TECHNICOLOR_REGISTRATION_DOCUMENT_2017

3 - RISKS, LITIGATION AND CONTROLS Risk factors

All the main sites have a Business Continuity Plan and the reactivity of the organization is enhanced by Transversal Incident Response Plans. These plans aim at minimizing the impact of any incident or supply chain disruption. The quality of the replication process is constantly monitored, and each production facility has developed a high expertise in ensuring robust industrial processes. In addition, covering its internal operations, the DVD Services division and the Group take insurance coverage that mitigates the risk of business disruption in case of natural disaster or other types of disaster such as fire in a major production site. Risk description The division purchases approximately 65% of its direct materials, including raw materials, components and finished products from its top 10 suppliers. In addition, certain raw materials such as polycarbonate and DVD cases come from a limited number of key suppliers. Any change, delay or disruption in supply, or reallocation of capacity to a different market, product line or customer by a key supplier could cause material delays in DVD Service’s production or operations, increase its production costs or harm customer relationships. DVD Services manages much of its inventory on a just-in-time basis, which exposes it to performance risks by its suppliers, as well as to certain force majeure risks. As a result, in addition to delays or other performance failures of its suppliers, DVD Services’ operations may be disrupted by external factors beyond its control, including price volatility risks. In addition, the industries of the main suppliers may experience a further wave of consolidation, and thereby reduce DVD Services’ negotiating leverage, and thus reduce the ability to meet business objectives. Risk management The selection process on suppliers is made after careful assessment of the sustainable 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. When possible, and in line with the procurement strategy, the division has identified alternative sources for many of its key materials. In the case of sole or very limited source suppliers, the division has put in place a monitoring structure designed to track potential price pressure of select raw materials (and their constituent Raw material availability and volatility [G4-DMA Procurement practices] GRI

components) to anticipate possible shortages and/or price volatility. In some cases, the division has further mitigation potential for sudden unexpected price variation via the inclusion of key material price index provisions in certain customer contracts.

Physical security [G4-DMA Customer privacy] GRI

Risk description The DVD Services Division is exposed to physical security risks via its contractual obligations to protect customers’ content across all supply chain services provided by the division, from receipt and storage of content masters, to replication onto optical media, and through the successful delivery of finished products into retail. The division’s customers make substantial investments in creation and marketing of content, and any illegal copies and/or stolen finished goods can result in material economic loss for the customer. Therefore, any physical security failures by the division contributing to such losses may result in financial penalties, loss of customer contracts and damage to Group’s image and reputation. Risk management Rigorous security policies and controls have been implemented by a dedicated Loss Prevention Department, and are enforced on all sites that handle customer content. Risk assessments and associated mitigation actions are performed annually and upon environmental change. Employees are provided with security awareness training and are a part of the division’s security network. Several customers and industry associations regularly audit these security procedures on a recurring basis. Against the theft of packaged media, the facilities are guarded by effective perimeter controls, alarms and extensive surveillance devices. All personnel and visitors are subject to strict security access controls, and upon exit, all are searched using hand held metal detectors and/or fully body scanners, and all personal belonging are inspected. All third-party service providers (such as transportation and janitorial services providers) are thoroughly vetted to ensure compliance with Technicolor security standards. Overall, the DVD Services division and the Group take insurance coverage for material theft of products (including Property, Cargo and Professional Liability policies).

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TECHNICOLOR REGISTRATION DOCUMENT 2017