Co-op difference in action as it invests £35 million in rewards for members and local causes

21 September 2017

- Significant Co-op member value generated as Group invests £29m in member rewards and £6m goes to support over 4,000 local causes.

- Pre-tax profits rise 47% due to strong performance from core businesses, as well as one-off and non-trading items. Group revenues stable at £4.6bn, with Co-op Food reporting 14th consecutive quarter of like-for-like sales growth.

- Over half a million new members recruited in first half of year, taking active membership to 4.5 million people across the UK; 1.1 million members have joined since the launch of the new membership scheme in Sept 2016.

Co-op difference highlights:

  • Members and their local communities benefit through member rewards scheme; £29m to members and £6m to 4,000 good causes.
  • 333 apprentices recruited in the first half of 2017, taking total number of apprentices hired in last two years to 1,400. Plans to recruit 1,000 apprentices in total in 2017.
  • 60 new member pioneers recruited in to dedicated job roles to better connect Co-op with local communities, with an ambition to have 200 in place by the end of the year.
  • Co-op Food becomes the only supermarket to use British meat in all sandwiches and pork pies, driving a 6% increase in like-for-like sales of British meat in the first half. Further commitment in May to source only 100% British bacon and lamb.
  • Position as the number one convenience retailer for Fairtrade strengthened; sales up 5%, boosted by decision to use only Fairtrade sourced cocoa in own brand products.
  • Over 11,000 customers take out ground-breaking Co-op Young Drivers Insurance, a 30% increase, taking total number of policies to over 25,000.
  • Co-op takes lead on reducing modern day slavery through Bright Future programme, with a target this year of 30 people moving from slavery to paid work at the Co-op.
  • Total raised to tackle loneliness and isolation in partnership with British Red Cross tops £6m, with 39 community connectors now in place across the UK.
  • Funeralcare increases the age it will provide free funerals for children from 16 to up to 18, as over 5,000 families are impacted by the devastating loss of a child each year.
  • Co-op strengthens position as the UK’s largest corporate supporter of Academy schools, with the addition of two more schools in Failsworth and Priesthorpe, bringing total number of Co-op Academies to 10.
  • The Co-op Foundation, with support from the #Iwillgrant, establishes a £2m fund to support young people affected directly by loneliness and isolation.
  • Co-op becomes first retailer in the world to sign up to the Global Investment Fund for Water - giving 1p for every litre of branded bottled water sold to help end global water poverty by 2030.

Group financial and operational highlights:

  • Group makes significant financial and operational progress, as continued investment in brand, businesses and people helps deliver on Co-op promise to champion a better way of doing business for members and their communities.
  • Revenues remain stable at £4.6bn (2016: £4.7bn), in line with plan
    • Food like-for-like sales *** up by 3.5%, reflecting 14 consecutive quarters of like-for-like sales growth; core convenience like-for-like sales up by 4.5%. Reported Food sales down 1.2% at £3.48bn but 0.7% higher year-on-year when excluding the sales from the 298 stores sold to McColl’s during the first half of the year
    • Funeralcare revenues up 1.2% to £166m with market share increasing to 16.4%, supported by growth of Simple Funeral offer. Pre-need market share increases year-on-year from 19% to 28%.
    • Insurance Net Earned Premiums down 21% to £164m, in line with plans and due to the purchase of additional re-insurance to support our claims position during business transformation. Gross Written Premiums up 4%.
    • Legal Services sales up 9.1% to £12m due to strong growth in probate and estate planning sales.
  • Profits in line with strategy of continued investment in all businesses and return of value back to members:
    • Profit before tax up 47% to £25m (2016: £17m), reflecting a number of one-off and non-trading items.
    • Underlying profit before tax of £14m**(2016: £27m), down 48%, as members and their communities benefit from member reward scheme (£35m) and insurance profits fall, primarily as a result of the claims experience, year on year.
    • Operating profit of £51m (2016: £72m), reflecting continuing rebuild of businesses, whilst rewarding members with £29m.
  • Debt maintained well below the £900m guidance level at £680m.
  • Co-op invests to improve member offer and get closer to communities
    • Opened 34 new Food stores and 27 new funeral homes in the first half
    • Enhanced use of digital technology for member interactions
    • Members now account for 33.4% of Food sales at the half year, up from 20.6% in June 2016.
  • Group plays a full role in the successful recapitalisation of The Co-operative Bank, providing certainty for the Group, members of the pension scheme and on future liabilities. Group subsequently sells remaining 1% holding in Bank.
  • A focus on hiring and promoting the best talent has seen the number of women exceed men on the Executive team for the first time:
    • Pippa Wicks remains Deputy Group CEO.
    • Jo Whitfield appointed as CEO, Co-op Food.
    • Helen Webb appointed as Chief HR Officer.
    • Helen Grantham appointed as permanent Group Secretary and General Counsel.

