LensCrafters 2010 Annual Report Download - page 96

ANNUAL REPORT 2010> 94 |
The criteria for the identification of corporate risks are linked to the nature of the risk itself (with specific reference to
financial risks, risks concerning compliance with accounting regulations and risks with potential impact on the Company’s
reputation), its likeliness to occur and its size. Periodically and upon specific request, the Chief Executive Officer has
provided reports to the Board of Directors on any risks identified and the undertaken corrective actions. In May 2010,
the position of Chief Risk & Compliance Officer of the Group was set up, which position is to report directly to the Chief
Executive Officer. The CR&CO, in his/her organizational structure, has the task of guaranteeing an efficient and effective
governance of the risks, of the more significant businesses as well as being responsible for supervising and managing
compliance in the management of the business itself.
Moreover, the Chief Executive Officer has implemented the guidelines set by the Board, by planning, implementing and
managing the internal control system, and regularly assessing its overall adequacy, its efficiency and effectiveness. The
Chief Executive Officer has also dealt with the adjustment of the system to the changes in the operational conditions and
of the legal and regulatory framework through the support of the relevant corporate structures.
In October 2009, the Board of Directors updated the Financial Risk Management Policy, applicable to all the companies
of Luxottica Group and introduced in November 2006. The adjustment was necessary to implement some organizational
changes with a view towards continuous improvement and alignment of the policy to the operating processes.
The policy sets forth the principles and rules for the management and monitoring of financial risks, with particular
reference to activities by Luxottica Group to minimize the risks deriving from the fluctuations of interest rates and
exchange rates.
The policy clarifies that “rate risk” hedging uses the “interest rate swaps”, while the derivative instruments are used for
“exchange risk”, such as “forward exchange contracts”, and “collar zero cost”. The use of derivative instruments for
speculative purposes is not allowed.
In addition to the caps set for each individual transaction in derivative instruments, the policy also sets a cap linked to the
overall Luxottica Group debt exposure.
During 2007, a quarterly reporting system was implemented for the Internal Control Committee, to highlight the
debt exposure and the hedging transactions implemented to minimize the “interest” and the “exchange rate”
risks.
Another operational and control instrument that has been implemented for some time is the Credit Policy, which is
applicable to all the wholesale companies of Luxottica Group.
This policy defines the rules and responsibilities for the management and collection of credit in order to prevent financial
risks, optimize revolving credit and reduce losses on such credits. In particular, this policy sets the guidelines for the
following activities:
apportionment and control of the credit lines;•
monitoring of credit trends;•
soliciting unpaid/expired credits;•
management and control of undertaken legal actions;•
management and control of the appropriations and losses on credits;•
determination and control of terms of payment in the various markets; and•
control over warranty terms. •
The Board of Directors annually assesses the adequacy, effectiveness and efficient functioning of the control system, in
accordance with the methods described in Section III of this Report.