“Building the team to Rebuild The Co-operative"
Richard Pennycook, Group Chief Executive
We have made a solid start on our three-year journey to Rebuild The Co-operative Group. The early months have been about fixing the basics – putting in place new leadership teams and addressing the under-investment of the past. Our customers and Members are already beginning to see the difference.
Important work has been done to develop the right leadership team for this new phase of our turnaround. In some cases, existing members of the management team have taken on new roles, and in other cases we have brought in new talent. Of particular importance have been the appointments to the Group Executive of Ian Ellis as Chief Financial Officer, Mike Bracken as Chief Digital Officer and Debbie Adams as Group Secretary. Elsewhere in the leadership team, the appointments of Richard Lancaster as Funeralcare Managing Director, Chris Whitfield as Food Operations Director and Jane McCall as Food Transformation Director were all key hires.
Restoring our commercial performance is fundamental to our Rebuild and we are seeing solid
progress in every part of the Group.
Group revenue was stable at £4.6bn (2014: £4.7bn). Group underlying profit before tax was £64m (2014: £1m loss), reflecting robust trading in Food and Funerals and an improved General Insurance performance. Underlying profit before tax represents the profit from core trading performance less underlying interest and is shown in a reconciliation on the Income Statement on page 13. Our statutory profit before tax was £36m (2014: £9m loss).
Meanwhile, net debt reduced significantly to £0.6bn compared to £1.4bn at the same time last year, but will rise again towards the year end as our investment programme accelerates. Net debt is still forecast to remain below our own internal target of £900m during the three years of our Rebuild strategy and we were pleased to receive a credit upgrade from Standard and Poor’s reflecting the progress made to date in repairing our finances.
The Co-operative Bank, in which we hold a 20.2% stake, reported a statutory loss before tax of £204.2m at half year which was in line with expectations. As a consequence we have continued to value our investment in the Bank at £224m, the same valuation as at the year end, with no net impact on the overall Group result.
Although we have returned to profit our priority remains re-investment for the long-term. As we said in April, when we announced our 2014 performance, we do not expect to issue a dividend to our Members until our three-year Rebuild programme is accomplished. In the meantime, investments in our infrastructure, our customer proposition and our colleagues will absorb cash. We will earn the money we intend to invest and continue to find savings by running the Group more effectively on behalf of our Members.
In the first half of the year, capital expenditure increased to £144m (2014: £97m) as we continue to grow our convenience food estate, with 35 new food stores and 10 new funeral homes opened. Our individual business strategies are at different stages of implementation with our Food business most advanced.
The True North programme for Food has delivered strong like-for-like sales increases in our core convenience stores and we remain ahead of our rivals in this highly competitive segment of the market. Our key initiatives in the first half were our price investment in fresh produce, which is now the best value on the high street, and our previously announced pay award of 8.5% for 47,000 front line store colleagues. This pay award, which was announced prior to the Summer Budget, ensures that we will achieve the Government’s living wage threshold for the vast majority Group employees, well ahead of schedule.
Our Funerals business had a very busy start to the year but maintained its reputation for outstanding client care. We remain leaders in this market but recognise that we must react to and anticipate changes in how families wish to celebrate the life of loved ones and mark their passing. We are currently reviewing all aspects of our Funerals business to determine how best to respond to changing needs in society.
Our General Insurance business has suffered from years of underinvestment and a long period when its future as part of the Group was uncertain. We have now made it clear that General Insurance is a core business for us with the ability to offer a distinctly Co-operative and commercially competitive offer. Its transformation strategy is focused on providing our Members with excellent products at competitive prices. Achieving this is dependent on building a new IT platform that will radically improve the customer experience. In June we announced a 10 year agreement with IBM that will enable us to build General Insurance into the first rate business it has the clear potential to become. Among our smaller businesses, of particular note was Co-operative Legal Services’ return to profit in the first half of the year as it focused on its core family law practice.
As we came to the end of the first half we announced our new two-year partnership with the British Red Cross to fundraise and campaign on the issue of loneliness and social isolation across Britain. The theme and charity partner were chosen by our Members and colleagues through a national vote and demonstrated that we are returning to being an outward looking and campaigning business that puts the concerns of our Members at the heart of our work.
Building further on this, we have launched over 50 community-based trials to evaluate how best for our Members and colleagues to deliver our Purpose in their local area. The findings from the trials will inform the final design of our new membership proposition when it launches in 2016.
The past six months have been busy and rewarding. We have retuned our focus to the needs of our Members and customers and the communities where they live. We are still in the early stages of our Rebuild but we are encouraged by the progress we are making on all fronts.
Group Chief Executive