technicolor.com 7 JUNE 2018
COUNTRIES SITES REVENUES Connected Home 57% 57% 2017 2016 16% 1% 26% Production Services 18% DVD Services 24% North America 53% 2017 2016 25% 16% 52% 7% Europe, Middle-East & Africa 23% Latin America 16% Corporate & Other 1% Asia-Pacific 8% 3
Hollywood and Independent Studios, Advertising companies & Brands, streaming companies, game publishers Major Network Service providers and Pay-TV operators 4
Disposal of the Patent Licensing business announced early March Completion of the transaction expected in July 2018 Developing Production Services Optimizing cash generation in DVD Services Improving profitability in Connected Home Cost actions being implemented across businesses, and intensified for the Connected Home segment Corporate cost savings program just launched: 10m of savings targeted by 2020 Deleveraging: proceed and cash flows from Patent Licensing applied to pay down debt, continuous optimization of the balance sheet 5
2017 revenue Revenue growth Market trends 766 million +3% YoY at constant rate 2018: mid-single digit VFX & Animation markets: +1% to +10% per year Postproduction: roughly stable Sales breakdown: - 1/3 in VFX for Film & TV with MPC Film and MrX brands - 1/3 in VFX for Advertising with MPC and The Mill brands - 15% to 20 % in Postproduction with Technicolor brand - 10% to 15% in Animation & Games with Mikros and Technicolor brands Competitive advantage - Strong barriers to entry - Scale and customer diversification - Computing power and software expertise - Significant IP library (algorithms) - Global footprint with front end studios in key end markets and a state-of-art facilities in India Market leadership driven by premium positioning: - #1 in VFX for Film & TV - #1 in VFX for Advertising - #2 in Postproduction Market drivers Immediate: increasing demand for high-end original content across segments Near term: development and personalization of streaming platforms driving more demand Long term: development of immersive content and experiences driving increased demand and new customers 7
2017 revenue Revenue growth Market trends 1,024 million (12.9)% YoY at constant rate 2018: flat Declining market remaining resilient Down 5% to 15% per year (not linear) Sales breakdown - Revenue driven by volumes and mix - Technicolor replicated 1.3 bn discs (o/w 22.5% of Blu-ray discs) in 2017 while its addressable market amounted to c. 2.7bn discs - Serving all major Hollywood studios, serving Microsoft and all major Games publishers Competitive advantage - Deeply integrated customer relationships - Highly scalable optimized low cost operational platform and very efficient cost base with variable costs above 70% of total costs - Focus on cash generation with restructuring and maintenance capex below 15m per year Market leadership : - #1 in North America, Europe and Australia - Completion of full market coverage with Sony outsourcing agreement starting in Q2 2018 - Japan market is the only addressable market which us not served Market drivers - The US Box office is the main driver for new releases and Blu-ray volumes - Natural decline in Standard definition discs - The highly efficient operational platform could be leveraged by diversification opportunities 8
PRODUCTION SERVICES DVD SERVICES + + EXPAND market coverage both in terms of CUSTOMER PENETRATION and INTERNATIONAL FOOTPRINT INCREASE the scale of the Animation business + Reinforce MARKET LEADERSHIP position Ongoing onboarding of Sony DADC as the outsourcing agreement for replication and distribution in North America and Australia started ramping up in Q2 + CONTINUED DEVELOPMENT of high-concept content, platforms and technology for VIRTUAL and AUGMENTED REALITY and other immersive media APPLICATIONS + Incremental market share opportunities, however marginal Leverage BEST-IN-CLASS OPERATIONAL PLATFORM thanks to ongoing restructuring + M&A OPPORTUNITIES will be considered 9
