Technicolor: Full Year 2016 Results

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Successful integration of acquisitions, Rebalanced operating and financial profile, Strong free cash flow generation and significant deleveraging

Paris (France), 22 February 2017 – Technicolor (Euronext Paris: TCH; OTCQX: TCLRY) announces today its results for the full year 2016.

Frederic Rose, Chief Executive Officer of Technicolor, stated:

“Following the successful integration of our 2015 acquisitions, our operating businesses are now well positioned to seize growth opportunities while continuing to invest in innovation. Our focus moving forward will be to capture opportunities arising out of the emergence of new immersive premium content experiences and new delivery technologies.”

Key points

  • Successful integration leading to material profitability improvement in Connected Home and record year of commercial wins;
  • Continued double digit organic growth in Production Services, strengthened global leadership positions, reinforced scale and client diversification enabling improved utilization of facilities and creative talent;
  • Solid performance in DVD Services and Licensing activities which both contributed materially to the Group’s cash generation;
  • Adjusted EBITDA stable year-on-year at €565 million, notwithstanding a €256 million loss of MPEG LA contribution, demonstrating the successful operating rebalancing of the Group;
  • Strong free cash flow generation of €248 million. Excluding the impact of the Cathode Ray Tube settlements of €48 million, Free Cash Flow generation reached €296 million;
  • Significant gross debt reduction resulting in a net leverage ratio at 1.26x at end 2016 versus 1.74x at end 2015.

 

2017 objectives:

  • Adjusted EBITDA in the range of €460 million to €520 million;
  • Free cash flow in excess of €150 million before cash impacts of the Cathode Ray Tube (“CRT”) cartel case settlements (c. €(81) million).

The Group will pursue its deleveraging with the aim to reach a net Debt to Adjusted EBITDA ratio of 0.8x following which it will increase the return paid to shareholders.

These objectives are calculated based on constant exchange rates, and integrate the uncertainties in determining the timing to resolve the patent litigation against Samsung Electronics and the money at stake.

 

Update on Drive 2020

Reflecting what has been learned from 2016 experience, Technicolor has now the ambition to achieve an Adjusted EBITDA of around €680 million and a free cash flow in excess of €280 million in 2020. These ambitions assume a regular progression of the Adjusted EBITDA from 2017 to 2020 and are at constant rate and perimeter.

 

Proposed dividend

The Board of Directors of Technicolor has decided to propose to the 2017 Annual General Meeting of Shareholders the payment of a cash dividend of €0.06.

  • Ex-dividend date: 21 June 2017;
  • Dividend record date: 22 June 2017;
  • Payment date of dividend: 23 June 2017.

Technicolor shares will trade ex-dividend as from the beginning of the trading session on 22 June 2017. Holders of Technicolor shares on 21 June 2017 selling their shares as from such date will keep their right to the dividend.

 

 

Summary of consolidated results for the full year of 2016 (unaudited)

 

 

Key financial indicators

 

 Full Year

 Change YoY

In € million

2015*

2016

Reported

At constant rate

 

Group revenues

3,652

4,890

+33.9%

+34.8%

 

Group revenues excluding exited activities[1]

3,580

4,888

+36.5%

+37.5%

 

Adjusted EBITDA

565

565

+0.1%

+0.8%

 

As a % of revenues

15.5%

11.6%

(3.9)pts

 

 

Adjusted EBIT before PPA[2] amortization

374

371

(0.9)%

(0.6)%

 

As a % of revenues

10.2%

7.6%

(2.7)pts

 

 

Adjusted EBIT

374

329

(12.0)%

(11.7)%

 

As a % of revenues

10.2%

6.7%

(3.5)pts

 

 

EBIT from continuing operations

264

262

(0.6)%

(0.3)%

 

As a % of revenues

7.2%

5.4%

(1.8)pts

 

 

Financial result

(87)

(156)

(69)

 

 

Income tax

(55)

(44)

+11

 

 

Share of profit/(loss) from associates

(1)

2

+3

 

 

Profit/(loss) from continuing operations

121

64

(57)

 

 

Profit/(loss) from discontinued operations

(43)

(90)

(47)

 

 

Net income

78

(26)

(104)

 

 

Group free cash flow

256

248

(8)

 

 

Net financial debt at nominal value (non IFRS)

985

712

(273)

 

 

Net financial debt (IFRS)

908

679

(229)

 

 

 

Group revenues increased by 34.8% at constant currency, reflecting the change in scale of Connected Home and Entertainment Services. The two segments combined recorded revenue growth of 48.2% year-on-year at constant rate resulting from the contribution of the acquisitions completed in 2015 and double digit organic growth in Production Services activities.

