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

Thank you, and good morning, everyone, and welcome. I'm here today with oOh!media's Chief Financial Officer, Chris Roberts, and together, we'll take you through the company's full year results for 2022. For today's agenda, we'll turn to slide 2. And I'll start today with an overview and some opening comments, then I'll go to the highlights and revenue performance. Chris will cover the financial results, and I'll return to take you through ways that oOh!media is leading the out-of-home market, our less maturity profile and provide some comments on the current outlook. So before we get to today's results, I'd like to start by setting context around shifts in the media marketplace that I believe are most relevant to an assessment of oOh!media as the out-of-home sector's largest and most diverse company. Over on Slide 4. It's most pleasing to see the growth story for Alf's home continues so convincingly throughout 2022. Since joining the sector 2 years ago, I have repeatedly spoken about the unique place oOh!media holds in the future media landscape. Out-of-Home is increasingly digital with growing mass audiences and an enhanced offering through digitization, which makes it set for future growth. And in 2022, the sector continued to prove that hypothesis, growing 28% to reach total net revenue of $1.06 billion as reported by the OMA and returning to pre-coo-2019 levels of revenue. The sector's trend of growth against other media has continued with share of total media growing 1.9 percentage points to 12.4% and 13.7% if we look at Q4 alone. As we entered 2023, January SMI data and the reported H1 outlook provided recently by some free-to-air and radio companies, indicates that the long-expected structural swings in media towards Alom are accelerating. Our industry's plan to drive this structural growth is well underway through investments in audience measurement with MOVE 1.5 and in 2024, MOVE2.0, and in ways to make out-of-home easier to buy and new offerings such as 3D creative and programmatic trading. This momentum is being seen right across the sector where in the latest media eye sentiment survey, the largest survey of its kind in the media industry, Net Promoter Scores for all major outcome companies increased. This is the first time this has been seen right across the sector. And of course, oOh!media has the largest and most diversified player in the sector for Australia and New Zealand benefited from this growth in 2022. And today, we will recap on our plan to continue that growth trend into the future. So it is with pleasure and confidence that I present to you today the full-year results for 2022. So I'll now go to the highlights of the result over on Slide 6. We saw higher revenue growth in the second half compared to the first half and the operating leverage in our business has allowed us to deliver a significant increase in adjusted net profit after tax. Revenue increased 18% on the prior year, with road and retail continuing their strong momentum from the first half and exceeding 2019 revenue. We've also been pleased to see the strength in FLY with increasing airline capacity and strong demand for travel, improving revenue month-on-month in 2022. Adjusted underlying EBITDA increased by 64% on the prior year, and our adjusted net profit after tax increased 343% on the prior year. This is a clear demonstration of the strong operating leverage that we have outlined to you in our prior presentations. It's also worth noting that this adjusted NPAT was up 7% on our 2019 results. With audiences returning to pre-pandemic levels, out-of-home increased its share of media as reported by SMI to 12.4%. As media fragments, the mass rich of our time is unrivaled. Growth has also been driven by the industry's launch of MOVE 1.5 in January of 2022 and further digitization, which continues to expand asset opportunities and the way in which the format can be used to drive results for advertisers. We are seeing this confidence in out-of-home continue into 2023. With Q1 2023 revenue currently pacing at 8% up on Q1 of the prior year and momentum building into February and March. I spent $27 million in CapEx for '22, with the second-half run rate increasing significantly on the first half following the finalization of tender outcomes and the easing of supply chains. And we expect this higher run rate of CapEx will continue into 2023. We have also recently announced our new representation deal with EI Media, which was effective from the 1st of February 2023. This CSO, adding 17 digital billboards in key locations in the Sippy market and further expands our reach into the largest revenue market for the industry in a high-growth channel being eroded. We have a strong balance sheet and have declared a $0.03 final fully franked dividend and Chris will stock more on the balance sheet later. Moving on to Slide 7. We have pleasingly delivered an improvement on our key financial metrics in 2022. Our revenue grew by 18% to $592.6 million compared to the prior year. Favorable product mix resulted in a 2.2 percentage point improvement to our adjusted gross margin to 46.2%. The strong operating leverage in our business model delivered a 64% improvement in our adjusted underlying EBITDA to $127.1 million, a 343% improvement in adjusted net profit after tax to $56.2 million. Our strong earnings generated a 36% improvement in our free cash flow to $68.6 million, and we ended the year with our gearing at 0.3x adjusted underlying EBITDA. Moving on to Slide 8 and the revenue by format. Revenue growth in 2022 was much higher in the second half with revenue up 26% on the second half of 2021, and that was, of course, impacted by government lockdowns in New South Wales and Victoria. If we exclude Sydney Trains and Dunkin Media, which was sold in late 2021, from the prior year revenue, revenue grew by 21% on a like-for-like basis. Road continues to be the best performing format with revenue increasing 21% on the prior year and exceeding 2019 levels of revenue by 30%. FLY increased in revenue by 176% on the prior year to $33.8 million. The growth trend in FLY is strong. In the second half, with increasing airline capacity and strong demand by domestic and international travelers, revenue growth was 412% on the corresponding half. By the end of the year, FLY revenue for the month of December reached 83% of the December 2019 revenue, showing the upward curve for FLY. We also launched our new Chairman's launch assets in the latter part of the second half, the first time that advertising has been allowed to target this lucrative high-value audience. And this provides a unique and incremental growth opportunity for FLY beyond 2019 levels of revenue. Street and rail grew by 8% to $196.5 million. If we include Sydney trains from the 2021 numbers, the revenue growth was 14% on a like-for-like basis. Strict entity was impacted in Q4 as we would expect by the rollout of new digital inventory in the city of Sydney by a competitor. Retail saw growth of 14% to $142.9 million, driven by strong domestic retail spend and growth in Ops market share in this format. Locate grew by 47% to $17.4 million. And during the year, we saw audiences returning to CBDs but not yet at 2019 levels. Out-of-home market share for the year was 41%. I'll now hand over to Chris, who will take you through some further details on the financials, and then I'll be back to talk about our strategy, and then we'll go to questions. Chris?

