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Technicolor Reports Q4 2014 Results

Technicolor SA announced financial and production results for its fourth quarter and full year 2014.

According to the statement, Technicolor’s revenues were €983 million (US $1.12 billion) in the quarter, up 0.4% compared to Q4 2013.

On the optical disc replication front, Technicolor reported that “DVD Services revenues decreased in the fourth quarter of 2014, mainly affected by a decline of 9% in combined Standard Definition DVD and Blu-ray volumes compared to the fourth quarter of 2013, as the release slate of major new titles from the Group’s key Studio customers remained weak during the period. However, the rate of decrease improved significantly compared to the volume drop recorded in the third quarter of 2014, driven in part by improved demand of TV products. Blu-ray volumes fell 2% year-on-year, as continuing strong growth in Games products for the Xbox One platform was offset by softness in Studio Blu-ray volumes, due to the aforementioned new title release slate weakness. Selected titles produced in the fourth quarter of 2014 included The Hundred Foot Journey (Disney), Tammy (Warner), Lucy (Universal) and Teenage Mutant Ninja Turtles (Paramount).”

Additionally, “DVD Services revenues were impacted in 2014 by a challenging year-on-year comparison. Combined Standard Definition DVD and Blu-ray volumes declined 11% compared to 2013, with ongoing Blu-ray disc unit growth of 1% offset by a 14% contraction in Standard Definition DVD volumes. These lower volumes resulted from a weaker release slate of major new titles across the Group’s key Studio customers (which recorded a 10% year-on-year decrease in their 2014 box office revenues compared to a 5% decline for the total U.S. box office), as well as a large reduction in catalog and promotional activities by one customer compared to 2013. Volume trend was generally better in Europe than in North America during the year, due to comparatively better performance across games and independents in Europe, regionally specific promotional activity for selected studio customers, as well as the ongoing adoption of the Blu-ray format. In Games, volumes suffered from lower demand related to prior generation video game consoles, despite a three-fold increase in Xbox One Games volumes.”

Disc Replication Services (by format)

Millions of units Q4 2013 Q4 2014 Change (%) FY 2013 FY 2014 Change (%)
DVD 369.8 330.3 -10.7% 1,221.9 1,053.1 -13.8%
Blu-ray Disc (BD) 84.9 83.4 -1.8% 253.2 255.3 0.8%
Total 454.7 413.7 -9.0% 1,475.1 1,308.5 -11.3%

Disc Replication Services (by segment)

Millions of units Q4 2013 Q4 2014 Change (%) FY 2013 FY 2014 Change (%)
Studio/Video 396.3 370.6 -6.5% 1,347.2 1,196.2 -11.2%
Games 47.3 33.0 -30.3% 96.6 74.2 -23.2%
Software & Kiosk 11.1 10.1 -9.4% 31.3 38.1 21.6%
Total 454.7 413.7 -9.0% 1,475.1 1,308.5 -11.3%

Currency conversion as of February 19, 2015.

For more information visit: www.technicolor.com


Unedited press release follows:

Technicolor: Full year 2014 results and launch of Drive 2020

February 19, 2015

Technicolor (Euronext Paris : TCH ; OTCQX : TCLRY) announces today its results for the full year 2014

• Solid Q4 2014 activity with revenues of €981 million, up €22 million YoY[1] (excl. legacy), driven by an all-time record quarter in direct licensing revenues

• Strong FY 2014 financial performance with Group free cash flow at €230 million, up more than 50% YoY. Leverage ratio[2] at 1.18x

• Net income of €128 million. Dividend to be proposed to the General Meeting of Shareholders

• Launch of new strategic plan, Drive 2020, following completion of Amplify 2015

Paris (France), 19 February 2015 – Technicolor (Euronext Paris: TCH; OTCQX: TCLRY) announces today its results for the full year 2014.

Frederic Rose, Chief Executive Officer of Technicolor, stated:

“I am extremely proud of the work done by everyone in Technicolor to deliver a fantastic performance in 2014 resulting in a positive net income and the initiation of a dividend.  As we now embark on our Drive 2020 strategic plan, we will remain fully focused on creating shareholder value as a leader in media and entertainment services, developing and monetizing video and audio technologies.”

