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

Thank you for standing by, and welcome to the oOh!media HY '23 results call. [Operator Instructions] I would now like to hand the conference over to Cathy O'Connor, MD and CEO. Please go ahead.

Thank you. 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 interim results for 2023. For today's agenda, we'll turn to Slide 2. I'll start with some opening remarks today and then go to the highlights and the revenue performance. Chris is going to cover financial results, and I'll return to take you through an update on our lease maturity profile, our strategy and the current outlook. But I'd like to start today by emphasizing what I think are the key takeouts from today's results and the things that underpin our continued confidence in both the Out of Home sector and for oOh!media, given the unique position of scale that we hold within the sector. And on this, I'd like to emphasize 5 key points from today's results. Firstly, the growth story for the Out of Home sector against other media. It's now a convincing trend. And as we'll see today, Out of Home has delivered sustained growth against other media and is the fastest-growing media channel. Compared to Out of Home's 15% agency revenue growth on the pcp, television declined 15%, while radio was down 8%. And there is a lot that underpins this growth, and we'll talk more about that within the presentation today. Secondly, relating to oOh!media's results. Our first half revenue grew by 7% on the pcp. And this was in line with the overall market if we exclude the City of Sydney contract, which saw a significant increase in digital inventory since its relaunch in late 2022. oOh!'s road performance was particularly strong, as you'll see later on. The third point I'd like to emphasize relates to new contract wins. We were pleased to announce 3 significant contract wins that will strengthen our audience coverage in the critical Sydney market. We have new digital assets planned as part of contract wins for Sydney Metro trains, Woollahra Council and the new Metro Martin Place precinct. These new assets will bolster oOh!'s coverage in the all-important Sydney CBD and the eastern suburbs. This has been a key ambition of our network strategy. So it's great to see those wins come into fruition. My fourth point relates to existing contract renewals, which are ongoing. And as we noted in our full year results in February, we had several large contracts that were up for renewal this year, and we continue to engage in positive and active dialogue with those commercial partners. And the final point of focus in today's result is an expectation of continued revenue growth into H2 with Q3 media revenue pacing at 7% on the pcp and gross margin traditionally stronger in the second half. So with those key points in mind, we'll move into the presentation over on Slide 5. The Out of Home sector continues to take share from other media. And in the first half of 2023, Out of Home grew 12% on the pcp as reported by the OMA. This growth is due to a combination of factors, resulting in the significant transformation of the Out of Home sector in a digital era. And there's a long list of credentials that are driving this share towards Out of Home. Investments by the industry and new digital assets, measurement improvements that better capture the performance of digital Out of Home, programmatic trading and increased innovation around dynamic creative campaigns and the sophisticated increase of data-led targeting. These credentials, coupled with our mass reach in a fragmenting market are compelling. And this has driven digital revenue to 68.1% of Out of Home media, up from 58.7% in the pcp. Out of Home has now passed a new threshold in terms of its share of media, capturing a record 14% of Australian agency media spend in SMI data for the first half. This surpasses the prior peak in first half performance of 13.7%, and that was in 2019. This is the structural shift towards Out of Home that we've been predicting for some time, and it's great to see it continue to play out in industry data. And SMI data reflects the majority of agency revenues, and these are a large part of sector revenues. We expect that the ongoing investment in the Out of Home sector will continue to drive this shift both in the short and the medium term. I'll now take you through the broader highlights of today's results for oOh!media over on Slide 7. Against the backdrop of a declining Media market, oOh! increased revenue by 7% in the first half. Although April was soft, as we outlined at the AGM, May and June experienced double-digit growth, resulting in a stronger second quarter than the first. As mentioned earlier, I was pleased to have announced our new commercial contracts for Sydney Metro Trains, Woollahra Council and Metro Martin Place. These 3 contracts combined are projected to generate circa $30 million of annualized revenue upside from mid-2024. And securing all of these 3 new contracts also gives us confidence that oOh!media provides a compelling proposition for commercial partners when it comes to our renewal negotiations. Finally, our balance sheet remains strong, with gearing at 0.9x following the completion of the on-market share buyback in June. This is within our medium-term target of 1x, and we anticipate that gearing will decline now that the buyback has been completed. Coupled with a slight growth in our adjusted NPAT and a 6% increase in reported NPAT on the pcp, the share buyback generated stronger EPS and adjusted NPAT per share. And the Board although have declared a $1.75 per share fully franked interim dividend, and this is up 17%. Moving over to Slide 8. Our revenue grew by 7% compared to the prior year. Adjusted gross margin was down 3.4 percentage points for the first half, and Chris will talk more about gross margin later in this presentation and give you some important further context. Our adjusted underlying EBITDA was down 4% on the pcp. However, adjusted NPAT was flat to the pcp following a decline in finance costs and income tax expense. Following the share buyback, adjusted NPAT per share was up 6%, and we ended the half with our gearing, as mentioned at 0.9x. Moving over to Slide 9. We'll take a look into the revenue by format. Road continues to be a star performer, with revenue increasing 12% on the prior year and exceeding 2019 revenues by 53%. This channel is rising in prominence as a cost-effective mass ridge alternative to TV and Radio in a fragmenting media marketplace. oOh!media drove the total Australian road market in the first half with nearly 70% of the OMA's reported roadside billboard growth coming from oOh!media and gaining market share compared to the pcp. Street & Rail revenue was down 3% on the pcp, however, this was mainly concentrated in the first quarter. May and June saw strong year-on-year growth, and we are continuing to see this momentum into Q3 as we left the City of Sydney inventory. Retail revenue was up 3% on the pcp, with share gains in Australia, offsetting the macroeconomic challenges in the New Zealand retail market. Fly increased in revenue by 73% on the pcp. Growth moderated in the second quarter compared to the first as we lapped the recovery growth over the course of 2022. Locate declined 7% for the half. However, after adjusting for the impact of the sale of our Cafe and Venue business in January 2023, Locate revenue grew by 4.2%. And oOh! share of the Out of Home market in Australia and New Zealand for the first half was consistent with the share for the second half of last year. So I'll now hand over to Chris, and he'll take you through some further details on the financials before we're back to talk briefly about strategy and go to questions. So Chris?

