LensCrafters 2011 Annual Report Download - page 151

| 75 >REPORT ON CORPORATE GOVERNANCE AND OWNERSHIP STRUCTURE
necessary plans of actions aimed at containing and controlling these exposures could be
put into action. The Internal Control Committee was updated on the developments of the
new Enterprise Risk Management program and was informed of the results of the analysis
carried out.
With reference to compliance, in 2011 the position of Corporate Compliance Manager
was created, who set up a specific program aimed at the mapping of the relevant areas of
compliance for the Group, at the understanding of the level of maturity and protection of
processes, and at the definition of specific Compliance Programs within a comprehensive
governance model regarding compliance for the Group. The appropriate reporting of
the work programs that are in the definition and set-up phases will be provided in future
Corporate Governance Reports.
From the viewpoint of the continuous process of adapting the Internal Control System and
Risk Management to the developments in operating conditions and legal and regulatory
frameworks, in October 2011 the Board of Directors revised the Financial Risk Policy
applicable to all the companies of the Luxottica Group, already introduced in November
2006 and subsequently revised in October 2008 and October 2009.
The policy sets forth the principles and rules for the management and monitoring of
financial risk and pays particular attention to the activities carried out by the Luxottica
Group to minimize the risks deriving from the fluctuations of interest rates, exchange rates
and the solvency of financial counterparties.
The policy clarifies that the instrument used for “interest rate risk” hedging is the plain
vanilla “interest rate swaps”, whereas for “exchange risk” “non-speculative” derivative
instruments, such as “spot and forward exchange contracts” are used. In certain
circumstances and subject to the specific authorization of the CFO, more flexible
instruments that replicate the effect of the forward exchange contract or “zero cost collar”,
“accumulator forward” and “average strike forward” can be used.
The use of derivative instruments is aimed only at the actual hedging of exchange risk
that the Company is exposed to, therefore the use of these instruments for speculative
purposes is not allowed.
In addition to aiming at reducing counterparty risk, the policy specifies the minimum
criteria to be met in order to be able to transact with the Group. This criteria sets forth: the
obligation to operate with qualified banking counterparties through standard agreements
(Master Agreement ISDA), a limit on exposure per individual counterparty and a limit on the
total exposure of the Group, as well as fixing the minimum credit credential requirements
for the counterparties authorized to engage derivative transactions.
A quarterly reporting system has also been implemented for the Internal Control Committee
since 2007 to highlight the debt exposure and the hedging transactions implemented to
minimize “interest rate risk”, “exchange rate risk” and, since 2011, “counterparty risk”.
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.