Thank you, Kathy, and good morning. Turning to Slide 10. As a reminder, when presenting our results, we make reference to adjusted results, which account for the distortionary impacts of fixed lease cost accounting under ASB 16 on gross profit, EBITDA, NPAT, and our operating margins. We believe that the focus on adjusted results is appropriate as management, most analysts, shareholders, and indeed, our lending banks analyze the company on an adjusted results basis. You can see from the chart on the left, the performance of the business on this basis, an 18% growth in revenues in the year over CY '21 delivered a 23% uplift in gross profit. This operating leverage magnified to a 64% increase in adjusted underlying EBITDA. The chart on the right outlines the statutory results, whereby the same 18% growth in revenue, delivered a 14% uplift in gross profit and a 21% increase in underlying EBITDA. Our statutory reported results incorporating AASB 16 are provided in the annual report and a reconciliation to our adjusted results is provided in the appendices in this presentation. Moving on to Slide 11. As just outlined, revenues increased by $89 million or 18% compared to '21. This 18% uplift in revenue does not account for the loss of Sydney Trains contract or the sale of junk in the prior year. And back in these out, as Kathy mentioned, the uplift in revenues would have been 21% on a like-for-like basis. The gross margin increased by 2.2 percentage points to 46.2% as the business benefited by both its fixed cost earnings leverage as revenues grew and a margin mix skew to Road. $10 million of net rental payments were received during the year, the details of which I'll cover later. Operating expenditure increased on the prior year by $2.4 million or 1.7%. The sale of Junkee Media in late '21 resulted in a decrease in the operating cost base of $4.2 million. Thus, on a like-for-like basis, accounting for the sale of Junkie, operating costs over the prior year grew by 4.8% to $146.9 million. The primary drivers were inflationary increases and a pickup in travel and entertainment following the easing of Covid restrictions from March. Further details are provided in the appendices on Slide 29, which also outlines that $2.5 million of one-off employee costs were offset by reductions in annual leave expenses, office rental, and other items. The leverage achieved at the gross profit level was further enhanced at the underlying EBITDA margin level improving by 6.1 percentage points to 21.4%. There were no nonoperating items in the period, and EBITDA increased by $45.8 million or 56% over the prior year. Depreciation and amortization costs reduced by $12.2 million on the prior year. The handover of the Sydney train assets in December '21 contributed $7 million to this reduction. Other factors included the release of a make-good provision in the first half of $1.2 million with the balance related to the accounting end-of-life of several assets. Net finance costs decreased $4.1 million, driven by the gains on interest rate hedges of $2.4 million in the year versus losses of $4.7 million in 2021. These hedging gains and the lower debt in the period versus the prior year more than offset the impact of the increase in base interest rates and bank margins versus the prior year. The business has $150 million of interest rate hedges remaining on the books, which it took out in October 2018 when it acquired our shelf. Adjusted net profit after tax grew to $56.3 million for the period from a $12.7 million profit in the prior period. I will now briefly cover those Satit results over on Slide 12. You will note that the $89 million increase in revenues had an effective drop-through of $61.7 million or 69% to statutory profit before tax. This is similar to the adjusted drop-through of $62.1 million outlined on the prior slide with the difference relating to timing differences on fixed lease accounting under AASB16. The group produced a statutory profit of $31.5 million versus a loss of $10.3 million in the prior year. Moving to Slide 13, which outlines the impact of rent abatements received. As foreshadowed at both the CY '21 results announcement in February last year and the subsequent interim results in August, the abatements received have continued to decline from $37 million in 2021 to $7 million in the first half of '22 and $3 million in the second half. This is as a function of the exit from the Sydney Trains contract and improved audiences and revenues in the fly and rail formats. It is not expected that abatements will be material in 2023. It should be noted that rents and rail underwent contract alterations that make them subject to passenger numbers and out-of-home media revenues versus pre-cover. This means that from 1 July 2022, any effective reductions in rent and rail are no longer recorded as abatement, which is why the $3.7 million in rail abatements for the full year is static compared to the first half of '22. Moving to our cash flow on Slide 12. The year was another strong period of cash generation for the business, further solidifying our balance sheet position. Operating cash flow conversion of 77% of EBITDA was slightly lower than the 79% achieved in the prior comparative period. Capital expenditure increased in the second half to $18 million, which doubled that of the first half of $9 million as the company accelerated its digitization rollout following the easing of supply chain and weather-related restrictions. It is expected that this acceleration will continue and that the CY '23 CapEx will be in the range of $40 million to $50 million as the company returns to more normal levels of investment. The timing of Quantum, however, will be subject to a number of potential new greenfield opportunities or tenders awaiting decisions, which Kathy will talk to later in this presentation. Now turning to the balance sheet on Slide 15. Gearing continues to reduce due to both a reduction in the absolute net debt and improved earnings. We reported 0.3x gearing at December 22 versus 0.8x at December 21 and 0.4x at June 2022. This is significantly below our gearing covenant of 3.25x and the business further strengthened its access to funds through a 4-year extension of a $350 million revolving debt facility to June 2026 sets. As mentioned earlier, the business has interest rate hedges of $150 million in place until October 2025, which will limit any adverse cash flow outflows if interest rates continue to rise in the next few years. The gearing outcome was achieved despite $22 million in outflows from the on-market buyback program, which was initiated in September, and we intend to restart this after the release of these results. lower-than-expected market volumes since announcing the launch of the on-market buyback in August and a decision to suspend the buyback program during end year reporting blackout Carrie will mean that the program is unlikely to complete until later this year or possibly early next. As Kathy outlined earlier, the Board announced a $0.30 final fully franked dividend payable on '23 March this year, representing a doubling of the interim dividend and a tripling of the $0.01 final dividend for CY '21. This business has ample liquidity for accelerated CapEx investment or other attractive opportunities should they arise. I will now hand back to Kathy.

