Co-operation is working

24 April 2020

  • Total revenue up 7%, underlying profits up 50% like for like (see note 1)
  • Six years continued like-for-like sales growth in Food
  • £76m returned to members and local causes
  • Business plays critical role in ensuring community resilience through coronavirus

Co-op difference highlights

• Creation of further member and community value, with £76m returned – £59m to members directly; £17m to 4,400 local causes chosen by members and colleagues. More than £260m paid to members and communities over last three years

• Active membership at 4.6m; successful focus on driving young membership, with 36% of new members aged 35 or under

• Issued £300m sustainable bond, with proceeds used to drive Food’s Fairtrade offer, ensuring better deal for producers

• Pension Fund combines strength with sustainability: defined benefit surplus in excess of £1.8 billion; £22m invested in affordable housing; £320m defined contribution assets switched into specialist climate change fund

• A further £1.2m invested into Co-op Academy schools in 2019, as part of a four year commitment to invest £3.6m; six new schools opened, taking total to 24 at year end; plans to grow to 40 in next two years

• Further development of award-winning Safer Colleagues, Safer Communities campaign; launch of NightClub initiative to improve wellbeing of night shift workers – directly tackling issues to support colleagues

• Launched community strategy around Spaces, Skills, Sustainability and Wellbeing:

o Uses almost 40% recycled plastic in Co-op own brand food packaging, banned black plastic and rolled out the UK’s first nationally available compostable carrier bag to 1,000 stores

o First British retailer to have science based targets to reduce greenhouse emissions and to sign the UN’s Our Only Future campaign at New York Climate Action Summit

o Cut waste to take food approaching its use by date off sale early to donate to food banks for meals

• Work under way to develop detailed Shared Value measurement framework to show social and environmental impacts, along with traditional financial measures

Financial highlights

• Total revenues grew 7% to £10.9bn, driven by continued strong performance from Food, including annualisation of Nisa wholesale, acquired in May 2018

o Revenue in Food rose 3% to £7.5bn; like-for-like sales up 1.9%; Co-op has now delivered six years of like-for-like Food revenue growth

o Wholesale like-for-like revenues increased by +1.1%, outperforming the market by +1.4%. Nisa attracted 94 new Partners to the business

o Funeralcare and Life Planning revenue reduced year-on-year (-3.2%), reflecting moves to cut prices and improve choice and lower death rate

• Group underlying profit before tax, excluding IFRS 16 impact, up 50% to £50m (see note 2) (2018: £33m), driven by Food’s strong performance; underlying PBT with IFRS16 £31m (2018: £33m)

o Food delivered underlying operational profit of £283m (£235m on a like for like basis excluding IFRS 16, against £204m in 2018)

o Profit before tax for 2018 has been restated, reduced by £10m, following the identification of some historical accounting errors within Nisa

• Capital expenditure of £439m to ensure Co-op is well positioned for future growth:

o Food: investment of £342m in new outlets, refitted stores and supply chain

o Funeral & Life Planning: £29m invested in infrastructure and technology

• Net debt reduced to £695m, excluding lease liability (2018: £764m)

Operational highlights

• Another strong year for Food business, which outperformed the wider market:

o Opened 79 new stores; refitted 152 stores and extended 10

o Taking 52 week Kantar total grocery data to the end of 2019: 133,000 additional households served in 2019 vs. the previous year

o Positivity towards Co-op Food up 3% in 2019 compared to 2018. Co-op increasingly known for championing important issues and being involved in community

o Successful trial of home delivery; delivery options to now be expanded, with online same-day services made available across almost 100 towns and cities, served by 650 Co-op stores, with delivery options including Deliveroo

o Launched 554 new products and improved more than 1,000 existing product lines, including award-winning Irresistible pizza range and rollout of GRO vegan range; plan to expand vegan offering through 2020

o Nisa acquisition continued to deliver volume growth for Wholesale business with sales of £1.4bn (£1bn for eight months), successfully delivering against strategy of increasing Co-op buying power and achieving wider distribution of Co-op own-brand products into more communities

• Market for Funeral & Life Planning business remained challenging; clear turnaround strategy in place

o Revenue declined 3%, reflecting continued investment in price reductions with lower-cost funerals and lower death rate. Continued close work with CMA on market investigation into sector

o Legal Services revenues increased 13% to £40m, making Co-op leading personal legal services provider in UK; further investment in online platform to fuel growth

• In a year of transformation, Insurance began to deliver on strategy of developing and distributing more products and solutions for members

o Re-entered life insurance market; member-designed cover offers payment holidays for those in financial difficulty. Introduced innovative safe driving policy for young drivers, with savings of more than £1000

o Sale of CIS General Insurance Ltd ongoing; insurance underwriting treated as discontinued business to reflect this process

