Risk management

An ongoing activity

Considering the importance of creating sustainable value for our stakeholders, we ensure that the Company’s organization is consistent with our mission and our objectives (strategic, operational and compliance), promoting an adequate risk management process in the business activities. Sound risk management makes company decisions more knowledgeable, reduces the volatility of results compared to targets, and creates a competitive advantage.

Risk management

We have developed and adopted an Enterprise Risk Management (ERM) model, aligned with international best practices and the recommendations of the Corporate Governance Code, aimed at - through a structured and systematic process of risk assessment, monitoring and reporting - effectively managing the main risks of the Group, also including environmental, social and governance topics, as well as providing adequate information to the stakeholders involved.

The Enterprise Risk Management model is formalized in the Group ERM Policy and promotes the proactive management of risks, favoring a transversal and dynamic assessment that enhances the existing management systems and allows an adequate information flow to the administrative and control bodies.

The Internal Audit & Risk Management Function, through its Risk Management activities, ensures, with the support of the actors involved in the process (i.e., Countries, Regional Vice Presidents, Top Management), that the main risks of the Group are promptly identified, evaluated, managed and monitored on a continuous basis.

Risk assessment process

Our risk management process is composed of the following:

Country Level

Corporate Level

Group level

Country Level

Country Level

Engagement with local leadership teams

The countries of the Group are involved in the Risk Assessment process with the aim of identifying and assessing the risks that could impact the achievement of the country's objectives and the related action plans for their mitigation. Within the geographical area of ​​reference, each Regional Vice President has a steering and coordination role in identifying and assessing the risks defined by the countries.

Corporate Level

Corporate Level

Risk management

The Top Management of the Corporate Functions is involved in the Risk Assessment process in order to identify and assess the risks relating to their area of ​​competence.

Group level

Group level

Selection of the main risks

The Chief Executive Officer examines and validates, with the support of the Internal Audit and Risk Management Function, the main risks at Group level identified during the Risk Assessment.

Main external risks

Competition and the Market

The Amplifon Group operates in sector which has witnessed the arrival of new players in individual markets, like optical chains, retail distributors (including pharmaceutical companies) and on-line retailers positioned in the mid- to low- end of the market. Moreover, in recent years, there have been operations leading to the vertical integration of hearing aid manufacturers which acquired important retail chains. To address this risk, we are investing significant resources in brand differentiation, in our value proposition, as well as the engagement and development of our employees.

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The retail hearing care market is expected to grow over the medium/long-term, consistent with the aging of the population and the increased penetration of hearing solutions in the market thanks to the consumer’s increased healthcare awareness. This market is also still noticeably fragmented, but there has been some consolidation due to the vertical integration of hearing aid manufacturers and the expansion of market players (including Amplifon).  It is possible, therefore, that competition could increase in the next few years.

The Amplifon Group’s main competitors are the specialty retailers, which include the manufacturers of downstream integrated hearing aids, and non-specialty retailers (like optical chains, pharmacies and big box stores) which are generally low-cost providers currently found mainly in Australia, the Netherlands, USA, France and New Zealand.

It is possible, therefore, that these players will continue to pursue a strategy focused on expansion which could potentially erode market share and margins, as well as increase competition in the recruiting and retention of hearing aid specialists, as well as qualified store personnel. The expansion of these players is also affected to changes in the sector’s regulatory framework.

Consequently, the Amplifon Group has focused its strategy on strong brand recognition, providing high quality service, as well as on the deep understanding of the consumer, developed thanks to the unparalleled quantity and quality of the data Amplifon possesses and uses to better serve its customers by leveraging on a very unique and innovative customer experience. Toward this end, the Group uses sales protocols focused on excellence in customer service (Amplifon 360) and an increasingly customer-centric approach which enhances the Amplifon Product Experience (APE), proposing Amplifon brand products and a multichannel ecosystem based on which the first point of contact is through the app. 

Political and regulatory environment

We operate in a “medical” sector which is regulated differently in different countries. A change in regulations may have a direct, and potentially significant, negative or positive impact on the market and performances. 

