Stronger Co-op grows membership and delivers support during cost-of-living crisis

21 September 2023

  • Enhanced financial strength, with notable improvements in net debt and net cashflows, despite external economic headwinds costing £117m in H1.

  • H1 saw a 55% increase in new members joining Co-op, (H1 2023: 430k vs H1 2022: 278k). This is ahead of expected progress and demonstrates the level of ambition we have in membership acquisition.

  • £29m of additional financial support, provided to colleagues and members in H1 to support the ongoing cost of living challenges, beyond pay awards.

Financial Highlights*

Interim Results 2023 Financials

*All 2022 comparative figures have been restated to reflect new accounting treatment for funeral plans under IFRS 17. 2022 H1 figures also include the results from the Petrol Forecourt business, which was subsequently sold in H2 2022

  • Despite a challenging economic backdrop, Co-op delivered a robust sales performance, with revenues marginally down on H1 2022, driven by lower revenue in the Food Retail business, resulting from the impact of the petrol forecourt sale.

  • Underlying operating profit increased by £44m, driven by annualisation of £101m cost savings achieved in 2022 and further cost savings in H1 2023, streamlining operational processes and realising the benefits of lower costs to serve as a result of previous investments in supply chain infrastructure and IT systems.

  • Underlying loss before tax of £9m, £59m less than H1 2022, helping mitigate inflationary headwinds and invest in our members, colleagues and communities.

  • EBITDA improvement of £27m in H1 2023, evidencing the strength in underlying performance and getting the strategic choices right in how we run the business.

  • Continued work to strengthen the balance sheet, resulting in a net debt of £123m, a substantial reduction of £608m on H1 2022. Focused intent on growth of our most profitable channels delivering an additional £35m cash from operations.

Strategic Highlights – supporting our vision

Our enhanced financial strength has enabled us to provide additional support to members, communities and colleagues amidst the cost-of-living crisis, while maintaining a focus on our wider sustainability goals

  • £20million invested in H1, with a further additional £70m investment announced in July, into lower pricing across key lines in our Food stores, and introduction of member exclusive pricing.

  • Continued commitment to the Real Living Wage, as part of an investment of £34m in salary increases in H1 2023

  • Invested £5m in extending our 30% colleague discount on Co-op branded products in Food Retail stores to the end of the year and a further £4m in winter support payments to colleagues in Q1.

  • Published first socio-economic background report as part of efforts to better support colleagues from lower socio-economic backgrounds.

  • Launched a new partnership with Barnardo’s, the UK’s largest children’s charity, to support 750,000 young people by raising £5m (£1m already raised since launch).

  • Launched ambitious peatland restoration partnership with RSPB to preserve nature’s carbon ‘stores’, the equivalent of 400 football pitches in size, starting with two initial sites in Scotland and Wales. In the UK alone, an estimated 3.2 billion tonnes of carbon are stored in peatlands – this vital work will help tackle climate change and preserve nature.

  • Continued to place wellbeing first through a comprehensive support package that includes mental and financial wellbeing, and new and updated policies such as compassionate leave, doubling paid leave.

Membership Highlights – creating value for our member owners

Significant progress in realising our ambition for membership recruitment, alongside our ambition for the future:

  • 55% growth in member acquisition, with almost half a million (430k) new member owners joining our Co-op. This stands in contrast to H1 2022, which saw 278k new members joining.

  • Reactivated 143k lapsed members, meaning we enter the second half of this year with 4.58 million active member owners - a 5.2% increase on H1 2022, with 4.35 million active members

  • A strategic focus on younger members - our Co-operators of the future - with 44% of new members this half year aged 35 or younger.

  • Increased member engagement through the introduction of exclusive member competitions and pre-sale tickets for ‘Co-op Live’ events. Notably, 100k members have opted to receive priority updates about upcoming Co-op Live events.

  • An upswing in member participation in the Co-op’s community endeavours, with 788,738 contributions in H1 2023, a marked increased from H1 2022 which had 590,519 contributions.

Outlook

We expect the volatile external environment and turbulent economic headwinds, including inflationary pressures, to persist. However, we have gone from a position of needing to improve on our financial performance, operational efficiency and internal ways of working, to running the business differently and setting the business up for success. We are stronger, more financially stable, more able to face into ongoing headwinds, more ready to invest and grow, and we are looking to the future with confidence and excitement.

The Board remains confident in the strategy. With Membership central to our ambition, we will leverage the profitability within our portfolio and our Co-op difference, to build on the foundations already laid. Working in partnership with other co-operatives and like-minded businesses, we will build a modern Co-op for the next generation, delivering our growth in markets important to our member-owners.

Importantly, we will continue to prioritise and channel support for colleagues, members and communities during the current cost-of-living environment. Costs arising from this are expected to dampen profitability in the short-term.

