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Technicolor Reports Q4 2013 Results, Blu-ray Shines

Technicolor SA announced financial and production results for its fourth quarter and full year 2013.

According to the statement, Technicolor’s revenues were €979 million (US $1.34 billion) in the quarter, down 2.5% compared to Q4 2012.

On the optical disc replication front, Technicolor reported for the quarter that “DVD Services revenue recorded a low single digit decrease, despite the 6.6% decline in combined Standard Definition DVD and Blu-ray volumes compared to the fourth quarter of 2012. The decline was primarily attributable to a weaker title release slate for selected customers in comparison to the prior year. This decline was partially offset by ongoing growth in Blu-ray, which increased 17% in the quarter supported in part by production for the new Blu-ray based Xbox One gaming console launched in November. Overall volumes recorded a decrease in North America following several quarters of growth while they were broadly stable in Europe. Major titles produced in the fourth quarter of 2013 included Despicable Me 2 (Universal), We are the Millers (Warner Bros.), Bad Grandpa (Universal) and Jungle Book (Disney).”

Additionally,  for the year, “slight revenue increase in DVD Services driven by combined volumes growth of 1.5%, reflecting the ongoing resiliency of Standard Definition DVD (down only 4% year-on-year), and continued strong Blu-ray volume growth of almost 40%. Combined volumes reached 1.475 billion units, the second best year ever for Technicolor, resulting from overall strength of studio customers’ release slates (Technicolor customers were the 3 top grossing studios in the U.S. box office in 2013), ongoing Blu-ray volume growth across both existing studio customers and gaming clients in support of the new Xbox One console, selected share gains across the existing customer base, and ongoing use of multi-disc DVD/Blu-ray “combo-pack” configurations; Technicolor secured multi-year contractual renewals with three of its top customers.”

Disc Replication Services (by format)

Millions of units Q4 2012 Q4 2013 Change (%) FY 2012 FY 2013 Change (%)
DVD 414.5 369.8 -10.8% 1,272.2 1,221.9 -4%
Blu-ray Disc (BD) 72.3 84.9 17.4% 181.8 253.2 39.3%
Total 486.8 454.7 -6.6% 1,454.0 1,475.1 1.5%

Disc Replication Services (by segment)

Millions of units Q4 2012 Q4 2013 Change (%) FY 2012 FY 2013 Change (%)
Studio/Video  437.2  396.3  -9.4%  1,341.5  1,349.0  0.6%
Games  40.1  47.3  18.1%  87.5  94.7  8.2%
Software & Kiosk  9.5  11.1  17.6%  25.0  31.4  25.6%
Total 486.8 454.7 -6.6% 1,454.0 1,475.1 1.5%

Currency conversion as of February 20, 2014.

For more information visit: www.technicolor.com


Unedited press release follows:

Full year 2013 results: strong operating execution and material deleveraging

Technicolor today announces its results for the full year 2013.

• Revenue: +2.4% at constant rate and scope[1]

• Adjusted EBITDA[2]: €537 million, +10.4% at constant rate

• Group free cash flow: €153 million, +45% versus 2012

• Significant deleveraging with gross debt reduced by €145 million

• Well on track to deliver on Amplify 2015 objectives

19 February 2014 –Technicolor (Euronext Paris: TCH) today announces its results for the full year 2013.

Frederic Rose, Chief Executive Officer of Technicolor, stated:

“2013 was a banner year for Technicolor where we delivered strong operational performance, which made it possible for us to invest in growth areas for the company and continue to generate lucrative intellectual properties. All of this puts well on target to deliver on our Amplify 2015 objectives.”

Key points

• Strong operating execution reflected by a 10.4% increase in Adjusted EBITDA at constant rate and scope. Adjusted EBITDA margin amounted to 15.6%, an increase of 1.3 points yoy.

• Successful cash generation from continuing operations at €192 million (+73% yoy). Group free cash flow (after payment of the EU antitrust fine) of €153 million (+45% yoy).

• Restored financial strength and flexibility following the debt refinancing of July 2013. Gross nominal debt reduced by €409 million in 2 years.

• Strong pace of innovation across the Group and growing Intellectual Property portfolio with priority applications increasing by 15% yoy.

• Implementation of Technicolor’s incubation framework with several initiatives launched in the market (M-GO, Qeo, Virdata, certification programs, etc) with strong IP generation.

• Focus on three strategic priority innovation domains offering high potential for technology and IP, where Technicolor can leverage its assets and capabilities to generate further profitable growth and additional value after completion of Amplify 2015.

2014 guidance and Amplify 2015 objectives

• Adjusted EBITDA between €550 million and €575 million;

• Group Free Cash Flow between €180 million and €200 million, notwithstanding higher cash restructuring charges compared with 2013;

• Positive net income;

• Net debt to Adjusted EBITDA ratio below 1.2x at end December 2014.

Halfway through its Amplify 2015 roadmap, Technicolor confirms that it expects to achieve its Adjusted EBITDA objective of at least €600 million in 2015.

The Group has already generated €259 million of free cash flow between 2012 and 2013 towards its initial objective of generating at least €400 million over the period 2012-2015. Based on its free cash flow performance and prospects, Technicolor expects to outperform its initial objective and generate at least €500 million of free cash flow over the period 2012-2015.

As a result of the upgrade of its free cash flow objective, the Group is also revising its initial objective of a leverage ratio below 1.1x and now expects a net debt to Adjusted EBITDA ratio below 0.9x at end December 2015.

Innovation
Continuous innovation is crucial to Technicolor’s operation. We apply innovation to gain market share, strengthen client confidence, generate productivity gains and also reinforce the relevance of our IP portfolio thereby supporting our licensing programs.

