Technicolor — Robust demand with fulfilment issues

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Research: TMT

Technicolor — Robust demand with fulfilment issues

Technicolor is on track to meet FY21 and FY22 management guidance (maintained at the Q3 results in November) on EBITDA and EBITA, despite supply constraints resulting from the pandemic, and our forecasts for these were unchanged. Demand in both Technicolor Creative Studios (TCS) and Connected Home remains robust, with financial performance constrained in the former by industry talent shortages and in the latter by continuing industry componentry supply issues. With planned cost savings tracking to plan, the shift is continuing back towards the equity, which now represents 35% of the enterprise value. We would expect that a return to focus on the operations should lead to a higher valuation.

Fiona Orford-Williams

Written by

Fiona Orford-Williams

Director, TMT

TMT

Technicolor

Robust demand with fulfilment issues

Interim results

Media

24 January 2022

Price

€2.73

Market cap

€644m

US$1.14/€

Net debt (IFRS, including leases) at end September 2021 (€m)

1,183

Shares in issue

235.8m

Free float

90.6%

Code

TCH

Primary exchange

Euronext

Secondary exchange

N/A

Share price performance

%

1m

3m

12m

Abs

(0.1)

(2.9)

40.8

Rel (local)

(1.5)

(7.2)

14.3

52-week high/low

€3.6

€1.7

Business description

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

Next events

FY21 results

February 2022

Analyst

Fiona Orford-Williams

+44 (0)20 3077 5739

Technicolor is a research client of Edison Investment Research Limited

Technicolor is on track to meet FY21 and FY22 management guidance (maintained at the Q3 results in November) on EBITDA and EBITA, despite supply constraints resulting from the pandemic, and our forecasts for these were unchanged. Demand in both Technicolor Creative Studios (TCS) and Connected Home remains robust, with financial performance constrained in the former by industry talent shortages and in the latter by continuing industry componentry supply issues. With planned cost savings tracking to plan, the shift is continuing back towards the equity, which now represents 35% of the enterprise value. We would expect that a return to focus on the operations should lead to a higher valuation.

Year end

Revenue
(€m)

EBITDA
(€m)

EBITA
(
m)

PBT*
(€m)

EPS*
(€)

EV/EBITDA
(x)

12/19

3,800

325

42

(73)

(4.92)

5.6

12/20

3,006

167

(56)

(43)

(0.38)

10.9

12/21e

2,760

270

60

(37)

0.17

6.8

12/22e

2,994

385

180

78

0.30

4.7

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

Strong market positioning helps

Since the financial reconstruction of the group in late FY20, Technicolor’s management has focused on driving the returns from the three distinct business segments and building sustainable operating models. The dynamics for each are different, but all are benefiting from their strong market positioning. For Connected Home, this means customers committing to FY22 volumes and agreeing to pass through contracts to ensure the supply of components. For TCS, it means having 75% of its FY22 pipeline for visual special effects (VFX) and animation already in place. The challenges of physical fulfilment for the former and of recruiting the talent to deliver the latter are significant, but, for both, are affecting the whole of both industries.

Financial strengthening

Management’s achievement in negotiating and implementing a complex financial restructuring in FY20, during a global pandemic, is worthy of attention. If the outlined progression for FY21 and FY22 in EBITDA and EBITA can be achieved, then the prospects of more normalised cost of debt ahead of the FY24 expiry date improve. With good underlying demand and the group on track to deliver €325m of run rate cost savings by end FY22, the current delivery issues appear factored in.

Valuation: Underlying value likely higher

With a complex business structure and few genuinely comparable peers, any valuation of the group’s equity is inevitably laden with assumptions. We have attempted a sum-of-the-parts based on compiling segmental FY22e earnings-based valuations, variously discounted, which derives a value equivalent to €4.49 per share. A group based DCF, using a WACC of 9.0% and terminal growth of 1%, gives a value of €3.77. Both are considerably higher than the current share price.

Investment summary

From FY08 to FY18, Technicolor was reduced from a substantial portfolio of businesses to three, each of which is a leading player in its segment. In FY20, the group faced a significant challenge: renegotiating its debt financing while managing the severe disruptions to the business stemming from the COVID-19 pandemic. It is a considerable testament to the management team under Richard Moat (appointed in November 2019) that a way through this was found, bankruptcy was avoided, and the group was put on a more sustainable footing. The three business segments are:

Connected Home (53% of FY21e revenues, 35% of adjusted EBITDA): the increased level of homeworking globally and the constant evolution in home entertainment have highlighted the importance of reliable broadband and wide bandwidth. New business wins and product launches are encouraging, but the global semiconductor and key component shortages are significant, although have recently eased a little. We think this will remain a challenging business but its relative and absolute scale advantages over most of its peers and leadership of growing segments (DOCSIS 3.1 and Android) should help mitigate some of these challenges. Concentration on key customers, a platform-based approach and the lower cost base should help protect margins and enable them to build as the component issues resolve.

TCS (22% of FY21e revenues, 43% of adjusted EBITDA): activity levels are very strong as the entertainment industry rebuilds after the strictest lockdowns. The underlying trends for ever-more sophisticated VFX are helpful, while the division is also putting in a very strong performance in animation and games, with games a particular focus for effort. Over 75% of the FY22 pipeline is already in place in VFX and animation. The constraint here is capacity, with industry talent shortages. By working together more efficiently, increasingly on common platforms and in lower-cost geographies, as well as exploiting the group’s well-established training programme, Technicolor should be better placed than most.

DVD Services (24% of FY21e revenues, 22% of adjusted EBITDA): the physical home entertainment market is in ongoing decline, with geographic variations. Technicolor is a key provider of replication and distribution services to the major studios and has been renegotiating its contracts on more favourable terms as they come up for renewal. Along with efficiency measures, this is helping to drive improvement in margins. Better performance of back catalogue titles helped bridge the gap in the absence of new releases, which have now started to come through again.

Valuation: Equity building in the mix

As the group’s future has looked increasingly secure, the share price has climbed, increasing by 55% over FY21, and equity now accounts for 35% of the enterprise value. Valuing the group on a sum-of-the-parts basis is an inexact science as there are no genuinely equivalent peers in any of the three segments. We have nevertheless attempted the exercise, deriving a value for the equity equivalent to €4.49/share. On a group basis, our DCF at a WACC of 9% and terminal growth of 1% indicates a value per share of €3.77, still well ahead of the current market value.

