TIDM42TF
RNS Number : 0413M
Co-operative Group Limited
12 September 2019
12 September 2019
Interim Results for the six months to 06 July 2019
Co-op community impact grows on strong Food performance
Co-op highlights H1 2019: Investing for the benefit of our
members and communities
-- GBP29 million returned to members and GBP6 million to 4,000 local causes.
-- Total sales increased by 12% to GBP5.4 billion.
-- 22 consecutive quarters of like-for-like* sales growth in
Food - total sales up by 3% and like-for-like sales up by 1.7%.
-- Extended online food delivery trials in London using zero
emission electric cargo bikes and by partnering with Deliveroo.
-- Funeral revenue falls by 6%, driven by an unexpected 10% fall
in the death rate and our conscious decision to hold prices in a
changing and competitive market
-- Funeralcare to concentrate on innovation, choice, flexibility
and partnerships - giving the same level of focus and care to
develop the business as the Co-op did with the reset of its food
business five years ago.
-- Co-op Health expected to be rolled out nationally by early
2020 bringing convenience to pharmacy and health services.
-- Re-entered the life insurance market, launching Co-op Life
Cover, including innovative payment holiday option.
-- Successfully re-financed GBP300m of existing debt, through a
Fairtrade Sustainability Bond - twice over-subscribed and a UK
retailing first.
-- The Co-op named Grocer of the Year at the Grocer Gold Awards
and Consumer Business of The Year at The London Evening Standard
Awards.
-- Co-op members back accelerated sustainability, packaging and community goals:
o All Co-op direct Green House Gas emissions to be reduced by a
further 50% by 2025.
o We will ban the use of black and dark plastic packaging from
October to make it easy to recycle.
o Ambitious Co-operate 2022 community plan focusing on saving
community spaces, improving wellbeing, skills and education.
Financial highlights: In line with plan
-- Significant accounting standards change in H1 2019 following
adoption of IFRS 16 in relation to lease accounting.
-- Total sales increased by 12% to GBP5.4 billion, reflecting
full contribution of Nisa business and continued strong performance
of our Food business.
o Total Food sales grew by 3% to GBP3.7 billion and
like-for-like sales by 1.7% despite highly competitive trading
environment.
o Funerals and Life Planning sales fell 6% to GBP163 million.
Results driven by a 10% reduction in the death rate and the
continued reshaping of the business in response to market
changes.
-- Underlying business performance in line with plan, enabling
GBP35m of member value to be generated.
On an IFRS 16 accounting basis for 2019:
Total Underlying Operating Profit** increased to GBP64m from
GBP50m in 2018, of which:
o Food was GBP120m (2018 GBP80m)
o Funeral and Life Planning was GBP13m (2018: GBP28m)
Profit Before Tax reduced to GBP25m (2018: GBP44m)
On a non-IFRS 16 accounting basis for 2019 - Like-for-like:
Total Underlying Operating Profit reduced to GBP36m from GBP50m
in 2018, of which:
o Food was GBP95m (2018 GBP80m)
o Funeral and Life Planning was GBP13m (2018 GBP28m)
Profit Before Tax reduced to GBP30m (2018: GBP44m)
-- Supporting function costs increased by GBP13 million
(excluding IFRS 16) due to greater investment in our digital
capability and increased marketing activity to promote our Co-op
difference.
175 year anniversary demonstrates long-term impact and
sustainability:
This year marks 175 years since the Rochdale Pioneers opened
their first Co-op shop and we continue to stay true to their
founding principles by measuring our success not just in pure
commercial terms but in the way we create value for our members and
Society as a whole. Our Stronger Co-op, Stronger communities plan
is helping us move from strength to strength as our customers
recognise that choosing Co-op also means choosing to do good for
their communities.
We want to help create stronger, more connected communities,
which is why this summer we launched our Endangered Spaces campaign
in partnership with Locality, with the aim of protecting 2,000
community spaces by the end of 2022.
o The Co-op Foundation has awarded more than GBP1.4 million to
help 20 community organisations grow their activities and secured
GBP1 million of government funding to help over 7,500 young people
improve local spaces.
In addition to our work on reducing plastic and greenhouse gas
emissions, we have written to Local Councils which collect food
waste but do not yet accept our compostable carrier bags in their
collection services, to ask them to change their policy so we can
play our part in reducing plastic contamination and diverting food
waste from landfill.
The Co-op's ability to support our community and campaigning
activities is driven by strong businesses:
-- Our Food business continued to perform well in a fiercely competitive market.
o We have the highest shopper frequency in the market as
customers regularly visit their Co-op - our 1.7% growth in
like-for-like sales was a particularly strong performance, given
outstanding sales last year on the back of the FIFA World Cup.
o We had a successful Easter bank holiday, driven by a
competitive offer and helped by the warm weather, and our summer
saver deals have also proved popular.
o In our wholesale operation 90% of Nisa partners have now taken
lines from across Co-op's own brand products, which are now
generating weekly sales in excess of GBP2.5m.
o We've established six Co-op franchise stores; three are
Costcutter-owned stores and three are on university campuses.
-- The university-based stores provide greater access to the
student market, whilst providing valuable market data which we can
feed into our business, to ensure our Co-op continues to meet the
needs of a younger audience.
-- Under new leadership, our Funerals and Life Planning business
has reviewed its strategy focusing on support for families,
broadening customer choice, competitiveness and channels to
market.
o Sales during the period were significantly impacted by an
unexpected 10% fall in the death rate. Funerals conducted in the
period fell to 48,423 compared to 53,213 in H1 2018.
o We welcomed the Government's announcement, in June to crack
down on the use of high pressure and misleading tactics to sell
funeral plans. We are working closely with the CMA investigation
into the at-need funerals and crematoria markets.
-- In Insurance, we have invested to increase product
development and raise the business's profile so we can meet the
ever-increasing needs of our members in the future.
o In addition to returning to the life protection market, we
introduced an innovative "graduated" product for young drivers,
saving them an average of GBP300, as a reward for safe driving.
-- Our Legal Services business continues to perform well, with
Probate revenue up 37% and Estate planning revenue up 20%. We are
the leading provider of probate in the UK.
