Strong growth at the Co-op as sales, profits and member value all increase

14 September 2018

Stronger Co-op, Stronger Communities strategy delivers growth as The Co-op also announces new venture opportunity within Health sector:

-Sales increase by 10% to £5bn, driven by a strong food sales performance and the acquisition of Nisa. Food Retail like-for-like sales* were up 4.4% and The Co-op has now enjoyed 18 consecutive quarters of like-for-like sales growth.

-Group Profit before tax increases to £26m (2017: £14m)* and Group Underlying Profit before tax increases to £10m (2017: £3m), this after £35m of reward is generated for Co-op members and their communities.

-Value created exclusively for Co-op Members increases:

  • £35m of member value delivered through the “5+1” membership scheme
  • Further member value created in home insurance through the “won’t be beaten on price guarantee” on renewals
  • Additional price reduction for members on funerals

-Our Co-op presence is strengthened through the acquisition of Nisa and the Co-op now supplies food to over 7,700 stores. By the end of 2018 we will supply 850 Co-op own-brand product lines to our Nisa partners.

-Co-op continues to lead the way in the Funeral sector via numerous measures to tackle funeral affordability, culminating with this week’s announcement which guarantees not to be beaten on price for all funerals.

-Our future growth plans continue to focus on how we can make a positive impact on community wellbeing. Acquisition of Dimec, a healthcare technology platform, marks The Co-op’s return into the healthcare sector providing the building blocks for a future digitally enabled healthcare service for our members and customers.

-Our Co-op social impact also increases with over 12,000 local community projects having now benefitted from our member reward scheme and over a dozen business partners having joined our Bright Future programme to tackle modern slavery.

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

“We’re moving forward at pace with our Stronger Co-op, Stronger Communities plan, which we set out at the beginning of the year. We know that in order to make a difference, we have to be commercially successful and our performance in the first half shows that we’re delivering on that ambition. Our investment in products, price and distribution channels has seen us grow revenue, profit and member value in the first six months.

“We are also back to responding quickly and decisively to the issues which affect our members and customers. Funeral affordability is clearly an issue affecting many and our guarantee not to be beaten on price re-affirms our commitment, as market-leader, to also lead the market. Furthermore, our acquisition of Dimec allows us to accelerate the development of our healthcare proposition, and provides the digital platform required to help customers in the future conveniently access and link their healthcare needs, including interacting with their NHS GP.”

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

“Against a backdrop of increasing national uncertainty, I’m pleased that the Co-op has continued to perform successfully during the first half of the year. It is in these times of volatility that our way of doing business, which gives back to our members and the communities we operate in, becomes even more important. These results show that we are growing our business and increasing the positive impact we can have on our members and the causes they care about in their communities.

“We’ve got exciting plans to continue transforming our Co-op to make it even more competitive, relevant and innovative in both existing and new markets. We’ll continue to grow our current businesses and through our Ventures team we’ll move into new areas where we can deliver even more value for our members and their communities.”

Financial and operational highlights:

Strong trading performance sees profits and sales increase as sustained investment continues to drive business:

  • Profit before tax of £26m (2017: £14m), reflecting a good business performance and one-off items. Underlying profit before tax of £10m (2017: £3m)
  • Total sales increase 10% to £5bn (2017: £4.5bn) on strong Food sales growth and the acquisition of Nisa
  • Food Retail like-for-like sales up 4.4%. Core convenience like-for-like sales up by 5.1%, marking the 18th consecutive quarter of like-for-like sales growth. Total Food sales up 3% to £3.6bn, reflecting strong sales growth driven by a market leading offer for the World Cup with underlying food operating profit**** up 23% at £80m
  • Wholesale sales of £269m, following the acquisition of Nisa
  • Funeral and Life Planning revenues up 5% to £174m, reflecting a higher death rate in the first quarter and increased probate volumes, both from our existing business and following the acquisition of Simplify Probate. Underlying profit was £28m, slightly down on 2017 (£29m) as increased investment made into both premises and pricing to support “leading the market” business approach
  • Insurance sales fell 2% to £160m, reflecting heightened competition in the car insurance market. Underlying loss of £4m (2017: £1m loss), impacted by the adverse weather conditions caused by the “Beast from the East”
  • Total net debt at the end of the first half of £707m, down from £775m at year-end

Creating a stronger Co-op by:

