Technicolor: Full Year 2019 Results

2019 results:

Continued double digit growth in Production Services, driven by Film & Episodic Visual Effects.

Adjusted EBITDA (€246 million pre-IFRS 16) and Adjusted EBITA (€36 million pre-IFRS 16) improved during the second half helped by margin recovery at Connected Home and seasonality pattern from DVD Services. Free cash-flow was impacted by €95 million payment term reductions due to following rating downgrades, with a significant effect at year end.

All credit lines not drawn as of December 31st, 2019.
Balance sheet to be structurally reinforced in 2020: launch of c. €300 million capital increase combined with an extension of both RCF and Wells Fargo facilities to 2023 as well as a new $110 million short-term facility providing additional liquidity headroom.
2020 outlook: adjusted EBITDA expected to be in line with 2019 level and Adjusted EBITA at c. €70 million post IFRS 16 (c.€65 million pre-IFRS 16), a significant improvement versus 2019.
2020-2022 Strategic Plan (post IFRS 16): c.€150 million cost savings on a run rate basis by 2022, cumulative Adjusted EBITDA of over €1.0 billion and cumulative Adjusted EBITA of over €340 million for the period. Net Debt / Adjusted EBITDA target below 2.75x (pro forma of the Rights Issue) by the end of 2022.

Full Year 2019 Key indicators from continuing operations

(*) Under IFRS 16, most operating leases are now treated as financial leases. As a consequence, operating lease expense is 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.
(**) Adjusted EBITA corresponds to the Adjusted EBITDA from continuing operations to which depreciation charges, amortization and reserves (excluding PPA amortization) and IT capacity use for rendering in Production Services are deducted.

Full year 2019 Group performance (excluding IFRS 16)

• Sales of €3.8bn reflecting double digit growth in Production Services, more than offset by a decline in the North American Video segment in Connected Home and volume decline in DVD Services.
• Adjusted EBITDA of €246 million reflecting solid improvement in Connected Home vs. the first half 2019 as anticipated, driven mainly by margin recovery as a result of improvements in memory costs and benefits from our transformation plan.
• Adjusted EBITA of €36 million due to high rendering costs consumed in Production Services in an intense period of deliveries, and higher D&A linked to investments in Film & Episodic Visual Effects (“FEV”).
• A €59 million impairment charge has been booked at the DVD Services division level due to lower volume, partially compensated by volume-based pricing assumptions.
• Restructuring amounted to €(31) million at current rate, including €(10) million for Connected Home, pursuant to the three-year transformation plan, €(8) million for DVD Services, mainly resulting from distribution sites optimization, and €(11) million for Production Services on cost streamlining actions.
• Free cash flow¹ of €(161) million: as expected, and communicated in the 2019 third quarter press release. Working capital at the end of the year was negatively affected by downgrades by the rating agencies in 2019. The impact is estimated to be €(95) million, mainly explained by one-off reductions in payment terms.
• Net Debt of €961 million (3.9x Net Debt / Adjusted EBITDA).
• Credit lines fully undrawn as of  December 31st, 2019.

Technicolor 2020-2022 Strategic Plan
As communicated in the press release published on February 13th, Technicolor’s new CEO Richard Moat, along with a renewed Board of Directors and the top management team, have designed a 2020-2022 Strategic Plan focused on prioritising profitable growth opportunities and adopting a more disciplined approach to business selection, whilst continuing to provide market leading products and services. All of this will cement the group’s long-held position as the best partner across its three activities. Additionally, Technicolor will endeavour to streamline all operations. A number of these initiatives are already in progress and the Strategic Plan will benefit all of our stakeholders: shareholders, employees, clients, suppliers and lenders.
Actionable initiatives and priorities for each of Technicolor’s divisions have been identified. In Production Services, Technicolor is well placed to benefit from the burgeoning growth of streaming platforms and the unprecedented demand for original content, and is well positioned to capture outsized market share in Film & Episodic, Advertising, and Animation. DVD Services has already started creating a more resilient business model through its ongoing cost optimization efforts and the renewal of key major customer contracts under volume-based pricing schemes. Finally, in Connected Home, Technicolor will focus on Broadband gateway activities, which are experiencing an improved trading environment.