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Amplifon operates in a medical sector which is regulated differently in the different countries where the Group is present.  The areas which are the most relevant for Amplifon relate to: i) coverage by national health agencies or insurance companies; ii) the sale and distribution of hearing aids and, more specifically, the requisites and qualifications of the professionals who may select, apply and sell hearing solutions; iii) technical aspects of the hearing aids.  A change in regulations (for example, in reimbursement conditions, in the scope of and access to public insurance, in the role of the ENT doctors and, above all, the hearing aid specialists, in the qualifications needed to sell hearing aids and related services) could have a direct, even significant, impact on the markets and, consequently, on performance.  

With regard, specifically, to the changes in the qualifications needed to sell hearing aids, in 2017 a law, the “Over the Counter Hearing Aid Act”, annexed to a law on medical devices (Medical Device User Fee Amendments) and included in the FDA Reauthorization Act based on which the  Food and Drug Administration (FDA) was charged with defining and regulating this new category of hearing aids within the next three years was passed in the United States.  This law creates a separate category of hearing aids allowed be sold over-the-counter (OTC) to adults over the age of 18 with mild to moderate hearing loss without first consulting a hearing aid specialist.  In October 2021 the Food and Drug Administration (FDA) published the law it proposed to use to regulate the way in which this product category should be introduced with regard, specifically, to technical specifications and the performance of these devices, labeling and classification, as well as consumer protection policies (refunds and returns). The law proposed was then subject to an open review by the various stakeholders. The final legislation will be published and is expected to take effect not before the second half of 2022.  While to date the most plausible scenario is that, because of the difference in service and the consumers involved (with mild to moderate hearing loss versus the Group’s current core customers which suffer from moderate to severe hearing loss), the introduction of the OTC devices will have a limited impact on the business, though an increase in competition and the arrival of new players cannot be excluded. At the same time, however, the uniqueness of Amplifon’s products and services could be prove to be advantageous.  Lastly, in addition to regulating the sale of OTC devices, the law proposed by the FDA would treat the other hearing aids as “prescription hearing aids” which must be prescribed by a doctor, audiologist or other authorized hearing specialist which validates the important role that licensed professionals have in helping consumers find safe and effective hearing solutions. 

With regard to insurance coverage, while today in the United States only certain services are reimbursed (excluding hearing aids), the possibility of providing full coverage of hearing solutions under Medicare-Part B (public health insurance for beneficiaries over 65) is being considered.  A first draft of the proposed legislation was presented to the house in November 2021.

In general, Amplifon has adopted a series of measures which ensure the ability to react to any regulatory changes in a timely manner by constantly monitoring the regulatory issues in the countries where it is present and preparing the action plans that might be needed. 

Economic environment & COVID-19

We operate in a market sector that is less sensitive than others to fluctuations in the general economic cycle, even during economic crisis or uncertainties, although influenced by them. 

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Beginning in March 2020, as the respiratory condition SARS-CoV-2 and the relative Covid-19 pathology spread, the Group immediately adopted a timely plan of action in order to safeguard the health and safety of its people and customers. These actions allowed the Company, including in 2021 which was affected by subsequent waves of Covid-19, to continue to protect the health and safety of all its people and, at the same time, guarantee continuous customer support and service thanks to rigorous operating protocols designed to provide maximum safety in its stores.  Remote working was used when necessary, including through rotations, and social distance was maintained for all back-office personnel.