Thanks, Chris. So I'll now take you through the ways in which oOh! is leading the outcome market into the future, and I'll ask you now to turn to Slide 17. We believe through our network breadth and diverse portfolio of assets that is in a unique position to drive the digital revolution in our home and lead and grow the category over and beyond the 2019 level of share. Our strategy to do this is threefold: to lead out- of- home to a digital-first future, to capture audience attention in public spaces at scale, and to make it easy for our customers to achieve better outcomes. On to Slide 18. In October of 2022, we held our first ever out-of-home out front, announcing a number of initiatives that drive growth for the business. And to the left of the Slide 18, we'll call out some of these initiatives. New content partnerships such as those with News Corp, Broadsheet, the AFL, and the Australian Open. This increases impacted engagement with our assets and provides a superior environment for advertiser messages and incremental revenue opportunities. We launched our dimensions to meet the high demand of advertisers for full-motion 3D and amorphic video capability and to make it available in more locations across our network. And we launched polygraph, a new proprietary creative effectiveness tool that measures out-of-home creative impact on actual purchase behavior. And own Motion, a formation portrait digital video offering in premium high-well environments, and this is designed to offer brands a new mastered video channel to extend their social video advertising into out-of-home and thereby open up a new addressable market for our business. And we announced new offerings in retail, including our retail media Athoe solution, Rio. This is just some of the innovations that will assist us to grow out-of-home share of total media spend. Looking at the middle column of the slide, a quality and expanding digital portfolio of assets secured on a profitable basis for the business, is essential for us to deliver on our strategy of capturing audience attention in public spaces at scale and offering robust, high-quality mass-reach audiences. We have a pipeline of new opportunities, new tenders, new concessions that are expected to be awarded in 2023 and 2024 with a potential incremental revenue of $40 million to $60 million per annum from 2024 onwards. The first of these, we've recently announced a new representation agreement with EI Media, which adds 17 digital billboards to oOh! portfolio in the critical Sydney market. This further builds on the new locations and digitization of our existing network in 2022, where we added 477 new digital assets. This included 31 new billboards, digital plus the 17 from the ER media agreement, and the expansion of our small format digital network in retail centers and street furniture. On the column to the right, as part of our strategy, we call out the importance of continuing to provide evidence-based strategies on the effectiveness of out-of-home against other media. Along with proving ROI, making it easier to transact is also a key buying consideration of today's media market. And to that end, we are investing in a new major study called "How OdisMove", which will be published later this year. And this study will provide advertisers with a fresh look and audience movements in a post-Covid world. And this provides sound evidence of how to best use our portfolio of assets to connect with audiences to drive higher on life for marketing spend. We're also expanding the inventory made available on programmatic trading platforms to include retail and office assets and to make it easier for our customers to transact with us in those formats. And we continue to improve our data offering with brand buyer tracking and better ways to buy, providing a source of truth on campaign effectiveness through the use of transactional data. This approach was pioneered by OM in 2016 and remains a core basis upon which we continue to advocate for the effectiveness of our reach and scale in the sector. I'll now ask you to turn to Slide 19. In 2022, we created a dedicated ESG team to drive forward our sustainability program and embedded throughout our business operations and company culture. Our ESG program is an integral business