Financials: All in the mix

Management has guided to group adjusted EBITDA and adjusted EBITA from continuing business for FY21e and FY22e, as well as continuing free cash flow before financial results and tax (unchanged at Q321 from earlier guidance), and these figures are reflected in our modelling. This guidance was unchanged on the Q3 figures in November. The mix modelling is Edison’s, and we expect meaningful FY22e top-line growth to be fuelled by TCS, with DVD Services declining around 6% and Connected Home revenues gaining 5% over the prior year. Adjusted EBITDA margins should move ahead in all three, with the greater progress at TCS and Connected Home. Management has maintained its three-year cost savings target at a run rate of €325m by end FY22, with €115m set to come through in FY21. Restructuring costs were €31m for the first nine months of FY21. FY20’s financial reconstruction put the group on a stable footing despite the weighting to debt in the enterprise value. Our forecast for FY21 year-end net debt to EBITDA is 3.8x, inside management’s 4.0x target.

Sensitivities: Vary by business

The current key sensitivities are easily identified. For Connected Home the issue is centred on component shortages and supply chain issues, whereas for TCS, it is meeting strong demand when there are global talent shortages for artists and technicians. Both situations are being actively managed, and the group does not look to be losing its market positioning in either area. The refinancing has removed a core concern and the improving financial position should strengthen management’s position into FY24, when the Term Notes and Loans expire.

Company description: Three businesses in one

Technicolor consists of three businesses, each a leader in its field. They are Connected Home (53% FY21e group revenue), DVD Services (24%) and TCS (22%), with a small balance from Corporate and Other.

Connected Home offers a complete portfolio of broadband and video customer premise equipment (CPE) to pay-TV operators and network service providers (NSPs), including broadband modems and gateways, digital set top boxes, and Internet of Things (IoT) connected devices.

TCS is a leading provider of VFX and animation to the global entertainment industry, and at the forefront of creative services and technologies

DVD Services replicates, packages and distributes video, game and music CD, DVD and Blu-ray discs on behalf of the major studios and relevant publishers.

In the early 2000s, the group comprised a large number of disparate businesses. A new management team, installed in 2008, was charged with simplifying the business and strengthening the balance sheet ahead of debt approaching maturity. The strategy put in place prioritised for retention those business in the portfolio that had (or neared) market leadership, hence the current group composition.

The Technicolor group employed over 13,000 people in 25 countries at the end of FY20.

FY20 a turbulent year

The scale of the turnround needed was substantial and the unhelpful economic and trading backdrop did not give enough time for the group’s cash generation profile to be sufficiently improved ahead of the debt renegotiation, although significant opportunities for cost reductions had been identified across the three businesses and moves to release those savings initiated. A further management change was made in late FY19 with the appointment of Richard Moat as CEO, who had previously led the turnaround of Eir Limited, a leading telecoms operator in Ireland. His first priority was to oversee a financial reconstruction, and in February 2020, his plan was set out outlining €150m of cost savings (up from the €40m previously identified and with an implementation cost of €90m over three years), alongside a proposed rights issue to raise €300m. Successful completion of the rights was a prerequisite for the reconstruction of the debt. However, these plans were scuppered by the onset of the COVID-19 pandemic, which had a particularly negative impact on the key customers of TCS.

With the spread of the pandemic and the associated uncertainty, the ability of the group to conduct the rights issue in Q220 as originally envisaged was compromised and by late May the group’s equity value of €58m compared to end March net debt of €1.6bn. Negotiations with the debt holders ran close to the wire, which undermined the group’s credit rating further and put the group’s future in sufficient doubt for the management to seek temporary protection from creditors via Chapter 15 in the United States. All was resolved through August and September of 2020 (and the various stages of the process were described in our reports through the year) with debt funding and a subsequent debt-to-equity swap, alongside a rights issue at €2.98, above the price at the time, which was taken up by 18.1% of equity holders.

Focus back on the underlying businesses

The resolution of the 2020 funding crisis meant that appraisal of the underlying businesses and their opportunities is again the primary driver of perceived valuation. The three segments (splits shown in Exhibits 1 through 4, below) have different attributes. Broadly, Connected Home is a scaled, global supplier of customer premises equipment for delivery of broadband and video services. While demand for video set-top boxes has peaked, the benefits of reliable, high-quality home broadband have become even more obvious with the growth of home working globally. So, prospects of combined top-line growth overall in the segment have improved, with the identification and implementation of substantial cost reductions improving the underlying profitability. The DVD Services segment is in a process of managed decline, with renegotiated contracts with its major customers lifting the operating margins and the attraction of good levels of cash generation.

Exhibit 1: FY21e revenue split

Exhibit 2: Segmental revenue FY18–22e

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 3: FY21e EBITDA split

Exhibit 4: Segmental EBITDA FY18–22e

Source: Edison Investment Research

Source: Edison Investment Research

Exhibit 1: FY21e revenue split

Source: Edison Investment Research

Exhibit 3: FY21e EBITDA split

Source: Edison Investment Research

Exhibit 2: Segmental revenue FY18–22e

Source: Edison Investment Research

Exhibit 4: Segmental EBITDA FY18–22e

Source: Edison Investment Research

This leaves TCS as the key engine of revenue growth for the group, with a premium quality offering in a growth industry and potential to expand in adjacent video-based content areas to its traditional film and TV remit. While the short-term impact on the industry stemming from the shutdowns in live action filming had a major impact on the FY20 and FY21 financials, the release from lockdowns has unleashed demand from the studios and streamers with high levels of budgeted content spend, making the prospects for growth very encouraging. We look at the three segments in more detail below.

Connected Home (53% FY21e group revenue): Survive and prosper?

There is never a dull moment in Connected Home it seems. Over the last four years it has endured huge swings in commodity component prices, the steady shrinking of the video market, the pandemic (mostly a positive impact), the financial restructuring of its parent and now a squeeze on semiconductor availability and prices. Sales fell 33% (-10% CAGR) between FY16 and FY20 and were down 34% y-o-y on a reported basis in Q321. Despite all this, aggressive cost cutting in recent years has enabled it to grow margins, lifting EBITDA 39% in FY20 over the prior year, until the current component supply issues kicked in. EBITDA of €56m in H121 (a 7.3% margin) represented Connected Home’s biggest first half profit since FY17, but Q321 EBITDA margin retrenched to 5.1%, reflecting the sales shortfall and higher component prices.

