technicolor - 2018 Registration document

3 RISKS, LITIGATION, AND CONTROLS RISK FACTORS

Moreover the Term Loan Debt documentation includes so-called “cross default” clauses which, absent a waiver from the senior creditors under the Term Loan Debt, would provide them with the right to declare amounts that are outstanding thereunder at the time of any default under other financial loans documentation (plus accrued interest, fees and other amounts due hereunder) immediately due and payable. Upon the occurrence of a change of control in the Company (see Chapter 2: “Operating and Financial Review and Prospects”, section 2.10.3: “Financial Resources”), any outstanding amounts under the financial loans documentation would become immediately due and payable. The Group cannot ensure that it would have sufficient liquidity to reimburse or be able to refinance all or part of the amounts that came due following an event of default or change of control. Risk management The risks related to indebtedness are managed by a close monitoring of the level of the Group’s debt and debt maturity schedule, and the compliance with all covenants and restrictions (including operational restrictions) in the Group’s debt documentation. This regular monitoring may lead the Group to take action such as reducing debt levels, refinancing or renegotiating its debt, or raising equity. Moreover the Group pursues policies with the objectives of having continued uninterrupted access to the financial markets at reasonable conditions (see “Risks Related to Liquidity” below). Interest rate and exchange rate fluctuations Risk description The Group is mainly exposed to interest rate risk on its deposits and indebtedness. At December 31, 2018, 62% of the Group’s debt was at floating rate after taking into account interest rate hedging operations. Failure to manage interest rate fluctuations effectively in the future, or changes in interest rates, may have a material adverse impact on the Group’s financial charges. A 100 basis point increase in short-term interest rates would cause the Group’s net cash interest payments to increase by €2 million. See note 8.2.2.3 to the consolidated financial statements of this Registration Document for more information about this risk. The Group incurs foreign currency translation risk because a significant part of the its consolidated revenues as well as a portion of its assets are in subsidiaries that use currencies other than the euro and in particular the U.S. dollar as their functional currency. To the extent that the Group has costs in one currency and has sales in another, the Group incurs foreign currency transaction risk and its profit margins may be affected by changes in the exchange rates between the two currencies. Most of Technicolor’s sales are in U.S. dollars and in euro; however, certain expenses are denominated in other currencies. Although the Group may hedge against currency transaction risk, given the volatility of currency exchange rates and the occasional illiquidity in some emerging market currencies, together with the potential for changes in exchange control regulations in such emerging markets, the Group cannot ensure that it will be able to manage these risks effectively.

Foreign exchange rate fluctuations have had and may in the future continue to have an adverse impact on the Group’s operating results and financial condition, especially when the euro fluctuates significantly against the U.S. dollar or other foreign currencies. The Group’s largest currency exposure is to the U.S. dollar versus the euro. A 10% increase in the U.S. dollar versus the euro, assuming no hedging was in place, would cause the Group’s profit from continuing operations before tax and finance costs to decrease by €16 million. A 10% decrease in the U.S. dollar versus the euro would have a symmetrical impact in the opposite amount. Risk management Management of interest rate and exchange rate risks is done by the Group treasury 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. See note 8.2.2 to the consolidated financial statements for more information about this risk and its management. Liquidity Risk description The Group’s ability to access the financial markets could be limited if the Group’s financial position deteriorates. The Group seeks to maintain a broad access to liquidity to meet its commitments and investment needs. To do this, the Group borrows on the banking and capital markets, which exposes it to liquidity risk in the event of total or partial closure of these markets. Liquidity risk is the risk of not being able to raise funds to meet future financial obligations. Technicolor’s ability to access financial markets may be curtailed if its financial condition or general market conditions deteriorate. Such a deterioration could result in increased costs, or even a limitation, of access to the financial markets. Risk management To manage this risk, the Group’s treasury management is centralized. The central treasury team manages current and forecasted financing needs and ensures the Group’s ability to meet its financial commitments by maintaining a level of cash and confirmed credit facilities required for its business and to meet debt maturities.

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TECHNICOLOR REGISTRATION DOCUMENT 2018