Half Year 2016 JCDecaux SA Earnings Call
Jul 28, 2016 AM EDT
DEC.PA - JCDecaux SA
Half Year 2016 JCDecaux SA Earnings Call
Jul 28, 2016 / 10:30AM GMT
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Corporate Participants
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* Jean-Charles Decaux
JCDecaux SA - Co-CEO
* David Bourg
JCDecaux SA - CFO
* Jean-Francois Decaux
JCDecaux SA - Co-CEO
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Conference Call Participants
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* Adrien de Saint Hilaire
Morgan Stanley - Analyst
* Lisa Yang
Goldman Sachs - Analyst
* Marcus Diebel
JPMorgan - Analyst
* Sarah Simon
Berenberg Bank - Analyst
* Julien Roch
Barclays - Analyst
* Tracey Young
Macquarie - Analyst
* Catherine O'Neill
Citigroup - Analyst
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Presentation
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Operator [1]
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Ladies and gentlemen, welcome to the JCDecaux 2016 half year results conference call, and I'll hand over to Mr. Jean-Charles Decaux, Chairman of the Executive Board and co-CEO. Sir, please go ahead.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [2]
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Good afternoon everyone. Good morning to those of you in the US and welcome to our 2016 half-year results conference call which is also being webcast.
The speakers today on this call will be Jean-Francois Decaux, co-Chief Executive Officer; David Bourg, Chief Financial and Administrative Officer. And I, Jean-Sebastien Decaux, CEO for Southern Europe, Belgium, Luxemburg, Africa and Israel; as well as Arnaud Courtial, Head of Investor Relations are also attending today's conference call.
Please note that throughout the presentation, following the adoption of the IFRS 11 from January 1, 2014, operating data is adjusted to include our pro rata share in companies under joint control and is therefore comparable to historical data. David will explain this in more detail at the beginning of the presentation.
Let me first comment on our half-year results. We are pleased to report an increase of 10.8% of our H1 2016 revenue at EUR1,617.3 million. Our organic revenue growth of 3.4% in Q2 is in line with our guidance and leads to an organic growth rate of 6.6% in H1, mainly driven again by a strong performance across all segments and geographies, as well as our prime digital asset portfolio.
Our adjusted operating margin decreased by 10.5% to EUR265 million, or 16.4% of revenue, due to both the integration of CEMUSA, requiring some operational restructuring and investment to turn around the business, and the contract ramp-up and structure of the world's largest bus shelter advertising franchise with TfL in London.
Before impairment charge, adjusted EBIT came in at EUR121 million with net income Group share up 1.8% to EUR80 million.
Net income Group share after impairment charge increased by 1.1% compared to last year, reaching EUR80.4 million.
Last but not least, we delivered a solid free cash flow of EUR98 million, down 10% relative to the first half of 2015.
Looking at adjusted organic revenue growth by segment, we see positive trends. First, street furniture adjusted organic revenue increased by 5.7%, driven by a strong performance in the UK, thanks to the TfL bus shelters contract, and in France.
Transport adjusted organic revenue went up 9% in H1 2016, driven by Asia Pacific, with a slowdown between Q1 and Q2 in Greater China, the rest of the world, the UK and France.
Finally, billboard adjusted organic revenue was up 2.5%, driven by rest of the world, with the market consolidation in Russia which continues following the default in Moscow billboard rent payments from some local operators, paving the way for their billboard panels to be taken down and leading to market share gains.
Finally, the lack of consolidation in Western Europe continues to be a drag on revenue growth.
Let me now come back on the second, on the slowdown we anticipated at the end of Q1 2000 -- at the end of Q1. You can see on the slide the split between the two quarters in our three segments. It reflects the decrease in our organic growth from 10.5% in Q1 and 3.4% in Q2. However, we delivered a solid 6.6% adjusted organic revenue growth over the first-half period.
Moving now to our revenue growth by region, we saw sound performance in the United Kingdom, rest of the world and Asia Pacific. The rest of Europe was flat in H1 in 2016. Street furniture was down, transport and billboard were up.
Asia Pacific posted a solid growth at 10.2% with the transport segment in Greater China slowing down in Q2.
France was up 3.5% with street furniture generating good positive growth and transport showing double-digit growth. Conditions for billboard remain challenging.
The rest of the world continued to deliver a strong growth at 12%, driven by the good performance of our street furniture activities in all markets, and new contract wins in transport last year led to double-digit growth.
The UK was up 18.5% with street furniture being fueled by the TfL contract. Transport saw a strong performance offset by a broadly flat billboard activity.
North America posted plus 0.6% growth in H1 2016, thanks to a positive performance in street furniture, offset by a negative performance in transport.
In terms of revenue breakdown, our segment mix is unchanged from last year the same period. Street furniture stayed to 45% flat. Transport was steady to 41%, minus 20 basis points, and billboard's share was in line with 14%, plus 20 basis points.
In terms of geographic breakdown, Europe remains our first geography at 26.5%. Asia Pacific accounted for 24% of revenue. The contribution generated by the rest of the world continued to increase and now accounts for 11.4%, thanks to acquisitions and contract wins.
UK represents 11.4% [sic - see presentation page 7 "11.3%"] and is the number five region during the negative -- due to negative ForEx effects.
The share of Continental Europe, France the UK and the rest of Europe represents 50% of Group revenue.
The next slide provides an update on our development in faster growth markets. In first- half of 2016 we generated 36% of our revenue from faster growth markets, in line with the same period last year. It is an impressive figure when you recall that the Group only had 8% of its sales coming from these geographies in 2004.
Since that period, we have to underline that our faster growth markets have always increased in relative sales. Based on the more dynamic revenue forecasts from these areas related to developed markets, the acquisition of OUTFRONT Media LatAm, we anticipate revenue from these regions will make up more than 40% of sales in the mid-term.
Another important focus for us is the development of digital. In H1 2016 digital accounted for 11.5% of our total revenue compared to 9.9% in the same period last year. As you know, our digital strategy has been mainly focused on our transport business which benefits from a captive audience and has less technical constraints than outside. As such, the share of digital revenue as a percentage of total transport revenue has been steadily growing and now accounts for 19%.
However, digital is moving outside. Digital revenue from street furniture increased from 20.1% in H1 2015 to 24.9% in H1 2016. In 2015 [billboards], JCDecaux digitized Princes Street, the city's most important corridor. This year we started the digitization of London with the world's largest street furniture contract with TfL.
There will be more to come in 2016 in such iconic cities like New York, Sydney or Stockholm, where digital is set to become a game changer in outdoor utilization. This digitization of premium panels in the city will make outdoor advertising more attractive to local, regional and national advertisers.
Now I would like to illustrate the convergence between online to offline.
As we mentioned during 2015 annual results, the convergence from online to offline is live. On the right-hand side of the slide you can see an example of convergence, illustrated by the relation with the e-commerce industry. It's impressive to see that is our first client category now Chinese Metros. It represents close to 10% of our Group revenue and 81% of e-commerce campaigns are made in the transport business. Companies like Alibaba, Google or Netflix use JCDecaux assets to spread their campaigns.
Let's talk about our connectivity projects and let's talk about Wi-Fi. Our [three franchises] of the right place for city Wi-Fi. We have launched on the eve of the USA Euro 2016 another Wi-Fi network that will be available along the length of the avenue between the Place de l'Etoile on the Champs Elysees roundabout. With this, Champs Elysees benefits from an optimal coverage resulting from the combined density of Wi-Fi access points in business, such as boutiques, cafes and restaurants, and the JCDecaux Morris columns, ideally positioned along the avenue.
The feedback on the metrics we have from people experienced are impressive. More than 450,000 connections, 18 megawatts of data consumption per user and on top of that, given that the avenue can fully be -- can be fully pedestrianized, there is enormous potential for advertisers to reach massive audiences like tourists.
