Interim results for The Co-operative Group for the 26 weeks ended 5 July 2014

September 04, 2014

First half marks period of significant progress for The Co-operative Group

  • Approval of far-reaching governance reforms to return Group to stability
  • Transition to new governance model under way and expected to complete by 2015 Annual General Meeting to enhance member engagement
  • Clear plans being developed to drive future growth with new purpose and strategy
  • Robust action taken to reshape Group, including major disposals set to significantly reduce debt and return business to a sustainable position
Financial performance summary 2014 2013
Group sales (inc. VAT)* £5.1bn £5.3bn
Group underlying operating profit/(loss)** £66m £116m
Of which -
Food £107m £117m
Funerals £35m £42m
General Insurance (£7m) £29m
Legal Services (£5m) (£3m)
Corporate costs (£70m) (£78m)
Group operating profit £43m £105m
Profit/(loss) on discontinued operations*** £19m (£843m)
Group comprehensive income /(loss) £116m

(£1,003m)

Net debt £1.4bn

£1.2bn

(1.4bn at year-end)

* Group sales comprises total Group revenue of £4.7bn per the income statement and VAT of £0.4bn (2013: VAT of £0.4bn)

**Underlying operating profit is a non-GAAP measure of segment operating profit before property disposals, change in value of investment properties and one-off costs. One-off items of £39m (2013: £13m) principally relate to £14m (2013: £9m) of restructuring and separation costs following the loss of control of the Co-operative Bank Plc ("Bank") and £25m (2013: £4m) relating to rationalisation of the Food supply network.

***The 2014 profit on discontinued operations includes Pharmacy, which the Group announced an agreement to sell in July 2014, together with an increase in the provision to separate the Life and Savings business which was sold in 2013. The 2013 loss on discontinued operations includes Pharmacy, the Co-operative Bank and the Life and Savings business. Further details are included in note 6 of the interim financial statements.

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

“2014 has marked a defining period for The Co-operative Group. We have delivered the changes we set out including fundamentally reforming our governance and we are developing clear plans to drive our success for the future. We took the tough decisions to re-shape our Group to ensure it is on a sustainable footing and the disposals of our Pharmacy, Farms and Sunwin Services businesses as part of this will repair our balance sheet. Our Group strategy is to build on our existing strengths as a convenience food retailer and to optimise the performance of our new Consumer Services Division, comprising of Funeralcare, General Insurance and Legal Services. We are now in a position to rebuild and restore the Group and can look to the future with greater confidence.

“At the same time, much remains to be done. These results clearly reflect an organisation in transition and show the scale of work necessary to restore the Group to full financial health. Underlying profitability in the business has been curtailed by the deliberate actions we are taking to implement our detailed rebuild plan and to face into the tough trading conditions prevailing in the markets in which we operate. Looking ahead, we are confident that we are doing the right things to ensure that the performance in all our businesses is what our millions of members and customers expect. By focusing on our customers, our members and their communities, we will revitalise The Co-operative Group.”

Summary

First-half financial performance reflects a Group in transition, at the start of a three-year programme to rebuild the business

  • Overall return to profit, following significant losses in 2013 which reflected the impact of The Co-operative Bank Plc (“Bank”) recapitalisation and impairment of goodwill relating to the acquisition of Somerfield
  • Group underlying operating profit lower at £66m (2013: £116m), in line with expectations, following management actions to implement new strategies across our Retail and Consumer Services divisions
  • Profitability also impacted by increase in interest payable to £67m (2013: £49m) reflecting changed borrowing profile and increase in debt from half year 2013 following recapitalisation of The Co-operative Bank
  • Debt position stabilised at £1.4bn year-end level
  • Significant reduction in borrowing forecast for full year, following successful sales of Pharmacy, Farms and Sunwin Services, with total proceeds of £910m
  • Group capital expenditure falls to £99m (2013: £126m) following Bank separation and re-focusing of strategic priorities

Food business strategy continues to boost performance, delivering increased sales; like-for-like sales up 1% overall and 4% like-for-like in core convenience chain

  • Overall revenue and underlying operating profits decline, in line with strategy to sell larger outlets and invest in stores, prices, service and product innovation
  • £74m invested in store estate – 21 new stores opened and 50 stores refitted
  • Investment in product sees 780 new and 2,500 revamped lines launched and increased sales across new ranges

Consumer Services Division delivers performance as anticipated

  • Funeral business performance consistent with the lower national death rates; sales fall to £187m (2013: £201m) and underlying operating profit to £35m (2013: £42m)
  • General Insurance profitability impacted by increased claims after adverse weather conditions in early 2014 and competitive market for new business; sales drop to £189m (2013: £245m) with an underlying loss of £7m (2013: profit of £29m). Customer loyalty and renewal volumes, however, have remained strong with a growing trend of new business being driven from the Co-operative Membership base
  • Legal Services losses reflect costs of restructuring business in line with new re-focused strategy; sales of £13m (2013: £18m) and an underlying loss of £5m (2013: loss of £3m)

Group continues to support the Co-operative Bank

  • Group reports total profit for its share in the Bank of £25m, comprising share of Bank’s loss after tax of £16m and credit of £45m relating to the amortisation of fair value adjustments
  • Commitments to The Co-operative Bank recapitalisation plan honoured; payments of £50m at the end of January and £100m in June with remaining £163m to be transferred before end of 2014.
  • Group stake in Bank diluted to 20.2% in May following rights issue

Far-reaching reforms agreed, as members vote overwhelmingly for radical new governance structure

  • A smaller, more effective Group Board of 11 people, composed of a majority of Independent Directors including an Independent Non-Executive Chair, five Independent Non-Executive Directors, two Executive Directors (including the Group Chief Executive) and three Member Nominated Directors
  • Testing eligibility criteria for all Directors (independent and elected) including business acumen and a commitment to Co-operative Values and Principles
  • A Council to represent members and as a guardian of the Group’s purpose, values and principles with the power to hold the Group Board to account and encourage member participation and their contribution to Society policy development
  • Robust demutualisation protections

Current trading in line with expectations; improved underlying profitability expected across Retail and Consumer Services businesses for second half

  • By the end of the year the Food business plans to have launched 100 new stores, with over 300 further refits, 800 new products launched and 4,000 products now under our “Loved by Us” range. Contactless payments technology also to be rolled out across entire estate
  • New Consumer Services leadership working to leverage opportunities across division and enhance online presence
    • National advertising campaign for Funerals to launch in September; new digital services to be unveiled
    • Increased marketing activity and national advertising campaign for General Insurance business to be launched in the second half of 2014 in line with introduction of turnaround strategy
    • Restructured Legal Services business, ensures business is moving towards right size and shape for the future

Media Enquiries:

The Co-operative Group

Russ Brady
Tel: 07880 784442
Therese O’Donnell
Tel: 07738 622866 / 08437 540899

Tulchan Communications

Tel: 020 7353 4200
Susanna Voyle
Jonathan Sibun
Giles Kernick

Notes to Editors:

The Co-operative Group is the UK’s largest co-operative business, whose purpose is “Championing a better way of doing business for you and your communities.” Owned by more than eight million members, The Co-operative Group operates a total of 4,500 outlets, with around 87,000 employees and has an annual turnover of £11 billion with interests across Food, Funerals, Insurance and Legal Services.

 

Download the complete RNS for the 2014 interim results financials including consolidated income statement, statement of comprehensive income, balance sheet and cash flow (PDF 410 KB)