-- The launch of Co-op Health saw us return to the health
sector, with a disruptive, capital light, digital offer giving
customers a range of ways to access their medication, with a
service provided by a brand they know and trust
o This year we began a 'click & collect' trial, using
lockers in Co-op food stores.
Outlook
-- With Brexit continuing to create uncertainty, we continue to
plan and prepare as best we can. In the event of a "no deal" Brexit
there is an increased risk of some disruption to our supply chain,
however we will do all we can to protect our customers and members
from this impact.
-- We are progressing with the ambitious plans we have for our
funerals business amid unprecedented market change. We are
confident these changes will position the business for long-term
success, providing our customers with the support and choices they
require at their greatest time of need.
-- Likewise we are optimistic with the opportunities which exist
in insurance, as we progress a deal with Markerstudy subject to
regulatory approval, as well as our legal and health sectors, where
our historical expertise and ambitious growth plans, provide the
basis for us to increase member value in the years ahead.
-- We will continue to innovate and invest further within our
food business to maintain the competitive advantage within the
convenience sector.
Steve Murrells, Chief Executive of the Co-op, said:
"We've enjoyed another good six months where the strength of our
business has led to a further GBP35 million of value being
generated for our members and their communities. Our food business
continues to perform strongly in a highly competitive market and
has now recorded 22 consecutive quarters of like-for-like sales
growth. As our largest business, it is providing the fuel for our
growth in terms of member value and community impact.
"In funerals we are actively re-positioning the business to meet
the changing needs of our members. We are the market leader but we
will also lead the market in providing better choices and options
for our customers in the years ahead. Likewise, the development in
our insurance, legal and health businesses will enable us to
significantly broaden the range of Co-op services, in areas where
our members know the Co-op difference can be clearly seen."
Allan Leighton, Chairman of the Co-op, said:
"We have made further progress during the first six months of
this year and the strength of our business can be seen by our
underlying financial position and through the increasing impact
we're having in local communities.
"The Co-op is now 175 years young, and we have worked hard to
ensure that we remain relevant to all generations and in particular
younger co-operators. Whether this is using our presence at eight
music festivals to introduce people to our values and ways of doing
things, or by developing motor insurance products specifically with
the needs of young drivers in mind. The Co-op is thriving and we
are committed to growing our Co-op difference and impact for
generations to come."
Ends
Media Enquiries:
The Co-op
Jon Church
Tel: 07545 210812
Russ Brady
Tel: 07880 784442
Tulchan Communications
Jonathan Sibun
Tel: 020 7353 4200
About the Co-op:
The Co-op is one of the world's largest consumer co-operatives
with interests across food, funerals, insurance, legal services and
health. It has a clear purpose of championing a better way of doing
business for you and your communities. Owned by millions of UK
consumers, the Co-op operates 2,600 food stores, over 1,000 funeral
homes and it provides products to over 5,100 other stores,
including those run by independent co-operative societies and
through its wholesale business, Nisa Retail Limited. It has more
than 63,000 colleagues and an annual revenue of over GBP10
billion.
*Like-for-like sales is a measure of year-on-year sales
growth for stores that have been open for more than one
year.
**Underlying Operating Profit excludes one-off items, property
and business disposals and change in value of investment
properties. A reconciliation of Underlying Operating Profit
to Operating Profit is provided in note 1 of the Interim
Financial Statements.
Co-operative Group Limited
Interim Report 2019
We're creating value for our members
12% growth in Group revenue
GBP78m Group operating profit
Co-op Health launched
GBP29m Returned to members through 5% reward [same as h1 in
2018]
GBP6m Returned to local communities through 1% reward [same as
h1 in 2018]
Five more Co-op Academy Schools opened
Three Co-op franchise stores opened on University campuses
GBP2.5m Weekly Co-op own brand product sales through Nisa
partners
GBP290m invested in sustainable businesses by Co-op pension
fund
Chair's introduction
Through 2019 we're marking the 175(th) anniversary of the birth
of the UK co-operative movement. The social and economic challenges
of 2019 are very different from 1844, but fundamentally our
approach to them remains the same. Our job is to run a commercial
enterprise on behalf of our members that's responsible and
successful and creates a better, fairer and more co-operative
world. And at a time of growing political and social polarisation,
thinking co-operatively looks more urgent than ever.
This report on the first half of the year shows that we continue
to focus on being a competitive, innovative, responsible, and
growing business. By building a stronger Co-op we can create
stronger communities. We're using this anniversary year to identify
the challenges of today for individuals, communities and the planet
as a whole. We've been refining our work to better address those
challenges.
Democratic accountability has always been a core principle of
the co-operative movement. In 2019 we demonstrated this through our
AGM and elections of our Member Nominated Directors (MNDs) and
Members' Council Representatives.
Sarah McCarthy-Fry was elected as an MND for the first time this
year. Sarah's been a committed co-operator for over 25 years and
was previously a Labour and Co-operative MP, representing
Portsmouth North, and served as a minister in Gordon Brown's
government. Sarah is currently a finance director at GKN Aerospace.
We welcome Sarah to the Board. Paul Chandler was re-elected. Gareth
Thomas was not re-elected and I'd like to thank Gareth for the
great service and professionalism he brought to us over the last
two years.
Our Members' Council is also a key element in ensuring we are
accountable and listening to our members. The Council has continued
to support, challenge and influence our thinking during the first
half of the year. We are grateful for its passion and
commitment.
Allan Leighton
Group Chair
Chief Executive's introduction
Value for a Co-op member comes in many forms. It's about more
than individual reward and lowering prices. Our members want to do
good in their community and they want their Co-op to make a
difference in society. I'm delighted to say that in the first six
months of this year we've achieved these things in numerous ways.
We've grown the reach of our brand to new markets and new
customers. We've innovated in our products and services. And we've
developed our community support to encourage co-operative
approaches to local challenges. I'm particularly pleased with the
launch of our new Co-op Health business, the rapid growth of the
Co-op Academy Trust and experiencing over five years of
uninterrupted like-for-like sales growth in Food.
Through our Co-op member rewards we've returned GBP29m to
individual members through the 5% reward and GBP6m to local causes
through the 1% reward, that's in line with the same period last
year. We've also put in place new structures to help our growing
network of Member Pioneers bring people and communities together.