Now let me give you an update on our recent contract wins and renewals. We are happy to confirm that we were very successful in H1 2016.
As far as new contracts are concerned, on the street furniture side, we were pleased to win the iconic street furniture contract in Tokyo, but I will come back on this later.
In early 2016 we completed our London offer by winning the Royal Borough of Kensington and Chelsea.
In Belgium we won the Carrefour supermarket contract.
In Uruguay we won the smart clocks in Montevideo.
In Italy we won the free-standing panels in Bologna.
And on the transport side we were really pleased to win the exclusive 10-year contract for the installation and operation of digital advertising solutions at the Dallas-Fort Worth International Airport.
In Italy, we won the Naples metro.
Finally, as always, we have renewed or extended several of our existing contracts, including Paris newsstands with MediaKiosk, and I will come back on this later on.
In transport, JCDecaux won several contracts over the globe, such as Milan International Airport, and we also renewed three airports such are Hong Kong, Changi in Singapore and Aeroports de la Cote d'Azur in Nice.
And in billboards, we renewed the non-station contract with SNCF Reseau for eight years.
Let me come back on two major contract wins, the first one being Paris newsstands. As a reminder, MediaKiosk is owned 82.5% by JCDecaux. This contract has been renewed for 15 years, including the modernization and the digitization of iconic locations with a rollout over three years starting in June 2017. By 2019, a total of 409 newsstands with 4,000 advertising panels will be fully operational.
Last but not least, we remain focused on sustainable development where we will generate 54% of energy savings with this contract, far in excess of the 30% required by the climate plan in Paris.
The second contract I'd like to talk about is finally the Tokyo bus shelters. Seventeen years after our first venture into Japan, in a country in which outdoor advertising was banned in public spaces until 2003, and after passionately building up our business through organic growth contract by contract, we won the advertising bus shelter contract in Tokyo for 15 years. This exclusive contract is the largest bus shelter contract in Japan and covers the design, installation, maintenance and operation of advertising bus shelters. At least 400 shelters featuring more than 800 square meter advertising panels will be installed before the 2020 Olympic and Paralympic Games. We will announce the landscape on improved services for citizens with modern and energy efficient advertising bus shelters.
On the next slide you can see how impressive our presence in Japan is now, including obviously the new street furniture contract in Tokyo. We are now the number one street furniture advertising network in Japan. JCDecaux, the market leader in advertising street furniture, holds a key strategic position in the third-largest advertising market in the world across 41 cities in Japan, including the 20 largest cities and more than 8,000 advertising panels at maturity. We also have contracts signed with 9 out of the top 12 transport companies in Tokyo city.
Let's say now a few words about CEMUSA's integration. We closed the deal in November 2015. The acquisition added more than 43,000 advertising panels and street furniture and transport to JCDecaux's portfolio, extending or reinforcing its presence in world-class cities such as New York, Rio de Janeiro, Brasilia, Madrid and Barcelona, and in 41 airports including those in Madrid and Barcelona.
The integration of the four countries has been made in two periods. In March, the United States, Brazil and Italy were fully integrated, and then in June, Spain was fully integrated. In addition, we are generating strong operational synergies and consolidating our sales and marketing networks at the moment.
I would like to focus now a bit on Spain. It's interesting to see that after the integration of CEMUSA, the losses of some street furniture contracts in Madrid and in Barcelona in H1 2016, JCDecaux has the best nationwide coverage of the market, 49% versus 41% previously, and we are merely the better developed where we are. We have a weekly audience progressing to 342 million people in 102 cities.
Let's move now onto the M&A transactions. First, we closed the partnership with Caracol Television in Colombia where Caracol Television acquired a 25% stake of the capital of the Colombian subsidiary, Eucol. As a reminder, Caracol Television is part of Colombia's largest media group and now we operate street furniture in eight cities with 5,757 advertising panels. Colombia is an important country in Latin America as it is the third largest and it is the fourth largest advertising market in LatAm. We have now room to consolidate the OH sector much further.
Second, we also closed in H1 2016 OUTFRONT Media in LatAm. We closed the deal on April 1, 2016. We now have 11,390 additional advertising panels in five countries such as Mexico, Chile, Uruguay, Brazil and Argentina.
In each country we proceeded to some changes and enhancements. In Mexico, we created a national platform with a strong presence in billboard. We harmonized the different advertising formats and platforms with a strong presence in billboard.
We also harmonized in Chile where we achieved strong synergies and extended our geographical footprint.
In Brazil and Uruguay we reinforced our national presence in order to have a better coverage with additional cities.
Finally, in Argentina, we are developing currently our footprint.
Before handing over to David, I would like to make a quick focus on our leadership reinforcement in Latin America. Since 2012 and the win of the clocks of Sao Paulo, we have strengthened our position with organic gains and acquisitions.
In 2014 we added seven new countries to the Group and reinforced our presence in two with the acquisition of EUMEX.
We also won our first contract in Peru with Lima Airport, and in Panama with the Soho Mall.
Between 2015 and 2016 we had two busy years with the acquisition of Eye Catcher in Peru in August 2015, of CEMUSA in Brazil and now OUTFRONT Media in Mexico, Chile, Uruguay, Brazil and Argentina. And we also won some contracts mainly in the transport activity with the Brazilian airports in Rio de Janeiro and Brasilia.
Thank you for your attention and I will now hand over to David to comment on the financial results.
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David Bourg, JCDecaux SA - CFO [3]
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Thank you Jean-Charles. Good afternoon, or good morning to all of you. Before I start with the P&L I would like to address two technical points.
First point, as usual, a few words to remind you that the operating data we are reporting on is adjusted data in order to include the contribution of companies under joint control, which are accounted for under equity method under IFRS. This is perfectly consistent with our management reports and reflects the business reality of the Group.
As far as the P&L is concerned, all KPIs down to the EBIT are impacted, but no impact whatsoever on net income.
Regarding the cash flow statement, all aggregates down to the free cash flow are impacted. This principle is recalled with each financial communication and we systematically provide a reconciliation between the adjusted data and the IFRS data in the appendix.
Point number two. I would like to confirm that we have realized the purchase price allocation of CEMUSA in accordance with IFRS, which requires to recognize the assets and liabilities at the fair market value. We have therefore recognized in the opening balance sheet the provision for onerous contracts of EUR144 million and goodwill of EUR75 million, reflecting the synergies related to our revenue that we expect to generate from CEMUSA.
This being said, I propose that we get back to the summary of the financial results.
As you can see on this slide, the revenue showed double-digit reported growth of 10.8% over the first half of 2015 while operating margin, EBIT and net cash flow from operating activities were down by 7.4%, 10.5% and 18.5% [sic - see presentation page 23
18.4%"] respectively.
As Jean-Charles said already, this was mainly due to the integration of CEMUSA and the TfL bus shelter contract. I will come back on these later on.
Net income however rose due to lower income taxes in line with the decrease of the net profit before tax and higher earnings on companies consolidated under equity method.
Free cash flow, while down 10%, remained strong at nearly EUR100 million.
Net debt under IFRS at the end of June 2016 was EUR547 million as against net debt of EUR62.7 million at the end of June 2015. This change substantially includes the financing of our share buyback program as the cash generated over the period allowed us to finance our investment and the distribution of dividends declared for 2015.
Before giving you more details about our KPIs, I would like to come back for a moment to revenue growth and in particular the difference between reported growth of 10.8% and organic growth of 6.6%. The difference results from the combination of a negative foreign exchange effect of EUR41.6 million and a positive effect from change in scope of EUR103 million.
The negative FX effect mainly comes from the depreciation of the British pound and the change in yuan by around 6% over the period, as well as certain emerging country currencies, such as the Brazilian real and the ruble.
