technicolor - 2020 Universal Registration Document

6 FINANCIAL STATEMENTS

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS Note 8 - Financial assets, financing liabilities & derivative financial instruments

Management of financial risks

8.2

GRI [102-15]

GOVERNANCE 8.2.1 Technicolor faces a wide variety of financial risks including market risk (due to fluctuations in exchange rates and interest rates), liquidity risk and credit risk. Technicolor’s financial risks are managed centrally by the Group Treasury Department in France and its regional Treasury Department in Ontario (California – U.S.) in accordance with the policies and procedures of the Group. 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. These risks are managed in a strict framework with specific limits and authorizations approved by the Investment Committee for each type of transaction and monitoring by the Group Internal Control Department. 8.2.2 Due to the financial situation of the Group in the 2nd quarter of 2020, all of the Group’s banks cancelled the foreign exchange lines previously available for hedging. As a result, the Group unwound all of its foreign currency hedges in June of 2020. Following the debt restructuring operation completed in September 2020, Technicolor’s banks gradually restored foreign exchange lines. As a consequence, the foreign currency hedging described below was suspended for part of 2020, but by the end of the year Technicolor was able to resume normal hedging operations. Foreign exchange risk 8.2.2.1 Translation Risk The Group’s consolidated financial statements are presented in euro. Thus, assets, liabilities, revenues and expenses denominated in currencies other than euro must be translated into euro at the applicable exchange rate to be included in the consolidated financial statements. The fluctuation of exchange rates can have an impact on the value of the assets, liabilities, revenues and expenses in the consolidated financial statements, even if the value of these items has not changed in their original currency. The Group’s policy is not to hedge translation risk. Translation risk is measured by doing sensitivity analyses on the main exposures in the subsidiaries where the functional currency is different from the euro (see below). Transaction Risk – Operational Foreign currency transaction risk occurs when purchases and sales are made by Group entities in currencies other than their functional currencies. MARKET RISK MANAGEMENT

The Group’s main transaction risk is its U.S. dollar exposure versus euro. After offsetting the U.S. dollar purchase exposures with U.S. dollar sale exposures, the net U.S. dollar exposure versus euros for continuing operations was net purchases of U.S.$116 million in 2020 (net purchases of U.S.$132 million in 2019). The policy of the Group is to have its subsidiaries: to the extent possible denominate their costs in the same currencies • as their sales; regularly report their projected foreign currency needs and receipts • to the Group Treasury Department which then nets purchases and sales in each currency on a global basis. Exposures that remain after this process are generally hedged with banks using foreign currency forward contracts. For products with a short business cycle, the Group’s policy is to hedge on a short-term basis up to six months. For products and services which are sold on a longer-term basis, hedges may be put in place for periods greater than six months. Regardless of the term of the hedging, the Treasury Department uses short-term foreign currency derivatives (maturity of several days to several months) that it rolls over as a function of is global exposure which is monitored on a daily basis. The derivative instruments used are described in note 8.6. Transaction risk on commercial exposures is measured by consolidating the Group’s exposures and doing sensitivity analyses on the main exposures (see below). Transaction Risk – Financial 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 subsidiaries into euros. The forward points on these currency swaps which are accounted for as interest, was nil in 2020 and resulted in income of €4 million in 2019.

TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2020 240