Strategic Partnership to Advance Dedicated and New Cinema Solutions Analyst presentation Jan De Witte, CEO & Ann Desender, CFO 4 December 2017
Executive summary Catalysts driving next stage of growth in Cinema First wave of digital deployment is up for renewal in mature markets Increased need for differentiation with e.g. premium (large) formats Increased focus by exhibitors on operational and capital efficiency Barco intends to sustain its market leadership and is responding to these market changes by evolving into a solutions provider Creation of a New Cinema JV for global (ex China) Barco will create a new cinema joint venture with CFG, Appotronics and CITIC Spin out Barco s marketing, sales and service resources for cinema in a new dedicated organization (JV) Bring on board partners and assembling best-in-class technology and solutions, complementary to Barco s existing capabilities Barco serves as strategic OEM for new JV, while retaining full ownership of assets and capabilities for product management, R&D, and manufacturing of all cinema projection and image processing technologies. This new cinema JV enables us to Assemble and commercialize a comprehensive portfolio of cinema technology offerings, services and business models for the global cinema market, excluding mainland China Build out dedicated processes and capabilities to deliver innovative cinema solutions for partners and exhibitors Sale of 9% in China BarcoCFG JV As the Chinese market matures, China Film Group is best positioned to lead the BarcoCFG joint venture, Barco s channel into the Chinese cinema market, with Barco as exclusive partner 2
Agenda I. Context II. Initiative 1: Establishing New Cinema Joint Venture III. Initiative 2: Modifying the BarcoCFG Joint Venture IV. Modalities V. Expected financial impact VI. Closing 3
I. Context
5 We have evolved before, succeeded and met our goals and we are transforming our cinema business again
Market evolution Transition to digital New products DCI standard VPF financing Wave I From 0 to 160k digital screens between 2009 and 2017 Fast pace of technology innovations: 4K, integrated media server, laser Wave II From equipment to solutions From laser projectors to full fledge premium viewing experience New business models (e.g. Opex) 6
Fundamental trends in Cinema Aging equipment First wave of digital deployment is up for renewal VPF expiring Need for differentiation Growth in premium cinema Moviegoer experience increasingly engaging along all touchpoints of customer journey Focus on operational & capital efficiency Professionalization, and consolidation of exhibitors & industry Focus on asset optimization and total cost of ownership 7
Wave II: The next stage of growth in Cinema Replacement Sizing wave the market Opportunity opportunity size & New Cinema JV ambition Premium cinema Opportunity size & New Cinema JV ambition Barco strategic ambition 10000 #Projectors to be replaced (#/year) #Premium cinema screens (cumulated) 5000 5000 0 2017(FC) 2018 2019 2020 0 2015 2016 2017 2018 2019 2020 2017: Barco with +50% capture rate today, 45% installed base +40k projectors to be replaced in next 5 years 2018 and beyond NCJV to further grow capture rate 2017: 75%+ market share in premium projector market +5k premium theatres to be equipped in next 5 years 2018 and beyond Strengthen position both towards pre-branded & exhibitor premium formats 8
Executing strategy for Cinema: Investing today in preparation for Wave II HORIZON 01 Extend & defend core business 1 Commercial Excellence 2 Value Engineering 3 Cost-effective laser Continuous value / solutions for every screen Additional revenues for cost engineering in replacement wave exhibitors with premium offerings (flagship laser,..) Increase Focus Long term service contracts Market entry low cost projection for emerging markets HORIZON 02 Grow adjacencies & ventures across chasm 4 Move In Adjacent Markets 5 In Country for Country 6 Move to content to screen Specific focus on solutions (including projector, media server, TMS, LMS,..) India, given large potential in the coming decade Services 2.0 Cinema As A Service: full service and opex offerings (including advanced services based upon connectivity) HORIZON 03 Build future options, embryonic businesses 7 Technology IP Extended HDR Analysis of disruptive technology opportunities 8 Venture Add experiences from entrance to after movie 9
II. Initiative 1: Establishing the New Cinema Joint Venture
We bring together the best of all WAVE 3 cinema-worlds 11
New Cinema JV is the strategic response to Wave II A cinema enabler with comprehensive product & service solutions for premium & mainstream formats Products Projectors & Servers Laser Retrofit Premium Cinema Digital Lobby Consulting Project Management Services Commissioning & Installation Premium Content Partners Customer = Cinema exhibitors Spares & Consumables Service Agreements Tailored Financing and more 12