Key points

• Strengthened market positions driven by organic growth in Production Services and Connected Home. Solid performance in Licensing with a high level of bilateral direct agreements. DVD Services impacted by weak 2014 box office.

• Continued innovation: 696 priority applications filed in 2014 compared to 509 in 2013. World first commercial deployment of 4K set-top-boxes. Launch of the UHD Alliance.

• Another year of improved profitability: Adjusted EBITDA at €550 million, a 16.5% margin (up 1 point) and Adjusted EBIT at €368 million, a margin of 11% (up 1.2 points).

• Sound financial structure: deleveraging objective achieved one year early driven by record year of free cash flow resulting from the profitability improvement, tight working capital management and further reduction in financial charges.

• The payment of a dividend will be proposed by the Board of Directors to the 2015 Annual General Meeting given visibility of free cash flow objectives.

• Launch of Drive 2020, the Group’s new plan that aims at extending Technicolor’s leadership in Media & Entertainment technology solutions, with best-in class operating businesses.

2015 objectives
Since last year, the Group has decided to accelerate its investments in targeted growth areas, as well as into new business initiatives highly relevant in terms of technology and IP generation (e.g. HDR, M-GO, Virdata…). In addition, as part of the Drive 2020 strategic plan, the Group has reviewed its activity portfolio and expects to proceed with some small-size divestments or deconsolidation of business lines that are not key contributors to its strategic objectives.

As a result, the Group has adjusted its 2015 objective and now expects an Adjusted EBITDA between €560 million and €590 million. The Group expects to generate at least €230 million of free cash flow, which will result in a cumulated free cash flow over the 2012-2015 period well above €700 million, by far exceeding its Amplify 2015 free cash flow objective. As a result, the Group expects to achieve a leverage ratio of around 0.75x at end December 2015.

Strategy
In 2012, Technicolor launched its Amplify 2015 strategic framework to increase its free cash flow generation, deleverage its balance sheet and accelerate its efforts in technology innovation. With the strong set of 2014 results published today, Technicolor has exceeded its financial objectives for both free cash flow and leverage ratio, notwithstanding strategic investments in next-generation video and audio technologies and services. With the completion of Amplify 2015, Technicolor has restored its financial foundation, and benefits from a reinvigorated innovation and IP engine, and strong operating businesses with leading market positions.

The emergence of next-generation video and audio technologies, coupled with the growth of digital content powered by Over-The-Top (“OTT”) services, is fundamentally changing not only the way consumers experience content, but the way content itself is created. These trends will have a significant impact on the current media and entertainment ecosystem: proliferation of content available across a wide variety of devices, and growth in consumer media usage across all forms of content, with increased demand for higher quality, ubiquitous and personalized consumption experiences. Technicolor is competitively positioned to take advantage of these shifts through its leading global and trusted position as a service and technology provider to content creators, network service providers and consumer electronics manufacturers. Technicolor builds upon its strong presence in content creation services, its innovation in OTT markets in M-GO and Connected Home, and its role in developing and licensing next-generation video and audio technologies.

Technicolor today announces the launch of its new strategic plan, Drive 2020, to deliver its vision of the Group as a leader in Media & Entertainment Services, developing and monetizing next-generation video and audio technologies.

Drive 2020 is based on the following strategic objectives:

1. Capture growth opportunities in the Media & Entertainment services market through sustained innovation in next generation video and audio technologies and experiences;

2. Create relevant new and valuable IP assets in Media and Entertainment from direct research investments and the operating businesses of the Group;

3. Deepen the competitive advantages of Technicolor’s operating businesses, further fueling the Group’s IP portfolio.

Technicolor will continue to focus on improving its free cash flow generation and promoting operational excellence across its activities to support the execution of Drive 2020.

