7 JUNE 2018 technicolor.com
COUNTRIES SITES REVENUES 2017 2017 Production Europe, Services Middle-East 18% & Africa North Connected 23% 16% America 25% Home 53% DVD 57% 2016 2016 Services 26% Latin 16% 57% 52% 24% America 1% 7% 16% Asia-Pacific Corporate & Other 8% 1% 3
► Hollywood and Independent ► Major Network Service providers Studios, Advertising and Pay-TV operators companies & Brands, streaming companies, game publishers 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 ► ► 2018: mid-single digit ► VFX & Animation markets: +1% to +10% per year ► +3% YoY at constant rate Postproduction: roughly stable ► Sales breakdown: ► Market leadership driven by premium positioning: ► 1/3 in VFX for Film & TV with MPC Film and MrX brands - #1 in VFX for Film & TV - 1/3 in VFX for Advertising with MPC and The Mill brands - #1 in VFX for Advertising - 15% to 20 % in Postproduction with Technicolor brand - #2 in Postproduction - 10% to 15% in Animation & Games with Mikros and - Technicolor brands Market drivers ► Immediate: increasing demand for high-end original Competitive advantage ► content across segments Strong barriers to entry - Near term: development and personalization of Scale and customer diversification streaming platforms driving more demand - Computing power and software expertise Long term: development of immersive content and - experiences driving increased demand and new Significant IP library (algorithms) - customers Global footprint with front end studios in key end markets - and a state-of-art facilities in India 7
2017 revenue Revenue growth Market trends €1,024 million ► ► 2018: flat ► Declining market remaining resilient ► (12.9)% YoY at constant rate Down 5% to 15% per year (not ► linear) Sales breakdown Market leadership : ► ► Revenue driven by volumes and mix #1 in North America, Europe and Australia - - Technicolor replicated 1.3 bn discs (o/w 22.5% of Blu-ray Completion of full market coverage with Sony - - discs) in 2017 while its addressable market amounted to c. outsourcing agreement starting in Q2 2018 2.7bn discs Japan market is the only addressable market which us - Serving all major Hollywood studios, serving Microsoft not served - and all major Games publishers Market drivers ► Competitive advantage ► The US Box office is the main driver for new releases - Deeply integrated customer relationships and Blu-ray volumes - Highly scalable optimized low cost operational platform Natural decline in Standard definition discs - - and very efficient cost base with variable costs above 70% The highly efficient operational platform could be - of total costs leveraged by diversification opportunities Focus on cash generation with restructuring and - maintenance capex below €15m per year 8
PRODUCTION SERVICES DVD SERVICES + Reinforce MARKET LEADERSHIP position + EXPAND market coverage both in terms of CUSTOMER PENETRATION and INTERNATIONAL Ongoing onboarding of Sony DADC as the FOOTPRINT outsourcing agreement for replication and distribution in North America and Australia INCREASE the scale of the Animation business + started ramping up in Q2 Incremental market share opportunities, + CONTINUED DEVELOPMENT of high-concept however marginal content, platforms and technology for VIRTUAL and AUGMENTED REALITY and other immersive media + Leverage BEST-IN-CLASS OPERATIONAL APPLICATIONS PLATFORM thanks to ongoing restructuring + M&A OPPORTUNITIES will be considered 9
2017 revenue Revenue growth Market trends €2,419 million 2018: -10% vs. 2017 +1% to 2% per year excl. China, ► ► ► mostly driven by Broadband ► (6,8)% YoY at constant rate Sales breakdown Market leadership ► ► 62% of Video CPE / 38% Broadband CPE in 2017 as a result of #2 worldwide in CPE, behind Arris, in a market which - - record deliveries of video set-top boxes to Charter remains fragmented Going forward, Broadband is expected to represent at least 50% Increased market share in North America reflecting - - of Connected Home revenues higher penetration of cable operators both in video and broadband 57% in North America, 43% international (EMEA, LATAM, APAC) - Leadership in Broadband technologies, illustrated by - “Competitive advantage” ► position in Docsis 3.1 deployment Success of Technicolor’s commercial strategy with North - Market drivers ► American cable operators, resulting in market share gains Technological upgrade cycle starting in broadband - Market leadership in next generation broadband technologies - CPE (Docsis 3.1, LTE, …) Integration expertise and supply chain excellence - Gradual decline expected in video CPE due to the - 1 st supplier of OTT boxes to NSPs and Pay-TV operators - 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 ► Ongoing CONVERSATIONS/NEGOTIATIONS CUSTOMERS to leverage recent commercial with CUSTOMERS to transfer component price success and further gain market share increases from Q3 2018 and beyond ► Concentration on the other 50 most INNOVATIVE ► Strengthening RATIONALIZATION, and VALUE-ORIENTED worldwide customers, MUTUALIZATION , and COST-CUTTING which value performance and bring better initiatives CONTRIBUTION ► Accelerating organization and geographical ► De-focus NON-CONTRIBUTIVE and NON- footprint STREAMLINING SCALABLE customers, representing 10% ► Foster SOLUTIONS AND PROCESS DECREASE or c. € 250 MILLION of revenue for INNOVATION TO MAINTAIN leading position in 2018 growing segments 11
► General: negative forex impact driven by ► Connected Home: dollar weakness vs. euro ► Top line Lower revenues in North America cable o reflecting product cycle: ramp up of DOCSIS ► Entertainment Services: 3.1 gateways in Q1 2018 vs. record deliveries of WorldBox to Charter in Q1 2017 ► Production Services: single digit revenue growth YoY Significant revenues growth in EMEA, o Asia-Pacific and Latin America Double digit revenue growth in Film & TV Visual o Effects and single digit revenue growth in ► Margin and supply pressures remain still Advertising VFX intense: Solid level of Postproduction activity in the US o Memory prices increases in H1 2018 o and in the UK and lower revenues in Animation & MLCC disruption generating additional cost o Games increases and challenging revenue target ► DVD Services: lower revenues YoY, in line with ► Price discussions with customer and Group’s expectations reinforced management actions Blu-ray TM volumes up 15% & Standard Definition o Customers will pay for component cost o volumes down 17% increases in order to ensure supply starting No impact of the outsourcing agreement with Sony o in Q3 which started in Q2 (ramp up will be completed Accelerating implementation of efficiencies o before Q4 2018) programs 13
REVENUE (IN € MILLION) ADJUSTED EBITDA (IN € MILLION) CHANGE AT CONSTANT CURRENCY (%) MARGIN (%) 7.8% 6.9% (6.8)% 4 628 359 4 231 291 2016 2017 2016 2017 NET RESULT (IN € MILLION) ADJUSTED EBIT (IN € MILLION) MARGIN (%) 2016 2017 2.9% (106) 132 1.2% (219) 53 2016 2017 14
A HIGHLY SEASONAL CORPORATE PERFORMANCE COSTS REVIEW ► As part of the Group’s simplification process, costs ► Adj. EBITDA mostly generated in H1 due to which support business activities reallocated to the seasonality of the business business divisions ► DVD Services is the most impacted by ► Effective as of January 1 st , 2018 seasonality with a very strong Q4 P&L impact of Entertainment Connected Corporate this reallocation Services Home & Other Adj. EBITDA in 2017 (in m€) H1 2017 H2 2017 split (in m€) FY 17 Adj. EBITDA 230 137 (76) Entertainment 72 159 as reported Services Cost reallocation* (15) (9) 24 Connected Home 57 80 FY 17 Adj. 216 128 (53) Corporate & EBITDA (46) (30) Other post reallocation 15
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