With all these external impacts, plus the impact of foreign exchange and huge quarter-by-quarter volatility, it is often difficult to appreciate the underlying demand trends. Mostly these look similar to those we highlighted in July 2020 (see Mapping a way through) and set out in our initiation note (see Entertainment enhancer), but the component shortfall and the continuing underperformance of Latin America add new layers of uncertainty. The performance of CommScope’s Home segment, which saw revenues fall 28% y-o-y in Q1, pushing it into an adjusted EBITDA loss-making position, highlights that these trends are market wide rather than specific to Connected Home. Connected Home’s key competitors in customer premise equipment are Commscope, Humax, Huawei, Arcadyan, Sagemcom and ZTE.

Even though a resolution to the semiconductor shortfalls or Latin America issues looks unlikely in the near term – and management has commented that they see issues persisting through FY22 and possibly into FY23 – stabilisation of the top line does still look possible. As Exhibit 5 highlights, while headline growth trends continue to look poor, adjusting for currency the pace of decline appears to be moderating. This does not reflect changes in the market trends but, as we highlighted previously, largely the impact of reduced exposure to set-top boxes. Stabilisation of the top line, or even sustaining the pace of decline to low single digits, would be a significant symbolic achievement.

Exhibit 5: Connected Home revenue growth trends by segment

Source: Technicolor, Edison Investment Research

Also significant for long-term prospects is Connected Home’s relative scale advantage versus the rest of the industry. Previously we have emphasised its exposure to faster-growing platforms such as DOCSIS 3.1 (in Q321, the group launched a Wi-Fi 6 DOCSIS product with Vodafone, with built-in Alexa). Its scale advantage over most of the industry is a key advantage that should enable it to weather this tough market; management believes it is faring at least as well as peers in this period of component shortage. Interestingly, in April CommScope announced it was intending to demerge its Home division (scheduled to complete by end Q222) to improve its overall growth prospects. We continue to believe that further consolidation in market, including a tie up between the two largest players, may make financial sense in the long term.

Management’s Connected Home strategic objectives are to:

continue to pivot from video to broadband, exploiting the global increases in home-working and domestic consumption of online entertainment. Domestic broadband is clearly set to maintain strong demand as it becomes a utility need around the globe. Consumer expectations on reliability, speed and bandwidth continue to step up and these attributes are key marketing points to the suppliers that comprise Technicolor’s customer base.

exploit growth in Android TV. The growing prevalence of smart TVs is unlikely to reverse as consumers become accustomed to the additional functionalities.

focus growth on scale customers using platform model, ie increasing efficiency by upping the level of commonality and reducing the prevalence of bespoke products. This has involved a ‘customer selectivity’ plan, increasing product synergies and developing stronger partnerships with key suppliers and partners, which has undoubtedly helped build resilience in the operating model given the supply constraints.

TCS (22% of FY21e group revenue): Engine of group revenue growth

TCS is the new name for the group’s Production Services segment, bringing back to the fore a brand name that is widely recognised well beyond the confines of its industry and tying it more closely to its underlying activities.

Exhibit 6: Technicolor showreel

Source: Technicolor

The group is now organised on a focused set of brands, addressing markets across film and episodic TV VFX, animation and games, and advertising. These are set out in the table below, along with the locations of the key operations. Technicolor Post Production, an activity that is more commoditised, was sold for $30m in H121 to Streamline Media.

TCS has operated under a number of brands and from multiple locations, which have recently been consolidated to improve clarity and efficiency, facilitated by a greater commonality of platform. The Mill and MPC Advertising have been brought together under The Mill Brand, to provide a leading global VFX offering for the advertising and brand experience sector.

The various brands serving the film and episodic industry are being consolidated under The Moving Picture Company umbrella – a well-recognised and highly respected brand.

Exhibit 7: TCS brand descriptions

Brand

Film & episodic VFX

Brand experience & advertising

Animation

Games

Primary focus area

Locations

Moving Picture Company (now includes MPC Film, MPC Episodic and Mr X

x

VFX for tentpole films, serving all major studios. Higher-end episodic projects and local market content. Smaller to mid-sized VFX projects for theatrical, episodic and streaming content.

London, Montreal, Vancouver, LA, Bangalore, Mumbai, Berlin, Paris, Liege, Toronto, Adelaide

The Mill (now including MPC Advertising)

x

VFX, production and delivery for agencies, production companies and brands

London, LA, NY, Chicago, Amsterdam, Paris, Shanghai, Mumbai, Bangalore, Berlin

Mikros

x

x

Feature animation; VFX/post-production services in France for film/TV and advertising

Paris, Montreal, Liege, Bangalore

Technicolor Games

x

x

High-end content and immersive experiences

LA, Bangalore

Source: Technicolor

Activity levels for the industries that TCS serves have recuperated very strongly as lockdowns have eased, particularly for film and episodic and animation as the production slates of the studios, streamers and other providers refill as they look to supply fresh content. There is obviously an element of catch-up for projects put on ice, but this is coupled with an underlying thirst for content that has been building as entertainment platforms have proliferated.

This very strong demand environment has highlighted the limited global supply of the artists and technicians skilled in VFX. TCS has invested over a number of years in offshore capability, building a substantial operation in Bangalore. Technicolor Bangalore is a primary hub for the creation of premium computer generated (CGI) animation for movies, television and the games industry, and is renowned for its global expertise in VFX, employing over 1,200 at end FY20.

Exhibit 8: Positioning of segmental activities

Film & Episodic VFX

Advertising

Animation & Games

Market position

#1

#1

#2

Key customers

Major US studios

Global ad agencies

Major and independent animation studios

Mini-majors and independent studios

Production companies

Key children's TV networks/other distributors

TV production companies

Smaller agencies

Publishers and developers of AAA game titles

OTT providers

Brands and advertisers

Consultancies

Key competitors

Cinesite (PE/management)

Framestore

Animal Logic (private)

Digital Domain (Sun Innovation/Reliance MediaWorks/Beijing Galloping Horse America)

Media.Monks (S4)

CGCG (Canadian VC, TJ Game Capital)

DNEG (Prime Focus NV)

In-house production arms of global ad holding companies

Cinesite

Framestore (Cultural Inv. Hdgs)

Local boutiques

DNEG

ILM (Disney)

ICON Creative Studio (privately owned)

Pixomondo (Mayfair Equity Partners)

Keywords Studios (LN: KWS)

Rodeo FX (privately owned)

Reel FX (privately owned)

Scanline VFX (bought by Netflix from private, November 2021, price undisclosed)

Sony Pictures Imageworks

Weta Digital (recent bid from Unity for $1.63bn, excluding VFX)

The SPA Studios (privately owned)

Virtuos (recent injection of £150m by Baring PE Asia)

Key data for Q321

>20 theatrical film and >35 streaming/episodic projects in production

c 660 commercials

c 1,060 minutes of animation delivered for film & TV

Source: Technicolor, Edison Investment Research

TCS has run The Technicolor Academy for a number of years, training artists and technicians, and this ‘grow-your-own’ concept has undoubtedly helped avoid the worst labour shortages, as has being a market leader with close attention paid to corporate culture (not always the case across the industry). It has scaled up the number of courses being run to address the situation. Nevertheless, talent shortages are currently a constraining factor on growth and there is some upward pressure on pay. Some projects are also suffering delays as they compete for VFX capacity.

