Co-op delivers for stakeholders during Covid-19 crisis

17 September 2020

  • Revenue up 7.6%, driven by exceptional Food and Wholesale performances
  • £15m given to community causes in Covid-19 response
  • Significant increase in costs from Covid-19; challenging second half ahead with uncertain economic backdrop and need for further investment
  • Major initiatives to improve colleague pay and benefits, boost diversity commitments and relaunch membership with increased community focus

The Co-op Difference and Covid-19 Response

  • Co-op supported nation through Covid-19 crisis with outstanding contribution from Co-op colleagues on the frontline:
    • 7,000 temporary posts filled to manage increased demand
    • £13m paid to colleagues, recognising crucial frontline work
  • Co-operate launched – new and innovative online platform, linking volunteers and those in need - visited more than 103,500 times in H1
  • Member Pioneers supported more than 20,000 vulnerable people a month in communities; sourced volunteers, secured funding for urgent projects and established support groups

Financial Highlights

  • Total revenues up 7.6% to £5.8bn (2019: £5.4bn), driven by exceptional performances from Food and Wholesale:
    • Revenue in Food rose 5.2% to £3.9bn (2019: £3.7bn, an increase of 9.9% LFL in Q2) as customers shopped closer to home and ate out less frequently during lockdown. Like-for-like sales up 8.8% (excluding fuel) representing 7th year of like-for-like growth; market share increased 0.5 percentage points to 7.1% peaking in the 12 weeks prior to 14 June
    • Nisa wholesale revenues increased 13.9% to £801m (2019: £703m), benefitting from local shopping in lockdown and range improvements under Co-op ownership
    • Funeralcare revenue increased 3.5% to £148m (2019: £143m); 22% increase in volume offset by reduced average revenue per funeral due to Covid-19 restrictions
    • Legal services revenue flat year-on-year at £19m (2019: £19m), with increased demand for will and divorce services
  • The cost of Covid-19:
    • Covid-19 costs of £54m, including additional recruitment and PPE purchase; expected costs of £97m for the full year
    • Co-op received £33m government support in first half in business rates relief and furlough payments for limited number of colleagues
    • Co-op will not take government furlough job retention bonus
  • Group underlying operating profit doubled to £121m (2019: £59m), driven by strong performance from Food:
    • Food underlying operating profit of £175m (2019: £120m)
    • Funeralcare underlying operating profit of £17m (2019: £10m) reflecting increased volumes and strong cost control
    • Legal services underlying profitability of £2m (2019: £3m)
  • Group Profit Before Tax up 35% at £27m (2019: £20m); £40m negative impact from property revaluations, disposals and one-off items (2019: £14m)
  • Tax charge of £43m (2019: £27m credit) relating to deferred tax. Group loss after tax and discontinued items of £26m (2019: profit £41m)
  • Capital expenditure of £157m, predominantly in Food; down 28% year-on-year (2019: £219m) reflecting pause of store openings during Covid-19
  • Net debt reduced to £555m (2019 year-end: £695m) excluding lease liability, reflecting strong trading cashflows, lower capital expenditure and good working capital management

Community Response

  • £15m of funds given to charities and community causes as part of Covid-19 response:
    • £1.5m worth of goods donated to food banks supported by food charity FareShare; £650k raised for FareShare via text donation campaign
    • £3.4m worth of advertising spend donated to FareShare, encouraging audiences to support food banks
    • £400,000 raised by Co-op Members for Covid-19 fund, shared across community-based causes, FareShare and a funeral hardship fund
    • £1m raised in charity partnership with Mind, Scottish Association for Mental Health and Inspire
    • £2.6m free school meal vouchers provided for 6,000 Co-op Academy pupils
    • £950,000 fund created for global communities, channelled to Fairtrade suppliers and One Water sustainable water projects
    • £4.5m from membership programme donated to 4,000 local causes

