Vantiva S.A. (TNM2.MU) Earnings Call Transcript & Summary

Ladies and gentlemen, welcome to Technicolor's conference call chaired by Richard Moat, CEO; and Laurent Carozzi, CFO. [Operator Instructions] Just to remind you all this conference is being recorded. During this conference call, statements could be made that constitute forward-looking statements based on management's current expectation and belief are subject to a number of risks and uncertainties that could cause actual results to differ materially from the future results expressed, forecasted or implied by such forward-looking statements. For a more complete list and description of such risks and uncertainties, we refer to Technicolor's filings with the French Autorité des marchés financiers. I would like now to hand the call to Richard Moat. Sir, please go ahead.

Thank you very much, and good afternoon, everybody. So thank you very much for attending the call, first of all. We're announcing today that we've reached agreement in principle on a financial restructuring plan for Technicolor, and we believe that this plan is going to provide a framework for long-term sustainability for the group. We've just issued a press release. I realize it contains a lot of information. It's 9 pages long. But the essence is that this plan that we put together is supported by a majority of our lenders, it's ready to be voted on by our shareholders and then to be finalized by the courts for implementation. So I'm going to run through the key components of the plan and of the announcement. And then Laurent will go into more details, and then we'll both be ready to answer your questions. So if we start on Slide #3, which is entitled A Comprehensive Financial Restructuring Plan to Enhance Strategic Flexibility. As we previously communicated to you, back in May, we began a process aiming to raise a new money facility. And the important thing to say today is that we have secured EUR 420 million in new financing, and the money will be used to finance our operations and initially to repay the EUR 110 million bridge loan facility which is due on July 31. Associated with this new money input is going to be the partial equitization of our debt up to a level of EUR 660 million, and this is going to be achieved through 2 simultaneous steps. First of all, there will be a EUR 330 million rights issue with shareholders' preferential subscription rights. And secondly, there will be a EUR 330 million reserve capital increase for the Term Loan B and the RCF creditors, which will be fully subscribed by way of debt equitization. We're also agreeing to extend the maturity of the Term Loan B and the RCF to 2024, and our existing Wells Fargo facility, which will continue on being out to December 2023. So obviously, what this means is that we will be significantly reinforcing our shareholders' equity and at the same time, significantly reducing our debt burden. In fact, we anticipate that by 2021, our debt-to-equity ratio will be close to 3x, which we think will be a very positive signal for all of our stakeholders, customers, suppliers, employees and rating agencies. To implement this new financing structure, we today opened a procédure de sauvegarde financière accélérée or SFA, which is a form of prenegotiated safeguard procedure with financial creditors only. And as we mentioned in the previous update, this allows us to move forward with our plan only needing a 2/3 majority of approval from impacted lenders, and that we have already obtained. There's then going to be an important next step, which is to get the approval of our shareholders. And this will take place as a vote during an Extraordinary General Meeting, which will be held on the 20th of July. We feel very confident about the outcome of the vote. The plan is designed to offer to existing shareholders the opportunity to participate in Technicolor's recovery and long-term value creation. And in particular, free warrants will give access to 5% of the share capital of the company on a fully diluted basis. We think the negative vote is a remote possibility, but nevertheless, it's out there. If that happened, then it would lead to rehabilitation proceedings or redressement judiciaire, or liquidation, under which all of the company's assets could be attributed or sold to the new financing lenders. So effectively, we would end up in the same position, but via a different route. We very much believe that we will achieve this by the first route, which is a positive vote of shareholders at the Extraordinary General Meeting. So whilst we've been doing this, and it's a very important day in the history of the company, achieving this restructuring plan, nevertheless, our teams have been fully engaged across each of our 3 business units in delivering high-quality services to our customers, and this will not change the experience that those customers receive. We intend to provide them with high-quality goods and services as we have in the past. But nevertheless, in the future, we'll be executing that from a much stronger platform. So with that, I will hand it over to Laurent, and he's going to go through these issues in some more detail and also talk about details of our new 3-year business plan. Over to you, Laurent.

