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.

Thanks a lot, Laurent. So I'll run through our announced spin-off and refinancing and highlight what we see as the future of these two independent companies. So on slide 24, as we mentioned earlier, following a comprehensive review of strategic options, our board of directors has unanimously approved the partial spin-off of the Technicolor Creative Studios segment. Through this transaction, we're going to be creating two independent market leaders in their respective sectors. Technicolor Creative Studios, the leader in visual effects, and on the other hand, Technicolor SA, Technicolor XTCS as it's known, composed of the connected home and DVD services businesses, whilst retaining upside in that division, it's upside exposure to Technicolor Creative Studios. TCS will be listed on the Uranus Paris Stock Exchange with headquarters in Paris, and Christian Robertson, the current president, will be appointed Chief Executive Officer. TCS will have its own board of directors and a management team independent from Technicolor XTCS. Technicolor XTCS will also remain listed on the Euronext Paris Stock Exchange with headquarters in Paris, as is the case today. Post spin-off, Luis Martinez Amargo, the current head of Connected Home, will be appointed Chief Executive Officer. As we move forward with the process, we plan on publicly sharing additional details on both companies, and we will organise two capital markets days, one for each company, at the end of May or in early June. With this announcement, we're also planning to refinance the group's existing debt in order to equip the two future companies with a more agile balance sheet, fully adapted to their individual strategies, which will enable both companies to accelerate growth. So turning to slide 25... I'll highlight the rationale for this operation, which aims first and foremost at creating value. Above all, we consider this is the right time to make this move. Thanks to the exceptional effort which we've made over the last two years, we've turned our three businesses into three profitable leaders, and we think now is the time to offer them the opportunity to accelerate. Both entities will have an efficient capital structure which will be tailored to their strategy and will enable them to pursue their own agendas. TTS will become a unique pure place story in a growing market, and Technicolor X TTS will have the opportunity to reduce its debt and reimburse existing lenders. Both entities will have a more focused strategy with their own agenda. In a nutshell, this operation aims at maximising value to all Technicolor stakeholders, employees, customers, suppliers, lenders and shareholders. I'll leave the floor now to Laurent to present you the contemplated refinancing process.

Thank you, Richard. And now we turn into slide 28. So overall, this envisaged refinancing package, along with the spin-off, is a unique opportunity to end, at improved conditions, of course, the existing expensive debt, reduce concurrently the cost of debt, and create optionality to refinance the balance sheet of both entities. The first part of this refinancing is the intention to issue a 300 million monetary convertible note to be converted into Technicolor shares at the discretion of the issuers or at the inception of the spin-off prior to the distribution. Importantly, this monetary convertible note is fully subscribed by existing shareholders i.e. Angelo Gordon, BPI and a set of selected shareholders. The issuance of the monetary convert is subject to a two-third majority approval at an extraordinary general meeting or shareholder, which is expected to take place early Q2, and in any case, no later than May 25th, 2022. We have included the summary of the key terms of each MCM, of this note, in the appendix sections, presenting conversion price, coupon, maturity details, and we'll be happy to go back to this for Q&A. Concurrent with this package, we will also negotiate a new debt structure consistent with the proposed spin-off, allowing us to create optionality to refinance the balance sheets of both entities. So if we turn now to slide 27, we are going to review the transaction timeline. So the issuance of the mandatory convertible note is subject to the approval, as mentioned, of Technicolor's shareholders at an upcoming EGM, held no later than end of May 2021. 2022. In addition, the spin-off is also subject to the approval of shareholders at the next AGM to take place at the end of June. This next AGM will probably be at the same time that we will be having our AGM, or the more classic AGM. Following shareholders' approval, we expect to complete the refinancing beginning of Q3 2022, and the spin-off by end of Q3 2022, which is also subject to customary closing conditions, consultations, and regulatory approvals. Once the spin-off transaction is completed, both TCS and Technicolor XTCS will be listed separately. Before leaving the floor to Richard, who will present to you the key assets and the strategy of TCS and Technicolor XTCS, I would like to take this opportunity also to again thanks to our shareholders for their constant support, our lenders and, of course, our advisors, Borchardt, D'Angelin, Goldman Sachs, Morgan Stanley, Brodin Pratt and Kirkland, who have been a tremendous help to this sequence. Richard, over to you.