Thank you, Cathy, and good morning. Turning to Slide 11. As a reminder, when presenting our results, we make references to adjusted results, which accounts for the distortionary impacts of fixed lease cost accounting under AASB 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, a 7% growth in revenues in the half over the prior first half delivered a 1 percentage point decline in gross profit and 4% decline in adjusted underlying EBITDA. The chart on the right outlines the relative changes in profitability in the first half on a statutory basis, in this case of similar. As noted in the slide, adjusted EBITDA is a much better proxy for understanding the underlying cash flows generated by the business in the reporting period. Our statutory reported results incorporating AASB 16 are provided in the interim report and a reconciliation to our adjusted results is provided in the appendices in this presentation. Moving on to Slide 12. As just outlined, revenue increased by $21 million or 7% compared to the first half of '22. The gross margin percentage decreased by 3.4 percentage points to 41.4%. This margin compression was driven by several factors, as previously flagged earlier this year and at the AGM. These include a reduction in rent abatements agreed during the COVID-19 impacted period, the step-up in fixed rent relating to renewals of contracts in the second half of 2022 and an adverse profit mix as the lower Fly margin business grew its share of total revenues from 4% to 7% of total revenues. Additionally, there was an unfavorable sales channel mix from direct to agency as smaller direct clients reduced their spend in the face of economic headwinds. Further details on the movement of cost of goods sold is provided in the appendices on Page 31. We continue to be disciplined on costs. Operating expenditure increased modestly by 1% to $73.1 million. The relative performance versus the prior first half benefited from both an accounting release in connection with the prior year's long-term incentive expense accrual and the first half of 2022 included $1.3 million of employee termination payments. On an underlying basis, operating costs increased by 4%, which is consistent with what was flagged in the FY '22 results released in February. The business believes its cost base is appropriate for the size of the revenue opportunity and continues to fund revenue growth initiatives within an inflation-adjusted cost envelope. The 1% operating cost increase moderated the gross margin of 3.4 percentage points decline. The resulting adjusted EBITDA of $49.6 million represents a 16.7% EBITDA margin, a 1.9 percentage points margin decrease on the prior first half. Net finance costs decreased by $0.3 million despite the higher net debt levels and rising interest costs due to the benefit of the interest rate hedges. The business has $150 million of interest rate hedges remaining on the books, which it took out in October 2018 when it acquired Adshel. NPAT before amortization of acquired intangibles was a profit of $13.6 million for the period, slightly down on the $13.9 million achieved in the prior first half. Adjusted NPAT increased by $0.1 million to $20.5 million and benefited from a lower effective tax expense versus the pcp. The increase in adjusted NPAT was enhanced at an adjusted earnings per share basis to 6% earnings growth versus the pcp due to the lower shares on issue following the completion of the on-market buyback in the half. The buyback was completed at an average cost of $1.37 per share. As Cathy outlined earlier, our $0.0175 per share interim and fully franked dividend representing 46% of the first half adjusted NPAT has been declared and is payable in September. This is a 17% uplift on the interim dividend last year and is consistent with the Board's policy of 40% to 60% of adjusted NPAT payout ratio. In the appendix to this presentation, we provide a reconciliation of statutory NPAT to adjusted NPAT. I will now briefly cover the statutory results over on Slide 13. The group produced a statutory profit of $6.4 million versus a profit of $6.1 million in the prior first half. Now turning to the cash flow statement on Slide 14. The free cash flow generated by the half was impacted by the payment of the FY '22 tax liability where the prior first half of 2022 benefited from the COVID-impacted lower tax expense relating to 2021. Additionally, there was a return to provisional tax payments in the second half of '22 where there had been none in the prior first half. Thus, operating cash flow conversion of 52% is below what the business would normally expect, and it's expected to revert to typically seasonal patterns going forward. Capital expenditure of $16 million increased towards pre-COVID trends as the business invests in growth. Continued delays in securing development applications, however, results in the business currently expecting full year CapEx of between $35 million to $45 million versus the $40 million to $50 million range previously provided. Now turning to the balance sheet on Slide 15. Gearing increased to 0.9x as a function of the buyback program, which was completed during the half as well as the elevated amount of tax payments as outlined earlier. The business expects this gearing to decline over the second half of '23, given seasonally stronger cash flows and was at 0.8x as of mid-August. The business retains the goal of seeking to remain under 1.0x gearing in the short term, barring any strong investment opportunity, which the company can access via its existing debt funding lines. I will now hand back over to Cathy.

