Technicolor shows “resiliency in face of pandemic”
March 12, 2021
Technicolor has announced its results for the full year 2020.
Richard Moat, Chief Executive Officer of Technicolor, commented: “Technicolor has re-engineered its operations, balance sheet and global footprint and has exceeded its guidance for 2020. Connected Home beat the targets originally set before the crisis began, but Production Services and DVD Services were hit by the halting of activity in the film industry, and associated cinema closures. However, overall the Group showed good resiliency in the face of the pandemic. During 2020, significant structural changes were implemented across all divisions, which saw a more than €165 million reduction in our cost base, combined with further investment to improve our efficiency. In particular, Production Services strengthened its capacity to serve its clients through state of the art technologies and artistic expertise. Despite persistent uncertainty relating to the pandemic, we are looking to the future with confidence, and will continue to execute our transformation program to deliver improved operational and financial performance. In consequence, the Group issuing guidance towards strong figures for 2021, and is maintaining previously issued 2022 guidance.”
In 2020 Technicolor successfully achieved a major balance sheet financial restructuring, and the implementation of a significant business transformation:
- Liquidity as at December 31st 2020 of €432 million, consisting of €330 million cash on balance sheet and €102 million of fully undrawn committed credit lines;
- Nominal net debt as at December 31st 2020 reduced by €340 million following the completion of the financial restructuring, with a net debt to adjusted EBITDA (including op. leases) ratio of 5.37;
- Significant momentum established in improving operations, profitability and cash generation, ultimately creating value for all stakeholders;
- Management team renewed, and their incentives realigned to value creation for the company in the short and medium term.
As a result, and despite the successive waves of the pandemic crisis which were not anticipated at the time of the financial restructuring, Full Year 2020 results are ahead of previously communicated guidance:
- EBITDA of €167 million (including IFRS 16), is better than expected and has more than doubled from €53 million in the first half to €115 million in the second half;
- Permanent cost savings of €171 million;
- 2020 EBITA of €(56) million, better than the €(64) million expected;
- Continuing free cash flow (before financial results and tax) of €(124) million in line with guidance, showing a strong improvement in the second half with an inflow of €118 million despite absorbing around €(90) million of supplier payment term reductions.
The Group’s businesses demonstrated operating resilience to the Covid-19 crisis. Nonetheless, revenue generation in some of our activities has been significantly impaired as a result of sanitary restrictions around the world:
- Production Services activities were significantly impacted by the pandemic, with revenues down 41 per cent at constant rate year-on-year due to the halting of live action shooting at the end of the first quarter. The decline in Film and Episodic Visual Effects and Post Production was, however, partially mitigated by increased demand in Animation, and resilience in Advertising which achieved the same EBITDA as in 2019 despite lower revenues.
- Connected Home delivered a strong year with a standout performance in North America, exceeding the original targets set before the pandemic and maintaining its market leadership. Adjusted EBITDA grew 46.7 per cent at constant rate, as a result, EBITDA margin expanded from 4 per cent to 6.2 per cent, highlighting the positive impact of the cost restructuring measures. 2020 EBITA of €41 million was almost twice 2019 EBITA of €23 million.
- DVD Services performed well in a difficult environment. 2020 EBITA reached break-even compared to a loss of €(6) million in 2019, illustrating the positive impact of successful contract renewals and aggressive transformation actions. This was achieved despite a decrease in revenue of (19) per cent at constant rate year-on-year, impacted by the lack of new film releases following theaters closures, but partly compensated by resilient back catalogue demand.
While uncertainty linked to the pandemic remains, the Group says it is focused on continuing the execution of its transformation programme, which has gained significant momentum in 2020. 2021 and 2022 will be years of substantial financial improvement. Taking into account the impact of foreign exchange fluctuations and the change in Group perimeter as a result of the sale of Post Production, the Group is adapting its 2022 guidance, and providing 2021 guidance of:
- Revenues from continuing operations stable vs. 2020;
- Adjusted EBITDA of around €270 million (incl. IFRS 16), a very significant improvement from €167 million achieved in 2020;
- Adjusted EBITA of around €60 million;
- Continuing free cash flow (before financial results and tax) at around breakeven;
- Net debt to EBITDA covenant ratio should reduce to below 4X level at 2021 year end.