So let's go to slide 28. Following the completion of the transaction, both TCS and TechnicalX TCS will be two independent companies, leaders in their markets, with stronger foundations for accelerated growth. Overall, the two companies have got distinct characteristics in terms of growth and financial performance, and independently they will have the ability to pursue their own strategic path, consistent with their underlying business dynamics and financial fundamentals. So on slide 30, starting with Technicolor Creative Studios, as I said before, TCS is the undisputed publicly listed global leader in VFX. It will offer an attractive, pure play equity story in a market experiencing exponential growth driven by an increasing demand for content. TCS is the world's largest and most creative visual arts company, uniquely positioned for the metaverse through its four business lines. It benefits from long-standing and deep relationships with all major players in Hollywood and with streaming platforms. So, its points of excellence, MPC for film and episodic visual effects, offering the highest quality artistry and cutting-edge technology, with strong barriers to entry. The Mill for advertising, providing creative execution and immersive experiences for 360-degree digital campaigns. Midcross Animation, offering high-quality and end-to-end CGI for TV and streaming platforms, and Technicolor Games, developing art and animation for the gaming industry. TCS is uniquely positioned to capitalise on future visual content opportunities, such as in streaming, and in the metaverse. Slide 31 presents more details on TCS's four business lines, demonstrating the competitive advantage it enjoys, along with its long-standing customer relationships. On slide 32, as an independent company with direct access to capital markets, TCS will be able to accelerate the execution of its strategic agenda and growth trajectory. TCS's ambition is to develop a collaborative global structure to drive innovation and creativity across its studios in order to capitalise on future and scalable markets. The key strategic priority will be to capitalise on the wave of booming demand for content while also continuing margin improvement through a more efficient organisation. TCS's ambition is to scale the business and to expand into experiential marketing and gaming. On slide 33, the future of TCS being an independent company will enjoy many advantages. Content creation capabilities, putting it in a unique position in future growth environments. Cutting-edge technology expertise. Deep relationships with key customers, including major theatrical and streaming players. A new integrated and efficient organisation, led by a best-in-class management team. A unique talent pool, supported by its leading academy. and a significant runway for EBITDA expansion and strong cash flow generation. In short, TCS, with its unique worldwide leadership, has strong fundamentals for long-term growth and provides an upside opportunity for all of Technicolor's stakeholders. Turning to slide 35, now let's look at Technicolor XTCS. Technicolor XTCS will maintain market leadership status in connected home and DVD services. The company is expected to have a stronger balance sheet following the contemplated refinancing, and this will equip both connected home and DVD services with additional room to expand to reinforce their status as global leaders. Looking at connected home, it's number one in broadband, serving 60% of the top 10 suppliers, and number one in Android TV with a 45% market share. It serves 50% of the top 10 video suppliers. and it has a 14% market share in home gateways. Connected Home is a leader with a comprehensive product offering and a focus on the growing segments of broadband and Android TV. It's got a best-in-class supply chain and innovative products and solutions, a promising diversification strategy in Internet of Things solutions. The business has made a transformation plan over the past three years, and it's now on a growth trajectory. Looking at DVD services, it's number one worldwide in all disc formats with 65% market share. It sold 800 million discs in 2021 and achieved 55,000 shipments per day. The division has reinvented itself. It's now leveraging its leadership experience to provide end-to-end solutions to all major studios. It's strategically allocated to provide clients with highly flexible, scalable solutions. It's developing new profitable and high growth adjacent businesses. It's entering the specialist manufacturing in the areas of vinyl and microfluidics and it's offering high value added supply chain services. Furthermore, TechnicalRx TCS's state in TCS will provide additional financial flexibility to invest in the future of its businesses. Turning to slide 36, TechnicalRx TCS's value proposition can be summarised in these five key points. It's a company which is composed of two market leaders offering highly differentiated capabilities. It's a highly strategic partner to its customers, creating strong stickiness. It's got a great opportunity to expand the total addressable market in highly attractive adjacent markets. It will have a stronger balance sheet with greater liquidity, significantly de-risking its financial profile and supporting strategic priorities and growth. and it's got an experienced management team in both divisions, which has driven transformation and proved its ability to react fast and to adapt efficiently in facing headwinds such as supply shortages. It will now pursue the repositioning of the group and work to create value. So, we're now at the end of our presentation. I'm not going to comment on the last six slides, they're there for your review. They present in greater detail the work which has been accomplished by Luis Martins de Margo and David Holliday, who I believe are great assets to those divisions. I invite you to give them a close look. So thank you very much for your attention, and now, with Laurent, we're available to take your questions.