Thanks, Chris. I'll now take you through an update on our lease maturity profile, which is over on Slide 17. We're providing an interim update today on our lease maturity profile, which you would be familiar with from the full year results presentation. The chart on the left provides a comparison of those contracts that were set to expire in 2023 and the 2022 revenue attached to those contracts. As you can see from the chart, there is minimal change since our full year results. Importantly, we are having active and positive dialogue with these commercial partners and remain confident in where we are currently at with our conversations. For further context, oOh!media has historically had a solid track record of renewing commercial contract tracks where we have a high intent to do so. And our success rate in this regard is over 90% in attaining these renewals. And as we've demonstrated with 3 recent new contract wins, both scale, depth of expertise and record of delivery is of high appeal to commercial partners, be they new or existing. Now moving on to an update on how oOh! has made strong progress in delivering on our strategy over on Slide 19. Just to recap, oOh! strategy has 3 pillars: to lead out of home to a digital-first future, to capture audience attention in public spaces at scale and make it easy for our customers to achieve better outcomes. On the next 3 slides, I'll update you on some key achievements in the first half that have delivered on this strategy. Turning to Slide 20. Digitization and building scale are key elements of our strategy, and this comes down to having great digital assets in the right locations. Our latest contract wins strengthen our ability to do this in Sydney's most prestigious locations. Our 3 new recently won contracts will deliver all new 100% digital assets that will reach premium audiences across Sydney CBD and the affluent eastern suburbs. These contracts are projected to deliver $30 million of annualized revenue upside from mid-2024 onwards. The Sydney Metro Trains contract includes 8 brand-new stations on the Metro City and Southwest line, including prime Sydney CBD and lower north shore locations, such as Barangaroo, Pitt Street, North Sydney & Crows Nest. The high-frequency services on this line will deliver high-value business and commuter audiences to advertisers on fully digitized assets. This round network will complement oOh!'s existing rail portfolio in Melbourne, where we also hold the Metro Trains contract. This will allow advertisers to strategically target audiences in both major capital cities. And Woollahra Council, this contract sits in Australia's most affluent area, and it's the first time Out of Home advertisers have been able to reach this exclusive audience. oOh! Will be rolling out a 100% digital network and brand new bus shelters that will provide public amenity to the residents and visitors to the Woollahra area. And the new Metro Sydney Martin Place precinct, this will be a spectacular financial and luxury retail hub in the heart of the Sydney CBD. It not only encompasses a new Sydney Metro station for Martin Place, but also 3,000 square meters of shops, restaurants, cafes and bars, and this will attract a wide array of advertisers. Again, oOh! will be rolling out a 100% digital network that includes a tension grabbing large format screens that can deliver 3D Anamorphic creative, and we know these products are in high demand by advertisers. Turning to Slide 21. This slide really demonstrates the strengthening of oOh!'s Sydney portfolio with the crimson dots showing the additional coverage achieved by these 3 new contracts. And these are all, as I've said, in highly desirable suburbs, which will be added to oOh!'s existing network, which you can see in the orange. oOh! will be able to package locations across these 3 new contracts to create an incredibly compelling Sydney CBD audience offering. And additionally, packaging across Sydney Metro Trains and Metro trains Melbourne offering that dual CBD offering in the 2 largest cities. As mentioned, the $30 million of projected annualized revenue upside mentioned earlier, makes up at least half of the $40 million to $60 million pipeline of new opportunities that we outlined to you in our full year results back in February. And of course, that pipeline is always being updated and expanded as and when new tenders are released or new opportunities are identified. Turning now to Slide 22. In our Outfront showcase last year, we announced a new business called reooh, designed to