Many thanks, Rich. Good afternoon. Good morning all. So in the following slides, I will take you through the details of the operation. I will try to do it as slowly and as clearly as I can because, as Richard has mentioned, you've been delivered the stack of financial data in a very short period of time. So it's going to be complicated. So I hope I'm going to be able to take you through the details. So starting with the Slide 4, called key transaction principles, here we have a summary of the operation, and then I will take you through -- again, through the details of each step of the operation. So overall, as Richard has mentioned, so we are talking about several steps. The first step is a new money cash injection. The total amount will be EUR 420 million. It's going to be debt with a maturity running until June 2024. EUR 400 million of this EUR 420 million is fully underwritten by a group of lenders, which are mainly part of today's term loan and RCF creditors. And we have also, on top of that, EUR 20 million provided to us by Bpifrance Participations, who's actually, as you know, a shareholder and who has a Board seat. The proceeds of this EUR 420 million will be used, as Richard has mentioned, to repay the $110 million bridge loan that is due to -- for payment at the end of July 2020. And also to, of course, fund the launch -- the cash flow swings we have and help rebuild the buffer of liquidity that we were pursuing -- operation we are pursuing while we are doing the rights issue and then we will do this way now. The second step, the second part of what we're announcing today is the project of the debt reduction of EUR 660 million of debt across the term loan -- Term Loan B and the RCF on a pari passu basis. So it's a very, very significant debt reduction, leading to reinstated debt, remaining debt of EUR 572 million as far as the term loan and RCF part was concerned. How is that going to be done, by, as Richard has mentioned, a 2-step project, a rights issue project. So one, and I will give you a bit more detail, will be EUR 330 million rights issue, backstopped or underwritten by the TLB and RCF creditors and with -- including a commitment of Bpi to participate pro rata their current shareholding. And another of the same size, EUR 330 million, a reserve capital increase to -- reserve to the TLB and RCF creditors. The proceeds of this rights issue will be used to repay the debt at par. The maturity of the new financing of the reinstated debt, so the EUR 572 million remaining, have been extended to December 2024. So you have a debt-to-equity swap here and an extension of the maturity of the remaining debt. The payment would be, sorry, last point made as a bullet, payment -- repayment in December 2024. Last but not the least, as you know, we also have a -- we're using also an ABL line with Wells Fargo, amounting to $125 million. This line has been reconducted extended to December 2023. So as a summary, if you look on your slide, on the right-hand side, you will see that in blue colors on the left, you have the current situation today. So we have -- in terms of gross debt, EUR 1.4 billion of debt, made of EUR 982 million of term loan. This amount fluctuates slightly sometimes because, as you know, there is a dollar tranche in it, so depending on the day you calculate it with the dollar to euro exchange, it changes slightly, but it's insignificant in terms of the magnitude. So EUR 982 million for the term loan, EUR 250 million for the RCF, $110 million for the bridge and $125 million for Wells Fargo. Tomorrow, we will have, so right-hand side of the chart, $125 million Wells Fargo, same amount but extended to December 2023. The EUR 420 million of new financing, with maturity date in June '24. And the reinstated debt, the EUR 572 million of reinstated TLB and RCF debt with a bullet repayment plan for December '24. So if we progress by 1 slide, so if we go to Slide #5, I'm going to give you a little bit more color on the capital increase part of the operation. So that's the part that is concerning the reduction of the debt-to-equity swap. So in total, we have EUR 660 million of a debt-to-equity swap plan and in 2 tranches. So the first part is the more classic rights issue open to all shareholders. So total amount, EUR 330 million. The strike price will be EUR 2.98 per share. It's -- the entirety of this rights issue is underwritten by the Term Loan B and the RCF lenders pro rata. The use of proceeds will be, of course, to repay the debts, the term loan and RCF accumulated debt at par. And again, as noted, we will have -- we already have -- we can count already on the support of one of the key shareholder, Bpi, to participate pro rata in this rights issue. And I remind you that Bpi has, today, a Board seat and will retain its Board seat going forward. There will be a second tranche, same size, EUR 330 million, reserve this time. So the price will be EUR 3.58. The rationale between EUR 3.58 and EUR 2.98 is simply that the reserve capital increase price is higher by 20% than, of course, than the price offered to the current shareholders. Subscribers of the reserved capital increase will be the Term Loan B and the RCF lenders. Proceeds will be used, of course, to repay the debt. No cash will be involved, but it will be -- the settlement will be done by a set-off of claims. So that's for the capital increase. Let's see now in Slide 6, what sort of impact this rights issue will have, let's say, on our share ownership. And I will add also, beyond this explanation, a few more information to the deal. So first, the new information. First of all, and that's highlighted under the point #2, and Richard alluded to it, warrants -- penny warrants would be distributed to existing shareholders. That will represent, in total, a value of the 5% of fully diluted equity. They will have a 4-year maturity. And the strike price will be at the RCI, the reserved capital increase price of EUR 3.58. So information -- new information number one. Information number two, it's point number three, an