The positive EUR103 million scope effect can mainly be attributable to the acquisition of the Continental Group and the increase in our stake in our JV in Italy in June 2015, CEMUSA on November 2015 and OUTFRONT Media LatAm on April 1 2016.
Looking at it by segment, reported growth in street furniture was primarily impacted by CEMUSA.
As regards transport, the positive scope effect mainly from increasing our investment in Italy and consolidating CEMUSA airport operation in Spain was partly offset by a negative change in the yuan and the British pound.
Finally, the reported growth in billboard came largely from the Continental and OUTFRONT Media consolidation.
Now let's have a look at the change in operating margin which was EUR264.5 million in the first half of 2016, down EUR21.2 million from the first half of 2015. The 21.4% increase in rents and fees, double the growth in revenues, stemmed largely from street furniture with the ramp-up of the TfL in London and the consolidation of the CEMUSA contract in New York which has not yet had the benefit of our digital program.
The line other operating expenses, up EUR50.3 million, increased slower than revenues, reflecting effective cost control in the context of the integration of our acquisitions while we keep investing in the local and regional structures of our fast-growing countries as well as in our planned innovation with the digital transformation of our business.
I'd like to spend now a moment analyzing the change of our operating margin ratio by business line. The overall ratio was down 320 basis points from 2015. However, it stayed stable after restating from the impact of the CEMUSA consolidation and the TfL contract, as you can observe on the graph on the right side of the slide. CEMUSA and TfL had an especially strong impact on street furniture as the 790 basis points drop in its margin ratio was only 120 points once adjusted from those two items.
The 120 point drop, excluding CEMUSA and TfL, was mainly due to a non-recurring charge of EUR4.6 million due to a legal decision in April in our lawsuit with the City of Amsterdam, and also the margin decrease in some European countries in the first half of 2016 in relation with the slowdown in the revenue.
With regard to transport, the red bar on the slide, the operating ratio of 12.6% was off slightly by 20 points despite the organic growth in revenue, penalized by the consolidation of CEMUSA Spanish airports, which showed a negative margin. Restated from CEMUSA, the transport margin ratio increased by 80 basis points because of good performance in China and the UK and on our airport platform in the Middle East despite adverse political and economic conditions.
The improving margin ratio in China is mainly attributable to our improved cost structure, which enabled us to make up for an unfavorable business mix to the benefit of subway business which continues to grow faster than our Chinese airports but to a lesser extent than in 2015.
Lastly, as regards billboard, the impact here of CEMUSA has been weaker than on the other two segments since excluding CEMUSA. the margin ratio, at 8.6%, up 310 basis points from the period ending June 2015 as compared to 260 points on a reported basis. The increase in billboard margin is due to the contribution of Continental which is accretive on our margins, and our improved performance in Russia where our market share continues to strengthen after certain local operators defaulted on Moscow rent payments in 2015 and 2016.
Let's move now onto an analysis of the earnings before interest and taxes. EBIT before impairment charges was EUR120.5 million in the first half of 2016, down EUR14.1 million from a year ago. This decline was chiefly due to the EUR21.2 million decline in operating margin, while net expense after operating margin fell by EUR7.1 million.
Taking a closer look at these lines, after operating margin we see a favorable change of EUR34.1 million in amortization of tangible assets from the reversal of the provision on CEMUSA onerous contracts which partly absorbed the increase by around 7% in spare parts and depreciation due to change in scope and a EUR70 million decrease in the line other operating income and expenses, due mainly to CEMUSA and OUTFRONT Media restructuring cost of more than EUR50 million.
No goodwill impairment was recorded during the period and in 2015, therefore the EBIT before and after impairment is almost the same.
Now let's have a look to the EBIT ratio. EBIT before impairment charges equaled to 7.5% of the revenue, a decline of 170 basis points as compared to the first half of 2015. This decline is similar than that of the operating margin ratio, both overall and by segment, mainly due to the provision reversal for onerous contracts regarding CEMUSA, as I have just mentioned.
As with the analysis of the operating margin ratio, you have on the right of the slide the change in EBIT ratio excluding CEMUSA and TfL. It generally follows the operating margin ratio excluding CEMUSA and TfL, both by segment and overall, with a slight improvement to Group ratio of 20 basis points.
Let's have a look now to the EBIT and net income under IFRS. To do so we need to reverse the EBIT of entities under joint control so we can turn adjusted EBIT into EBIT under IFRS.
Entities under joint control contributed EUR45.8 million to the adjusted EBIT, an increase of EUR12.9 million compared to 2015, attributable mainly to the strong performance of our JVs in China and Russia as well as a change of scope in Italy with the increase of our stake in JCDecaux and in Spain with the full consolidation of our JV with CEMUSA, which was loss-making and consolidated under equity pick-up before the acquisition.
EBIT under IFRS, meaning after restated from the contribution of entities under joint control, is therefore EUR75.4 million at the end of June 2016.
All lines on the P&L below the EBIT under IFRS are in IFRS and lead to a net income Group share under IFRS of EUR80.4 million before impairment charges, slightly up compared to 2015 despite the decrease in EBIT.
The slight rise in net income was largely due to the line equity affiliates which was EUR16.3 million higher than in the first half of 2015 at EUR45.7 million, mainly due to the improvement from our affiliates such as in China and in Russia, as already commented.
And in the line also income tax, which decreased more than EUR10 million, broadly in line with the decrease of our operating earnings. The effective tax rate of 32.8% is globally in line with the tax rate at June 2015, which was 34.1%.
Net financial income remains steady as compared to the first half of 2015 with a net expense of EUR13.2 million as the increase in net financial interest from the combined effect of the bond issue and the drop in financial income was largely offset by a decline in ForEx exchange losses.
Regarding now the cash flow statement. Cash flow from operating activities net of maintenance cost was EUR160.7 million during the first half of 2016, a decline of EUR49.3 million. This unfavorable change came from the EUR21 million decline in operating margin and the EUR15. -- more than EUR15 million increase in restructuring cost for CEMUSA and OUTFRONT Media. The negative impact of the bond issue expense was partly offset by the decrease in income tax paid for the period.
On line two of the table, change in working capital had a positive effect on the cash generation of EUR16.5 million as compared to the EUR7.1 million last year. The improvement in change in working capital was principally due to improved client receivables offsetting an increase in inventory related to our digital program in London and New York.
On the line adjusted capital expenditure, the net CapEx for the period was EUR78.9 million versus EUR107.9 million in the first half of 2015, a decrease of EUR29 million due to the higher CapEx program in 2015 related to the Paris bus shelter contract and also delays in our digital program in 2016, especially in London.
On the bottom line, adjusted free cash flow was EUR98.3 million for the period. Effective management of working capital requirements and lower CapEx than in 2015 enabled us to limit the negative impact of cash flow from operating activities to EUR10.9 million.
As with the P&L, we move to the free cash flow IFRS by restating the contribution of companies under joint control, which for the period was EUR36.7 million versus EUR13.7 million in the first half of 2015. The EUR23 million increase in this contribution came largely from our JVs and affiliates, as already commented.
Restated from this contribution gives free cash flow IFRS, excluding companies under joint venture, of EUR61.6 million.
Below that line, dividends paid of EUR128.3 million essentially comes from the EUR118.9 million dividends paid to the shareholders of JCDecaux SA voted in May 2016 as well as EUR9.4 million of dividend paid to our partners in certain companies we fully control and consolidate.
The capital increase of EUR5.9 million mainly includes a capital increase at JCDecaux SA due to the exercise of stock options during the first half of 2016 in the amount of EUR5.7 million.
Financial investment of EUR97.3 million includes mainly the price paid to acquire OUTFRONT Media in Latin America.
The positive impact on the line other largely refers to the change in scope, mainly due to the net debt of Continental that was consolidated during the first half of 2015.
Net debt under IFRS therefore increased by EUR146.5 million, mainly due to the distribution of dividends to the shareholders of JCDecaux SA as net cash flow from operating activities allowed us to finance our CapEx and financial investment during the period.
