Editoria e Media
TECHNICOLOR: FIRST HALF 2019 RESULTS
PRESS RELEASE
TECHNICOLOR: FIRST HALF 2019 RESULTS
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
(*) 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
First half business highlights
Outlook
Board composition
Segment Review – H1 2019 Result Highlights
Business Highlights:
Film & Episodic Visual Effects: with a record-breaking revenue performance in the first half of 2019, the activity achieved strong double-digit revenue growth year-on-year driven by increased volume from MPC and Mr. X as well as the strong contribution from Mill Film (launched end of 2018); and has secured a significant pipeline of continuing and future projects for the second half. The teams worked on over 25 theatrical film projects during the first half, including Disney's The Lion King and Dumbo , Fox's Dark Phoenix , and Warner Bros./Legendary's Pokémon: Detective Pikachu ; and over 10 non-theatrical (episodic, streaming) projects, including the latest seasons of franchises like Fremantle's American Gods (Starz, Amazon) and A&E's Knightfall (History).
The team at MPC designed and created the VFX and animation to bring Disney's The Lion King to life. Entirely digitally created, the film was shot in a virtual reality environment, featuring Technicolor's latest immersive production technologies and workflows.
Advertising VFX: revenues were down as individual projects had lower budgets compared to prior year. On the creative side, The Mill and MPC received numerous industry accolades including Cannes Lions and British Arrow awards.
Animation & Games: lower revenues compared to prior year, primarily due to delays in starting work on new feature film projects. Mikros Animation continues in production on Paramount's The SpongeBob Movie: It's a Wonderful Sponge and is beginning pre-production on two newly awarded animated features. Technicolor Animation continues to deliver on several high-end episodic productions while Technicolor Games completed production on AAA titles during the second quarter including NetherRealm Studios / Warner Bros and Interactive Entertainment's Mortal Kombat 11 . The second half is expected to grow materially over the first half due to the production starts of new feature awards, timing of episodic deliveries and stronger performance in games.
Post Production : revenues were down compared to prior year, reflecting the exit from underperforming businesses in North America, but in line with prior year on a continuing perimeter basis.
Adjusted EBITDA grew significantly during the first half, driven by Film & Episodic VFX performance, and improvement in Post Production following last year's restructuring. Recurring EBITA was down versus last year due to increased cloud rendering costs resulting from an exceptionally heavy delivery schedule.
Total combined replication volumes reached 446m discs, down c.11% from the first half of 2018. Standard Definition DVD volumes showed greater than expected resiliency, declining only 11% year-on-year supported by strong catalog activity in the North American market, which helped offset the impact of a weak first quarter 2019 theatrical box office (down 16% in the US). Blu-ray volumes declined by 12% in the first half of 2019, impacted by the first quarter box office lower performance and a very difficult comparison to the first quarter 2018's Solo: A Star Wars Story , which had a large amount of Blu-ray volume due to a high number of multiple Blu-ray disc retail packaging configurations. Blu-ray declines were partially offset by continued strong growth of the Ultra HD Blu-ray format, which while still a small percentage of the total volume base, increased by approximately 50% in the first half 2019. Compact Disc (CD) volumes also performed better than expected, down only 10% benefiting from new volume / customer additions secured in the half.
Adjusted EBITDA declined during the period due the reduction in volumes, the impact of which could not be fully offset by ongoing cost savings activities. Profitability was also negatively impacted in the first half of 2019 due to a weaker product mix (driven by a higher proportion of standard definition DVD), as well as utility cost increases in selected regions.
DVD Services division-wide initiatives to adapt distribution operations and related customer contract agreements in response to continued volume reductions and increasing operational complexity are moving forward as planned. Customer contract renegotiations to move to volume and activity-based pricing have started in line with specific contract renewal dates over the next few years.
Volume data for DVD Services
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Broadband business continues the growing trend of 2018, representing €577 million revenues in the first half and a growth year-on-year of 21%. Technicolor has become the undisputed market leader in this segment obtaining a 21% market share, sept points ahead of its closest competitor.
