oOh!media Limited (OML) Earnings Call Transcript & Summary

Thank you for standing by, and welcome to the oOh!media Limited FY '21 Results Presentation. [Operator Instructions] I would now like to hand the conference over to Ms. Cathy O'Connor, Managing Director and Chief Executive Officer. Please go ahead.

Thank you, and good morning, everyone, and welcome. As mentioned, I'm here today with oOh!media's Chief Financial Officer, Sheila Lines. And together, we will take you through the 2021 full year results for the company. Over on Slide 2, we touch on today's agenda. I'll start with a look at the highlights and our revenue and audience performance. Sheila will cover the financial results. And I'll return to talk about our future plans and the current outlook. And I'd like to firstly make a few comments before we take you to today's presentation. After 12 months in the row, I'm pleased to say, and as you'll see in today's results, that oOh!media has certainly returned to a strong growth path for the future. And today's message is not only about a recovery for oOh! from the COVID impacts, but it's about structural growth. Beyond that, for the sector and for our company. When I joined the business a year ago coming from another media sector, I was particularly upbeat about the prospects ahead for Out of Home and what I saw as the unique opportunities this medium has against its sector competitors. And I remain upbeat with the benefit of a year in the row working within the sector. In 2021, we took significant steps as a united industry to advance ourselves against other media. We launched our improved new measurement system, MOVE 1.5, providing measurements for digital out-of-home for the very first time on a sector-wide basis. We've worked with our customers, the advertising industry on further strategies to make Out of home easier to plan and to buy, and these will bear fruit for the sector into the future. These moves bring additional strength to Out of Home and complement its existing strength from its mass reach audiences to its high impact to the increasing ways that digitization is enhancing and improving the medium, and we'll be talking more about that in the presentation today. In terms of oOh!media as the industry's largest and most diverse digital operator, we are uniquely placed to benefit from sector growth and advancement. And accordingly, I'm leading the business focused on 2 main areas. Firstly, we remain focused within the Out of Home media sector for all the reasons I've just said, with a strong plan to drive revenue growth, growth through digitization and a number of other key levers available to us, which we'll cover today. And secondly, along with top-line focus, we have a particular opportunity within the diversity and scale that oOh! has built to further optimize the business for profitable growth, to improve the efficiency and output of the business, and that process is also well underway. So I look forward to elaborating more on these strategies for you later in the presentation. And that being said, I'll now take you to today's slides. If you have access to the slides, please move to Slide 4. Starting with the highlights. oOh!media has delivered strong improvements on its prior year performance. Financial year revenues grew by 18% on the prior year and underlying EBITDA grew by 24% on prior year. It's pleasing that Road, Retail, Street Furniture and our New Zealand business performed above pre-COVID 2019 level in aggregate across November and December. We have continued to digitize in key locations, and we're well placed to participate in this strong return to growth in the sector. Our Q1 revenue for 2022 is currently pacing at 15% above 2021 and at 93% of 2019 pre-COVID revenues. The improved earnings performance and strong balance sheet as of December was geared at 0.8x and has resulted in the board declaring $0.01 fully franked final dividend payable in March this year. Over on Slide 5, we highlight the key financials for the year. As a result of a recovery in audiences and an ongoing focus on running a disciplined business, we delivered significant improvements in revenue and EBITDA. This has resulted in underlying EBITDA of $77.6 million, which is 24% above pcp on a pre-AASB 16 basis, revenue growth of 18% with COGS and OpEx growth at 17% on pcp. Free cash flows returned to more normalized levels relative to EBITDA, noting that