The next slide illustrates the capital intensity of our business with a CapEx for the period of less than 5% of the revenue. This reflects effective control of expenditure for renewal CapEx and general investment which during the period declined EUR9.1 million and EUR13.1 million respectively.
Growth CapEx was also down from 2015 by 16% but this is mainly due to the rollout of our digital program, specifically in London and New York.
Regarding our financial structure, we seized the opportunity of a favorable financial market in May before the Brexit referendum to convert the successful bond issue of EUR750 million with a 1% coupon. This allowed us to strengthen once again our sources of financing and extend the maturity.
In conclusion, for this first half the key takeaways are a strong commercial performance on all geographies and business segments with a slower Q2, at 3.4% as anticipated.
Margins were impacted by the integration of CEMUSA and the ramp-up of TfL in London but remain stable restated from those two strategic decisions.
We are committed on an ongoing basis to control our costs, our capital requirement and our investment policy, and we will continue to do so in the second half of the year. Our cash generation remains solid and we continue to strengthen our financial flexibility.
Thank you for your attention and let me now turn the presentation over to Jean-Francois Decaux.
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [4]
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Thank you David and good morning or good afternoon to everyone. What I would like to do now is to give you our view of JCDecaux's future and explain why we are convinced that we will continue to grow and outperform. Our conviction relies on three key areas -- accelerating organization, digital transformation and our financial strength.
First of all, outdoor continues to enjoy strong fundamentals. The audience for outdoor advertising is increasing. Growing cities or urban areas are a powerful trend for us as they provide a larger audience for out-of-home advertising.
According to the World Health Organization, by 2050 urban populations will represent more than 80% of the population in North America, Latin America and Europe. We believe JCDecaux's footprint matches these urbanization trends and that we are in a strong position to fully benefit from these developments. As of today we have a portfolio of street furniture that is unique in the world, including 20 of the 28 megacities, and we have an established presence in emerging cities, traditionally through transport but increasingly through street furniture, as those cities start their own digitization projects.
On top of that, air traffic is set to double in the next 15 years according to an Airbus study. This is a great opportunity for JCDecaux since we currently manage more than 230 airports worldwide.
As mentioned, cities and product consumption are at the heart of our business. According to the McKinsey Global Institute 91% of global consumption growth will be generated by people living in cities from 2015 to 2030. We are more than well positioned to benefit from this as we have a presence in 15 of the top 20 cities where consumption will grow the fastest. On top of that, our faster growth market footprint is a real advantage as 10 cities are in the emerging world and we are present in nine of them.
Let's now quickly focus on our unique airport platform. Airports are the best environment to reach audiences for broadcast campaigns. For example, during the Euro 2016 one of the official sponsors, Coca-Cola, covered Aeroports de Paris and Roissy-Charles de Gaulle and Orly with 260 digital screens and 350 square meters of creative visuals. The audience was benefiting from the broadcasting of the matches live.
As a reminder, we have a presence in more than 230 airports across the world, with more than 100 airports in Europe. 1.8 billion passengers travel each year in airports where we advertise, which is about 30% share of total eyeballs going through airports around the world.
I would like to give a quick overview of out-of-home versus other media. We will expand strong growth for out-of-home. Whilst Internet is leading ad spend growth until 2018, out-of-home is the second media in terms of growth, plus 9.1% from 2015 to 2018. We will gain market share versus traditional media, which are declining or growing at a much lower pace, including television and radio, which will grow as a single digit, while price will continue to decline.
Now I would like to make a focus on two cities, London and New York. Let's start with London. We started to operate in the London contract with TfL on January 1 this year, for a period of eight years. We currently operate more than 200 84-inch screens in central London and continue the rollout in all key retail zones.
Oxford Street, which is the busiest shopping street in Europe, is already fully digitized with 44 screens. We have half a million visitors every day on this street, and it accounts for 21% of West End's annual retail spend, which is equivalent to GBP5 billion.
As you may know, we are also introducing a new communication channel that changes the faces of outdoor, the London digital network, based on three pillars of what we call the 3Ds, data, distribution and digital, which I just talked about.
With data, we will use 9 million data points, thanks to Route contribution. Route is an industry research system which is well established in the UK. On top of that, we will have 100,000 geo-sales zones, designed by CACI, our partner, and thanks to Telefonica we will be able to have information on 20 million app usage zones.
And with distribution we will use SmartBrics, our data planning software, SmartContent, a content management system, and SmartExchange, to provide the right message for the right location and the right audience.
The second city is New York, with a street furniture contract. With the acquisition of CEMUSA, we are now operating 3,500 bus shelters and 325 newsstands in the largest media city in the world. We will digitize around 300 prime locations in Manhattan, including 5th Avenue, which is the most expensive retail street in the world, in Q3 and Q4 this year. This is a very important part of our strategy, to turn around CEMUSA's business, which is currently loss making, as indicated by David.
We are confident in succeeding with these two contracts, but we need about two years to turn around CEMUSA's business.
Let's move on to another topic which I would like to cover, our digital transformation. It's growth driver for the Group is the selective but nonetheless impressive rollout of digital. As you can imagine, in an advertisers view, airport audiences are particularly variable since they typically include a high proportion of business travelers who are difficult to target throughout the traditional media. These travelers spend a considerable amount of time waiting for flights and luggage and it is considered a captive audience which is open to receiving an advertising message.
In addition, we have been rolling out our premium digital program in street furniture in London since the beginning of 2016, as explained earlier, and we will go further with New York in the second half of this year.
As you can see on the slide, out-of-home enables to post live information in our iconic digital billboard in Chicago, for instance. Now digital is data-driven, updated on a real time basis, enables geo-localization and creates dynamic campaigns. Furthermore, we remain convinced that scarcity must remain the rule and that there is no benefit to a massive, uncontrolled rollout. Inventory must be carefully monitored and supply only deployed where there is both real demand and a business case for it.
Now I would like to make a quick focus on Brexit. We cannot avoid speaking about what happened on June 23, 2016 in the UK. UK represents more than 11% of our revenue and Europe is 67%. According to Barclays, UK and the euro area are more affected by the outcome of the referendum than the rest of the world.
The GDP decline, confirmed by the IMF revision will be significant in 2017, being down 0.4% in the UK and slightly positive in the euro area. As a result, the advertising market will be under pressure and we are currently reviewing our total CapEx for the UK market.
The next topic I would like to cover today is the importance of financial flexibility, which we believe is a key competitive advantage for JC Decaux. In an industry where a number of competitors are heavily leveraged, our deleverage balance sheet provide us with unrivalled flexibility. In a context of tense market, history shows that some of our competitors ran into financial difficulty and were not able to manage the high leverage, creating opportunities for us in the market. Furthermore, our strong balance sheet provides cities with the security of our ability to deliver on tenders.
Speaking of tenders, let's have a quick look at the main ones, which are expected between now and 2017. In the street furniture business, we have been talking about some German cities like Bonn, Berlin and Frankfurt. The tender for Nantes, the Metropolitan Bikes in Paris, and the CIPs of Paris, i.e. the freestanding panels, are ongoing and a lot of other European cities should follow, like Lisbon in Portugal.
We are currently working on San Francisco and West Hollywood tenders in North America.
In Asia Pacific, we're expecting tenders all over Asia.
In the rest of the world we hope to leverage our acquisitions in Latin American to extend our footprint to other cities like Belo Horizonte.
We also see a lot of opportunities in the transport business. In Europe, the Budapest metro, which is currently ongoing, is one of the contracts.
In the US we're expecting the answer of the MPA for the New York subway, rail and buses in the second half of this year.
As usual, we are also expecting a number of tenders in Asian met metros and airports and the rest of the world, some Latin American airports, such as Panama, and the Santiago de Chile metro also expected.
