Technicolor — Financial reconstruction complete

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Research: TMT

Technicolor — Financial reconstruction complete

With its complex financial restructuring complete, Technicolor can now move forward secure in the knowledge of a supportive equity- and debt-holder base. With US Chapter 15 proceedings now closed, both S&P and Moody’s have lifted their ratings, the former to CCC+ with stable outlook (B for the new debt), the latter to Caa2 (Caa1 for new debt), which should help improve commercial terms of trade. The rights issue was taken up by 18.1% of equity holders, at €2.98, above the prevailing market price, with previous debt holders swapping their debt for equity. The focus is now firmly on rebuilding profitability by leveraging Technicolor’s leading market positions across its three operations.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Technicolor

Financial restructuring completed

Financial restructuring completed

Media

30 September 2020

Price

€1.22

Market cap

€266m

Forecast net debt (€m) at 31 December 2020

794

Shares in issue

218.3m

Free float

100%

Code

TCH

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(53.8)

(55.2)

(94.4)

Rel (local)

(52.2)

(54.5)

(93.5)

52-week high/low

€23.27

€1.18

Business description

Technicolor is a worldwide technology leader operating in the media and entertainment industry. Its activities fall in three business segments: Production Services, DVD Services and Connected Home.

Next events

Q3 figures

Early November

Analysts

Fiona Orford-Williams

+44 (0)20 3077 5739

Dan Gardiner

+44 (0)20 3077 5700

Technicolor is a research client of Edison Investment Research Limited

With its complex financial restructuring complete, Technicolor can now move forward secure in the knowledge of a supportive equity- and debt-holder base. With US Chapter 15 proceedings now closed, both S&P and Moody’s have lifted their ratings, the former to CCC+ with stable outlook (B for the new debt), the latter to Caa2 (Caa1 for new debt), which should help improve commercial terms of trade. The rights issue was taken up by 18.1% of equity holders, at €2.98, above the prevailing market price, with previous debt holders swapping their debt for equity. The focus is now firmly on rebuilding profitability by leveraging Technicolor’s leading market positions across its three operations.

Year end

Revenue (€m)

EBITA
(
m)

PBT*
(€m)

EPS*
(€)

DPS
(€)

P/E
(x)

12/18

3,988

98

7

(3.07)

0.0

N/A

12/19

3,800

42

(73)

(4.92)

0.0

N/A

12/20e

3,100

(64)

(144)

(1.40)

0.0

N/A

12/21e

3,460

104

33

0.06

0.0

20.3

Note: *PBT and EPS are normalised, excluding amortisation of acquired intangibles, exceptional items and share-based payments.

Guidance unchanged

The next trading update should be with the Q3 figures in early November (we covered H120 progress in our August update note). The fundamentals remain unaltered, with a demonstrable need for Connected Home’s products as the effects of the pandemic on corporate and domestic life highlight the importance of reliable domestic broadband. Our model is set to match management guidance. We expect adjusted EBITDA of €169m for FY20, with an adjusted EBITA loss of €64m. Guidance for free cash flow is for an outflow of between €115m and €150m in FY20, with our model at the lower end. By FY22, the business plan points to adjusted EBITDA of €425m and adjusted EBITA of €202m. FY22 free cash flow is indicated to improve to €259m.

Reconfigured share register

Post the debt-to-equity swap, the share register is now led by previous debt holders, topped by Credit Suisse AM with 12.7%, Barings with 10.3% and Bain Capital Credit with 8.2%. Previous shareholders have been diluted down to 11.1%. Warrants have now been issued to both new money lenders (17.7m, exercisable at €0.01) and to shareholders registered at 7 August on the basis of one-for-one shares held, with five warrants giving the right to subscribe to four new shares at €3.58, totalling 12.3m new shares.

Valuation: Digestion underway

The share price is primarily reflecting the issue of the additional shares and warrants diluting previous shareholders, having come back from €2.81 on 15 September, prior to the announcement of the rights’ take up. With the financial restructuring now resolved, the valuation should start to be more representative of the trading prospects but may need positive newsflow on Q3 progress to act as a catalyst to a rerating.

