Merger delivers strong profit growth

April 17, 2008

Preliminary results for The Co-operative Group


The Co-operative Group is the UK’s largest mutual retailer. It is the fifth largest food retailer, the third largest retail pharmacy chain, the number one provider of funeral services and the largest independent travel business. It also has strong market positions in banking and insurance. The Group employs 85,000 people, has 2.5 million members and over 4,300 retail outlets.

As well as delivering on its financial and operational goals, The Co-operative Group aims to deliver on its social goals, playing an active part supporting local communities and the wider world. Today the Group is reporting on both of these areas, for the 52 weeks ended 12 January 2008.


Highlights

  • Merger of The Co-operative Group and United Co-operatives completed to create the world’s largest consumer co-operative
  • Three-year plan to invest to improve the Group and transform our retail estate under a single unified brand unveiled today
    - £1.5bn of investment in the business
    - All trading outlets to be under new brand by end of 2009
    - Target to double profits
  • Trading Group operating profit before significant items and changes in the valuation of investment properties up 35.2 per cent to £322.7m, an increase of £84.1m and Trading Group sales up 18.8 per cent to £6.3bn, with a particularly strong performance from the Group’s food business
    - In food, a strong trading performance combined with new product launches and further store refits delivered excellent results. Market beating like-for-like sales 4.6 per cent higher; eight consecutive quarters of LFL growth; profit before significant items up 50.5 per cent to £139.2m.

Pharmacy and funerals both delivered strong sales and profit growth. Pharmacy sales up 58.1 per cent at £541m and operating profit before significant items up 9.6 per cent at £30.8m. Funeralcare sales up 19 per cent at £234m and operating profit before significant items up 66 per cent at £31.5m.

  • Overall Group financial performance, i.e. the Trading Group and Co-operative Financial Services, affected by significant exceptional costs relating mainly to the integration of the Co‑operative Group and United Co-operatives and internal reorganisation in the CFS insurance business
  • Dividend payments to customer members, up from £22m to £45m.

Financial and Operational Performance

  • Group sales net of VAT rose 13.4 per cent to £8.3bn (£7.3bn) or £9.1bn gross (£7.9bn)
  • Consolidated Group operating profit before significant items rose 8.6 per cent to £431.6m (£397.4m)
  • Profit before payments to and on behalf of members (the equivalent of pre-tax profits in a plc) fell to £195.5m (£359.1m) due to significant exceptional costs relating to:
    - Post-merger integration costs
    - The impact of severe weather on general insurance, one-off restructuring costs in the CFS insurance business and write downs through the Bank’s relatively small exposure to structured investment vehicles
    - Property revaluations
  • Members’ funds rose 16.1 per cent to £3.8bn (£3.2bn)
  • More than 800 retail outlets converted to the new brand concept as part of a £200m investment in 2008
  • Net debt rose from £155m to £563m reflecting the impact of the merger and significant investment in acquisitions and refits.

NB These results represent a full year of The Co-operative Group and six months for United Co-operatives.


Social goals

  • Launch of our new Food Ethical Policy, endorsed by more than 100,000 members, which outlines our member-led commitment to maintain and strengthen our position as the UK’s leading responsible retailer
  • This led the Group to ban the sale of eggs from caged hens from all our stores, convert our entire own-label hot beverage range to Fairtrade and prohibit the use of a further 66 pesticides by our own-label growers and suppliers
  • We contributed a total of £10.4m to the community in 2007, a 47 per cent increase on the previous year and equivalent to 6.9 per cent of our pre-tax profits
  • We have revitalised our commitment to education with the announcement of the first “co-operative trust school” and the sponsorship of the first co-operative academy in Manchester 
  • The Group announced an ambitious target to reduce the energy consumption of its premises by 25 per cent within the next five years and that 15 per cent of our energy needs will be met from renewable sources
  • Our efforts won the Group the Queen’s Award for Enterprise in the Sustainable Development category


Peter Marks, Chief Executive, said:

“This has been one of the most significant years in the history of The Co-operative Group and the wider co-operative movement. The merger of The Co-operative Group and United Co-operatives provides the foundation for the reinvigoration and renaissance of the whole co-operative sector in the UK.

“These results show that in spite of all the changes going on in the business we have continued to make huge strides within the Trading Group. Now we look forward to continuing to drive the business for the benefit of our customer owners.

“The Co-operative Group now has the critical mass necessary to deliver real change. With the successful integration behind us, we can embark on our ambitious three-year plan to invest £1.5bn to transform our retail estate under a single unified brand and build market share.

“But as we change we will not lose what makes us distinctive. The Cooperative Group will be financially successful and socially responsible. Customers, members and employees will continue to choose us for what we do with our profits as well as for how we make them.”

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