amount of 7.5% of the equity will be preserved -- attached to the new money lender as part of the payment for their overall package. Now going back to -- now trying to take you [ to ownership ]. So what I suggest is we start from the left-hand side of the spreadsheet. So you can see excluding shareholder warrants. So let's have a look at what the share ownership could look like, excluding shareholders' warrants impact. So in the first column, you see 0%. It means that -- let's assume that nobody subscribes to the share issue, to the rights issue, so 0%. The -- as it stands today, the current shareholders will be even diluted down to 6.5% of their current holding. If you go down below we have a -- it basically means that the rest of the rights issue will be picked up by the term loan lenders and the RCF. So adding 46.9% to the stake -- grabbing 46.9% of the equity, sorry, then you will have the amount that is coming from the reserved capital increase of 39.1%. So if none of our current shareholders subscribe, in total, they would own, at the end of this process, 6.5%. We will have the Term Loan B and RCF -- or lenders will own 86%, 7.5% will be reserved to the new money provider. I'll skip the 50% because you will understand the logic, I'll go to 100%. So let's assume that we have all our current shareholders do subscribe to the rights issue. So going down the column, they will have -- they will subscribe to EUR 330 million. So they have today -- the remaining shares are equivalent to 6.5% of the new capital structure. They would add 46.9%, so to a total of 53.4%. The lenders will still retain 39.1%. That's the amount that is associated to the reserved capital increase. And of course, we still have the 7.5% attached to the new money. Now moving from this picture that excludes warrants to the one that includes warrants, and let me take you straight through the last column. So with 100% pickup, so warrants, overall, will dilute every position. So the existing shareholders will be slightly diluted on their core assets to 6.2%. But if they do subscribe to the rights issue, they will add 44.6%, plus 5% coming from the warrants. So they will end up a little bit short of 56%. Lenders will have an equity stake of 37.1%, and the equity attached to the new money will be 7.1%. So there is -- I think this sort of spreadsheet gives you more or less a proper and comprehensive view on what the potential dilution can be if no participation in rights issue is contemplated, or if it is compensated or contemplated, or if half of the subscription is happening. Moving on to the Slide 7. Here, we are going to new money facilities. So here, we are going to provide you with a little more information on the new money facility, the EUR 420 million. So as mentioned, there is a EUR 400 million of that is coming from creditors and EUR 20 million from Bpi. There is the euro and the U.S. tranche. The U.S. tranche is mainly dedicated as refinancing the $110 million bridge facility that we have. This line is fully underwritten by a group of existing term loan and RCF lenders. Now the price. So there is an underwriting fee of 3.5% that is going to be contemplated, and it's under an OID format, which basically means that it's going to be paid on the totality but at the end of the process. So at the end of '24. The participants would be Term Loan B lenders and RCF lenders. The use of proceeds are, as mentioned, first the bridge loan and then the general operational purposes. The maturity is June 2024 in bullet payments, so payments in one go. Prepayment, noncore for 2 years, so no prepayment for 2 years, and then prepayment will be done at par. If we were to dispose of -- make some disposal in between, we will retain EUR 75 million on the balance sheet as a cash, as a sort of extra security to the plan. And $125 million could be applied in terms of prepayment, but with a 6% redemption premium to be paid. Now the margins. So on top of the underwriting fees, now there is an OID again at 5% that is being applied to this facility. And then as you can see, for the euro tranche and for the U.S. tranche, we are going to be based on the Euribor at -- with a floor at 0% and a LIBOR floor at 0%, which means these are going to get to -- will be accounted for at 0%. As far as the euro tranche is concerned, there is a 6% cash interest, plus a 6% payment in kind contemplated as well. So payment in kind meaning that it will be paid at the end, at maturity. Same with the U.S. tranche. And finally, there's a commitment fee of 1.5% per annum in case the line is not utilized. Finally, we have the 7.5% of equity allocation I've described to you in the previous slide. So this gives you basically the structure of the new money facility. It's been designed to make sure that in the years of recovery, 2021 and '22, let's say, there is a clearer weight of interest being applied on the business plan. So that, basically, this new money facility doesn't impair or prevent the company from recovering as it should. If I move to the Slide 8. So we've talked about the new money, the EUR 420 million. Now let's talk about the reinstated debt of EUR 572 million. So we know its origin, these are the existing Term Loan B and RCF loans, they are reminded to you on the left-hand side of the chart. Now -- so you will have this amount -- reinstated amount of EUR 572 million would be -- there's going to be a euro tranche, EUR 453 million, and you have the split coming from TLB and RCF and a U.S. tranche of EUR 120 million. Its maturity is December '24, with a bullet repayment then. And as far as the margins are concerned, for the euro tranche, same mechanism really in terms of structure, though not in terms of amount, but in terms of structure then for the new money. So a Euribor with a floor at 0%, 3% cash interest, 3% PIK for the euro tranche. And as far as the U.S. dollar tranche is concerned, LIBOR with a floor at 0%, 2.75% cash interest and 3% PIK. So moving on to the Slide 9. Let me give you some more color on the way these operations will unfold. So