July 24, 2019

Technicolor: First Half 2019 Results

Technicolor announces today its results for the first half of 2019.

Paris (France), 24 July 2019 – Technicolor (Euronext Paris: TCH; OTCQX: TCLRY) announces today its results for the first half of 2019.

 

In a transition period, first half revenues are broadly in line with prior year
The Group pursued its investments to support the strong organic growth in Production Services and the transformation program in Connected Home

Profitability and cash flow generation in the second half will improve significantly

 

First Half 2019 Key Highlights from continuing operations

 

First Half (IFRS)

 

  First Half (excl. IFRS 16*)

In € million

2018***

2019

 

At current

rate

 

At constant

rate

2018***

2019

 

At current

 rate

 

At constant

 rate

Revenues from continuing operations

1,774

1,764

(0.5)%

(3.8)%

1,774

1,764

(0.5)%

(3.8)%

Adjusted EBITDA from continuing operations

73

104

+43.5%

+40.4%

73

62

(14.9)%

(18.1)%

As a % of revenues

4.1%

5.9%

-

4.1%

3.5%

-

-

Recurring EBITA**

(9)

(44)

na

na

(9)

(48)

na

na

EBIT from continuing operations

(91)

(88)

+3.3%

+5.9%

(91)

(93)

(2.2)%

+0.2%

Free Cash Flow from continuing operations

(137)

(262)

na

na

(137)

(297)

na

na

                   

 

(*) Under IFRS 16, most operating leases are now treated as financial leases. As a consequence, operating lease expense is cancelled and replaced by an amortization expense and an interest expense. Under the modified retrospective method, 2018 Profit & Loss account is not adjusted. Figures are therefore presented excluding IFRS 16 in 2019 only for comparability.

(**) Recurring EBITA corresponds to the Adjusted EBITDA from continuing to which Depreciation charges and IT capacity use for rendering in Production Services are added back.

(***) Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.

 

 First half Performance           

  • Revenues from continuing operations amounted to €1,764 million, down 3.8% year-on-year at constant rate and down 0.5% at current rate, with an Adjusted EBITDA of €62 million (excluding impact of IFRS 16) compared to €73 million in the first half 2018.
  • Significant first half improvements confirming good progression in the Technicolor transformation:
    • Production Services revenues recorded a strong performance (c.+10% year-on-year at constant rate and c.+14% at current rate) driven by a record activity in Film & Episodic Visual Effects;
    • Strong performance in Broadband at Connected Home, driven by sales of the very successful XB6 (Gateway Access box). As a result, Connected Home has become the worldwide leader in the Broadband gateway access market;
    • The Connected Home three-year transformation plan has exceeded 70% of the cost savings target (on a run rate basis) at the end of June.
  • Negative intra-year seasonality:
    • First half sales at Connected Home were achieved with inventories built up mainly through end of 2018, i.e. including key components prices not reflecting the current market prices reductions;
    • As every year, first half  Free Cash Flow from continuing operations  is negatively driven by the activity cycle at Connected Home and DVD Services. Additionally, Production Services benefited from fewer progress payments than prior year.
  • 2019 First half one-off events:
    • Connected Home: strong performance in Broadband was offset by a soft half in Latin America, affected by poor economic conditions, and comparisons with exceptionally strong North American video sales during the first half 2018;
    • Broadband gateway access sales were temporarily delayed in the US market at the start of the year which resulted in the buildup of inventories. These inventories were significantly reduced by the end of the second quarter. The first half Free Cash Flow from continuing operations has been therefore affected by a €83 million temporary funding need, that will reverse throughout the second half.
  • Operating results:
    • Adjusted EBITDA is down versus 2018, driven by Connected Home and one-off licensing revenues in the first half 2018 while Entertainment Services is flat;
    • Recurring EBITA decline reflects the lower Adjusted EBITDA, cloud rendering costs incurred in Production Services as a result of a record delivery schedule and increased operating reserves at Connected Home;
    • EBIT is stable year over year reflecting a material reduction in restructuring costs;
    • Free cash flow from continuing operations down by €160 million year-on-year at current rate, mainly due to a lower level versus prior year of milestone payments in Production Services (€26 million) and the previously mentioned €83 million timing impact on the working capital resulting from a ramp up in inventories in Connected Home (both of which will be recovered in the second half);
    • Financial structure: Net debt at nominal value (excluding impact of IFRS 16) amounted to €1,065 million at June end 2019. The funding of excess inventories at Connected Home during the first half of the year has weighed significantly on the semester free cash flow. The Group has therefore drawn more than usual on its credit lines, including at the end of June.
  • The sale to InterDigital of Research & Innovation activity was closed on May 31, 2019.

 

First half business highlights

  • Production Services:
  • Technicolor’s MPC joined the filmmakers of The Lion King to bring a Disney classic back to the screen in a whole new photorealistic way. MPC was responsible for producing all VFX and Animation for The Lion King (1,600 shots) and for delivering all 2-D and 3-D renders. Twelve hundred MPC artists, including 130 animators and representing more than 30 different nationalities, worked across studios in Los Angeles and London, pushing the boundaries of entertainment and raising the bar on visual wonderment for audiences everywhere.
  • Broadband:
    • Technicolor has become the undisputed market leader in this segment reaching 21% worldwide market share, seven points ahead of its nearest competitor[1].

 

Outlook

  • The Group’s profitability and cash flow generation in the second half will improve significantly, supported by recurring positive second half seasonality and by a catch-up effect in both Production Services and Connected Home.
  • The Group will continue to pursue investments, through opex and capex, to support organic growth in Production Services and to deliver its transformation program in Connected Home. The benefits of these initiatives are progressively expected over the next several years through improved profitability and cash generation.
  • Specifically:
    • The strong sales trend is expected to continue in Production Services, with improved margins and cashflow generation compared to the first half. The Group also expects to start benefiting from a long-term production agreement with a global streaming platform;
    • DVD Services have successfully renegotiated a major customer contract extension with improved terms effective in the second half;
    • Connected Home will benefit from lower memory prices. In addition, the reduction of excess inventories will be fully achieved in the third quarter leading thereafter to improved cashflow.

 

Board composition

  • The Board of Directors has appointed Cecile Frot-Coutaz as Board Observer and intends to propose her election as a Director at the next shareholder meeting. She is currently Head of EMEA for YouTube based in London and previously held several executive roles and positions within Pearson Television Group and FremantleMedia Group, eventually becoming Chief Executive Officer in 2012.

 

 

An analyst audio webcast hosted by Frederic Rose, CEO, and Laurent Carozzi, CFO, will be held Wednesday, 24 July 2019 at 6:30pm CEST.

Link to the Audio Webcast:
http://www.technicolor.com/webcastHY2019

The presentation slides will be made available on our website prior to the webcast
The replay will be available at the latest by 8:00pm (CEST) on July 24th, 2019

 

Financial calendar

Q3 2019 business update

5 November 2019

FY 2020 results

26 February 2020

 

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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:

www.technicolor.com

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

Investor Relations

Christophe le Mignan: +33 1 88 24 32 83

Christophe.lemignan@technicolor.com

 

[1] Dell’Oro cable CPE vendor table 1Q19, published in June 2019. 

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