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Technicolor ex-TCS to become VANTIVA Technicolor presents the strategy and outlook of VANTIVA at Capital Markets Day
PRESS RELEASE
Technicolor ex-TCS to become V ANTIVA
Technicolor presents the strategy and outlook of
V ANTIVA a t Capital Markets Day
Paris (France), June 14 , 2022 –
Technicolor (Euronext Paris: TCH; OTCQX: TCLRY) will today hold in London at 1pm BST (2pm CEST) Capital Markets Days starting with VANTIVA, the future name for Technicolor Ex-TCS, and followed by Technicolor Creative Studios (“ TCS ”). VANTIVA management will illustrate the future new company's strategic direction and roadmap to drive growth, as well as its financial objectives.
A separate press release presenting TCS' vision and strategy is issued today.
Richard Moat, Chief Executive Officer of Technicolor SA and future Chairman of VANTIVA , sa id :
“ After two years of successful transformation significantly improv in g Technicolor's operational and financial performance, we are now ready to begin a new chapter of value creation . Subject to shareholder approval , and after the spin off of Technicolor Creative Studios , Technicolor will open a new chapter and become VANTIVA , composed of Connected Home and VANTIVA Supply Chain Services ( the former DVD Services division) , two market-leading businesses, operated by world-class management teams. Together, they are ideally positioned to leverage their unique strengths and assets to reinforce their leadership position in existing and new growing markets. I am confident that with Luis and the talented teams of Connected Home and VANTIVA Supply Chain Services , VANTIVA will continue delivering the best products and services to clients and drive long-term growth .”
Luis Martinez-Amag o , President of Connected Home and future Chief Executive Officer of VANTIVA , sa id :
“ As VANTIVA future CEO, I am excited to take on this new role and to build on the already strong foundations that Connected Home and
VANTIVA Supply Chain Services have developed over the last two years of transformation. After the
spin off of Technicolor Creative Studios ,
our new standalone company will be able to grow on its own terms and follow its own strategy .
VANTIVA 's streamlined structure will enable the company to further reinforce its existing relationships with all its customers. It creates a unique opportunity to establish an identity that is completely aligned with the needs of its core markets , while executing its growth strategy in new domains .
As one company, we will benefit from Connected Home 's
comprehensive product offering and leadership position
in customer-premises equipment in video and broadband
as well as from VANTIVA Supply Chain Services '
undisputed leader ship in disc , and diversification
strategy in high-growth adjacent businesses . By combin ing our expertise ,
action-oriented culture s , well-established customer relationships,
robust balance- sheet and world-class management teams ,
I am confident that we are positioned to
generate enhanced value to all of our stakeholders. I look forward to working alongside management and our entire teams
as we enter a new chapter of success and growth. ”
Technicolor Ex-TCS to become VANTIVA
Technicolor SA is announcing the launch of its new brand: VANTIVA. The new brand will be comprised of the Connected Home and DVD Services operations.
VANTIVA's streamlined structure will enable the company to further reinforce its existing relationships with all of its customers. It creates a unique opportunity to establish an identity that is completely aligned with the needs of its core markets, while executing its growth strategy in new domains.
The change of the corporate name of Technicolor SA to VANTIVA SA is subject to the approval of Technicolor SA shareholders, during the shareholders' meeting to approve the spin off that will be convened in the third quarter of 2022.
Connected Home - Focus on growth
Connected Home is the worldwide leading provider of broadband gateways and video set-top-boxes , supplying the critical link between service providers and end user customers. Over the past two years, Connected Home went through a successful transformation plan to increase productivity and profitability and simplify its business structure.
Connected Home represented 69% of VANTIVA revenues in 2021, out of which 64% were Broadband and 36% were Video. Connected Home Adjusted EBITDA margin for 2021 amounted to 6.7%.
