Co-op profits rise sharply on continued investment in brand, business and people

06 April 2018

Ambitious new plan unveiled to create the Co-op of the future

Co-op difference highlights 2017: delivering for members and their communities

  • Significant Co-op member reward of £74m generated – members receive £61m in personal rewards with £13m earned for over 8,000 community projects
  • Active membership increased by 15% to 4.6 million; total joining since member relaunch to 1.2 million
  • 200 Member Pioneers recruited in new role designed to strengthen communities around Co-op outlets; on track to recruit Member Pioneers for each of our 1,500 communities by 2020
  • Co-op’s position as UK’s largest corporate supporter of Academy schools strengthened with addition of three new academies and creation of plan for significant expansion, more than tripling number of Co-op Academy schools
  • 60% increase in apprenticeships year-on- year, recruited 742 new apprentices who receive quality training and pay rates in line with fellow colleagues; target of 1,000 apprentices agreed for 2018
  • A campaigning Co-op: leading the way on Modern Slavery and tackling loneliness and one of first retailers to sign up to bottle deposit and return scheme to reduce plastic waste
  • Development of the Stronger Co-op, Stronger Communities plan, designed to make the Coop more competitive, relevant, sustainable and innovative. Early 2018 initiatives see further price investment in Food, ground-breaking product innovation in Funeralcare and Insurance and creation of new Ventures programme

Financial and operational highlights:

Profits in line with plan, reflecting strategy of continued investment in The Co-op and the return of value to members:

  • Profit before tax of £72m (2016: loss £132m), on strong business performance, with 2016 loss reflecting write down of stake in Co-operative Bank
  • Underlying profit before tax of £65m* (2016: £52m), up 25% on improving business performance and further reductions in the cost base
  • Operating profit of £126m (2016: £148m), including £74m of value created for members and communities
  • Revenues stable at £9.5bn (2016: £9.5bn), in line with plan
  • Food like-for- like sales** up 3.4%, Core convenience LFL sales up by 4.3%, with four consecutive years of LFL sales growth now delivered. Reported Food sales flat at £7.1bn, reflecting impact of strategy to close larger stores
  • Wholesale sales to independent societies up 7% to £1.7bn, as wider co-op sector benefits from the quality and value of Co-op product range
  • Funeral and Life Planning revenues up 4% to £343m, supported by growth of Simple Funeral offer; sales in will writing and probate rise 16%. Market share of funeral plan sales increased to 33.2% (2016: 28%)
  • Insurance gross written premiums up 3% at £496m; like-for- like net earned premiums growth of 8% but reported revenue of £331m (2016: £439m) down due to a new reinsurance contract
  • Debt significantly reduced to £775m (2016: £885m)

New Stronger Co-op, Stronger Communities plan:

New plan in place to create the Co-op of the future: driving growth by creating a more commercial Co-op and sharing the greater value created with members and their communities. Underpinning that plan will be:

  • An efficient Co-op, with a clearer focus on serving customers and members
  • More closely interconnected business areas operating under the strong Co-op brand
  • A greater focus on convenience and relevance, with market-leading products and services at competitive prices
  • Ventures in new markets with agile, capital-light, digital-first approach to disrupting markets
  • In support of this plan, the Co-op will maintain a distinctive voice in society, championing causes that matter to members, while also taking a stance as an employer of difference in its sectors

Under the Stronger Co-op, Stronger Communities plan, the Co-op has already taken a number of initiatives in 2018, including:

Food

Initiatives to lower prices and broaden offer underway, including:

  • £50m investment to reduce prices announced in January 2018, with further pricing reductions planned
  • Further expansion of convenience store estate, with 100 new stores planned for 2018
  • “Pay in the aisles” pilot underway to enhance the shopping experience for customers within stores
  • Acquisition of Nisa Retail, the wholesaler and convenience retailer, for up to £137.5m. Deal remains subject to regulatory approval
  • Agreement to become exclusive wholesale supplier to Costcutter Supermarkets Group (CSG) and the 2,200 Costcutter, Mace, Simply Fresh, Supershop and kwiksave convenience stores across its network from spring 2018. Working with independent retailers to grow their businesses through the provision of Co-op own-brand products to their stores and by offering lower wholesale prices through improved buying power