the prior year benefited from the significant accounts receivable unwind in the first half of 2020, which Sheila will cover later. The balance sheet is in a strong position with only 0.8x gearing and the declaration of a dividend, which I also mentioned earlier. Now we'll move on to a revenue and audience update. So I'll ask you to move to Slide 7. As was outlined in the interim results in August, performance of Road, Retail and Street Furniture have performed strongly. These being less impacted by COVID-related audience declines in the formats of Fly, Office and Rail. The Road format, in particular, performed strongly with 34% growth for the year, but this is also 8% above FY '19 revenues. As you'll note from this chart, our growth in the second half was impacted by COVID lockdowns, and this was felt largely in the period from August to October, but this was then followed by a very strong recovery in November and December. Market share for the year was 44%, noting that the OMA has significantly expanded its membership base in 2021 to include all significant out of home operators. And this is an exciting development as we now have a fully representative industry body to facilitate growth of the Out of Home category. And again, we'll talk about that more in a moment. Over on Slide 8, we look further into the performance of our key formats versus FY '19 on a monthly basis. In Q4, we certainly felt momentum in key formats. Looking to the right of this chart, we see that Road, Retail, Street Furniture and New Zealand contribute to 75% of the overall revenue to oOh! on a pre-COVID FY '19 basis. Rounding out the chart on the right, we can see that Office and Rail formats contributed further 15% of oOh!'s revenue and the remaining 10% comes from Fly. And as a reminder, the bulk of Fly's revenues are domestic passenger-oriented. Due to the impact of COVID, the mix of key formats, Road, Retail and Street Furniture increased to 91% of media revenues in FY '21 with the balance of Fly, Office and Rail contributing 9%. Now looking to the left of the chart, we see that the key formats in the orange column performed closely in line with 2019 in the first half. Then following the downturn in the third quarter due to the New South Wales and Victoria lockdowns, there was a marked recovery from November, continuing through to January 2022 in all formats. To put perspective to that recovery, Road, Retail, Street Furniture and New Zealand built close to FY '19 levels in November and then end up further on that momentum to exceed FY '19 run rate in December and into January. And we make the point, as we have in the past when looking at this analysis, that in these more audience impacted environments of Fly, Office and Rail, our rents have a larger variable component than the broader business and have benefited from key concession partners, providing rent relief, and this in turn, has lessened the margin impact of these audience declines. Some further comments on the nature of our recovery over on Slide 9. Having dealt with various forms of COVID lockdown for close to 2 years now, we consistently see that advertisers are very quick to return once restrictions are lifted or eased. These graphs show the revenue returns for Road post-lockdowns in our 2 major markets of Sydney and Melbourne. From each graph we see an emphatic return of advertising spend once lockdowns are eased. December period in late 2021 where audiences recovered, we saw an even more pronounced surge in pent-up demand by advertisers. This really speaks to the underlying strength of Out of Home as a higher field channel for advertisers who are keen to reassert their brands and position for the future. So that concludes my comments on our FY '21 performance. And so to recap, Out of Home has continued to demonstrate that revenues return when audiences return. oOh!media has demonstrated the continuation of that trend with our strong growth in FY '21, and this is despite the year being prone to audience fluctuations due to COVID. oOh!media has a strong exposure to those formats of Road, Retail and Street Furniture that are leading the sector's recovery, and has accordingly, delivered a much improved result in the fourth quarter. So I'll now hand over to Sheila, and she'll take you through some further detail on the financials. And then I'll be back to talk about our future plans before we go to questions. Sheila?

