technicolor - 2018 Registration document

FINANCIAL STATEMENTS

NOTE 8 FINANCIAL ASSETS, FINANCING LIABILITIES & DERIVATIVE FINANCIAL INSTRUMENTS

Financial foreign exchange risk 8.2.2.2 The Group’s policy is to centralize to the extent possible its financing and the associated currency risk, if any, at the level of the Group treasury. As a result, the majority of the Group’s subsidiaries borrow, and lend their surplus cash, to the Group treasury, which in turn satisfies liquidity needs by borrowing externally. Subsidiaries that cannot enter into transactions with the Group Treasury because of local laws or restrictions may borrow or invest with local banks in accordance with the rules established by the Group treasury. The Group’s policy is also that subsidiaries borrow or invest excess cash in their functional currency. In order to match the currencies that Technicolor’s Group Treasury Department borrows with the currencies that it lends, Technicolor may enter into currency swaps primarily (i) to convert euro borrowings into U.S. dollars and British pounds which are lent to the Group’s U.S. and UK subsidiaries respectively and (ii) to convert U.S. dollars borrowed externally or from the Group’s U.S. subsidiaries into euros. The forward points on these currency swaps which are accounted for as interest, resulted in income of 2 million euro in 2018 and in 2017.

Interest rate risk 8.2.2.3 Exposure to interest rate risk Technicolor is mainly exposed to interest rate risk on its deposits and indebtedness. At December 31, 2018 the portion of the Group’s financial debt exposed to floating interest rates, after taking into account hedging operations, is as shown below.

2018 1,024

(in million euros)

Debt

Percentage at floating rate*

62%

Includes €20 million of debt with maturity of less than 1 year * which the Group considers to be at floating rate.

In 2018 the Group’s deposits were entirely at floating rate. The Group is exposed to interest rate risk which can have an impact on net interest expense.

Sensitivity to interest rate movements The Group believes a 100 basis point fluctuation in interest rates is reasonably possible in a given year and the table below shows the maximum annual impact of such a change. Maximum impact over one year on the net exposure as of December 31, 2018 of a variation versus current rates (1)(2)

Impact on cash net interest

Impact on equity before taxes

(in million euros)

Impact of interest rate variation of +1% Impact of interest rate variation of -1%

(2)

(2)

0

0

At December 31, 2018, 3 month EURIBOR and 3 month LIBOR were -0.36% and 2.81% respectively. (1) After taking into account interest rate hedging operations. (2)

Interest rate risk management At December 31, 2018, the Groupe has outstanding interest rate hedging operations the characteristics of which are given in note 8.6.1.

8.2.3

LIQUIDITY RISK AND MANAGEMENT OF FINANCING AND OF CAPITAL STRUCTURE

These policies are developed based on regular reviews and analysis of its capital structure, including the relative proportion of debt and equity in the context of market conditions and the Group’s financial projections. Among other things these reviews take into account the Group’s debt maturity schedule, covenants, projected cash flows and financing needs. To implement these policies, the Group uses various long-term and committed financings which may include equity (see note 7.1), debt (see note 8.3), subordinated debt (see note 7.2.2) and committed credit lines.

6

Liquidity risk is the risk of being unable to raise funds in the financial markets necessary to meet upcoming obligations. In order to reduce this risk, the Group pursues policies with the objectives of having continued uninterrupted access to the financial markets at reasonable conditions.

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TECHNICOLOR REGISTRATION DOCUMENT 2018