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

Championing a better way of doing business for our members and their communities is what the Co-op is all about and I’m delighted that we are really starting to deliver on that purpose.

Since we launched our member reward scheme in September 2016 more than 1.1 million people have signed up to join the Co-op. As a result we’ve been able to give £35 million back to our members and their communities over the first half of this year, a conscious decision to share our success with our members and the 4,000 good causes which mean so much to them.

We can do all this because our businesses have continued to perform in the face of challenging markets. Food has posted a 14th consecutive quarter of like-for-like sales growth, Funeralcare continues to lead the market on the back of the launch of our Simple Funeral offer and our Insurance business continues to lead on making driving safer for the young. Across our business we are also maintaining our commitment of re-investing for the future success of our Co-op.

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

It’s been an important six months for The Co-op Group, in which we have been able to give back to our members and their communities far more than we have for many years. We have also continued to lead the way in ethical commerce and campaigning on the issues that matter to our members, from championing Fairtrade to tackling loneliness and modern-day slavery.

We can be proud of what’s been achieved, but we want to remain ambitious. The goal now is to spread the word further, while also deepening the relationship with our members and their communities.

Summary of performance of largest business areas

Co-op Food

Sales Food like-for-like sales up by 3.5%, reflecting 14 consecutive quarters of like-for-like sales growth; core convenience like-for-like sales up by 4.5%.

Reported Food sales down 1.2% at £3.48bn but 0.7% higher year-on-year when excluding the sales from the 298 stores sold to McColl’s during the first half.

  • Operating Profit - Up 22% to £77m (2016: £63m)
  • Underlying Operating Profit - * Up 3% to £65m (2016: £63m)

We continued to make progress on our ambition to be the UK’s leading convenience food retailer. Our Food business has led the way in the launch of our new membership rewards, with the vast majority of those who have joined us this year doing so through our Food stores.

In the first six months Co-op Food has reported sales of £3,476m (2016: £3,518m). The year-on-year decrease is due to the impact of stores being sold which are not part of our core strategy moving forwards. Excluding these disposals, total sales were up 0.7%.

Like-for-like store sales continued to increase ahead of the market at 3.5%. Underlying profit was broadly in line with last year at £65m (2016: £63m), while operating profits rose to £77m (2016: £63m), principally due to gains on property and business disposals and increases in investment property values.

As we passed the half year we were pleased to confirm Jo Whitfield as our new permanent Food CEO, another strong internal appointment and the first woman in the UK to lead a national Food retailer.

In May we agreed with independent petrol service station operator MRH to pilot seven new franchise convenience stores. The principle of franchises is not new to the Co-op movement and the model provides a low-cost way to rapidly increase our Co-op presence across the UK. Early trials with MRH have performed well.

We opened 34 new Food stores in the first half of the year and we are on track to hit our target of 100 new stores by the end of 2017.

We have continued to invest in our products and further strengthened our focus on quality as part of our retail strategy, with our newly re-launched Irresistible range seeing a 22% rise in like-for-like sales in the first half.

In May we became the only supermarket to use British meat in all sandwiches and pork pies, driving a 6% increase in like-for-like sales of British meat in the first half. This was followed by a further commitment in May to source only 100% British bacon and lamb. The move, which meant we became the first national retailer to commit to 100% own brand British meat in fresh, frozen and ready meals was welcomed by our members and by the farming community and we hope other retailers will follow our lead wherever they can. In line with our commitment to support the communities in which we trade, we are increasing our local sourcing, promoting local businesses and growing their markets.

In a retailer first, we moved to a position of sourcing only Fairtrade cocoa across our entire own brand range. This landmark move increased the Fairtrade cocoa sourced by Co-op five times and includes 200 Co-op own brand products. In addition, we have already launched new producer support projects in Cote d’Ivoire, Argentina and Colombia and we will continue to drive Fairtrade forward. Across our estate, Fairtrade sales were up 5% in the first half.