Ladies and gentlemen, if you wish to ask a question, please press 01 on your telephone keypad to enter the queue for the question and answer session. We already have some questions. The first one comes from Emmanuel Matou from Adobe HF. Please go ahead.

Yes, good evening. Hope you can hear me well. Yes, we hear you well. I have several questions, please. First, what about inflation in TCS? Do you have to increase significantly wages? And do you have a strong pricing power to compensate any negative impact? Have you seen the deterioration of your employees' rotation last year? Second, in your forward-looking assumptions for 2023, you have an EBITDA increase, but a decrease of free cash flow. How do you explain that? Third question, how do you plan to split the 1.3 billion euros of gross debt between TCS and the next Technicolor XTCS? And last question, if I may, why 300 million euros mandatory convertible notes and not a capital increase. Thank you.

Okay. Well, I'll start with a response to the first question concerning inflation. There is definitely a war for talent in the global market for artists working on visual effects. which is impacting every business which operates in the sector. As I said during the presentation, we have grown our headcount significantly by 37% during the year from 7,700 to 10,560, and we will continue to expand it to keep pace with the enormous demand for content, which we're seeing. As I said, we've got two-thirds of our pipeline for 2022 secured, which is unprecedented at this stage of the year, so we're going to need more people to fulfil that. But nevertheless, there is this strong competition for the talent, and that has led to an increase in the rate of attrition, particularly in markets such as Canada. In Canada, there's been continuing problems with COVID because of visa-related issues, and also in India, where we have a very heavy presence. But nevertheless, we are coping with these factors and we're going to be running larger numbers of technical academies, which we put thousands of people through each year, in order that we can cope with the rates of attrition and continue to grow the number of very high caliber artists which we have in the business. Now nevertheless, clearly, As a result of the increase in demand for high-quality content and the demand for artists across the globe, there is going to be upward pressure on wages. But Laurent and I have built into the projections for TCS, provisions for this in the projections which we're making for future years. I don't know if you'd like to add anything to that, Laurent.

