BENGALURU: Global technology player in the media and entertainment sector Technicolor reported a 3.1 per cent drop (current currency) in group revenue (TR) excluding legacy services from €866 million in the quarter ended 30 September, 2013 (Q3-2013) to €839 million in Q3-2014. The drop is sharper at 4.3 per cent basis considering legacy services revenue. Technicolor reported group revenue of €841 million in Q3-2014 versus €881 million in Q3-2014. Year to date over a 9 month period (9M-2014), the company reported a drop of 2.9 per cent in revenue excluding legacy revenue to €2,334 million from € 2,404 million in 9M-2013. Including legacy revenue, TR dropped 4.9 per cent to €2,349 million in 9M-2014 from €2,471 million in 9M-2013.
Technicolor’s Connected Home (CH) segment, the only one among the three that contribute to its numbers, has shown growth in Q3-2014. CH grew 3.1 per cent in the current quarter to €369 million (43.8 per cent of TR) from €361 million (41 per cent of TR) in the corresponding period of last year. Q-o-q, this segment grew by 1.2 per cent from €364 million (47.8 per cent of TR). The segment reported a 3.4 per cent jump in revenue to €1,024 million (43.6 per cent of TR) in 9M-2014 from €990 million (40.1 per cent of TR) in 9M-2013.
The other two segments – Technology and Entertainment services showed y-o-y fall in revenue by 5.7 per cent and 7.3 per cent respectively in Q3-2014 versus the year ago corresponding quarter.
Technicolor’s Technology segment reported revenue of €116 million in Q3-2014 (13.8 per cent of TR) versus €123 million (14 per cent of TR) in Q3-2013 and 12.6 per cent higher than the €103 million (13.5 per cent of TR) in the immediate trailing quarter. During 9M-2014, the Technology segment reported a 5.2 per cent drop in revenue to €331 million (14.1 per cent of TR) from €349 million (14.1 per cent of TR) in 9M-2013.
The Entertainment services (ES) segment reported Q3-2014 revenue of €355 million (42.1 per cent of TR) versus €383 million (43.5 per cent of TR) of Q3-2013 and 22.8 per cent more than the €289 million (37.9 per cent of TR) in Q2-2014. Revenue for 9M-2014 from Technicolor’s ES dropped 7.9 per cent to €979 million (41.7 per cent of TR) from €1063 million (43 per cent of TR) during 9M-2013.
Technicolor’s CEO Frederic Rose said: “While we saw a lower than expected activity in DVD Services in the third quarter, our performance continued to be fuelled by profitable growth in Connected Home and Production Services. We have also progressed in the quarter on our various short and mid-term key licensing initiatives. As a result we are able to confirm our 2014 guidance and I am particularly satisfied with our strong free cash flow generation for the first nine months of the year.”
Here is what the company has to say in its earnings release:
Technology revenues amounted to €116 million in the third quarter of 2014, down 5.5 per cent on a reported basis compared to the third quarter of 2013. Licensing revenues were €113 million, down €9 million year-over-year. Revenues generated by MPEG LA benefited from an improving trend in the PC market driven by developed countries, following a difficult first half of the year. Other patent licensing programs recorded a solid performance. However, overall revenues were impacted by a lower level of new contracts and contract renewals compared to the third quarter of 2013 which included a large video codec license.
Licensing teams signed during the third quarter an exclusive licensing agreement with Warner Bros. Entertainment to represent the studio as its patent licensing agent (apart from existing patent pool licensing programs) to capture the value of the studio’s patent portfolio.
Entertainment Services revenues (excl. legacy activities) amounted to €355 million in the third quarter of 2014, down 7.4 per cent at current currency compared to the third quarter of 2013, principally due to lower DVD volumes, driven by an exceptionally weak slate of customer new releases. As a result of the aforementioned decrease in DVD Services revenues, the division has taken cost optimization actions to maintain its profitability. Production Services revenues continued to grow significantly in the quarter and to improve its profitability.
Production Services revenues recorded double-digit year-on-year growth in the third quarter of 2014, reflecting strong performance across Visual Effects (VFX) and Animation activities and solid growth in Postproduction Services in the US. The Group also closed the acquisition of Mr. X in the quarter.
In the third quarter of 2014, VFX teams completed work on Guardians of the Galaxy (Disney/Marvel), which recorded the best US box office performance this year, while continuing work on Night at the Museum: Secret of the Tomb (Fox), Cinderella (Disney), Monster Trucks (Paramount), Exodus: Gods and Kings (Fox) and The Jungle Book (Disney). Postproduction teams were also working on some of these projects during the quarter, and completed work on titles such as Get on Up (Universal), Fury (Sony) and The Judge (Warner) in Theatrical. Technicolor also continued to lead the market in premium TV Broadcast series, with Postproduction teams completing work on strong franchises such as Vampire Diaries (Warner), Mad Men (AMC), Stalker (CBS), iZombie (AMC) and Daredevil (Marvel). Animation teams started working on DreamWorks Animation projects for Netflix.
DVD Services revenues were affected in the third quarter of 2014 by significantly lower combined Standard Definition DVD and Blu-rayTM volumes, which fell by 21.3 per cent compared to the third quarter of 2013. These lower volumes resulted from a limited slate of major new titles and a large year-on-year reduction in catalogue and promotional activities by one customer. This compares to a very strong third quarter of 2013 during which total disc volumes grew around 3 per cent.
Technicolor’s main customers recorded a 29 per cent year-on-year drop in 2014 summer box office revenues, and the Group DVD volumes were impacted by a particularly weak demand from some of these customers. The decline in Blu-rayTM volumes was limited to 6.3 per cent, thanks to ongoing growth in Games products for the Xbox One platform.
Selected major titles produced in the third quarter of 2014 included Captain America: The Winter Soldier (Disney/Marvel), Godzilla (Warner), Neighbors (Universal) and Transformers: Age of Extinction (Paramount).
In the first nine months of 2014, combined Standard Definition DVD and Blu-rayTM volumes were down 12.3 per cent compared to the first nine months of 2013, with Standard Definition DVD volumes declining by 15.2 per cent, while Blu-rayTM volumes recorded positive growth of 2.2 per cent in the period.
Legacy activities revenues were €4 million in the third quarter of 2014 compared to €15 million in the third quarter of 2013, a year-on-year decrease of more than 70 per cent, as the Group is completing this year the exit of these activities.
Connected Home revenues totalled €369 million in the third quarter of 2014, growing by 2.2 per cent at current currency compared to the third quarter of 2013. This performance mainly reflected good volume growth in North America and Europe, Middle-East & Africa, with particular strength in customer demand for set top boxes. The Group also recorded a recovery in product shipments in Latin America after several straight quarters of declines, driven principally by stronger deliveries of Telecom broadband gateways, as well as a significant improvement in product mix in Asia-Pacific, supported by larger sales of high-end broadband devices.
Connected Home continued to reinforce its market leadership during the third quarter of 2014, particularly in developed territories, benefiting from a number of new awards and customer wins, notably for high-end devices. Gross margin and adjusted EBITDA improved significantly in the period, due to continued solid operational performance and further cost optimization, while free cash flow generation was also strong.
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