the new money will be made available in July, in mid-July, in order to -- for the company to basically repay the bridge. And the other new money is going to be made available in July to the token of -- amounts to a token of EUR 240 million. It's going to be dedicated to repay the bridge on one hand and to help us, let's say, manage our buffer or needed buffer of liquidity in relation to work cap swings, as you know. There is going to be another tranche of new money being released later in August 2020. This new money will be, of course, benefiting of some securities. The process used is called the fiducies-sûretés in France. So it's like it's a trust, let's say, in French and whereby we will have a certain amount of our subsidiaries, in particular, in relation to products and services within the group, and this Fiducie, and use as a security to the new money providers. They will also -- the new money provider will also benefit from some securities that were so granted to the bridge lenders because they will replace them, de facto, in terms of the beneficiaries of these securities. That's more or less, I think, where I should leave you. We can, of course, answer more of your questions if need be. Let me take you then to the Slide 10 with the calendar. So it's called key next steps, but it's in reality a little bit of the calendar that we are going to have to follow. So today, marks the day of the opening of the SFA, so the sauvegarde financière accélérée. By the 29th of June, we would be asking for -- to call for an EGM, and also publishing an EGM meeting notice. As you know, we are requested to have an EGM -- to call an EGM because of these in particular, because of the debt-to-equity swap operations. On July 3, we will have the traditional financial creditors committee that will have to vote on the SFA plan. And as Richard has mentioned, we need a 2/3 majority, which is already gathered. In July 10, we will have, hopefully, a prospectus approved by the AMF. And we have decided to add to it an independent expert report to assess the fairness of the operation. And on that date, the publication of the EGM convening notice will be also performed. Sometime around mid-July, the debt is not completely set, there's going to be a first drawdown on the new money, as I've mentioned, of EUR 240 million used to -- for the repayment of the bridge and to address the liquidity needs of the company. The plan is to have, on July 20, the EGM to have the EGM takes place on July 20. And it will have to basically approve the capital increase operations. And Fiducie, the trust implementation required to require for the -- to secure the balance of the new money that wouldn't have been yet put on the balance sheet of the company. At the end of July, we expect to have the court approval for the SFA plan. It's, of course, subject to the financial creditors' favorable vote of 2/3 and also to the favorable vote of the EGM. Following that, at the end of August, we expect to perform a second drawdown on the new money facility, EUR 180 million. And of course, we need yet to have the approval of the SFA plan or a continuation plan approved by the court. If we do not have this SFA plan, as Richard has mentioned, we will go throughout the alternative routes and recollect this amount of money. But by simply having provided that all the groups' assets would have been then sold to the benefit of the lenders as part of the recovery process. In September, if we are in the -- after, in the route A, so the EGM has voted favorably to the project of capital increase, this is when we should be launching the process of the capital increase and the allocation of the warrants. Well, so these are the key steps that are ahead of us. Apologies for having it a bit long, but I think it's important to probably to take you slowly through these elements because they are quite complex to absorb in a very short period of time. But of course, we'll be happy to help through the Q&A session. Let me now take you -- and I know we'll do that probably briefly and be happy to go back to that with -- via questions. Let me take you now to -- back to Slide 12 of the presentation is called key figures. So what you should be aware of is that in order for our lenders to assess the willingness to do the operation and assess the way they want to structure this operation, they have been working on some assumptions we've provided them with. These assumptions now need to be cleansed and they are presented to you. So you have on this chart, on the left-hand side, something called the base case; and on the right-hand side, the high case. So let me just give you 1 or 2 words of explanation of what's in there. For those of you who remember, we were embarked into a process of a rights issue. We have built up a 3-year plan. We had a guidance for 2020, a guidance for 2022, we had a Capital Market Day, but that was prior COVID. Now obviously, COVID has disrupted our activity, is still actually disrupting it. And that makes the -- or the possibility for us to have a single guidance for the year, very complicated. So we build up these 2 scenarios and I'm going to give you the key assumptions behind these two. If you think of Technicolor, one good thing about -- one good thing, if there is can be a good thing on it, but one thing that the COVID crisis has been clear is that the businesses of Technicolor are not only resilient, but actually, probably in some cases, quite critical to the new world. In particular, if we look at Connected Home, the strategy and the redirection towards broadband gateway accesses has proven to be key. Over the period, in the base case, the base case of Connected Home looks pretty much like the budget we presented to you before entering into this COVID crisis. And why that? Despite the fact that there were some disruption in the business because of some delay in manufacturing, while China, where, as you may know, the bulk of our manufacturers and suppliers are based, were blocked, the Asian markets have reopened. The production