Adjusted EBITDA from continuing operations reached €565 million in 2016, stable compared to 2015, as the increased scale of Connected Home and Entertainment Services fully offset the expected decline of the Technology segment resulting from the sharp decline of MPEG LA contribution. The Adjusted EBITDA margin amounted to 11.6%, down by 3.9 points year-on-year due to the reduced weight of licensing activities. The Adjusted EBITDA was up 28% compared to the 2015 Pro Forma[3] Adjusted EBITDA excluding MPEG LA contribution.

Adjusted EBIT from continuing operations amounted to €329 million in 2016, down 11.7% at constant currency compared to 2015. This decrease of €45 million compared to 2015 was mostly driven by the amortization of the purchase price allocation that Technicolor performed in 2016 following the different acquisitions completed in 2015. The lower contribution of the Technology segment, down by €196 million compared to 2015, was fully offset by the Adjusted EBITDA growth of Connected Home and Entertainment Services and lower Corporate costs. 

EBIT from continuing operations totaled €262 million in 2016, globally flat compared to last year, notwithstanding a significant increase of restructuring costs year-on-year. Restructuring costs amounted to €55 million, up 42.1% at constant currency year-on-year, resulting principally from cost cutting initiatives in the Technology segment, including the shutdown of a laboratory in Germany, and in the DVD Services segment to bring the North American assets of Cinram up to Group’s operational efficiency levels. Other non-current assets write-offs were lower by €14 million compared to 2015 and included R&D write-offs in the Connected Home segment for €9 million.

The Group’s financial result totaled €(156) million in 2016 compared to €(87) million in 2015, reflecting:

  • Net interest costs amounted to €81 million in 2016 compared to €63 million in 2015, reflecting the issuance of €374 million of additional Term Loan debt maturing 2020 in the second half of 2015 to finance the acquisitions of Cisco Connected Devices and The Mill. The Group prepaid some of its 2020 Term Loan debt in 2016 and undertook a partial refinancing in the last quarter of 2016 at a lower interest rate;
  • Other financial charges amounted to €75 million in 2016 compared to €24 million in 2015. These charges included the partial reversal of the IFRS adjustment of €31 million triggered by €700 million of 2020 Term Loan debt prepayments (o/w €450 million was from proceeds of the new 2023 Term Loan debt), that occurred in the second half of 2016 and a foreign exchange loss of €16 million.

In 2016, Technicolor settled with all major plaintiffs in the various CathodeRay Tube ("CRT") cartel litigation cases in the US. Such settlements resulted in the recognition of a €95 million non-current expense for the full year 2016.

Excluding the impact of the CRT settlements, net income would have amounted to €69 million. Subsequently to these non-current expenses, the reported net income was a loss of €26 million in 2016.

 

Statement of financial position and cash position

 

 Full Year

Change YoY

In € million

2015*

2016

Reported

Operating cash flow from continuing operations

468

463

(1.1)%

Group free cash flow

256

248

(3.2)%

Nominal gross debt

1,370

1,083

(287)

Cash position

385

371

(14)

Net financial debt at nominal value (non IFRS)

985

712

(273)

IFRS adjustment

(77)

(33)

+44

Net financial debt (IFRS)

908

679

(229)

 

 

In order to facilitate reconciliation with the IFRS statement of cash flow, operating cash flow from continuing operations, which is defined as Adjusted EBITDA less net capital expenditures, restructuring cash out and the variation in working capital & other assets and liabilities, amounted to €463 million in 2016, roughly stable compared to 2015, and included:

  • Capital expenditures amounting to €152 million in 2016, up €46 million, reflecting a higher level of capitalized R&D in Connected Home (€49 million vs. €31 million in 2015) following the Cisco Connected Devices acquisition and capacity expansion in Production Services;
  • Cash outflow for restructuring totaling €56 million in 2016, up €8 million year-on-year, reflecting the impact of cost cutting initiatives in the Technology segment, cost streamlining actions in the DVD Services business, as well as cost cutting initiatives in the Connected Home segment;
  • A positive variation of the working capital and other assets & liabilities for €106 million, resulting from the transfer of the supply chain from Cisco to Technicolor in the context of the Cisco Connected Devices transaction.

