Vantiva S.A.

Ladies and gentlemen, welcome to Technicolor's conference call, chaired by Richard Motte, CEO, and Laurent Carozzi, CFO. At this time, all participants are in listen-only mode. Later, we will conduct a question and answer session. If you would like to register a question, please press 0 and 1 on your telephone keypad. Just to remind you all, this conference is being recorded. We would like to inform you that this event is also available live on Technicolor's website with synchronized slideshow. During this conference call, statements could be made that constitute forward-looking statements 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 feelings with the French Autorité des Marchés Financiers. I would now like to hand over the call to Richard Mott. Sir, please go ahead.

Good evening, ladies and gentlemen. I'm very pleased to be with you today to report Technicolor's first half 2021 results, which are positive and in line with expectations. The group is experiencing growing demand across all of its businesses and is benefiting from improved profitability as a result of our disciplined operational focus. All Technicolor activities are benefiting from sustained market demand and the creation of Technicolor Creative Studios is well-timed for the upcoming surge in content. It is led by a strong new leadership team focused on redefining content experiences through a powerful combination of storytelling and innovation. So if we turn to the presentation, let's start on slide four. In the first half, despite the continuing challenging environment, we delivered positive results and significant improvement in profitability in line with expectations. During this semester, Technicolor Creative Studios has been awarded numerous new projects, securing approximately 95% of its expected 2021 sales for film and episodic visual effects and animation and games. Connected Home experienced continued strong demand in North America and in Eurasia, but the division has been impacted by component shortages leading to sales being pushed to the second half and a challenging Latin American market. DVD services benefited from strong catalogue demand and continued growth in non-disc-related supply chain activity. Overall for the group, our revenues of €1.36 billion were at 1.2% at constant rate, reflecting a good performance in creative studios driven by demand for VFX technology, a 1% decrease in connected home sales as a result of key component constraints, and continuing revenue resilience in DVD services with a 4% increase in total replicated disc activity. Adjusted EBITDA of 100 million euros, double last year's figure at constant rate, was driven by the positive impact of efficiency measures across all activities, particularly in creative studios and DVD services. Adjusted EBITDA of 15 million euros represents an 83 million euros year-on-year improvement at constant rate. This is the result of the EBITDA increase as well as lower depreciation and amortization. Our free cash flow before financial results and tax was higher by 35 million euros at current rate, driven by higher EBITDA, working capital improvement in Technicolor Creative Studios and DVD services, and despite the negative impact of the normalization of payment terms in connected home. Based on business activity for the first half and the continued successful optimization of the businesses, the group is confident of achieving its outlook in 2021 and 2022. So let's turn to slide five. Technicolor Creative Studios revenues amounted to 295 million euros in the first half which was up 9.9% at constant rate. Adjusted EBITDA amounted to 40 million euros, up 38 million year on year at constant rate. The disposal of post-production, which closed at the end of April, refocused our portfolio of activities on our growth sectors. TCS is benefiting from the recovery in demand for creative technology and experiential content across its film and episodic VFX and animation and games divisions, combined with an outstanding performance from the advertising service line. Here's some key highlights. VFX teams worked on over 18 theatrical films for the major studios, including Cruella and the Lion King prequel for Disney, Mortal Kombat for Warner Bros. New Line, and Transformers Rise of the Beasts for Paramount. They also worked on over 35 episodic or streaming projects for HBO, Netflix, Disney+, and Amazon. In July, Mr. X received an Emmy nomination for Outstanding Special Visual Effects for its work on Vikings, The Signal. And this is Mr. X's seventh nomination for the Vikings franchise since 2013, with a trophy last year. Our advertising businesses delivered nearly 1,900 commercials, including approximately 20 Super Bowl spots. It won several prestigious industry awards, such as three Cannes Lions, three Visual Effects Society Awards, and two Adweek Experiential Awards. Animation and Games delivered more than 2,100 minutes of animation for film and TV, including the delivery of Spin Master and Paramount's Paw Patrol the Movie, which comes out in August. It received an Annie Award nomination for Best FX for TV Media with Fast and Furious Spy Racers. In June, TCS announced the consolidation of the animation businesses under the Micross Animation brand, with a new senior management team led by Andrea Milloro, who joined as president of Micross Animation earlier in the year. Despite the risks of the spreading COVID-19 variants, the media and entertainment industry continues to increase production