technicolor - 2020 Universal Registration Document

3 RISKS, LITIGATION, AND CONTROLS RISK FACTORS

Financial risks 3.1.3 GRI [102-15]

LIQUIDITY

Risk identification

Risk monitoring and management

Liquidity is the risk of not having funds to meet future financial obligations. This risk can arise if the Group’s financial position deteriorates limiting its access to financial markets or if suppliers reduce payment terms. In order to identify and quantify this risk the Group has put in place regular cash forecasting, on a short-term 13 week basis, as well as, monthly cash forecasts covering longer periods. This forecasting allows the Group to compare its forecasted liquidity with its forecasted cash needs, in particular working capital requirements, investments and debt repayments. Liquidity risk materialized in 2020 due to the deterioration of the Group’s financial position and in particular due to its negative cash flow in the period 2018-2020, exacerbated in 2020 by the Covid-19 pandemic.

To manage this risk, the Group’s treasury management is centralized. The central treasury team manages current and forecasted financing needs and has established policies aimed at securing continued and uninterrupted access to the financial markets on reasonable terms. To meet liquidity needs the Group puts in place confirmed credit facilities and executes borrowings on the banking and financial markets and raises equity in the capital markets. In order to monitor the Group’s liquidity, the Treasury Department monitors the relative proportion of the Group’s debt and equity, its credit ratings (corporate ratings at December 31, 2020: S&P: CCC+ stable outlook/Moody’s: Caa2 stable outlook), the outlook for the financial markets and it uses the Group’s consolidated cash forecasts to track the ability to meet scheduled debt payments (see note 8.2.3 for the Group’s debt maturity schedule) and other future financing needs and to respect the covenants in its debt documentation. The results of this monitoring are reported regularly to the Chief Financial Officer, the Audit Committee and the Board of Directors. As a consequence of this monitoring the Group determined a need to strengthen its balance sheet in 2020 and in line with its policies, announced on February 13, 2020, subject to conditions, a comprehensive financing plan including: a €300 million rights issue; • an 18 month extension of the RCF and the Wells Fargo facility; and • a new short-term credit facility in the amount of $110 million. • The short-term credit facility was put in place in March, but due to the financial impacts caused by the Covid-19 pandemic, the rights issue and the credit line extensions were not executed as planned. In June 2020, the Group announced a financial restructuring plan consisting of €420 million of net proceeds from new debt, deleveraging of €660 million through the equitization of existing debt and the extension of the $125 million Wells Fargo facility. These transactions were successfully executed and as a result, the Group’s balance sheet was strengthened and its liquidity risk considerably reduced. For more information on this financial restructuring, please see note 1.1 to the Group’s consolidated financial statements.

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TECHNICOLOR UNIVERSAL REGISTRATION DOCUMENT 2020