Vantiva S.A.

Ladies and gentlemen, welcome to Technicolor's conference call, chaired by Richard Mote, CEO, and Logan Carroll, DCFO. At this time, all participants are in listen-only mode. Later, we will conclude a question and answer session. If you would like to register a question, please press 01 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 of description, of such risks and uncertainties refer to technical feelings with the French Autorité des Marchés Financiers. I would now like to hand over the call to Richard Moult. Sir, please go ahead.

Thank you. Good evening, ladies and gentlemen. It's a great pleasure to speak with you today as we announce our strong year-end 2021 results, as well as some very promising developments for our company. 2021 was a significant year. We delivered excellent financial and operational results and continued executing on our successful transformation program. As with many industries, we were challenged by a very volatile environment, but thanks to our talented employees, led by an experienced leadership team, we managed to achieve our targeted goals. So today we've built a very strong foundation and we've reached a turning point in the history of our group. We've got the right momentum, And we've got a unique opportunity to refocus our operations and address the future in a different and more sustainable way. I'll come back to that in more detail in a moment. Let's turn to slide four to look at the key highlights and announcements which we're making today. So in 2021, we've delivered a strong business performance across all divisions and we've achieved our guidance, despite, as I say, having to navigate a very challenging environment. who've created three profitable businesses which are global leaders in their respective markets. 2022 looks good and that enables us to confirm our guidance for next year. Besides the excellent results today, we're also announcing a key strategic move which is aimed at accelerating value creation. We intend to list technical creative studios to enable its further growth and development in line with the significant industry demand. We intend to spin off and list TCS with a distribution in kind of 65% of the shares of TCS to Technicolor shareholders. Through this process, we intend to enable Technicolor to evolve into two industry-leading independent listed companies, each with the ability to pursue its own strategic agenda and achieve market valuations consistent with their fundamentals. unlocking value for all stakeholders. In addition, we intend to further de-leverage so that both companies can have more active development profiles through refinancing the entire existing debt structure. We plan to issue €300 million of mandatory convertible notes, whose conversion to technical shares will be effective upon the execution of the spin-off. Angelo Gordon, BPI France and other selected shareholders have committed to subscribe to the full amount of the mandatory convertible. We're starting an exciting journey and we're ready to take a further step to align strategy, value creation and financial objectives for all of our stakeholders. In addition, we also announced today the sale of our trademark licensing operations as we've received a binding offer of €100 million in cash. This is a great opportunity to further simplify our group structure through the sale of this non-core asset, and we expect the transaction to be closed during the first half of 2022. So turning now to slide five, going back to our 2021 results, for the full year 2021, Technicolor met all its guidance. We had adjusted EBITDA reaching $268 million at actual rate, $272 million at constant exchange rate driven by strong demand despite the volatile environment. This represents a 9.3% margin which is up 379 basis points at constant exchange rate. Adjusting EBITDA at 95 million was a 155 million improvement compared to last year's results. And continuing free cash flow before interest and taxes was close to break-even, which represented a €119 million improvement year-on-year, reflecting strong operational progress and cash control. Our net debt-to-EVA ratio reduced to below the four times level as expected, reaching 3.87 times at constant exchange rate. Finally, we delivered €116 million of cost savings in 2021, following the €171 million achieved in 2020. So that's cumulative €287 million and we're well on track to achieve our €325 million goal by the end of 2022. Overall, our strong financial improvements in 2021 are a result of our transformation programme, which has involved significant cost savings and operating efficiencies across all of our businesses. Turning now to slide six on our 2022 guidance, while we still continue to face an uncertain and volatile environment, we've got solid foundations for growth and we expect to continue delivering improved operational and financial performance throughout the year. So for the full year 2022, we're targeting growth in revenues from continuing operations, adjusted EBITDA of 375 million euros, Adjusted EBITDA of €175 million. And very positive free cash flow of €230 million. And please note that these numbers have been adjusted in line with recent accounting and scope changes. And those adjustments are fully detailed in our press release. So let's get into more details on these three businesses. Turn over to slide 8. Let's look at Technicolor Creative Studios. In 2021, the TCS business had another successful year, cementing its position as the independent global leader in tech-enabled content creation with an award-winning portfolio. Some key highlights of the year include MPC teams working on more than 30 theatrical and 60 streaming and episodic projects, which were awarded with Academy Awards and BAFTA nominations, as well as the Visual