We also committed to ensuring 100% of all our packaging is recyclable in the future. We are the only retailer that has signed up with Global Investment Fund for Water (GIFFW) to tackle water poverty. We will be giving an additional 1p per litre from sales of other water brands to support the new Global Fund. That will bring our total annual commitment to water poverty to more than £2m a year.

Co-op Funeralcare

  • Sales Total - sales up 1.2% to £166m (2016: £164m)
  • Operating Profit - Down 33.9% to £41m (2016: £62m)
  • Underlying Operating Profit - * Stable at £41m (2016: £42m)

Sales and underlying profit were broadly in line with last year in our funerals business. Sales were £166m (2016: £164m), with underlying profit of £41m (2016: £42m). Operating profit was down on last year at £41m (2016: £62m) but last year included £20m profit on the crematoria sale. Our market share for at-need funerals increased to 16.4%, supported by the growth of our Simple Funeral offer as we continue to lead the way on affordable funerals. Sales of our funeral plans have also remained strong this year with an increase of 20.5% compared to last year, taking our market share in the pre-need market up year-on-year from 19% to 28%.

In June, Robert MacLachlan took up the leadership of our funerals business having previously been National Operations Director. Our strategy remains to grow Funeralcare and we opened 27 new funeral homes in the first half, with plans to open a further 53 by the end of the year. We have also continued our programme of refits and rebrands, with a further 117 planned for the year.

As we passed the half year we recruited our 2,000th Funeralcare apprentice since we launched the programme in 2013. Our apprenticeship scheme has attracted a diverse range of applicants over the past four years, drawing in people of all ages and from all walks of life.

We remain the country’s largest provider of funerals and as such we have a responsibility to lead the way on the provision of funerals in the UK. We continue to encourage a much needed cultural shift in our attitude towards dying and bereavement. As part of that work we increased the age at which we provide free funerals for children from 16 to up to 18, as over 5,000 families are impacted by the devastating loss of a child each year.

We have been making important operational changes across our Funeral homes by introducing new technology and new colleague roles so that we can give even more time to supporting families through their bereavement.

Legal Services

  • Sales Total - sales up 9.1% to £12m (2016: £11m)
  • Operating Profit - £0.2m (2016: £0.6m)

Our Legal Services business continues to develop new products to help our members’ long term needs, with the aim of developing our Funeralcare branch network as a way to introduce some of our legal services (will writing and probate in particular) to our members and their families. Growth in probate and estate planning sales helped drive overall sales in the business up 8.3% to £12m.

Working with our Group Digital function, we have been championing the need to make will writing more accessible by promoting our online will service – over a third of our Wills are now written online. This allows people to start making their will online 24 hours a day, 7 days a week. We then provide a follow up telephone call with a wills specialist to discuss individual circumstances before the will is put in place.

A further enhancement of our will writing and probate services has been a new partnership with Cancer Research UK, which aims to raise more than £750,000 to support the charity’s pioneering work into the prevention, diagnosis and treatment of cancer.

Co-op Insurance

  • Sales Total - sales down 21% to £164m (2016: £208m)
  • Operating Loss - £11m (2016: loss of £4m)
  • Underlying Operating Loss - £1m, down from a profit of £11m in 2016

Our net revenues were £164m (2016: £208m) but Gross Written Premiums were up 4%. The fall in net revenue was in line with our plans and due to the decision to increase how much business we are choosing to reinsure through third parties. This strategy has strengthened our capital position while we focus on investing in the business.

The business reported an underlying loss of £1m (2016: profit of £11m). The operating loss, which is after adjusting for one-off costs associated with the Transformation programme, was £11m (2016: loss of £4m).

Our focus has been on making sure we remain competitive within a highly competitive market, without sacrificing customer service or our leadership position on insurance ethics.

We have been working to help communities respond to the devastating effects of flooding after seeing the destruction caused by the storms of Christmas 2015. We have been putting in place measures to ensure we respond more quickly and effectively, constantly ensuring our insurance assessors have a presence ‘on the ground’ and are able to offer practical help when it is needed.

We extended our carbon offset programme, which now offsets a proportion of our motor and home insurance customers’ carbon emissions, as standard. This is a first for the industry in the UK with funds going to carbon reduction projects in Ghana and Kenya.