We're also working on the tender of Abu Dhabi airport.
Finally, in the billboard business, a tender for St Petersburg is also expected this year.
Last, but not least, let's have a look at the competitive landscape after talking about our current M&A activities.
With the acquisitions of CEMUSA and OUTFRONT Media in LatAm, it's fair to say that we continue to lead the international market consolidation. Nevertheless, the outdoor market is fragmented by nature. One question remains, will we see further consolidation?
Our view, which we have been repeating for some years now, is that there's still bound to be some consolidation in the outdoor industry. As we have always said, we want to be very pragmatic in terms of acquisitions and we will continue to monitor the competitive situation, bearing in mind that there is no must-do deal for us and that we still have a lot of organic growth opportunities ahead, as discussed earlier during the tender section.
Now, in conclusion, I would like to come back to our main financial achievements in H1 2016. A strong sales performance in all geographies and business segments, with a slower Q2 at 3.4%.
Margins impacted by the integration of CEMUSA and the ramp-up of TfL in London, but which remains stable, restated of these two strategic decisions.
An ongoing commitment to control our costs, our working capital requirement and our investment policy.
Free cash flow, which remains solid, and a strengthened financial flexibility.
Our investment for future growth means we will pursue the digitization of London and initiate New York and other cities like Sydney and Stockholm, turnaround the CEMUSA business, and pursue further external growth opportunities.
Our well-diversified geographic exposure in faster-growth countries and our focus on product and digital innovation are two of our strengths that should help us increase our leadership position in the outdoor advertising industry.
Regarding the guidance for Q3 2016, GDP growth forecast revisions for 2016 have now confirmed the global economic slowdown we mentioned at the end of Q1, with the additional uncertainty concerning the impact of Brexit. As a result, we currently expect our Q3 adjusted organic revenue growth rate to be low single-digit.
Thank you very much for your attention and we can now move on to the Q&A.
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Questions and Answers
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Operator [1]
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Thank you. (Operator Instructions). And we have a first question from (Inaudible) from Liberum.
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Unidentified Participant [2]
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Good morning. My first question is you have this line in your statement in the street furniture section which says that you're reviewing the number of screens you're deploying until the economic conditions are a bit more clear. Now, one way to read into this, I guess, is that you might see already more problems than you indicated after Q1 in the rollout of the digital street furniture contract in the UK and you blame that now on Brexit. Is that the case or not?
My second question is on France. You seem to see an improvement in the organic growth there. Is that sustainable?
And then thirdly, some of the broadcasters seem to suggest that with all the problems around digital advert and so on, they see that actually some share is moving back to them from digital. Do you also see that you get some more share from digital?
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [3]
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Jean-Francois, you take the Brexit?
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [4]
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Yes. Hello. Your interpretation of what we said about the -- our investment review in the UK is wrong. If you go back to the Q1 revenue announcements, you will see the result. The reason why the rollout of digital in London is not what we had in mind when we bid for this contract. The rollout is slower than expected, mainly due to the fact that this contract has been awarded to several contractors as opposed to a single one, which is normally our business model.
There is one contractor for installation of bus shelters, one contractor for maintenance, one contractor for posting and one contractor, which is JC Decaux, for the sale of advertising and the digital implementation. As a result of this multi-vendor franchise, which was decided by TfL, the coordination with the shelter contractor, which is responsible for the provision of the bus shelters, has been a bit of a nightmare and this is why, in Q1, we were far behind the forecast in terms of number of screens. We are catching up, and at the end of Q2 we were slightly above 200 screens versus 500, which is much better than the end of Q1.
So Brexit, once again, has nothing to do with the rollout of the TfL digital network. And the good news is that we are, as indicated already in Q1, and we repeated it in the Q2, given the importance of this strategic decision, is that we have more locations which have been approved for digital in the -- what we call the golden boroughs, being Westminster, Kensington, where we are able to convert many more locations to digital.
For example, Oxford Street is a good example. We were not planning to convert as many locations to digital on Oxford Street, and this has been approved by Westminster, which is a very conservative borough.
So as a result of that, we see, for the time being, based on the limited number of screens, better yield than what we had in our business plan. So we generate more money per screen than expected, but we have a lower of number of screens as we speak, and we expect to catch up before the end of this year on the TfL contract.
And the investment review which we have mentioned in relation to the Brexit, has to do with some other contracts, which are either not signed, or which are not -- which are either not signed or where we are currently in a bidding situation where we're currently reviewing the number of screens that we want to bid or install in those contracts.
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Unidentified Participant [5]
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Great. Thanks.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [6]
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Regarding your question on the current facing in France, yes, we, on Q3 the French JCDecaux performance we continue to be particularly in line with what we've seen so far, so we are outperforming, basically the ad market as well as the outdoor market. And this is true across all the segments in the French context. So this is continuing to be solid figures.
And regarding your last question on digital, I think it's -- given our, basically, footprint across the world, I think we can basically see that JCDecaux and outdoor, but JCDecaux in particular is clearly outperforming in most markets. The ad market basically growth profile.
Can we say that this is because of the outflow coming back from digital to, let's say outdoor or to the broadcaster? I think it's a bit early to call. But what we see clearly is that whether we are in the mature markets or developed markets, or in the faster-growing markets, we see that our numbers are clearly outpacing basically the local ad market.
You can take the example of China. Even though the business is slowing down, as we said, in Q2. But you can take the example of Brazil. You can take the example of Russia, or some other emerging market, or even Mexico, you see that our performance are basically far better than the current advertising market numbers. And when you look at the developed markets you can see also we also -- sometimes some exceptions, but that our numbers are quite solid in terms of supply.
So I mean, it's a bit early to call. It's something that we have to see that on a yearly basis before a clear conscience we go claiming that we are getting share back from the digital world.
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Unidentified Participant [7]
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That's great. Thank you very much.
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Operator [8]
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Thank you. The next question is from Adrien de Saint Hilaire from Morgan Stanley.
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Adrien de Saint Hilaire, Morgan Stanley - Analyst [9]
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Yes, thank you very much, and I'm sorry to be back on the call, but I've got more questions. So first of all it's around CEMUSA. I understand that CEMUSA lost quite a substantial amount in H1 2016, which seems to be much bigger than in the previous years. So why is that exactly? And can you please provide us a glide path towards the breakeven point?
And the second or third question, let's say, is around TfL. Would you expect the contract to be breakeven in 2016?
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [10]
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David, you take the first question and Jean-Francois the second one?
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David Bourg, JCDecaux SA - CFO [11]
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Okay, regarding CEMUSA, as I said before, Adrien, the loss of the period is globally in line with the reversal of the provision that we made. We lose about EUR30 million for the first half of the year. And the second part of the year the loss should be lower than this amount due to the fact that in the first quarter we booked all the restructuring cost related to the restructuring, as I said, that we did on CEMUSA, and those costs won't occur in the second part of the year. So on a yearly basis, the reversal of the provision, which should correspond to the loss that we will get from CEMUSA this year, will be about EUR40 million, including this restructuring cost, which was not obviously a cost previously. And this is my answer to your question.
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [12]
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And now maybe on the top of that what you -- we have to take into consideration, especially basically in Spain, is that on the top of the cost of the restructuring that you mention, we have basically -- we went through two or three months of basically difficult times because of the restructuring plan we were putting in place. So I mean, that was certainly a headwind in Q2 compared to the previous year. So this is done now. This is over. This is finished, and now we are back on track with the team converging and merging and so I think this is something that was also worth mentioning.
And maybe coming back to your second part of the question related to CEMUSA, you say when do we think that we will reach the breakeven point. As we have always said when we did this acquisition, in order to turn around the business, we will need between two to three years. So between those two to three years we should reach the breakeven point.