In 2021, thanks to the gradual vaccine roll-outs, the restrictive measures adopted by the authorities in the Countries in which the Group operates were less severe than in 2020 and more geographically confined.  More specifically, in 2021 the lockdown measures affected – to varying degrees – many European countries in the first quarter, Australia and New Zealand in the second half of the year, and the Netherlands and Belgium in the fourth quarter. This, along with the benefits stemming from the actions successfully implemented by the Company in 2020 relative to cost containment, cash flow maximization and further strengthening the financial structure, allowed the Group to successfully navigate the 2021 pandemic situation and record excellent results.  In fact, despite the persistence of the pandemic, not only did Amplifon report revenues that were 29.6% higher than in 2020 and 17.2% higher than in 2019, which confirms the valid fundamentals of the market and the unchanged consumer behavior, the Company also posted high profitability with a recurring  EBITDA margin that was 190 basis points higher than in 2019, coming in at 24.8%. Lastly, in 2021 the Company also continued with the successful implementation of several strategic initiatives: it completed the roll-out of the Amplifon Product Experience – which includes Amplifon brand products and the Amplifon app – in Belgium, Portugal, New Zealand and Spain; it continued with the consolidation process, consistent with the strategy to further strengthen the position in core markets, with the important acquisition of Bay Audio in Australia and the second  joint venture in China, as well as other piecemeal acquisitions in Germany, France and the United States; and lastly, the Company exited the wholesale business with the closure of Elite in the United States, consistent with the Group’s strategy to focus on the customer and provide the best customer proposition to the end consumer directly.

Currently it is, however, not possible to predict the duration of the pandemic, nor how it will evolve going forward, and it is, therefore, not possible to predict the effect that the continuation of the pandemic will have on global and domestic economic activities, as well as on the Group’s business. We also cannot exclude that if the global market conditions should deteriorate, resulting in, for example, a prolonged recession in Europe and the United States, or worldwide, due to COVID-19, the economic and financial situation of the Group could be compromised even though Amplifon operates in a market sector that is typically less sensitive to fluctuations in the economic cycle, including in moments of crises or economic uncertainty. 

Technological innovation

We stand out for the quality of its customer assistance provided during the selection process and the personalization of the hearing solutions provided, combining technology with a human touch in order to provide customers with the best service possible and, at the same time, build a strong element of competitive differentiation. The failure to satisfy customers could, therefore, create a significant risk for the company.

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The development of an alternative to the hearing aid as a remedy for hearing loss (e.g., surgical techniques, new technologies or pharmaceuticals) would have a significant impact, but the risk is considered remote and is monitored constantly.

The Group also continues to invest in resources dedicated to the development of new technologies in order to anticipate and respond to any changes in the business. 

Amplifon is characterized by the quality of customer service, both in the sales process and through the continuous support provided during the entire life cycle of the hearing aid. The personalization of the device itself is performed through the analysis of the specific needs of the customer, combining the technical aspect with the relational one, in order to be able to provide the best possible service and, at the same time, constitute a strong element of differentiation.

In order to monitor and increase customer service and satisfaction, the Group invests significant resources in the development of its own product line and digital technologies, like the Amplifon App, as well as in redefining its customers’ hearing care experience through Ampli-care with a view to maintaining enduring relationships with its customers while also providing a better customer experience both inside and outside the Company’s stores,  from the first contact through after-sales services.

Main internal risks

Human resources

For us the quality of customer service in a strong growth business environment is one of our key strengths: the quality of our people, particularly those in contact with customers, as well those who have managerial and strategic positions, is very important.

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In order to achieve its medium/long-term goal for growth, the Group must be able to attract, develop and retain the best talent in, above all, the key managerial positions and qualified store personnel, including internationally.

Amplifon strives to be the “employer of choice” and is investing heavily in both the development of a unique and innovative Employer Branding, as well as in talents through specific recruiting initiatives and professional development programs designed to ensure the access to core competencies.

Therefore, the Company has developed and maintains structured channels which facilitate the recruiting of talents who possess specific expertise (for example, data scientists, digital economy and artificial intelligence experts).

With specific reference to the attractiveness and retention objectives of the qualified store personnel, the current environment, affected by growing competition and the persistence of the Covid-19 pandemic, could impact the recruiting and retention of qualified store personnel.  Toward this end partnerships are maintained with universities and great attention is paid to continuous, high quality training and professional development.  Lastly, “ad hoc” compensation mechanisms and incentives are used when assessing performance.

In order to guarantee success in the medium/long-term, global, local and divisional talent mapping and succession planning are carried out regularly. Amplifon is also committed to analyzing and anticipating future needs for key roles, including with a view to the growth of the business and changes in core markets. 

