up, obviously, within 2023 and certainly even at the bigger scale in 2024.

Operator

So we have another question from Benjamin Yokyong-Zoega from Deutsche Bank.

Benjamin Yokyong-Zoega

Two questions, please. First one, how is the sentiment of advertisers in large markets like Germany, U.K. and France looking like for the rest of 2023. Do you have any visibility that sentiment has improved? And by sectors in 2023, what sectors do you think would continue spending robustly? And are there any sectors that you think may be cutting back?

And then secondly, with financial leverage reduced to 1.6x and no dividend proposed. Could you please update us on how you're thinking about target leverage going forward?

Jean-Charles Decaux

On your first question, the advertising sentiment is not bad. And obviously, as we started in the year in 2023, given all the news in the background about recession, recession, recession, we were quite surprised to see the good level of bookings across the world, except in China in January and February. I'm not going to repeat myself.

And the sentiment is -- remains okay. U.K. was a bit softer recently, but nothing major, except that, of course, we're going to be flattish. France is despite not being exposed to a lot of digital for local regulations, where, for example, in Paris, it's still not legally possible to digitize on the public right of way. France is up mid-single digit, so above the guidance, and this is our biggest market in the world.

Germany a bit behind last year, we had a cracking year last year and we lost tobacco, which was about 7%, 8% of our total revenues. That's the main reason. But in Germany, where the sentiment was not so strong because it's a very much export-driven country, we were surprised to see that the level of bookings was still pretty good. And it's fair to say that in many markets, we believe that we are gaining share of media spend. This is certainly true in Brazil, which is why we have it in the presentation, but this is also true in Germany and in Norway, where I was recently.

So overall, the sentiment, I would say, is better than what we could expect -- that we could have expected at the beginning of the year, remains obviously very short term. And in terms of sectors, luxury, given the growth of luxury and the profitable growth of luxury, luxury, which is our biggest segment, which was up 40% last year, continues to be very strong, including luxury personal care as well.

Entertainment, now that blockbusters are coming back after 3 years of COVID and smaller number of blockbusters. We see also some very good demand from the large studios. Retail remains a very strong category. And as we said in our presentation, we are very diversified in terms of revenues and also our top 10 clients represent less than 15% of our revenue. So good -- I would say the sentiment is not buoyant, but it's not bad and certainly much better than what we could have expected.

David Bourg

Regarding our financial leverage, we are -- our financial net debt to OM is at 1.6% coming from 2.2%, improving the last few months. We are not reasoning in terms of leverage target. We are more looking at our grading and we are attached to our investment grade, not at any cost, but this is what we are looking, so we know based on that what -- where we could go in terms of leverage if we had a transformative acquisition to about 3.5x, knowing that we should normally deleverage after such acquisition in the next 18 to 24 months.

But at that time, it's not really the question. I think we have currently a strong balance sheet enough for us to ensure our development in terms of organic growth, digitalization and bolt-on acquisition. So far, as you have seen over the last 2 years, despite we were in an unprecedented crisis, we continue to grab some opportunities, and we made some bolt-on acquisition of about €100 million per year, and this is not going to affect our net debt financial leverage.

Jean-Charles Decaux

And coming back to the first question, I forgot to mention that programmatic revenue in Q1 is going to be almost double as what it was last year. So what we mentioned about the programmatic revenue increasing as a share of total digital revenue is at least in Q1, the trend is very positive, and we are expecting to double the revenue coming from programmatic from 60-ish this year -- last year to above €100 million this year.

Operator

So we have no further questions. [Operator Instructions]. And we have another question from Julien Roch from Barclays.

Julien Roch

Yes. So sorry to take more of your time. For David, again, I apologize for my complete lack of knowledge on accounting, always it is accounting. On factoring, so you've done €160 million in 2021, €200 million in 2022. It's basically, someone owes you money, a client, they're supposed to pay you in 3 months. You find someone to give you the money now. And for that, they charge you, say 5%. That's factoring. But does that mean you pregnant a negative working capital? What happened when -- if you stop doing factoring, when the client pays no longer you, but the person who financed your refactoring, do you get negative working capital or lower cash flow or not? What's the impact of factoring going forward on working capital?

David Bourg

It is part of, Julien, our toolbox. At the end of the day, there is no reason for us to stop. It is a tool that -- which is used by many companies, and we will continue to do so. So yes, if you stop at some point, you will have a negative impact, but there is no intention to stop. And this is the thing that we have been using for a certain period of time, and we will continue to use it in order to optimize our working capital during this [Foreign Language] recovery phase. It's a kind of good management of our balance sheet during this period of time.

Julien Roch

But that means that you have, in effect, an extra €200 million of debt, which is kind of off balance sheet?

David Bourg

It is off balance sheet. It is treated as debt for -- by the rating agencies. As you know, it is fully disclosed in our financial statements, but it is not considered as a debt because it is not in the balance sheet. So it is not part of the free cash flow, as you know -- not part of the working capital.

Operator

So we have no more questions, gentlemen.

Jean-Charles Decaux

So if there is no more questions, thank you for being in this annual results conference call, and we wish you a good afternoon to everyone. Thank you.

Operator

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.