Yes, I think the CEMUSA deal structure is basically the restructuring that was discussed. The further investment basically in digital and also the turnaround of Italy and Brazil, which is currently done. So now we are left with Spain, which is now finally restructured. And we are in the process to basically get the New York contract accelerating, thanks to, basically, the fantastic achievement that was managed by Jean-Francois and the team, to have the Fifth Avenue shelters for the first time ever in the history of New York city, and second, basically, a major rollout of digital in the second half of the year. So this we certainly have and boost the performance of our New York portfolio in CEMUSA.
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [13]
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And just to finish on New York before addressing the TfL London bus shelter contract question, CEMUSA generated about $60 million of revenue on the New York contract so far, which was loss making. In order to break even in New York, we need to be at about $70 million -- between $70 million and $75 million.
Fifth Avenue alone will deliver close to 10 million this year, which is what -- again the reason for the delay in closing this deal was the negotiation that was going on with New York City as part of the change of control provisions which were included in the contract agreement between New York and CEMUSA where New York and the business said you take it as it is and we said no way, we don't take it as it is. Unless we get Fifth Avenue we would be backing off this contract.
In the end we got Fifth Avenue. We installed in March of this year. The clients are overwhelmed. The first clients were in the fashion sector and there's a very strong demand for Fifth Avenue which is helping us to sell obviously the rest of the network and also to sell the Chicago, Boston, and San Francisco as well. There is -- we start to benefit from the bundling effect as well.
But as Jean-Charles said, Fifth Avenue is only one layer of our strategy to boost the revenue from 60 million, i.e. what CEMUSA was delivering to about 90 million. We want to increase the revenue on the New York contract by about 50%.
The second part of the strategy is the deployment of digital which will start at the end of Q3, i.e. early September. I would encourage all the analysts on this call to take a look at our visual network in New York by mid-November where most of the shelters will be converted to digital in Manhattan and also the newsstands will be converted to digital.
So that's what I can tell you on the New York contract and obviously CEMUSA was very depending in terms losses of CEMUSA were split between Spain and New York.
On TfL, no we will not breakeven this year given the fact that the rent is fixed. The rent that we are paying to TfL is fixed and was based on the much more aggressive rollout of digital which will pave the way to double the revenue on this contract. We think we will not achieve the doubling of the revenue of the contract in year one or in year two because of the delay. We will be breaking even next year.
As I said earlier on this call, the yields for digital are better than expected but we have to take this with a pinch of salt given the fact that we only have 200 units in the ground versus the 1,000 but the 1,000 is not only TfL. It's also including some other boroughs and some other cities as well and this is what we are currently reviewing.
But as far as the 600 plus screens for TfL, I confirm this is going full speed and we are now at 200 plus and hopefully we will have the 500 somewhere in the middle of -- the beginning of Q4 and reaching 600 by the end of this year. In other words, catching up with the initial rollout where we were expecting to have 500 by now, which is unfortunately not the case.
We will be loss making on this contract this year given the fact that there will be -- the revenue expectation obviously is not going to be where it should have been given the slower rollout of digital.
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Adrien de Saint Hilaire, Morgan Stanley - Analyst [14]
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Many thanks to all.
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Operator [15]
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Thank you. The next question is from Lisa Yang from Goldman Sachs.
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Lisa Yang, Goldman Sachs - Analyst [16]
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Hi. A few questions from myself, please. Could you give us a bit of color on the trends you are seeing in each of your markets and what's driving the further slowdown you're expecting in Q3? Is that just the underlying markets being more difficult, or is it comps or losing market share to other competitors? Any color would be really helpful.
The second question is on TfL. You gave kind of impact of CEMUSA for the year. Could we also have an impact from TfL for the full year as well?
Looking to 2017 given that the [activities] on TfL would obviously improve as to 2016, how should we think about the potential for improvement next year? Looks like consensus has about 100 basis points so just wondering what you think about that figure.
My last question is on the margin in the second half excluding CEMUSA and TfL. Given the organic growth is going to be slower than the first half and in first half the underlying margin was more stable, should we expect a decline in your underlying margin in the second half? Thank you.
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David Bourg, JCDecaux SA - CFO [17]
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I'll take the first one. Jean-Charles the second one and maybe the last two. But on Q3, what we see -- I mean you have to take into account mainly three factors. The first factor being that I think more and more digital we have more and more productivity basically in our guidance, that's for sure.
The second point is that being -- operating in so many markets around the world we have always ups and downs which are much more difficult than some other companies that you are maybe benchmarking regarding guidance because they are more basically focused on one country or two countries which is always easier to guess even though it's not an easy task.
The third point is that when you look basically at the dynamic of the market at the moment, what we see is what we said in this year, is basically the structure of our Company is basically to call what we really see in the market. What we see at the moment in the market is certainly some volatility especially when you look at some Asian markets, Hong Kong where the market is not only difficult but could be basically -- continue to be under pressure. It's true for Hong Kong and Macau. Slowdown in Continental China, in Mainland China. This is clear and it's a sequential slowdown. So, Q1 was very strong, Q2 was basically a bit softer, and Q3 will be under pressure. So we see a sequential basically market conditions deterioration. That's clear at the moment.
On the other side we see also some good news. We spoke about France before. We also have basically in other the markets around the world some positive news. Overall, difficult exercise. We are one of the few companies still providing a guidance and that's the reason why basically we prefer to give you basically this guidance indication this morning which is quite clear at the moment. For example, July has been better than expected a few weeks ago. We still have August to go and September. So Q3, for all the reasons that I've just explained, can move forward I feel at the moment. That's what we see when we call the guidance is what we said.
On TfL, Jean-Francois?
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [18]
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It's too early to give you -- to be more specific like I was on the New York contract given the fact that we are switching to sales -- an audience sales strategy which will be data driven as we did with Tesco, successfully with Tesco which was implemented three years ago. We talked about Tesco and the way we are setting the Tesco inventory many times on this call. This will be applied to our digital network with London bus shelters starting in September. It's too early to give you -- to be more specific but we will be more specific obviously as soon as we have the first sales results.
What I was just implying in my comment is that for the time being we have a traditional way of selling digital. We are seeing better yields than expected and for most of you who live in London you just need to go to Oxford Street and take a look at what it is. It's going to be the same on Kings Road, on Sloane Street, on all the major shopping streets around the capital of the UK and I think that we are now the most dominant out-of-home media player across all the world with this contract. We feel that in the marketplace we can leverage this in a significant way.
But now again we are only six months into the contract with a late rollout of digital. But the screens are second to none. The size is the right size. The brightness is the right brightness and the locations are again better than expected given the fact that the London boroughs are more open-minded to digital than we thought they would be, especially Westminster which is very conservative in terms of outdoor advertising.
That's good news for the world as a whole because it shows that the digital conversion, which is always depending on getting planning approval from the city authorities, is well underway. And this is where we have a clear leadership on a worldwide basis and therefore, the acceleration of digital as mentioned by Jean-Charles will clearly help us to gain market share in our sector and position out-of-home as a credible alternative to online.
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David Bourg, JCDecaux SA - CFO [19]
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Good afternoon, Lisa. Regarding your question on the way you should see the evolution of things found on the impact of CEMUSA and TfL on 2017, I would say that -- as we said before, the -- our job on the first in spite of the restructuring in TfL that we did in [CEMUSA] is a little bit behind others.
The second part of the year and part of this first-half was to deploy our digital program for CEMUSA and TfL. So, clearly there is a strategy as you know to digital. The synergy was made on the cost and also on the top line. On the cost I would say we are ready to get the benefit of those synergies that we will be able to deliver on the top line.
2017, I would say it will depend obviously on the market conditions. But at least we will have our digital platform ready for sale in both New York and in London. And if we are able to deliver the revenue that we forecast, we should be able to be more accretive on our margins in 2017 compared to 2016.
