Editoria e Media
Technicolor: First Half 2022 Results
PRESS RELEASE
Technicolor: First Half 202 2 Results
Paris (France), July 28 , 2022 – Technicolor (Euronext Paris: TCH; OTCQX: TCLRY) is today announcing its results for the first half 2022. The Board of Directors of Technicolor S.A., meeting today, approved the Group's first half 2022 accounts and guidance.
Richard Moat, Chief Executive Officer of Technicolor, said :
“ Technicolor's divisions continued to perform well despite facing ongoing industry-related headwinds, which reflects the strength and leadership position of our businesses. The Group's performance improved significantly in the first half of 202 2 compared to the first half of 2021, driven by overall strong demand across almost all divisions. In addition, our businesses continue to benefit from an improved cost base and from operational efficiencies, enabling them to navigate ongoing supply chain constraints , as well as restricted advertising spending. With robust demand across most of our businesses, I am pleased to confirm this year's guidance.
In parallel, we have made significant progress in the partial spin-off of Technicolor Creative Studios along with the full refinancing of our existing debt, thanks to the overwhelming support we have had from all our stakeholders. We are well on track to create two leading independent companies, T echnicolor Creative Studios and V antiva , with solid foundations for long term growth.
I want to thank our teams for doing an outstanding job in handling our day-to-day operations , and supporting us in leading Technicolor into a new chapter of value creation.”
I- H 1 2022 key hig hlights and
2022 Outlook
The first half of 2022 registered a good set of results driven by strong demand for Technicolor Creative Studios and Connected Home products, despite a trading environment marked by persistent fulfillment difficulties.
First half 2022 revenues amounted to €1,601 million, up 18.4% (up 8.8% at constant exchange rate, up 11.2% at constant exchange rate and perimeter). This good performance was notably driven by a high level of demand for Technicolor Creative Studios and Connected Home products and services, despite continued supply constraints and decelerating advertising spending growth in Q2 2022 compared with a high comparative base in H1 2021.
First half 2022 Adjusted EBITDA of €134 million improved by €40 million (up €29 million at constant exchange rate). Adjusted EBITDA margin improved by 145 basis points (+139 basis points at constant exchange rate) to 8.4% of revenues, resulting from higher revenues and significant cost savings and operating efficiencies achieved across all divisions. This led to a +€38 million adjusted EBITA improvement compared to the first half 2021, reaching €48 million.
Free Cash Flow from continuing operations before financial and taxes amounted to €(35) million compared to €(215) million in the first half of 2021. This €178 million improvement at constant currency mainly resulted from better operating performance and lower change in working capital requirements at Connected Home, along with lower restructuring expenses, mainly through the second quarter of 2022. In the sole second quarter, Free Cash Flow from continuing operations before financial and taxes improved by €105 million (€96 million at constant exchange rate) with €90 million FCF generated over the second quarter of 2022.
Outlook
The Group confirms its 2022 guidance along with the outlook for its divisions as published on June 6 , 2022:
The Group delivered €171 million of cost savings in 2020, €116 million in 2021, and €30 million in the first half 2022. These results, combined with continuous improvements in efficiency, are keeping Technicolor on track to deliver a cumulative €325 million in run rate cost savings by the end of 2022.
As a result, the Group Technicolor confirms its 2022 guidance “as is” with:
Technicolor results are sensitive to the valuation of its main currencies - notably the US dollar, the Canadian dollar, and the British pound – which have evolved favorably since the beginning of the year. Hedging arrangements are in place to mitigate forex risks. This 2022 guidance for Technicolor group assumes external macroeconomic assumptions, including a EUR/USD exchange rate of 1.15, EUR/CAD of 1.52, and EUR/GBP of 0.89. It also includes management assumptions reflecting the IFRIC interpretation on Saas adjustment, excludes Trademark Licensing operations, and does not include the TCS spin-off.
II- Update on Technicolor's i ntention to
list 65% of Technicolor Creative Studios
and on the early refinanc ing of
Technicolor's existing debt
The Group is making good progress on the implementation of the Technicolor Creative Studios spin-off plan and the refinancing of Group debt:
The spin-off is expected to be completed in Q3 2022, subject to (i) the shareholders' approval of the terms of the spin-off on September 6 , 2022, and (ii) customary conditions, consultations and regulatory approvals.