• Following launch, Co-op Health app downloaded more than 150,000 times

COVID-19 response

o Co-op colleagues in Food and Funerals recognised as key workers, keeping communities and economy working; 56,000 front line colleagues rewarded with £150 bonus and an extra day’s holiday, all worth more than £13m

o Created temporary jobs for more than 7,000 people out of work as normal workplaces closed; all posts filled within seven days

o New Co-op Members’ Fund established to support Foodbanks, address funeral poverty and help local causes directly supporting crisis effort; members now able to share rewards received from shopping to fund

o Boost to planned payments for Local Community Fund causes in April to more than £4.5m

o Delivering £1.5m of food to FareShare and donated Easter TV advertising to the charity in support of food banks. Activated a text service for customers to make further contributions

o Vouchers given in lieu of free school meals to Co-op Academy pupils and extended into Easter holidays so Co-op school pupils don’t go hungry

o Co-operate launched – online resource signposting volunteers and those in need to local and national support initiatives

o 700+ Member Pioneers, an increase of 100 since 2019, continuing to support volunteering initiatives in their areas, helping vulnerable people and reducing isolation

o Funerals business working directly with government to face into challenges COVID-19 causes for the sector

o Downloads of repeat prescription app tripled, enabling safe delivery of thousands of medications direct to homes

Outlook

• With the continued COVID-19 outbreak and other factors, the outlook is uncertain:

o We expect additional costs associated with COVID-19 to be in excess of £200m, which will in part be offset by increased food sales and the expected business rates relief announced by the Chancellor

o The Competition and Markets Authority extended statutory deadline on Funerals Market Investigation by six months; Co-op will continue to work with CMA on this and with HM Treasury and the Financial Conduct Authority on the proposed regulatory framework for pre-paid funeral plans

o We continue to work with the FCA on its market study into the pricing of home and motor insurance

• Against this backdrop, we are clear on strategy to deliver sustainable growth for the Co-op and to continue to add value for members and for communities

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

“The Co-op made further financial progress through 2019, showing that co-operation is working. While we didn’t know it at the time, that performance set us up well to withstand the impact of the COVID-19 crisis and to enable us to support the communities we operate in.

“No part of our business has been unaffected by the outbreak of the virus and we have played a critical role in communities throughout the UK. Our Food business has helped to feed the nation and our Funeral colleagues have been there for families at their time of greatest need. All of this work will continue and I could not be more proud of our people who have delivered - day in, day out.

“Co-operation is something that is central not just to our business model, but to everything that we do and we are committed to continue to deliver against our vision of Co-operating for a Fairer World. Against the backdrop of COVID-19 we will review the strategy we had embedded across our businesses, aligning commercial and community objectives. Our responsibility as a co-op is to ensure that through our businesses, our wider influence is used to make the communities in which we operate feel stronger and more connected. That drives the business decisions we make – not profit alone and not shareholder value. The importance of that has never been so stark and we will continue to play our part for as long as we need to.”

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

“The Co-op is drawing deeply on our values of commercial responsibility and community concern to play our part in responding to COVID-19. Our commitment is to do all we can to help our members, customers and colleagues through the weeks and months ahead. It is already clear that COVID-19 will have profound consequences for the UK and global economy and our Co-op members and customers will not be immune.

“Against that backdrop, our results for last year show that we are in a strong position to keep playing our part. At the Co-op, however, we measure our success differently. Strengthening and sustaining our local communities is fundamental to us and in 2019 we gave £17m to more than 4,400 local causes.

“Looking ahead, we believe that co-operative business endeavours and co-operative ways of working will be needed in the future even more than they were in the past.”

Ends

Note 1: On a comparable basis excluding impact of new lease accounting standard IFRS 16 (Leases). See the Financial Performance section for further details.

Note 2: We note that our auditors have qualified their audit opinion in respect of our interpretation of IFRS 15 (Revenue from Contracts with Customers) as applied to our Funeral Plans. We believe that our treatment most fairly reflects the true underlying commercial nature of a Funeral Plan and our true Financial performance in our Funeral business (as explained in the General Accounting Policies section). We remain firmly of the view that the approach we took in 2018 when we first adopted IFRS 15 (Revenue from Contracts with Customers) remains appropriate. We sought advice from another accountancy firm when we first adopted IFRS 15 and our approach also received an unqualified audit opinion from our auditors for 2018.

Media Enquiries:

The Co-op

Jon Church Tel: 07545 210812

Russ Brady Tel: 07880 784442

Headland Consultancy

Susanna Voyle Tel: 07980 894557

Fay Rajaratnam Tel: 07812 811374

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.

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