has resumed and the demand has never been that high, in particular, in North America but also in the rest of the world. So the demand for Connected Home product is very, very, very strong. And basically, that explains why in such a complicated year, Connected Home will deliver, we believe, in the base case, that's the assumption we have in the base case, its original business plan. DVD. DVD, of course, will suffer from the fact that in 2020, we have a lot less new releases. Theaters have been, up until recently, shut down. So a lot of the new movie releases have been postponed. Therefore, basically, we didn't sell any new releases, DVD Blu-ray over the period. And Q2, Q3 are expected to be very, very low in that respect, but what this crisis has revealed is a craving or a strong demand for back catalog. And therefore, catalog sales have rolled on very well. So indeed, in 2020, the DVD division will be affected by, basically, the crisis, that's for sure. But the impact will be not that -- not huge, let's say, not that significant. And probably the recovery, backed by the continuation of our renewal and policy on renewal of contract, will continue and we do plan on a good recovery in '21. The third division is really where you should focus your attention when you want to make -- take a view on our base case, as you saw high case, and that's Production Services. Production Services, as you recall, have had a star year in -- extraordinary year in 2019. But obviously, live shooting in Hollywood, in the rest of the world, has completely stopped since the start of the COVID crisis, so interrupting completely our activity. So we were expecting before a low first half as far as Film & Episodic were concerned. We were expecting to have a second half, a strong second half. At the moment, in the base case, our core assumption is that the lockdown will ease, allowing to -- film to be restart again only in October -- September, October. It seems that it might be a little prudent and that the noise is that it might happen a bit before. But still, at the moment, that's the assumption you have under the base case. And then the high case, is a bit more optimistic. It's planning on reopening of the activity for the studios over the summer. As you know, as far as Technicolor is concerned and Film & Episodic, we need the studio to reopen first to start to shoot pictures first before we work. So when -- even if the studio reopened over the summer or in September, we won't be working much or simultaneously, we will have to wait 3, 4 months before we're getting the pictures so we can work on this. So in the base case, the main reason for the very strong drop in EBITDA, and as you can see in 2020, we're putting 160 -- EUR 170 million in the base case, EUR 255 million in the high case, is around the very low activity at Film & Episodic. This activity is expected to resume, but gradually, through 2021 because of the time line and helping the entire group to really to go back up to EUR 340 million before reaching EUR 425 million in 2022. So you can see we're planning on quite a strong recovery over 2021 and '22. Beyond the recovery of Film & Episodic, it is of importance to notice that the growth at Connected Home is planned to be as it was planned in the original budget and continue, driven by good growth in broadband and its continued cost reduction efficiencies measures being implemented and for the entire group, by the way. As you know, we had 2 efficiency plan called Panorama 1 and Panorama 2. What we've done since we last spoke to you is Panorama 1, EUR 150 million in total has been accelerated and is, I should say, in the bag now, 100%. And Panorama 2 has been extended and accelerated, so same token, EUR 150 million and is being implemented. So that explains why you have a recovery also of the margin. We haven't been betting heavily on the top line, as you can see in the base case, a little bit more in the high case. So we think it remains prudent. But clearly, the transformation plan are bringing profit here on top of the natural growth and recovery of the businesses. The high case versus the base case is, in summary, a faster recovery of FCV. I haven't said say too much about advertising, but advertising, so the same idea, we -- the high case plan on a faster recovery starting earlier in Q3, Q4 than in the base case, and the continuation of the plan being delivered. As far as Film & Episodic is concerned, in the base case, our new 2023 year much is more or less the old 2022. So we think that the crisis, if we are under the assumptions of the base case, will delay the plan by overall 1 year. Free cash flow will be negative in 2020. Basically, the bulk of the negativity comes from the drop in the Film & Episodic activity to the 80%, 90% of it. It could be a lot less if we were to resume growth earlier, as shown in the high case. Currently -- and the point today is not really to deliver a trading update but to give you some color, and I'm sure Richard will comment further on that, we are -- so we are now in June, so April and May have been -- we've seen trading in line or better than the base case. So it seems that we are actually tracking reasonably well in the base case, and we are in the depth of the COVID crisis. What these plans do not take into account, of course, will be the impact of the second COVID wave or anything like that. So we still remain in uncertain times. The base case seems to us to be, today, reasonably -- and I'm very modest in what I'm saying, reasonably robust. And this is really the one we are tracking on a week -- day-to-day, week-per-week basis, knowing that the high case is also a possibility. Now in order to leave some time for the questions, I won't go through the following slides. They give you a little bit more color on the trading per division. But I'm sure you have questions. I think we have a hard stop in 20 minutes. But of course, we will be available if you have more questions for past this call. So with that, Richard, I hand over back to you the floor.