Meanwhile, we've launched our campaign to save 2,000 public spaces
and stepped up our work to address crime in our towns and
cities.
We know that climate change and plastics continue to be a
concern for our members. It's also a real priority for us and we've
made some great progress so far this year. By 2020 we will have
eliminated the most difficult to recycle plastic packaging and all
single-use plastic in our own-brand packaging will be gone by
2023.
Changes to financial reporting
Our headline business performance figures are difficult to
compare with last year because of a significant change to financial
reporting in respect of accounting for leases, called IFRS 16. This
means that our financial commitments relating to leases are now
shown on our balance sheet. It doesn't change how we run our
business, nor the business cashflows, but it does have a
significant impact on our reported profit and our balance sheet. So
for this report, and in our full annual report next spring, we're
including additional numbers in the finance review as though the
new reporting regulations didn't apply so that year-on-year
performance can be seen on a like-for-like basis.
Our Group turnover was GBP5.4 billion, an increase of 12% from
half-year 2018, reflecting the full contribution of our Nisa
business and continued strong Food performance. In an ever more
competitive environment, like-for-like Food sales have increased by
1.7%.
Profit before tax was GBP25 million but on a like-for-like
basis, excluding the impact of IFRS 16, it was GBP30 million, down
GBP14 million from 2018 mainly reflecting lower operating profit in
our funerals business.
Our funerals business has had a challenging year with a fall in
sales and profit. We have also seen unprecedented market change,
which has required us to re-think and adapt our business to set it
up for future success. Funeral sales were also impacted by an
unexpected 10% fall in the death rate. We know there is more to do
and are meeting these challenges head-on. We plan to reposition and
grow the business by focusing on improved value, more innovation,
and greater choice for families, making it easier for them to get
the support and care they need and expect from Co-op.
The finance review on page 21 has more detail on our financial
performance including our key underlying profit before tax measure,
individual business profits and our balance sheet.
However, how we measure our success at Co-op goes well beyond
the traditional corporate balance sheet. Just as it was for the
Rochdale Pioneers 175 years ago, creating value for our members has
a much broader meaning because, for us, commerce and social
responsibility are bound together in a single endeavour.
It's what we do
Since May we've been explaining how choosing Co-op means
choosing to do good in your community and around the world. Through
our advertising, we're showing how trade with Co-op supports our
ambition to grow Co-op Academies; how it helps us to expand our
Member Pioneer network; how it allows us to continue our
commitments to 100% British meat and our sourcing of Fairtrade; as
well as our work to make our roads safer and, most importantly, our
communities stronger.
In the year ahead we're determined to deliver on our purpose of
championing a better way of doing business to create a stronger
Co-op and stronger communities. We'll continue to make the
connection between great products and services and 'doing good' for
you and your community throughout our marketing plans. In November
we'll highlight this message as we pay out millions of pounds to
this year's local causes chosen by our members. And our Christmas
advertising will build on this theme.
Commercial strategy
To enable that broad creation of value for our members we must
continue to operate our business successfully.
Our core food store business is performing well in a fiercely
competitive market and we continue to innovate and reach new
customers as this report shows. Our expanded wholesale operation
supports this strategy, offering Co-op own brand products to
independent store owners.
After a difficult 2018, our funerals business, under its new
managing director, Sam Tyrer, is starting to implement the findings
of our review to build a strong business for the long term. We're
putting particular focus on the care we provide to families,
customer choice, competitiveness and channels to market. We're also
examining how to expand our offer to better address all aspects of
how we say farewell to loved ones, including developing
eco-friendly funerals and extending our range of services after the
funeral. In the first phase of our plans, we're looking at how we
best support our front line colleagues so they can prioritise their
care to customers
The funeral market remains highly competitive and the unexpected
fall in the death rate has been a key factor in our performance, as
it has for our competitors. Meanwhile, we welcomed the government's
announcement in June to crack down on the use of high pressure and
misleading tactics to sell funeral plans which has given all
funeral plan providers a poor reputation. We're also working with
the Competition and Markets Authority (CMA) on their investigation
into the at-need funerals and crematoria markets and welcome the
work they are doing on behalf of consumers.
At the beginning of 2019 we announced the sale of our insurance
underwriting business to Markerstudy. Part of the sale is to put in
place a new long-term arrangement for distributing Co-op branded
motor and home insurance products underwritten by Markerstudy. Our
accounts for 2018 and 2019 show our insurance underwriting business
as a discontinued operation.
As we wait for the deal to work its way through regulatory
approval, our insurance business has continued to increase its
profile and product development, together with other partners, so
we can meet the ever-increasing needs of our members in the future.
This year has seen us return to the Life protection market and also
launch new products for motorists and young home renters.
Our Legal Services business is continuing to do well across all
of our practice areas, in particular probate, estate planning and
family law.
We've re-joined the health market this year in an innovative and
modern way based on digital technology. We're starting with a focus
on repeat prescriptions because we believe we can offer a safe and
distinctive service that can integrate with our food store estate
to provide a range of delivery options. Ultimately, our aim is to
promote good health in our communities by encouraging people to
look after themselves, reducing preventable health problems and the
burden on the NHS.
Awards
Over the last few years we've become used to winning numerous
awards for the quality of our products and services and that's
because we've given focus and investment to our core offering
across all of our markets. This year though, we've won significant
recognition for the business as a whole: Grocer of the Year at the
Grocer Gold Awards; and Consumer Business of the Year by the
Evening Standard. Our business leadership was recognised too in Jo
Whitfield's Veuve Clicquot Business Woman Award. And finally,
Co-operatives UK honoured us for being the 'Leading Co-operative of
the Year'. You don't earn this calibre of recognition without being
a distinctive business with a first-rate offering. Every one of our
Co-op colleagues can take great pride in these achievements which
show how we've successfully turned the business around in recent
years.
Brexit
Like all big businesses, we've continued with our Brexit
planning since the end of March and we know we need to be ready for
all eventualities. If a negotiated withdrawal from the EU doesn't
take place at the end of October, we expect some disruption to our
supply chain, at least in the short term, and we'll do our best to
protect our members from any inconvenience. We're particularly
concerned about what a no-deal Brexit will mean for the British
farmers whose produce we've championed over the last few years.