Effects Society Award. The Mill teams contributed to over 3,000 projects, which also led to several key industry awards. Mikros Animation was in production in over five features and 17 episodic series or TV specials, which include major franchises for Disney, Nickelodeon and Paramount. And Technicolor Games collaborated on major games IPs such as FIFA 22 and NBA 2K22. Turning to slide 9, part of TCS's success came from the positive effects of its reorganisations. Following the sale of post-production in April of 2021, we renamed the former production services as Technicolor Creative Studios, highlighting its premium positioning. Christian Robertson is its president, and he has reorganized its activity into four focused businesses, led by highly qualified managers. Through this reorganization, Technicolor Creative Studios is benefiting from a more centralized network with consolidated teams, and a series of single-site but multi-brand campuses. It allows us to eliminate inefficiencies and to take a further step towards a more integrated organisation. These initiatives, along with high demand from our customers, are translating into strong and improved financial results for the TCA business. As you can see on slide 10, in 2021, revenues amounted to €629 million, which was up 37%, at constant rate year over year, if you exclude the post-production business. This improvement, notably in the second half, resulted in a surge in demand for original content for all the business lines compared with last year, in which we suffered from pandemic-related impacts on production in Hollywood and around the world. At MPC, revenues grew significantly, driven by the continued ramp-up in production of major theatrical projects, as well as increasing contributions from all the major streaming platforms. At the mill, advertising revenues grew across all markets year over year, driven by a faster recovery in advertising spend than we anticipated. At both Midcross Animation and Technicolor Games, revenues grew significantly, driven by higher volumes across all segments. The shortage of talent which impacted the entire industry was partially mitigated by significant retention and hiring action plans implemented during the year, and more intensively in the fourth quarter. At the end of 2021, TCS staff reached approximately 10,560, which was up 2,860, or 37%, compared to the end of 2020. So adjusted EBITDA amounted to £113 million, that was up £94 million year-on-year at constant rate, and adjusted EBITDA was £41 million, up £119 million year-over-year at constant rate. On top of the revenue increase, there was a significant margin improvement from the positive impact of the transformation programmes in conjunction with permanent cost reduction measures. As for 2022, we expect the demand for Technically Creative Studios' breadth of services to continue to grow significantly. The division has been awarded multiple new projects for film and episodic VFX and animation, resulting in approximately two-thirds of the 2022 pipeline being committed already, which is unprecedented at this stage of the year. And we will continue to invest significantly in artist recruitment, retainment and training. Now in terms of slide 11, this covers our connected home segment. Overall, the division made important strides in maintaining its leadership position in the key market segments, thanks to strong activity from broadband operators, particularly in North America. That's reflected in the broadband share of revenue which was 64% in 2021 compared to 61% in 2020. We also struck new deals with major operators in EMEA and the Americas. In addition, the division continued to be at the front end of innovation with new wins with key partners and successful product launches. Importantly, our work and our sustainability been recognized by EcoVadix the world's largest and most trusted provider of business sustainability ratings the company's sustainability performance was deemed advanced in all four categories assessed environment labor and human rights ethics and sustainable procurement for its structured and proactive sustainability approach engagement and tangible actions on slide 12 In 2021, the division showed dexterity in navigating the supply chain constraints and the semiconductor crisis. Nevertheless, we were limited in our ability to fully satisfy the very strong demand we were getting from our customers. In fact, the underlying demand for 2021 was higher than our actual sales in 2020. To address this, since the summer of 2021, the division has intensified its collaboration with clients and customers to maximise deliveries, and to mitigate potential profitability and working capital impacts, and it started to pay off, particularly in the fourth quarter. As a result, connected home revenues totaled €1.544 billion in the full year 2021, which was down 10% at constant exchange rates compared with 2020. However, EBITDA was flat at constant exchange rates, reaching €103 million, and the margin was up by 0.7% to 6.7%, reflecting cost-cutting and operational efficiency measures. For 2022, we expect global demand for Conexidone broadband equipment to remain strong, despite continued component shortages and pricing challenges. Nonetheless, efficiency measures, progressive improvements in delivery and constant discussions with both suppliers and customers should continue to help offset these headwinds. On slide 13, looking at DVD services, DVD services experienced a year of commercial success and operational efficiencies as we implemented structural division-wide initiatives to adapt to the continuous volume reduction of discs. That said, in 2021, volumes were only down 2.7% year-on-year compared to the previous pandemic annual decline of around 11%. This was in part due to the