Yes, yes, it's absolutely correct. Hello, Emmanuel. And also do remember that we're working on contracts with the studios and we're selling VFX shots. And we have basically the way we're pricing these things is we have a standard cost approach to that. And for the coming movies and the coming projects we're working upon, of course, when we build up our standard costing, on top of which we're adding our margin, we're capturing the inflation. So the model of TCS is actually that you have a pass-through of the inflation for the upcoming contracts because they are based on the new cost. Where you have a risk, to your point, is when inflation starts, kicks in, on existing contracts and that you have already negotiated the price. And this is where the point of Richard is made, that we have been prudent in terms of assuming the margins we could extract from this contract. I might take your second question around a lot. With a few important elements, and I'm glad you have this question. First of all, what you have, if you read the press release, and I know you didn't have much time to read it, but we're not providing guidances. We are changing data that we shared with the people supporting the monetary convertible notes. We will be providing guidance on... TCS and on Technicolor XTCS and the capital market data will be held in May. So you shouldn't consider these numbers as basically proper guidance. They were numbers that we put together before Christmas and that we used in order to base our analysis of the capital requirements and whatnot. Having said that, and to answer your question more in detail, if you read the footprint, you will see that When we look at what we call remain-conjuncting costs, technicalized TCS and TCS, in this model, we have basically assumed a few things. One, that we will have dis-synergy cost, and it's mentioned in your press release that it can go up to 40 million, split among the two, first point. And the second point is you will have fees. to be paid also in relation and cost relation to this transaction. And you have the detail in your price release. Now in 2022, you will have some of these costs kicking in, but not the entirety of these. And they will be really fully affecting 2023. So this is really the reason why you have basically a variation in these elements. What you should note is that the free cash flow of these divisions will continue to continue to improve in 2023. And basically the only reason why you have a variance is the fact that they will have to support some, let's say, non-operational costs in the process. About the debt splits. So the capital structure of both entities have not been decided yet. Having said that, the aim is to make sure that technicalized CCS is putting the market as a much, much better financial position, i.e., the aim, we'll see if we are successful, but the aim is to deliver a company fully financially leveraged after, of course, the disposal of TCS shares. You notice that they will keep 35% of TCS, and with the proceeds of these shares, the plan is to fully deleverage this Technicolor XTCS company The remaining part of the debt being supported by TCS. So that's how we will monitor. We will give you precisely the capital structure again at the time of the capital market day because in the meantime we'll be proceeding to order refinancing and we will basically further adjust our view on TCS share disposal. Finally, you asked why is it that we went for this monetary convertible notes of 300 million and not for a more traditional capital increase. I'll give you two reasons for that. One is to perform a capital increase you need to have basically banks supporting you and you will have to allow for a discount and the discount will be quite significant, you know, 20%, 30%. You are in the market so you know what I'm discussing here. And to be honest with you, we didn't have a lot of support on this part, on this approach. The second element is, I think, the mechanism we've put in place, whereby we have this fundatory convertible node, and that's very important what I'm saying here, fully backstopped today, fully backstopped today, allowing us to go in a debt market with a perspective of very significantly deleveraging the two entities, and therefore significantly improving their ratings, in the perspective of a spin-off, is to be fully executed and it's in our hands. The spin-off will happen via distribution of shares. It has to be decided by the CEO and the board of the company. We are not dependent on market conditions. And on a day like today, I think you can appreciate the fact that not being market dependent has a value. So irrespective of market conditions, we can proceed to the spin-off and we can proceed with this operation. Sorry, Emmanuel, I've been a bit long. I hope I answered your question.

Yes, that's very clear. May I add one question regarding the decline at Technicolor XTCS from above 160 in 2022 to above 150 in 2023? Maybe you can comment a little bit on that. And if I'm right, you are talking also about assumptions for 2024? But I can't find any figures on the press releases. Maybe there are some.

If I take the first question, the underlying demand which we had in our connected home division was way in excess of the sales which we achieved in 2020. So if we'd have had all of the semiconductors, in particular the chips, but also many other key components which we couldn't get supply off. And we could have increased our sales substantially. But unfortunately, that restriction in terms of key components continued throughout the year. In fact, it got worse in the middle of the year. And as a result of that, our sales were restricted. So it wasn't customer demand that was the problem. It was getting the supply off. in order that we could fulfil that demand. So that demand is still there and we believe that we're going to see growth in 2022. The semiconductor crisis and the dislocation in worldwide supply chains is going to continue through 2022 but we hope to see some kind of alleviation in the scale of the problem during the year and then improvement as we go into 2023 as more manufacturing chip capability comes on stream. So I think that the decline in revenues should be seen against that background. It really has no bearing on the future potential of the technical or XTCS division, which I think has got great growth prospects in the future once we get through the impact of these twin crises.

