Taking an alternative approach to short-term investing

The largest employee-owned business in the UK, John Lewis Partnership operates department stores and other retail outlets. It was time for this partnershp of more than 85,000 owners to take an alternative approach to short-term investing.

The challenge

To assess the optimal level of liquidity required to ensure John Lewis Partnership has continued financial sustainability, the treasury team conducted a comprehensive liquidity review. The assessment included:

• Stress testing cash flows over the firm’s cyclical cash cycle
  
  
• Performing a review of liquidity levels and sources across the retail peer group
  
  
• Using Basel III principles as a framework to assess optimal levels of liquidity

As an outcome of this analysis, the Head of Treasury and Corporate Finance, Alan Drew, sought approval from the John Lewis Partnership Board to increase credit facilities from £325m to £500m. In addition, Drew requested that £100m in cash be set aside as a permanent reserve to help mitigate a 1/20 stress event.

As higher cash levels were being retained and cash holdings were growing with the business, the team was challenged by the Group Finance Director to optimise returns for its sterling-denominated cash portfolio.

The solution

Before the John Lewis Partnership was able to evaluate investment alternatives to the AAA-rated constant net asset value (CNAV) liquidity funds it used, they required a more accurate cash flow forecast. To aid in their evaluation, they created a cash flow forecasting model to assess both short and medium-term cash requirements.

The team then developed an investment strategy that segregated cash into separate investment classes based on bespoke liquidity and risk profiles. By assessing cash in this way, the team was able to better identify values that could be invested for an extended duration using a greater range of products to enhance yield.

Company profile

The John Lewis Partnership operates 50 John Lewis shops across the UK, johnlewis.com, 353 Waitrose shops, waitrose.com and business to business contracts in the UK and abroad. The business has annual gross sales of over £11.5bn.It is the UK’s largest example of an employee-owned business where all 85,500 staff are Partners in the business.

 0903c02a8221ea79