technicolor - 2018 Registration document

3 RISKS, LITIGATION, AND CONTROLS RISK FACTORS

Tax credits evolution Risk description

The DVD Services Division has signed multi-year contracts with many of its customers, which involves multiple contractual arrangements with varying terms, conditions, and expiration dates. The Division’s operating results could be adversely affected, if its customers decide to terminate these contractual arrangements (in accordance with their terms), if the Division is unable to renew them when they expire, or renew them on significantly less favorable terms. Furthermore, any systemic change in the manner in which companies in the broader Media & Entertainment industry operate, driven by broader government regulation, more significant than anticipated industry consolidation or material technology disruption, could also have a material adverse change on operations and prospects. Risk management The Division monitors these contractual arrangements through a robust customer offer review process, including Investment Committee/Management reviews to ensure that risks are adequately monitored and mitigated. Approved agreements are carefully monitored on a day to day basis, through detailed Service Level Agreements and these defined conditions are regularly monitored to ensure adherence and customer satisfaction. These mitigations will be particularly emphasized in the short-term as most of the key contracts are subject to renewal in the coming years. The Division is actively pursuing multiple initiatives to diversify its business activities and thereby further reduce the risk associated with a concentrated customer base. These initiatives include an existing and ongoing effort to grow supply chain related services (warehousing, fulfillment, transportation, etc.) for customers outside the Media & Entertainment industry. Labor force availability GRI [103-1 Employment] [103-2 Employment] Risk description Given the seasonality of its business, the Division relies heavily on temporary labor resources during peak periods in many of its facilities. The availability and cost of these resources can vary based on the general employment environment in the local area, competition from other employers of temporary labor, as well as regulatory actions such as minimum wage requirements. Insufficient temporary labor resources could result in the inability to adequately meet customer service levels, and likewise minimum wage increases could lead to a higher than expected cost of temporary labor. More generally, work slowdowns or stoppages could also have a material adverse effect on the Division’s business, financial condition, results of operations or prospects.

Some states, provinces or countries like Canada, United Kingdom and France have developed incentive programs for film, television and/or advertising productions. These production incentive programs offer eligible companies financial incentives, such as refundable tax credits, tax rebates or grants, based on the qualified production costs incurred in the production location. As a result, Technicolor has installed its main production services activities in certain locations attractive to its customers. Any material change to the incentive programs available in such locations may impact significantly the decisions by customers on where they outsource production services like VFX and Animation. While the Group has been effective in optimizing the geographical footprint of its Production Services activities accordingly, and expect that it will continue to do so, there can be no assurance that the Group will not be adversely affected by changes in location-based production incentives. Risk management Technicolor is keeping an active watch on any material changes to the location-based production incentive landscape and strives to be agile in ramping up and down the facilities in the strategic geographies to respond to customers’ preferences for where production services are done. The Tax and Government Affairs Departments of Technicolor work diligently to scrutinize the production tax incentive evolution and to provide guidelines to the operations regarding eligible criteria and administrative constraints. The Group has also established and continues to nurture longstanding relationships with local governments and trade organizations in order to be a leading participant early in any discussions regarding the evaluation and implementation of any changes in production incentives.

DVD SERVICES Customer concentration and contract negotiation Risk description

The DVD Services Division operates in a concentrated market with a limited number of significant customers supported by long-term contractual arrangements. The Division belongs to the Entertainment Services segment, in which the top five customers accounted for 47% of the segment’s revenues and 20% of the Group’s consolidated revenues in 2018.

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TECHNICOLOR REGISTRATION DOCUMENT 2018