Regarding to your question on the evolution of the margin on the second-half of the year, it is a little bit the same question. This first half of the year has been focused to restructure CEMUSA, to start the rollout of our program -- of our digital program in London. It won't be finished in Q3, but we expect to finish the digital program in the second part of the year. But we will benefit already in H2 from the digital screens that we have currently installed in London and that we will have installed in Q4 in New York.
Knowing that we have already installed, as mentioned by Jean-Francois, some [structures] on the Fifth Avenue which is also -- which will be also quite a significant contributor to those synergies. And the first feedback that we got from the market is very good, so we should continue to benefit from this in the second half of the year.
Last point regarding H2. Clearly, as you know, due to the seasonality of our activity H2 -- the revenue generation in H2 is generating higher than in H1 and all the purse that we have taken in H1 should be shared over the year and should have a lower impact on a full year basis and on H1.
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Lisa Yang, Goldman Sachs - Analyst [20]
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May I just ask another question on North America? Just wondering why it was only [2.6] in the first half. Is anything going on?
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [21]
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We lost the Washington Airport so there was a scope issue as well.
Our street furniture business did pretty well driven again by the New York contract following the installation of the Fifth Avenue bus shelter and transport was not as strong as last year, again, including the loss of Washington. Unfortunately [Della] came on board late and wasn't able to compensate organically for the loss of Washington.
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Lisa Yang, Goldman Sachs - Analyst [22]
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Great. Thank you very much. Very clear.
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Operator [23]
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Thank you. The next question is from Marcus Diebel from JPMorgan.
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Marcus Diebel, JPMorgan - Analyst [24]
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Good morning. I have two questions. One is on the UK again and the current trading. Previously you said just after Brexit I think you just kind of lost one major client or so and recently we've seen ITV, they basically said they haven't seen any major impact from Brexit yet so far from the visibility obviously that they have. But if you could be a bit more specific if you have seen any major changes post Brexit or any because it doesn't seem to be the case for other key players in the UK.
Then secondly again on the margin. Thanks for clarifying, David. Overall, we would probably -- it's probably fair to say that at least H1 is the tipping point for margin but at least some improve from here given CEMUSA coming in and TfL coming in. Obviously the macro environment remains still relatively tough but if you could just clarify the tipping point in H1.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [25]
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Yes, you're referring to a comment I made to you when I was attending your media conference a few weeks ago and I was referring to a booking which was cancelled by Lloyds Bank in the financial sector, which was kind of obvious that this kind of ad spend would be cancelled following the Brexit decision -- vote. With the exception of the that banking -- of that decision on the financial side from Lloyds Bank which was planning a big campaign on out-of-home, we haven't had any major cancellations so far, which is what I said recently publicly.
We don't see a major decline in ad spend as of today. We see some softening in Q3. Having said that, the pacing numbers for Q4, but it's early given the short-term nature of our business. But the pacing numbers for Q4 are pretty strong in the UK. You've seen our performance in Q1 which would have been -- in Q1 and Q2 which would have been a lot better had we had 500 screens installed on time.
We remain confident that 2016 will not be affected too much by Brexit. But 2017 is probably a different story given the fact that, according to the economists, the UK economy should go into recession and we all know what a recession means for the advertising market.
Having said that, I think that we are better positioned to enter this recession with our London digital network as we discussed earlier than without it. I think we would be in a better position to gain market share having done this investment in the city which is still a very attractive city with major retail spend, especially in the areas where we'll be able to offer targeted advertising campaigns on our digital networks.
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [26]
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Marcus, regarding the margins, I'll just confirm what I have said. All the work we have done during this first half of the year we should benefit from it in the second part of the year. It's a little bit too early to say, yes, but normally we should benefit from that and the impact of the margin should be lower than in the first half of the year.
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Marcus Diebel, JPMorgan - Analyst [27]
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Yes, perfect. Thank you very much.
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Operator [28]
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Thank you. The next question is from Sarah Simon from Berenberg.
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Sarah Simon, Berenberg Bank - Analyst [29]
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Yes, hi. I've got two questions please. First one was on Europe, leaving aside France and the UK. Can you just give us a bit of color on how those different markets have gone because obviously Europe's actually doing -- or Eurozone is doing okay and yet the growth is quite poor. Is there scope change in there like Washington, which is obviously not in Europe, but in terms of contract losses, or is that just individual markets?
Then the second question was the reversal of the onerous provisions in CEMUSA. Have you reversed those because you don't think the contracts are as onerous as you thought? I'm just interested to see why you've made that decision. Thanks.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [30]
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Sarah, on your first question, Europe, you're right to mention that the trends could be different from one market to another even in the same region. I would say that if you put on the side France and the UK, as you said, and you start with the southern part of Europe, we clearly had some headwind in Italy compared to a year before because the year before we had a very strong tailwind from the expo in Milan. Even better than expected. The comps were clearly challenging, but we continued to do okay.
Then in Spain, we had the headwind I was referring to before when we merged our operations between JCDecaux and CEMUSA and that's why the -- I would say better than expected because we had to strike basically more people from the CEMUSA team than expected originally because we think we could gain much more in terms of productivity. It's good news long term but it's basically short term and that's basically what the kind of I would say stabilization for quite some weeks.
Then in Portugal, basically the business was so-so.
But the northern part of Europe, mainly the trend in Germany which is this year more difficult for us. We had three (inaudible) in this year outperforming basically our peers in the market and this year the market is less favorable for us as we speak, even though July has been better.
When you look at Belgium, for example, it has been strong and the Netherlands difficult and Scandinavia so-so.
Overall you see ups and downs across the Eurozone, but basically we manage. We have no contract basically impact in the first half of the year. Yes, we will have some contract scope impact in the second half of the year because we will have one contract in Madrid that we didn't renew and one contract in Barcelona that we also didn't renew. We are still operating those two cities as mentioned in our presentation earlier on, but that will have some headwind for us in the second part of the year in terms of supply, obviously.
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [31]
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Just a quick addition to what Jean-Charles has said, to give you a bit of flavor in Germany, why today, Sarah. We are more exposed than our competitors to the fashion sector given the fact that we only operate the prime outdoor business in Germany, i.e. we are 95% still furniture, i.e. assets mostly in central areas which are mostly booked [famously], which are very much liked by the fashion industry. The fashion industry reduced their advertising spend quite dramatically in H1, including C&R and C&A and as a result we were more affected than our competitor.
If you look at the breakdown of our competitors' sales by sub-segment of out-of-home, it was reporting as well in Q -- was reporting in Q1 off a decline in street furniture in Germany where they are taking the number two position in street furniture and gaining market share against billboards and transport over the last three years as indicated by Jean-Charles. But in the first half of this year we've lost a bit of market share given the fact that our street furniture is more exposed to fashion than to the rest of the outdoor advertising market.
On scope, there was one change. We lost the Hague last year which was our second biggest contract in Holland and which was, for example, accounting for more than half of the decline of the Dutch business, which was very soft in the first half.
Holland and Germany were clearly the weak spots with Finland in the first half. Sweden was very strong. Norway was okay.
Finally on Eastern Europe, a mixed bag. Czech Republic was difficult. Slovakia was good so it's exactly what Jean-Charles said. It's difficult to give you a trend of what's going on in Europe because the markets are very different from one to another.
Finally on Russia, which is reported in the rest of the world, we are up 30% in H1 in Russia given the fact that some local operators went bust and there is a reduction inventory -- an inventory and reduction in supply of billboards in Moscow which benefits the remaining players. We are now three players left in the Moscow billboard market versus five.
What we told you at the analyst presentation last year has exactly happened. Despite no recovery in the Russian economy we are up 30% in the first half in Russia. Those numbers are reported in rest of the world, not in Europe.
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Sarah Simon, Berenberg Bank - Analyst [32]
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Thanks.