Yes. Thank you very much, Laurent. So we've got a very comprehensive restructuring plan, which we've run through there with you briefly. It's been approved by more than 2/3 of our creditors, which means we'll be able to implement it under the SFA procedure we started today and pending the approval of shareholders at our Extraordinary General Meeting on the 20th of July. So this has all been pulled together in a very short time, and I think it's a great achievement on the part of all those involved. Technicolor have got some very valuable assets in each of its 3 main business units, and we fully intend to exploit them to their full potential now against the backdrop of this much stronger balance sheet platform, which we're establishing for ourselves. So with that, I'll turn it over to you for questions.

[Operator Instructions] We have our first question from David Cerdan from Kepler Cheuvreux.

A few questions for you. My first question is regarding the business we could have in H1 and versus H2. Can we have an idea of how much you expect revenues to be per division in 2020 or which kind of business decline you expect for 2020 division by division? And the same question for the profitability division by division for 2020. My second question is regarding the rebound you expect. Is it correct to say that roughly by 2022, you are quite confident in going back to improve the situation compared with 2019? And is it -- it's difficult for us to imagine that in 2022 you will be so high compared to the situation in 2020. So have you got, for example, some information about the pipeline of your clients, something like that, that could be supportive for the base case?

You want to take that, Laurent?

Yes. Okay. So David, I'll try to -- I think, basically, what you're asking for is for me to give you a bit more color per division, '20 versus '21, and then comment on '22. So let's say, if I -- and one, we are not going to -- the plan is not really to give you specific, and again, these are not guidances, but specifically just per division, but I'll give you some color around that, so you can actually streamline your model. So if we start with Connected Home, and here, I'm going to use -- if we start with Connected Home. So in 2020, basically, we expect ourselves to be in the base case. And the base case is contemplating sales will be slightly off by a few percent from last year, the reason being, as I've told you, we think you are going to -- there are still some delays due to the start of the COVID crisis, but the demand is catching up quite strongly. So a slight decline. And I would say without giving you too much color on that. But the sort of a gentle growth over '21 over '20, '22 over '21, a few percentage points, not much. Basically, broadband continuing its growth versus the video, probably continuing its decline. I think here, honestly, you should refer to the plan we had in the Capital Market Day that's more or less the same. As mentioned to you, and I know you are covering us very, very, very closely, so I trust you had already some good forecast for the budget 2021 and '22. We have at the time of the Capital Market Day, I think in the best case, as I've mentioned, you shouldn't derive from there. We might do a little bit sales, as I've mentioned, because of the drop in 2020. But what happened is that we accelerated our transformation plan and also the cost of key components remains, let's say, reassuringly flat at a low level. So I would say no real change in terms of -- no real change as far as the -- as far as, sorry, the Connected Home is concerned. So brief comments on DVD. DVD in 2020 should be affected top line. So that's -- if you look at the cumulative sales we are proposing in the base plan you have, let's say, you should assume that our classic 10% to 20% in volume decline will be surpassed. So we would be, volume-wise, declining by a lot more than 20%. So you should be higher than that in terms of your decline. That's basically due to -- the drop is mainly due to the difference of 2 things. One, no new releases as far as Blu-ray are concerned and DVD are concerned because -- over lack of new movie releases. But partially, partially only, compensated by solid growth in terms of catalog sales. We do expect, because of the debt -- because it should drop down further than 20% in 2020, you would expect to have a little rebound in 2021. We will have -- the new releases will come back. So we will have probably a positive year then before resuming to the sort of classic decline we have experienced in the past. As far as the EBITDA or the EBITA is concerned, without being too precise, 2020 will be affected. You'll recall that we were at -- pre-IFRS, we were at EUR 47 million in '19. So let's say, close to EUR 50 million. You should expect us to do less than half of that in the base case in 2020. But before basically going back up because, as you know, 2 things, we will be recouping some sales, as I've mentioned, and in particular in terms of new movie releases. And you know that these ones usually have a huge part of Blu-ray associated to this, and we have better margins there. Also, second element, because we have continuing the implementation policy of renewing the contract we have with the studios, and they are increasingly beneficiary to our activity. So that will come and help. And three, as a result of recharged acceleration of our transformation plan, there are also some -- that we accelerated the level of transformation here. So we should go back maybe not to the token of where we're planning to be in the original budget, but not too far really and probably at par in 2022. So that leaves me with a complex division to comment that is Production Services. Now Production Services, if you recall in '19, was EUR 900 million of sales. And we -- during the Capital Market Day, we alluded to the fact that a little less than that was into Film & Episodic. So without the -- then excludes Film & Episodic is in between is between EUR 400 million -- was in between EUR 400 million and EUR 450 million sales. Now this level won't be there in 2020. As we've said, it's -- that division doesn't vary work through this year. So it will more than help in terms of revenue in the base case. And again, be very prudent. We are in the best case and we are still in the midst of COVID. So this is based on the fact that we are going to have some modest activity coming back at the end of the year, before resuming gradually through H1 next year. But it could be better, it could be worse. We are here providing some -- we hope prudent guidances. Obviously, we expect a recovery in '21. We won't be at the level of '19. Why? Because with the timeline around basically the film production, it's likely that we won't be at peak production in H1 2021. So that will take its time before it finds its way in H2, and we would be probably closer to the level of 2022 then. To your question, how do we know? Look, it's simple. The demand for product from studios to streamer has never been that high. The level of subscriptions to the Netflix and streamers in the U.S. is at all-time high and is pushing extremely strongly in Europe and the rest of the world. They are craving for product. They are desperate not to have enough product. So we know that, basically, the pipeline will be strong and maybe even stronger than what we were expecting, with a special angle to Europe and Asia, where they are witnessing the strongest surge in demand. At the moment, we could produce but we cannot deliver pictures. So we are on ice. But it's obvious that all the conversations with the studios and the streamers are really on the positive side and very aggressive. What I'm saying here is true to a lesser degree to advertising. Our advertising team has managed to hold on to its activity brilliantly because, as you know, we do CG, computer graphics, so we don't -- sometimes, we don't use special effects, so we don't need to have live people or we can put people in specific locations sometimes. So they resisted very, very well this year. And again, the demand for what they do is very strong. I will start that by just highlighting the fact that for animation, Animation & Games, same story. There is an increased demand. And if anything, COVID has boosted the demand coming from the streamers. And so in our business mix, different from what we described to you 2 or 3 months ago, and that's the main impact of the crisis, we believe that our mix of activity will be more skewed towards streamers than studios were. Sorry, long answer to your question, but you're contemplating 3 years of a scenario. And again, a word of caution, this is a base case. This is a base case that is done now. We are in the midst of crisis, of corona crisis, so what -- everybody has got to be prudent with this sort of set of numbers.