We're also mindful of how Brexit has exposed deep divisions
within our communities with strong feelings of disempowerment and
neglect expressed by many. These are serious matters that an
economic resolution to Brexit will only partially address. We
continue to believe that the values of co-operation can create
stronger, more resilient communities and we're developing our ideas
for 2020 on how we can use co-operation to bring back individual
and communal self-confidence.
As we pass the half-way mark, we don't underestimate the
challenges we face in the second half, most notably Brexit and the
turnaround of our funerals business. Despite this we are satisfied
with our progress, in particular how we're staying modern and
relevant as a commercial enterprise driven by our ambition to
create a better, fairer and more co-operative world for our
members.
Steve Murrells
Chief Executive
Stronger Co-op
For us, success means a great deal more than maximising bottom
line profit, but to achieve our broader ambitions we must continue
to be a growing, competitive, innovative and responsible
business.
GROWING
Online
We're introducing new technology to grow our business in ways
that make sense for our predominantly convenience store estate. In
March we launched an online delivery service trial for our food
stores. It's the first time that we've offered online delivery
sales via a dedicated website. In addition, we're delivering the
online orders using zero emission electric cargo bikes. The trial
was initially launched at the Co-op's Kings Road store in Chelsea,
London, but it's been rolled out to a further eight. In August it
will expand into a further 13 stores in the capital. We've also
extended our partnership with Deliveroo in London and Manchester to
reach Edinburgh, Milton Keynes and Brighton.
Stores and Products
Our Co-op store estate continues to grow with 20 new shops
opened in the first six months of the year and 94 refits developed.
We have a strong focus on our offer and relaunched our Irresistible
pizza range, highlighting our continued drive to raise quality and
create innovative products.
Food to Go
Food to Go is the fastest growing category in convenience and
this year we've begun working with Superdrug to offer a range of 40
Co-op lines in seven stores. They're all in highly transient
locations in Edinburgh, Bristol and East Midlands' airports, as
well as Brighton, Sheffield, London's Victoria and London's
Fenchurch Street train stations. These trials are showing great
results, helping us to tap into 'food to go hotspots', to grow our
presence in new locations and reach new customers.
Wholesale
In spring we marked the first year of our Wholesale expansion
through the acquisition of Nisa. We've set up a single buying
operation for all of the stores we supply, with Nisa partners able
to select from 2,000 Co-op own brand products. We have seen a rapid
uptake of this, with over 90% of Nisa partners having now taken
lines from across the range. Co-op own brand products are now
generating weekly sales in excess of GBP2.5m from Nisa stores, and
we are rapidly approaching our target of 10% of Nisa sales being
Co-op own brand products. The integration of Nisa into the
Wholesale business has transformed the proposition Nisa partners
are able to offer their customers and we will work to ensure they
continue to benefit from the wider offering. For more information
please see the finance review on page 21.
Festivals
Building on last year's success, in April we announced an
unprecedented presence at music festivals for 2019 in partnership
with Live Nation. Through the summer we opened 6,000 ft. pop up
shops at eight UK music festivals. Most notable was our festival
store at Glastonbury which we branded as '31 Toad Lane' in
recognition of the 175th anniversary of the Rochdale Pioneers
opening their first shop. It allowed us to introduce our Co-op
heritage and values to younger and older generations who are not
familiar with the ethical values which have always underpinned our
business and which align well with the festival's own outlook.
Co-op's festival partnership with Live Nation has also been
recognised at a number of industry awards, including the Festival
Supplier Awards, European Sponsorship Association Awards and the UK
Sponsorship Awards.
Franchising
Franchising has long been a feature of consumer retail
co-operatives on the continent and now we're beginning to use this
way of reaching new markets in the UK. Unlike other major brands
which have developed a franchise proposition, our Co-op franchise
provides exactly the same offering as if we owned and ran the store
ourselves. We currently have six franchises open via three
Costcutter-owned stores and three on university campuses at Leeds,
Kent and Newcastle with more confirmed to open this year. Our aim
is to have 150 franchises open by 2022. We're carefully screening
potential franchisees to ensure our values are aligned and
commercial opportunities are strong for both parties.
Opening our franchise store in February at Leeds University, the
fifth biggest university in the UK, was a milestone for us. The
average sales uplift in the franchised stores has been more than
80%. And our quality, convenience and ethical values are a great
fit with the student population. Students are 'accelerated
adopters' giving us early insight into likely market trends and
they're an important demographic for us as we develop our food
retail offer across our entire estate.
Co-op Health
In May we launched Co-op Health with an initial focus on repeat
prescriptions. The health market is changing fast and parts of it
are clearly broken and need fixing. Our new app makes ordering
repeat prescriptions easier for customers and more efficient for
the NHS. Our app links directly into GP's surgeries and gives a
convenient, safe and secure connection.
For our launch, the repeat prescriptions business focused on
major cities like Manchester, Liverpool and London. By 2020 we'll
be across all of England. Since the AGM the app has been downloaded
nearly nineteen thousand times and we have more than five thousand
active customers. We've also begun our 'click & collect' trial,
using lockers in Co-op food stores. We'll soon increase the app's
functionality as we continue to learn and understand more about
what our customers need.
COMPETITIVE
To remain competitive across all of our markets we need to make
sure we run an efficient operation and continuously review our
pricing.
There's still intense competition in UK food retail and
expanding our wholesaling operation means we have greater
purchasing strength with our suppliers. At a more tactical level,
our summer saver deals on popular products like beer and pizza
proved popular. We also had a successful Easter bank holiday,
driven by a competitive offer and helped by the warm weather. In
addition, we're increasing the reasons for customers to come to our
stores through providing Amazon and John Lewis collection
lockers.
The approach we're moving to with Insurance, using an external
underwriter, is reflected in our Travel insurance policy.
Throughout the first half of the year, sales have been strong. This
competitive new insurance product, which doesn't exclude holiday
makers with existing health conditions, has kept ahead of
target.
Addressing funeral affordability is a priority for us and we've
continued to see a significant rise in the number of families
choosing our 'Cremation Without Ceremony' product.