Thank you, Cathy, and good morning. Before I provide commentary on the annual financial report, I'd highlight that these are principally presented on a pre-AASB 16 basis, which is consistent with the presentation of the prior year comparatives. We believe this is appropriate as most analysts and shareholders analyze the company on this basis. Our statutory reported results, including the application of AASB 16, are provided in the annual financial report. And a reconciliation of key profit and loss items between our statutory results and these pre-AASB 16 results is provided in the appendix to this presentation as well as in the operating and financial review. Turning first to our income statement on Slide 11. Revenues increased by $77 million, 18% compared to 2020. Revenues for 2021 are also 78% of the pre-pandemic 2019 year. In aggregate, the formats of Road, Street Furniture, Retail and New Zealand were over 90% of the pre-pandemic 2019 year. As outlined by Cathy earlier, these formats returned to over penetrating revenue momentum as audiences returned. Office, Rail and Fly were environments where audiences and revenues continued to be impacted by government measures to offset the effects of the pandemic. Our commercial arrangements in Rail and Fly includes rent abatements to mitigate these impacts, which I will address in more detail on the next slide. Office is included in our Locate business. Rent in Office is variable and low compared to other formats, so gross profit remains positive, notwithstanding the challenging external conditions. Improved revenue for the period contributed to a gross margin uplift of 1.8 percentage points to 44.1% compared to the prior year and a gross profit of $222 million, a 23% improvement on the prior year. Operating expenditure, excluding depreciation and amortization, increased by $27 million due to the reversal of $25 million in prior year temporary labor savings being JobKeeper and New Zealand wage subsidies and also the implementation of a 4 day work week across the company for 3 months than the prior year. Temporary marketing savings of $1.2 million in 2020 also repaid in the current year. Current year expenses do not include any government support. The business qualified for JobKeeper and New Zealand wage subsidy for periods of 2021 as reported in the interim results. However, these 2021 amounts were repaid in the second half. The full run rate impact of operating cost savings announced August 2020, offset inflation costs for 2021. And finally, higher than usual annual leave expense in the current year was offset by lower variable incentive expense. It is usual for incentive expense to vary depending on company performance in a period. However, the unusually high annual leave expense is due to the external conditions of 2021 and may reverse in the future. A new accounting standard in 2021 resulted in implementation cost of third-party controlled software no longer being eligible for capitalization. The impact is not material for oOh! and was $1.2 million in the current year and $0.6 million in the prior year and is included in operating expenses. Current year operating expenses are now similar to the pre-pandemic 2019 with 2 years of inflation and costs which were previously capitalized in 2019 offset by the full run rate on Adshel acquisition synergies realized and cost savings implemented in August 2020. We have provided a comparison of the current year performance to the pre-pandemic 2019 on Slide 31. Efficient allocation of resources for revenue growth and margin expansion continues as a focus across the business and headcount remained flat over '21 as revenues were covered. One-off transaction gains of $3.7 million have been excluded from underlying EBITDA, consistent with the prior year treatment of such items. The 24% underlying EBITDA increased relative to the 18% revenue growth demonstrates the continuing operating leverage in our business. On Slide 29, we have provided an underlying EBITDA bridge year-over-year. Depreciation and amortization is $3.3 million or 5% higher than the prior period. Net finance costs decreased $9.6 million, principally due to lower average debt. NPAT was a profit of $1 million for the period compared to a loss of $24 million underlying NPATA was a profit of $13 million compared to an underlying NPATA loss of $9 million in the prior period. On Slide 30, we've provided a reconciliation of NPAT to underlying NPATA. Moving to Slide 12. $37 million of rent abatements were received during the year related to the Rail and Fly reported $19 million of rent abatements payments for the half. The quantum of abatements we will receive in 2022 in Rail and Fly will continue to depend on passenger numbers and revenue against a pre-COVID base. 2022 will not include abatements to Sydney Trains as that contract was not renewed. Moving to our cash flow on Slide 13. Net cash from operating activities was $64 million. The current year includes a net cash outflow of $9 million relating to prior year COVID relief arrangements with commercial partners. No similar [indiscernible]. The prior year cash from operating activities benefited from a $20 million unwind of working capital with a $76 million unwind in the first half of 2020, subsequently reversing by $54 million in the second half. Working capital over 2021 is substantially unchanged. On this slide, working capital of non-cash items. While interest expense is lower than the prior year, interest and tax payments increased by $9 million due to payments on the cessation of interest rate hedging derivatives in the year and due to tax refunds received in the prior year. Capital expenditure of $15 million was focused on the digitization of key road sites, furniture network and our corporate requirements. New South Wales grown second half lockdowns impacted suppliers and installation teams. And while installations picked up pace in November and December, some projects intended for the second half will now complete in 2022, resulting in lower final capital expenditure for the year than the guidance provided in August. It is expected that full year capital expenditure for 2022 will be $45 million to $50 million range and will consist predominantly official assets supporting revenue growth. No dividends were paid in the year. Turning to the balance sheet on Slide 14. Gearing continues to reduce due to both reduction in absolute net debt and an increase in EBITDA as calculated for the purposes of our bank covenants, which is on a pre-AASB 16 basis. Gearing is now 0.8x. Given the strength of the company's balance sheet and the improvement in earnings in 2021, the board has now reviewed the pre-pandemic dividend policy and declared $0.01 fully franked dividend, representing 47% of underlying impact to our pre-AASB 16, which will be paid in March 2022. The board's dividend policy of 40% to 60% of underlying NPATA pre-AASB 16 reflects the non-cash impact of the adoption of AASB 16 and also the acquired intangibles do not have a cash replacement cost. The board will continue to evaluate capital management initiatives and consider the gearing in the short-term of up to 1x suitable while the pandemic recovery continues. I'll now hand back to Cathy.