This may be a contributory factor to an uptick on corporate activity in the segment, with recent transactions including a bid for Weta Digital (excluding VFX tools) from Unity Holdings, for a reported $1.625bn, and the recent acquisition of Scanline, a privately-owned Canada-based VFX specialist, by Netflix. The price of this transaction was not disclosed, although Netflix has indicated that post acquisition, Scanline will continue to handle third-party business.

TCS strategic objectives are set out by management as being:

exploit burgeoning demand for VFX content: secure volume. This is clearly being tackled, as evidenced by the strong order book and pipeline into FY22, with around 75% of the budgeted pipeline for the year committed as of the time of the Q3 announcement.

agreements with key players and expand presence in the episodic and streaming market. Technicolor has a broad client roster, with the Q3 statement highlighting project work for Disney, Paramount and Constantin in theatrical films, and including Disney+, Skydance/Apple TV+, MGM/Netflix, Amazon/Sony in episodic. Advertising clients are drawn from across the sector, with animation clients including DreamWorks, Disney, Nickelodeon and TF1.

optimise headcount allocation to individual projects. Capacity management has always been an issue, managed through using a mix of retained and freelance artists and technicians. The group adapted efficiently to the experience of the pandemic, including some opportunities provided by the option of remote working. The recent reorganisation and brand consolidation should further help resource allocation.

standardise technology tools and where possible use across multiple business lines. Having greater commonality of platform – as is already happening – will also allow for greater flexibility in rostering, alongside the increased resourcing in lower-cost locations such as Bangalore.

Advertising: improve margins/continue agency disintermediation. This objective is more of a work in progress, dependent in part on factors outlined above.

Animation & Games: expand pipeline and explore opportunities in the gaming sector. As mentioned above, the games arena is set for greater emphasis with the appointment of a new role of president of Technicolor Games.

maximise offshoring of Indian resources, consolidating delivery pipelines.

DVD Services (24% of FY21e group revenue): In structural decline but improving margins and steady cash generation

Technicolor is an important partner to major studios in the physical distribution of DVD and Blu-Ray recordings to the consumer. Management estimates that its global market share is around 70%, with a 90% share of the key North American market. Its activities comprise mastering, replication, packaging and distribution of DVD, Blu-Ray and other discs.

While this is many ways a legacy business, the value derived by the studios from retail sales remains significant even as streaming dominates, while for consumers the quality of the viewing experience can be notably better. For the studios, this is a high-margin activity. Although the figures themselves are not separately reported, the investment in the product and IP has already been made and recouped so far as possible across theatrical release and/or streaming licensing.

The logistical element of getting physical product into consumers’ hands via retail channels is complex and not within the sphere of expertise of the studios, giving the remaining providers of this service, such as Technicolor, a degree of leverage on pricing. Its key customers include major Hollywood Studios such as Warner Bros., The Walt Disney Company, Universal, Sony, Fox and Lionsgate, independent film studios, software and games publishers, and major music publishers. Most are covered by multi-year contracts, typically with volume exclusivity and/or time commitments. Over the last couple of years, the focus has been on the renegotiation of studio contracts to reflect the continuing volume declines, with most now covered by updated terms. Satisfactory terms were not reached with Paramount on replication and mastering, which activity expired in mid-2021, but the group retains the distribution contract.

Technicolor’s remaining key competitors in the DVD market include Sony and Arvato, both of which now have most of their activity concentrated in the European market.

Management’s strategic objectives for DVD Services are:

Continue significant business transformation, reducing real estate footprint. Two significant North American facilities were closed in H121 are part of the ongoing restructure. The original plan was accelerated because of the pandemic. Technicolor runs strategically positioned key manufacturing facilities in Guadalajara (Mexico) and Piaseczno (Poland), with services such as packaging and distribution in the United States (Tennessee and Alabama), Europe and Australia, supported by a multi-region/multi-site facility platform, with a further packaging and distribution facility near the US border in Mexico. Efficiency savings were ahead of plan at the half year.

Explore potential of adjacent businesses. DVD services is actively diversifying, using its facilities to offer supply chain solutions, including transportation management and direct-to-consumer fulfilment services, for clients across a variety of segments to manage capacity more efficiently and utilise its expertise in complex logistics.

Maximise cash generation potential. Acknowledging that DVD Services is unlikely to turn into an engine of group revenue growth does not mean that it is not useful. A highly efficient operation, it should be able to continue to generate good cash flow.

Balancing items (1% of FY21e group revenue)

The balancing segment is Corporate and Other. This includes:

Trademark Licensing. This monetises brands owned by the group including RCA and Thomson, a legacy of the previous Consumer Electronics business

Patent Licences. The remaining licences not sold to InterDigital, monetising post-disposal service operations and commitments related to former consumer electronics operations, mainly pension and legal costs.

Unallocated Corporate functions, primarily head office and various centrally performed functions such as HR, IT, finance, marketing and communication, corporate legal operations and real estate management

Management

There were substantial changes to the group’s board at the AGM in June 2019. A new chairperson, Anne Bouverot, was appointed. She is a senior adviser for TowerBrook Capital Partners. Other board appointments included senior individuals from (or with recent experience at) Eutelsat, AT Kearney, Fox Network and PwC, joining those from Microsoft and Group Telefonica. This gives the group broad experience across the relevant market sectors. In addition, there are two directors representing employees and two board observers. Of the 10 full board members, three are female, including the chairperson and vice-chairperson.

The appointment of Richard Moat as CEO was announced in November 2019. Richard’s background is mostly within the telecoms sector, mostly recently as CEO of Eir (CFO from 2012, CEO 2014 to 2018), the largest telecom operator in Ireland, where he led a successful turnaround. Prior to Eir, he was deputy CEO and CFO of EE, the largest UK mobile telecoms company. Before that he spent 17 years at Orange, including as CEO of Orange Romania, CEO of Orange Denmark and CEO of Orange Thailand. He spent the early weeks of his incumbency getting to know and understand the group’s three businesses then working with the wider board and advisers to put together the revised group strategy and the financing plan, presented to the market in February 2020. This has now been adapted with revised refinancing proposals.