You next question comes from Jeremy Lens from Fidelity.

I -- it's not lost on me, obviously, the last few months, I'm sure, have been incredibly stressful and you've put this together, I'm sure, relatively quickly. But it's disappointing -- and I don't know if we're going to receive more information, it's disappointing not to see some reconciliation regarding the amount of cash out for restructuring and your expectation of the changes of working capital, which I think were also quite significant in the second half of last year, and in general, having covered Technicolor now for 2.5 years is quite difficult to understand. So anything you can provide there would be much appreciated.

Laurent, are you still there?

He has been disconnected.

We will get back to you with an answer to that question.

It's okay. I don't think you ever like getting questions from me. But thank you.

For the moment, we have no more question.

Hello?

Mr. Carozzi. Yes, Mr. Carozzi, you are connected.

Laurent, did you catch everything I asked? Or would you like me to repeat?

Sorry, I've been disconnected while you were asking your question, apologies. Can you...

So it was really just for some disclosure on the cash impact. Obviously, you've given us adjusted numbers and a continuing RCF, which per the asterisk, does not have the financing or tax cash charges attached. What the expected cash restructuring and cash working capital impacts are? How we should think about that? If you can -- we can do that over e-mail, but I mean other people might be interested, too.

Yes. Yes. I think it might be better to do it separately for you to understand, over the '20, '21 and '22. I mean, the way the deal has been structured is really to respect the interest payments that were expected previously. So you had a model previously, and you have interest and cash interest charges, really, where the lenders are very clearly done is to respect that pattern. So that is a change. As I've mentioned during my talk, a lot of the payments are OID or PIK. So they come in '24. So really, the cash interest profile shouldn't really change over the period, along -- in absolute terms, along the lines of this base case scenario. So you can model it the way you are modeling it before, and that's going to give you -- I mean, with the new assumptions, obviously, yes, on price on cash flow. But that would be -- that would give it to you. The tax level, I'm happy to -- but you know we were spending, in the base case, cash-wise EUR 14 million in cash taxes. We have notes in the U.S. and in Europe. So honestly, do not expect a lot more than that, a tiny bit more but not a lot more. That's really not moving much. So cash and interest. Well, I guess these were -- mainly your questions?

Well, it was really to -- obviously, the working capital balance, as I recall, was quite large and negative. And how that has evolved during these discussions. Obviously, this presentation is centered on the debt stack. Any color you can share on how your expectations to how your terms of trade, working capital would change.