The level of efficiency achieved by the Company in relation to these elements is monitored constantly by evaluating KPIs related to succession planning, recruiting and retention. 

Cyber Security & data protection

The growing use of global networks to also manage enterprise’s technological infrastructures (including the social networks), increases the Company’s exposure to different types of internal and external IT risks. The most significant of these is the risk of cyber-attacks which can be targeted or generic and which constitute a constant threat.

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The growing use of technology, the accelerated shift toward digitalization, as well as the introduction of remote working, including in light of the persistence of the Covid-19 pandemic, increases the Company’s exposure to different types of internal and external IT risks.  These include, more specifically, the increase of cyber-attacks which can target the Group or third parties and which pose a constant threat.

Amplfion monitors potential threats every day and works to prevent, as well as minimize, the impact that these attacks could have.

Activities are carried out and updated constantly which strive to:

  • guarantee business continuity;
  • prevent the loss of data and information;
  • prevent financial losses.

These activities include, among others, (i) implementing processes and systems which strengthen the IT infrastructure (Multi-factor authentication systems, anti- phishing systems, blocked access to suspect websites, network protection); (ii) continuous updating of the Business Continuity and Disaster Recovery plans; (iii) cyber security training for Company personnel; (iv) stipulation of specific insurance policies; (v) data encryption.

Lastly, the possibility that personal data is not processed in accordance with the law, including as a result of data breaches and attacks, could lead to possible sanctions by the privacy authorities.

The Group is committed to maintaining adequate safety standards, duly protecting data and other proprietary information, in order to guarantee compliance with laws relating to confidentiality and privacy. Toward this end, Amplifon continuously monitors any changes and amendments to laws that could materialize over the next few years, takes the necessary measures deemed opportune (i.e., appointment of a Data Protection Officer) and provides training as needed. 

Marketing investments

Amplifon’s strategy calls for significant investment in marketing. These investments focus mainly on advertising on all media channels, including digital.

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Amplifon’s strategy calls for significant investment in marketing and communications in order to strengthen its brand, increase the rate of penetration of hearing aids and stimulate organic growth.

The marketing investments focus on offline media advertising (mainly television campaigns) and digital channels (including Paid Advertising, Search Engine Optimization and Social Media). The Company also invests in advanced Customer Relationship Management (CRM) systems and campaigns in order to ensure unique and personalized experiences for its customers, as well as in the technological innovation program which comprises Amplifon brand products and the multi-channel eco-system (together referred to as the “Amplifon Product Experience”) to provide a complete value proposition, comprising product, service and experience.

Increased sector competition could result in a generalized increase in marketing investments which would be more costly and/or less effective. 

The company could, therefore, find itself in a situation which calls for greater investments in marketing in order to reach the defined targets for organic growth. In order to address this possible change in competition, in addition to counting on its market leadership position, Amplifon also pursues the efficiency and effectiveness of its global marketing investments and pays great attention to the relative returns.

Implementation of new IT systems

Amplifon’s strategy calls for significant investment in Information Technology. Typically, IT projects are highly complex, and for this reason, we have equipped ourselves with the internal and external resources needed to ensure that project goals are achieved and a robust training program is developed in order to train system users, as well as assist with change management. 

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In 2021 the Group, consistent with its development goals, continued to work on the implementation and release of new IT systems and:

·         continued with the centralization of purchasing activities and the release of the new ERP system within Group companies which was begun in 2020.  The new ERP system is equipped with cloud technology which simplifies, optimizes and integrates back-end processes relating, in particular, to finance, human resources and purchasing.

·         began the implementation of the new front-end system for stores.


Typically, these projects are highly complex, particularly with respect to the management of unique, local characteristics, the roll-out phases and change management.

To address these areas, Amplifon has equipped itself with the internal and external resources needed to ensure that the project goals will be achieved and developed a robust training program in order to train system users, as well as assist with change management. 