A further example of providing value has been our Co-op Young Drivers Insurance which saw its sixth anniversary in March. This ground breaking product, now imitated by others, has rewarded our policyholders by nearly £12m since it launched in 2011. Our latest data has found that on average our Young Driver policyholders receive £140 back in their pockets over the average policy lifetime. 11,000 further drivers took our product in the first-half of 2017, a 30% year-on-year increase, taking the total number of policies to over 25,000.

We continue to innovate as we celebrate our 150th anniversary in the autumn and are looking to expand our business to business offering, especially across the Co-operative sector in the UK.

Membership, Communities and Campaigns

  • We are connecting communities through our member pioneers – a dedicated role looking at connecting the Co-op with the communities it serves and tackling issues that matter to them. We will have 200 member pioneers in place by the end of 2017 and our ambition is to have 1,500 by 2020.
  • In April, we celebrated the first round payouts from our 1% community reward scheme, with over 4,000 local causes benefitting.
  • Our commitment to improving education standards and outcomes through our Co-op Academy Trust has continued, with the announcement of two new academies in Failsworth and Priesthorpe, joining our existing eight schools within the Trust.
  • In May, we announced that our partnership with The British Red Cross to help tackle loneliness and social isolation had raised over £6m, almost double the original target.
  • Following agreement from members at this year’s AGM we are pioneering business support for victims of modern day slavery. We launched a pilot to offer paid work to people recovering from slavery and so far nine people have been in the programme, with an ambition to take 30 in by the end of the year.

Colleagues

  • Over 330 apprentices have joined the Co-op so far this year and this will rise to 1,000 by the end of 2017.
  • Continued commitment to paying apprentices at standard rate for each role led to £4m being paid over and above the government’s recommended apprentice level.
  • Moved more than 40 places up The Stonewall Workplace Equality Index – now in 31st position.
  • Co-op’s Aspire Network, set up to encourage women in their careers, increased in size by 30%.
  • Currently trialling a new Parent2Parent scheme, buddying up parents returning from parental leave with those in the business.

The Co-operative Bank

In June, The Co-operative Bank agreed the terms of a capital raising plan to secure its long-term future. Importantly, this included an agreement on the future structure of the shared Co-operative Pension Scheme which provides security for scheme members.

Throughout the process the Group played a key role in finding a capital solution for the Bank and worked hard to provide certainty for and protection of the interests of its members, colleagues, investors and the members of the shared pension scheme (Pace); removing £2bn of pension liabilities from the Group.

It was agreed with the Pace Trustees to separate the respective sections of the scheme and to remove the Bank's obligation to support the Group's Pace scheme liabilities. The Group and the Trustees also negotiated with the Bank a recovery plan for the Bank section of the Pace scheme which will see the Bank contribute £100m over 10 years and provide initial collateral of £216m from the point of sectionalisation.

As a result of the process the Group saw its shareholding reduce from 20% to 1%. The Group has since sold its entire remaining shareholding to an existing shareholder in the Bank. As a result of the recapitalisation of the Bank, the Relationship Agreement between Group and Bank which covers, among other things, the promotion of Bank services to members of Group, will naturally fall away and come to a formal end in 2020.

Outlook

  • In Food we see inflation continuing to impact on consumers’ spending power and expect competition in the convenience sector to become fiercer. Our focus will remain on making the shopping experience for our members and customers even better.
  • In Funerals we will use digital technology to enable our colleagues to give more time to supporting bereaved families.
  • In Insurance we will develop further the IT work already underway and introduce further changes to keep pace with a challenging market.

Our markets continue to be fiercely competitive and alongside this remains an uncertain economic backdrop. We remain on track in terms of the continued investment in our business which is returning benefits to our members and their communities, both now and for the long term.

Media Enquiries:

The Co-op

Jon Church
Tel: 07545 210812

Russ Brady
Tel: 07880 784442

Tulchan Communications

Susanna Voyle
Jonathan Sibun
Tel: 020 7353 4200

  • 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.

** In addition to the items excluded from Underlying Operating Profit, Underlying Profit before Tax also excludes finance income and non-cash finance costs, and share of profits and losses from associates and joint ventures. A reconciliation of Profit before Tax to Underlying Profit before Tax is provided in Condensed Consolidated Income Statement.

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

Notes to editors

About the Co-op Group

The Co-op, one of the world’s largest consumer co-operatives with interests across food, funerals, insurance, electrical and legal services, 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-operative Group operates a total of 3,800 outlets, with more than 69,000 employees and an annual turnover of over £9.5 billion.