TECHNICOLOR_REGISTRATION_DOCUMENT_2017

6 - FINANCIAL STATEMENTS

Notes to the consolidated financial statements

Management of financial risks 8.2. [G4-2] GRI

The Group’s policy is not to hedge translation risk. Translation risk is measured by consolidating the Group’s exposures and by doing sensitivity analyses on the main exposures. The main translation exposure of the Group is to the U.S. dollar due to the strong presence of the Group in the United States. In 2017, exchange rate fluctuations of all currencies had a negative impact of €83 million on revenue and no impact on profit/(loss) from continuing operations before tax and net finance costs. The translation impact on revenues was mainly due to the U.S. dollar (average rate versus the euro dropped 2.9% in 2017 versus 2016). The Group estimates that its sensitivity to translation risk has not significantly changed since the end of 2017. TRANSACTION RISK Foreign currency transaction risk occurs when purchases and sales are made by group entities in currencies other than their functional currencies. The Group’s main transaction risk is its U.S. dollar exposure versus euro. After offsetting the U.S. dollar revenues of its European activities with the U.S. dollar costs related to purchases of finished goods and components by its European affiliates, the net U.S. dollar exposure versus euros for continuing operations was net costs of U.S. $116 million in 2017 (net revenue of U.S. $63 million in 2016). The change in 2017 versus 2016 is due to the significant drop in Licensing revenues in U.S. dollars in 2017. In order to reduce the currency exposure on commercial transactions, the Group’s subsidiaries seek to denominate their costs either in the same currencies as their sales or in specific cases in currencies that they believe are not likely to increase in value compared with the currencies in which sales are made. Subsidiaries regularly report to the Group Treasury Department their projected foreign currency needs and receipts which then reduces the overall exposure by netting purchases and sales in each currency on a global basis. Exposures that remain after this process are generally hedged with banks using foreign currency forward contracts. These hedges are recorded as cash flow hedges under IFRS, as described further in note 8.5 “Derivative Financial Instruments” to these consolidated financial statements. For products with a short business cycle, the Group’s policy is to hedge on a short-term basis up to six months. For products and services which are sold on a longer-term basis, including those of the Licensing and Production Services Division as well as certain exposures in the Connected Home segment, hedges may be put in place for periods greater than six months.

Risk management objectives and 8.2.1. policies Technicolor faces a wide variety of financial risks including market risk (due to fluctuations in exchange rates and interest rates), liquidity risk and credit risk. Technicolor’s financial risks are managed centrally by the Group Treasury Department in France and its regional Treasury Department in Ontario (California – U.S.). Management of financial risks by the Group treasury is done in accordance with group policies and procedures. All financial market risks are monitored continually and reported regularly to the Chief Financial Officer, the Investment Committee and the Audit Committee via various reports showing the Company’s exposures to these risks with details of the transactions undertaken to reduce them. For each type of transaction, specific limits and authorizations are approved by the Investment Committee and controlled by the Group Internal Control Department. To reduce interest rate and currency exchange rate risk, the Group enters into hedging transactions using derivative instruments. However, Technicolor’s policy is not to use derivatives for any purpose other than for hedging its commercial and financial exposures. Credit risk on trade receivables is managed by each segment based on policies that take into account the credit quality and history of customers. The Group may decide to insure or factor without recourse trade receivables in order to manage underlying credit risk. The group’s derivative and cash transaction counterparties are limited to highly rated financial institutions. Moreover, the group has policies limiting the maximum amount of exposure to any single counterparty. Market risk management 8.2.2. Foreign exchange risk 8.2.2.1. TRANSLATION RISK The Group’s consolidated financial statements are presented in euro. Thus, assets, liabilities, revenues and expenses denominated in currencies other than euro must be translated into euro at the applicable exchange rate to be included in the consolidated financial statements. Increases and decreases in the value of the euro can have an impact on the value in euro of the Group’s non-euro assets, liabilities, revenues and expenses, even if the value of these items has not changed in their original currency.

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TECHNICOLOR REGISTRATION DOCUMENT 2017