technicolor - 2020 Universal Registration Document

RISKS, LITIGATION, AND CONTROLS RISK FACTORS

SUPPLY CHAIN AND MANUFACTURING

GRI [103-1 Procurement practices] [103-2 Procurement practices] Risk identification The DVD Services Division’s inability to obtain timely delivery of raw materials of acceptable quantity and quality could result in material delays, increased costs, and reductions in shipments of its products, any of which could increase its operating costs, harm customer relationships, or materially and adversely affect the DVD Services Division’s business and results of operations. See more details on suppliers’ dependency in the risk related to “Raw material and other key input dependency”. Customers require high flexibility and reactivity with short lead time following their purchase orders. DVD Services operates two main manufacturing facilities for the replication of DVDs (Poland and Mexico) and various distribution facilities globally. These facilities are subject to operational risks, including mechanical and IT system failure, work stoppage, transportation disruption, customs blockage, and natural disasters. Any interruption of activity in the DVD Services Division’s production, manufacturing or distribution facilities due to these or other events could result in the disruption to the operations activities, which could have an adverse effect on the business, financial condition and/or results. In addition, the DVD Services Division operates high production replication lines which are required to meet high quality standards. The failure to meet these requirements may lead to product quality issues or delays in the supply.

Risk monitoring and management

To mitigate the risks inherent to its suppliers, the Sourcing Department has established procedures for operational and contractual monitoring of principal suppliers, including raw materials used in the production of DVD and Blu-ray™ discs. All the main sites have a Business Continuity Plan and the reactivity of the organization is enhanced by Transversal Incident Response Plans which were tested successfully in 2020. These plans aim at minimizing the impact of any incident or supply chain disruption. The quality of the replication process is constantly monitored, and each production facility has developed a high expertise in ensuring robust industrial processes. HES tracks quality performance with a variety of KPIs and with Customer Quality Complaints on a Parts per Million (PPM) basis being the primary metric. In 2020, for WW HES it was 0.075% (or 750 PPM), which is considered excellent quality level for our industry. In addition, covering its internal operations, the DVD Services Division and the Group take insurance coverage that mitigates the risk of business disruption in case of natural disaster or other types of disaster such as fire in major production sites.

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LABOR FORCE AVAILABILITY

GRI [103-1 Employment] [103-2 Employment] Risk identification

Risk monitoring and management

Given the seasonality of its business, the Division relies heavily on temporary labor resources during peak periods in many of its facilities. The availability and cost of these resources can vary based on the general employment environment in the local area, competition from other employers of temporary labor, as well as, regulatory actions such as minimum wage requirements. Overall in 2020, Technicolor employed between 2,300 and 3,900 full-time equivalent temporary labor resources depending on the time of the year. Insufficient temporary labor resources could result in the inability to adequately meet customer service levels, and likewise minimum wage increases could lead to a higher than expected cost of temporary labor. More generally, work slowdowns or stoppages could also have a material adverse effect on the Division’s business, financial condition, results of operations or prospects.

For temporary labor, the Division utilizes a multi-faceted approach to minimize potential risks of labor shortage, including maintaining relationships with multiple staffing agencies in each major operating area, establishing and maintaining direct relationships with local seasonal workers, and proactively seeking alternative labor pools wherever possible.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2020