CFO Laurent Carozzi joined the group in March 2018, having previously been deputy CFO at Publicis from early 2017. Prior to this, he spent 12 years at Lagardère Group, where he was head of IR, then of head of group financial control. While at Lagardère, he led the turnaround of the Sports & Entertainment operation, as COO and CFO of the division.

Sensitivities

In terms of trading sensitivities, with three diverse business streams based in a variety of geographies, the group’s risk factors are far from uniform.

Connected Home’s hardware sales model offers investors little visibility. Customer deployment can drive rapid shipment growth in short periods but can fade just as quickly. The current component shortages and supply chain disruptions are self-evidently having a notable impact on revenues, while historical hikes in memory costs have demonstrated the sensitivity of its margins to component prices. In FY20, the top five customers accounted for 53% of the segment’s revenue. While geographic diversity insulates Connected Home from the extreme swings in individual markets, the ongoing economic and geopolitical problems in Latin and South America have suppressed demand from those regions. Management has been proactive in reducing costs to preserve margins, but profits can nevertheless vary substantially from year to year. The greater exposure to broadband and concentration on a platform basis for a narrower base of customers should put Connected Home in greater control over its margins.

TCS’ main issues surround the management of workflows, with often high-profile projects on tight timescales for clients with demanding expectations of technical and creative competence. Having the right staff in the right place is a key part of the package and the current global shortage of talent is a constraining factor. The greater use of cloud-based rendering allows additional flexibility. Confidentiality is also key for both physical and digital assets. The group needs to maintain its position at the forefront of technical innovation, including augmented reality, virtual reality and artificial intelligence. Where clients choose to place business can also depend on the availability of appropriate tax credits, which may limit the group’s ability to transfer work between facilities.

DVD Services has inherently high customer concentration, with a limited pool of potential customers. In FY20, the top five clients accounted for 60% of revenues, up from 47% in the prior year. DVD Services has multi-year contracts, with varying terms and expiry dates and two were successfully renegotiated in FY20 on improved terms. The contract with Paramount is continuing solely on distribution as satisfactory terms could not be agreed. In terms of business risk, the operation needs to continue to deliver high-quality products on tight timescales, so competent management of raw materials and production facilities is crucial.

Other sensitivities include currency fluctuations, key individual exposure and the standard IT/cyber security issues. There is also outstanding litigation against the company and previous management regarding the liquidation of Quinta, an ongoing antitrust case in Europe that may be determined within the next couple of years and a historical toxic tort case in Taiwan against the company and General Electric. No provisions have been made in respect of these cases, where the quantum of any payments or their timing is not predictable.

Valuation

With three very different businesses within the group, all with different earnings dynamics and cash profiles, our preferred route to valuation would be on a sum-of-the-parts basis. However, the paucity of relevant comparable quoted peers in each of the three segments does make this approach potentially unreliable and we have also looked at valuation via a discounted cash flow (DCF) on a group basis. Ideally, it would be better to model DCFs for each of the three businesses, but the nesting of assumptions needed to do this risks compounding inaccuracies.

The group’s valuation is also weighted to the value of the debt, which forms 65% of the group’s enterprise value (EV) (end Q3 debt of €1,183m; current equity market capitalisation €644m), so deriving a value for the group simply based on its current and short-term earnings may also not give a reasonable valuation of the equity. If, as is envisaged by management, the group’s revenue and earnings start to move ahead more strongly fuelled by the strong potential growth from TCS, the balance would swing more to the equity and this exercise would be more relevant.

Given these constraints, we would view this analysis as giving some context for valuation, rather than deriving a strict conclusion.

Peer valuation context

Exhibit 9: Peers for TCS

Company Name

Ccy

Price

Market Cap

LTM Perf

EV/sales

EV/EBITDA

EV/EBIT

(m)

(%)

FY0

FY1e

FY2e

FY0

FY1e

FY2e

FY0

FY1e

FY2e

Mondadori

EUR

2.1

535

36%

0.8

0.8

0.7

6.4

6.2

5.1

42.6

10.9

8.0

Cineworld

GBp

38.8

532

-39%

10.4

4.5

2.3

N/A

19.4

6.4

N/A

N/A

12.8

Criteo

USD

36.38

2,209

77%

2.1

1.9

1.7

6.9

5.4

4.8

9.8

7.5

6.4

ITV

GBp

118.8

4,781

11%

1.9

1.6

1.5

9.3

6.3

6.2

9.6

7.5

7.2

TF1

EUR

9.22

1,937

40%

1.0

0.9

0.8

4.3

4.0

4.0

17.6

7.0

7.1

JC Decaux

EUR

22.48

4,781

21%

4.4

3.9

3.1

10.5

31.7

17.1

N/A

N/A

44.7

Lagardere

EUR

24.34

3,405

19%

1.7

1.5

1.2

12.2

21.0

12.9

N/A

56.5

24.9

Mediaset

EUR

1.21

2,316

4%

1.3

1.2

1.2

4.1

5.3

5.1

12.6

7.5

7.1

Pearson

GBp

606.4

4,588

-11%

1.5

1.5

1.4

8.2

8.8

8.2

16.4

14.4

12.7

ProsiebenSat

EUR

14.61

3,302

6%

1.4

1.2

1.2

7.8

6.6

6.3

10.8

9.3

8.6

Keywords

GBp

2720

2,074

-5%

5.4

4.0

3.4

27.0

20.3

18.5

35.2

24.4

22.4

Prime Focus

INR

66.9

20,069

28%

2.2

N/A

N/A

9.7

N/A

N/A

33.7

N/A

N/A

PVR

INR

1546.25

94,302

17%

48.9

9.7

3.6

N/A

106.8

12.6

N/A

N/A

21.0

Zoo Digital

GBp

133

117

113%

3.0

2.2

1.9

26.6

23.5

17.4

74.8

96.3

39.5

Publicis

EUR

61.7

15,528

51%

1.9

1.7

1.7

8.6

7.9

7.6

18.8

11.0

10.2

Studio Dragon

KRW

86800

2,605bn

-6%

4.8

5.1

4.1

15.1

14.6

12.0

51.0

41.7

29.8

Avid

USD

31.5

1,417

98%

4.3

3.8

3.5

26.4

20.7

17.5

30.8

23.4

19.3

Mondo TV

EUR

1.3

57

-2%

2.4

2.1

1.9

3.3

2.4

2.2

7.4

6.8

5.6

Median

 

 

 

18%

2.2

1.9

1.7

8.9

8.8

7.6

18.2

10.9

12.7

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Implied EV for TCS 

 

 

 

1108

1126

1345

160

1049

1517

 

66

886

Source: Refinitiv. Note: Priced at 14 January 2022.