Business & Operational Highlights

Food

  • Food sales up 5.2% to £3.9bn - an increase of 9.9% LFL in Q2; underlying profit rose 46% to £175m
  • Market share up at 7.1%, peaking in the 12 weeks prior to 14 June (H1 2019: 6.6%), highest share for almost 20 years
  • Customers in lockdown shopping closer to home driving sales in convenience stores; 1.7m new households shopped at Co-op; average basket size doubled as customers reduced visits
  • Robust safety measures introduced to protect customers and colleagues, including Perspex screens and priority shopping times for key workers
  • Store opening programme paused in lockdown
  • Pressure maintained on Government to act under Safer Colleagues, Safer Communities campaign, in aid of protecting shopworkers from violence and abuse
  • Covid-19 fuelled rapid increase in delivery and digital offer:
    • Online orders increased fourfold
    • In a move followed by many of our competitors, Deliveroo partnership expanded, to increase local delivery for customers
  • Strong performance from Nisa wholesale business, successfully delivering against strategy to get more Co-op products to more customers in more communities:
    • Trading sales at Nisa up 14% to £801m
    • 304 new stores signed up

Funeralcare

  • Funeralcare revenues rose 3.5% to £148m; underlying profit rose to £17m
  • Funeral numbers rose 22% to 59,000; volume increase offset by government funeral restrictions, which led to 20,000 simpler services for bereaved
  • Extra PPE sourced and mortuary space secured
  • Hardship fund launched to help bereaved families of key workers
  • Innovative new propositions and services introduced for bereaved during pandemic:
    • Cortege service developed with option to pause outside family homes
    • Funeral services streamed for those not able to attend
    • Delayed celebration-of-life events developed

Insurance

  • Sale of underwriting business for £185m, unlocking 13-year distribution agreement for Co-op Insurance Services Limited, expected to complete during Q4; business treated as discontinued ahead of completion
  • Sales of motor, travel and home insurance fell sharply in lockdown
  • Rapid response for customers:
    • Home and car insurance amended to cover those working from home
    • Travel insurance suspended for 20 weeks; reinstated with cover for Covid-19
  • New strategy focused on developing and distributing more products, including life insurance cover for over 50s

Legal

  • Legal Services revenue flat year-on-year at £19m (2019: £19m)
  • Further investment in new technology and solutions, with introduction of Bereavement Notification and Advice Service
  • Expansion in digital legal services covering probate, personal injury, employment, and family law
  • Will writing services up 69%; divorce-related enquiries up 300%

Health

  • Co-op Health app registrations up 400%, reflecting shift in customer behaviour during lockdown
  • By end of July app delivering more than 20,000 prescription items a month with 4.8/5 customer service rating

Co-operating for a Fairer World in the second half

The Co-op vision of Co-operating for a Fairer World is focused on the need to address inequality and injustice. Against the backdrop of Covid-19, the Co-op is announcing four major initiatives to make a real difference for colleagues, members, and communities:

- Significant improvements to colleague pay and benefits

  • Working with trade union partner, USDAW, The Co-op will create a plan to align our hourly pay rate with the Real Living Wage, significantly boosting take home pay for 33,000 colleagues
  • The move follows considerable pay increases over past five years
  • We are also introducing new and improved colleague member benefits:
    • Doubling of colleague member discount on own-brand products to 20% all year round and increasing discount across the full product range for 13 special payday events each year
    • The above is in addition to existing benefits across Insurance, Health, Legal Services and Funeralcare, including up to £700 off funerals for immediate family of colleagues

- Radical new Diversity and Inclusion Commitments

  • During 2020, The Co-op has continued to focus on strengthening diversity and inclusion
  • Plan for series of new commitments for Black, Asian and minority ethnic colleagues, members, and communities:
    • Pledge to increase percentage of leaders from Black, Asian, or ethnic minority background from 3% to 6% by 2022 and 10% by 2025
    • Requirement for diverse shortlists for leadership roles
    • Working with Co-op Academies Trust to develop curriculum on anti-racism; plan to lobby government for national roll out
    • Annual publication of ethnicity pay gap from 2021; call on government to make mandatory for all businesses
    • Maximising use of apprenticeship levy; seeking partnerships and opportunities focused on benefitting Black, Asian and ethnic minority candidates
    • Increasing to 25% the number of local causes supported that include Black, Asian, and ethnic minority beneficiaries
    • Increasing involvement of Black, Asian, and ethnic minority communities through membership
    • Pledge to invest more money with supply chain partners with a strong focus on inclusion
    • Offer more diverse funeral services and upskill our Funeralcare colleagues to support the different needs of customers
    • All targets built on Co-operative movement commitments to democracy, equality, equity, and solidarity

