Co-op continues planned strategic investment for the benefit of colleagues, members and businesses

07 April 2022

Financial Highlights

  • Total group revenue up £0.3bn to £11.2bn against pre pandemic levels (2019: £10.9bn), down slightly year-on-year, reflecting unprecedented Covid-related sales in 2020 (2020: £11.5bn) and impact of significant supply chain disruption and system transformation in Food in H2 to support moves to an increasingly multichannel offer.
  • Profit before tax of £57m, up £33m on pre pandemic (2019: £24m); down £70m on last year (2020: £127m); one-off £99m gain* from early settlement of the Group Relief Liability owed to Co-operative Bank PLC.
  • Underlying operating profit of £100m (2019: £173m, 2020: £235m); reflecting increased investment in colleagues and businesses and H2 supply chain impacts.
  • Net debt £920m**, (2019: £695m, 2020: £550m) reflecting various factors, including increased capital expenditure, investment in stock during supply chain disruption, negative cash flow timings and furlough repayment; net debt has improved significantly since year end.
  • More new members recruited than previous two years - 517,000 (2019: 470k) (2020: 445k); with almost two fifths (39%) aged 35 and under.
  • £21m shared with members through member rewards and £10m in total saved by members by redeeming digital offers.

Key investments

  • £140m invested in Food store estate, including opening 50 new stores; 87 store refits; 25 relocations and 15 store extensions, bringing us closer to our customers.
  • £39m invested in enhancing Food supply chain; including our new depot which opened this year.
  • £20m invested on annualised basis, aligning frontline colleague pay to Real Living Wage.
  • £18m invested in reducing prices across our businesses for our members and customers.

Vision Highlights: ‘Co-operating for a Fairer World’

  • Supporting members and customers in the cost of living crisis, with £8.7m investment across 102 Honest Value products, absorption of supplier inflation on key products in our Food business, and holding prices in our Funeralcare business.
  • Reached milestone of £100 million of funds shared with local communities, causes and charity partners over the last five years.
  • More than 1 million members selected a Local Community Fund cause to support in the last round of funding.
  • Raised more than £4.5m in 2021 through partnerships with Mind, Inspire and SAMH, supporting over 8,000 people to increase their resilience and mental wellbeing.
  • Launched two major new colleague policies including a domestic violence policy and pregnancy loss policy.
  • Key focus on colleague safety through ‘Safer Colleagues, Safer Communities’ campaign, investing in new technology and training, and successful campaigning for better protection in law for shopworkers against violence.
  • Launched 10-Point Climate Plan, with significant commitments, including reaching net zero by 2040 and ambition to be world’s first food retailer to produce carbon neutral own brand food and drink by 2025.

Outlook

Food and Life Services have enjoyed a good start to the year; Food sales have outperformed the market in the first quarter following availability improvements and focus on value.

  • Looking ahead, Co-op expects to face continued challenges during the year, including the final implementation of the business transformation in Food, current inflationary pressures and the economic uncertainty facing customers, members and colleagues.
  • Court of Appeal increases judgment against IBM in relation to the long-standing dispute on the insurance IT transformation programme from approximately £13 million to approximately £80.5 million.
  • The Board remains confident in the strategy, with a focus on driving growth through capital-light routes to market and a priority to further reduce debt while continuing to deliver against the Co-op vision of co-operating for a fairer world.

Allan Leighton, Chair, Co-op said:

“The past year has been a challenging one for our Co-op, but we continued as planned with our investment strategy to strengthen our Co-op’s future state.

“I would like to thank our colleagues across the business whose passion and support continues to inspire and drive us forwards.

“We would all like to thank Steve Murrells for his outstanding contribution to our Co-op over the past 10 years and congratulate Shirine Khoury-Haq on her appointment.

“The economic headwinds look stark and will be tricky to navigate but through our continued planned strategic investments our Co-op is well placed to ride out the storm and prosper beyond.”

Shirine Khoury-Haq, Interim Chief Executive, Co-op said:

“The Co-op is a business designed for the long term and that is the path we are on. The last year has seen us facing some significant challenges, including significant supply chain issues in the second half coming at the same time as our Food business transformation and increasing inflationary pressures. The difficult operating environment disproportionately impacted our Food business, given its focus on the community convenience market, with an operating model that is more reliant on flexibility in the supply chain.

“The Co-op remains uniquely positioned. We continue to be driven by our vision of co-operating for a fairer world and have a platform of businesses in the right markets to drive change, and get closer to our members, customers and communities. The significant investment we have made across our business in recent years now provides the basis for us to move forwards in a more efficient manner.

“As we look ahead, our focus must be on accelerating growth in our Food business through our four routes to market, whilst expanding our Life Services businesses, from Funeralcare to Insurance and Legal Services. We must also ensure our businesses are there for our members, customers, communities and suppliers who are experiencing the effects of the cost-of-living crisis, as we continuing to focus on our Honest Value range in Food and affordable services across Life Services.

