technicolor - 2018 Registration document

RISKS, LITIGATION, AND CONTROLS

RISK FACTORS

Supplier and key component dependency GRI [103-1 Procurement practices] [103-2 Procurement practices]

of the vendor performance. Providing visibility over Connected Home’s long-term forecasts is also contemplated to strengthen the partnership. When possible and in line with the procurement strategy, the Connected Home Division has identified alternative sources for some of its key materials and components. Though it may limit its ability to negotiate the most favorable terms, these alternative sources are established to reduce dependency on key suppliers. In the case of sole or very limited source suppliers, as this is the case for memories and passive components, the Company has put in place a monitoring structure in charge of keeping watch of the price pressure of some components and anticipate possible shortages. In case those risks materialize, the Company may initiate mitigation actions such as the inclusion of key material price index provisions in the customer contracts or negotiations with customers to compensate for sudden unexpected price variation. Supply Chain management GRI [103-1 Procurement practices] [103-2 Procurement practices] Risk description Connected Home outsources extensive operational activities, including manufacturing and logistics, except for the manufacturing facility in Manaus, Brazil. Reliance on external suppliers and manufacturing partners means Connected Home may be exposed to the effects of production delays or other performance failures of its suppliers. Any delays in the availability of key components and sub-assembly parts, production, quantity or delivery could adversely affect Connected Home’s reputation or operating performance. Please see Supplier and Key Component Dependency risk description here above for more details. Connected Home manages its inventory on a just-in-time basis, which exposes it to supplier performance risks, as well as to certain force majeure risks. As a result, Connected Home’s operations may be disrupted by external factors beyond Connected Home’s control (e.g. vendors’ mechanical and IT system failure, work stoppage, transportation disruption, customs blockage and natural disasters). In addition, the industries of Connected Home’s main suppliers may experience a further wave of consolidation, thereby reducing Connected Home’s negotiating leverage. Consequently, the ability to meet business objectives may be negatively impacted, and Connected Home’s operational results could be adversely affected in the event of any severe or prolonged disruption.

Risk description Technicolor manufactures and integrates products that are highly dependent on the procurement of key components, sub-assembly parts, and on the design by a very limited number of suppliers and sub-contractors. This dependence on suppliers involves several risks, including limited control over pricing, terms and conditions availability, quality and delivery schedules. Shortages of raw materials or components, quality control problems, production capacity constraints or delays by suppliers creates a risk of interruptions in the availability of our products, which could reduce our net sales, adversely affect our results of operations and deteriorate our customer relationship. In addition, if our suppliers experience such problems, they may possibly give priority to other customers to Technicolor’s disadvantage. The market price increases and shortages for DRAM, Flash memories and passive electronic components/MLCC (capacitors, resistors) started end of 2016 for DRAM and Flash memories, and end of H1 2017 for MLCC are an illustration of this dependency of the Connected Home business on a very limited number of strategic component suppliers. These products are used in a much broader range of products than for the Connected Home business, such as smartphones, PCs, tablets, automotive applications and the global imbalance between supply and demand has created a material price increase of their costs. The difficulty to mitigate this risk can impact significantly the profitability of Connected Home. Risk management The selection process on suppliers is made after careful assessment of the production capacity, quality standards, financial health and respect of social and environmental standards. To reduce dependency and allow business continuity, the procurement is diversified with some preferred vendors present in different geographies. The Company strives to foster a strong collaboration with its key suppliers to properly integrate all activities. Some longstanding suppliers have become partners with whom a strong contract management process is in place to allowe flexibility in the creation of supply. Scorecards with vendors are implemented to allow a proper monitoring

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TECHNICOLOR REGISTRATION DOCUMENT 2018