capture a new addressable market for Out of Home, that being the high-growth in-store Retail Media space. Retail Media is media created by the retailers themselves. Retail Media takes on many forms in-store as well as websites and apps. And as part of an in-store offering, digital screens are allowing retailers to unlock incremental trade revenue from their suppliers or to directly advertise their own products to consumers in-store. In-store Retail Media is predicted to grow to $2.1 billion in revenue in 2026. And this compares to $1 billion of Out of Home revenue in Australia in 2022. reooh has been set up by oOh!media to deliver a turnkey solution for retailers to an in-store screen network to derive revenue from suppliers. reooh will install and maintain the screens and additionally provide the platform for retailers to manage their content on their in-store screens. This new business leverages and complements oOh!'s existing core capabilities in retail to a separate new and adjacent market. And we're pleased to be able to offer these services to retailers. And reooh has now signed its first customer, a major retailer group in New Zealand, with the contract beginning in November this year, providing an important proof of concept for this business. This contract will unlock 2 types of annual recurring revenue for oOh!media. Firstly, the leasing of the screens and secondly, the ongoing servicing, maintenance and monitoring of the screens over the tenure of the contract. Over the long term, the financial objective of reooh is to diversify the revenue stream of the company to include recurring revenue that is not as sensitive to Media market volatility. Turning to Slide 23. We announced recently a new and expanded data partnership that unlocks additional capabilities for audience-led campaign planning and reporting, enhancing our ability to deliver on our third strategic pillar of making it easy for customers to achieve better outcomes and proving ROI in Out of Home. The new partnerships allow oOh! to access transactional data from 9 million Flybuys members through unpacked by Flybuys, and over 2 billion annual Westpac transactions through Westpac's DataX offering. These new agreements replaced our former partnership with Quantium. These data sets will be mapped to oOh!'s Australian network of over 35,000 static and digital assets and empowers data-led planning across more than 800 audience segments, covering all major advertiser categories. Additionally, the offering provides attribution capability so that advertisers can measure shifts in consumer behavior and sales to gain valuable proof points on the power and effectiveness of oOh!'s network and Out of Home as a mass reach channel. And finally, now on to our outlook on Slide 25. Our view on the outlook for Out of Home is confident with the sector expected to continue to take share from other media. Q3 media revenue for oOh! is currently pacing at 7% up on the pcp. And media revenue growth and pacing are provided as a proxy for total revenue performance. And oOh! has other nonmedia revenues, such as cleaning and maintenance revenue, bus shelter builds and Cactus printing revenue that can drive a slightly different growth results. Gross margin is traditionally stronger in the second half due to the seasonal skew of revenue, coupled with oOh!'s operating leverage from the largely fixed cost base. This is expected to drive a stronger EBITDA margin in the second half over the first half of 2023. OpEx in the second half is expected to be broadly in line with the first half. And of course, the company will continue to exercise disciplined cost control with the objective of containing OpEx growth to below CPI. CapEx, as mentioned for the full year is expected to be between $35 million and $45 million, as outlined by Chris earlier. And finally, please turn to Slide 26 for a wrap-up. So today's key messages. The Out of Home sector is experiencing strong structural growth, taking revenue share from other media. oOh! has had success in winning 3 contracts in the prestigious Sydney CBD and eastern suburbs. And oOh! is delivering higher returns to investors with a 12% increase in earnings per share and a 6% increase in adjusted NPAT per share. The Board has declared an interim dividend of $1.075 per share, an increase of 17% on the pcp and our current Q3 pacing up 7% on the pcp. And this will be the third quarter of growth this year. So with that said, thank you. That concludes the presentation, and we're now happy to take any questions you may have.

