Co-op community impact grows on strong Food performance

12 September 2019

Co-op highlights H1 2019: Investing for the benefit of our members and communities

  • £29 million returned to members and £6 million to 4,000 local causes.
  • Total sales increased by 12% to £5.4 billion.
  • 22 consecutive quarters of like-for-like* sales growth in Food - total sales up by 3% and like-for-like sales up by 1.7%.
  • Extended online food delivery trials in London using zero emission electric cargo bikes and by partnering with Deliveroo.
  • Funeral revenue falls by 6%, driven by an unexpected 10% fall in the death rate and our conscious decision to hold prices in a changing and competitive market.
  • Funeralcare to concentrate on innovation, choice, flexibility and partnerships – giving the same level of focus and care to develop the business as the Co-op did with the reset of its food business five years ago.
  • Co-op Health expected to be rolled out nationally by early 2020 bringing convenience to pharmacy and health services.
  • Re-entered the life insurance market, launching Co-op Life Cover, including innovative payment holiday option.
  • Successfully re-financed £300m of existing debt, through a Fairtrade Sustainability Bond - twice over-subscribed and a UK retailing first.
  • The Co-op named Grocer of the Year at the Grocer Gold Awards and Consumer Business of The Year at The London Evening Standard Awards.
  • Co-op members back accelerated sustainability, packaging and community goals:
    • All Co-op direct Green House Gas emissions to be reduced by a further 50% by 2025.
    • Ambitious Co-operate 2022 community plan focusing on saving community spaces, improving wellbeing, skills and education.

Financial highlights: In line with plan

  • Significant accounting standards change in H1 2019 following adoption of IFRS 16 in relation to lease accounting.
  • Total sales increased by 12% to £5.4 billion, reflecting full contribution of Nisa business and continued strong performance of our Food business.
    • Total Food sales grew by 3% to £3.7 billion and like-for-like sales by 1.7% despite highly competitive trading environment.
    • Funerals and Life Planning sales fell 6% to £163 million. Results driven by a 10% reduction in the death rate and the continued reshaping of the business in response to market changes.
  • Underlying business performance in line with plan, enabling £35m of member value to be generated.

On an IFRS 16 accounting basis for 2019:
Total Underlying Operating Profit** increased to £64m from £50m in 2018, of which:
- Food was £120m (2018 £80m)
- Funeral and Life Planning was £13m (2018: £28m)
Profit Before Tax reduced to £25m (2018: £44m)

On a non-IFRS 16 accounting basis for 2019 – Like-for-like:
Total Underlying Operating Profit reduced to £36m from £50m in 2018, of which:
- Food was £95m (2018 £80m)
- Funeral and Life Planning was £13m (2018 £28m)
Profit Before Tax reduced to £30m (2018: £44m)

  • Supporting function costs increased by £13 million (excluding IFRS 16) due to greater investment in our digital capability and increased marketing activity to promote our Co-op difference.

175 year anniversary demonstrates long-term impact and sustainability:

This year marks 175 years since the Rochdale Pioneers opened their first Co-op shop and we continue to stay true to their founding principles by measuring our success not just in pure commercial terms but in the way we create value for our members and Society as a whole. Our Stronger Co-op, Stronger communities plan is helping us move from strength to strength as our customers recognise that choosing Co-op also means choosing to do good for their communities.

We want to help create stronger, more connected communities, which is why this summer we launched our Endangered Spaces campaign in partnership with Locality, with the aim of protecting 2,000 community spaces by the end of 2022.

  • The Co-op Foundation has awarded more than £1.4 million to help 20 community organisations grow their activities and secured £1 million of government funding to help over 7,500 young people improve local spaces.

In addition to our work on reducing plastic and greenhouse gas emissions, we have written to Local Councils which collect food waste but do not yet accept our compostable carrier bags in their collection services, to ask them to change their policy so we can play our part in reducing plastic contamination and diverting food waste from landfill.

The Co-op’s ability to support our community and campaigning activities is driven by strong businesses:

  • Our Food business continued to perform well in a fiercely competitive market.