In 2013, all businesses increased their number of invention disclosures, especially around video, audio, communication/interoperability, local networks and machine learning technologies. Ultimately the derived patent applications further strengthen the growing IP portfolio with the filing of 507 priority applications[3], representing an increase of 15% compared with 2012 and 25% compared with 2011. The Group also continued to collaborate with the industry standard bodies, in areas such as HEVC, 3D Audio and ATSC 3.0, and with key technology partners, for example by partnering with Samsung to offer 4K streaming on M-GO platform or by joining forces with Qualcomm and several other companies in the AllSeen alliance. This lucrative collaboration in terms of innovation resulted in substantial IP generation and licensing initiatives. In 2013, Technicolor also identified three priority domains of innovation which will further reinforce our key businesses, as well as the IP and licensing capabilities of the Group:

• Immersive Media: deliver premium content everywhere with next generation technologies in video and audio compression, rendering and adaptation.

• Context-aware Entertainment: a personalized and contextualized viewer experience by offering new features and interaction with entertainment content.

• Digital Life: enrich consumer’s life by integrating and exploiting connected devices, sensors, applications and data.

Summary of consolidated results for the full year of 2013 (unaudited)

Key financial indicators and analysis at constant scope[4]

 Full Year

 Change YoY

In € million

2012

2013

Reported

At constant rate

Group revenues

3,489

3,449

(1.1)%

+2.4%

Adjusted EBITDA

498

537

+7.8%

+10.4%

As a % of revenues

14.3%

15.6%

Adjusted EBIT

287

338

+17.9%

+20.2%

As a % of revenues

8.2%

9.8%

EBIT from continuing operations

263

226

(13.9)%

Financial result

(197)

(288)

Share of profit/(loss) from associates

(5)

(6)

Income tax

(49)

(41)

Profit/(loss) from continuing operations

13

(111)

Profit (loss) from discontinued operations

(35)

19

Net income

(22)

(92)

Net income excl. costs related to refinancing

69

Group Free cash flow

106

153

+44.7%

Net financial debt at nominal value (non IFRS)

839

784

(55)

Revenues from continuing operations totaled €3,449 million in full year 2013, including a negative forex impact of €122 million. Revenue growth at constant rate and scope reached 2.4%, and 5.2% excluding legacy activities, driven by a sustained performance across its businesses. Connected Home and Digital Creative Services were the main growth drivers while DVD Services again demonstrated its resiliency. In the Technology segment, revenues decreased compared to an all-time high in 2012 and the Group continued to renew contracts and sign new multi-year license contracts at a sustained pace.

Adjusted EBITDA from continuing operations reached €537 million in full year 2013 including a negative forex impact of €13 million. Margin reached 15.6%, up 1.3 points compared with last year driven by significant margin improvement in Connected Home and Entertainment Services and lower corporate costs. Operating expenses related to new initiatives continued to increase, contributing to the margin decrease recorded in the Technology segment.

The Group remained focused on cost optimization in 2013 and gained in efficiency across its businesses and at Corporate level. Operating expenses recorded significant decrease in the Entertainment Services segment and at Corporate level, down respectively 15% and 10% at constant rate, while remaining broadly stable in the Connected Home segment. Overall operating expenses for the Technology segment increased, due to incremental costs related to the development and commercial roll-out of several new initiatives including M-GO and technology licensing initiatives.

Adjusted EBIT from continuing operations amounted to €338 million, up 20.2% at constant rate compared with 2012, with a margin of 9.8%, up 1.6 points resulting from the Adjusted EBITDA increase.

EBIT from continuing operations totaled €226 million compared with €263 million in 2012, mainly resulting from a €39 million increase in restructuring costs as the Group launched at the end of 2013 additional cost savings measures including headcount reduction plan in support functions in order to bring the Group’s support costs below 5% of sales.

The Group’s financial result reflected the different impacts of the July refinancing of 76% of its senior secured debt maturing in 2016 and 2017 by the issue of a new term loan maturing in 2020:

• Net interest costs amounted to €112 million, a significant decline compared to €145 million in 2012, reflecting lower borrowing costs stemming from the refinancing transaction and the significant gross debt decrease, including the voluntary debt prepayment for €67 million implemented in the refinancing context;

• Other financial expenses amounted to €176 million including costs related to the refinancing for an amount of €161 million. Transaction costs, including tender premium and other fees, amounted to €81 million, while the purchase of part of the senior secured debt maturing in 2016 and 2017 resulted into an IFRS reversal recognized as a non-cash charge for €76 million.

Interest costs are expected to further decline in 2014 with the full year impact of the July 2013 refinancing. The Group will also benefit from the refinancing of part of its remaining debt maturing in 2016/2017 via a cashless exchange for €181 million and the subsequent reimbursement of the remainder of this debt by end of April 2014.

Net income was a loss of €92 million, including charges related to the refinancing for €161 million. Restated from these charges, the net result was a profit of €69 million.

The full year 2013 performance reflected the Group’s commitment to strong operating execution and deleveraging.

An analyst conference call hosted by Frederic Rose, CEO, and Stéphane Rougeot, CFO and SEVP Strategy, will be held on Thursday, February 20, 2014 at 3:00 pm CET.

Q1 2014 Revenues

25 April 2014

AGM 2014

22 May 2014

H1 2014 Results

25 July 2014

Q3 2014

22 October 2014

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.

About Technicolor
Technicolor, a worldwide technology leader in the media and entertainment sector, is at the forefront of digital innovation. Our world class research and innovation laboratories enable us to lead the market in delivering advanced video services to content creators and distributors. We also benefit from an extensive intellectual property portfolio focused on imaging and sound technologies, based on a thriving licensing business. Our commitment: supporting the delivery of exciting new experiences for consumers in theaters, homes and on-the-go. www.technicolor.com

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