New Cinema JV envisioned structure Partners contributions Cinema sales & marketing, customer access and break fix services Exclusive OEM for projectors, media servers, software, related accessories Exclusive OEM for Laser Phosphor retrofit modules Laser phosphor light source technology Premium cinema technology solutions Exclusive supply of premium cinema remastered content Support for JV and customer financing Consulting & relationships In place by mid 2018 In place by mid 2018 In place by end of 2018 In place by end of 2018 Share in JV 55% 20% 20% 5% Highlights 1. A dedicated solutions business, providing a new value proposition based on a unique and comprehensive portfolio Innovative Product Offerings Differentiated Experience Complete Customer Care Accessible Financing 2. Focused on global market (excl. China ) 3. With exclusive distribution for 10 years of Barco, Appotronics & CFG s cinema equipment components 4. Barco will serve as strategic OEM for the JV, retaining full ownership of assets and capabilities related to product management, R&D and manufacturing 13 Start-up capital: $100m
III. Initiative 2: Modifying the Joint Venture BarcoCFG (China)
Adapting to the maturation of the market in China Changing Ownership structure in the BarcoCFG Joint Venture 2011 Launch the JV to develop the Chinese Cinema market Tier 1-2 cities 2011-2017 Fast deployment of 40k+ screens of which +20k are Barco screens Peak year in 2016 2017-2020 Market matures Focus is shifting to tier 3-4-5 cities Opportunity remains compelling to address a market of +30K screens Barco positioned as exclusive projector tech provider to the JV Barco took the lead to develop the market Ownership structure: 58% (Barco) - 42% (CFG) CFG best positioned to assume lead in terms of coverage & customer relationship Barco remains exclusive technology supplier 51% (CFG) - 49% (Barco) CFG pays Barco 175M RMB 15
IV. Modalities
Anticipated timeline New Cinema Joint Venture Signing & announcement Regulatory approvals Kick-off of New Cinema JV Complete organization JV December 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Signing & announcement BarcoCFG Joint Venture Regulatory approvals New ownership structure effective 17
V. Financial Impact
Financial Impact @ Barco Summary Set-up Barco remains strategic supplier to both JV s for all cinema projection & image processing related equipment at transfer prices market conform towards distributors Changes in JV BarcoCFG: Deconsolidation of declining revenue stream New Cinema JV: Full consolidation Timing No impact 2017 Impact in 2018: Expected to kick-in as of mid-year, dependent on regulatory approvals & payment We plan to provide pro forma financial statements for 1H2018 once the new ownership structure of the BarcoCFG Joint Venture is established 19
Overview Financial Impact @ Barco Timing 2017 2018 2019 and beyond No Impact Impact BarcoCFG JV 1. Deconsolidation to take effect once the new ownership is established: Reported sales for the Entertainment division expected to be around 15% lower vs current css estimates (annualized) 2. EBITDA% and EBIT% margins for the Entertainment Division are expected to remain = with the current css estimates (annualized) 3. Impact on current consensus estimates for consolidated net earnings are expected to be not material 4. CFG pays 175m RMB to Barco (one-time gain) Effect 1 (2018) but gradually less articulated as China cinema is expected to book negative growth in the coming years Effect 2-3 (2018) = No Impact Impact New Cinema JV a. Once New Cinema JV takes effect: full consolidation of JV results into Barco s results b. Growth acceleration targeted through laser retrofit module with positive effect both on topline and bottomline Effect a & b (2018) Additional growth through pick up in replacement wave and sale of new premium format offerings beyond what Barco could deliver without New Cinema JV 20
VI. Closing
In summary New Cinema Joint Venture will serve as a dedicated commercialization and solutions channel for the global cinema market A strategic partnership that will allow Barco to: Build an entity with dedicated business processes and structures to win with outcomes in a shifting market Bring together strategic partners who contribute best-in-class technology and solutions that are complementary to Barco s projection technology Optimization of ownership structure BarcoCFG Joint Venture in recognition of the maturation of Chinese cinema market Market Leader Seasoned Team Strong Products Strong Partners Strong Funding $100M+ Strong Relationships / Customers Right Timing / Market Situation Dedicated focus / Customer Centric 22
Q&A
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