throughput and invest in greater capacity around the world under relatively successful and strict COVID-19 protocols. TCS was awarded numerous new projects, securing approximately 95% of the expected 2021 sales pipeline for film and episodic visual effects and animation and games. As capacities to deliver remains one of the main challenges, TCS continues to adjust capacity limits by accelerating recruitment and developing remote work policies. Over on slide six, connected home revenues totaled $770 million, almost stable at constant rate. Demand was strong in North America and in Eurasia, but the division has been negatively impacted by key component shortages and a difficult Latin American market. Adjusted EBITDA amounted to 56 million, up 6 million at constant rate, driven by continued cost-efficiencies achievement. The division further strengthened its leadership in key market segments. It reached the milestone of over 20 million RDK broadband gateways deployed, and one deals with major operators across Europe and Latin America, confirming its leadership across the RDK community. On Android TV, it reached over 10 million set-top boxes worldwide, winning customers in Europe and Latin America. It demonstrated its innovation capabilities by launching with Sky Brazil the first hands-free voice-controlled set-top box, integrating Google Assistant. On Fiverr, Connected Home has won new customers in EMEA and a first deal outside of Brazil in Latin America. Looking forward, The worldwide supply chain disruptions will have multiple consequences for the connected home business. Continued difficulties in obtaining components, challenges in finding transportation, and cost increases across multiple categories of components and logistics. But connected home continues to work with its partners and customers to minimize supply disruptions, maintain a high quality of services, and offer cutting edge innovation. On slide 7, DVD services revenues totaled €283 million, stable at constant rate. Total replicated disc activity was up 4% year on year, which is unprecedented in recent years when the movement has generally speaking only been down. There was a 12% increase in standard definition DVDs, driven by the ongoing push of back catalogue products. But this was offset by a 13% reduction in Blu-ray due to the lack of new release content and an 11% reduction in CD volumes, a combination of expected structural declines and COVID retail impacts. The decrease in volume was partially mitigated by pricing improvements following the studio contact renegotiations and by growth in non-disc related supply chain activity. Adjusted EBITDA amounted to 11 million euros at current rate, which was better than expectations. The division continued to adapt to distribution and replication operations and related customer contract agreements in response to continued volume reductions. Two significant North American facility closures were affected in the first half of 2021 as part of the ongoing transformation plan. Executive and management teams have been implementing multiple cost reduction and business improvement and efficiency programs, and these were ahead of plan at first half and expected to deliver the full year savings and efficiencies projected. Going forward, theatrical new releases demonstrated an accelerating trend of improvement. In the second quarter, multiple major releases generated significant box office results, demonstrating strong consumer interest. While studios continue to experiment with various premium video on demand and day and date strategies, in almost all cases, studios are still electing to have a DVD BD release in the normal windowing sequence. With limited new release content, retailers are continuing to allocate shelf space to catalog and library content promotions, which has helped to support DVD replication. In half two, the specific timing and extent of the reopening of movie theatres will impact the level of new disc release activity. DVD services has therefore accelerated aspects of its future restructuring plans in an effort to adapt to these potential impacts. On slide eight, to conclude, all Technicolor activities are benefiting from a strong and growing demand driven by the urge to equip homes with strong broadband access the need for original content from studios and streamers, and appetite for catalog DVDs. Thanks to the ongoing transformation initiatives begun over a year ago, we have been able to invest more in hiring and unleashing top talent while consolidating, sharing, and harmonizing best practices. Our vision for transforming the future of film, episodic, gaming, and integrated marketing and advertising campaigns gives us the confidence that we will continue to deliver improved operational and financial performance through 2021 and 2022. With already 42 million euros cost savings realised in the first half, we're well on track to achieve the projected 115 million by the end of 2021, as planned, and to deliver a cumulative 325 million by the end of 2022. For 2021, we confirm Revenues from continuing operations broadly stable versus 2020. Adjusted EBITDA of around 270 million euros. Adjusted EBITDA of around 60 million euros. Continuing free cash flow before financial results and tax at around break even. And net debt to EBITDA covenant ratio below four times level at year end. And we are maintaining our previously issued 2022 guidance. Now I will hand over to Laurent, who will go into our first half performance in more detail.