Thanks, Sheila. And we'll now look to the future. Please go to Slide 16. From a longer term point of view, the structural growth of Out of Home remains intact, with PWC predicting a 13% CAGR for the industry from 2020 through to 2025. The PwC outlook also predicts the medium to restore its share of the overall market to 7.3% by 2025. You'll also note on the left there, one of the world's largest advertiser group, Dentsu, predicting sector recovery exceeding pre-pandemic levels in 2022. Out of Home has several factors that underpin this strong growth outlook. The medium has enviable mass reach audiences, which are not under threat from fragmentation and are enhanced by population growth and planned growth in our cities. The industry association, the OMA, expanded its member base during 2021 to now include all of the main Out of Home operators, Shopper, Val Morgan Outdoor and Westfield Brandspace. The industry has now updated its measurement system to MOVE 1.5 to include the measurement of Digital Out of Home on a sector-wide basis for the first time. This is an important step for the sector, making it easier for advertisers to plan, buy and measure Out of Home campaigns via an enhanced, more accurate, and importantly, standardized approach across all operators. The sector is working collaboratively with agencies and advertisers in delivering these sector-wide improvements. We are also working towards more measurement innovations with MOVE 2.0, and this will provide even greater detail of measurement of monthly and seasonal variation as well as hourly movements using a range of data sources. Over on Slide 17, we move to our strategy for future growth. I'll talk firstly about our strategy to focus within the core Out of Home sector. In doing so, our investments will be focused on the highest growth opportunities for the business. Further digitization for growth is a high priority. And we aim to further cement our position as the sector's #1 digital operator, maintaining our leadership in Road, Street Furniture, Retail, Office, Airports and University Campuses. Accordingly, we have now completed divestments of assets which are non-core to oOh!media, although we considered subscale. Those have included Junkee Digital Publishing, EDGE, our events business and Out of Home assets in Health, Gyms, New Zealand Road and New Zealand Office. Over on Slide 18, we look more specifically at the pillars that will drive growth for the company. Our first pillar outlines our asset digitization plan. Our current base of more than 9,000 digital screens will be further strengthened in the Retail and Street Furniture environment, and we have renewed the 100% digital Qantas Lounge and In-flight contract, extending our long-term partnership with Qantas. In our second pillar, we will drive top-line growth through a range of measures. Firstly, as Out of Home will increasingly trade in the currency of audience, continued investments in data to better target and monetize our mass audiences across our diverse format is key. Secondly, growth through improved processes for rate and occupancy management. And thirdly, through diversification of revenues with increased focus on the SME market where Out of Home is traditionally under-represented despite its power as a localized medium. And finally, the launch of oOh!media's new creative offering, post Junkee, we'll be working with advertisers to increase their ROI through better creative executions in Out of Home. To the right, our next pillar focuses on the evolution of the digital customer experience. At the interim results, I was excited to announce the launch of our better ways to buy strategy for audience selling. And I'm pleased to say today that in addition to this strategy, we have now entered the programmatic market in the second half, introducing a new channel to oOh!media for revenue growth. And in our final pillar to the right, we continue to take a disciplined approach to running the business. As we did in 2021, we will further capitalize on the positive operating leverage in the business by maintaining our discipline on OpEx and improving our return on our investments, reprioritizing headcount so that we have the capacity to invest in critical roles for our future. In summary, these 4 pillars increase oOh!'s scale as the most diverse digital operator in the Out of Home sector. Our plan builds on our capability to better optimize returns across our existing assets, while at the same time, delivering new pathways for incremental growth. Over on Slide 19, I really want to emphasize a few key points about Digital Out of Home. Before I do, I should firstly say that the unique power of classic or static Out of Home to build brands and offer 100% share of voice is widely acknowledged by advertisers, and this will continue to be the case. Advertisers have also for many years now increasingly invested in all forms of digital media for its immediacy, its flexibility and the ease of trade. The digitization of Out of Home presents far more opportunity than just the conversion of a static image to a digital image. There is now a breadth of opportunity to engage advertisers in new ways using Digital Out of Home. The increasing sophistication to target audiences using data to capture consumers in the right place at the right time with the right messages to increase effectiveness is compelling. And new technology continues to increase Out of Home's ability to provide an interactive, immersive and high impact experience for consumers. This profound evolution of Out of Home is happening globally. And is one of the reasons why Out of Home is well placed to increase its share of the overall media sector. Our company, oOh!media has led the industry with innovations around data-led audience selling, and this remains a key part of our operating strategies. We'll now update you on our lease maturity profile. Please move to Slide 21. oOh!media maintains its balanced commercial lease profile. From the chart, you will see that over 60% of revenue attached to our leases has an expiry profile in excess of 3 years. And given our significant scale and diversity, no individual concession contributes more than 7% of CY '21 Group revenue or 6% of CY '19 revenues. We continue to maintain and build a lease portfolio that has geographic audience and tenure diversity. We'll conclude today with some comments about our outlook over on Slide 23. Looking ahead, our total Q1 revenues are pacing at 15% higher than Q1 at the same time last year. Road, Retail, Street Furniture across Australia and New Zealand are pacing at 15% higher than Q1 of 2019. And in February, we've seen aggregate audiences return to pre-COVID levels. Omicron's impact has been limited, as indicated by the January interim SMI report, which indicated 12.7% increase in revenue for all non-digital media. From an audience point of view, there has been less foot traffic in the environments of Office and Fly compared to pre-COVID levels. But we note, we are now seeing a broad easing of health restrictions in Australia. We expect our full year CapEx to increase up to pre-COVID levels as the company reset for further growth, and the business intends to invest between 45 and $55 million versus $15 million in 2021. Over on Slide 24, I'll do a quick recap of our presentation before we hand to any questions. A solid result in FY '21 and momentum into FY '22, demonstrated with an 18% revenue uplift and margin expansion, leading to a 24% uplift in EBITDA. Net debt is down at 0.8x and a return to dividends. We've demonstrated how consistently we see revenue uplift as audiences recover with our Q1 pacing at 15% year-on-year and 93% of Q1 of 2019. Our strategy is to maintain our efforts within the Out of Home sector to deliver profitable return for shareholders. And a united and focused Out of Home sector is a great enabler of our growth story. That concludes today's presentation. And now Sheila and I will be happy to hand over to any questions you may have. Thank you.