III- Segment Review – First Half 2022 Results Highlights
Technicolor Creative Studios
Technicolor Creative Studios revenues amounted to €408 million in the first half 2022, up 38.3% (up 29.6% at constant rate) compared to H1 2021. Excluding the Post-Production business divested in April 2021, revenue growth was 53.3% (43.7% at constant exchange rate) compared to H1 2021. This improvement resulted from the significant demand for original content compared to the first half 2021, and was achieved despite the market shortage of talent and decelerating advertising spending growth in Q2 2022 due to macroeconomic conditions.
Adjusted EBITDA amounted to €61 million, up €16 million compared to H1 2021 at constant rate, and Adjusted EBITA was €26 million, up €18 million compared to H1 2021 at constant rate. On top of the increase in revenues, EBITDA margin improvement from 13.7% to 15.0% resulted from the positive impacts of multiple operational transformation programs in conjunction with permanent cost reduction measures. These included mutualization of resources through, for example, the production platform in India, centralized global IT infrastructure, and the consolidation of real estate and other resources in key locations. However, H1 2022 margin was partly reduced by higher costs required to complete major projects, and a shortage of experienced talent is causing delays and additional costs. Lower revenues at The Mill in the second quarter of 2022 also reduced profitability. At The Mill and at MPC, actions to mitigate the impact on margin have already been identified and initiated relating to costs and operational efficiencies. In addition, the Group is actively working on accelerating its recruiting and training plan. Delivering on all projects committed remains the main challenge for 2022.
On June 14 , 2022 during the capital markets day, Technicolor Creative Studios updated its Key Performance Indicators (“KPIs”), with the goal of becoming more comparable with its peers and market practice, and to further align them with the way the business is managed. These KPIs include Adjusted EBITDA after lease (new definition), Adjusted EBITA after lease (new definition), and Adjusted Operating Free Cash Flow after lease (new definition). TCS' first half 2022 combined accounts along with an MD&A commenting on these new KPIs will be available in the days to come as part of the Prospectus to be filed with the Autorité des Marchés Financiers.
Connected Home
Connected Home revenues totaled €897 million in the first half 2022, up 16.4% (up 5.8% at constant exchange rates) compared the same period in 2021. Although the worldwide semiconductor shortage and supply chain disruptions limited the division's ability to fully satisfy the demand from its broadband customers, second quarter revenues benefited from the first signs of improvement in the allocation of supply and in transit times. This, combined with broadband now representing 77% of total sales (vs. 64% in H1 2021), with notably a strong rebound in North America in Q2 2022, is driving revenue improvement, despite decreased video products sales.
Adjusted EBITDA was €70 million in the first half 2022 (up 14.4% at constant exchange rate), or 7.8% of revenue, compared to 7.2% of revenues in the first half 2021. Margin improvement is mainly resulting from operating efficiencies and cost savings, along with sales improvement. H1 2022 Adjusted EBITA was €37 million, +18.0% compared to the first half 2021 at constant rate and representing 4.2% of revenues in the first half.
The division continues its collaboration with clients and suppliers to maximize deliveries, and to mitigate potential profitability and working capital impacts of fulfillment difficulties. A significant portion of cost increases is currently passed through to customers. The division continues to focus on selective investments in key customers, platform-based products and partnerships, and on optimizing fixed costs.
Vantiva Supply Chain Services ( former DVD Services division)
Vantiva Supply Chain Services revenues totaled €296 million in the first half 2022, up 4.5% (down 3.2% at constant exchange rate) compared with first half 2021. Lower disc volumes year-on-year (-30%) were driven by expected market declines, and were further exacerbated by the inventories built up in 2021 by the major US studios, which reduced new manufacturing demand in H1 2022. The impact of volume reductions was partially offset by disc price increases, and pass through of cost increases, along with the performance of new growth businesses (notably transportation management and vinyl).
In the first half 2022, adjusted EBITDA amounted to €15 million (vs. €10 million in the first half 2021), representing 5.2% of H1 2022 revenues, compared to 3.6% in H1 2021. EBITDA margin improvement mainly resulted from significant footprint optimization, headcount reductions and higher activity in non-disc activities, partly offset by the impacts of lower disc volumes and higher labor costs in North America and Mexico. Vantiva Supply Chain Services continued to adapt distribution and manufacturing operations, and related customer contract agreements, in response to continued volume reductions.
Corporate & Other
Corporate & Other revenues were nil in the first half of 2022, compared with €4 million in the first half 2021. Adjusted EBITDA amounted to €(12) million, and Adjusted EBITA was €(15) million.
