Co-op delivers against strategy and targets one million new members

05 April 2023

  • Early and targeted action against tough economic backdrop leads to strong operational performance and robust financial returns
  • Focus on cash flow results in strong cash generation and significant reduction in net debt.
  • Significant Co-op value returned to members, colleagues and communities in line with vision
  • New focus to attract one million active new members over the next 5 years, with improved membership proposition to be rolled out in H1

Financial Highlights in brief

  • Revenue £11.5bn**, up £0.3bn (2021: £11.2bn)

  • Underlying operating profit £100m***, maintained (2021: £100m)

  • Underlying EBITDA £490m, down by £15m (2021: £505m)

  • Group profit before tax £247m****, up by £190m (2021: £57m)

  • Net cash from operating activities £455m, up by £277m (2021: £178m)

  • Group net debt £333m, improved by £587m (2021: £920m)

** revenue also impacted by the sale of the petrol forecourt business which completed in October, reducing 2022 revenue by £150m

*** underlying profit also impacted by the sale of the petrol forecourt business which completed in October, on a like for like basis profit increased by £10m from £90m in 2021 to £100m in 2022.

**** includes £319m of profit from the sale of the petrol forecourt business, which completed in October

Financial and Business Development Highlights

  • Despite very challenging markets, delivered a strong sales performance and maintained underlying profitability

o £100m of additional energy and salary inflation absorbed

o £37m invested in Q4 in holding prices on key products

o Also includes impact of sale of petrol forecourts on revenue and profitability, with revenue £150m lower and underlying profit £10m lower as a result of the sale

  • Entered 2022 with targeted cost savings of £50m, increasing to £101m at half year in recognition of challenging cost environment

o Met target, delivering £101m of cost savings

o Cost savings mitigated impact of energy and salary inflation landing this year.

o Significant increase in cash generated from operating activities (£455m vs £178m in 2021) puts us in a good position as we enter 2023

  • Sale of our petrol forecourt business completed in October

o Overall generated net proceeds of £408m, and further reduced our lease commitments by £171m

  • Active Co-op Membership grown for the first time in 5 years to 4.41 million members

Vision Highlights - Co-operating for a fairer world

  • Continued to support our colleagues with cost of living challenges, and overall wellbeing, including:

o £55 million overall YOY investment into colleague pay including maintaining commitment to the real living wage.

o £12 million invested in payments onto colleague membership cards during the cost of living crisis.

o Colleague discount extended to 30% on own brand products.

o Further increased the amount colleagues could access from their basic pay in advance via partners Wagestream.

o Provided further tailored support with partners including Grocery Aid, Keep Credit Union, Stepchange and Salary Finance.

o Implemented new refreshed colleague policies including fertility treatment policy, and menopause policy.

  • Provided support through challenging times for local communities, including :

o £24.6m raised for local communities, taking total to £117m raised for our local communities since Local Community Fund launched in 2016.

o First retailer to launch a £1 million ‘Warm Spaces’ funding boost, to support local communities navigating rising energy costs.

o New partnership launched with Your Local Pantry, set to see its network triple within three years from 75 to 225 pantries across the UK.

o Also continued work with Hubbub to help expand its community fridge network to 500 locations by summer 2023.

o More than 1.5 million people signposted to information, activity, and support for mental wellbeing since 2020, through activity supported by our Co-op, including £8m raised for Mind, SAMH and Inspire.

o Added 2 new schools to our Co-op Academies Trust, taking the total to 29 schools, and 18,500 students with a focus on schools in the most economically deprived areas in the UK.

o Commitment to supporting British farmers maintained - 100% of our fresh and frozen meat is British – and we only use British meat as an ingredient in our products.

  • Recognition of our wider support for sustainability and the planet including :

o Recipient of the Queen’s Award for Enterprise for Sustainable Development 2022.

o Awarded the Relex Responsible Retailer Award for commitment to sustainability.

Outlook

  • The Board remains confident in the strategy, as we drive growth through our core businesses via physical and digital routes to market, ambitiously grow our membership, whilst maintaining financial discipline and deliver upon our vision of co-operating for a fairer world.

  • The confidence and strength of the strategy was evidenced by the recent amendment and extension of the Revolving Credit Facility to March 2026. We have also begun early repayments of our 2024 bond maturity, with £100m repaid in February.

  • We expect the volatile external environment and turbulent economic headwinds, including inflationary pressures to continue. However, the early action taken last year to strengthen the Co-op’s financial position, leaves our Co-op well placed to face into, whilst not being immune from, such headwinds. Costs arising from this are expected to dampen profitability in the short-term.

  • Despite this short-term impact, we look forward with confidence in driving strong performances across our business areas and our Co-op over the longer term.

  • Importantly, as a member owned co-operative business, our Co-op is able to actively and consciously, prioritise and channel support for colleagues, members, and communities during the current cost of living environment.