Thank you, Richard, and good evening all. So I will now provide you with further details, as mentioned, regarding our H1 results. So overall, and I think it's been mentioned already, they show a significant improvement versus last year. It's been driven mainly by sales growth, despite the supply constraint we had to experiment with. and also quite significantly by improved margin due to the efficiency efforts we are making. So if we now look at the slide 10, you can see here our consolidated P&L. As usual, I will give you a bit more color per division, and we will go faster with the following slides. So starting with the revenues of $1.3 billion, the increase by $17 million at constant rate. All my comments will be made at constant rate. representing an increase of plus 1.2%, a slight increase. Giving you a bit more color per division, so in production services, CCS revenues amounted to 295 million in the first half of 2021. It's up close to 10% at constant rate, 5.8% at current rate. More specifically, we know that film and episodic enjoyed a double-digit year-on-year growth during the first half, driven mainly by clients' return to live action shooting, beginning in the later half of 2020, and also, it's to be noted, by the expansion of MPC Episodic, launched in the first quarter of 2020. MPC Episodic, to be more specific, has as main clients all the streamers, the likes of the BBC, the Netflix, and the Amazon of this world. Advertising, as Richard has mentioned, has recorded a strong first half performance, And this has been mainly driven by one of our two agencies, MPC Advertising. Admission and game, double-digit growth year-on-year driven by strong work for higher volume, in addition to the prior year period being negatively impacted by a temporary studio closure because of the pandemic. So easier comparison. Post-production is 15 million lower than last year as the division has left the perimeter at April end. So here you have mainly a perimeter impact on your overall performance. If we now turn to connected home, the connected home revenues totaled $770 million in the first half of 2021, flat year-on-year at constant rate. And what we can say is that despite demand remaining very strong, particularly in North America and in Eurasia, the division has been negatively impacted by the key component shortages and a difficult Latin American market. The sales missed because of COVID-related issues, could be estimated at more than $150 million for the first half. If we drill down per region, so the Americas, North America, the revenues remain strong, driven by increased demand from cable customers for upgrades, of course, to higher power broadband. Latin America, conversely, the difficult macroeconomic situation, the foreign exchange, and component costs continue to create difficult trading conditions there. As far as Eurasia is concerned, in Europe, Middle East, and Africa, we enjoyed a good semester with 10% growth year-on-year, driven by strong demand for DOCSIS 3.1, Android TV, and fiber product. But the shortages were creating a significant backlog. In other words, we could have delivered a lot more if we had had the components. We scored new wins in the three technologies in several markets, including Poland, Israel, and Australia. In Asia Pacific, the constraints were experienced in broadband technologies for the Australian market in spite of, again, very strong demand. The Indian market remains solid, maintaining growth year on year in traditional and Android TV technologies. Manufacturing for Indian customers is now taking place in India. So overall and together, long story short, we've been penalized by a problem of shortages in key components that prevented us from delivering sales the demand was we should have beaten these numbers in H1, and demand was even higher than what we were expecting at the start of the year. So hopefully we'll catch up with that in the second part of the year and in 2022. In DVD services, the revenues totaled $383 million in the first half of 2021, in line with 2020. So revenue resilience was driven predominantly by continued strong demand for back catalog titles, and that continues as we speak. Well, adjusted EBDA at 100 million, as Richard mentioned, has doubled at concentrate. It reflects operational improvements across all activities, and particularly in creative studios and DVD services. The adjusted EBDA margin for the group expanded from 3.7% to 7.4%, with all three main technical divisions reporting a significant margin improvement compared to the first half 2020. Looking at TCS, Adjusted EBITDA amounted to $40 million, 13.7% of revenue, up $40 million year-on-year at concentrate. The efficiency progresses have benefited mainly the firm and the advertising divisions. Turning to connected home, adjusted EBITDA amounted to $56 million in the first half of 2021, or 7.3% of revenue, so up $6 million at concentrate despite the sales shortfall. but thanks to continuing reductions in OPEX. DVD services, the adjusted EBITDA amounted to $11 million at current rates, so 3.7% of revenues, versus $1 million only in H1 last year. So given stronger than anticipated disc volume, and the acceleration of cost savings actions, partially offset by continued labor and material cost pressures, but clearly a very strong performance here. Adjusted EBITDA, 15 million represent an 83 million year-on-year improvement at constant rates. So this resulted from the EBITDA increase, of course, and the positive impact of efficiency measures, in particular lower DNA, lower capex, following lower equipment spend for creative studios, and lower IP depreciations for DVD services. These