priority inextricably linked to financial performance and the long-term sustainable growth of the company while balancing the impacts of climate change and other environmental and social concerns to the business. Our operating plans incorporate ESG ambitions throughout under the banner of impact where it matters. These ambitions will enable long-term market growth, sustainable investment in public spaces and communities, and better outcomes for our customers without compromising the needs of future generations. Our approach to ESG is over on Slide 20, always committed to reducing emissions to transitioning to renewables and only offsetting as a last resort. From a network perspective, this will be achieved by transferring assets we control on to renewable power plants and investing in digital products that consume less energy and can rely on cleaner power sources. Over the course of 2022, I successfully developed a hybrid power solution for our digital street furniture product that reduces electricity usage and that we intend to introduce to the market over the coming year. And following the push in recent months, over 5,000 street furniture advertising panels across Australia and New Zealand are now powered by 100% renewable power with more to come over in 2023. And from January 2023, all our offices, depots, and warehouses now run on renewable power. I'll now take you through our lease maturity profile on Slide 22. Our less maturity profile shows that around 32% of 2022 adjusted revenue is attached to contracts that have expired or are due to expire during 2023. Now there are a few components to this, so we've broken it down, and we'll explain in further detail. The yellow section of the chart illustrates the $44 million of 2022 revenue attached to contracts that have already expired or are in holdover. And this is a typical part of our lease profile. There are several larger contracts that are due to expire in 2023, and this collectively contributed $85 million to 2022 revenue, and that's the purple section of the chart. The remaining $55 million of revenue in Red is attached to other contracts and forms part of our lease portfolio that is renewed annually. Over 50% of our 2022 revenue is attached to contracts that expire in 2026 and beyond. No individual concession contributes more than 8% of 2022 group revenue. And typically, the larger the revenue contribution of a contract, the smaller its contribution to gross profit and EBITDA. And of course, this chart does not include the estimated $40 million to $60 million of new opportunities ahead in the next 2 years that we mentioned earlier in the presentation. Now on to our outlook on Slide 24. Our outlook for out-of-home as a sector is confident with the sector expected to continue to take share from other media. Our Q1 revenue is currently pacing 8% higher than at the same time last year, with February and March stronger than January, and we are seeing the strong performance of road and fly continuing this year. We will continue to exercise disciplined control across our entire cost specs. And CapEx is expected to accelerate for the 2023 full year to between $40 million and $50 million as we see cover supply chain restrictions easing. And this is always can be impacted by the outcome of lease renewals and development approvals from local authorities. And finally, please turn to Slide 25. To wrap up the presentation before questions, I'll end where I started. The out-of-home sector will continue to experience strong structural growth, taking share from other media. This growth will be driven by the industry's investment in better audience measurement and capitalizing on the qualities of the digital format to drive better outcomes for advertisers. oOh! is well positioned for growth, being a leader in the sector and outperforming sector growth as FLY and office formats present an opportunity for upside. Our strategy to capitalize on this momentum is clear: to lead out at home to a digital-first future, to capture audience attention in public spaces at scale, and to make it easy for our customers to achieve better outcomes. And so, with that said, thank you, and that concludes today's presentation. And Chris and I will now take any questions that you may have. Thank you.