And Emmanuel, if you don't mind, could you repeat your other question, please?

Yes, if I'm right, you are talking about figures also, assumptions for 2024, but I can't find anyone in the press release.

No, again, yes. Again, Emmanuel, you can't find them because we didn't provide them. We gave you just the qualitative information on 2024. Again, this is very important. These numbers are not basically official guidance. They are numbers we've used, prudent numbers we've used in our assessment with the banks of what is required for this company. And this is in no way should be considered as a guidance. We will come to you, to the market, with proper guidance in May. And again, above and beyond what I also mentioned to you, beyond the cost intrinsic to this transaction, that this energy costs, there is also, and we will give you more clarity on that, a certain level of investment that is also part of these numbers, and you don't really see the benefit of it because it will show up in 2024. So, you know, we will prepare a fully comprehensive set of guidance that you will receive, but that will be for May. Okay, thank you very much for your time and your answers.

We have another question from David Cerdan, Kepler Chevreux. Please go ahead.

Yeah, good evening. A lot of my questions have been already answered. I have just a few questions regarding first TCS. So the profitability is around 6.5% at the EBIT level. Is it the norm inside the sector? And how do you expect TCS to significantly improve its margins from 2022? Right.

So, I mean, for us to tell you if this is comparable in the sector is difficult because we are the only one listed company. So, what we know is that the... To answer more specifically your question, TCS is made of our four divisions. So you have FEV, so the human episodic, advertising, animation, and then we have games. If you take human episodic, we believe that we have quite good margins in this sector because of our size, because of our use of India, that is quite systematic. And also because all these margins were, as you know, quite diluted. by the streamers in business it happened that the business we're doing now with the streamers because of the growing ambition of the project these margins are going up now so we have a favorable mix now happening with the growth of the streamers within this division so here we think we are pretty good probably we don't know again we can't tell you I don't know what the wetland margins are or the other ones but we believe we are not too badly too poorly positioned there As far as advertising is concerned, basically, you know, because we've been very familiar with that, we're coming from very, very, very low territories two years ago. A lot of work has been achieved, has been done. We've managed to push up the margins in between 15% to 20%, and we intend to push them north of 20%. How do we know we can do that? We can do that because we are far from having fully put in place all the tools from time tracking to BVMs

that are required in order to be... We have brought together the two major advertising brands under one single brand, The Mill, which will achieve synergies if we go into 2022.

So that's the second element that is going to help us feed this growth. On animation, basically the amounts of animation are fairly high. They've always been fairly high. The thing is, because the volume of activity was pretty low, it wasn't really impacting the average But with the growth, we're seeing that. As you know, we have a new management. Two years ago, we were doing one movie per annum. In 2021, André Milot has managed to have the company perform three movies. And this year, in 2022, as Richard has already mentioned, we're going up to seven movies. So clearly, as you can see, the steps change, and the margins are staying at a high level. So that's that. As far as games are concerned, games are small. It's very tiny, honestly. It's still a very nascent industry. subdivision but we Christian Robertson brought in new management team with high ambitions and it's not going to impact a lot my 2022 and my 2023 because it's early days and because they are at work maybe we see we can give you more news in May but clearly there is a lot of ambitions here and this will lead top line growth and margin growth as well so these are the four elements that will help to grow the margins of CCS

I have another question, it's regarding the deal. Have you received some interest for your TCS division?

Well, today we are concentrating on the announcements of the spin-off, and obviously the execution of the spin-off, as we said, is going to take, for it to be completed, is going to take through the third quarter of So creating two independent companies which can fulfill their independent destinies and achieve valuations which are in line with their market fundamentals, illuminating the conglomerate discount which is inherent in the technical share price today and thus creating, we believe, significant value for all stakeholders is our main preoccupation. With regard to what may happen in the future, with regard to any of these assets. I mean, that's not something I can speculate on today.