Firstly, for TCS, we have used a broad range of media and entertainment companies to represent the peer set, then calculated an implied EV at market median multiples for FY22e. Averaging across EV/sales, EV/EBITDA and EV/EBIT, to mitigate some of the variation of business model, derives a value of €1,249m. While we model a higher FY22e EBITDA margin for TCS than these companies (25% vs 21%), its forecast EBIT margin is lower (9% vs 15%) due to the nature of the business. The step-up in EBITDA margin reflects the better overhead recovery through higher volumes, greater commonality of platform and a higher proportion of work carried out in lower cost locations. The difference between EBITDA and EBIT margins is much higher in those businesses centred on content creation. Being within a larger group also points to a level of discount. Although the quantum is arguable, we have applied a 20% discount, giving a value for the segment of €999m.

For Connected Home, the same exercise as for TCS derives a value for the business of €1,743m, but given the considerably lower growth rate (-7% vs +12%) and lower (albeit improving) margins than peers, we feel a larger discount is appropriate and have used 25% (although we note that this is somewhat arbitrary). This gives a segmental value of €1,307m.

Exhibit 10: Connected Home peers

Company name

Currency

Price

Market cap

LTM perf

EV/sales (x)

EV/EBITDA (x)

EV/EBIT (x)

(bn)

(%)

FY0

FY1e

FY2e

FY0

FY1e

FY2e

FY0

FY1e

FY2e

Netgear

US$

27.6

0.806

-13%

0.4

0.4

0.5

4.2

4.8

7.7

4.6

5.5

10.6

Qualcomm

US$

175.7

196.8

19%

9.5

6.2

5.2

28.1

15.4

13.0

30.3

15.7

14.1

Harmonic

US$

10.8

1.10

31%

3.1

2.4

2.0

49.8

22.3

16.1

 

33.5

19.7

Corning

US$

38.0

32.4

3%

3.4

2.7

2.6

12.3

9.7

9.0

21.9

15.5

14.0

Cisco

US$

54.7

230.58

27%

4.4

4.2

4.0

11.9

11.3

10.8

16.1

12.4

11.6

CommScope

US$

9.7

1.980

-28%

1.3

1.3

1.3

9.0

10.0

9.3

10.4

11.6

10.9

Median

3.2

2.6

2.3

12.1

10.6

10.0

16.1

13.9

12.8

 

Implied EV for Connected Home (€m)

5,715

3,718

3,553

1,327

1,034

1,234

273

480

442

Source: Refinitiv. Note: Prices as at 14 January 2022.

Peers for DVD Services are even more problematic to identify, so we have used three companies that also undertake complex distribution and logistics in consumer segments: Sysco, US Foods and McBride. Replicating the procedure for the other segments derives a value of €340m having applied a smaller 10% discount as margins, etc, are more comparable.

We then subtract the central/corporate and other at a market multiple of 13.5x, as shown in the exhibit below, to generate a per share value for the group.

Exhibit 11: Sum of the parts

€m

TCS

999.4

Connected Home

1,307.3

DVD Services

340.0

Less Central costs

(405.0)

2,241.7

Less debt

(1,183.0)

Group valuation

1,058.7

Valuation per share

€4.49

TCS

Connected Home

DVD Services

Less Central costs

Less debt

Group valuation

Valuation per share

€m

999.4

1,307.3

340.0

(405.0)

2,241.7

(1,183.0)

1,058.7

€4.49

Source: Edison Investment Research

We have also looked at a DCF on a cross-group basis, as shown below, using varying WACCs and terminal growth rates. Selecting a WACC of 9% and a terminal growth rate of 1% (although the different segments would undoubtedly have different inputs) generates a value of €3.77 per share.

Exhibit 12: DCF at varying WACC and terminal growth rates

€/share

Terminal growth rate

0%

1%

2%

3%

4%

WACC

13%

0.85

1.02

1.23

1.47

1.76

12%

1.31

1.53

1.78

2.10

2.50

11%

1.85

2.13

2.47

2.89

3.44

10%

2.49

2.86

3.32

3.90

4.68

9%

3.28

3.77

4.40

5.24

6.42

8%

4.26

4.94

5.85

7.12

9.02

7%

5.52

6.50

7.86

9.91

13.33

6%

7.20

8.67

10.88

14.56

21.92

5%

9.55

11.93

15.90

23.83

47.63

4%

13.07

17.35

25.91

51.59

N/A

Source: Edison Investment Research

More reliable estimates of value should be possible for TCS once the price for Netflix’s purchase of Scanline is known (although this may not be until publication of the FY21 accounts) and for Connected Home once the Home division of CommScope is demerged as planned in Q222.

Financials

Earnings also a sum of the parts

As the dynamics of each segment are so different, we briefly summarise each below

Exhibit 13: TCS Q1–Q321

€m

Q321

Q320

% change (ccy)

Q1–321

Q1–320

% change (ccy)

Revenue

157

111

+37.9%

452

390

+17.9%

Adjusted EBITDA

33

(2)

N/A

74

0

N/A

Adjusted EBITDA margin

21.3%

(1.5%)

16.4%

0.1%

Adjusted EBITA

16

(24)

N/A

22

(75)

N/A

Adjusted EBITA margin

10.1%

(21.1%)

4.8%

(19.2%)

Source: Technicolor

The resurgence in demand after the lockdown period is clear to see in the rebound in revenues, which has strengthened in the fourth quarter. That improvement in activity levels has also lifted margins as capacity is more efficiently utilised. Our modelling shows this momentum continuing into FY22, as indicated by management outlining at the Q3 statement that 75% of budget was already in place for the year.

Prospects for margins are for further improvement, given the drive to increase the proportion of work delivered out of Bangalore and the greater efficiency from working on systems and platforms with a higher degree of commonality. Against this, there is the pressure on labour costs stemming from the high levels of demand across the industry, although, given that this is very much an industry issue, there are better prospects for this to be reflected in contract pricing.