IP depreciations relate to the contract renewal we successfully managed last year. P&L non-recurring item at 1 million, negative 1 million, are better due to, if you compare it to last year, lower impairment and write-off. Remember, last year we had an HES Goodwill impairment of around 70 million, lower restructuring cost, and accounted for negative 26 million at current rate. Change in working cap, an important element to comment here, of 210 million negative reflects mainly the payment terms normalization. We've talked to you about it many, many times. It has continued and is finding its final point at this first half end. And the seasonality also, it's also marked by the seasonality also of the connected home sales, which has been amplified by sales delays from second quarter to third quarter. So in clear, We've sold less in Q2 this year than in Q2 last year, and that hasn't really helped the working gap. This will return reverse in the second half, and we see the improvements already. Remember that with a cash-out impact of $120 million in the first half of 2021, Connected Home has finalized its cycle of payment term reductions, as I've mentioned, benefiting now from a normalized and de-risked working cap contribution. as well as positive seasonality in the second half, partly subject to, of course, the evolution of component shortage. But at present, we do expect this to loosen up a bit, allowing us to recoup the sales we had lost in the first half in the second half. Free cash flow, so before financial results and tax from continuing operations, is therefore a negative 208 million. So we have a positive OCF, negative workup, so therefore we have this negative free cash flow. But still, it represents an improvement of $35 million year on year, despite all the cash outflow I've mentioned earlier. The net debt at nominal value amounts to $1.1 million, and IFRS net debt amounts to $1 billion. The net debt has upped a little bit versus the amount you had at the end of last year, mainly because of the accrual of peak interest we need to pay. And we also drew a little bit on our line at the end of the year, so that's part of this. I think with that, it concludes sort of a very thorough review of this slide. Let's move on now faster through the following one. So in slide 11, you see the work of EBITDA from basically last year to this year. So we have a 53 million increase in adjusted EBITDA at concentrate, mainly TCST. and you can see that very clearly on the picture, has provided with 40 million of increases in the main booster, but also 10 million coming from the DVD services, 6 million finally from connected home. Corporate costs decreased by 2 million, and Forex impact has basically had a negative impact of 6 million. Moving to slide 12, and I'll go faster on each one of these slides because we've I already told you a lot about these. So technical creative studios revenue, they amount to 295 million. They are 10%. The recovery and the growth comes mainly from recovery in live action shootings in film and episodic and a good performance in Mr. X, so in the episodic part of the department, but also, and of course, an outstanding performance from advertising. The EBDA, the adjusted EBDA, it amounted to 40 million. It is up 40 million year on year, so quite a strong performance. And the EBITDA is even up more than that, at 57 million, as the division has put more strength and control on its CAPEX and therefore on its depreciation as sort of a new norm of leading the company. Slide 13, a few words on connected home. You know already everything about the revenues, $770 million flat year-on-year, very strong demand everywhere. I repeat that in every market, North America and Eurasia in particular, but of course, negative impact of key components. The multiple consequences are basically being supported by this division because of the overall market situation. So we have continued difficulties in obtaining components, and that's delaying production to our final customers. It has hurt us quite a bit in the first half of the year. It's still constraining ourselves in the second half, but less. Challenges in finding transportation, of course, is also one of the problems for the components and finished goods, and that's delaying the delivery to our customers. We're finding alternative routes. We're using air freight when necessary, but it's also a challenge. And finally, third element, the cost increases across multiple categories of components and logistics are also impacting the profitability of the division. So Connected Home constantly works on trying to improve everything we can do to improve our situation versus these three elements. So therefore, the adjusted EBITDA, and particularly the performance of the first half, should be looked into this context. So the 7.3% of revenue... The 6 million increase in absolute terms has been achieved despite all these three elements slowing down the activity of the division. If we look at the EBITDA, it has increased by 11 million compared to last year at 29 million. And again, you can see here some effects also of reduced capex and better cost control in between EBITDA and EBITDA. Slide 14, DVD. So revenue resilience here was driven predominantly by continued strong demand for back catalog titles. We also saw the significant positive impact of new pricing and ongoing growth in non-disk related supply chain activity. That has to be noticed. Now the numbers start to be a bit significant and it seems that there is a pattern here that keeps starting. The COVID-19, however, has continued to have a negative impact in the first half with a significantly lower level