In 2018 we set ourselves long-term targets for cost reduction
and we've met the targets set for the first-half of 2019. We'll
continue to look for more opportunities so that we can invest into
the growth of the business.
INNOVATIVE
Pay-in-Aisle
Research shows that consumers are using cash less and less, so
we're rolling out more till-less technology in our food stores.
During the summer we extended the trial of a new Pay-in-Aisle app
to more than 30 stores. While cash is still common in convenience
stores, we've seen a 10% decline in the popularity of notes and
coins during the last two years, with contactless, cards and other
payment methods now making up more than one in two transactions.
Using the app, which we first began testing last year, customers
scan products on their own device as they walk around the store.
When they've finished shopping, the cost of the shop is deducted
from their Apple or Google Pay account with a touch of a
button.
Graduated Young Driver
In the summer Co-op Insurance introduced a new policy designed
to further reward our safest young drivers. The 'Graduated Young
Driver' policy will offer drivers who've been on Co-op's Young
Driver telematics policy for two yearsor more with a high Safe
Driving Score the chance to be 'unboxed'. Qualifying customers who
have proven to be consistently safe drivers can have their black
box switched off, will be offered our most competitive rates, and
by carrying forward their safe driving score can continue to save
up to GBP300.
Life Insurance with payment 'breaks'
This year we've re-entered the life insurance market launching
Co-op Life Cover. The product, which has been designed with input
from Co-op Members, includes the option to take two six-month
payment holidays throughout the lifetime of the policy after a 12
month qualifying period, allowing their policy to remain in force.
Customers can also opt to reduce their cover level rather than pay
back any shortfall at the end of the payment holiday window.
RESPONSIBLE
Sustainability
We know sustainability is an area our members feel passionately
about and our Members' Council continue to push our thinking in
this area. At our AGM our members voted to accelerate our work to
reduce our Greenhouse Gas (GHG) emissions and backed global goals
to limit warming to the most stringent of targets. Having halved
our GHG emissions in the ten years from 2006, we're now going
further by reducing our direct GHG emissions by 50% again by 2025.
All Co-op stores, offices and funeral homes already use 100%
renewable electricity.
Soy
In April we made a commitment to only source 100% sustainable
soy as a way to prevent de-forestation and the loss of native
vegetation caused by ever expanding soy cultivation.
Soy plays a part in the production of many products and the
average European eats more than 60kg a year. The increasing demand
for soy animal feed and rising global consumption of meat is having
a major impact on the environment and wildlife.
Plastic
We'll have eliminated the most difficult to recycle plastic
packaging by 2020 and all single-use plastic in our own-brand
packaging by 2023. By 2021, we'll use a minimum of 50% recycled
plastic in own-brand plastic trays, pots and bottles. All our
own-brand packaging will be easy to recycle by 2023 (80% by
2020).
Our pop-up store at the Glastonbury festival gave us the
opportunity to trial our 100% compostable packaging for ten types
of our sandwiches. We also sold recyclable aluminium cans of spring
water and refillable water bottles and brought back our pioneering
deposit return scheme for plastic bottles which can be placed in
reverse vending machines.
Pensions
In June the defined contribution section of the Co-op's pension
fund changed its investment strategy to invest more in companies
that score highly for sustainability and with an emphasis on
mitigating climate change. This means approximately GBP290m out of
Co-op employees' GBP315m defined contribution assets will be
invested in a fund with a conscious bias towards companies and
bonds that score well on environmental, social and corporate
governance performance.
Meanwhile, affordable housing projects in East Lothian, Glasgow
and Yorkshire have been built thanks to the GBP50m investment in
social housing which our Pension fund announced in 2018.
Sustainability Bond
At the end of May, we became the first UK retailer to issue a
sterling-denominated Sustainability Bond. It's raised GBP300m and
we're using the funds exclusively on supporting and promoting
Fairtrade, including Fairtrade producers and their communities.
Co-op intends to allocate the net proceeds of the Sustainability
Bond issuance to the costs of bringing Fairtrade products to
customers, marketing and promoting Fairtrade products and wider
Fairtrade movement. Our continued commitment to Fairtrade comes as
some other major retailers are scaling back their investment
despite it being a key source of support for communities around the
developing world.
Campaigning
The safety of our colleagues has been a concern of our members
for some time and at the end of last year we adopted our new
campaign 'Safer Colleagues and Safer Communities' with the support
of our Members' Council. We're tackling crime in our stores through
investment in technology and security but we also want to address
the root causes of the problem in our communities and influence the
government and judicial system.
At our AGM we announced our new partnership with the Damilola
Taylor Trust and we'll be funding one of its skills training
programmes for young people at risk of falling into a life of
crime. Following the call for evidence by the Home Office, we
encouraged and supported more than 600 of our colleagues to come
forward and record their experience of crime in the workplace.
We've also submitted our own 70-page report with ten key
recommendations for the government to consider.
We've commissioned new academic research into violence on shop
workers and we published the findings in September. In November
we'll be hosting a conference to mark the beginning of Usdaw's
'Freedom from Fear' week. Meanwhile, we're continuing to invest in
store technology such as our intelligent CCTV equipment which helps
us to gather evidence and work with the police to secure
convictions.
Our campaigns on loneliness and slavery continue to be
influential in the public debate on these issues. In May we hosted
the Loneliness Action Group's national conference with the
government Minister for Loneliness, Mims Davies MP, speaking. We
also published new research on the effectiveness of our Community
Connector programme and on loneliness in the BAME community.
The first six months of the year have seen significant progress
for our slavery campaign, including increased government support
for slavery survivors and strengthening of the Modern Slavery Act's
requirements for business. Our Bright Future partnership, which is
providing training and work opportunities, is now the biggest
employment programme of its kind for slavery survivors in the
world.
Child bereavement
We've taken the lead in calling on the government to waive child
burial and cremation fees, to ensure there is consistent support
for bereaved parents across the country. Following our continued
campaigning, we were pleased that the government has now
implemented the Children's Funeral Fund, meaning that more parents
across England will have access to some financial support.
Stronger Communities
We've used this year to develop our ideas for how we support
local communities so that we're addressing today's challenges in a
co-operative way. Our community plan, developed with input from our
Members' Council, builds on all the work we've been doing since
2016 to create stronger communities. As this work has evolved,
we've been putting ever greater emphasis on projects which will
bring people together and promote co-operative solutions.