This sustained growth is mainly driven by a leadership position in DOCSIS3.1 in North America, which is now followed by significant wins in EMEA and LATAM. Technicolor is the leading supplier to large North American cable operators including Comcast, Charter, Cox, Rogers, Videotron and Shaw, and with partnerships with service providers like Vodafone Group, Telecom Argentina, Mediacom, WoW and several others. In the DOCSIS 3.1 segment Connected Home has achieved a global market share of 40%.
Broadband is the growing segment in the consumer premise equipment market, and it is increasing in strategic relevance for Service Providers. The broadband gateways, in addition to delivering growing network bandwidth, are becoming service platforms as they provide cost-effective edge computing capabilities, close to the consumer and with an efficient and high-performance way to reach the connected devices in the home which will accelerate with Wi-Fi 6. The first Wi-Fi 6 platforms are expected to start being delivered in the fourth quarter this year.
The number of new projects ramping up has generated a large increase in the level of running inventory, which will be fully consumed during the second half of the year.
The Video segment expected year-on-year decline was mostly due to the significant market spend reduction in the North American market. While serving traditional customers with their chosen solutions, Connected Home is re-positioning the video portfolio towards the AndroidTV-based market maintaining a very strong win-rate and global leadership. To date, Technicolor has accumulated 32 wins in this technology. This segment is expected to develop further, replacing over time other technological solutions to enable the aggregation of applications and content towards the end user. Revenues year-on-year for AndroidTV grew by 33%.
On the supply side, DRAM pricing continued to drop during the first half, and this trend is expected to continue in the second half contributing to a gradual improvement in profitability given the lag time between procurement and delivery. The MLCC supply shortages experienced last year have been resolved, but prices are still significantly higher than before the crisis and should start to normalize in 2020.
For the second half of this year, margins are expected to improve driven by a more favorable business mix, the positive evolution of component costs and productivity improvements. The industrial footprint is also being adapted in anticipation of possible evolution of international trade relations between the US and China.
Revenue Breakdown for Connected Home
First Half Adjusted EBITDA (excluding impact of IFRS 16) amounted to €20 million down €6 million at constant rate year-on-year. The margin decline was mainly driven by the volume reduction and margin mix in North American video market but partially compensated by reduction in opex.
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Corporate & Other recorded revenues of €9 million in the first half of 2019, down year on year as almost no retained patent licensing revenue occurred. Adjusted EBITDA (excluding impact of IFRS 16) amounted to €(15) million.
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Summary of consolidated results for the first half of 2019
Restructuring provisions accounted for €(12) million at current rate and related mainly to Entertainment Services.
The EBIT from continuing operations (excluding impact of IFRS 16) amounts to a loss of €(93) million in the first half of 2019.
Financial result (excluding impact of IFRS 16) totaled €(37) million in the first half of 2019 compared to €(20) million in the first half of 2018, reflecting:
Income tax amounted to €(7) million, lower by €4 million at current rate compared to the first half of 2018.
Profit/(loss) from discontinued operations improved by €36 million mainly related to the disposal of Patent Licensing and R&I.
Group net income (excluding impact of IFRS 16) therefore improved at €(133) million at current rate in the first half of 2019 compared to the €(152) million loss of the first half of 2018.
Reconciliation of adjusted indicators (unaudited)
Technicolor is presenting, in addition to published results and with the aim to provide a more comparable view of the evolution of its operating performance in the first half of 2019 compared to the first half of 2018 a set of adjusted indicators, which exclude the following items as per the statement of operations of the Group's consolidated financial statements:
These adjustments, the reconciliation of which is detailed in the following table, amounted to an impact on EBIT from continuing operations of €(93) million in the first half of 2019 compared to €(91) million in the first half of 2018.
Free Cash Flow Reconciliation and Summarized financial structure (unaudited)
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, purchases of intangible assets including capitalization of development costs.
The Board of Directors approved today these interim consolidated financial statements which have been reviewed by our statutory auditors who are in the process of issuing an unqualified opinion.
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
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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
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
(*) Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
UNAUDITED INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(*) Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
Dell'Oro cable CPE vendor table 1Q19, published in June 2019.
Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
Year-on-year change at current currency.
Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
Year-on-year change at current currency.
Including impact of provisions for risks, litigations and warranties and IT capacity use for rendering in Production Services.
Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
Including impact of provisions for risks, litigations and warranties.
Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
Amounts for the six months ended June 30, 2018 are re-presented to reflect the impacts of Discontinued Operations.
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