[Operator Instructions] Your first question comes from Brian Han, Morningstar.

A couple of questions, if I may. The new contract wins that you announced today, can you say anything about the margins on these contracts compared to current group leverage? And are there any material costs we should be aware of in onboarding these new concessions?

In terms of the latter part of that question, there are no material cost increases or OpEx increases that come as part of these new contract wins. I think the important point to note there is, therefore, that notwithstanding the gross margin impact, the EBITDA margin impact will be positive over the contract term.

Yes. That's exactly right. So Brian, generally, as we said in the past, where you've got really high valuable audience contracts. Typically, you compete harder for those at a rent level. So it would be logical assumed that these would be at a lower gross margin than the existing gross margin of the group. However, as Cathy said, we're not adding any OpEx to support this. So what you then get is operating leverage enhancement when you go to an EBITDA margin perspective.

So essentially, it is accretive at the EBITDA margin level.

Correct. That's exactly right.

And you've spoken a lot about oOh!media's own concession expiry profile. But can you share with us any other material concessions that are coming up for your competitors that you're excited about going after? Or is that all included in that $40 million to $60 million pipeline you mentioned?

So the $40 million to $60 million pipeline is about new contract opportunities. So they would not be contracts that are held by competitors. We don't ever comment individually on contracts, Brian. Obviously, they are commercial and in confidence. And therefore, we tend to just talk more generally about the lease expiry profile, which we provided in the presentation today.

That's very noble of you Cathy because all your other competitors seem to talk about your concession got a lot.

Well, I can't really speak for them, but to the comments we made in the presentation, the dialogue is active with partners, and we feel very confident if we look at our track record in renewing big contracts where we have a high intention to do so, it's over 90%. So that's probably all I can say in that regard.

And just on your CapEx guidance, then the CapEx guidance reduction due to tender delays. That's all in reference to tenders in that $40 million to $60 million pipeline you're talking about?

No, Brian. So there's 2 things attached. The bulk of that rather retains to some of those bigger contracts that are due for renewal this year. And clearly, the longer it takes to renew those where they generally associated with digitization is going to reduce the CapEx. The other thing that we also saw is that last year, we won ride in Adelaide, and we haven't installed any new digitals in the first half of this year because there have been delays in development applications, which are referred to on the call. So it's got nothing to do with the $40 million to $60 million pipeline.

Your next question comes from Kane Hannan from Goldman Sachs.

I had 3 questions, please. Just the first half had quite a bit of variability in that monthly performance. 2Q ended up a lot stronger than you're seeing back at the AGM. Just talk about what -- so what drove that strong in 2Q for guidance. Is that variability in the market? Did you make some changes in terms of sales strategy execution or things we should be thinking about?

Kane, all good questions. So yes, we certainly saw a strengthening of performance throughout Q2, as you rightly call out. And we do note that the market is somewhat volatile. So it's not unusual to see fluctuations within a quarter. And we note that other media companies have spoken to the same dynamics. There was nothing significantly different in sales strategy relative to our May and June performance. I think we compared it very well. We saw our Street Furniture revenue turned into positive pacing year-on-year, which was a very welcome sign given that, that's been our most competitive channel. And as you can see, the Road performance was particularly strong. So when demand for Out of Home is building, as we've seen across the course of the year, you tend to find that most operators are very front foot holding on to good yields and riding that demand and getting maximum value. So that's effectively what we did in May and June.

And just a comment around the success you've had on high-intent contract renewals. Can you talk about how you define a high intent renewal, and I suppose how you deliver that conversion rate? Is there changes, say, in the hurdle rates that you use on a contract?

So high-intent contracts would be the ones that provide significant coverage to our aggregate audience footprint. And the larger concessions obviously tend to be those with the highest audiences. So we're always going to be very competitive in those processes. And we take a view of value over the lifetime of the contract. But we are familiar with the dynamic that the larger concessions tend to be lower margin, but they do build important audience reach. And then, of course, the long tail of contracts across the broader portfolio are often higher margin. And of course, in oOh!media's case because we have such a breadth of assets, we're able to sort of leverage margins into some of our higher-margin products as well. So that's probably the dynamic that's playing out. And so I think any large audience contract will be lower margin and we're going to always be very competitive where it matters to our audience footprint.