[Operator Instructions] Your first question comes from Entcho Raykovski with Crédit Suisse.

Firstly, I've got a question around the CapEx guidance for FY '22. I'm interested in the extent to which this is driven by deferral from '21, given that you came in, you could say, roughly $10 million below your guidance. And so the $45 million to $55 million, the new CapEx base or is there an element of catch-up in '22 from '21?

Andrew, it's Sheila here. So what we're guiding is $45 million to $55 million for the next year. And certainly, we have increased commitments at the end of the year of about $10 million versus $5 million for the prior year. So you could classify about $5 million of that as being projects that we would have otherwise completed this year.

And so if we're thinking about -- I mean, I'm thinking COVID beyond FY '22, I appreciate you're not giving guidance today, but something in -- if we take 5 off the midpoint, is that a good base to be thinking about or do you retain flexibility depending on what happens in the market?

Well, actual CapEx in any one year will always also be affected by which concessions are renewing in the year and whether there is a significant refresh of the asset. So it does tend to move a bit, which is why we gave a $10 million range. So it is, as we said, more normal CapEx level. So it certainly is a good indicator of more normal long-term levels in the business, but it does vary year-to-year depending what's happening across the concession base.

And secondly, revenue growth trends that you've indicated for Q1, is it base case that can accelerate into the rest of the year? I'm just conscious that there were obviously lockdowns over the course of FY '21, so the comps should become easier as the year rolls?

I think the right answer to that is the external environment. We can't reasonably predict what will happen. We do know that the impact of Omicron has been marginal in the data that we see and in our Q1 performance. So it's difficult to predict beyond that, and we aren't giving guidance for that reason. We've probably learned over the last 2 years that the external environment is subject to change. But I think what we've tried to do today is really makes the base point that so long as audiences, the restriction is easing as they have been gradually and also things like borders opening and so forth, that is all additive to performance. And I think we really, like everyone else, are just of the hope that the worst is behind us. But at this stage, the 15% year-on-year is the only indication we're giving in today's presentation.

And maybe I'll ask a final one. It is sort of related to the external environment, but just your views on the federal election impact on the Out of Home markets. I mean, I'm just conscious that in the past we've had a funny impact where perhaps it's been a negative on Out of Home. Do you have any views on what might happen this time around?

Look, historically, federal elections they create both a push and pull. I think a lot of advertisers do paused their spend in anticipation of federal elections. And then of course we get a surge of government revenue and clinical pay revenue. The one comment I'd make is, relative to other mediums, Out of Home attracts proportionately less of that political party advertising. Some of our environments prohibit us from being able to carry those types of messages. But certainly, government spending has been very, very strong for the sector and looks strong in Q1 as well. So that element of elections we should participate in well.