[Operator Instructions] Your first question comes from Darren Leung with Macquarie.

I might just ask three please. Just the first one on that major contracts expiry chart. The - and thanks for the new disclosure. But it looks like that hold overs, as a percentage of total book at 7% seems a little bit bigger than relative regionally expected. Just any color around there, please? And is that sort of more or less than the usual operating conditions, please?

Darren, Chris here. I'll take that question. So as outlined on Slide 22, the holdovers that we have at $44 million. In terms of absolute dollar terms, it's actually a little bit less than what we've had in the last 2 years where typically that number could be between $50 million and $60 million. If you're referring to rather the addition of the -- what's in the yellow, the 44 and the 55, 55 aren't holdovers. Rather, what we've tried to do is take our holdovers, and then if you aggregate the next 2 balances together of circa $140-odd million is really demarcated where there is a higher-than-usual grouping of larger contracts, which is 85. And then things that would always typically expire in any given year, which is the 55%. And the other way to think of it is the $55 million that we have in CY '23 is the type of thing you typically see as you can see ahead in 24, 25, and 26 on that same chart.

Okay. I understand. Thank you. Okay, and then maybe back a few slides, but obviously, an exciting pipeline in terms of upcoming contracts this year. Any color as to what those contracts may look like and sort of how the tender processes are progressing at the moment, please?

Thanks, Darren. Well, as you know, we don't comment on specific contracts or individual contracts, and that's just due to the commercially sensitive nature of them. But we did try today to provide as much perspective on the maturity profile as we could. I think in terms of the new opportunities, the $40 million to $60 million, the one that we probably have been on the record is mentioning due for decisions is the new Sydney Metro train line. So as we've mentioned that before, I'm happy to provide some color on that, but that's actually not relating to the chart on Slide 22.

Yes, so that was my question. So any detail you can provide on the metro, please?

Well, that's a live tender as we know, and we expect that decision to be handed down in 2023.

Okay. And then, I assume there are other contracts in that $40 million to $60 million pipeline. Can you give us a feel for the profitability of those contracts, please? And I appreciate what we call don't need a margin number to the second decimal points, but maybe an indication of if they're more or less hospital than the existing oOh!media business, please?

So it's a range of formats and a range of -- so again, my language was pretty general, but you can assume in those new opportunities, their contract is not currently held by and he'll buy a competitor. Chris, you may want to speak to that.

Yes. And I'll just say for commercial reasons, sorry, Darren, we're not going to be putting forward anticipated margin on those. Should we be implicated.

Okay. I understand. Thank you. And then maybe just a third one for me. Chris, you made a comment in your section that you've raised your balance sheet, which obviously you do, but you look at other opportunities as they arise. It sounds like this may be sort of inorganic opportunities any sort of data you can provide here, please?

It would be fairly consistent with what we've said before. It is we recognized with the strength of our balance sheet. We're looking at how we can grow shareholder wealth, and we're always looking at opportunities that we think might be in adjacencies or otherwise, makes sense. But what's critically important for us is we've got to be convinced of a solid shareholder performance if we were to make and do anything inorganic.

Okay. I understand. Sorry, just a final one I'm reading in the floor. But can you confirm that you guys plan to finish the buyback as well?

