Universal Registration Document 2021

RISKS, LITIGATION, AND CONTROLS RISK FACTORS

CONNECTED HOME

SUPPLIER AND KEY COMPONENT DEPENDENCY

[103-1 Procurement practices] [103-2 Procurement practices] Risk identification Connected Home is a volume business, and as such, the relevance of suppliers is very critical for its performance and success. 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. Technicolor manufactures and integrates products that are highly dependent on the procurement of key components (DRAM, Flash memories and passive electronic components/MLCC), sub-assembly parts, and on the design by a very limited number of suppliers and sub-contractors. In 2021, the division’s top 5 suppliers provided 55% of components. This dependence on suppliers involves several risks, including limited control over pricing, terms, and conditions availability, quality, and delivery schedules. Given the short supply chain, shortages of raw materials or components, quality control problems, production capacity constraints or delays by suppliers caused by any kind of source create 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. Dependency on external resources regarding the management of Agile Product Lifecycle Management (PLM) should also not be neglected as it is a critical solution for Connected Home in reducing scrap and rework caused by building faulty or incorrect revisions of products. General supply shortages across the industries & restrictions imposed to prevent the spread of Covid-19 did limit Connected Home business and have impacted the supply chain. Most impacting categories were Integrated Circuits & logistics. Nevertheless, the demand for Connected Home products stayed at high levels and only supply challenges prevented us from growing. The market price increases and shortages for DRAM, Flash memories and passive electronic components/MLCC (capacitors, resistors), which 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.

Risk monitoring and management

To mitigate the risks inherent to its suppliers, the Sourcing Department has established detailed procedures for operational, quality, and contractual monitoring of our main suppliers, including Contract Electronic Manufacturers in Asia and Latin America, and suppliers of key components such as integrated circuits or memory chips. An automation and optimization initiative relating to the global supply chain process to support sales and operations planning, customer forecast, commitments, Materials Resources Planning (MRP), EDI, and logistics started end of 2019 and first capabilities have been made available during 2020, delivering greater efficiency and transparency. Regular meetings are held with vendors to review supply chain performance and customer demand. Third party production vendors’ facilities are required to maintain Disaster Recovery and Business Continuity Plans. The selection process of suppliers is made after careful assessment of their 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 Group 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 allow flexibility in the creation of supply. Scorecards with vendors are implemented to allow a proper monitoring of the vendor performance. 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 initiated 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.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2021