The implementation of Drive 2020 strategic objectives is designed to strengthen the competitive advantage of each business division:

• In its Technology segment, Technicolor will expand its market-leading patent licensing platform building upon its increasing IP assets portfolio. The Group intends to grow its direct licensing program and will also develop new licensing models and further enhance the deployment, value and monetization of its IP and technology portfolio, particularly in next-generation video and audio technologies. For M-GO, Technicolor will continue to drive platform innovation, technology and IP development in next-generation video technologies. Through its growing number of partners, M-GO will expand its offering, building greater scale, and increasing geographic reach, organically and via partnerships.

• In Production Services, Technicolor will extend its current industry-leading position and grow its global service and technology platform from its current industry-leading position in creative skills and technology to capture share in rapidly growing film, TV and advertising segments and expand in OTT, games and animation markets. Technicolor will offer best-in-class technology innovation to current and emerging market segments, and will help drive adoption of Technicolor technology across the Media and Entertainment ecosystem.

• For DVD Services, Technicolor will retain its market-leading position and best-in-class operational efficiencies and maintain a solid financial contribution.

• For Connected Home, in addition to driving organic growth and innovation, Technicolor will seek to strengthen its efforts in emerging markets, particularly in Asia. The Group will also aim to leverage its current key customer relationships and product development expertise to provide a broader range of products and services, including OTT devices. Technicolor will continue to seek value-creative consolidation opportunities.

As part of Drive 2020, Technicolor will dynamically adapt its portfolio of activities to focus on market leading, profitable and strategically competitive assets, with the objective to reinforce its operational and technology positions and expand its addressable markets and capabilities.

With its restored financial health and confidence in operational execution, Technicolor benefits from greater financial flexibility to accelerate the execution of Drive 2020. The Group will target, as appropriate, external opportunities to acquire or develop new technologies, expand into larger addressable markets, such as in Technology and in Production Services.

Technicolor will continue to focus on free cash flow generation and maintain credit lines to secure temporary liquidity needs and cushion, therefore securing ample liquidity. The Group will also seek to maintain or improve its S&P (B+) and Moody’s (B2) credit ratings.

Drive 2020 objectives
The Group anticipates to reach an adjusted EBITDA of around €400 million and a free cash flow comprised between €160 million and €200 million in 2017, which will be the low point in terms of financial performance due to the end of the MPEG-LA licensing program.

Technicolor has set the objective to return by 2020 to an adjusted EBITDA above €500 million with a free cash flow in excess of €250 million.

All objectives are at constant rate and perimeter.

Proposed dividend
The Board of Directors of Technicolor has decided to propose to the 2015 Annual General Meeting of Shareholders the payment of a cash dividend of €0.05 per share in relation with the 2014 financial year. The initiation of a yearly dividend payment demonstrates the Group’s confidence in its prospects. The Board will consider every year the balance sheet structure and economic development of Technicolor to maintain or grow its dividend payment. If approved, the time schedule related to the dividend payment will be as follows:

• Ex-dividend date: 20/05/2015;
• Dividend record date: 21/05/2015;
• Payment date of dividend: 22/05/2015.

Technicolor shares will trade ex-dividend as from the beginning of the trading session on 20 May 2015. Holders of Technicolor shares on 20 May 2015, who would not have previously sold their shares will be able to freely trade their shares on the stock exchange as from such date and will not need to block their shares until the payment date of the dividend to benefit from such dividend.

Annual General Meeting 2015
At its meeting yesterday, the Board of Directors of Technicolor convened the annual general shareholders’ meeting on 9 April, 2015, in lieu of 21 May, so as to be able to move forward swiftly with the implementation of the new strategic plan.

[1] Year-on-Year.

[2] Nominal net debt / Adjusted EBITDA.

An analyst conference call hosted by Frederic Rose, CEO, and Stéphane Rougeot, CFO, will be held on Thursday, 19 February 2015 at 9:30am CET.

Financial Calendar

AGM 2015    9 April 2015

Q1 2015 revenues    23 April 2015

H1 2015 results    23 July 2015

Technicolor will hold a Capital Market Day in 2015.

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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