Okay, thank you. And last question, this may be in the press release, I'm sorry for that. For the trademarks activities, so the disposal is made at roughly 100 million euros, but what is the contribution of trademarks to EBITDA or EBIT or revenues?

In 2021, I had $23 million of revenues, $14 million, $1.4 million of EBITDA.

Okay.

About seven times multiple, and we have an independent valuation of the business, and the price compares pretty favorably with that.

Okay. No, but that's good for me. If I have another question, I will ask after. Thank you.

Of course. Thank you, David.

Thank you. We have another question from Thomas Godry, Brian Garnier. Please go ahead.

Yes, good evening. Thank you for taking my questions, which will be mostly on the deal. First one is, Maybe an easier way to create the value that you will be creating here by doing this deal would have been to a straight sale of connected home. Should we interpret this spin-off deal as difficulties to sell connected home, or is this still an option on the table in the ex-TCS company? My second question would be, there is some information in that in the press release, I guess, but could you please describe the tax impact for the shareholders and for the group itself? I'm not sure about that, but I guess you've looked much into the Vivendi deal, spinning off UMG, and I understand this is not the same type of impact, so could you please run us through that? And last question, please. Did you consider listing TCS in the U.S., not in Paris, which could have seemed like an appropriate place given the business? And why did you choose to stay in Paris? Thank you very much.

We looked at a number of different strategic options over an extended period of time with respect to what was the most appropriate approach. to create the maximum amount of stakeholder value. And certainly the sale of the connected home asset was a theoretical possibility. I think that there's a couple of issues there. We have very strong relationships with our customers. We've got some very large, powerful customers in connected home. depending on who the sale might have been to, we could have destabilised those relationships and destroyed value. So that wasn't a kind of favoured approach, I don't think. Plus, if you sold off TCS, then you would still be leaving Technicolor Creative Studios together with other assets within the group. And I think we believe that the best way of achieving the maximum value is to create a pure play visual effects player from technical and creative studios which is not associated with any other company and can be seen to have the excellent potential which we believe that it has. So therefore that was the strategic option which was chosen and we firmly believe that that is the best one to achieve shareholder value creation. Would you like to handle the tax point?

Yes, and I would just add to Richard's point. As Richard mentioned, basically the spin-off of TCS is way easier than the spin-off of Connected Own. That's for sure. But also the second element is, as you know, there is a conglomerate discount around Technicolor. And basically when you think about value creation, you think about extracting assets under this conglomerate discount. And you want to extract the one that is the highest potential chances, facilities to re-rate And that is TCS over in CH. I should add that CH connected home is faring extremely well as you can see in 2021. You have a look at the results of their competitors and you will realize that the performance they've done in 2021 is outstanding. They have left half a billion of sales unserviced in 2021. They will continue to grow after that. It's a tremendously successful company that has transformed brilliantly. We have absolutely no issue in terms of as far as the business plan of connection is concerned. Tax impact, very simple. No, we didn't really look at the – it's not that we didn't look at it, but we did inspire ourselves from the Vivendi deal. What we've managed to put together is that we – taxation on the distribution of these shares should be probably very, very close to almost tax-free to the shareholders. So we've managed to find a way by distributing, if you want to go technical, it's by distributing share premium to avoid taxation for the shareholders. So it's actually, we believe, also the point of attraction for this transaction. As far as the group is concerned, as you know, we're hitting on noise and everything, so there's actually no impact for us there. But for the shareholders, it should be that.

And the third point about the listing, where would the listing venue be? I mean, we We looked at alternative listing venues. But basically, we are currently a French PLC headquarters in Paris. We've got a very experienced group management team covering many different functions, which is based in Paris. And France is a center of excellence, for example, for animation, which is Laurent's bed. It's a very fast-growing area of Technicolor Creative Studios and one where we'll be hiring more people during 2022 and beyond. There are various reasons why we think that the complexity of moving to another location was necessarily going to be justified. Clearly, if we were to list in the US, there would be a lot of bureaucracy which we would have to deal with, which we think would be in excess of that which which is involved in continuing to be listed in France. So for all those reasons, we decided to stay on Euronext Paris as both of these assets.