Exhibit 1: Financial summary

€'m

2018

2019

2020e

2021e

Y/E December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

3,988

3,800

3,100

3,460

Cost of Sales

(3,521)

(3,375)

(2,841)

(3,042)

Gross Profit

467

425

259

418

EBITDA

 

 

266

325

169

338

EBITA

 

 

98

42

(64)

104

Amortisation of acquired intangibles

(81)

(54)

(59)

(59)

Exceptionals

(127)

(79)

(145)

(20)

Reported operating profit

(119)

(121)

(268)

25

Net Interest

(51)

(84)

(80)

(71)

Joint ventures & associates (post tax)

0

(1)

0

0

Exceptionals

0

0

0

0

Profit Before Tax (norm)

 

 

7

(73)

(144)

33

Profit Before Tax (reported)

 

 

(170)

(206)

(348)

(46)

Reported tax

(54)

(3)

(20)

(20)

Profit After Tax (norm)

(47)

(75)

(164)

13

Profit After Tax (reported)

(224)

(208)

(368)

(66)

Minority interests

(1)

0

0

0

Discontinued operations

157

(22)

0

0

Net income (normalised)

(48)

(75)

(164)

13

Net income (reported)

(68)

(230)

(368)

(66)

Average Number of Shares Outstanding (m)

15

15

117

218

EPS - normalised (c)

 

 

(306.94)

(492.18)

(140.14)

5.96

EPS - normalised fully diluted (c)

 

 

(306.94)

(492.18)

(121.70)

5.52

Dividend per share (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

(6)

(5)

(18)

12

Gross Margin (%)

11.7

11.2

8.4

12.1

EBITDA Margin (%)

6.7

8.6

5.4

9.8

EBITA Margin (%)

2.5

1.1

(2.1)

3.0

BALANCE SHEET

Fixed Assets

 

 

2,101

2,082

1,825

1,689

Intangible Assets

1,591

1,483

1,274

1,140

Tangible Assets

233

476

428

426

Investments & other

26

40

40

40

Deferred tax and other

251

84

84

84

Current Assets

 

 

1,659

1,126

1,185

1,310

Stocks

268

243

198

221

Debtors

677

507

447

523

Cash & cash equivalents

291

64

228

254

Other

423

312

312

312

Current Liabilities

 

 

(1,909)

(1,542)

(1,232)

(1,287)

Creditors

(1,135)

(825)

(610)

(665)

Tax and social security

(34)

(41)

(41)

(41)

Short term borrowings

(20)

(95)

0

0

Other

(720)

(581)

(581)

(581)

Long Term Liabilities

 

 

(1,385)

(1,604)

(1,424)

(1,424)

Long term borrowings

(1,004)

(1,203)

(1,023)

(1,023)

Deferred tax

(193)

(27)

(27)

(27)

Other long term liabilities

(381)

(401)

(401)

(401)

Net Assets

 

 

466

62

354

288

Minority interests

1

0

0

0

Shareholders' equity

 

 

467

62

354

288

CASH FLOW

Net profit

(224)

(208)

(368)

(66)

Depreciation and amortisation

234

322

292

281

Working capital

2

(69)

(110)

(45)

Tax and interest

(53)

(76)

(90)

(81)

Exceptional & other

159

101

165

81

Net operating cash flow

 

 

118

70

(110)

170

Capex

(113)

(169)

(110)

(145)

Acquisitions/disposals

1

(2)

0

0

Equity financing

0

1

60

0

Dividends

0

0

0

0

Other

28

3

0

0

Net Cash Flow

34

(97)

(161)

25

Opening net debt/(cash)

 

 

778

733

1,234

794

FX

1

0

0

Discontinued

105

0

0

0

Other non-cash movements

(95)

(404)

600

0

Closing net debt/(cash), excluding IFRS16 leases

 

733

1,234

794

769

Source: Company accounts, Edison Investment Research

General disclaimer and copyright

This report has been commissioned by Technicolor and prepared and issued by Edison, in consideration of a fee payable by Technicolor. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

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New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

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Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

General disclaimer and copyright

This report has been commissioned by Technicolor and prepared and issued by Edison, in consideration of a fee payable by Technicolor. Edison Investment Research standard fees are £49,500 pa for the production and broad dissemination of a detailed note (Outlook) following by regular (typically quarterly) update notes. Fees are paid upfront in cash without recourse. Edison may seek additional fees for the provision of roadshows and related IR services for the client but does not get remunerated for any investment banking services. We never take payment in stock, options or warrants for any of our services.

Accuracy of content: All information used in the publication of this report has been compiled from publicly available sources that are believed to be reliable, however we do not guarantee the accuracy or completeness of this report and have not sought for this information to be independently verified. Opinions contained in this report represent those of the research department of Edison at the time of publication. Forward-looking information or statements in this report contain information that is based on assumptions, forecasts of future results, estimates of amounts not yet determinable, and therefore involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of their subject matter to be materially different from current expectations.

Exclusion of Liability: To the fullest extent allowed by law, Edison shall not be liable for any direct, indirect or consequential losses, loss of profits, damages, costs or expenses incurred or suffered by you arising out or in connection with the access to, use of or reliance on any information contained on this note.

No personalised advice: The information that we provide should not be construed in any manner whatsoever as, personalised advice. Also, the information provided by us should not be construed by any subscriber or prospective subscriber as Edison’s solicitation to effect, or attempt to effect, any transaction in a security. The securities described in the report may not be eligible for sale in all jurisdictions or to certain categories of investors.