    • We have the highest shopper frequency in the market as customers regularly visit their Co-op - our 1.7% growth in like-for-like sales was a particularly strong performance, given outstanding sales last year on the back of the FIFA World Cup.
    • We had a successful Easter bank holiday, driven by a competitive offer and helped by the warm weather, and our summer saver deals have also proved popular.
    • In our wholesale operation 90% of Nisa partners have now taken lines from across Co-op’s own brand products, which are now generating weekly sales in excess of £2.5m.
    • We’ve established six Co-op franchise stores; three are Costcutter-owned stores and three are on university campuses.
      • The university-based stores provide greater access to the student market, whilst providing valuable market data which we can feed into our business, to ensure our Co-op continues to meet the needs of a younger audience.
  • Under new leadership, our Funerals and Life Planning business has reviewed its strategy focusing on support for families, broadening customer choice, competitiveness and channels to market.

    • Sales during the period were significantly impacted by an unexpected 10% fall in the death rate. Funerals conducted in the period fell to 48,423 compared to 53,213 in H1 2018.
    • We welcomed the Government’s announcement, in June to crack down on the use of high pressure and misleading tactics to sell funeral plans. We are working closely with the CMA investigation into the at-need funerals and crematoria markets.
  • In Insurance, we have invested to increase product development and raise the business’s profile so we can meet the ever-increasing needs of our members in the future.

    • In addition to returning to the life protection market, we introduced an innovative “graduated” product for young drivers, saving them an average of £300, as a reward for safe driving.
  • Our Legal Services business continues to perform well, with Probate revenue up 37% and Estate planning revenue up 20%. We are the leading provider of probate in the UK.

  • The launch of Co-op Health saw us return to the health sector, with a disruptive, capital light, digital offer giving customers a range of ways to access their medication, with a service provided by a brand they know and trust

    • This year we began a ‘click & collect’ trial, using lockers in Co-op food stores.

Outlook

  • With Brexit continuing to create uncertainty, we continue to plan and prepare as best we can. In the event of a “no deal” Brexit there is an increased risk of some disruption to our supply chain, however we will do all we can to protect our customers and members from this impact.
  • We are progressing with the ambitious plans we have for our funerals business amid unprecedented market change. We are confident these changes will position the business for long-term success, providing our customers with the support and choices they require at their greatest time of need.
  • Likewise we are optimistic with the opportunities which exist in insurance, as we progress a deal with Markerstudy subject to regulatory approval, as well as our legal and health sectors, where our historical expertise and ambitious growth plans, provide the basis for us to increase member value in the years ahead.
  • We will continue to innovate and invest further within our food business to maintain the competitive advantage within the convenience sector.

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

“We’ve enjoyed another good six months where the strength of our business has led to a further £35 million of value being generated for our members and their communities. Our food business continues to perform strongly in a highly competitive market and has now recorded 22 consecutive quarters of like-for-like sales growth. As our largest business, it is providing the fuel for our growth in terms of member value and community impact.

“In funerals we are actively re-positioning the business to meet the changing needs of our members. We are the market leader but we will also lead the market in providing better choices and options for our customers in the years ahead. Likewise, the development in our insurance, legal and health businesses will enable us to significantly broaden the range of Co-op services, in areas where our members know the Co-op difference can be clearly seen.”

Allan Leighton, Chairman of the Co-op, said:

“We have made further progress during the first six months of this year and the strength of our business can be seen by our underlying financial position and through the increasing impact we’re having in local communities.

“The Co-op is now 175 years young, and we have worked hard to ensure that we remain relevant to all generations and in particular younger co-operators. Whether this is using our presence at eight music festivals to introduce people to our values and ways of doing things, or by developing motor insurance products specifically with the needs of young drivers in mind. The Co-op is thriving and we are committed to growing our Co-op difference and impact for generations to come.”

Ends

Media Enquiries:

The Co-op

Jon Church
Tel: 07545 210812

Russ Brady
Tel: 07880 784442

Tulchan Communications

Jonathan Sibun
Tel: 020 7353 4200

About the Co-op:

The Co-op is one of the world’s largest consumer co-operatives with interests across food, funerals, insurance, legal services and health. It 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 2,600 food stores, over 1,000 funeral homes and it provides products to over 5,100 other stores, including those run by independent co-operative societies and through its wholesale business, Nisa Retail Limited. It has more than 63,000 colleagues and an annual revenue of over £10 billion.

*Like-for-like sales is a measure of year-on-year sales growth for stores that have been open for more than one year.

**Underlying Operating Profit excludes one-off items, property and business disposals and change in value of investment properties. A reconciliation of Underlying Operating Profit to Operating Profit is provided in note 1 of the Interim Financial Statements.

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