technicolor - 2020 Universal Registration Document

3 RISKS, LITIGATION, AND CONTROLS RISK FACTORS

CUSTOMER CONCENTRATION AND CONTRACT NEGOTIATION

Risk identification

Risk monitoring and management

The DVD Services Division operates in a concentrated market with a limited number of significant customers supported by long-term contractual arrangements. A significant percentage of the Division’s revenue is derived from its major customers. In 2020, the division’s top 5 customers accounted for approximately 60% of the segment’s revenue, which represents approximately 14% of the Group’s consolidated revenue. The DVD Services Division, which belongs to the Entertainment Services industry, has signed multi-year contracts with many of its customers, which involve multiple contractual arrangements with varying terms, conditions, and expiration dates. The Division’s operating results could be adversely affected, if its customers decide to terminate these contractual arrangements (in accordance with their terms), or if the Division is unable to renew them when they expire or renew them on significantly less favorable terms. Furthermore, any systemic change in the manner in which companies in the broader Media & Entertainment industry operate, driven by broader government regulation, more significant than anticipated industry consolidation or material technology disruption, could also have a material adverse effect on operations and prospects.

The Division monitors these contractual arrangements through a robust customer offer review process, including Investment Committee/Management reviews to ensure that risks are adequately monitored and mitigated. Approved agreements are carefully monitored on a day to day basis, through detailed Service Level Agreements and these defined conditions are regularly monitored to ensure adherence and customer satisfaction. These mitigations will be particularly emphasized in the short-term as most of the key contracts are subject to renewal in the coming years. In 2020, the Division successfully renegotiated extensions and/or renewals with two major studio customers, which included improved pricing, terms and conditions for Technicolor. Following protracted negotiations, the Paramount replication/manufacturing contract will expire in mid-2021 and will not be renewed, while the associated distribution contract remains with Technicolor. The impact of this will be mitigated by accelerated actions on the part of DVD Services in respect to its business transformation plans. The Division is actively pursuing multiple initiatives to diversify its business activities and thereby further reduce the risk associated with a concentrated customer base. These initiatives include an existing and ongoing effort to grow supply chain related services (warehousing, fulfillment, transportation, etc .) for customers outside the Media & Entertainment industry, as well as, an initiative actively exploring diversification of manufacturing activity in the field of polymer-based microfluidic devices for use in diagnostics, life science and other applications.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2020