Through our Wellbeing Index, and our broader research and
consultation work with members and communities, we've identified
three priorities for our community work.
- Community spaces
- Physical and mental wellbeing; and
- Education and skills
We're aligning the work of our Member Pioneers behind this plan
and giving priority through our Local Community Fund to local
causes working on these issues. We're also working closely with our
charity arm, The Co-op Foundation, to focus on these areas.
Community spaces
We want to create stronger, more connected communities that
bring people together. To achieve that, communities need good
physical spaces, both indoor and out, and we know these are under
threat. One of the best ways to address social exclusion and mental
and physical illness is to help and support people to connect with
their local communities. We want to encourage that to happen by
making it easier for communities to create, secure and use social
spaces, and encouraging local initiatives that bring people
together and address isolation and health issues. We also want to
build powerful virtual community spaces too where local initiatives
can be shared, calls for support made, and connections built that
will enable great things to happen.
At the start of the summer we launched our Endangered Spaces
campaign in partnership with the charity Locality. Our aim is to
protect 2,000 community spaces by the end of 2022. By early
September we'd had nearly 1,000 applications from community groups
looking for financial or specialist support to help 'save' local
spaces.
Our Co-op charity, The Co-op Foundation, has already awarded
more than GBP1.4 million to help 20 community organisations grow
their activities and secured GBP1 million of government funding to
help more than 7,500 young people improve local spaces. As part of
Endangered Spaces, Space to Connect, its new GBP1.6 million
partnership with government, will build on this work.
We've also begun a partnership with the charity Steel Warriors
to create outdoor gym equipment in community spaces manufactured
from melted knives taken off the streets by the police. And we're
recruiting local trainers to teach new skills using the equipment.
The first gym is being launched in September in Ruskin Park,
Lambeth.
Mental and physical wellbeing
We know that health issues - both physical and mental - are
becoming more urgent and better understood. Mental health diagnoses
are rising, particularly among younger people. Our Wellbeing Index
data shows high levels of prescriptions relating to depression,
diabetes and obesity in some areas of the UK. Meanwhile, nearly
half of adults believe they've had a diagnosable mental health
condition at some point in their lives. We also know, through our
work to tackle loneliness, that mental and physical health issues
are a huge driver of social exclusion and therefore isolation.
Education and skills
We want to support individuals and communities to reach their
full potential across all life stages. This is especially important
in our fast-changing digitally driven world. Co-op Academy Schools
and our apprenticeship programme will have an important part to
play in this. So too will our digital hub in Federation in
Manchester. As part of our aim to promote co-operation, we want to
explore ways to share skills, especially across the generations.
We'll look to create a platform for doing this.
Our main focus this year will be on Spaces, however we'll be
working in all three areas continuously because we recognise that
they all connect and overlap.
Co-op Academies Trust
Promoting co-operative education and skills remains a central
theme of our responsible approach to business
Since the start of 2019, the trust has added five new schools
including two special schools in Bradford. This makes Co-op
Academies Trust not only the fastest growing academy trust but also
the most diverse in terms of age and ability.
The Trust now educates more than 15,000 students with a full
range of abilities, from early years to sixth form. There are now
23 Co-op academies and colleges across northern England in some of
the most economically challenged areas in the UK.
Member Pioneers
We already have 300 Member Pioneers around the country and are
constantly adding to them. By 2020 we aim to have a Member Pioneer
in each of our communities acting as community catalysts. In
February this year, following extensive discussions with our
Members' Council and consultation with our trade union partners, we
announced a new team structure for our Member Pioneers. We've
introduced a National Member Pioneer Manager, ten field-based
Member Pioneer Managers, and approximately 120 Member Pioneer
Co-ordinators, each working two and a half days each week. This new
structure is enabling us to better manage and co-ordinate their
work and make sure it's aligned to our priorities.
Looking ahead
For the rest of 2019 and beyond, we're going to continue to grow
all of our businesses in a responsible and sustainable way that's
good for our members and for their communities.
We'll keep innovating in all areas and maintain our
competitiveness and relevance in the markets in which we operate.
In Food we'll continue our trials of new online ordering and
delivery technology and continue to improve and expand our reach
through wholesaling and franchising.
In Funerals we'll implement our turnaround plans so that we
become not only the biggest provider but the leader in setting the
highest standards of care and the greatest choice. In Insurance
we'll continue to develop new products and see through our deal
with Markerstudy. And in Legal we'll be extending the reach of the
business through partnerships and introducing new technology into
our offer.
In all we do, we'll continue to show the link between choosing
Co-op and choosing to do good.
Principal risks and uncertainties
The Directors have reviewed the principal risks and
uncertainties faced by Co-op and the risks set out in the 2018
Annual Report and Financial Statements are still relevant for the
second half of 2019.
The Directors use our Co-op enterprise risk management framework
to continuously monitor and re-assess our actions in relation to a
changing business environment. Consideration is given to emerging
risks and to any change in internal and external influences that
could impact our business model and how we operate.
Brexit - with a deal or without a deal
A disorderly Brexit, or the threat of withdrawal from the
European Union on unfavourable terms, still poses a significant
risk to the structure of the UK economy and could also impact many
parts of our business, our partners and the markets we operate in.
We're still very much focused on Brexit uncertainty and, as the
political and economic situation evolves, we'll develop and
reassess our response plans.
Changes to principal risks
We've identified a new principal risk in 2019. The value of our
funeral plan investment portfolio is sensitive to a number of
factors, such as funeral costs and macroeconomic and market
conditions. This can mean that, when plans become due, the
available funds are lower than expected, making them less
profitable than planned. We closely monitor the management of the
portfolio and make adjustments as conditions change. Our latest
actuarial valuation of the plans showed that the value of
investments is GBP120m above the wholesale cost of performing the
funerals. The risk in this area is to our future profits and not to
the funeral plan holder, whose funeral is guaranteed under our
plans. Given the size of this portfolio, we've called this risk out
separately in the principal risks outlined below.