Exhibit 14: Connected Home Q1–Q321

€m

Q321

Q320

% change (ccy)

Q1–321

Q1–320

% change (ccy)

Revenue

330

488

-33.9%

1,100

1,327

-13.1%

Adjusted EBITDA

17

31

-50.9%

73

85

-11.0%

Adjusted EBITDA margin

5.1%

6.3%

6.7%

6.4%

Adjusted EBITA

1

15

N/A

31

35

-13.0%

Adjusted EBITA margin

0.4%

3.0%

2.8%

2.7%

Source: Technicolor

Connected Home’s financial performance shows the impact of the global component shortages and supply chain dislocation on revenues as the group has been unable to fulfil high levels of underlying demand. The impact on margin has been partially offset by the ongoing reductions in operating costs (see 2020 Outlook for details on Panorama 1 and 2 cost savings plans, which built on the earlier removal of €40m from segmental costs) and the switch to a platform-based approach, rather than the manufacture/assembly of bespoke products for each client.

Management expects the componentry supply issues to persist through FY22 and into H123, but without further deterioration, given that the situation stabilised somewhat in Q321. Customers have committed on volumes through to the end of FY22 and have agreed on a pass through of component prices changes to secure supply. Connected Home does not appear to be losing market share and we have modelled broadly stable revenues for FY22, with a slight tick-up in EBITDA margin from 6.3% to 6.6%.

Exhibit 15: DVD Services Q1–Q321

€m

Q321

Q320

% change (ccy)

Q1–321

Q1–320

% change (ccy)

Revenue

198

193

+3.6%

481

495

+1.2%

Adjusted EBITDA

29

27

+9.9%

39

29

+42.6%

Adjusted EBITDA margin

14.6%

14.1%

8.2%

5.8%

Adjusted EBITA

18

15

+25.4%

8

(14)

N/A

Adjusted EBITA margin

9.0%

7.8%

1.6%

(2.9%)

Source: Technicolor

Performance from the DVD Services segment picked up in Q321, with major releases starting to come through again, with the blockbusters favourable to Blu-Ray volumes and an increase in the quantity of non-disc goods being handled. Margin improvements reflect the better overhead recovery stemming from higher volumes plus the benefits of the ongoing cost reduction programme, including the closure of two sites in North America (associated restructuring cost of €15m). Our modelling suggests further improvement in EBITDA margin in FY22 to 10.8%, from the 9.0% we forecast for FY21.

We reviewed our revenue forecasts post publication of the Q321 report and made adjustments to the expected mix of revenues between the three segments. Although the resultant revenue figures are lower than we previously published (FY21e reduced from €2.93bn to €2.76bn, FY22e from €3.26m to €2.99m), the mix is more heavily weighted towards higher margin activities. At a group level, management has maintained its three-year cost savings target at a run rate of €325m by end FY22, with €115m set to come through in FY21. Combining the three segments gives the progression for the group shown below, which we have set to match the (unchanged) management guidance for the year and for FY22 for adjusted EBITDA and adjusted EBITDA as below:

Exhibit 16: Management guidance continuing operations

€m, post IFRS16

FY20

FY21e

FY22e

Adjusted EBITDA

167

270

385

Adjusted EBITA

(56)

60

180

Continuing FCF before financial results & tax

(124)

c 0

230

Source: Technicolor. Note: Continuing operations.

For FY22, the figures are stated post the disposal of the Post Production business from TCS in Q121, which means the removal of $40m of adjusted EBITDA and €23m of adjusted EBITA.

Exhibit 17: Segmental earnings progression

€m

2018

2019

2020

2021e

2022e

Revenue

Technicolor Creative Studios

785

893

513

600

800

DVD Services

941

882

706

681

638

Connected Home

2,218

1,983

1,764

1,458

1,535

Corporate & other

44

43

23

21

22

Total

3,988

3,801

3,006

2,760

2,994

EBITDA

Technicolor Creative Studios

110

164

18

119

200

DVD Services

178

81

54

62

70

Connected Home

87

79

110

97

123

Corporate & other

1

1

-14

-8

-8

Total

376

325

168

270

385

EBITDA margin

Technicolor Creative Studios

14.0%

18.4%

3.5%

19.8%

25.0%

DVD services

18.9%

9.2%

7.6%

9.1%

10.9%

Connected Home

3.9%

4.0%

6.2%

6.7%

8.0%

Corporate & other

2.3%

2.3%

-59.7%

-37.4%

-37.2%

Total

9.4%

8.6%

5.6%

9.8%

12.8%

Adjusted EBITA

98

42

-56

60

180

Adjusted EBITA margin

2.5%

1.1%

-1.9%

2.2%

6.0%

Source: Technicolor accounts, Edison Investment Research

Improving cash flow

The general pattern for the group is one of cash absorption in the first half and cash generation in the second. The progress that the group has made from the tenuous financial position it held in FY20 ahead of the financial restructuring has led to a normalisation of the working capital position within Connected Home, which occurred during H121. The component shortage situation, though, presents a risk of inventory build-up as the normal throughputs are disrupted.

Overall free cash flow for the group improved from (€278m) in Q1–320 to (€206m) in the first nine months of FY21, mostly attributable to the improvement in trading and margins in TCS, combined with the reduced overhead across the group following the cost saving programme.

As indicated in Exhibit 16 above, management is guiding to a free cash flow (FCF) before financial results and tax of around break-even for FY21, improving to a positive FCF of €230m for FY22.

For the first nine-months of FY21, the free cash flow components are shown below (note that this runs from September 2020 to September 2021).

Exhibit 18: Free cash flow Q1 to Q321 versus Q1 to Q320

Source: Technicolor. Note: Continuing operations.

Stabilised balance sheet

The financial reconstruction completed in FY20 was complex, involving a debt refinancing and a debt-to-equity swap, alongside an equity rights issue (with bankruptcy protection put in place across the crucial renegotiation period). This process was described in detail in our reports at the time (July Outlook, updates in August and September 2020). The various elements of debt on the balance sheet are shown in the exhibit below, with the debt maturity profile. The new money notes and term loans repayable in June 2024 are at nominal rates of 12.00% and 12.15%, with the reinstated term loans at 6.0% and 5.9%, giving a weighted rate of 8.69%. Lease liabilities are payable at 8.2%, with the Wells Fargo line at 5.25%, giving an overall nominal rate across the gross debt of 8.46%.

With the debt set currently for repayment in FY24, there is a good likelihood that trading will have recovered sufficiently, and margins built following the cost reduction programme by that point, enabling any refinancing to be achieved on more favourable terms to the group.

The implementation of this reconstruction has enabled a normalisation of credit arrangements, particularly important for the Connected Home operations.