- New routes to work

  • Plan to offer 150 of government Kickstart work placements to candidates in communities where opportunities are most needed; commitment that at least 50% of placements will become permanent
  • Commitment to top up national minimum wage allowance, to ensure candidate income is in line with colleagues pay This is in addition to 1,200 apprentices currently active across The Co-op Group

- Planned re-launch of membership with significant increase in money going to local causes and charities

  • Membership programme to be relaunched for 4.5m members this autumn
  • Plan to significantly increase money going to community causes and charities
  • Increased data capabilities to be leveraged to increase personalisation of rewards and benefits for members

Outlook

  • The Co-op continues to operate in highly competitive markets and against the backdrop of a worsening consumer economy. In addition, the business is planning for and dealing with further local lockdowns as the Covid-19 pandemic continues. Over the second half:
    • In Food, the competition is set to intensify but we remain well positioned. We have already resumed our store opening programme and have made a commitment to invest £130m in opening 50 stores, giving 15 stores significant extensions, and giving 100 further outlets major makeovers, creating 1,000 jobs before the end of the year
    • In Funeralcare, the exceptional impact and challenges created by Covid-19 will continue into the second half of the year. Since the end of the first half, the Competition and Markets Authority (CMA) published its provisional findings into the market. The Co-op will continue to work closely with the CMA through the remainder of process
    • The insurance market will remain highly unpredictable, with travel restrictions changing regularly and government regulation around housing causing market spikes. However, we expect to strengthen our insurance presence from Q4, following completion of sale of underwriting business and increased focus and investment into product and distribution business
  • Net debt at year end expected to be between £600m and £650m

As a co-operative, our approach remains the same. We will continue to work hard to support and deliver for our members, colleagues, communities, and other stakeholders, and that will remain our focus as we enter into a challenging second half

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

“We are living in unprecedented times, but the response of our Co-op has been exceptional and I’m immensely proud of my 60,000 colleagues who’ve helped to feed and care for the nation during this difficult period. We’ve shown how our co-operative approach to doing business provides enhanced value for our customer-members and the communities in which they live. At a time of crisis, our country needs a strong and progressive Co-op and these results evidence that we are ready to deliver even more for our key stakeholders.

“Our vision of co-operating for a fairer world has taken on even greater resonance during this exceptional time, with the pandemic bringing to light inequalities and injustices which no longer feel remotely tolerable. Actions, however, clearly need to marry with the words, which is why we have announced four important initiatives – improvements to colleague pay and benefits; our new diversity and inclusion commitments; the creation of new routes to work and our relaunch of membership. Being a Co-op has never felt more meaningful and right. The role of business in society is changing and we are proud to lead the way. Everything we are doing points to a Co-op in tune with the communities in which it operates, one which is determined to innovate and drive change for the benefit of our members and the places where they live and work.

“The coming months and years remain uncertain, and we know our own Co-op will not be immune to the pressures the recession brings to family budgets and to local and national economies. We will continue to invest within our core businesses to ensure that our Co-op value resonates within Co-op households and local communities.”

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

“Our nation is experiencing a year like no other and I think it’s safe to say that things will never be quite the same again. The pandemic has led to a health and economic crisis, but it has also highlighted deep seated unfairness and inequalities across the world and surfaced a growing public intolerance for injustice. How we ‘build back better’ to create a fairer and kinder world has become central to public debate. As the UK’s biggest co-operatively owned business, we intend to be central to that conversation, showing how commerce and community wellbeing must develop in harmony for the good of us all.

“During the first half of 2020 we have shown that commerciality and co-operability can thrive and feed off one another, when both are given the same level of focus and importance. The Co-op is a different kind of business, but one whose enduring value can best be evidenced during times of need and hardship. In the difficult times ahead, we will ensure that our Co-op continues to make the world a fairer place to live in.”

Ends

Media Enquiries:

The Co-op Russ Brady Tel: 07880 784442

Headland Consultancy Susanna Voyle Tel: 07980 894557

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 65,000 colleagues and an annual revenue of over £10 billion.

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