Shirine Khoury-Haq, Chief Executive of the Co-op, said:

“I am very proud of our success over the last six months, particularly given the prevailing economic and market conditions. This performance wouldn’t have been possible had we not taken the decisions we did, as early as we did in 2022, when it came to better management of our members’ money and running the business more efficiently.

“While the economic environment remains challenging, we have again improved our underlying financial strength, significantly grown our membership base and delivered more for our members and their communities. We have done this while staying true to our Rochdale Principles, cooperating through partnerships and campaigning on topics which matter to our members most. We have invested heavily in supporting our members, communities, colleagues and customers through the cost-of-living crisis, and we will continue to do so.

“The business momentum established in the second half of the last financial year has carried through into the first six months of 2023 and has allowed us to significantly strengthen our membership offer and proposition – we have put our member-owners at the heart of what we do. We have listened to what they need, and we have not hesitated in our response.

“While there remains much for us to do, I’d like to thank all of our colleagues for their hard work in the first six months, which is delivering meaningful benefits for our members and their communities.”

Allan Leighton, Chair of the Co-op, said:

“At a time when interest rates and borrowing costs have soared, we’ve managed, under Shirine’s leadership, to reduce our net debt to an historically low level. While there is no room for complacency, there is room for confidence in our ability to plan ahead for growth in our Co-op and the impact we can have.

“It has been a pleasure to Chair this amazing business over the past 9 years. Whilst I won’t be a member of the Board into the future, I will certainly remain a Co-op member. The Co-op has always had a special place in my heart and that will continue after I’ve stood down early next year. The Co-op I leave is far stronger and far more member-centric than the one I inherited back in 2015. It is testimony to our amazing colleagues that we can look forward now with such renewed confidence and optimism.”

Business Unit Performance & Highlights

Food Retail/ Wholesale

  • Revenue in Food Retail marginally down £0.3bn to £3.6bn (H1 2022: £3.9bn), predominantly driven by the impact of the sale of our petrol forecourt business. Excluding the revenue from these stores generated in H1 2022, sales are up 4% year-on-year, on a like-for-like basis in our convenience stores (H1 2022: £3.4bn).

  • Launched new member pricing, enabling members to save more, with extension in H2 to include almost 200 everyday essential lines.

  • Continued expansion of quick commerce, with sales of £133m in the first half - including the growth of our partnership with Just Eat to 1,000 stores, with a further 300 stores on other partner delivery sites.

  • Increased revenue of £40m in the Wholesale (including Franchise) business to £719m (H1 2022: £679m), with a focus on investment in lowering wholesale pricing, strengthening proposition and choice across Co-op own-brand products, and the addition of 130 new stores.

Funeralcare

  • Revenue up £8m to £146m (H1 2022: £138m), driven by a 7.2% increase in volumes

  • Funeral volumes increased by almost 3.5k to 51,621 compared to the same period last year (H1 2022: 48,171), with an increase of 0.5% in market share to 14.7%.

  • Maintained a clear focus on pioneering more sustainable funeral options, with plans announced to pilot resomation through the launch of water cremation in the UK later in 2023, a first for the Funeralcare industry, and investment in more electric fleet vehicles.

Insurance

  • Revenue grew £3m to £14m (H1 2022: £11m), while the motor insurance market was challenging, pet and travel insurance delivered strong performances

  • Product development in Pet Insurance drove a strong performance with total policy sales up 88% on the same period last year to 41.6k (H1 2022: 22.1k)

  • Policy sales for Travel Insurance up 43% to 17.8k (H1 2022: 12.4k policy sales), supported by the introduction of double membership discount on policies.

  • We were recognised by the UK Customer Service Institute as the most improved company across all sectors for customer satisfaction and rated in the top 4 of 26 insurers.

Legal

  • Strong year-on-year growth in revenue, up 41%, to £31m (H1 2022: £22 million), driven by continued growth in probate and estate planning and the ongoing success of digital channels and partnerships.

  • Against a backdrop of tough market conditions, probate and estate planning prices remained unchanged throughout H1 2023 to support members and clients.

  • Significantly higher digital referrals, up 51% on H1 2022, further supported by the expansion of digital customer facing services such as electronic ID checks.

Media Enquiries:

Co-op

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

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

Lauren Pogson, 07966 672112, lauren.pogson@coop.co.uk

Citigate Dewe Rogerson

Holly Gillis, 07940 797560, holly.gillis@citigatedewerogerson.com

Angharad Couch, 07507 643004, angharad.couch@citigatedewerogerson.com

About Co-op:

Co-op is one of the world’s largest consumer co-operatives with interests across food, funerals, insurance and legal services. Owned by millions of UK consumers, the Co-op operates over 2,400 food stores, over 800 funeral homes and provides products to over 5,000 other stores, including those run by independent co-operative societies and through its wholesale business, Nisa Retail Limited.

Employing almost 60,000 people, the Co-op has an annual turnover of over £11billion and is a recognised leader for its social goals and community-led programmes. The Co-op exists to meet members’ needs and stand up for the things they believe in.

Interim Results RNS in full