Page 26


Business review

Risks and uncertainties


(Photo captioned: Our multi-channel strategy forms part of the means of managing economic risk)


Our risk management strategy reinforces the value of actively managing risk, rather than eliminating it, and thereby ensures a disciplined approach to balancing risk and reward.

Economic

As a business based almost solely in the UK, the Partnership is particularly exposed to any economic downturn which could affect consumer spending, most notably in the Department Store business.

However, the strength and diversity of the John Lewis and Waitrose businesses, alongside our multi-channel strategy and developing services business, form an effective means of managing economic risk in the current retail environment. Our range and diversity of products and services bring us into competition with a wide range of UK and international retailers in largely mature market segments with low underlying growth. For this reason we continually focus on maintaining our pre-eminent product quality, customer service and supplier relationships, whilst retaining our competitive pricing, enabling us to maintain our appeal.

Regulatory and political

The Partnership remains sensitive to the regulatory environment in which it trades in order to ensure our ongoing compliance with key regulatory requirements around planning, trading, tax and competition. In addition to this, the Partnership works actively with governmental and non-governmental organisations, to develop public policy, and seeks to represent the views of our customers and Partners in the areas in which we trade. In this way we try to anticipate and contribute towards significant debates to improve the environment in which we operate.

Financial and treasury risk

The principal financial risk which we face is the ability to generate sufficient funds to satisfy our business needs, to meet our Partners’ expectations for Partnership bonus and to mitigate against any adverse financial impact resulting from risks identified in our business planning process. Other financial risks and mitigations are covered in more detail below and in note 23 to the accounts:

• Funding and liquidity

Liquidity requirements are managed in line with short and long term cash flow forecasts linked to our trading patterns and reviewed against the group’s debt portfolio and maturity profile. Details of the group’s borrowings, together with their interest rates and maturity profiles, are also provided in note 26 to the accounts.

• Interest rate risk

In order to manage the risk of interest rate fluctuations the group targets a ratio of fixed and floating rate debt in line with treasury policy. Exposures to interest rate fluctuations are managed using interest rate swaps. Details of the group’s borrowings and interest rate exposures are provided in note 26 to the accounts.

• Foreign currency risk

The group uses derivatives to manage exposures to movements in exchange rates arising from transactions with foreign suppliers. Forward exchange contracts are entered into for all major exposures.

• Credit risk

The group has no significant customer credit risk. Cash deposits and other financial instruments give rise to credit risk on the amounts due from bank counterparties. These risks are managed by restricting such transactions to counterparties with a credit rating not less than a Standard & Poor’s equivalent ‘A’ rating.

• Capital risk

The group’s objective is to maintain a capital structure which is consistent with an investment grade credit rating.

• Energy risk

The group operates risk management processes for the procurement of energy associated with its activities.