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David Bourg, JCDecaux SA - CFO [33]
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Good afternoon, Sarah. Regarding your question on the results of provision, this provision is mainly related to the structure of the company, for the allocation of the price of CEMUSA. As I said at the introduction of my presentation, in the context of (inaudible) we are recognizing the opening balance sheet of CEMUSA, the provision for new contract of EUR144 million which is completely in accordance with the IFRS. We had to reverse this provision according to the duration of the contract again in accordance with the IFRS, so this is exactly what we are doing.
We will reverse part of this provision -- I would say 60% of this provision over the next three years and so it will still correspond to the business plan made to support this provision in the context of the structure of the company.
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Sarah Simon, Berenberg Bank - Analyst [34]
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Okay so the sort of step down in depreciation, all things being equal, will continue as you have that reversal every year?
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David Bourg, JCDecaux SA - CFO [35]
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Exactly.
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Sarah Simon, Berenberg Bank - Analyst [36]
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Thanks.
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Operator [37]
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Thank you. The next question is from Julien Roch from Barclays.
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Julien Roch, Barclays - Analyst [38]
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Oui, bonjour, Jean-Francois, Jean-Charles, David and last but not least, Arnaud. My first question is on CEMUSA. You already told us you would take two, three years to reach breakeven. I'd like to know how long it will take to get to Group margin now it's been about five, six years. That's my first question.
Second question is the same on London. Loss making this year, breakeven next year, but how long until it gets to Group margin? Are we talking 2018, 2019, 2020?
Will it be possible, looking at slide 18, to have an idea of what the total revenue was in Spain and looking at the loss of apart from [Barcelona] and Madrid which according to our ledger has annual revenue of EUR40 million and whether that is going to have an impact on margins or not? Merci.
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Jean-Francois Decaux, JCDecaux SA - Co-CEO [39]
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If I can take the first question because I need to go to a meeting so I will have to leave the call after this question. So, Jean-Charles, if I can take the first question regarding -- the second one confirming breakeven on TfL. Loss making this year, breakeven next year and we should reach Group margin at the EBIT operating income level in 2018 or 2019.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [40]
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On CEMUSA, it is clear that this is a turnaround plus investment requirement that is underway at the moment. We will be breaking even in -- not sure in 2017, but certainly in 2018 that's for sure.
Group margin, it's a bit early to tell at the moment because that was a business structurally below our margin. But strategically as we said was important to try to consolidate that business and so -- but I can't -- we can't commit at the moment to say that CEMUSA will be back basically -- will be at JCDecaux margins in the near future. We need a bit of time.
We think we -- for Italy and Brazil there is no question that those two countries will be at Group margins in 2017. But for Spain and for the New York contract we'll clearly be -- we will have a much better idea next year because it's important for you to understand that my answer is vague because we don't know yet the impact of the digitalization in New York City. If we achieve what we think we could achieve, it's clearly a game changer in the whole story of CEMUSA.
What you have to understand is that JC Decaux has always been driven by entrepreneurial spirit. And this year has been basically an entrepreneurial basically turnaround deal because we need to make major restructuring in Spain which we have done. And we need basically to change the face of the CEMUSA New York contract structure where we need to have the Fifth Avenue, as we said, plus a major digital rollout never seen, never done in downtown New York.
This is something that we think is achievable but at the moment we have a lot of pressure to basically turn around the business, which is good but I can't commit today to give you the information that these contracts or these assets will be a Group margin of JCDecaux in two or three years from now. That will be for me at the moment something which we are not able to commit, Julien.
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Julien Roch, Barclays - Analyst [41]
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Okay. And then the loss of Madrid and Barcelona, roughly how much of your Spanish revenue, combined Spanish revenue that was?
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [42]
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That was your third question. We didn't renew Madrid -- one contract in Madrid and one contract in Barcelona and the total basically impact on the yearly -- on the full year basis will be roughly around EUR30 million.
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Julien Roch, Barclays - Analyst [43]
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Okay. But if I look at the -- what was CEMUSA when you bought it was at about EUR130 million in revenue. Jean-Francois earlier told us that the US was about EUR55 million, so CEMUSA is about EUR75 million equally spent in Brazil. I'd think that the majority of that revenue is Spain and CEMUSA was bigger than you in Spain. So it looks like you lost potentially a third of your revenue in Spain on those two contracts? I mean is it as big as that or --
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [44]
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CEMUSA, first of all, was not bigger. CEMUSA was half our size in Spain, just to make things clear, Julien. This is not the right assumption. CEMUSA was the number three in Spain. We were the number one in Spain by far. Basically, the revenue from CEMUSA in Spain was around EUR55 million when we bought that. So basically, what we didn't renew what contracts under JCDecaux operations, not on the CEMUSA operation.
We will continue to be by far the market leader in the Spanish market after the acquisition of CEMUSA and the loss of these two contracts. We will clearly be the market leader in the Spanish environment with still a major footprint in both cities, both in Madrid and Barcelona. Our Company, that's why we have the slide 18, will continue to be a driving force in the Spanish market. We will lose revenues, but we will continue to be the best market proposition by far in the market.
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Operator [45]
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Thank you. The next question is from [Tracey Young] at Macquarie.
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Tracey Young, Macquarie - Analyst [46]
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Yes, hi. The first question relates to your ad categories. It sounds like obviously you're very focused on the fashion business. Is retail where you're seeing the biggest weakness?
Then any comment you can make on the MTA. You mentioned there should be some expectation of a decision in the second half. Could that happen in the fall? Do you have any idea of how many bidders]? Any color you could give would be helpful. Thank you.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [47]
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As you know, Tracey, we don't want to comment basically on ongoing tenders in general. This is something that is expected to be decided in the next coming months. You have different lots in this tender process so I can't make any further comment at the moment because this is something, this is under a public procurement process, so this is something that we have to be very careful with. That's the reason why I can't get into much more detail at the moment with the MTA contract in New York.
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Tracey Young, Macquarie - Analyst [48]
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Okay and then just a comment on the ad categories. Is retail where you're seeing the biggest weakness?
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [49]
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No. No major changes basically in the ad category I must say in the first half of this year with some few exceptions obviously in some markets as Jean-Francois commented before with the fashion in Germany. But overall, the ranking of our business categories of our clients around the world continues to be around the same.
Retail and entertainment remain the largest categories with over 15% of our business. Now the major -- basically the faster growing category is certainly e-commerce which is roughly 10% of our Group revenue at the moment, which is entering into the top -- basically the top three, top four client categories, especially in Asia and also in the US and Europe where we see a lot of (inaudible) now being some very significant clients in different markets.
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Tracey Young, Macquarie - Analyst [50]
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Okay, thank you very much.
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Operator [51]
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Thank you. The next question is from Catherine O'Neill from Citi.
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Catherine O'Neill, Citigroup - Analyst [52]
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Hi. I've just got one question on CapEx for this year. I think you previously talked about between EUR250 million and EUR300 million. I just wondered whether you're sort of sticking with that level or given the much lower CapEx level in the first half, whether we should expect it to be lower than that for the year.
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David Bourg, JCDecaux SA - CFO [53]
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Good afternoon, Catherine. No, we will keep the same range. The fact that we are below expectation in our CapEx in the first half is mainly coming from the delay in our digital program in New York and London. We will do this digitalization in the second half of the year. In terms of CapEx we will be still between EUR250 million and EUR300 million, but I would say more in the low range than in the higher range, so closer to EUR250 million than EUR300 million.
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Catherine O'Neill, Citigroup - Analyst [54]
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Okay. Thank you.
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Operator [55]
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Thank you. We have no further questions.
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Jean-Charles Decaux, JCDecaux SA - Co-CEO [56]
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I would like to thank you very much for attending this first-half 2016 conference call from JCDecaux. For those who are taking some days off, I wish you a good time and looking forward to seeing you in the roadshow in a few weeks' time. Good bye.
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Operator [57]
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Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.
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