Okay, thanks a lot.

Thank you.

Thank you. We have another question from Alex Duval, Goldman Sachs.

Please go ahead. Yes. Hi, everyone. Thank you so much for the question. Just a couple, if I may. Firstly, you talked about the opportunity in the past about video games, and you've highlighted this again today as a dynamic area. Just wondering whether you'd need to track different skills here as you take advantage of opportunities given the growth in that market and whether there would be incremental hiring involved or whether you can simply leverage a lot of your existing capabilities. Secondly, as a follow-up, you talked about continued strong growth in broadband, which is clearly an area of strength for the company and a technological enabler for the digital economy. However, just wondering whether, as return to office proceeds in some regions, different speeds, whether you could just update us on how you think about sustainability of demand in as people spend less time at home and more in the office. Many thanks.

Okay, so in video games, as Laurent has said, we've operated to date on a relatively small scale, but Kristin Robertson has recruited Janine Falkler, who's got a very deep experience in the video gaming sector over a number of years. And we have scaled up our ambition and so instead of just doing work for hire, we want to move up the value chain in terms of becoming more of a partner to these gaming companies and maybe outsourcing some of the continuing development which is carried on with some of the most well-known games, which is where the higher returns lie. The skills which are necessary to create assets within games are pretty much the same as they are for visual effects or for films, episodic or visual effects for advertising. There are certain differentiating factors, but I think people can learn those pretty easily if they have the VFX skills already. It will require incremental hiring and Janine is on a push to get more people into the division because there's no doubt that the more people you have, the more work you can take on and the higher your revenues are going to be. But we have significant admissions in that area and we want to make it a major part of our operations rather than just a slideshow, which has been to date. And in terms of broadband growth, I don't think that return to the office is going to have a major impact on that. We can see very strong growth for the next couple of years. And I think that the people being locked down at home for long periods, especially with large numbers of their families trying to use many different devices simultaneously, was a shock to the system and people realised that they needed to trade up in terms of the performance of their broadband and the Wi-Fi experience which they were getting. And we provide higher end products, you know, including Wi-Fi 6, which provide the best possible broadband propagation characteristics. And I think that people have realised that they just can't make do with the service which they've had before and they're continuing to trade up to more performant products in large numbers. And I think we see that continuing for the foreseeable future.

Thanks very much indeed.

Thank you. Thank you, ladies and gentlemen. As a quick reminder, please press 01 on your telephone keypad if you wish to ask a question by phone. We have another question from Fiona or Ford Williams Edison Group. Please go ahead.

Thank you. You've given me quite a lot to read through this evening. What I was trying to get my head around was the outline forward-looking assumptions on Technicolor XTCS and how to reconcile that with what you're telling me about the strong underlying growth. And further to that, maybe you could give us a little bit more feel for the timing of how you think connected home recovery is going to come through particularly in terms of when you think the component issues will have worked their way through and the other thing I'm just trying to get my head around a little bit I can see that you will now have a CEO of Technicolor at CCS and Christian Robson in CCS itself what can other management for those needs to be organized as separate entities. And what happens to you, Richard? It may be in the state with the suburb.

Sure. Okay. Well, Laurent, do you want to talk about the underlying growth in tech, XTCS?