Under VANTIVA, Connected Home will continue to grow and diversify its business through a sustainable growth strategy, focused on the most attractive segments of growing broadband and video streaming markets. In today's connected environment, customer-premises equipment (“CPE”) is a crucial component for internet and video services all around the world and, going forward, access products will be essential given the accelerated transition to a GigaBit economy, metaverse services and distributed networks. In parallel, Android TV solutions are gradually replacing traditional PayTV, representing a growing segment within the video market. As a result, Connected Home's targeted segments of CPE are expected to grow at 9% on average from 2021 to 2025.
Moving forward, Connected Home's strategy will be based on three growth pillars:
This strategy is expected to enable the division to pursue profitable growth in its core business.
In the medium-term, Connected Home will also focus on a diversification strategy into Internet of Things (“ IoT ”) for verticals, capitalizing on the digital transformation of enterprises through IoT. This diversification will be operated through partnerships with IoT, cloud platform and independent software companies, either organically or inorganically.
VANTIVA Supply Chain Services – a strategy of diversification
Today, the Company also announces that the DVD services operations will now be known as VANTIVA Supply Chain Services (“VSCS”), in order to reflect the reality of its underlying business. VSCS is the world's leader for disc manufacturing, packaging and distribution for all major studios, with 65% global market share, and 90% in North America , in a disc market which is underpinned by a sizeable consumer market of $4 billion per year . Nevertheless, disc volumes are expected to experience secular decline over the next 5 years and then plateau for a few years.
VSCS represented 31% of VANTIVA revenues in 2021 at €701 million and had an Adjusted EBITDA margin of 9.5%.
VSCS is benefiting from proven experience, capability, and innovation, with combined unique selling propositions around manufacturing, supply chain and fulfilment, and transportation. After two years of restructuring, VSCS has successfully optimized its disc business and implemented a clear diversification strategy aimed at leveraging all verticals, assets and capabilities in:
This diversification strategy is expected to support revenue growth, and profitability in the medium term, with growth activities expected to overtake DVD revenue in the medium term.
Outlook
Underlying market assumptions for VANTIVA remain unchanged:
As a result, for 2022 and 2023 management expectations are:
In addition, VANTIVA results are sensitive to its main currency valuations - notably the US dollar – which has evolved favorably since the beginning of the year. Hedging arrangements are in place to address the associated forex risks.
VANTIVA businesses are not capex intensive. At Connected Home the capex requirement on a normalized basis amounts to approximately €25 million per year for production equipment (tools and test benches), along with intangible investments for R&D. At VSCS capex is mainly for upgrade of production lines along with capex for new growth businesses with short payback terms. Considering working capital requirements, at Connected Home under normal circumstances the need for cash to fund the key component operations is netted by the cash generated from finished goods. However, asymmetric deliveries or demand pushout can create the need for more working capital during the year. At VSCS, seasonality ties up working capital during the first half of the year.
Financials
VANTIVA revenues amounted to €2,250 million in 2021 and €2,475 million in 2020. This decline in sales mainly resulted from the impact of component shortages and increased lead time at Connected Home, despite strong underlying demand. At VSCS, lower disc volumes were partially offset by growth in distribution and freight brokerage.
Despite the lower top line, VANTIVA improved profitability in 2021 compared to 2020 thanks to transformation activities and operational efficiencies at both Connected Home and VSCS. As a result, VANTIVA adjusted EBITDA amounted to €141 million in 2021 (6.3% margin) compared to €133 million in 2020 (5.4% margin)
VANTIVA generated positive operating free cash flow in 2020 and 2021 of respectively €29 million and €11 million, with higher restructuring cash out in 2021. Free Cash Flow amounted to -€162 million in 2020 and -€181 million in 2021, mainly due to higher working capital needs in 2020 and 2021 driven by the reduction of supplier payment terms for Connected Home.
As part of the Capital Markets Day, VANTIVA will present adjusted financial statements, along with segment information, which are defined and detailed in the Appendix to the present press release.
Anticipated Capital Structure
Technicolor SA has entered into discussions with Barclays and Angelo Gordon who have committed to provide a €375 million debt package to VANTIVA, subject to customary conditions and approvals. In addition, discussions are ongoing with Wells Fargo to extend the Asset-Based Lending (ABL) Facility.