Investment in securities mentioned: Edison has a restrictive policy relating to personal dealing and conflicts of interest. Edison Group does not conduct any investment business and, accordingly, does not itself hold any positions in the securities mentioned in this report. However, the respective directors, officers, employees and contractors of Edison may have a position in any or related securities mentioned in this report, subject to Edison's policies on personal dealing and conflicts of interest.

Copyright: Copyright 2019 Edison Investment Research Limited (Edison). All rights reserved FTSE International Limited (“FTSE”) © FTSE 2019. “FTSE®” is a trade mark of the London Stock Exchange Group companies and is used by FTSE International Limited under license. All rights in the FTSE indices and/or FTSE ratings vest in FTSE and/or its licensors. Neither FTSE nor its licensors accept any liability for any errors or omissions in the FTSE indices and/or FTSE ratings or underlying data. No further distribution of FTSE Data is permitted without FTSE’s express written consent.

Australia

Edison Investment Research Pty Ltd (Edison AU) is the Australian subsidiary of Edison. Edison AU is a Corporate Authorised Representative (1252501) of Crown Wealth Group Pty Ltd who holds an Australian Financial Services Licence (Number: 494274). This research is issued in Australia by Edison AU and any access to it, is intended only for "wholesale clients" within the meaning of the Corporations Act 2001 of Australia. Any advice given by Edison AU is general advice only and does not take into account your personal circumstances, needs or objectives. You should, before acting on this advice, consider the appropriateness of the advice, having regard to your objectives, financial situation and needs. If our advice relates to the acquisition, or possible acquisition, of a particular financial product you should read any relevant Product Disclosure Statement or like instrument.

New Zealand

The research in this document is intended for New Zealand resident professional financial advisers or brokers (for use in their roles as financial advisers or brokers) and habitual investors who are “wholesale clients” for the purpose of the Financial Advisers Act 2008 (FAA) (as described in sections 5(c) (1)(a), (b) and (c) of the FAA). This is not a solicitation or inducement to buy, sell, subscribe, or underwrite any securities mentioned or in the topic of this document. For the purpose of the FAA, the content of this report is of a general nature, is intended as a source of general information only and is not intended to constitute a recommendation or opinion in relation to acquiring or disposing (including refraining from acquiring or disposing) of securities. The distribution of this document is not a “personalised service” and, to the extent that it contains any financial advice, is intended only as a “class service” provided by Edison within the meaning of the FAA (i.e. without taking into account the particular financial situation or goals of any person). As such, it should not be relied upon in making an investment decision.

United Kingdom

This document is prepared and provided by Edison for information purposes only and should not be construed as an offer or solicitation for investment in any securities mentioned or in the topic of this document. A marketing communication under FCA Rules, this document has not been prepared in accordance with the legal requirements designed to promote the independence of investment research and is not subject to any prohibition on dealing ahead of the dissemination of investment research.

This Communication is being distributed in the United Kingdom and is directed only at (i) persons having professional experience in matters relating to investments, i.e. investment professionals within the meaning of Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "FPO") (ii) high net-worth companies, unincorporated associations or other bodies within the meaning of Article 49 of the FPO and (iii) persons to whom it is otherwise lawful to distribute it. The investment or investment activity to which this document relates is available only to such persons. It is not intended that this document be distributed or passed on, directly or indirectly, to any other class of persons and in any event and under no circumstances should persons of any other description rely on or act upon the contents of this document.

This Communication is being supplied to you solely for your information and may not be reproduced by, further distributed to or published in whole or in part by, any other person.

United States

The Investment Research is a publication distributed in the United States by Edison Investment Research, Inc. Edison Investment Research, Inc. is registered as an investment adviser with the Securities and Exchange Commission. Edison relies upon the "publishers' exclusion" from the definition of investment adviser under Section 202(a)(11) of the Investment Advisers Act of 1940 and corresponding state securities laws. This report is a bona fide publication of general and regular circulation offering impersonal investment-related advice, not tailored to a specific investment portfolio or the needs of current and/or prospective subscribers. As such, Edison does not offer or provide personal advice and the research provided is for informational purposes only. No mention of a particular security in this report constitutes a recommendation to buy, sell or hold that or any security, or that any particular security, portfolio of securities, transaction or investment strategy is suitable for any specific person.

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

Frankfurt +49 (0)69 78 8076 960

Schumannstrasse 34b

60325 Frankfurt

Germany

London +44 (0)20 3077 5700

280 High Holborn

London, WC1V 7EE

United Kingdom

New York +1 646 653 7026

1185 Avenue of the Americas

3rd Floor, New York, NY 10036

United States of America

Sydney +61 (0)2 8249 8342

Level 4, Office 1205

95 Pitt Street, Sydney

NSW 2000, Australia

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