Yes, yes. First of all, I'm going to correct one of your comments. There is And I think maybe we didn't explain it very well, but we don't have the question of recovery for connected homes. Let me just go back to what we said. First of all, what we've said is in 2021, basically, we sold less than what we could have. So we should have been delivering more. We didn't. Our EBD, nevertheless, has managed to increase because of efficiency measures or whatever. The demand is here. The problem is to get the components, to get the boxes and to deliver them. So our view today for 2022 is that this is going to continue for probably three quarters of the year. We believe that the key component constraints, and that's how we're building up basically our guidance, will continue for the year. We think that we might have an improvement in the in-transit time of inventories. towards the end of the year. So, you know, the time the boxes take to travel from Asia to America, for instance. It was usually three weeks, three, four weeks, it has gone up to eight weeks, leads to higher inventories with us. We think that this is going to stay like that for three quarters and then ease on the fourth quarter. So, to your question, timing, really towards the back end of 2022. That's that. Then, nevertheless, nevertheless, basically the company will continue to improve because still they will be selling more than expected. They have ordered, pre-ordered more than for the year. So they will have that. They will have growth. And you have EBITDA progression as well. So it's recovery of the market. Probably at the moment we don't foresee it before fully 2023. Of the company of Connected Home, they're in good shape and they continue and they will start investing. So they are on a good path.

And then taking a third question, I think it's in the press release, but I don't think we covered it in this presentation, that the CEO of Technicolor Creative Studios, as you say, will be Christian Robertson, and the CEO of Technicolor XTCS will be Luis Martinez-Amago, who is currently head of Connected Home. The chair of TCS will be Anne Boverow, who is the current chair of the Technicolor group. And I will be taking the role of chair of Technicolor XTCS. So I will be remaining with the group in that role. Now, you also asked about the rest of the management structure. Today, we're announcing the chairs of the two respective businesses and the CEOs. We will be working on the detailed management structure of both businesses in the coming weeks. And we will make an announcement about that in due course.

Thank you.

Thank you. We have another question from David . Please go ahead.

Yeah, thank you. A few questions regarding the mandatory convertible notes. So you say that this MCN is supported by selected subscribers. who have committed to subscribe to the full amount. Is it some shareholders or new investors? First question. And secondly...

Shoulders, existing shoulders.

Do we know how many shares or how much of the capital is owned by those existing shoulders?

Yes, of course, we know how much it is. The only thing we can tell you, and that's as much as we want to disclose, is that we believe we have a strong close to the majority support of our shareholders in this.

And is it correct that you need two-thirds of the voting rights to... Two-thirds of those voting at the AGM.

For the first one, for the approval of the NCM.

Okay. The second question, it's just a technical question, but the MCM pays a coupon of 4.5%. Just to be clear, are you going to pay something? Because after that, very rapidly, the debt should be transformed into new shares.

Yes.

No?

So, no. Basically, the thing is, in this deal, we will be first issuing the NCM, all right, so it will first appear as a convert, and we will do so, so we understand the mechanic, we will only do so at the time when we have, you know, also gathered the proper financing for technical XTCS and TCS. So on that very day, we will have the NCM, financing one for TCS, Financing tool for technology yes because we have all that we can go back to a current lender and repay everything in one go So that's going to happen and you also once we have then we will have first the approval of issuing the MCM We will not issue it immediately. We will wait till we have Basically gathered the other thing and then we will issue it when you issue it you pay your four and a half you pay your coupon of course and then shortly after you're absolutely right shortly after we will be calling the second EGM, calling for the, calling for the, or before, by the way, calling for the spin-off, and on that day we will declare that we will probably draw that, and then it will convert into equity, and of course then we're not going to be paying any coupon after that, of course.

Okay.

This is almost an inclusion of 300 million of equity, if you want to make it simple. Mm-hmm.

Thank you. Ladies and gentlemen, one last reminder. If you wish to ask a question, please press 01 on the telephone keypad to enter the queue for the question and answer session.

Okay. Well, if there are no more questions, thank you very much for attending this evening, and thank you for your questions. We look forward to bringing more information about these transactions in due course as we've described. Thank you very much indeed. Thank you.

Ladies and gentlemen, this concludes today's conference. Thank you all for participating. You may now disconnect.