Your next question comes from Desmond Tsao with Goldman Sachs.

I've got a couple of questions as well. I guess, maybe firstly, just on the revenue, sort of comments you made into January. Obviously, you've noted that your core segments are well above pre-COVID levels, but Office and Fly still lagging behind for obvious reasons. I guess, I'm more curious about how you see calendar '22 playing out? Are you more or less confident, I guess, over the past few months that potentially your revenue profile could actually get back to pre-COVID levels even if Fly and Office sees more of a prolonged slower recovery?

I think possibly a point of context for you to help with that question would be to look at our December performance where we achieved 93% of our FY '19 revenues with very little contribution from Office and Fly and Rail. So I think that does speak to the underlying strength of the formats that are leading the recovery. Further to that, in terms of the recovery of Fly and Office, we have said that we expect those recoveries to be slower than the core formats. And the core formats of Street, Road and Retail are really the substantial part of the inventory, 75%, and last year even more than that. So we think the recoveries will come gradually. The domestic passenger activity is starting to build, and that's substantially where the Fly revenue is targeted. So obviously, international will be somewhat slower, even though the roads are open. And in terms of offices, I think once things like [ mask mandates ] are further eased, we'll see a gradual return of audiences to offices. So the point we've made today is that audience equals revenue. And like you were pretty keenly attuned to see those audiences reset.

I guess second question just around programmatic. I think I may have asked you sort of the last result, but now with you guys sort of noting that you've launched in November, December around programmatic, just keen to revisit this topic. I hear from you how you're thinking about the opportunity here ahead. And I guess, what sort of percentage of your revenue base do you think you can actually get from programmatic as we roll through the calendar year?

So yes, as we announced in the presentation, we launched our programmatic offering in November. So for the purposes of today's presentation, I'm not going to make predictions about -- given it's very early days about the percentage of revenue that we think we can attract incrementally to the business because of this new channel. What I will say more broadly as an overriding comment on this development and developing area for the industry, it's a $9.5 billion digital market in Australia, and programmatic is the third largest contributor to it. So there is a massive addressable audience there that Out of Home is currently not participating in. And I think what we're going to see is the evolution of a sort of dual focus for Out of Home, what I would call a hybrid approach where you've got to frequent the meeting in because of all of the large, big branding value that it provides. And so, generally, if your approach in your campaign is for mass reach and audience brand same, then you're probably going to continue to buy Out of Home traditionally. And increasingly, we think that programmatic -- marketing objectives, things like reach extension, things like tactical campaigns, things like topicality, seize the moment. And all of these types of marketing campaigns have really been the domain of print media, radio and to a lesser extent, television. So you're going to see Out of Home now appeal to both the top of the funnel and the bottom of the marketing funnel type campaign. So I think it broadens our addressable market. And for us, it's really -- the question is about what the right approach is to retain the significant value we have in our assets and make sure that we're playing into this channel so that gives us incremental growth.

Your next question comes from Fraser Mcleish with MST Marquee.

And I've just got a few, I guess, Sydney Trains related ones. First, can you just confirm there's no Sydney Trains revenue in that Q1 pacing that you've indicated? And actually, if you are able to say what you would be pacing relative to 1Q 2019 without Sydney Trains in the base, that would also be really helpful? And just also, Cathy, your latest thinking on the kind of network impacts of Sydney Trains, which you've kind of previously said you thought you could get that appetite, it wouldn't be a big network impact. So if you could just -- what you're actually seeing? And then finally, just are there any OpEx savings that you're able to make as a result of losing that contract?

So there is no train revenue assumed in that Q1 pacing figure that we've given you. And in terms of the network impact of Sydney Trains, I think we got a lot of questions about the contract last year at the interim results than actually almost a year ago at the full year results as well. And at the time, we said that even notwithstanding the appeal of the contract, it's quite a high profile contract. But it really in terms of our network provided only a limit -- so even without trains, if you look across our assets in Retail and Street Furniture, our reach of the Sydney Metro area is still in vicinity of 98%. So we knew at the time that, that contract was worth a certain amount to oOh!media. And of course, we were thinking about the revenue that we could deliver to the contract, the CapEx required obviously to update the plant, which was quite a high level and also where it sit and the duplication within the network. So also the fact that no contract represents more than 6% of our revenue at the time we made that bid. So all of those things meant we did what we thought that contract was worth. And in the process, we weren't successful. So I think my comments remain that we still remain a very large, diversified out of home player across Sydney Metro. I'd also note that we're now 1 year closer to the tender for Sydney Metro Trains. Again, that was part of our consideration when that tender was submitted. And of course, Sydney Metro Trains will provide significant duplication of aspects of the Sydney Trains' contract. So that's in our thinking as well.

