technicolor - 2019 Universal registration document

6 FINANCIAL STATEMENTS STATUTORY AUDITORS’ REPORT ON THE CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2019

Impairment testing of goodwill Note 4 to the consolidated financial statements

RISK IDENTIFIED Goodwill is recorded in the balance sheet as of December 31, 2019 at a net carrying amount of €851 million, compared with total assets of €3.210 million. Goodwill is recognized in the currency of the acquired subsidiary/associate and measured at cost less accumulated impairment losses and translated into euros at the effective rate at the end of the period. Goodwill is not amortized but is tested annually for impairment. The Group performs impairment tests on goodwill as disclosed in Notes 4.1 (Goodwill) and 4.5 (Impairment on non-current operating assets) of the notes to the consolidated financial statements. We considered the valuation of goodwill to be a key audit matter given the relative importance of these assets in the consolidated financial statements and since the determination of their recoverable amount, generally based on discounted cash flow forecasts, is based on assumptions, estimates and management assessments and judgements, notably concerning business forecasts, long-term growth rates and discount rates. We focused, in particular, on goodwill of the DVD services segment due to the finite useful life of this asset, to the uncertainties surrounding the future of the physical media of the DVD services division and to the importance of the decrease in volumes, notably in the distribution activity, which lead to a division goodwill impairment and fixed asset impairment of €59,2 million in the 2019 financial consolidated statements. OUR RESPONSE We reviewed the implementation of impairment tests by the Group and focused our procedures on the divisions where intangible assets represent a significant portion of net assets and are highly sensitive to changes in budget assumptions. We reviewed the Group’s process for preparing business plans and assessed the reasonableness of the key assumptions and estimates by: verifying the consistency of cash flow forecasts with past performance and budget that will be approved by the February 18 Board of Directors, • comparing growth rates used to extrapolate cash flows beyond the forecast period and discount rates with market data and our benchmarks, and, •

reviewing sensitivity analysis disclosed in the notes to the consolidated financial statements. • We verified the appropriateness of disclosures in the notes to the consolidated financial statements. These analyses were performed with the assistance of our valuation experts. Financing and cash management Notes 8.2.3 and 8.3 to the consolidated financial statements

RISK IDENTIFIED To regularly measure the Group’s liquidity risk, management assesses liquidity forecasts based on projected consolidated cash flows, including operating cash flows, debt repayment schedules and other financing requirements. Based on these forecasts and at each quarterly closing date, the Board of Directors examines whether the Group’s liquidity and cash flows are sufficient to finance current activities and the Group’s working capital requirement, at least for the twelve months after the closing, taking into account available credit lines. As of December 31, 2019, available cash totalled €65 million. Net financial debt amounted to €1,030 million as of December 31, 2019, up by €1 million compared to December 31, 2018. In 2019, the Group therefore consumed net cash of €226 million. Available credit lines not drawn at the closing date totalled €250 million and USD 125 million. On February 13, 2020, Technicolor Board of Directors has decided to implement a plan over the Group financial situation. This plan includes: A capital increase with preferential subscription rights for shareholders for a total gross amount of c. €300 million, issue premium included; • An extension of credit lines (RCF and bi-lateral ABL with Wells Fargo), originally maturing in 2021, to 2023 subject to the successful completion • of the Rights Issue; the RCF will be reduced from €250m to €225m starting from January 1st, 2021 and to €202.5m starting from December 22 nd , 2021; A new $110m short-term facility providing additional liquidity headroom. • In this context and insofar as management judgment is essential in determining cash flow forecasts, we considered the assessment of liquidity risk to be a key audit matter.

TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2019 264