IV- Results analysis
P&L analysis
Including IT capacity use for rendering in Technicolor Creative
Studios of € ( 4 ) m in H 1 2022 and € 0 m in
H 1 2021
Risk, litigation and warranty reserves
First half 2022 revenues amounted to €1,601 million and were up 18.4% (up 8.8% at constant exchange rates). Excluding change in perimeter (i.e. excluding Post Production), first half 2022 revenues would have been up 21.0% (up 11.2% at constant exchange rate and perimeter). This good performance was driven by the high level of demand for Technicolor Creative Studios and Connected Home products and services, despite continued supply constraints and decelerating advertising spending growth in Q2 2022 compared with a high comparative base in H1 2021.
First half 2022 Adjusted EBITDA of €134 million improved by €40 million (up €29 million at constant exchange rate). Margin improved by 139 basis points to 8.4% of revenues, mainly thanks to higher revenues and improved performance from all divisions and more particularly from Technicolor Creative Studios, resulting from the significant cost savings and operating efficiencies achieved across all divisions.
First half 2022 Adjusted EBITA of €48 million represented a €38 million improvement (+€33 million at constant rate) compared to the first half 2021. This resulted mainly from the EBITDA improvement.
EBIT from continuing operations was a €8 million profit compared to a €(11) million loss in the first half 2021. This resulted from better operational performance, despite higher non-recurring items. Non-recurring items amounted to €(20) million compared to €(3) million in H1 2021. This increase mainly resulted from positive non-current items of €24 million recorded in H1 2021 (mainly capital gains) compared to negative €(9) million recorded in H1 2022 (mainly related to the ongoing spin off project), offset by lower restructuring costs of €(8) million in H1 2022 compared to €(26) million in H1 2021.
The financial loss totaled €(65) million, compared to €(63) million in the first half 2021.
Income tax was up at €(19) million, compared to €(10) million in the first half 2021, mainly due to Technicolor Creative Studios improved performance.
Net gain from discontinued operations amounted to €63 million compared to €5 million in the first half 2021. On May 31 , 2022, the Group completed the sale of its Trademark Licensing operations, and received a cash consideration of approximately €100 million, subject to customary price adjustments. As a result, the Group has accounted for Trademark Licensing operations as discontinued operations as from January 1, 2021.
The Group net loss therefore amounted to €(14) million in H1 2022, compared to €(79) million in H1 2021.
FCF and debt analysis
Including IT capacity use for rendering in Technicolor Creative Studios of € (4) million in H1 2022 and nil in H1 2021
Free Cash Flow from continuing operations before financial and taxes improved to €(35) million compared to €(215) million in the first half 2021. This €180 million improvement mainly reflects positive impacts from:
These positive impacts were partly offset by:
The cash position at the end of June 2022 was €168 million, compared to €196 million at the end of December 2021. Change in cash over the period was €(28) million, mainly explained by negative €(35) million free cash flow from continuing operations before financial and taxes, and €(36) million net cash interest paid and €(18) million net tax paid over the period, partly offset by the proceeds from the sale of the Trademark Licensing operations. Cash out for operating leases amounted to €21 million, compared to €28 million in the first half 2021. Total liquidity amounts to €216 million, with €48m of the Wells Fargo line available (undrawn at the end of the quarter).
As a consequence, n et financial debt at nominal value amounted to €1,205 million at the end of June 2022, compared with €1,110 million at the end of December 2021. IFRS net debt amounted to €1,141 million as of June 30, 2022, compared with €1,039 million as of December 31, 2021. The Net Debt / EBITDA ratio of 4.01x was below the 4.50x covenant.
An analyst audio webcast hosted by Richard Moat, CEO and Laurent Carozzi, CFO will be held today, July 28, 2022, at 6:30pm CEST.
Indicative Timetable
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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 . 2021 Universal Registration Document (Document d'enregistrement universel ) has been filed with the French Autorité des marchés financiers (AMF) on April 5, 2022 , under number D - 22- 0237 and an amendment to the 2021 URD has been filed with the AMF on April 29, 2022, under number D-22-0237-A01.
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About Technicolor:
www.technicolor.com
Technicolor shares are admitted to trading on the regulated market of Euronext Paris (TCH) and are tradable in the form of American Depositary Receipts (ADR) in the United States on the OTCQX market (TCLRY).
