John Lewis Partnership plc annual report and accounts 2013

Business review Risks and uncertainties (continued)

• Energy risk The Partnership operates risk management processes for the procurement of energy associated with its activities including hedging energy pricing exposure.

• Insurable risk The Partnership’s captive insurance company, JLP Insurance Limited based in Guernsey, provides reinsurance of the Partnership’s employer’s, public and vehicle third party liability insurances and of the Partnership’s healthcare insurance cover. It also reinsures extended warranty cover purchased by customers of John Lewis.

Pensions risk

Our pension obligation represents our longest term risk and is of critical importance. We continue to maintain an open non- contributory final salary defined benefit pension scheme.

The Partnership takes a long term view of its pensions liabilities but recognises that there are significant risks from increasing longevity and from volatility and uncertainty in the investment markets.

The Pension Fund assets are held in separate funds administered by the Trustees, who delegate day-to-day management of these funds to a number of investment managers. Our pension arrangements and funding position are explained in note 24 to the accounts. We have executed a deficit mitigation strategy over the past seven years including a one-off cash contribution made by the Partnership in January 2013. The next formal actuarial valuations of the schemes will be as at 31 March 2013. Each month, we monitor asset and liability performance against both accounting and actuarial assumptions.We also have a formal framework, agreed with the Trustees, for managing the Financial and Investment Risk of the Pension Fund proactively rather than retrospectively. The liquidity risk is managed by seeking to ensure the annual contribution to the Fund more than covers its outgoings and that income generated from the investment activities is more than adequate to cover any short fall that may occur.

Partners’ trust and engagement The commitment of Partners to the business is a unique source of competitive advantage which could be eroded by the loss of Partners’ trust and engagement. The risk is mitigated by the Partnership’s democratic structure as set out in the Constitution. This includes: elected councils and forums to hold senior management responsible for decisions and actions; the Partnership Council which acts as a governing authority and holds the Chairman to account; the Partners’ Counsellor department which seeks to ensure that the Partnership is true to the Constitution; and the Partnership’s publications which ensure that Partners, as co-owners, are given the information that they need and all their questions answered by management.

Managing change The successful delivery of key strategic projects, such as the implementation of new systems, the re-engineering of business processes or major infrastructure development, is of paramount importance to the Partnership as such investments improve the efficiency and resilience of our operations whilst providing a strong platform for future growth. The successful delivery of these projects depends on the resources and skills sets available to the Partnership. Our Personnel strategy aims to ensure that the Partnership possesses the appropriate skills and resources required to deliver these projects. Resources are continually reviewed and aligned with the business critical priorities. Skills gaps are addressed through training and development of Partners. When the required skills are not available due to resource constraints or their highly specialised nature the Partnership will recruit these externally.

Competitor pricing

The retail landscape has become increasingly competitive and as a result one of our key risks is margin erosion due to the pricing strategies of our competitors. In response we continue to invest in innovation, service and our store environment to maintain appeal, whilst also focusing on operational improvements to help drive further growth and pricing efficiencies.

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