2017 revenue Revenue growth Market trends 2,419 million (6,8)% YoY at constant rate 2018: -10% vs. 2017 +1% to 2% per year excl. China, mostly driven by Broadband Sales breakdown - 62% of Video CPE / 38% Broadband CPE in 2017 as a result of record deliveries of video set-top boxes to Charter - Going forward, Broadband is expected to represent at least 50% of Connected Home revenues - 57% in North America, 43% international (EMEA, LATAM, APAC) Competitive advantage - Success of Technicolor s commercial strategy with North American cable operators, resulting in market share gains - Market leadership in next generation broadband technologies - Integration expertise and supply chain excellence - 1 st supplier of OTT boxes to NSPs and Pay-TV operators Market leadership - #2 worldwide in CPE, behind Arris, in a market which remains fragmented - Increased market share in North America reflecting higher penetration of cable operators both in video and broadband - Leadership in Broadband technologies, illustrated by position in Docsis 3.1 deployment Market drivers - Technological upgrade cycle starting in broadband CPE (Docsis 3.1, LTE, ) - Gradual decline expected in video CPE due to the recent refresh cycle and the development of OTT solutions - NSPs and Pay-TV operators seeking ways to limit churn and maximize ARPU 10
- CHALLENGING MARKET CONDITIONS driven by components issue: Memory prices continued to increase in H1, faster than anticipated in Q2 Some additional commodities incl. MLCC (capacitors) experiencing major supply constraints that could potentially affect revenues if shortages persist + IMPLEMENTATION of a 3 year transformation plan to + IMPLEMENTATION OF OPTIMIZATION MEASURES further enhance customer relationships: to adapt the business to this environment: Focus on major NORTH AMERICAN CABLE CUSTOMERS to leverage recent commercial success and further gain market share Concentration on the other 50 most INNOVATIVE and VALUE-ORIENTED worldwide customers, which value performance and bring better CONTRIBUTION De-focus NON-CONTRIBUTIVE and NON- SCALABLE customers, representing 10% DECREASE or c. 250 MILLION of revenue for 2018 Ongoing CONVERSATIONS/NEGOTIATIONS with CUSTOMERS to transfer component price increases from Q3 2018 and beyond Strengthening RATIONALIZATION, MUTUALIZATION, and COST-CUTTING initiatives Accelerating organization and geographical footprint STREAMLINING Foster SOLUTIONS AND PROCESS INNOVATION TO MAINTAIN leading position in growing segments 11
General: negative forex impact driven by dollar weakness vs. euro Connected Home: Top line Entertainment Services: Production Services: single digit revenue growth YoY o o Double digit revenue growth in Film & TV Visual Effects and single digit revenue growth in Advertising VFX Solid level of Postproduction activity in the US and in the UK and lower revenues in Animation & Games DVD Services: lower revenues YoY, in line with Group s expectations o o Blu-ray TM volumes up 15% & Standard Definition volumes down 17% No impact of the outsourcing agreement with Sony which started in Q2 (ramp up will be completed before Q4 2018) o o Lower revenues in North America cable reflecting product cycle: ramp up of DOCSIS 3.1 gateways in Q1 2018 vs. record deliveries of WorldBox to Charter in Q1 2017 Significant revenues growth in EMEA, Asia-Pacific and Latin America Margin and supply pressures remain still intense: o Memory prices increases in H1 2018 o MLCC disruption generating additional cost increases and challenging revenue target Price discussions with customer and reinforced management actions o o Customers will pay for component cost increases in order to ensure supply starting in Q3 Accelerating implementation of efficiencies programs 13
REVENUE (IN MILLION) CHANGE AT CONSTANT CURRENCY (%) ADJUSTED EBITDA (IN MILLION) MARGIN (%) (6.8)% 4 628 4 231 7.8% 359 6.9% 291 2016 2017 2016 2017 ADJUSTED EBIT (IN MILLION) MARGIN (%) 2.9% NET RESULT (IN MILLION) 2016 2017 (106) 132 1.2% 53 (219) 2016 2017 14
A HIGHLY SEASONAL PERFORMANCE CORPORATE COSTS REVIEW Adj. EBITDA mostly generated in H1 due to the seasonality of the business DVD Services is the most impacted by seasonality with a very strong Q4 As part of the Group s simplification process, costs which support business activities reallocated to business divisions Effective as of January 1 st, 2018 Adj. EBITDA split (in m ) H1 2017 H2 2017 Entertainment Services 72 159 Connected Home 57 80 Corporate & Other (46) (30) P&L impact of this reallocation in 2017 (in m ) FY 17 Adj. EBITDA as reported Entertainment Services Connected Home Corporate & Other 230 137 (76) Cost reallocation* (15) (9) 24 FY 17 Adj. EBITDA post reallocation 216 128 (53) 15