Yes. So as I touched on during the speech, we announced up to a $75 million buyback in August last year. And for the reasons that I gave, it's taken us a little bit slow to execute than we thought might partially due to softer-than-anticipated daily trading volumes. And we also made the decision to spend buyback during the reporting blackout carrier. So for example, that took out all of January, most of February and we'll do so again in July and August. So the intent is to the extent that we don't complete the program by August this year that you can anticipate that we would have announcing a new one because we're still targeting the same quantum of capital. And the only thing that I would see that would probably really prevent that is if a significant opportunity came along for deployment of capital, which was going to generate stronger returns in the buyback wall.

Your next question comes from Ben Rada Martin with Goldman Sachs.

I also had just 3 if that's okay. Maybe just the first one on your first-quarter trading. You obviously called out an improvement into February and March. Maybe just interested if you can unpack what you believe is driving this improvement. From memory, there doesn't seem to be any lumpiness in the PCP that might kind of drive that difference? And then the next 2, just on OpEx, Chris, may be interested if you can talk to what kind of moving parts there are to OpEx in '23. Obviously, you guys have those one-off costs in '22, but apart from modest underlying inflation? Is there probably anything else to call out there? And then maybe just the last one on the new pipeline into '23 and '24. I appreciate the color around the $40 million to $60 million in incremental revenue you guys see. Maybe just interested in the kind of agreement you had with EL Media. Does that change the unit economics at all? Interested if that's a bigger part of that $4 million to 60 million.

Okay. So just -- I'll just take this one. Thanks, Ben, on the pacing and the momentum. I think you can see in the January SMI numbers that the media market was pretty slow to start this year. So I think it's just a slower start in January, which is sort of given the momentum in out-of-home carried through to the new year, just the reset of the momentum. In terms of what we're seeing in oOh!media's numbers, there are a couple of categories in particular in Q1 that are really in growth, and they would be travel and automotive brand. So for us, a good part of our momentum in Q1 would be the renewal and growth of those categories. And it's understandable in the case of travel, that's obviously about travel behaviors, being certainly back to where they were. And in automotive, I think the supply issues and the need to come out of the blocks asserting brand dominance over other competitors is all the sorts of things that play into increased ad spend. So there's just a couple of insights for you. I'll hand to Chris on the OpEx question.

Great. Thank you, Kathy, and thanks, Ben, for the question. So in terms of OpEx, if we look into 2023, the primary drivers, as you mentioned, was around inflation. Just as a reminder, and something that we spoke about when we released our interim results in August, is that our annual remuneration reviews and remuneration changes or are effectively at this time of the year. So those all have to go through. So the biggest driver is what we're going to be anticipating to see with wage growth in the first aspect. And then the second aspect, it will be a similar -- what is the impact of inflationary increases in terms of reliance on, for example, Amazon Web services and things like that. Now while we might be investing in new areas in terms of our capabilities within 2023, we're certainly looking to do that within the existing envelope other than the impact of inflation.

And the third question, a little more color around the $40 million to $60 million of new opportunities and specifically the EI media agreement. Well, the details of that agreement are obviously confidential, but I can give you some color on the rationale for it. Obviously, you would see laden clear the growth in billboards over the recent history and certainly led the recovery in our home. The segment grew 28% last year. And our billboard revenue as at the end of '22 was 30% ahead of 2019 for own media. So we've felt that momentum. And as you know, we've been investing in large-format digital billboards pretty much since digitization began in the sector. And one of the dynamics of billboards is that it's not -- planning commissions are not easy to come by. And that, to a degree, does mean that the assets are incredibly valuable against that demand curve that we're seeing. So to be able to secure a representation agreement for 17 well-located digital billboards in the Sydney market, which is the largest part of the market is a very positive sign for our ability to keep writing the growth that we see in the right channel. So we are very upbeat about it.

Your next question comes from John Campbell with Jefferies. We'll move on to the next questioner. We have Entcho Raykovski with Credit Suisse.

I might ask my questions one by one. So my first one is, just on your growth in the second half relative to the out-of-home market, if we back out Sydney Train Junk, I'm calculating revenue growth of about 27% versus the market at 36%. Can you talk to the reason for the difference? And if there are any specific formats where you're growing slower than the market? I mean it sounds like the QMS rollout of City Sydney inventories having some impact. But I guess -- and taking into account you give us that color, what is your thinking around your growth versus the market heading into calendar year '23?

