LensCrafters 2011 Annual Report Download - page 202

ANNUAL REPORT 2011> 126 |
time. The standard has not been endorsed at the date the present financial statements
were authorized for issue. The Group believes that IAS 28 will not have a material impact
on the Group consolidated financial statements.
The assets of the Group are exposed to different types of financial risk: market risk (which
includes exchange rate risks, interest rate risk relative to fair value variability and cash flow
uncertainty), credit risk and liquidity risk. The risk management strategy of the Group aims
to stabilize the results of the Group by minimizing the potential effects due to volatility in
financial markets. The Group uses derivative financial instruments, principally interest rate
and currency swap agreements, as part of its risk management strategy.
Financial risk management is centralized within the Treasury department which identifies,
evaluates and implements financial risk hedging activities, in compliance with the Financial
Risk Management Policy guidelines approved by the Board of Directors, and in accordance
with the Group operational units. The Policy defines the guidelines for any kind of risk, such
as the exchange rate risk, the interest rate risk, credit risk and the utilization of derivative
and non-derivative instruments. The Policy also specifies the management activities, the
permitted instruments, the limits and proxies for responsibilities.
(a) Exchange rate risk
The Group operates at the international level and is therefore exposed to exchange rate risk
related to the various currencies with which the Group operates. The Group only manages
transaction risk. The transaction exchange rate risk derives from commercial and financial
transactions in currencies other than the functional currency of the Group, i.e. the Euro.
The primary exchange rate to which the Group is exposed is the Euro/US$ exchange rate.
The exchange rate risk management policy defined by the Group’s management states
that transaction exchange rate risk must be hedged for a percentage between 50 percent
and 100 percent by trading forward currency contracts or permitted option structures with
third parties.
This exchange rate risk management policy is applied to all subsidiaries, including
companies which have been recently acquired.
If the Euro/US$ exchange rate had changed by +/– 10 percent with all other variables
remaining constant, the decrease/increase in net income and equity would be equal
to, net of tax effect, Euro 34.5 million as of December 31, 2011 (Euro 35.7 million as of
December 31, 2010) and Euro 42.2 million as of December 31, 2011 (Euro 43.6 million as of
December 31, 2010), respectively.
Even if exchange rate derivative contracts are stipulated to hedge future commercial
transactions as well as assets and liabilities previously recorded in the financial statements
in foreign currency, these contracts, for accounting purposes, are not accounted for as
hedging instruments.
3. FINANCIAL RISKS