marketing efforts of back catalogue products by the major studios who were starting to focus on theatrical new releases given the recent improvement in box office attendance. In addition, we've had some success in the development of new businesses as we continue to focus on diversifying our growth strategy with non-disc operations. Under David Holliday's leadership, DVD services has evolved into a specialist manufacturing and supply chain services division, repositioning the disc activity into a profitable volume-based business. Diversification is now accelerated, through manufacturing services, including vinyl and bio devices, and supply chain and fulfilment services and solutions. We already manage, for example, 50,000 consolidated shipments per day for some of the most prominent names in media and consumer services. On slide 14, DVD services financial results, were revenues totaling $701 million in 2021, which was remarkably up 1.6% of constant exchange rate, the first time we've seen that in many years. Despite slightly lower disk volumes year over year, we saw increased revenues from non-disk operations, mainly in the US. Adjusted EBITDA amounted to $67 million, or 9.5% of revenues, compared with 7.5% in 2021. up 15 million at constant exchange rate. Margin improvement mainly resulted from the significant year-over-year footprint optimization and cost savings. We finalized the closure of four facilities while continuing to develop our Memphis hub. Margin improvement could have been even greater, but we had to deal with higher labor costs in North America and higher raw materials costs. For 2022, our improving format mix along with continuing cost efficiencies is expected to mitigate the anticipated modest disc volume decline. In addition, we will pursue further expansion of non-disc businesses which are expected to provide a positive contribution to the division's revenues and margins in 2022 and significant growth for the following years. I'll now turn it over to Laurent so that he can go into more detail on our performance.

Thank you Richard and good evening everyone. So we now provide you with further details regarding our full year 2021 performance. So again, at constant forex rates and accounting principle, we have significantly outperformed the expected guidance. Overall, as mentioned by Richard already, Technicolor delivered a strong 2021 year and significant improvement in profitability despite renewed supply constraints challenges affecting both connected home and Technicolor creative studios. Over the summer, We accelerated action plans to mitigate the potential negative impact on our inventories. The achievement of the full year 2021 guidance demonstrates that we have managed this successfully and once again demonstrated the capacity of this company to brilliantly sell through difficulties and manage complexities. So the slide 16 presents the consolidated figures for the year. As Richard has already commented the results by division, I will only provide you with a consolidated review of our financial performance. Details by division are also available in appendix in this presentation. On a consolidated basis, our revenues year-to-date of 2.9 billion, reduced by 50 million at concentrate, representing a decrease of 1.7%. TCS recorded a strong growth plus 162 million euros at constant rate, while connected home was impacted by industry-wide key component shortages and supply chain dislocation, which prevented the business from meeting strong customer demand in full, and therefore posted a 177 million sales shortfall. It should be said that the backlog for this division was in the region of 500 million. So, as you can see, there's a lot of sales that could have been put with it anyway, we could have had the supply, the key components. Our adjusted EBITDA of €268 million was up €109 million at constant rate, or 67%. This reflects operational improvements, notably at TCS of €90 million, along with cost savings and operational efficiencies. The adjusted EBITDA of €95 million represents a 155 million year-on-year improvement at constant rate. This resulted from the EBITDA increase and the positive impact of efficiency measures, in particular lower DNA, following lower equipment spent for technical or creative studios, and lower depreciation for DVD services, along with a reduction of footprint. The rich structuring cost amounted to a negative 37 million at current rate, including 17 million year-to-date in DVD services driven by mainly footprint rationalization. The change in working cap, the negative 81 million, has improved compared with 2020, where it was at negative 103 million euros. It's deriving mainly from higher client down payments and terrible payable transactions variations at Technicolor Creative Studios, resulting from higher activity in 2021. The key component shortage at Connected Home created an increase of unfinished goods inventory at Connected Home and also KC inventories, notably in the third quarter, which was offset by active cooperation with its clients and suppliers, including new fracturing mitigating fractures lowering of the suppliers' payment terms in 2021 to return to normalised relevant. Free cash flow before financial results and tax, from continuing operations was almost at breakeven at the negative 2 million. This represents an improvement of 119 million year-on-year at current rate, driven mainly by the profitability improvement in TCS and the ongoing implementation of our cost transformation program. The free cash flow after interest and taxes amounted to a negative 82 million, still a 100 million improvement compared to last year. The net debt at nominal value amounts to 1.1 billion, and IFRS net debt amounts to 1.039 million. The difference mainly relates to the market-to-market