Co-operative Group interim results for the 26 weeks ended 4 July 2015

MANCHESTER, England, 2015-9-3 — /EPR Retail News/ — Interim results for Co-operative Group Limited for the 26 weeks ended 4 July 2015

• Group revenue stable at £4.6bn (2014: £4.7bn)
  • Core Food convenience business delivered like-for-like sales increase of 3.3%, with like-for-like sales up 0.8% overall for the Food business
  • Funeral volumes increased by 12%, driven by the busiest start to a year since 2008
  • General Insurance (GI) revenue reduced in line with expectations, ahead of implementation of the new member-focused business strategy
• Group underlying profit before tax* of £64m (2014: £1m loss), reflecting robust trading in Food and Funerals and improved General Insurance performance
• Statutory profit before tax of £36m (2014: £9m loss)
• Investment in the Rebuild is underway
  • Capital expenditure increased to £144m (2014: £97m) as we invest for growth, with 35 new convenience Food stores and 10 new funeral homes opened
  • Corporate costs increased by £11m to £73m, (2014: £62m) reflecting the investment in the Rebuild programme and rising pension costs
  • Net debt at half year reduced to £0.6bn (£1.4bn this time last year) ahead of increased revenue and capital investment planned for the second half. Rebuild target of maintaining net debt below £900m maintained
  • Our pay award of 8.5% for 47,000 front line store colleagues, which was announced prior to the Budget, ensures that we will achieve the Government’s National Living Wage threshold for the vast majority of Group employees well ahead of schedule
  • Increasing levels of investment in the second half of 2015, reflecting our confidence in the plan, will result in lower profitability and increased debt
• Full-year outcome will reflect investment levels in the second half of 2015 and absence of one-off disposal profits as experienced in 2014
• New Board in place and held first AGM following the governance reforms approved in 2014
• New national charity campaign in partnership with the British Red Cross announced as the Group returns to its campaigning heritage

Richard Pennycook, Chief Executive of The Co-operative Group, said:

“We’ve made a good start on the three year journey to Rebuild The Co-operative Group. These early days are about fixing the basics – putting in place new leadership teams and providing the investment to deliver the strategies for our businesses. Our customers and members are beginning to see the difference.

Our colleagues share a great belief in The Co-operative, and what we stand for. They are at the forefront of our Rebuild efforts as we focus on our purpose of ‘Championing a better way of doing business for you and your community’.”

Allan Leighton, Independent Non-Executive Chair of The Co-operative Group, said:

“The commercial improvements we’ve made in the first half of 2015 have gone hand in hand with the further strengthening of our Board, Council and senior management teams. Our members are now represented through a highly experienced Board who are already providing sage guidance, and through the Members’ Council, which has a new leadership team. I look forward to working with them as we revitalise the engagement of our broad membership in our business and community activities.”

Summary of business performance 

Our core businesses made good progress during the first half of the year, though their performances continue to reflect the different stage of each in the Rebuild process:

• Our Food business achieved strong like-for-like sales increases in our core convenience stores (3.3%) and a solid performance across the total Food business (0.8%); whilst underlying profits increased by 21% to £120.4m (2014: £99.7m). We opened 35 new convenience stores and announced the recruitment of 1,000 new colleagues to provide stronger customer service at peak periods. A further 116 stores were refurbished in the period delivering an average 6% sales uplift. A key customer initiative was the next phase of our £125m price investment with a focus on the fresh fruit and vegetable range, delivering great quality produce locally at the best value on the high street. We were voted ‘Best Overall Convenience Retailer’ and ‘Best managed Retailer’ at the prestigious CTP awards (awarded by shoppers and store colleagues)
• Funeralcare had the busiest start to a year since 2008, with business volumes increasing by nearly 12%, principally due to a high death rate. Underlying profit rose to £51.8m (2014: £34.6m) on sales up 16% at £216.4m (2014: £187.0m). Ten new funeral homes were opened, taking the total estate to 970 homes. We also announced the appointment of Richard Lancaster as Managing Director and look forward to him starting in September
• General Insurance made an underlying profit of £0.5m (2014: £6.8m loss) on sales of £159.3m (2014: £188.7m). Gross Written Premium fell to £180.3m (2014 £188.8m), and the net loss ratio was 68.2% (2014 70.2%). These results are in line with expectations and reflect a lower volume of claims than in the same period last year. We defined our new member-focused strategy, setting a clear direction for the future. A programme to improve member and customer services is now underway, building on our brand, distribution, and data advantages. Having successfully raised £70.0m of new capital, the business entered into a 10-year deal with IBM to replace legacy IT systems and incurred £17.3m of transformation costs
• Legal Services made a small underlying profit of £0.2m (2014: £5.1m loss) in the first half of 2015 following a year of structural changes in 2014. Working with our GI and Funeralcare businesses, we are developing a range of products and services to support the needs of members and customers
• Our Electrical business made an underlying loss of £0.9m compared to a break even position in the first half of 2014. Whilst total sales fell our core online business performed well, with sales up 2.6% on last year