And in terms of hurdle rates, we always seek to clear hurdle rates in terms of our cost of capital regardless of the audience that is attracting, but clearly, on those contracts, which, for whatever reason, we think are less important to us. Normally, there's increased margin above our hurdle rate that we prepared to accept a deal at.

And just lastly, just you're talking to the typically stronger GP margins in the second half. I mean is 2022 a good starting point? Or does oOh!media, some of the contract renegotiations means the uplift might be a little bit less than last year?

The way I'd look at it generally is over many years, the relativity between the second half and the first half is probably a good run rate to go with because as we touched on the call, there have been delays in some of the bigger 2023 contracts, any impact, I think, this year is really probably going to start rolling off into '24. So I'll just go back and take a look at '22, '19, '18.

Your next question comes from Darren Leung from Macquarie.

Congrats on the good results. I just have 3 as well, please. Maybe just first one on the gross margins and maybe tackling it another way. What do you think the industry level gross margins are, please?

From what we understand, Darren, and this is a bit challenged because we're the only listed entity. But from accounts that are available from [ASIC] at a margin level, what we see is we're at the top end of the industry, but not necessarily by country mile, but it is difficult to tell. There aren't results from QMS beyond 2021 at this point. If we look more broadly in terms of overseas at what other competitors do, we broadly there or thereabouts.

And just a follow-up on maybe the question earlier. It looks like if you look at 2018, '19, '22 gross margins are around about that 45% mark. Obviously, a pretty, pretty much oOh!media's peak ever achieved. Is that the number we should be thinking about into 2024?

Well, as we touched on, I think in February and at the AGM, it really depends exactly what happens on some of these renewals. As we did flag, we're expecting margin compression in '23 and '24. Now clearly, with delays of some of these bigger contracts into 2024, we would need an incredibly strong revenue environment next year in order to outweigh that margin compression into '24, Darren. But importantly, this is only -- when we think about margin compression, it's really in those first 18 months to maybe 2 years of renewals and then what we see is margin expansion at a gross margin level.

Just a second one, we're hearing a bit of feedback around the audience metrics of City of Sydney is sort of lower than the amount that they're monetizing. So do you think that they're having any success in terms of impacting your Street Furniture business? And do you think this will normalize in the near term?

Darren, I think there was certainly a momentum with launching that product. And as often happens with new contracts, and this will be a dynamic that we benefit from in the year ahead. Advertisers often like to experiment with new assets. And we certainly saw that in the first term of the second half of last year with the City of Sydney launched. We have seen that normalize. So if I look at our own revenue, we're the largest operator in that roadside of the channel. And from May onwards, we've seen our year-on-year pacing move into positive territory. And that contract normalizes in September. So we think that the launch was very successful, and we acknowledge that, but we will see it normalize to you very sound point there, the further out we go through this year.

And just a final one for me. Just on the fixed rent increases, that $6.5 million you've called out in the appendix slide, when we compare it against the base of about $80 million, it looks like it's about an 8% uplift. What are the drivers here, please?

Yes. So there are a couple of things in there. Firstly, that I would assume that it was existing asset base. We added 17 sites in EiMedia at the beginning of this year, so you've got additional assets. And there's also a bit of movement in and around ASP accounting and rent abatements. On a like-for-like basis, it's about 4%.

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

Just firstly, you sort of called out that there's -- at least in terms of gross margin, there's been that one of the aspects around the higher cost of media sites was a sort of negative mix shift towards agency. I think it's one of the things you talked about. Can you just give us an update on how the direct sort of market is looking going forward given that it's been one of the sort of weaker parts of the business in the last 6 months?

Yes, it's certainly -- John, certainly more sensitive to the economic environment. We've had a very strong record of good shares in direct. It's obviously a smaller part of what we do. But we do feel that consistent with the overall performance of Out of Home that generally, the support from small business is more positive than with Out of Home than it might be in other media channels. Again, there's increasing sort of understanding of the mass-reach appeal and creative potential of digital Out of Home. And we're finding particularly in that sort of independent agency and boutique area, which we classify as part of that direct segment increasing shares. And we're trading very well with very strong NPS in that group. So we do have a reasonably good understanding of how they're viewing the market and how they're viewing Out of Home as a channel. And increasingly, it's part of the consideration set. I think, too, that the -- in a tough market when advertisers are thinking more in a short-term basis, the whole evolution of digital Out of Home has really allowed us to compete more effectively in a short-term market. And this does appeal to small business. They're often more tactical. And if you just look in particular, the growth in the retail category across Out of Home, both small and large retailers, this is really driving some of that performance. So small retail is obviously a staple of that business market.

