technicolor - 2020 Universal Registration Document

RISKS, LITIGATION, AND CONTROLS RISK FACTORS

CLIENT CONCENTRATION AND DEPENDENCY

Risk identification

Risk monitoring and management

A large proportion of the revenues in Technicolor’s Connected Home segment is generated from large Pay-TV Operators and Network Service Providers. In 2020, the Division’s top 5 customers accounted for 53% of the Connected Home segment’s revenue and 31% of the Group’s consolidated revenue. This concentration of revenues around a few companies in the CPE (Customer Premises Equipment) industry has accelerated with the consolidation that has taken place in recent years such as Charter Communications (acquisition of Time Warner Cable), AT&T (acquisition of DIRECTV), and Comcast’s X1 syndication activities. This concentration has created opportunities for Connected Home to expand activities among these ever-larger customers while simultaneously increasing risk should entities switch to competitors. Another possible result of the concentration is a shift in the balance of power with these customers which have increasing purchasing power.

Client concentration requires suppliers to become global partners and to increase depth of relationship. Technicolor’s 2015 acquisition of the Cisco Connected Devices Division is a response to the industry consolidation with efforts to deliver more value through innovation and competitive pricing through economies of scale and greater market share. Technicolor strives to foster collaboration with its customers by increasing intimacy and proximity; key account teams oversee anticipation of customer needs to deliver better services and solutions. A strong customer offer review process is in place to properly manage large requests for quotation, identify risks and mitigating actions to stay ahead of competition.

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DVD SERVICES

RAWMATERIAL AND OTHER KEY INPUT DEPENDENCY

GRI [103-1 Procurement practices] [103-2 Procurement practices] [103-1 Materials] [103-2 Materials] Risk identification

Risk monitoring and management

The division purchases approximately 53% of its materials, components and services from its top 10 suppliers. In addition, certain raw materials such as polycarbonate and DVD cases come from a limited number of key suppliers. Any change, delay or disruption in supply, or reallocation of capacity to a different market, product line or customer by a key supplier could cause material delays in DVD Service’s production or operations, increase its production costs or harm customer relationships. DVD Services manages some of its inventory on a just-in-time basis, which exposes it to performance risks by its suppliers, as well as to certain force majeure risks. As a result, in addition to delays or other performance failures of its suppliers, DVD Services’ operations may be disrupted by external factors beyond its control, including price volatility risks. In addition, the industries of the main suppliers may experience a further wave of consolidation, and thereby reduce DVD Services’ negotiating leverage, and thus reduce the ability to meet business objectives. DVD Services’ operations (particularly replication activity in Mexico, Poland & Australia) are significant consumers of electricity, and thus are exposed to utility cost/regulatory volatility in these local markets.

The selection process of suppliers is made after careful assessment of the sustainable production capacity, quality standards, financial health and respect of social and environmental standards. The Division systematically monitors price volatility of its suppliers. To reduce dependency and allow business continuity, the procurement is diversified with some preferred vendors present in different geographies. When possible, and in line with the procurement strategy, the division has identified alternative sources for many of its key materials. In the case of sole or very limited source suppliers, the Division has put in place a monitoring structure designed to track potential price pressure of select raw materials (and their constituent components) to anticipate possible shortages and/or price volatility. In some cases, the Division has further mitigation potential for sudden unexpected price variation via the inclusion of key material price index/pass-through provisions in certain customer contracts.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2020