Financial risks

The main financial risks are constantly examined and monitored by the Corporate Finance function. With a view to structured management of treasury activities and financial risks, in 2012 the Group finalized and adopted a Treasury Policy which contains guidelines for the management of:

Currency risk

This includes the following types of risk:

  • foreign exchange transaction risk, that is the risk that the value of a financial asset or liability, a forecasted transaction or a firm commitment, fluctuates due to changes in exchange rates;
  • foreign exchange translation risk, that is the risk that the translation of the assets, liabilities, costs and revenues relating to net investment in a foreign operation into the reporting currency gives rise to an exchange gain or loss.

The Amplifon Group’s foreign exchange transaction risk relates to:

  • transactions in which the costs or sales revenues are denominated in currency other than the local currency: this is the case in a few, less material countries (Israel, Canada and the GAES Group subsidiaries, acquired in 2018, in South and Central America) where purchases are made in euros or US dollars. The currency risk stemming from the reorganization and centralization of purchasing is gradually becoming more substantial as the Parent Company is assuming the role of “purchasing center” for the whole Group, managing the purchases of goods directly which are then resold to the subsidiaries. The purchases from suppliers are, however, made in the same currency used in the subsidiaries’ invoices. This activity began in the latter part of 2020 and, to date, has only involved three subsidiaries;
  • other intercompany transactions (medium/long-term and short-term loans, charge backs for intercompany service agreements, chargebacks for marketing costs incurred to support the markets, intercompany dividends) which result in currency risk for the companies operating in currencies other than that of the intercompany transaction

Foreign exchange translation risk arises from transactions in the United States and Canada, the United Kingdom, Switzerland, Hungary, Poland, Israel, Australia, New Zealand, India, China, Egypt and, as a result of the GAES acquisition at the end of 2018, in Chile, Argentina, Ecuador, Colombia, Panama and Mexico.  

Group strategy: 

Foreign Exchange transaction risk

The Group's strategy aims to minimize the impact of currency volatility on the income statement and calls for significant positions in foreign currency to be hedged against foreign exchange risk through specific derivative instruments. These include: (i) bonds issued in US dollars by Amplifon S.p.A. and subscribed by Amplifon USA Inc, (ii) dividends approved, but not yet paid by the Australian subsidiary denominated in Australian dollars and the American subsidiary denominated in US dollars.

With regard to operating procedures, when possible, Amplifon Group covers the risk using a natural hedge developed by maintaining currency deposits in the banks account of the subsidiary exposed to this risk for an amount commensurate with the exposure to the suppliers.

Natural hedges are also preferred by the Parent Company which, as a result of Global Procurement, supply of intercompany services, and dividends has receivables and payables in different currencies.

The development of Global Procurement and the Group-wide roll-out will increase the exposure to currency risk. This is monitored closely and any risk exposure linked to differences in assets and liabilities will be adequately hedged using instruments that have already been identified.

The loans between the Australian and New Zealand companies and between the American and Canadian companies are considered equity investments insofar as the loans are non-interest-bearing and not expected to be repaid. The impact of exchange differences is recognized directly in the translation reserve at equity without passing through the income statement.

The risks arising from other intercompany transactions worth less than €1 million (or the equivalent if denominated in another currency) are not hedged as the amounts are not material.

Foreign Exchange translation risk

The foreign exchange translation risk, in accordance with the Group Treasury Policy, is not hedged. Overall, the impact of the foreign exchange translation risk can be seen in the Group’s Euro denominated EBITDA which was around €3 million lower than the Group’s total EBITDA. The Argentinian subsidiary operates in a high-inflation country but, as the size of the subsidiary is immaterial, the impact on the Group is not significant. 


Interest rate risk

Interest rate risk includes the following situations:

  • fair value risk, namely the risk that the value of a fixed rate financial asset or liability changes due to fluctuations in market interest rates;
  • cash flow risk, namely the risk that the future cash flows of a floating rate financial asset or liability fluctuate due to changes in market interest rates.

In the Amplifon Group fair value risk arises on the issue of fixed rate bonds (private placement and Eurobonds). The cash flow risk derives from floating rate bank loans.