devaluation, and will be reversed, as you know, through non-cash interest charges over the life of the debt. Year-on-year, the change in net debt, as the IFRS free cash flow is at break-even, mainly results from the impact of interest and PIC charges, and of leases payments. Let's now move to slide 17 with a focus on revenue. So I'll go faster. The year-on-year 1.7% revenue decline at constant exchange rates led us to a 2.9 billion revenues. The 162 million revenue improvement at TCS driven by the strong market recovery was offset by 177 million lower revenues at connected homes due to the supply and component constraints. TCS revenues were $629 million. They increased by $162 million at constant exchange rate and at constant perimeter, so i.e. excluding the sale of post-production that we performed last year. TCS revenues now represent 22% of the consolidated revenues, and that should be compared to the 17% mark they had in 2020. This increase was mainly driven by MPC and DeMille. You're going through more details. Human episodic report recorded a revenue of 103 million, mainly with a strong performance from MPC Film, but also with a very good performance of MPC Episodic and Mr. X, as you know, a memorial of Screamers clients. Advertising up 35 million euros. Its backup is basically by the very, very strong year of MPC Advertising during a tremendous year in 2021. AMG delivered plus 24 million and been mainly driven, as Richard has mentioned, by the five or four ones for one this year. The company has been working on three movies, that's just one in the past, and is clearly stepping up in its capacity to deal with a larger and larger amount of accounts. The DVD services increased slightly by 12 million at constant exchange rate to reach 700 million. It's a good performance, mainly achieved thanks to growth in new distribution and freight businesses in the U.S., Connected home share in consolidated revenue decreased from 59% to 53%. And connected home revenues amounted to 1.5 billion and declined, as was already mentioned last, to by 177 million at constant exchange rates, as they were impacted by industry-wide key component shortages. One word on corporates and other, which includes trademark licensing, no change here, revenues remained stable at 23 million. Also note that revenues were negatively impacted by 47 million of change in scope due to the sale of post-production in April 2021 and a negative Forex impact of minus 59 million. Excluding those impacts, consolidated revenues would have been almost flat at 3 million. Let's move now to the slide 18 and comment rapidly on EBDA performance. As shown in this slide, EBDA improved significantly. 109 million 67 percent to hit 268 million this was driven on top of the strong recovery at tcs by operational efficiencies and cost savings for all of our divisions as illustrated by the ebda margin improvement i will not comment on each business performance as richard did it earlier so let's move on to the side 19. adjusted ebitda also reflects improvements in efficiencies and cost savings, as it increased by 155 million at constant exchange rate to a positive 95 million, to be compared to a negative 59 million last year. Operational efficiencies are also reflected in lower DNA, following lower equipment spent for TCS and lower depreciations for DVD services, going along with the reduction in footprint, of course. Otherwise, nothing major to note here. Between adjusted EBITDA of 95 million euros and continuing EBITDA of 30 million, we have mainly two items. The 38 million negative of PPA amortization and 37 million of restructuring costs at current rate, including 17 million yesterday in DVD. These were driven, of course, mainly by the footprint rationalization. And this has to be noted that this amount is very significantly reduced from the negative 100 million of last year. Finally, EBIT from continuing operations amounted to a profit of 30 million, compared to a loss of 267 million in 2020, due to better operational performances, while also 2020 was impacted by DVD services impairments and higher restructuring accruals. On slide 20, we are looking now mainly at the financial results, who totalled a negative 126 million in 2021, to be compared to a positive 77 million in 2020. This positive number is reflecting two things. One, an increase in interest expense, 48 million, due to the higher interest rates we are paying on the new debt structure. And conversely, in 2020, we've posted a positive 158 million of non-cash gains on the equity and debt initial valuations, following the financial restructuring, as you know, of our balance sheet. The income tax amounted to 24 million to be compared to 5 million in 2020, many due to higher results at TCS, and these tax fees are mainly located in Canada and in the UK. Group net income, therefore, amounted to a loss of 140 million in 2021 to be compared to the negative 211 million loss in 2020. Slide 21 assumed previously 2021 free cash flow after tax and interest from continuing operation amounts to 82 million. negative represents a 104 million year-on-year improvement. It's driven by the EVDA improvement, 109 million, lower capex, 6 million, better pension and other end-product impacts, and this is mitigated by higher restructuring cash-out of 24 million. And a more favorable change in working capital with an improvement of 16 million year-on-year at concentration rate already commented earlier. Slide 22. You see here on net debt at nominal value, it amounts to 1.1 billion, and IFRS net debt amounts to 1.039. On liquidity, the year-round amounted to 196 million, and we had an unknown West Fargo facility of 97 million. Richard, this marks the start of my presentation. Now I'll let you present the major strategy step we intend to pursue.