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Technicolor: “Q1 down, but expected”

Technicolor has reported its Q1 2017 numbers. The French media and entertainment giant said that performance in the first quarter was in line with Group’s expectations and the outlook for 2017 remains unchanged.

A company commentary said: “During the first quarter, revenues were down year-over-year, as expected, due to an unfavourable comparison basis in the Connected Home and Technology segments.

In the Connected Home segment, the level of activity with the largest operators of the US has been solid, fueled by the roll-out of several flagship products, as exemplified by the large volumes of WorldBox delivered to Charter and shipment of a new high-end video product to AT&T initiated during the quarter. Overall performance was, however, weaker than last year due to the very low level of activity in Mexico in line with 2016 fourth quarter trends and a lower performance in Europe. Revenues were impacted negatively in Europe during the quarter due to delays in shipments to a large customer and by the end of a number of large deployments. Besides, Technicolor continued to record solid commercial successes and won several new contracts, including a large number of awards for OTT products based on Android TV. In total, the Group has won 20 contracts for OTT set-top boxes in the past 18 months, representing close to 50% of the worldwide awards for this category of products.

The market environment for Production Services continues to flourish with strong demand for premium content across the different market segments. The Group demonstrated its continued leadership position in delivering visual effects for premium content and recognized with the Oscar for best visual effect for the Jungle Book at the 2017 Academy Awards. In addition, the Group is achieving significant growth rates in Animation and Games due to the ramp-up of several long feature animation projects and an extended scope of services for its Game customers.  

In the physical media segment, overall disc volumes were down, in line with Group’s expectations and reflected a weaker slate of releases compared to the first quarter of 2016 that benefited from the record setting performance of Star Wars: The Force Awakens, and from a higher number of AAA Games releases.

The Technology segment made good progress in its licensing programs during the quarter. Revenues were down compared to the first quarter of 2016 which benefited from the signing of several major licensing agreements, including a one-time lump-sum agreement – making for a challenging comparable.  Demonstrating the strength of Technicolor’s IP portfolio and ability to protect its intellectual property, patent infringement suits were filed in both Germany and France against Samsung Electronics Corporation during the first quarter, illustrating Technicolor’s commitment to enforce its intellectual property rights, when and where necessary.

During the first quarter, the Group further invested in developing its operating businesses. The Connected Home segment increased its footprint in Asia-Pacific through a partnership with Pioneer to penetrate the Japanese market and increased its overall research efforts in Broadband. In Production Services, the Group further progressed its capacity expansion program and has been hiring additional creative talent to absorb its strong business pipeline. Production Services’ leadership in immersive experience projects continued, as seen in a VR piece for the new Alien Covenant movie with the support of the recently established Technicolor Experience Center and Technicolor’s Research & Innovation labs.

While investing in its future, the Group also continued to reinforce its balance sheet. Technicolor raised incremental term loans of €275 million and $300 million at the end of March, the proceeds of which were used to entirely repay its old term loans maturing in 2020. This allowed the Group to simplify its financial structure as the term loans were issued under the new term loan debt agreement signed in December 2016 which is covenant-lite and maturing in 2023. The refinancing transactions and debt repayments that occurred in 2016 and 2017 year-to-date will result in around €30 million of interest cost savings on an annual run rate basis”

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