FREE CASH FLOW FROM CONTINUING OPERATIONS (IN MILLION) 291 (146) (40) +72 (62) (9) (43) 2017 Adj. EBITDA Net capex Net restruc. Δ WC & OAL Financial Tax Pensions and others 63 FCF Continuing (in million) H1 2016 H2 2016 FY 2016 H1 2017 H2 2017 FY 2017 FCF continuing (23) 111 88 (109) 172 63 Discontinued operations* FCF 121 39 160 (39) 0 (39) FCF for reconciliation (Group FCF) 98 150 248 (148) 172 24 *Discontinued operations include Cathode Ray tube settlements and Patent Licensing activities 16
(IN MILLION) Free cash flow in 2016 Free cash Flow in 2017 Adjusted EBITDA from continuing operations Capex Restruct. Δ WC & OAL Financial Tax Pensions and others DECREASE IN FREE CASH FLOW PARTIALLY OFFSET BY: Strict management of the Working Capital and the Capex Financial charges reduction 17
Healthy Balance Sheet structure Nominal IFRS December 31, 2017 December 31, 2016 Issuer Type Curr Rate Formula Maturity Rate Rate Nominal IFRS Nominal IFRS Tech Finance Term Loan USD Libor w/ floor of 1% + 4.00% Jul-20 5.00% 6.42% - - 290 279 Tech Finance Term Loan EUR Euribor w/ floor of 1% + 4.00% Jul-20 5.00% 6.98% - - 315 297 Technicolor SA Term Loan USD Libor w/ floor of 0% + 2.75% Dec-23 4.23% 4.35% 249 248 - - Technicolor SA Term Loan EUR Euribor w/ floor of 0% + 3.00% Dec-23 3.00% 3.11% 275 273 - - Technicolor SA Term Loan EUR Euribor w/ floor of 0% + 3.50% Dec-23 3.50% 3.63% 450 447 450 446 Technicolor SA EIB Loan EUR Fixed rate Jan-23 2.54% 2.54% 90 90 - - Other debt Mainly capital leases and accrued interest 3.25% 3.25% 39 39 28 28 Total Debt: 1103m 1097m 1083m 1050m Cash: 319 319 371 371 Net Debt: 784m 778m 712m 679m Avg. int. rate: 3.45% 3.56% 4.34% 5.33% New 90 million EIB 6-year borrowing at a fixed rate of 2.54% drawn in January 2017 Around 30 million of annual interest cost savings following 2016-2017 refinancing and debt reduction Average rate at December 31, 2017: 3.45% (end of 2017) vs. 4.34% (end of 2016) 18 2 0 1 7 Term loan repayments amounted to 50 million 2017
Liquidity at December 31, 2017 Amount (m ) Cash on hand at December 31, 2017 year end 319 Committed credit facilities: Technicolor SA Revolving Credit Facility ( 250m matures December 2021) Crédit Agricole credit line ( 35m matures May 2019) 35 Wells Fargo credit line ($125m matures September 2021) 105 250 Strong liquidity of 319m at 31 December 2017 All committed credit lines were undrawn at December 31,2017 Liquidity 709m 19
2017 Revenues and Adj. EBITDA REVENUES Adj. EBITDA (in million) 2016 2017 Δ % Current currency Δ % Constant currency 2016 2017 Δ % Current currency Δ % Constant currency Production Services 765 766 +0.0% +3.0% DVD Services 1,201 1,024 (14.7)% (12.9)% 238 230 (3.1)% (1.2)% Connected Home 2,637 2,419 (8.3)% (6.8)% 218 137 (37.1)% (36.0)% Corporate & Other 25 22 (10.3)% (9.8)% (97) (76) +21.4% +20.7% Disco 257 131 (49.0)% (48.9)% 204 80 (60.7)% (60.7)% For reconciliation 4,885 4,362 (10.7)% (9.0)% 563 371 (34.1)% (32.9)% 21 2 0 1 7
Free cash flow IFRS reconciliation (in million) December 31, 2016 Published December 31, 2016 Represented December 31, 2017 Adjusted EBITDA 565 359 291 Changes in working capital and other assets and liabilities 106 56 72 Pension cash usage of the period (note 8.1) (28) (28) (27) Restructuring provisions cash usage of the period (note 9.1) (56) (47) (40) Interest paid (74) (74) (46) Interest received 3 3 2 Income tax paid (44) (5) (9) Other items (26) (24) (34) Net operating cash generated from continuing activities 446 240 209 Purchases of property, plant and equipment (PPE) (68) (68) (52) Proceeds from sale of PPE and intangible assets 1 1 1 Purchases of intangible assets including capitalization of development costs (85) (85) (95) Net operating cash used in discontinued activities (46) 160 (39) Free cash flow for reconciliation 248 248 24 22 2 0 1 7
Cash Net nominal debt evolution (non IFRS) (in million) Cash position FCF FCF January 01 2017 New cash Net December 31 2017 continuing disco. from debt acquisition Dividend Forex +63 (39) +35 (25) Other (25) (39) (22) 371 319 Gross nominal debt 1,083 1,103 (593) +556 (10) +90 +22 (45) Net debt at Normal term Repayment Net term New EIB Other Forex nominal value 712 loan of term loans loans loan 784 repayments 23 2 0 1 7