The Group’s strategy is to minimize cash flow risk, especially with respect to long-term exposures, through a balanced mix of fixed- and floating-rate loans and assessing whether to switch floating-rate borrowings to fixed-rate when each loan is taken out, as well as over the life of the loans including in light of the current market rates. In any event, at least 50% of the debt must be hedged against interest rate risk. At 31 December 2020, the Group’s medium/long- term debt stems for €701 million from floating rate bank loans, €528 million of which had been swapped to fixed rate debt at the date of this report.

The fixed-rate capital market issues (US private placements and Eurobonds) have yet to be converted to floating-rate debt as currently interest rates are low and the possibility that they will increase is limited.

The Benchmarks Regulation (BMR) which also affects Euribor and could have an impact on hedges will become effective in 2022. The Amplifon Group does not believe that the impact of the reform will be significant.

Credit risk

Credit risk is the risk that the issuer of a financial instrument defaults on its obligations resulting in a financial loss for the holder/investor.

In the Amplifon Group credit risk arises from:

(i)        sales made as part of ordinary business operations;

(ii)       the use of financial instruments that require settlement of positions with other counterparties;

(iii)      the loans granted to members of the indirect channel and commercial partners in the United States for investments and business development.

With regard to the risk under (i) above, the only positions with a high unit value are amounts due from Italian public-sector entities for which the risk of insolvency - while existing - is remote and further mitigated by the fact that they are factored without recourse, on a quarterly basis, by specialized factoring companies. Conversely, the credit risk arising from sales to private individuals based on installment payment plans is increasing, as is the credit risk arising from sales to US indirect channel operators (wholesalers and franchisees). This credit risk, however, is spread out over a number of partners and the amount owed by any single partner does not exceed a few million US dollars. Due to typical business risks, some may not be able to honor their debts. This would result in higher working capital and credit losses. While each subsidiary is responsible for collection of receivables, the Group has set up a centralized system of monthly reporting relative to trade receivables in order to monitor the composition and due dates for each country, and shares credit recovery initiatives and commercial policies with local management. With regard to private customers, the majority of which do, however, use cash, payment options like installment plans or loans (with terms limited to a few months) are offered. These are managed by external finance companies which advance the whole amount of the sale to Amplifon, while the situation of the indirect channel in the US is closely monitored by local management.

The risk referred to in (ii) above, notwithstanding the inevitable uncertainties linked to sudden and unforeseeable counterparty default, is managed by making diversified investments with the main national and international investment grade financial institutions and through the use of specific counterparty limits with regard to both liquidity invested and/or deposited and to the notional amount of the derivatives. The counterparty limits are determined based on the short-term ratings of each counterparty or, if a public rating is not available, on capital ratios (Tier 1). Transactions with non-investment grade counterparties are not allowed unless specifically authorized by the Group’s CEO and CFO.

With regard to the risk referred to in (iii) above, in the event payments fail to be made on the stores sold, ownership will revert back to Amplifon, while the receivables referred to above, are generally personally guaranteed by the beneficiaries and repayments are typically made when the invoices for the purchases of hearing aids are paid. 

Price risk

This arises from the possibility that the value of a financial asset or liability may change due to changes in market prices (other than those caused by currency or interest-rate fluctuations) due to both characteristics specific to the financial asset or liability or the issuer, as well as market factors. This risk is typical of financial assets not listed on an active market, which may not be easy to liquidate quickly or at a level close to their fair value. The Amplifon Group does not have investments in these kinds of instruments and, therefore, this risk currently does not exist. 

Liquidity risk

This risk typically arises when an entity is experiencing difficulty finding sufficient funds to meet its obligations and includes the risk that the counterparties that have granted loans and/or lines of credit may request repayment. This risk became particularly significant in 2020 in the wake of the Covid pandemic.

Toward this end, Amplifon implemented a series of measures and actions which made it possible for the Group to better manage its financial position, further strengthening its structure and solidity. More in detail:

  • the company resolved not to proceed with the payment of a dividend to shareholders, allocating the entire profit for 2019 as retained earnings;
  • a series of measures were adopted which focused on cost containment, reducing and redefining investments, quickly accessing all the tools made available by the governmental authorities, along with other operational initiatives and the management of working capital;
  • the Group’s financial structure and liquidity position were further strengthened by refinancing debt, extending maturities and gathering new financing for a total of more than €1 billion.