So Cathy, maybe I'll take the rest of the Fraser's question. So Fraser, in Q1 '20, there was very little rail revenue in either of the contract given the environment. We are prohibited under our confidentiality to go in detail. So I know that investors would love to have the exact details, but we are prohibited from doing so. We have provided an adjustment on that -- an adjusted contribution on a pre-COVID basis from our combined Rail and Locate businesses. And so in terms of OpEx, obviously, clearly, there are all the direct OpEx savings that go with that contract in it, which would largely go through the COGS line where we have operated on that contract, who would be maintaining those cost effect, the OpEx lines that would be going through COGS.

Your next question comes from Darren Leung with Macquarie.

I've just got 2 questions, please. One is just on the revenue maturity profile slide. And so we're working through the percentages, the 13.9% to 21.9%. In calendar year '22, it looks like it's increased pretty materially versus the 5.4% previously. I know there's been a change at the '21 versus 2019 revenue. But on a dollar million basis, it looks like it's doubled. So just a reconciliation there, please? And then the second one is just on rental concessions. Presumably, you're striking these deals sort of every 12 months, but can you just give a feel for how we should think about them in calendar year '22 and '23? And then is there any risk that actually stop occurring, please?

So just to clarify, your question is in relation to the lease maturity slide, is that correct?

The first question is, yes.

So the first year always changes each time we present this slide because we have always had a substantial number of leases in holdover status for a variety of reasons. So obviously, we -- given they are in holdover, we always have to then reset them into the first year. So that happens on that first year throughout. So that would be the main reason why '22 now looks different to the '22 that we would have given you this time last year. And I think your second question, was it in relation to are we seeing things at the environment different in our concession renewal?

In the rental concessions, so the $37 million? Just trying to get a feel for how...

The abatements.

So the existing abatements in '22, as we've said before, are substantially Fly and Rail. We are not seeing any changes in those other than the one we've called out and that '22 will not include abatements for Sydney Trains because we have not renewed contract because all of those abatements are set off a pre-COVID base. But we don't have additional abatements because of course our revenues and audiences have recovered in other environments. And therefore, there's no case for further abatements.

Your next question comes from Brian Han with Morningstar.

I see that digital as a percentage of your total revenue remained at 57% in '21. Do you have a view as to what that could get to longer term or do you not run your operations to any such target? And also, was there much difference in margin change year-on-year between static and digital? I mean, did digital enjoy a better margin improvement than static last year?

I'll take the first of those. We don't really set a target for a percentage of digital revenue because it is dependent on what plant we're building, and of course, our contracts and the profile of our contracts when we have big renewals and so forth, those digital factors can vary from year-to-year. Obviously, we remain a large player in Digital Out of Home and it will be a significant part of our revenue. And we will obviously maintain a very competitive share of the digital revenue. And as that revenue grows as a percentage of total sector revenue, you can expect we will grow with it based on the pipeline that we have. In terms of classic, all I would say before I hand to Sheila on the detail of the margins is it's an incredibly valuable part of what we do. I think in this digital world, there are very few media opportunities that provide the share of voice that classic Out of Home does. And we've actually also seen data from our advertisers throughout 2021 that shows that classic small format advertising shows terrific ROI in a lot of the proprietary data analysis that our customers are now doing. So it's going to continue to be an important part of the future, notwithstanding the power that we have ahead of us with our digital evolution as well. So on your question about margins by format, I'll hand over to Sheila on that one.

It's much more -- the margin mix is much more driven by partner than the physical type of the asset, as we've talked about before. So that's the biggest driver of margin category of concession partners. Certainly, when we digitize an asset, assuming that it's capable of digitization, you can get the VAs. When we make that, there's a strong in-house return on investment case for that digitization. But in terms of the margin mix, the bigger factor would be the rent structures we have in particular concession categories.