of new release activity. which in turn resulted in a reduced mix of higher-priced Blu-ray volumes as compared to the first half of 2020 and has negatively impacted the year-on-year revenue trend. But it should be noted that the Q2 sales are showing some improving signs with Blu-ray replication slightly up, and that's a sign that a growing number of new releases are being used. The adjusted EBITDA amounted to 11 million, 3.7% of revenue, slightly better than our own expectations, and given mainly stronger demand than expected from standard disk volumes, and also the acceleration of cost-saving actions. That has been, in turn, partially offset by continued labor and material cost pressure, but clearly the results are, I think, quite satisfying. Lower depreciation and amortization and also the renewal of contracts have helped to deliver a net city BDA of a negative 10 million. to be compared to a negative 30 million a year ago. So I think still also an impressive improvement in a difficult context. Slide 15, you have a quick walk from EBIT-R to EBIT because we've discussed everything between EBIT-A to EBIT-R. Nothing major to note here. You have basically two main items, 19 million of PPE amortization. Not much to disclose here. It's almost a quasi-mechanical calculation. The restructuring cost accounted for 26 million at current rate. They include 15 million in relation to the DVD services. As you know, they are very active in optimizing their site footprint. The other non-currents are up to 24 million. Here, it's a non-cash item. It's linked to the close down of a Singaporean entity and the, let's say, the re-rating and the the grating of its equity. It's non-cash, so please do not consider that as an element contributing to the activity to the free cash flow whatsoever. It's also a one-off event. So slide 15. So finally, the EBIT from continuing operations amounted to a loss of $4 million in the first half 2021. You need to compare that to a loss of $194 million last year, and that's in relation, of course, to better operational performance. the DVD services impairment that we had to recall last year and not this year, and higher restructuring accruals, as already described. The financial results totaled a negative 63 million. It has to be compared to 67 million last year, so not much of a change. Net interest costs, they amount to 61 million. They are up from last year, 40 million, primarily because of the fact that we're paying higher interest rates on our new debt structure. and other financial income improved to negative 2 million in the first half of 2021. They were negative 28 last year, and last year we had to pay a lot of financial fees incurred in the bridge loan and also in the financial restructuring that no longer happened this year. So that's how we managed to have more or less the same level of financial results. The income tax amounted to 11 million, so we paid slightly more tax than last year, mainly in Canada and in India, nothing major to relate here. And therefore, we have a group net income amounting to a loss of $79 million to be compared to the loss of $265 million of last year. So a significant improvement, although we're still not at $3 million here. Slide 17, the free cash flow. So as shown previously, the free cash flow. So we are here before financial results and tax. From continuing operations amounts to a negative $208 million, but it's a $35 million improvement year on year. What has been driving this is, of course, the BDA improvement of 53 million, as you can see on the left-hand side of the chart. Lower capex, 11 million. Better financials and forex impact, and that's been mitigated by a higher restructuring cash-out of 23 million. We are cashing out more this year than last year, because last year we booked in the P&L all the restructuring charges. We cashed out last year half of the 2020 amount, and we told you that who will be cashing out the second half in 2021. This is happening. And also you have a 29 million of work cap consumption that's linked mainly to the payment term normalization and also the seasonality trend that Connected Home, which has been amplified by the sales delays from the second quarter to the third quarter. As already mentioned, but I think it's worth repeating that, Connected Home has finalized its cycle of payment term reductions, benefiting now from a normalized and zero-risk working cap contribution. as well as positive seasonality in the second half, partly subject to the evolution of component shortage, of course, but we have good hope that our second half will show significant improvement here. Slide 18, you will find presented our debt structure. I think you're familiar with the spreadsheet. I think the element we haven't commented there is the 99 million of cash and cash equivalent we had at the year end, and we have a nominal debt of 1.1 billion. If we move to slide 19, You can see that our liquidity overall amounts to $164 million, out of which you have $99 million of cash on hand. We have still available $65 million of the West Fargo line. We drew a bit, only $35 million, $34 million on it. We also worth noting, the team has managed to sign a new factoring deal, $40 million factoring deal. with the critical leasing entities. We've used 20 million of that at the end of June, so not even entirely the full plan, and we still have 40 million available for West Fargo. So in conclusion, we are okay in terms of liquidity, well into our plan, and we've managed to absorb these lower sales than expected in H1 and still meet all the criteria and all the covenants we have. With this, Richard, this marks the end of my presentation.