Thank you. Entcho, I'll take that one. So yes, you're right. The relaunch of the City of Sydney assets happened in the second half. As you know, I think late August into September was the beginning of the new assets coming online. It's obviously a much bigger contract than the one it replaced. A lot of double-sided digital panels. I think there are only 100 under the former agreement. So it's a massive uptick in capacity, and that did impact share in the category, as you would expect. And that is a second-half dynamic because that contract was not operational for the first half. So we think that the market will adjust to accommodate the expanded breadth of the category during 2023. In terms of oOh!media's performance this year, we're very upbeat about the recovery of FLY and Office, and that obviously presents upside to our share and also our sort of significant expanded small-format assets are always a very strong part of any broad offering that we might undertake with advertisers. Retail really comfortable with. I think we did well in retail last year. We grew our share in a very competitive marketplace. So I think on balance, we're feeling confident that our share performance will be solid this year.

Saying that, Entcho, because as Kathy mentioned, because that rollout really started effectively around 1 September last year. For the first 8 months of this year, CMS will clearly have tailwinds from a share perspective in 2023 because there was effectively almost no inventory in the Sydney environment in the first 8 months of last year.

Okay. Great. That's a very good color. And then if we can just also turn to the outlook. If we look at the 1Q pacing, you've called out Road as a key driver of the growth together with FLY obviously, you've made some other comments around office. Taking all that into account, is it fair to assume you'll continue to see gross margin expansion into the first half of '23, particularly given the strength in Road? Or is it going to be mixed depending on where the growth is coming from?

Yes. That's certainly very much what we'd be anticipating to see a mix between that and also really making sure we're making good use of existing inventory through occupancy management. Because at the end of the day, our yield is a function of what is given if you've got static inventory in the ground, and as Kathy mentioned, we are putting more in. It's not only what effective price rates you can get, but also through the use of programmatic where we can take short-term money, what are we doing with occupancies because clearly, the closer you can get to fully sold with the right rate is where you're maximizing your outcomes.

Okay. Great. So sorry, just for the votes of doubt, it sounds like your target is for continued gross margin expansion.

Yes. Yes.

Right. And then the CapEx step up into calendar '23, how do you think about the composition of that CapEx? I guess if we're thinking about the extent to which it's maintenance or further digitization and growth. And I don't know if you're able to quantify that, but how much of it is likely to be related to new revenue opportunities?

So in terms of CapEx for 2023, it's about half-half maintenance versus new plant. Chris, you might want to put more color on that.

Yes. So -- and a lot of the maintenance end show is not running repair type of stuff. That's always low single decimals, but it's rather what we're doing is these are existing contracts with existing bus shelters, for example. But it's now replacing, for example, classic screens with digital screens because as we touched on, there was a hold-up over the last 2 to 3 years with COVID, we're effectively contracts that were renewed we weren't able to get those assets in the ground. But when you look at it from a revenue perspective, they're basically incremental revenue generated.

Your next question comes from Brian Han with Morningstar.

I have 2 questions. Of the $85 million of your large contracted revenue that's coming up for renewal this year, can you please make some comments as to which division or format they're mostly in? And my second question is, it looks like static or classic revenues fell last year, just checking, was that, in fact, the case? And if so, what were the drivers of that fall and the margin performance on the aesthetic revenue?

Thank you, Brian. I'll take the first question, and I'll throw to Chris on the second. So obviously, the $85 million in larger contracts we cut because of the commercially sensitive nature of them gives too much detail around them. And they are probably that Quantum has been impacted by many larger concessions that were delayed across the COVID period. And I think that probably the important point on the A5 is to remember that no one contract represents more than 8% of our calendar year 2022 revenue. And that generally, as a rule, the larger the contract, the lower its contribution to EBITDA. I think the Sydney Trains example is a good demonstration of that principle at play. We you can see despite the loss of that revenue to as top line, the significant strong performance in our profitability. So that's probably as best as I can provide a lens on that. In terms of your second question about static and Classic, Chris, you might have some more detail on that.

Thanks, Kathy. Thanks for the question, Brian. So yes, in terms of what's happening with Classic is, you've got 2 things in play. Firstly, the market is increasingly moving towards digital, and that's a function of the increased flex that advertisers are looking for that digital provides. And the second thing is simply a case of substitution. So a lot of the digital assets that we put in the ground are substituting existing classic assets. So basically, you have a swap out. Then from a margin perspective, Classic performs really, really well. We're very satisfied with it. And then in terms of the actual performance during 2022, Classic did grow, but it grew very, very modestly relative to the broader portfolio.

You mean the gross margin?

