TECHNICOLOR : Full year 2013 results: strong operating execution and material deleveraging

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

Frederic Rose, Chief Executive Officer of Technicolor, stated:

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

Key points

• Strong operating execution reflected by a 10.4% increase in Adjusted EBITDA at constant rate and scope. Adjusted EBITDA margin amounted to 15.6%, an increase of 1.3 points yoy.
• Successful cash generation from continuing operations at €192 million (+73% yoy). Group free cash flow (after payment of the EU antitrust fine) of €153 million (+45% yoy).
• Restored financial strength and flexibility following the debt refinancing of July 2013. Gross nominal debt reduced by €409 million in 2 years.
• Strong pace of innovation across the Group and growing Intellectual Property portfolio with priority applications increasing by 15% yoy.
• Implementation of Technicolor's incubation framework with several initiatives launched in the market (M-GO, Qeo, Virdata, certification programs, etc) with strong IP generation.
• Focus on three strategic priority innovation domains offering high potential for technology and IP, where Technicolor can leverage its assets and capabilities to generate further profitable growth and additional value after completion of Amplify 2015.

2014 guidance and Amplify 2015 objectives

• Adjusted EBITDA between €550 million and €575 million;
• Group Free Cash Flow between €180 million and €200 million, notwithstanding higher cash restructuring charges compared with 2013;
• Positive net income;
• Net debt to Adjusted EBITDA ratio below 1.2x at end December 2014.

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

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

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

Innovation

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

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

• Immersive Media: deliver premium content everywhere with next generation technologies in video and audio compression, rendering and adaptation.
• Context-aware Entertainment: a personalized and contextualized viewer experience by offering new features and interaction with entertainment content.
• Digital Life: enrich consumer's life by integrating and exploiting connected devices, sensors, applications and data.

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

Key financial indicators and analysis at constant scope

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

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

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

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

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

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

• Net interest costs amounted to €112 million, a significant decline compared to €145 million in 2012, reflecting lower borrowing costs stemming from the refinancing transaction and the significant gross debt decrease, including the voluntary debt prepayment for €67 million implemented in the refinancing context;
• Other financial expenses amounted to €176 million including costs related to the refinancing for an amount of €161 million. Transaction costs, including tender premium and other fees, amounted to €81 million, while the purchase of part of the senior secured debt maturing in 2016 and 2017 resulted into an IFRS reversal recognized as a non-cash charge for €76 million.

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

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

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