"Six months into our Rebuild, we are on track and laying some important foundations. However, there is still much to be done.”
Allan Leighton, Group Chair
Our three-year Rebuild programme for the Group, which we set out at the end of 2014, has put in place a comprehensive strategy for our recovery and long-term success. Our Rebuild plans cover all aspects of our work from our business performance and corporate governance to the way we will restore The Co-operative Group to the heart of communities throughout Britain.
Six months into our Rebuild, we are on track and laying some important foundations. However, there is still much to be done.
Our commercial performance is improving, led by strong like-for-like sales growth in our convenience Food business and a busy start to the year for Funeralcare. Meanwhile, our plans for relaunching our membership proposition in the second half of 2016 are well advanced. We are beginning to test the best of our ideas for how we will work with local communities throughout Britain.
Although our half year profits are higher than 2014, we will significantly ramp up investment in our long term future in the second half of the year, such that we anticipate full year profits being below 2014’s performance, which included the benefit of business disposals. Investment in our Rebuild strategy will accelerate in the remainder of the year, following our commitment to increase frontline colleague pay, customer service and price competitiveness within the Food business. We also anticipate that the exceptionally high first half funeral volumes will not continue in the remainder of the year and there will be a further increase in corporate costs as we build the team that will reinvigorate our membership.
A stronger Board with sound governance
Rebuilding our governance to ensure we have the right accountability to our members and the appropriate professional expertise on our Board has been a priority in the first half of the year. The Annual General Meeting (AGM) saw our Members overwhelmingly ratify the Board appointments of myself as Group Board Chair, Sir Christopher Kelly as our Senior Independent Director, and Richard Pennycook as Group Chief Executive. We also announced the appointment of Simon Burke as an independent Non-Executive Director with effect from 15 May. Prior to this Simon had served on the Transitional Group Board.
In addition, our Members voted directly to elect three Member Nominated Directors to the Board, so maintaining the clear democratic link and accountability to our membership. They are Paul Chandler, Ruth Spellman and Hazel Blears and they bring with them excellent and highly relevant experience. At this early stage of establishing our new governance structures, I was delighted to welcome such strong Directors who are willing to serve on our Board.
Since the AGM, we have announced the appointment of two further Independent Non-Executive Directors as we move to complete the Board. Stevie Spring and Peter Plumb are further very strong appointments, and I welcome them to the Board.
It is most unusual for a completely new Board to come together in such a short time. For this reason, we have included a biography of all your Directors within this report on page 8. What all of our Member Nominated and Non-Executive Directors share is outstanding experience relevant to the strategy we are pursuing. But just as important as their experience is their belief that The Cooperative has a purpose and a place in British life that is unique. Only we can give our customers a distinctive, values-led offer in all of the markets in which we trade and share our success directly with them and their communities.
Our new democracy
In May we held our first One Member One Vote (OMOV) AGM under the rules of our new constitution, giving our Members a direct say in the Group’s future. We welcomed approximately 800 Members at this meeting, which for the first time in a generation was open to all. Over 90,000 members voted, a figure which we hope will grow significantly as we pursue our strategy of once again making membership meaningful and encouraging more engagement from a wider group of Members.
At the AGM we announced the results of the election to our new National Members’ Council which will represent the interests of our millions of customer-members. Of its 100 members, 58 have been elected through the new OMOV arrangements, and a further 34 members hold continuity seats which will be subject to OMOV elections in 2016 and 2017. The Council has co-opted eight new members to ensure it is representative of the wider membership. The Council exists to uphold our Co-operative Values and Principles and provide Member scrutiny of our Group Board. In July the Council elected its new President, Nick Crofts, as well as its two Vice-Presidents and Senate members who together will guide the Council’s work.
Our support for other co-operative societies
Another area of our governance reform which has received less public attention, but is important, has been the creation of Federal Retail Trading Services (FRTS). The Group operates a number of support services on behalf of other co-operative societies, the most significant of which is the purchasing of grocery products. Co-operatives of any size (in one case a single store) can benefit from the full buying power of the Group, which in total is purchasing for 4,000 stores. The newly created FRTS Board, independently chaired by John Combes, oversees these arrangements and is considering significant opportunities to deliver efficiency savings through new systems and supply chain initiatives.
I look forward to working with all of our new Board members, with the Council and with the FRTS Board as we continue our Rebuild programme.
There is still a great deal of work to do before we can consider the Group fully fit and healthy but we are certainly back on our feet with a renewed conviction and passion taking us to the next phase of our journey.