Extending presence in existing markets

  • Opened 45 new food stores and 10 new funeral homes – creating 600 new jobs. An exclusive partnership with Live Nation saw Co-op reach 200,000 festival goers with its ‘pop-up’ shops
  • Acquisition of Simplify Probate increased capability to support more bereaved families. Now the largest provider of probate services in the UK
  • Expansion in wholesaling with Nisa acquisition and five-year deal to supply Costcutter Supermarkets Group sees Co-op supplying over 7,700 stores. Nisa partners are now being supplied with over 800 Co-op product lines

Investing in price and innovating to stay competitive

  • £50m invested to improve prices in Food across 100s of everyday products. Industry CO2 shortages failed to impact beer, wine and spirit sales, which were up 4.8% with a bottle of champagne sold every minute. Co-op Food also enjoys a stellar summer performance boosted by the World Cup “Pizza & Beer” deal, with over 180 pizzas sold for every minute of football played
  • Pay in aisle technology trials introduced, along with small trials being held with Deliveroo in Greater Manchester and self-driving robots in Milton Keynes to deliver products to shopper’s homes
  • During the first half of 2018 we launched a renewal guarantee for Co-op members to not be beaten on price for their building and contents insurance. New customers buying direct also get £50 in Co-op Food vouchers. This has led to over 28,000 policies being sold in the first half, a 5% increase on last year
  • First general insurer to offer upfront medical expenses for any age and any medical condition through our innovative travel product designed by members. Over 7,600 of these policies sold in the first half of the year
  • Continuing to tackle funeral affordability through our Simple Funeral offer, the launch of Cremation without Ceremony and commitment to drive down prices. Latest measures include an industry first ‘guarantee to beat’ any like-for-like offer, which sees the Co-op become the first national funeral provider to commit to beating any like-for-like quote on funeral costs across the UK.

Developing new opportunities

  • Co-op ventures team is taking a digitally led approach to enter markets where there are unmet needs. The acquisition of Dimec announced today means The Co-op can accelerate the development of its healthcare proposition, giving it access to the technology required to develop services for customers to access and link their healthcare needs and interact with the their NHS GP more conveniently.
  • Longer term we are developing digital solutions for an online marketplace.
  • Work is progressing on how we can significantly grow our insurance offer from our existing base of approximately 1.3 million policies. We expect to have announced our plans by the first quarter of 2019

Rewarding members and responding to consumer needs

  • In addition to investments made in reducing prices, Co-op returned £29m to millions of members with £6m being earned by members to support local causes in their communities
  • We introduced a new service ‘Cremation without Ceremony’ for clients who prefer not to have a traditional service, quickly becoming a leading provider for families who want to celebrate the life of their loved one in their own way
  • In the summer The Co-op published the findings from the UK’s biggest ever survey into death, dying and bereavement, which over 30,000 people responded to. This will be used to drive social change and shape our services in the future
  • We have also continued to lead the market by calling for regulation of pre-paid funeral plans to help protect consumers from misleading sales practices

Creating stronger communities

  • The Local Community Fund has now supported over 12,000 local projects through our membership reward scheme since September 2016
  • The Co-op is the largest corporate sponsor of academy schools and The Co-op Academies Trust is trebling the number of academies it runs to 40 by 2022. The Co-op has invested £3.6m to support this ambitious growth plan. We are developing a UK first through the acquisition of Connell Sixth Form College in Manchester, which will give students the opportunity to do a day a week at the Co-op as work experience as part of their studies and be paid the going rate for the role

Outlook

  • Against the backdrop of an uncertain economic, social and political environment, we never the less remain confident that The Co-op will continue to invest in its business areas and member offer to create commercial success, which will in turn deliver increased value for our members and their communities.
  • Debt will remain within guidance levels of £900m

Ends

Media Enquiries:

The Co-op

Jon Church Tel: 07545 210812

Russ Brady Tel: 07880 784442

Tulchan Communications

Jonathan Sibun Tel: 020 7353 4200

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 an online electrical store. 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 £9.5bn.

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

The profit** reported for our Funeral & Life Planning business has changed from last year following the adoption of a new accounting standard, IFRS 15 Revenue from Contracts with Customers. This has reduced Funeral & Life Planning sales and profits by around £20m each year. We have adjusted the 2017 results so that they are prepared on the same basis as 2018. More information on this change is provided in the Accounting Policies and Basis of Preparation section of the Interim Financial Statements.

Underlying Profit before Tax*** excludes one-off items, property and business disposals, change in value of investment properties, 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 note 1 of the Interim Financial Statements.

Underlying operating profit*** excludes one-off items, property and business disposals and change in value of investment properties.

Co-op 2018 Interim Report full RNS