Yes. So 2 ways to answer your question. First, you recall that at the Capital Markets Day, we explained that for the forthcoming plan, we were planning to have -- to reduce our payment terms from a level that was above 100, 150 days, down to a level of 90 days, which including 20 days of equal terms means 70 to us, the norm in the market. This is -- we're planning the same. So this hasn't changed. It's mainly linked to Connected Home. So if you were to -- I don't know how you model, you put up your modeling together, but as far as Connected Home is concerned, you should expect to have a negative work cap in 2020 for Connected Home, but less, obviously, than in '19 and -- but a bit more than what you had probably at the time of the budget because we are going to have slightly less sales this year with sales delays. And sales, obviously, do have an impact, cash flows on working cap but not -- a negative movement here but not huge. A reduction also at HES, but to a token of EUR 10 million, so it's not big. At Production Services, we will be harmed. And in particular, that you saw on past budget of 20%. Why? Because at the end of the year, in the previous budget, we were expecting to be one, finishing the full swing H2 semester of activity, so having milestones being paid to us on the full swing of activity. And then secondly, being ahead of an H1 2021 of very strong activity, so benefiting from down payments. Now our current plan, the first half, we don't think we're going to have it because we think we are going to resume more, but modestly in the base case in Q4. And that the roster for 2021 will be much, much more -- much less than the previous year. So Production Services will be more affected. If we look at the global picture of work cap in 2019, so we are negative -- we were a little bit short of negative EUR 100 million. We were planning -- despite the fact that we're reducing payment terms to improve that quite a bit in 2020, we won't have this in the base case, we don't plan on this reduction. We will have a modest reduction to that, but not to the token of what we are hoping. But obviously, that will accelerate in '21 and in '22 quite dramatically with, in particular, the recovery of Production Services, point 1. And point 2, the fact that year after year, because of we're reducing our payment terms, the negative hit on the work cap is reducing. So that will really reduce starting in '21 and '22. So 2020 negative, but not as much as '19 for the 2 reasons I gave you.

Okay. So payment terms have not continued to worsen despite, obviously, what's been going on is the key message in H1.

Well, we had -- yes, but we have planned basically -- it's a bit awkward with Technicolor. But as we had planned before ahead to reduce on a voluntary fashion on payment terms. So we had already some plan in the first part of the year, and that's what we were forecasting. Yes, we've had some -- in some divisions, we had some suppliers that ask us to reduce further. They were a little bit confused about the rights issue, this announcement, I think. Now we're here to make them understand that our business is going to reemerge from there, as far as they are concerned, stronger than before, obviously. So no, I would say it's still more or less along the lines of what we have described to you before. Less contribution from PS, but that's not linked to payment terms. Payment terms have been a bit tougher, but we have planned for that to a degree. And I think the message we conveyed to our suppliers and that they will clearly be able to witness with that is that, clearly, the balance sheet of this company is structurally transformed by this operation. So we are a strong partner, and we will be a strong partner, a stronger partner even in the future. So that should help us to retune our payment turns where we want them to be without being pressurized in H1.

Next question comes from Fiona Orford-Williams from Edison Group.

Actually, my main question was about the impact that all of this rather public negotiation has had on the supply base. So I think that's -- that a lot of that is being covered now. Could you just clarify, the new money that's coming in as well as repaying the $110 million bridge, so general corporate purposes, is that the working capital buffer that we were talking before? Or does that cover any of the investment that you need or may need as you have to scale up the Production Services to meet this sort of demand that hopefully will come through next year?

Well, if you want to rationalize it in very simple way, you have EUR 420 million. We need to repay the bridge, okay? So let's say, you have EUR 100 million of that, that is going away, so you end up with EUR 300 million. Before, we were at EUR 300 million having to repay the bridge going down to EUR 200 million. And the EUR 200 million was right for the -- to manage your liquidity buffer. Now you are going to tell me, yes -- but now, you have EUR 100 million more. Yes, fine. I have EUR 100 million net potentially of free cash flow. So that makes the, let's say, the bridge, probably between the 2 assumptions. But obviously, with the recovery, we expect all free cash flow for '20 -- through '20, but more likely towards the end of 2021, then we might emerge with a larger buffer than previously. So to that respect, potentially, if we do deliver this plan, we should be better off.

All right. Okay. And the other thing that I was just going to ask about, the debt holders who are not involved in this process, that is the other 1/3, presumably, they have chosen not to participate at all. Can you just say something about it?

I cannot -- I don't think I'm really allowed to comment on that, except to say that you shouldn't draw these sort of conclusions too quickly. I don't -- really, this is the mindset currently. I must say, and we should repeat, and I think the company is really grateful to its shareholders, first, of course, but also to our lenders, they've been extremely supportive, extremely reactive, very fast, very efficient. There is a strong dynamism along this group that is evolving. Now it's a very complex thing. So not everyone can be there on the 22nd of June, it doesn't mean that they won't be there later. So I -- but I can't say more than that.

We have no more question, so back to you for the conclusion.

Okay. Well, thank you very much for your participation at such short notice. As you work your way through the press release and presentation, I'm sure you'll have more questions, but Laurent and I will be available to have one-on-ones with you or to respond by e-mail as you see fit. But thank you for listening. I think this is a very positive development, and we look forward to a stronger future for the group. Thank you very much indeed.

Thank you.

Thank you. Ladies and gentlemen, this concludes the conference call. Thank you all for your participation, you may now disconnect.