“I am delighted to be leading this unique business and look forward to working with all our colleagues to take our Co-op to the next phase of its development.”

Business Highlights

Food

  • Total sales across Food and Wholesale up to £9.1bn, on two-year basis (2019: £8.9bn); down slightly on previous year (2020 £9.3bn) which was boosted by impact of initial lockdown on consumer behaviours.
  • Strong underlying demand, with two-year like-for-like growth of 3.3% (excluding Fuel) and more than 9% in Wholesale.
  • In spite of disruption to our business in H2, we continued to invest, pushing ahead with the implementation of new buying and supply systems.

  • Key investment activity included:

    o Significant investment into logistics network to support availability and future growth, with biggest regional depot in Biggleswade.

    o Plans to construct a new facility alongside Newhouse depot in North Lanarkshire this year.

    o Opened 50 stores, refitted 87 stores.

  • Invested in price including:

    o Launched Honest Value range in Food stores across Q4 2020 & Q1 2021, investing £8.7m across 102 products.

    o Invested in 94 GRO lines, committing £1.1m to align vegan product prices with meat-based equivalents.

    o Absorbed supplier inflation on key lines in protein and dairy, protecting prices and customer offer.

  • In Wholesale, recruited 546 new stores to be serviced by Nisa and launched the refreshed Nisa Reward Scheme in the period.

  • Significant e-commerce expansion:

    o More than doubled revenue in online business to £200m, through website and partnerships with Amazon, Starship and Deliveroo (2020: £70m) (2019: £4m).

    o E-commerce operations available across 1,600 stores, in more than 450 locations, available to over 55% of the population.

    o Looking to expand successful trial with Amazon Prime this year, with ambition to grow offering to serve 26m shoppers.

    o Launched vending machines and micro-supermarkets in a wide range of locations including offices and hospitals, allowing customers to self-serve conveniently.

    o Achieved fastest rollout of micro distribution hubs - more than doubling our ultra-fast grocery delivery services to 2,000 stores and reaching three-quarters of the population.

  • Continued to expand franchise operation with 22 new stores in 2021, totalling 36 stores, including first franchise in Scotland and first ever service station store in Cornwall.

  • Growth across University partnership, servicing over 200k students with ten in-campus and off-campus stores.

Funeralcare

  • Overall revenue slightly down on prior year by £8 million to £264 million (2020: £272 million), reflecting lower death rate after the peak of the pandemic.
  • Strong performance in funeral planning, with number of new clients up 5% on previous year (2021: 44,751) (2020: 42,497).
  • Fully compliant with all CMA requirements ahead of the September 2021 deadline and submitted FCA application and Regulatory Business Plan in October 2021.

  • Continued to invest in and transform the business:

    o offering more competitive prices to members and clients, maintaining prices since 2017 as well as reducing prices in direct cremations, making this increasingly popular option more affordable.

    o transforming and modernising with new digital capabilities to provide an omni channel experience for clients, including new ways to pay online and live web chat.

    o expanded choices to be more diverse and inclusive, including extension of African and Caribbean funeral options to additional locations and trialling a new eco proposition.

Insurance

  • New capital-light and customer centric business model has driven return to profitability with new business sales of £34m, up on the previous year (2020: £6m).
  • Core areas of home and motor insurance both performed strongly, in first year of new business model, attracting 162,000 new customers.
  • Delivered a major investment in customer experience and attracted new UK insurers to meet members’ needs, improving prices and competitiveness.

  • Covid continued to impact a number of insurance product lines:

    o Travel restrictions during the pandemic harmed consumer confidence and travel remained low.

    o Pet insurance saw a 20% sales increase as the pandemic led to an increase in pet ownership.

  • Broadened our long-standing relationship with Neighbourhood Watch with launch of Student Watch: a new national initiative designed to improve student safety whilst on campus and away from home.

Legal

  • Overall revenue increased by 9% compared to previous year (2021: £39m) (2020: £37m) with profits also increased.
  • Probate up 20% year-on-year with number of cases opened over 6,000, and the estate planning division growing revenue by 11% year on year.
  • Continued investment in digital capabilities and the launch of new products and services, including a lasting power of attorney digital service and a digital probate administration service.
  • Continued to expand B2B partnerships with 19 new partners including leading banks, financial services providers and charities. 
                               __ENDS__

*Generated from early settlement of liability owed to Co-operative Bank PLC, agreed at £48m, against historic expected liability of £147m; further details in ‘Our financial performance’ section

**Excluding lease liabilities

Media Enquiries: For more information contact:

Russ Brady (07880 784442, russ.brady@coop.co.uk)

Susanna Voyle (07980 894557, svoyle@headlandconsultancy.com)

Cat Turner (07834 090783, catherine.turner@coop.co.uk)

Annual Results RNS in full