LensCrafters 2013 Annual Report Download - page 177

Footnotes to the statutory financial statements as of December 31, 2013 Page 10 of 71
Market risk
The Company is exposed to two types of risk:
a) Interest rate risk
The interest rate risk to which the Company is exposed mainly originates from its long-term debt, which carries both
fixed and variable interest rates.
The Company does not operate any particular hedging policies with regard to fixed rate debt because it considers the
associated risk to be low.
The Company's variable rate debt exposes it to a rate volatility risk, which poses a cash flow risk. The Company
hedges this risk using interest rate swaps (IRS), which transform the variable rate into a fixed rate and hence reduces
the risk from rate volatility.
Group policy is to maintain more than 25% but less than 75% of total debt at a fixed rate; this target is achieved by
using interest rate swaps, where necessary.
Based on various scenarios, the Company calculates the impact of a change in rates on the statement of income. Each
simulation applies the same rate change to all currencies. The various scenarios are developed for only those variable
rate liabilities not hedged against interest rate risk. Based on the simulations performed, the post-tax impact on net
income for 2013 of a rate increase/decrease of 100 basis points, assuming all other variables remain equal, would
respectively be a maximum decrease of Euro 3.1 million (Euro 3 million in 2012) or a maximum increase of Euro 3.0
million (Euro 3.0 million also in 2012).
At December 31, 2013 Increase of 100 basis points Decrease of 100 basis points
(in millions of Euro) Net income Reserve Net income Reserve
Loans received -3.0 +3.1
Cash flow hedges +0.3 NA
At December 31, 2012 Increase of 100 basis points Decrease of 100 basis points
(in millions of Euro) Net income Reserve Net income Reserve
Loans received -3.0 +3.0
Cash flow hedges +0.2 NA