Following the Grocery Code Adjudicator's (GCA) investigation
which completed in March 2019 into Co-op's compliance with elements
of the Groceries Supply Code of Practice (Code), we've developed a
clear implementation plan. Activity has been underway for some time
and good progress made to address the underlying findings of the
five recommendations made by the GCA. We are putting fixes in place
quickly and effectively and taking effective steps to ensure full
compliance with the Code. The 2019 GCA survey results, announced in
June, reported Co-op as the most improved retailer. It was
confirmation that our activity is having a positive impact and that
we're taking the findings of the GCA's report seriously. Monitoring
of our compliance and risk management activity is included within
the Regulatory Compliance risk below, which remains stable.
The risks below have the potential to impact the delivery of our
business strategy and our commitment to create value for our
members and communities. These are summarised as follows:
Risk Potential consequences to the Co-op
1 Change Transformational change is not performed effectively
and, because of the volume and complexity, the
planned benefits of our various business change
programmes may not be realised. This would prevent
us from fully meeting our strategic objectives.
-------------------- --------------------------------------------------------------
2 Brexit and A disorderly Brexit and/or other negative market
other market conditions may lead to changes in consumer spending.
conditions Challenges to the availability of labour, increased
cost of funding and disruptions to parts of our
supply chain may threaten our objectives and business
model. The mitigation of this risk is likely to
be increased investment into working capital.
-------------------- --------------------------------------------------------------
3 Competitiveness Competitor actions, new entrants and disruptive
innovation may lead to changes in our competitive
landscape and impact our profitability, preventing
us from fully realising the benefits in our strategic
plans and reducing the value that we provide to
our members and customers.
-------------------- --------------------------------------------------------------
4 Revenue targets Not achieving our planned sales growth targets
would affect the sustainability of our business
model and potentially restrict our investment
in communities.
-------------------- --------------------------------------------------------------
5 Brand and ethical Failure to create a brand proposition and ethical
framework framework that strengthens our Co-op, would make
it more difficult to balance profit, member value
and ethics
-------------------- --------------------------------------------------------------
6 Health and Weaknesses in our health and safety arrangements
safety, and and physical security practices and procedures
security could put customers and colleagues at risk
-------------------- --------------------------------------------------------------
7 Regulatory Our Co-op is subject to various laws and regulations
compliance across its businesses. Failure to respond to changes
in regulations or maintain compliance could affect
profitability through fines and sanctions from
our regulators and result in reputational damage.
-------------------- --------------------------------------------------------------
8 Misuse and/or Personal data is inappropriately accessed, shared
loss of data and/or not managed in line with expectations;
affecting customer and member confidence and leaving
our Co-op open to regulatory fines and reputational
damage
-------------------- --------------------------------------------------------------
9 IT security Our ability to serve customers is highly dependent
and cyber threats on our IT systems. An external cyber threat or
technology incident could restrict the provision
of products and services to our customers and
members, leaving our Co-op open to financial loss,
regulatory fines and reputational damage.
-------------------- --------------------------------------------------------------
10 Pension obligations Adverse movements in a number of macro-economic
conditions, including interest rates and inflation
expectations, could reduce returns on our investment
portfolios and impact our pension and funeral
plan liabilities. A potential deficit could require
our Co--op to pay additional offsetting contributions
or absorb additional costs.
-------------------- --------------------------------------------------------------
11 People If we do not recruit and retain capable colleagues,
and invest in their development, it could impact
our ability to build a strong Co-op and deliver
on our strategic objectives.
-------------------- --------------------------------------------------------------
12 Supply chain Failure to create the network capacity needed
interruption for future growth and/or extended supply disruption
could significantly impact the availability of
products and services in our stores, resulting
in a loss of sales and reduced revenue.
-------------------- --------------------------------------------------------------
13 Pre-Need Funeral The measurement of our Pre-Paid Funeral Plan obligations
Plan obligations is sensitive to changes in a number of factors.
(New) Adverse movements could result in lower than expected
funds being available and the business receiving
a lower amount per funeral, or may result in individual
contracts becoming onerous.
-------------------- --------------------------------------------------------------
Emerging Risks
The main emerging risks being monitored relate to changing
regulations. In the food and drink sector this is expected to place
restrictions on the promotion of food with high fat, salt and sugar
content.
The outcome of the Competition Market Authority's review into
the funeral industry and HM Treasury's proposals for the regulation
of funeral plans are expected to lead to changes in the funeral and
funeral plan markets.
More information on the principal risks and how Co-op mitigates
those risks can be found on pages 41-42 of the 2018 Annual
Report.
Our financial performance
Our accounts have changed significantly this year because of a
major new accounting standard, IFRS 16, which we've adopted from
the start of the year. It makes understanding our financial
performance compared to last year more difficult, so we've included
some additional information below to help explain it more
easily.
IFRS 16 requires us to put leases onto our balance sheet that
previously were not included, in particular over 3,000 leases on
trading properties that we rent. In total, lease liabilities of
GBP1.5 billion (representing future financial commitments) and a
'right of use' asset of GBP1.1 billion (reflecting the value of our
right to use the asset) were brought onto our balance sheet. In our
full year income statement operating profit will benefit by around
GBP60 million as annual rental payments of around GBP160 million
are no longer included and are replaced by additional depreciation
(GBP100 million). However the full year profit before tax impact
will be GBP10-GBP15 million adverse after charging lease interest
of GBP75 million. Although our 2019 results are prepared under IFRS
16, 2018 numbers are not required and so are not directly
comparable. We've included tables below to show 2019 on both a
reported basis (prepared under IFRS 16) and like-for-like with 2018
(excluding IFRS 16).