Inves tor Relations
Alexandra Fichelson
Alexandra.fichelson@technicolor.com
Media
Catherine Kuttner
catherine.kuttner@technicolor.com
Nathalie Feld
nfeld@image7.fr
APPENDIX
Appendix 1 –Business highlights by division 9
Appendix 2 – Debt Structure 13
Appendix 3 – Reconciliation of adjusted operating indicators 14
Appendix 4 - Free Cash Flow Reconciliation and Summarized Financial Structure 15
Appendix 5 – IFRS 16 16
Appendix 6 – Unaudited Financial Statements 17
Appendix 1 – Business highlights by division
Technicolor Creative Studios
MPC
In H1 2022, main projects at MPC in production were:
During H1, 11 films selected for the 2022 Cannes Film Festival feature the work of MPC, including the Dardenne brothers' Tori and Lokita (Prix Spécial); the world premiere of Baz Luhrmann's Elvis ; and screening of Top Gun: Maverick starring Tom Cruise.
The Mill:
In H1, The Mill contributed to approximately 1,900 projects, including 34 Super Bowl projects - 29 of which were TV spots that aired during the game, and were nominated for and won several prestigious industry awards, including:
Notable projects during the half year include Samsung's ' The Spider and the Window' , Samsung's 'Playtime Is Over' , Pepsi's Super Bowl halftime trailer 'The Call' , Mastercard's ' What's Priceless to You?' and the annual opening title sequence for the 2022 AICP Show.
Mikros Animation:
Technicolor Games:
During the first half 2022, Technicolor Games continued to work with major gaming clients like Capcom, Electronic Arts, Gameloft, Take-Two Interactive's 2K Sports and Rockstar Games, and Ubisoft. The team contributed to major H1 releases like Ubisoft's
Tom Clancy's Rainbow 6 Extraction and 2K Sports' WWE 2K22 .
Connected Home
Revenues breakdown by region and product
Key business highlights
Connected Home division continues its ongoing commitment to leveraging open and innovative technologies for Network Service Providers (NSPs) to deliver seamless connectivity and premium entertainment experiences to consumers:
On the Corporate Social Responsibility side:
Vantiva Supply Chain Services ( former DVD Services division)
Key commercial successes for non-disc operations :
Microfluidics :
Vinyl:
Supply Chain/ Fulfilment /Transportation:
Appendix 2 – Debt St ructure
As part of the financial restructuring transaction completed in 2020, debt maturities were extended and new financings executed, reinforcing the Group's liquidity.
Appendix 3 – Reconciliation of adjusted operating indicators
In addition to published results, and with the aim of providing a more comparable view of the evolution of its operating performance, Technicolor is presenting a set of adjusted indicators which exclude the following items as per the statement of operations of the Group's consolidated financial statements:
“ Adjusted EBITDA ” corresponds to the profit (loss) from continuing operations before tax and net financial income (expense), net of other income (expense), depreciation and amortization (including impact of provision for risks, litigation and warranties).
“ Adjusted EBITA ” corresponds to the profit (loss) from continuing operations before tax and net financial income (expense), net of other income (expense) and amortization of purchase accounting items.
Appendix 4 - Free Cash Flow Reconciliation and Summarized Financial Structure
Technicolor defines “Free Cash Flow” as net cash from operating activities (continuing and discontinued) plus proceeds from sales of property, plant, and equipment (“PPE”) and intangible assets, minus purchases of PPE and purchases of intangible assets including capitalization of development costs.
Appendix 5 – IFRS 16
Appendix 6 – Unaudited Financial Statements
6.1 - UNAUDITED CONSOLIDATED STATEMENT OF OPERATIONS
6.2 - UNAUDITED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
6. 3 - UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
As presented on May 5 th , 2022 the 2022 guidance for Technicolor group
is based upon external macroeconomic assumptions, including a EUR/USD exchange rate of 1.15, EUR/CAD of 1.52, EUR/GBP of 0.89. It also includes management assumption s reflectin g
the IFRIC interpretation on Saas adjustment, excludes Trademark Licensing operations, and does not include the TCS spin-off.
2021 and 2022 financial results include IFRIC interpretation on Saas implementation cost as well as Trademark Licensing operations accounted for as of discontinued operations as from January 1 st , 2021.
Volume break-down by product is available in Appendix 1 “Business highlights by division” of this press release.
Attachment
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