Group free cash flow amounted to €248 million in 2016, including:

  • Net Financial charges of €81 million in 2016, compared to €74 million in 2015, as the issuance of €374 million of additional 2020 Term Loan in the second half of 2015 to finance the acquisitions of Cisco Connected Devices and The Mill generated a material increase in interest charges. This impact was reduced by €317 million of repayments of Term Loan debt maturing 2020, of which €283 million in the second half of 2016. In addition, the Group partially refinanced its 2020 Term Loan debt by the €450 million issuance of a Term Loan maturing 2023;
  • Tax cash charges of €44 million;
  • Other cash charges, amounting to €44 million in 2016, and principally reflecting charges related to pensions for €28 million;
  • Cash impacts of the CRT settlements of €48 million in 2016.

Nominal gross debt was €1,083 million at end December 2016. The Group’s cash position was at €371 million at end December 2016.

Net debt at nominal value was €712 million at end December 2016, compared to €985 million at end December 2015, resulting in a nominal net debt to Adjusted EBITDA ratio of 1.26x at end December 2016 compared to 1.74x at end December 2015.

 

 

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An analyst conference call hosted by Frederic Rose, CEO, and Esther Gaide, CFO, will be held on Thursday, 23 February 2017 at 9:30am CET.

 

Following the changes made to EU and French rules in 2013 and 2015 with regard to publication of periodic financial information, the Company will no longer publish its quarterly revenues effective immediately. Technicolor will provide a business update instead.

Financial calendar

Q1 2017 business update

27 April 2017

H1 2017 results

27 July 2017

 

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Warning: Forward Looking Statements

This press release contains certain statements that constitute "forward-looking statements", including but not limited to statements that are predictions of or indicate future events, trends, plans or objectives, based on certain assumptions or which do not directly relate to historical or current facts. Such forward-looking statements are based on management's current expectations and beliefs and are subject to a number of risks and uncertainties that could cause actual results to differ materially from the future results expressed, forecasted or implied by such forward-looking statements. For a more complete list and description of such risks and uncertainties, refer to Technicolor’s filings with the French Autorité des marchés financiers.

 

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About Technicolor

Technicolor, a worldwide technology leader in the media and entertainment sector, is at the forefront of digital innovation. Our world class research and innovation laboratories enable us to lead the market in delivering advanced video services to content creators and distributors. We also benefit from an extensive intellectual property portfolio focused on imaging and sound technologies. Our commitment: supporting the delivery of exciting new experiences for consumers in theaters, homes and on-the-go.

www.technicolor.com – Follow us: @Technicolorlinkedin.com/company/technicolor

Technicolor shares are on the NYSE Euronext Paris exchange (TCH) and traded in the USA on the OTCQX marketplace (OTCQX: TCLRY).

 

Investor Relations

Emilie Megel: +33 1 41 86 61 48

emilie.megel@technicolor.com

Christophe Le Mignan: +33 1 41 86 58 83

Christophe.lemignan@technicolor.com

 



[1] Digital Cinema and Distribution Services in the Entertainment Services segment, IZ-ON, M-GO and Virdata activities in the Other segment.

[2] Purchase Price Allocation.

* As Published in 2015 and before IFRS3 restatement of 2015 acquisitions.

[3] The 2015 Pro Forma financial information relates to the income statement for the 12-month period ended December 31, 2015 and reflects the acquisition of Cisco Connected Devices and The Mill as if acquisitions occurred on January 1, 2015.

 

* As Published in 2015 and before IFRS3 restatement of 2015 acquisitions.