  • Delivery against our strategy will run in parallel with the clear succession plan in place for both our Chair Allan Leighton, whose 9 year maximum term ends in February 2024 and Senior Independent Director, Chris Kelly, whose maximum term also ends within the next 12 months.

Allan Leighton, Chair, Co-op comments

“The inflationary challenges facing most consumer-facing businesses are well known, so for our Co-op to have delivered this level of performance over the year is encouraging.

“We are, rightly, judged by our members on both the financial and social value we can create and it’s clear that we’ve delivered on both sides of this equation. The future focus on growing membership is vital for ensuring the future success of our Co-op for generations to come.

“I’d like to thank Shirine, her management team and our 57,000 colleagues for delivering this performance at a time when our members needed a strong, resilient, and differentiated Co-op to shine.”

Shirine Khoury-Haq, Chief Executive Co-op comments

“It’s clear that our early action to significantly reduce our debt, improve our cash position, and tighten cost controls, has made a significant difference to the financial strength of our Co-op and has enabled us to look forward with confidence, despite continuing market uncertainty.

“We now have an even better foundation upon which to grow our businesses. We’re also looking to grow our membership, putting membership at the heart of our Co-op, with ambitious plans to both attract new members, and deepen relationships with our existing members.

“And we will continue to bring our vision to life to make a genuine difference for our colleagues, members, and communities through these challenging times. “I’d like to thank each and every one of our amazing colleagues for all of their hard work and support over the last year.”

Business Highlights

Food / Wholesale

  • Food revenue up by £134m to £7.81bn (2021: 7.67bn), and Wholesale revenue up by £53m to £1.44bn (2021: £1.39bn)

  • Refreshed strategy ‘Pure Convenience’ launched in September, renews focus on convenience and continued commitment to offer great value – driven through our four routes to market across Retail, Franchise, Quick commerce and Wholesale

  • Number of transactions a week increased by 5% to 16.4 million

  • Continued expansion of online business, through website, and partners – revenues up 24% to £222m (2021: £179m). Online delivery services available in more than 1,800 individual food stores, and able to reach 81% of the population before year end

  • Cost control measures, including reduction of energy consumption in stores, and tight prioritisation of spending, have ensured we continue to manage the external headwinds

  • Our new largest regional distribution centre in Biggleswade became fully operational in 2022, with capacity to handle over two million cases of frozen, ambient, and fresh products a week

  • Nisa’s sales of Co-op branded products grew by 12.5% in 2022 to £199m (2021: £176.6m) and now represents 20% of total sales, excluding tobacco. 91% of Nisa partners now stock Co-op own brand products

Funeralcare

  • Overall revenue increased by £7m to £271m (2021: £264m)

  • Growth in share of the market for funerals, more than offset the lower death rate, with 93,867 funerals carried out (2021: 90,731)

  • Direct Cremation and Direct Burial funeral options continue to grow in popularity making up 11.7% of our funerals (2021: 7.9%), as people continued to opt for unattended, lower cost services

  • Funeral plan sales down to 16,774, (2021: 44,751), mainly driven by lower consumer confidence in overall market, ahead of regulation, as well as exiting some third party distribution arrangements due to changes in regulation

  • Achieved Financial Conduct Authority (FCA) approval to sell, service and redeem funeral plans

  • Continue to be recognised as providing one of the best funeral plans in the market, and awarded best funeral plan provider for the fifth year running by Moneynet

Insurance

  • Overall income down to £24m (2021: £34m) reflecting the contracting motor insurance market following decline in new car sales and advent of new product and pricing regulation

  • 164,620 new policy sales with refreshed products offering better cover, choice and prices (2021:167,176)

  • While it was a challenging year in home and motor, due to external pressures, the business delivered a strong performance in travel, pet and life

  • One of the first three insurers to be available through Amazon UK’s new insurance platform

  • New pet partnership with Markerstudy has seen number of customers holding a Co-op pet insurance product doubling over 12 months.

  • New travel insurance partnership with AllClear has led to industry recognition and consumer champion Which? nominating Co-op as one of their recommended providers.

  • Motor insurance campaign offering new and renewing members £50 to spend on their Co-op membership card saw us share £1.3m with individual members and raise over £130,000 for Co-op’s Local Community Fund.

Legal

  • Overall revenue increased by 19% to £46.3m (2021: £39.0m)

  • Probate saw significant growth, taking on 24% more cases than in 2021, leading to revenues increasing by 28% year-on-year.

  • The estate planning business had a very strong second half to the year, resulting in a 9% increase in revenue in 2022.

  • Continued focus on digital with new tools and services, resulted in ability to serve a wider range of clients and 50% of clients coming to us through one of our digital channels

  • Partnerships continued to drive growth - new contracts agreed with M&G, Newcastle Building Society, Saffron Building Society, Cancer Research UK and The Co-operative Bank.

ENDS

Media enquiries

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

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

Susanna Voyle, 07980 894557, svoyle@headlandconsultancy.com

Annual results RNS in full