Thanks very much, Laurent. So we'll turn it over to you for your questions.

Ladies and gentlemen, if you wish to ask a question, please dial 0 and 1 on your telephone keypad. And we have our first question from David Serdant from Kepler Chevrolet. Please go ahead.

Good evening, gentlemen. Thank you for taking my question. I have a few questions for you, please. First question is just a clarification. The revenues for Technicolor Creative Studios, does it include post-production over the six months or just from January to the end of April? And secondly... Sorry?

Yes, that's right. It's from January to April.

Okay, so only four months. Okay. Okay, so this is my first question. And second question related to that, is there any impact on the EBDM margin that this business is outside?

It's minimal. I think it is 2 million.

2 million, so it means that the EBDA at 40 would be 38 or 42, sorry?

No, the... Sorry, in the 100 million of EBDA of the group, to make it simple, you have 2 million of post-production, so therefore it's what has impacted also the... So the TCSX post-production is 38.

Okay, great. Thank you. Second question is regarding your guidance for the free cash flow. So you expect continuing free cash flow to be at zero. And if I'm correct, it was around minus 200 million euros in H1. So it means that H2 should be at 200. Is it correct?

Basically, yes. That's absolutely correct. We are The guidance is around break-even, so it's not going to be exactly zero, which is such a very large company. It might fluctuate a bit, but that's not going to be much. And yes, you're absolutely correct. Free cash flow before financials and tax is negative to 18 in the first half. And obviously, to reach a break-even point, it means that we're going to have to generate a positive 200 million in the second half. But do bear in mind that's And that was the point I was trying to highlight, that the bulk OCF is already positive, and the bulk of the negative in the first half comes from workup. And in the workup, you have a lot of money being cashed out for the payment terms. That won't happen, obviously, in the second half, first element. And the second element is, as usual, in the second half, we post a better and increased free cash flow. And this year, with a slide of some sales of connected home from Q2 to Q3, and more importantly, Q4, we will have that contributing. And that will also help, again, the workup that now that it's been normalized, this company, when the sales are going up, the workup is actually positively contributing. So this is the fuel to the expected improvement in free cash flow and the positive significant free cash flow expected in the second half.

Okay, so in this direction, your net debt at the end of June was close to 1.1 billion euros. So with some positive free cash flow in H2, does it mean that the net debt at the end of December 2021 should be something like 100 million euros below the net debt at the end of June? Is it the correct assumption or not?

This is you doing additions and mathematics, so yes, it sounds reasonable.

Okay, so it means that below four times net debt EBDA is highly cautious.

I won't comment on you highly cautious. I need to see where my EBDA will be. So we still have half a year to go, but, you know, that's where we're heading.

Okay, thank you. And last question, if I may, is regarding the business for... I'm trying to remember the name. Yeah, Technicolor Creative Studio, so for this division. When do you think that you will be able to return to your activity before the crisis? Is it in 2022, 2023, or never?