Funeral & Life Planning

The Co-op will continue to hold funeral prices and help tackle funeral affordability, whilst investing heavily to provide products and services to meet present and future customer needs:

  • Acquisition of Simplify Probate signals commitment to grow the life planning and legal area, both organically and through acquisition, with a primary focus on wills and probate
  • Focus on improving the funeral planning market for consumers via the launch of “The Co-op Commitment”, making Co-op the only plan provider to launch additional protection for customers paying monthly

Insurance

Plans in place to expand product range, working with partners, with the ambition of covering customers’ more detailed insurance needs within next five years:

  • Ground-breaking new Travel insurance product launched in early 2018, based on member input, providing unlimited medical expenses for people with pre-existing conditions
  • 50% of all contact centre new business now comes from Co-op members

Ventures

  • A new Co-op ventures programme has been created; currently looking at initiatives in Health and Money
  • Ventures to be supported and enabled by existing digital and supply chain capabilities, seeing the Co-op creating a digital member platform, with new services and products that create social and commercial value. These will create further synergies for the existing businesses and member value in new areas

Outlook

  • The Food, Funeral and Life Planning and Insurance markets all remain highly competitive against a challenging consumer and economic backdrop. The Co-op will invest further in all its businesses to drive commercial success and value for members and their communities, whilst maintaining a tight control over costs.
  • Debt will remain within guidance levels of £900m
  • Our focus is on Stronger Co-op, Stronger Communities. With this significant investment in members and our business areas,  the Co-op is not expecting any surplus profits being available for distribution during 2018
  • Looking forwards the Co-op will continue to consider how best to provide significant and sustainable value to members and the communities in which they live

Steve Murrells, Chief Executive of the Co-op, said:

“Today’s results show how much progress we have made. All our businesses have performed well and we have increased profits and reduced debt, while continuing to invest for colleagues, members and customers. The success we are enjoying shows that the Co-op’s difference really resonates today – a different ownership model and a different approach to business, based on returning profits to our members and their communities.

“We’re delighted with our performance, but we’re hungry for more and ready to create the Co-op of the future. Whether it’s in our existing business areas or through new ventures, we want to make the Co-op ever more competitive, relevant and innovative. That is why we are launching the Stronger Co-op, Stronger Communities plan. To really succeed as a Co-op we need to be even more successful commercially and our community efforts need to be concentrated on the things that matter to people. We are going to deliver more Co-op products and services to more people throughout the country and that is what will really allow us to spread our difference.

“We know there are challenges ahead, but we are confident that with the support of our colleagues and our members, the strength of our brand and continued investment in our businesses we will achieve our goals.”

Allan Leighton, Independent Non-Executive Chair of the Co-op, said:

“With profits up 25%, debt down and membership up by more than 1.2 million since we launched our new scheme, we are stronger than ever before and ready to create a new, modern Co-op that is fit for the future. As we do that, we will remain true to our social purpose and continue to make the right decisions and campaign on the big issues where business really should have a voice.

“It is vital that our Co-op continues to innovate and be relevant to meet the changing needs of our stakeholders. The plans we have in place to do this are rightly challenging. We have much to do, but we are confident in our ability to deliver our ambition and create an even stronger Co-op.”

Media Enquiries:

The Co-op

Jon Church Tel: 07545 210812

Russ Brady  Tel: 07880 784442

Tulchan Communications

Susanna Voyle  Jonathan Sibun  Tel: 020 7353 4200

Notes to editors

About the Co-op

The Co-op, one of the world’s largest consumer co-operatives with interests across food, funerals, insurance, electrical and legal services, has a clear purpose of championing a better way of doing business for you and your communities. Owned by millions of UK consumers, The Co-op operates 2,500 food stores and over 1,000 funeral homes, with more than 63,000 colleagues and an annual revenue of £9.5bn.

  • *Underlying Profit before Tax excludes one-off items, property and business disposals, change in value of investment properties, finance income and non-cash finance costs, and share of profits and losses from associates and joint ventures. A reconciliation of Operating Profit to Underlying Profit before Tax is provided in the Consolidated Income Statement.
  • **Like-for- like sales is a measure of year-on- year sales growth for stores that have been open for more than one year.

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