TECHNICOLOR_REGISTRATION_DOCUMENT_2017

- 3 RISKS, LITIGATION AND CONTROLS Risk factors

OPERATIONAL RISKS

3.1.1

provisions to allow for the negotiation of award increases or decreases if a client materially changes the project scope or scale or for creative retakes. With a network of production studios across the globe, Production Services also has the scale and Technology to optimize resource allocation and utilization if a specific project requires additional resources that were not previously anticipated or if a client changes its production schedule and/or release date for a project. Attract, develop & retain creative, production and Technology talents [G4-DMA Training and education] GRI Risk description The Production Services division’s success depends on the continued involvement of creative teams in the operations, and on the skills, technical knowledge and industry familiarity of key employees. For example, some film Directors want to work exclusively with particular VFX supervisors or colorists. In addition, the Technology experts are essential team members in order to improve the quality of the imaging science and improve efficiency. The departure of a key member of the division could prevent the division from executing its business strategy, cause the loss of key customers and have a material adverse effect on the division’s operations, financial condition and prospects. To ensure its growth and to renew its key personal, the division must ensure it attracts and retains the best talent. Should the Group and the division become less attractive in the job market, the performance of the division may be negatively impacted. Furthermore, the talent pool from which Production Services draws much of its staff is highly geographically mobile. Any material delays in the immigration process for new hires may also negatively impact the division’s operations. Risk management To limit the impact that these risks might have, the Group and Production Services have established a set of Human Resource management and recruitment programs out of which an Employee Value Proposition for attracting talent, an annual (if not more frequently) Talent Review and Career Development Plan for high potentials and key talents have been implemented. In key locations, Production Services has developed and opened Academies to attract and train new talent. With regard to immigration, the Group has established and continues to nurture longstanding relationships with local governments in order to encourage their support in facilitating the immigration process.

[G4-2]

GRI

Production Services Customer Project Management Risk description

Projects in the Production Services division vary greatly in size, with several large projects that can last 12 – 18 months and numerous small ones that require much quicker turnarounds. The difficulty resides in the proper allocation of resources to deliver a production on time and on budget, mitigating gaps between projects, and managing changes by clients in their production schedules and release dates. The projects can also be executed across multiple geographies and time zones, which may create challenges for the management of such projects. If a project consumes more resources than initially planned, it may lead to cost overruns that may be difficult to recover from our customers, especially as much of Production Services’ business operates under fixed-price contracts. Dependencies may also exist with the customer and/or other service providers of the customer that can negatively impact the time available to Production Services to complete a project. E.g . Production Services’ VFX businesses are dependent upon the client’s turnover of shots; any delay in turnover by the client reduces the amount of time Production Services has to complete them, which may then require additional resources and costs in order to maintain the production schedule. Risk management In Production Services, there are dedicated processes in place for risk assessment that are regularly updated throughout the execution of the projects to address any mitigating actions needed. As part of the bidding process, the allocation and planning of resources is reviewed by production management to ensure that the assessment is adequate to deliver the project plus the allocation of a contingency. During production, robust monitoring of projects, including regular cost-to-complete financial reviews, is established to ensure that work-in-progress is in line with budgets initially approved, as well as anticipate any deviations in terms of resources, quality and delivery timing. Progress reports and management indicators are built to support this monitoring process. To ensure that quality of services is in line with customers’ expectations, initial tests and intermediary deliveries are scheduled with customers. The division also uses workflow management tools which help to coordinate reviews and deliveries with third parties and limit the dependencies risks. Further mitigating client dependencies, with fixed bid awards, contracts have well-structured change order

49

TECHNICOLOR

REGISTRATION DOCUMENT 2017