I think that we will be returning to 2019 levels either in 2022 or in 2023. I mean, it depends how quickly the work of the division expands. We have a significant proportion of the forward pipeline secured already for 2022, which gives us good confidence in the prospects for the technical and creative studios division. And so therefore, it just depends whether we manage to beat the projections which we have for 422, but it'll be in one of those years. We are definitely going to exceed the EBDA which we made in 2019.

Okay, great. Thank you.

So we have another question from Fiona Williams from Edison Group. Please go ahead.

Thank you very much. Good evening. First of all, can I ask on Connected Home, obviously the component situation has affected all the participants in the market. Have you got any feeling for how your allocations have been working in a relative way? And is it... Has there been any shift in the competitive landscape? And further to that, you were indicating that you felt there would be some amelioration in the second half. Could you just expand on that, please? And my second question is on TCS. You've referred to labor shortages. Is that soluble, and is it just soluble by throwing money at it? My third question was on the DVD services. Are we now seeing all the benefits of the contract renegotiations or is there more of that going to come? Thank you.

Okay, so on your first question with respect to the key components crisis, I think that we are getting a good allocation of components in comparison with our competitors. Obviously, I don't know exactly, but I think that from what we know, particularly with our major chip supplier, Broadcom, there are constraints because they're now looking for orders going out a minimum of one year. But nevertheless, we've reached agreement with them on component supply. albeit at a higher price than had originally been anticipated. And so I think that we are achieving our fair share of allocations. I mean, clearly we're not the largest player in these types of markets. I mean, we're not Apple, for example, but at the same time, we do spend a significant amount on semiconductors, something like 650 million per annum. And so we do have some power in these markets. And in terms of the half two performance, I think that we have seen problems in the first half, such as, for example, factory closures in Vietnam off the back of the latest wave of COVID, which has been sweeping the country. We're now starting to get through that and production is normalizing. And the indications that we're getting from a number of different suppliers, and I would emphasize that, as you probably know, this is a key component crisis. It's not limited to semiconductors. It also affects memories and several other types of components. The indications that we're getting is that the position is stabilizing and possibly improving slightly. So I don't think that in common with anybody in this sector of the market, we can claim victory as yet. But certainly, I think we've reached a more stable position and we're looking forward to hopefully an improved second half. Then you talked about Technicolor Creative Studios' labor shortages. I mean, I would characterize it as the need to increase our workforce in order to keep pace with the amount of business which we are gaining and we are recruiting substantial numbers of artists at the moment and we need to reach a peak of recruitment by the start of the fourth quarter which is when we anticipate that we'll be reaching the greatest amount of work which we need to perform during 2021, and then that will provide the platform forwards into 2022. But as we stand at present, we're on track with the number of people which we need, and we see no problem in coping with the amount of work which we've taken on. And as I said a couple of times in my presentation, we've now got a forward pipeline of 100% of our revenues secured for 2021 and a substantial proportion of the revenues we project for 2022. And then on DVD, could you just remind me the question you asked on DVD? I've seen more effects on pricing. Oh yeah, we've seen all of the pricing effects coming through. I think that we've recently extended one of the contracts with the major studios. We signed it this week and so that will be an incremental benefit which will come through in future years but it won't be significant and therefore I think that in the results which you're seeing today, broadly speaking, most of the price improvements which came from the contract negotiations are reflected in those numbers.

Excellent. Thank you very much.

So we have another question from Thomas Coudry from Brian Garnier. Please go ahead.

Yes, good evening. Thanks for taking the questions. My first one is on connected home. When we hear the main CEOs of the industry talk about the shortage issue, they refer to more stabilization of the situation in 2023. So my question about that is, what are your expectations when you are guiding and when you're reconfirming your guidance? What are your expectations in terms of, you know, the crisis, the shortage crisis coming to an end? More specifically, I guess that probably when you disclosed your initial guidance at the beginning of the year, you didn't expect this crisis to last so long. Can we have some indication of, you know, in your EBDA bridge between 2022 and 2021, how much of that is carried by the connected home business, and is there a risk should the crisis last longer? And then my other question is about production. There has been a number of very significant merger in the industry lately, Amazon with MGM, Time Warner with Discovery. How do you think this type of mega merger can affect your business? Is this a risk for you that these customers are getting together, or is this not significant or not significant even for you? Thank you very much.