In this way the Amplifon Group was able to provide ample headroom and ensure the flexibility needed to take advantage of any opportunities to consolidate and develop business that might materialize. 

 At the end of the year available short-term credit lines amounted to €201 million and had not been utilized. Irrevocable credit lines amounted to €195 million and were unutilized at year-end.  The debt is primarily long-term with the first significant maturity, which cannot be extended, in 2025.

The measures described above, the increase in recurring margins posted despite the drop in revenues caused by the Covid-19 outbreak, and the strong recovery of the business in the second part of the year achieved despite the new lockdown measures implemented in the fourth quarter in the main European markets following the second wave of the pandemic, indicate that there is no significant liquidity risk, at least in the short-term.  

Hedging instruments

Hedging instruments are used by the Group exclusively to mitigate, in line with company strategy, interest rate and currency risk and comprise exclusively financial derivatives. In order to maximize the effectiveness of these hedges the Group’s strategy calls for:

  • large counterparties with excellent credit standing and transactions which fall within the limits determined in the treasury policy in order to minimize counterparty risk;
  • the use of instruments which match, to the extent possible, the characteristics of the risk hedged;
  • monitoring of the adequacy of the instruments used in order to check and, possibly, optimize the structure of the instruments used to achieve the purposes of the hedge.

The Group’s Treasury Policy also defines the rigorous criteria to be used when selecting counterparties.

The derivatives used by the Group are generally plain vanilla financial instruments. More in detail, the types of derivatives used include:

  • cross currency swaps;
  • foreign exchange forwards.

On initial recognition these instruments are measured at fair value. At subsequent reporting dates the fair value of derivatives must be re-measured and: 

(i)                  if these instruments fail to qualify for hedge accounting, any changes in fair value that occur after initial recognition are taken to profit and loss;

(ii)                if these instruments subsequently qualify as fair value hedges, from that date any changes in the fair value of the derivative are taken to profit and loss; at the same time, any fair value changes due to the hedged risk are recorded as an adjustment to the book value of the hedged item and the same amount is recorded in the income statement; any ineffectiveness of the hedge is recognized in profit and loss;

(iii)              if these instruments qualify as cash flow hedges, from that date any changes in the fair value of the derivative are taken to net equity; changes in the fair value of the derivative that are recognized in net equity are subsequently reclassified in the income statement in the period in which the hedged transaction affects the income statement; when the object of the hedge is the purchase of a non-financial asset, changes to the fair value of the derivative taken to net equity are reclassified to adjust the purchase cost of the asset hedged (basis adjustment); any ineffectiveness of the hedge is recognized in profit and loss.

The Group’s hedging strategy is reflected in the accounts as described above as of the moment when the following conditions are satisfied:

  • the hedging relationship, its purpose and the overall strategy are formally defined and documented; the documentation includes the identification of the hedging instrument, the hedged item, the nature of the risk to be neutralized and the procedures whereby the entity will assess the effectiveness of the hedge;
  • the effectiveness of the hedge may be reliably assessed and there is a reasonable expectation, confirmed by evidence, that the hedge will be highly effective for the period in which the hedged risk exists;
  • the hedged risk relates to changes in cash flow due to a future transaction, the latter is highly probable and entails exposure to changes in cash flow which could affect profit and loss.

Derivatives are recognized as assets if their fair value is positive and as liabilities if their fair value is negative. These balances are shown under current assets or liabilities if related to derivatives which do not qualify for hedge accounting, conversely, they are classified consistently with the hedged item.

In detail, if the hedged item is classified as a current asset or liability, the positive or negative fair value of the hedging instrument is included under current assets or liabilities; if the hedged item is classified as a non-current asset or liability, the positive or negative fair value of the hedging instrument is included under non-current assets or liabilities.

The Group does not have any net investment hedges.  

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