Strengthening of Technicolor’s Capital Structure
In order to regain strategic flexibility and operate in a sustainable environment, Technicolor is announcing a comprehensive reinforcement of its capital structure comprising of c. €300 million of new equity through a Rights Issue and the concurrent extension of its RCF (which will be progressively reduced from €250 million to €225 million starting January 1st, 2021 and to €202.5 million starting December 22nd, 2021) and its Wells Fargo facility to March 2023, conditional on the successful execution of the Rights Issue. The company has also secured a new $110 million short-term facility providing additional liquidity headroom.

C. €300 million Rights Issue
An Extraordinary General Meeting of Shareholders will be held on March 23rd, 2020 which will vote on resolutions related to the Rights Issue. It is anticipated that the equity issuance will be launched in the second quarter 2020, subject to approval from Technicolor’s shareholders, regulatory authorities, and market conditions.
RCF and Wells Fargo Facility Extensions
Concurrently, Technicolor announces that it has reached an agreement for an 18-month extension of its existing RCF from December 2021 to June 2023, conditional on the successful execution of the Rights Issue. Similarly, the Wells Fargo facility will be extended by 18 months from September 2021 to March 2023.
The following committed facilities will therefore remain available to Technicolor:

• Revolving Credit Facility:
  • €250 million until December 31st, 2020;
  • €225 million from January 1st, 2021 until December 21st, 2021;
  • €202.5 million from December 22nd, 2021 until June 30th, 2023;
• $125 million bilateral facility with Wells Fargo until March 31st, 2023.

$110 million Short-Term Facility
Technicolor has secured an additional $110 million short-term facility which has been arranged by J.P. Morgan. The facility will provide additional liquidity headroom and will be repayable following the receipt of proceeds of the Rights Issue.

2020-2022 Guidance² (including IFRS 16)
The Strategic Plan, including its operational and financial dimensions, will enable Technicolor to generate for the 2020-2022 period a cumulative Adjusted EBITDA of over €1.0 billion and a cumulative Adjusted EBITA of over €340 million, and to reduce its Net Debt / Adjusted EBITDA leverage ratio below 2.75x³ by 2022.
With respect to 2020, Technicolor expects to achieve an Adjusted EBITDA in line with 2019 and an Adjusted EBITA of c. €70 million.
Key assumptions:

• Production Services: Film & Episodic Visual Effects in 2020 is expected to have relatively low first half activity driven by delays in awards coming from one key client. The second half activity is expected to be at full capacity, as well as the following years of the plan. Episodic related activities are expected to grow over the period at a double-digit rate. Advertising growth will be driven by access to new clients (increased demand in the direct to brand segment), and improved efficiencies. Animation growth will be fuelled by new contracts, including some already concluded with streamers.
• DVD Services: volume declines will still affect activity, but the gradual positive impact of contract renewal together with cost savings measures will help restore profitability.
• Connected Home: moderate growth expected over the period, with prolonged decline of video being more than offset by strong progress in the broadband gateway segment. Increased efficiencies, and transformational measures, together with deepened client selectivity, will further improve profitability.
• Free cash-flow: conservative assumptions in working capital dynamics forecasted for 2020 and 2021.

Timeline of the Offering Process Proposed to the Extraordinary General Meeting
The proposed c. € 300 million Rights Issue will be subject to Technicolor Extraordinary General Meeting (EGM) approval. The EGM is convened for March 23rd, 2020. Resolutions to be voted at the EGM will include:

• A reverse split: 27 existing shares (the "Old Shares") will be exchanged into new one new share (the "New Nominal Value Shares");
• A share capital reduction for reasons other than for losses, by reducing the par value of the shares to €0.01;
• A capital increase with a preferential subscription right to be detached from the New Nominal Value Shares (the “Rights Issue”); the new shares issued in the Rights Issue are referred to as the “New Shares”.

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Financial calendar

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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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Investor Relations
Christophe le Mignan: +33 1 88 24 32 83
Christophe.lemignan@technicolor.com