Membership, democracy and governance

• Following our AGM in May, the transitional arrangements relating to the Group’s governance structure ceased, with new permanent structures taking effect
• The Group Board, chaired by Allan Leighton, met for the first time in June 2015. Its composition fulfils the first principle voted for unanimously as part of the governance reform process in 2014 – “a Board individually and collectively qualified to govern an organisation of comparable scale and complexity”.The Board includes three Member Nominated Directors
• Following the first open democratic elections, the Members’ Council met for the first time in May 2015 and elected its new leadership team in July. Of its 100 members, 58 have been elected through the new one-member-one vote (OMOV) arrangements, and a further 34 members hold continuity seats which will be subject to OMOV elections in 2016 and 2017.  The Council has also co-opted eight new members to ensure it is representative of the wider membership.
• The fledgling nature of the new democratic structures was reflected in voter turnout at the AGM, with  3% of eligible members casting their votes. Our ambition is to see this number substantially increase as we implement our member engagement programme, which will launch in mid-2016. This aims to reverse many years of declining member participation
• Over 78,000 members took part in a vote which saw the British Red Cross selected to campaign with us on tackling the issue of loneliness and social isolation
• We relaunched our popular “swipe and win” scheme within our 2,800 food stores, which led to thousands of members receiving daily benefits and discounts on their shopping
• Given the increased level of investment and capital expenditure, we still do not expect to declare dividends until 2018 at the earliest

Outlook

• Overall Group trading in the first eight weeks of H2 2015 has been in line with expectations
• In Food we expect to overcome deflation in the marketplace to generate further like-for-like sales growth and we will continue to progress our convenience-led strategy by opening another 60 new stores, refreshing our ranges to reflect local customer needs and completing a further 150 store refurbishments
• In our General Insurance business we expect very modest increases in premium rates within the motor area but a continuation of the aggressive market pricing within home insurance. Against this backdrop we will continue to underwrite cautiously, albeit we see some opportunity to grow our business as we deliver the benefits from our recent investment in pricing capability. Our main focus for the second half of the year, however, is our major transformation programme which is moving into the delivery phase and which will see significant benefits for our members and customers beginning in 2016
• Funeralcare’s positive performance in the first half of the year reflected a higher than usual number of deaths. As seen in previous years, this is expected to normalise during the remainder of 2015. Nevertheless, we expect Funeralcare to have a successful second half to the year through our commitment to providing high quality care to our clients and our continued investment in the business and our people
• Whilst we expect the trading performance across our core businesses to be in line with expectations, we expect full-year profitability to reduce year on year, given the planned and increased levels of investment we are making in the second half of the year to support our rebuild strategy

Media Enquiries

The Co-operative Group

• Jon Church – Tel: 07545 210812
• Russ Brady – Tel: 07880 784442

Tulchan Communications

• Jonathan Sibun or Giles Kernick – Tel: 020 7353 4200

Notes to editors

* Underlying profit before tax is profit before tax but stripping out the effects of property disposal profits, changes in the valuation of investment property, one-off items, fair value movements on loans and borrowings, and pension interest.  This is consistent with other retail plc underlying profit measures.

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