So Cathy, do you think -- I mean, when you did the trading update sort of in May or whenever it was, and direct was clearly performing worse than agency. Do you think it's sort of that sort of -- it's ameliorated a bit in the last couple of months, I had sort of reached a level and it's sort of not deteriorating further?

Look, I think direct, as I said, it's more sensitive to economic shocks. Certainly, agency is driving the growth. And in a short-term market, it's very hard to predict which way it will turn. We're seeing both improve, but certainly agency driving the recovery into Q3.

Yes. And it still remains a drag on our overall performance. Agency revenues are growing quite a bit strongly than direct.

Just 2 other quick ones. Firstly, those new contract wins in and around the Sydney CBD were obviously very appealing demographics, I guess. What sort of would you put down to why you managed to win those particular contracts like in places like Woollahra and Sydney Metro, et cetera? What was the key selling point, if you like?

Well, I mean, every commercial partner will have their criteria. But in the end, contracts are awarded based not only on the economics of the offer, but also judgment around capacity to deliver. So reputation does play into it being a very large player, having such a breadth of experience in Street Furniture, the designs that we place into the tender process and our vision really for the particular contract is really what comes into the process. These are very well-run tender processes. Things are scored. There is obviously a very significant amount of process. So we would have won that contract on several fronts. No one criteria would have got us over the line.

Certainly, I take it from what you're saying that the actual design and the sort of concept that you're putting to those markets is a big part of it.

Yes. Every commercial partner will have their criteria. What we are seeing is things like ESG and the sustainability approach that we apply to our assets. And the local offering of Street Furniture in particular is incredibly important. So these things are given weights within any tender process and you're scored accordingly. But you consider that to win highly desirable concession like Woollahra but you're going to have to be performing strongly across just about every part of that tender.

And just the last one for me. So obviously, you've been very tight and run a really good ship in terms of OpEx and sort of cost inflation, if you like. But 4%, I think you called out 4% is the underlying growth rate in the half. Is that -- do you see that roughly as a sustainable level of OpEx going forward? I mean, obviously, you're getting some interesting new contracts that are coming in. And I think you've said that that won't be associated with any increase in OpEx. But do you see that 4% as a sort of sustainable growth rate for us to use going over the next year or 2?

So John, I'll take that. So the biggest part of our OpEx space, which is payroll is about 2/3 and our payroll increases were undertaken at the beginning of the year. So you don't expect a movement in that certainly over the second half. Then going into 2024 it's going to be a function of where the market is at from a labor perspective. And although we continue to invest in areas like data, for example, digital sales capability to fulfill our revenues, we're still really focused on doing that within a cost envelope. So there's nothing that looks at us today that indicates that we need any more really over the medium term that 4%. But obviously, we do have to be able to meet the market on a labor perspective.

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

Just a question on that chart you shared with share of Out of Home as a total SMI. I'm wondering if you've done any benchmarking or thinking of where -- is there a natural ceiling for that share of Out of Home? Can I go to 20, I don't know, percent, something like that?

It's a good question. We think it will continue to grow. We think 18% to 20% is a reasonable benchmark and a few reasons sort of underpin that. I think we really are starting to see Out of Home being viewed as a safe bet, a safe bet in terms of [mass-reach] audiences, which aren't being fragmented. And I think increasingly, a very cost-efficient way to our mass-reach audience. A couple of obvious points, the Free to Air Television market is 3x the size of the Out of Home market. So a little bit of disruption goes a long way there. And we increasingly see the 60% of the ad market that is pure digital as the obvious place for Out of Home will do a better job of participating and competing given the advent of new measurement with MOVE 2.0. So there are a range of things that underpin our optimism and it's great to see that the trend is supporting the confidence.

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

Thank you for that and your questions. And in closing, as we said, these are positive results for oOh!media and for the Out of Home sector. And as always, we look forward to talking to many of you in a lot more detail about the results throughout the course of the week. So thank you very much for your time today.

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