Exhibit 19: Debt profile as at end Q321

Exhibit 20: Debt maturity profile

Source: Technicolor

Source: Technicolor

Exhibit 19: Debt profile as at end Q321

Source: Technicolor

Exhibit 20: Debt maturity profile

Source: Technicolor

Exhibit 21: Financial summary

€m

2019

2020

2021e

2022e

Year end 31 December

IFRS

IFRS

IFRS

IFRS

INCOME STATEMENT

Revenue

 

 

3,800

3,006

2,760

2,994

Cost of Sales

(3,375)

(2,725)

(2,403)

(2,570)

Gross Profit

425

281

358

425

EBITDA

 

 

325

167

270

385

EBITA

 

 

42

(56)

60

180

Amortisation of acquired intangibles

(54)

(41)

(41)

(41)

Exceptionals

(79)

(151)

(20)

(10)

Reported operating profit

(121)

(264)

27

147

Net Interest

(84)

77

(125)

(120)

Joint ventures & associates (post tax)

(1)

0

0

0

Exceptionals

0

155

0

0

Profit Before Tax (norm)

 

 

(73)

(43)

(37)

78

Profit Before Tax (reported)

 

 

(206)

(188)

(98)

27

Reported tax

(3)

(5)

(5)

(5)

Profit After Tax (norm)

(75)

(48)

(42)

73

Profit After Tax (reported)

(208)

(193)

(103)

22

Minority interests

0

0

0

0

Discontinued operations

(22)

(15)

0

0

Net income (normalised)

(75)

(48)

(42)

74

Net income (reported)

(230)

(207)

(103)

22

Average Number of Shares Outstanding (m)

15

126

241

247

EPS - normalised (c)

 

 

(492.18)

(38.38)

(17.43)

29.81

EPS - normalised fully diluted (c)

 

 

(492.18)

(33.64)

(16.24)

27.81

Dividend per share (c)

0.00

0.00

0.00

0.00

Revenue growth (%)

(5)

(21)

(8)

8

Gross Margin (%)

11.2

9.4

13.0

14.2

EBITDA Margin (%)

8.6

5.6

9.8

12.8

EBITA Margin (%)

1.1

(1.9)

2.2

6.0

BALANCE SHEET

Fixed Assets

 

 

2,082

1,674

1,649

1,576

Intangible Assets

1,483

1,251

1,271

1,233

Tangible Assets

476

288

243

208

Investments & other

40

62

62

62

Deferred tax and other

84

72

72

72

Current Assets

 

 

1,127

1,344

1,153

1,199

Stocks

243

195

206

201

Debtors

507

425

390

381

Cash & cash equivalents

64

330

162

223

Other

312

394

394

394

Current Liabilities

 

 

(1,542)

(1,379)

(1,293)

(1,350)

Creditors

(825)

(710)

(614)

(671)

Tax and social security

(41)

(21)

(33)

(33)

Short term borrowings

(95)

(72)

(104)

(104)

Other

(581)

(576)

(542)

(542)

Long Term Liabilities

 

 

(1,631)

(1,466)

(1,438)

(1,454)

Long term borrowings

(1,203)

(1,070)

(1,087)

(1,103)

Deferred tax

(27)

(15)

(19)

(19)

Other long term liabilities

(401)

(381)

(332)

(332)

Net Assets

 

 

37

172

70

(29)

Minority interests

0

0

0

0

Shareholders' equity

 

 

37

172

70

(29)

CASH FLOW

Net profit

(208)

(193)

(103)

22

Depreciation and amortisation

322

263

203

213

Working capital

(69)

(101)

(72)

71

Tax and interest

(76)

(41)

(110)

(105)

Exceptional & other

101

(9)

0

0

Operating cash flow

 

 

70

(81)

(82)

200

Capex

(169)

(138)

(135)

(140)

Acquisitions/disposals

(2)

0

30

0

Equity financing

1

60

0

0

Dividends

0

0

0

0

Other

3

5

0

0

Net Cash Flow

(97)

(154)

(187)

60

Opening net debt/(cash)

 

 

733

1,234

812

1,029

FX

(16)

20

0

Discontinued

(35)

(23)

0

0

Other non-cash movements

(369)

615

(49)

(16)

Closing net debt/(cash)

 

 

1,234

812

1,029

984

Source: Company Universal Registration Document, Edison Investment Research

Contact details

FY20 revenue by geography

8-10 Rue Renard
75004 Paris
France
+33 (0) 1 88 23 30 00
www.techicolor.com

Contact details

8-10 Rue Renard
75004 Paris
France
+33 (0) 1 88 23 30 00
www.techicolor.com

FY20 revenue by geography

Management team

CEO: Richard Moat

CFO: Laurent Carozzi

Richard joined Technicolor in November 2019. His career has mostly been in the telecoms sector. He was CEO of Eir (Eircom) (2014 to 2018), having previously been its CFO (2012 to 2014). Prior to Eir, Richard was deputy CEO and CFO of EE, having spent 17 years with Orange.

Mr Carozzi joined the group in March 2018, having previously been deputy to the CFO of Publicis from early 2017. Prior to this, he was at Lagadère for 12 years, where he was head of IR, then head of group financial control. From 2011, he focused on the turnaround of the Sports & Entertainment business unit as COO and CFO.

Chair: Anne Bouverot

Anne was appointed to the board in June 2019 and is a senior adviser for TowerBrook Capital Partners.

Management team

CEO: Richard Moat

Richard joined Technicolor in November 2019. His career has mostly been in the telecoms sector. He was CEO of Eir (Eircom) (2014 to 2018), having previously been its CFO (2012 to 2014). Prior to Eir, Richard was deputy CEO and CFO of EE, having spent 17 years with Orange.

CFO: Laurent Carozzi

Mr Carozzi joined the group in March 2018, having previously been deputy to the CFO of Publicis from early 2017. Prior to this, he was at Lagadère for 12 years, where he was head of IR, then head of group financial control. From 2011, he focused on the turnaround of the Sports & Entertainment business unit as COO and CFO.

Chair: Anne Bouverot

Anne was appointed to the board in June 2019 and is a senior adviser for TowerBrook Capital Partners.

Principal shareholders

(%)

Credit Suisse Asset Management

12.1

Baring Asset Management

10.4

Bain Capital Credit

7.0

BNY Alcentra Group Holdings

6.6

Farallon Capital Management

6.2

Angelo, Gordon & Co

5.0

ELQ Investors Ltd

4.4

Bpi France Participations

4.4

Invesco

3.9


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 £60,000 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 2022 Edison Investment Research Limited (Edison).

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

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

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 £60,000 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 2022 Edison Investment Research Limited (Edison).

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

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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