Okay, well, I'll start the answer to your first question. So you're saying that other people that you're speaking to in the market are talking about stabilization of this key component crisis coming in 2023. I think that it is clear to us that the crisis in terms of its impact on the industry is almost certainly going to last throughout 2022. And some commentators I've seen are suggesting it might be resolved in the middle of 2022, I think are being very optimistic. And we have assumed in our projections that the significant elevation in prices, which we saw at the beginning of this year for semiconductors and for memories and indeed for several other key components, those prices are going to remain elevated throughout 2022. So I think I agree that, well, I think the stabilization is coming. So certainly conditions are far more stable today than they were at the beginning of the year. And I think further stabilization will occur during this fourth quarter. But that does not mean resolution of the crisis or the fact that the unpredictability of developments is going to be removed. I think that will continue through 2022, the possibility of new negative developments. But we have factored into our projections these elevated prices, the fact that we can pass a certain proportion of them through to our customers, but not all of them, and allowed some room for contingencies for unforeseen events. So I think that we're in a relatively strong position, and that's why we're reaffirming our guidance. Is there anything you'd like to add to that, Laurent, before I go on to the second question?

No, no, no, that's exactly that. High level of... of pricing plan on 2022 in the same token that we had in 21. So you don't have much of a change, but because prices, what we have in our projection is prices continuing to grow in Q3, in Q4, plateauing in 2022. At the moment, it's going on in line with our own expectations, as Richard has mentioned. So that's it. But bear in mind, you have two things. You have price increases impacting, let's say, your cost. But the other element are the shortages. of sales and at the moment we are quite prudent even in the recovery we had in the second half and we haven't touched our 2022 sales forecast so i.e. we do not plan on any sales coming out of 2021 into 2022 or the demand is still here so if we have the components we could have that but this is not in our 2022 revenues.

And then in answer to your question about creative studios and the potential impact of the mega mergers, the Amazon and Discovery moves. PwC published their report into the media entertainment industry quite recently, and they forecast a 5% increase in spend over the next five years, up to a total of, I think, $2.6 trillion altogether. Obviously, we want to take our fair share of that market and an increasing share of that market. And all the projections which we can see from the commitments which we've got for 21 and for 22 indicate that we're going to keep or expand our market share and achieve the projections which we have for those years, providing a very good platform for years beyond that. And I don't think that these... these particular strategic moves which we've seen in the market are going to have a major impact there. We are getting an increasing proportion of our revenues from streaming and episodic. It grew during 2020 to meet or exceed the amount of revenue which we were getting from the tentpole marquee film market. And that has continued through into 2021. We're getting a lot of work from the episodic and streaming players, you know, the big players like Netflix, but also from Amazon, from HBO Max, Apple TV, Disney Plus. So I think that one of the key developments in the market has been, as we've seen, that Some of the streaming players have recently seen a slight reduction in subscribers, which I guess is what you would expect as lockdowns relax. And people can go out and they've got a far wider number of things that they can spend their money on rather than sitting at home watching box sets. And therefore, if the episode streaming players want to remain relevant, then they've got to spend more in order to create compelling content, which is going to be a hook for people to maintain the subscriptions which they already have, we can see that trend developing. And so therefore, as a result of that, the type of content which the episodic and streaming players is producing is becoming much more sophisticated. It's much more VFX heavy. And that means there's higher spend on VFX, which feeds into a greater pipeline of activity for us. So I think that's the general trend which I see, and these strategic moves within that trend are not going to have a major impact on the general direction of travel.

Okay, thank you very much.

So we have no further questions, gentlemen. Ladies and gentlemen, as a reminder, if you wish to ask a question, you have to dial 0 and 1 on your telephone keypad. We have no other questions, gentlemen.

Okay. Well, if there are no further questions, thank you very much for joining us this evening and look forward to speaking to you again for our third quarter results. Thank you very much indeed.

Thank you.

Ladies and gentlemen, this concludes the conference call. Thank you all for your participation. You may now disconnect.