Cathy, while you are there, can I just ask 1.5. From your experience, from your previous roles, how long does it change in audience and audience measurement like this? How long does it take before it gets reflected meaningfully in the industry share of the pie?

That's a very good question. I must say the sector I came from never had a currency change. So I couldn't speak to that with great authority. But what I will say is the history of the journey with MOVE 1.0 from 2010 when it was launched. You can actually see the correlation of log-in in those early years to the MOVE measurement system and the revenue. Look, I think because we are introducing new metrics like the new impact sector for digital advertising, the industry is uniting around share of time as the standardized way to buy Out of Home, which gives you a nice common approach across all formats and all companies. So these things are behavioral changes and they may take some weeks if not months to bid in with agencies. But I think what I'm observing in this very early stage because we're less than a month since we launched, just the interest, the dialogue and the new approach and the conversations that our sales forces, and I'm sure, our peers' sales forces are engaging in is incredibly powerful opportunity to capitalize on raising awareness and interest for the medium. So I'm very upbeat that it will lead to growth for the sector as our -- all of the operators within it. And I think that's evidenced by the fact you now have all the major Out of Home companies joining into the OMA in a United approach. I think MOVE 1.5 is the principal pillar that we're coming together to really drive growth.

[Operator Instructions] Your next question comes from John Campbell with Jefferies.

Just firstly around while we're on the subject of MOVE 1.5. What is the expected date of MOVE 2.0, Cathy, to be essentially commence rollout?

So the MOVE 2.0 pipeline continues and the development of the next evolution of the measurement is well underway. We did have some delays in 2021 in some of the test research and pilot programming that we needed to do. And the obvious reason for that was we simply couldn't get to people to conduct some aspects of that pilot study. So now the estimated timeline is early in 2024. And in the meantime, I think we'll harness the interest and momentum that we can get out of 1.5, because I think above it all, what the industry is -- the advertising industry is most keen for is a measurement for digital. So we now have that and I think it will serve us well in the interim.

So the -- I'm sure 2.0 has a lot of additional bells and whistles, but the core of it of capturing digital is sort of done by 1.5. So you're not -- you haven't missed a sort of a big revenue growth opportunity in the interim?

No, it doesn't move with your old formats or regional Australia and all those things that really help the industry to properly size itself and the sector against other media, and those things will be really powerful when they come online. But in the meantime, in the major formats where the substantial amount of the revenue lies, we have digital measurement, which is a great step forward.

Just going back to that commercial lease expiry slide, the 13% in '22 and the, I think, 20% in '23, within -- just a simple question. Within those 2 years, what would be the largest expiry from a revenue perspective?

So we don't give out that level of information at a concession basis. But what we do say and we can certainly say it again is no 1 concession is more than 7% of our revenue base, and that does reflect. We have such a diverse lease portfolio that no 1 contract is larger than that, but we don't usually -- because these are commercially sensitive negotiations and also because no 1 contract is more than 7%.

Just while I've got you, Sheila. On the CapEx of $45 million to $55 million, of which some of it's catch up. But in terms of your minimum targeted ROIC for that sort of digital investment, what is the figure?

So what we use, and it isn't absolutely a minimum, but it's not just the CapEx because when asset is digitized, the rent structure on that asset changes as well. So obviously, what we look at is the new revenue on the digital asset with all the direct cost of that, such as agency and sales commission, but we also look into rent structure changes on that particular concession. And we run a discounted cash flow model over the life of the assets and also to make sure we have sufficient concession length for remaining all the assets. And at a minimum, and it really does vary, at a minimum, we would use circa 9% as an internal WAC benchmark. But quite often, they are in excess of that.

There are no further questions at this time. I'll now hand the conference back over to Ms. O'Connor for closing remarks.

So as mentioned, this is a strong result for oOh!media. It spills the sign of recovering of the business that is 2 years of COVID impact and a very strong pacing results at 15% for Q1 on a year-on-year basis. We have a united industry and many innovations to advance Out of Home against our sector competitors. And as the largest player within the Out of Home sector, we are uniquely placed to benefit from sector growth. Our strategies allow us to optimize the assets that we have, while we also build new pathways to incremental growth through further digitization and an evolution of many of the channels in which we trade Out of Home to customers. So for those of you that we're catching up with one-on-one, we look forward to deepening those conversations with you, and thank you all for your time.

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.