The spin-off is expected to be completed in Q3 2022, subject to (i) shareholder approval of the terms of the spin-off, (ii) the completion of the refinancing discussions with creditors on terms satisfactory to VANTIVA and TCS and (iii) customary conditions, consultations and regulatory approvals.
Capital Markets Day Details
The Capital Markets Day, dedicated to financial analysts and institutional investors, will begin at 1pm BST (2pm CET) in London and virtually. All presentation materials, as well as the webcast (live and replay), will be made available on Technicolor's investor website at https://www.technicolor.com/investor-center.
VANTIVA's presentation will be followed by the Capital Markets Day for Technicolor Creative Studios (“ TCS ”), whose vision and strategy are being presented in a separate press release, and are also available on Technicolor's investor website: https://www.technicolor.com/investor-center.
Indicative Timetable
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Warning: Legal Disclaimer
This press release has been prepared by Technicolor SA (“ TSA ”) in connection with the Capital Markets Day on 14 June 2022
in particular in the context of the contemplated spin-off of Technicolor Creative Studios (“ TCS ” and such spin-off, the “ Transaction ”) as a result of which TSA ex-TCS is to become Vantiva . This press release is an advertisement and does not constitute a prospectus under Regulation (EU) 2017/1129 of the European parliament and of the council of 14 June 2017 (the “ Prospectus Regulation ”).
Selected Non-IFRS Financial Measures
This press release includes non-IFRS measures relating to TSA the publication of which is not required, or which have not been prepared in accordance with financial measures determined in accordance with International Financial Reporting Standards (“ IFRS ”), including Adjusted EBITA, Adjusted EBITDA and Free Cash Flow (before interests and tax).
TSA presents non-IFRS measures with a view to allowing investors to better understand the evolution of its results, as well as items that may influence future performance.
These measures should solely be used as analytical tools and should not be considered as an alternative to financial measures determined in accordance with IFRS nor as a true and fair value of past accounts. Therefore, they cannot be considered as a substitute for the financial statements approved by the general meeting of shareholders.
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 5 April 2022, under number D-22-0237 and an amendment to the 2021 URD has been filed with the AMF on 29 April 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).
APPENDIX
The adjusted financial information provided for the years ended December 31, 2019, 2020, 2021 relating to
VANTIVA has not been audited, but has been produced using audited Technicolor and TCS accounts. It is therefore provided for information purposes only and may be subject to further changes.
This financial information exclude s Technicolor Creative Studios division but does not take into consideration the impact of the refinancing (current Safeguard debt of the Group is maintained) and of the Spinoff (no minority stake into TCS is recognized, nor dyssynergy costs). The Trademark Licensing Operations are also included in this financial information.
VANTIVA Unaudited Adjusted Statement of Profit and loss
VANTIVA Unaudited Adjusted Statement of Financial Position
VANTIVA Unaudited Adjusted Statements of cash flows
VANTIVA 2021 Adjusted Segment information
Key Performance Indicators definitions for VANTIVA
“ 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.
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.
Reconciliation from Adjusted EBITDA to Free Cash Flow is as follows:
1 Definition of adjusted EBITDA, adjusted EBITA and Free Cash Flow are available in the Appendix section of the present press release
2 Figures as of September 2021 , excluding China –Sources: Dell Oro,
Omdia
3 Figures as of September 2021, excluding China – Sources: Dell Oro,
Omdia
4 Sources: Dell'Oro3Q21 & January 22 reports, Dataxis3Q21 database, Omdia3Q21 BB and STB reports, ABI Research August'21 STB and BB CPE report, publications of listed companies and Technicolor –TAM relates to CPE hardware only (in value), excluding China
5 Figures as of September 2021 –Sources: Management estimates
6 Source: Futuresource
7 This guidance assumes a EUR/USD exchange rate of 1.15, exclude Trademark Licensing operations, include estimated running
dissynergy costs, and reflect accounting changes implied by the IFRIC interpretation on
Saas adjustment, relating to the configuration or customization costs in a cloud computing arrangement.
8 Excluding Trademark Licensing
9 See definition in the appendix of the present press release
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