Yes.

Your next question comes from Conor O'Prey with Canaccord Genuity.

Just maybe a question on New Zealand, I guess, probably a small part of the business, but just looking at the industry data for the New Zealand or, it looks as if that marquis healthy or robust as Australia. Would that be the experience through 2022 for the business?

Thanks. Yes, it has been a less positive market in New Zealand. I think the macroeconomics of that country or sort of well-reported. We have a very large footprint in strict furniture in the marketplace. And so, to the extent that the economics of the industry have been tough, we have had a good exposure to most of the categories that have remained strong right through covered through the present day. So we maintain good shares down in the marketplace that acknowledge that the growth has been a little patchy over the performance period.

And just a question for Chris. Just on cost of sales modeling for this year. Just to comment on rent a bit meter, just assume that we had $10 million sort of on to the FY '22 number and then make whatever adjustments for CPI and revenue kind of related elements. Is that the way to kind of build out the cost of sales model for this year?

That and also just thinking through that potential pipeline of new assets that could be arriving. But those costs come with incremental revenue. So for the existing cost base, yes.

Our next question comes from John Campbell with Jefferies.

Can you hear me now?

Yes.

Good. Now just 2 questions, most might have been answered already, but just sort of back to the commercial lease profile, that $44 million of holdover, are they generally in that sort of larger contracts as well? Or is a portion of that 44 just sort of small landlords, et cetera. How do you categorize that 44%?

Yes. generally, John, and in the case this year as well, the bulk of the holdover is a very long tail. So not significant. There are no significant items in there.

Got it. Got it. Okay. So I can distinguish it to the 85%, which... Yes. Okay. That's helpful. And just my last question with Woolworths, and I think you've been asked this a few times before, but with Woolworths acquisition of Shopper Media, are you seeing them more active in that retail format at all? Are they becoming more visible presence, I guess, in retail overall?

Thanks, John. I would say no discernible difference in the way that shoppers operating in the retail space at this point. And I think we're very pleased with our performance in retail this year where we actually grew our share of the sector. And the reasons for that, I think, is just that now we've move 1.5 accurately measuring the retail channel has managed to really demonstrate scale in the retail sector. I noticed that brand space Westfield has had a similar opportunity to demonstrate their scale as well. So I would say notwithstanding the interest and attention in retail as a channel throughout 2022, it's actually been a pretty good year for us, and the operating dynamics felt similar, if not, probably provided more opportunity for us to improve given the new data set.

So there's no reason for us to expect that there's any change to the sort of competitive dynamic within retail with that acquisition?

Yes. We haven't noticed that in 2022, and I think questions for '23 strategy probably best leveled at them. But at some point, you would expect that the Cartology shopper tie-up will go to market with an offering, but that hasn't happened to discipline.

Your next question comes from Fraser Mcleish with MST Market.

Just 2 for me, please. Just so back to the commercial lease profile slide. Just that $85 million from the bigger contracts, would it be fair to say most of them are going to be under a competitive tender process? That's my first question. And then second, just on ongoing digitization of assets. Just if you can give us an idea of what opportunities you got left. I guess, street furniture has been the one that's probably been the most behind? Is there still much of an opportunity there for digitization?

Thank you, Fraser. Yes, good question on the commercial profile. As a rule, you would say the larger contracts are generally all competitive, whether or not the bets are competitive is probably something for the tendering part to assess. But yes, you generally find most major operators turn up to all large tenders as we would. In terms of ongoing digitization, we're going to keep digitizing road to the extent that the planning permissions and the audience is warranted. And strict furniture tends to grow its digital footprint relative to renewals and new contracts. So I think given that less expiry profile, you can safely assume strict furniture will become increasingly digital in the next year to 3 years. And retail, again, always renewing new commercial agreements with our retail partners, and they generally bring an uptick in digitization.

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

Thank you very much. So hopefully, you can see from today's results, it's been a strong result for the out-home sector and media within it as the largest trier. We're very upbeat about our strategy, which brings us a number of new bases upon which to provide growth and stimulate conversations and support for our home. The Q1 trading outlook does demonstrate that out-home is growing year-on-year against a year where it grew 28%, and that does appear to be in contrast with some of the comments from the listers of radio and television companies that have reported thus far. So all in all, it's a confident result for us and plenty of both sector and company basis upon which we think growth will continue. So we look forward to talking more to you about that in the coming days.

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