2019 per 2019 excluding 2018
income IFRS 16
statement
GBPm GBPm GBPm
Revenue 5,389 5,389 4,829
Underlying operating profit:
Food 120 95 80
Wholesale (2) (2) (5)
Funeral and Life Planning 13 13 28
Costs of supporting functions (61) (64) (51)
Other (6) (6) (2)
----------- --------------- --------------
Total underlying profit (a) 64 36 50
Property revaluations, disposals
and one off items 14 10 4
----------- --------------- --------------
Operating profit 78 46 54
Underlying interest (b) (33) (33) (32)
Net underlying lease interest (c) (37) - -
Non underlying interest 17 17 22
----------- --------------- --------------
Profit before tax 25 30 44
Tax 26 27 (9)
Discontinued operations (6) (6) (14)
----------- --------------- --------------
Profit for the year 45 51 21
----------- --------------- --------------
Underlying (loss) /profit before
tax (a)-(b)-(c) (6) 3 18
----------- --------------- --------------
Revenue increased to GBP5.4 billion, up GBP0.6 billion, or 12%,
compared to 2018. Our wholesale business accounts for GBP0.4
billion of this increase, reflecting that we acquired Nisa in May
2018 so had two months trade compared to a full six months this
year. Our Food business continues to perform strongly with a 3%
increase in sales to GBP3.7 billion.
Profit before tax was GBP25 million compared to GBP44 million in
2018. However on a like-for-like for basis, excluding the impact of
IFRS 16, it was GBP30 million, down GBP14 million from 2018 mainly
caused by a GBP15m fall in operating profit in our funerals
business. Trading performance is discussed in more detail
below.
Our profits are shown after deducting the amount our members
have earned through the 5% and 1% member rewards which totalled
GBP35 million in the first half of the year (2018: GBP35
million).
We show how we adjust profit before tax to get to our underlying
profit before tax in note 1 of our interim financial statements. We
also include a jargon buster on page 56 to explain the accounting
terms we have to use.
How our businesses have performed
Food sales of GBP3.7 billion were up 3% on 2018, with
like-for-like sales up 1.7%. The growth in like-for-like sales is
particularly pleasing given that last year sales were very strong
on the back of the World Cup and favourable summer weather.
Underlying profit in our Food business was GBP120 million in
2019 compared to GBP80 million in 2018. However on a like-for-like
basis excluding IFRS 16, profit was GBP95 million, up 19% on last
year, reflecting the strong sales performance together with good
cost control.
Our Wholesale business generated sales of GBP0.7 billion in the
period and made an operating loss of GBP2.2 million compared to a
GBP5 million loss last year. The GBP2.2 million loss comprises a
trading profit of GBP0.4 million offset by GBP2.6 million of
amortisation charges (similar to depreciation) on the intangible
assets arising on acquisition. The 2018 loss included one-off costs
of buying the Nisa business.
Our Funeral & Life Planning business saw sales fall by 6% to
GBP163 million largely reflecting lower funeral numbers this year.
The market remains highly competitive and the unexpected fall in
the death rate has been a key factor in our performance, as it has
for our competitors. We have responded to customer desire for lower
cost funerals and cremation without ceremony for which there is
growing demand and this too has reduced selling prices and has an
impact on profit. We conducted 48,423 funerals in the first half of
2019 compared to 53,213 in the first half of 2018.
The fall in volumes reduced Funeral & Life Planning
underlying profit to GBP13 million, down GBP15 million on 2018
(GBP28 million).
Supporting functions costs increased by GBP13 million on a
like-for-like basis (excluding IFRS 16) reflecting continued
investment in members and one-off gains in 2018. Additionally in
2019 we invested in membership initiatives and IT as we move away
from datacentres into more flexible Cloud arrangements. This
additional investment was partially funded by cost savings
generated by our 'Fuel for Growth' programme including
organisational design changes.
We announced the sale of our insurance underwriting business,
CIS General Insurance Limited ('CISGIL'), to Markerstudy in January
this year. In our year end accounts CISGIL became classified as a
'discontinued operation' which means that we no longer treat it as
an ongoing business operation of Co-op and so its results are not
included within profit before tax. This treatment remains
appropriate at half-year on the basis that we expect the sale to
complete later this year. The GBP14 million loss in prior year
represented the trading loss of the business in the first half of
2018.
Disposals, property valuation gains and one off items
The table below shows the one-off items, disposals and property
valuation gains in the first half of the year (losses are shown in
brackets):
2019 per 2019 excluding 2018
income IFRS 16
statement
GBPm GBPm GBPm
Property and business disposals (4) (8) (26)
Change in value of investment properties 11 11 11
One off items 7 7 19
----------- --------------- -----
Total 14 10 4
----------- --------------- -----
Property and business disposals include the profit or loss on
disposal of trading units together with costs of vacant or closed
properties. The 2018 loss of GBP26 million included vacant property
cost provisions of GBP21 million.
The GBP11 million gain on our investment property portfolio in
2019 principally relates to planning permission gains on one
particular site.
One-off items in 2018 included a profit of GBP20 million from
changes to pension benefits. The GBP7 million credit in 2019
relates to a reduction in the amounts we are required to pay for
the acquisition of Nisa which is payable over a number of years
depending on the trade passing through Nisa from its partners.
Financing
Our financing costs are shown in the table below (costs are
shown in brackets):
2019 per 2019 excluding 2018
income IFRS 16
statement
GBPm GBPm GBPm
Underlying interest payable (33) (33) (32)
Net underlying lease interest (37) - -
Net pension finance income 27 27 21
Fair value movement on quoted debt
and swaps (2) (2) 5
Non-underlying finance interest (8) (8) (4)
Net financing costs (53) (16) (10)
----------- --------------- -----
As noted above IFRS 16 brings interest on the lease liability
into our income statement. At half-year lease interest was GBP37
million on a total lease liability of GBP1.5 billion.
Excluding IFRS 16 lease interest, financing costs were GBP6
million higher this year. Underlying interest was GBP1m higher. The
remaining increase comprises to GBP4 million of costs and fees
relating to the refinancing of our bond debt (included within
non-underlying interest) and a GBP7 million adverse movement in
fair values offset by a GBP6 million increase in pension interest
income. The adverse fair value movement arises because in 2018 we
had a gain from revaluing our debt according to its market value at
that time.
Our total net debt at the end of the period, including the IFRS
16 lease liability of GBP1.5 billion was GBP2.3 billion. Excluding
the lease liability, net debt was GBP0.8 billion, up from the same
time last year (GBP0.7 billion) but in line with 2018 year end. Net
capital expenditure this year was GBP206 million compared to GBP145
million in the first half of 2018.
In the first half of 2019 we raised GBP300 million in the first
sustainable bond issued by a UK retailer at a coupon of 5.125%
maturing in May 2024. We tendered our existing GBP450 million 2020
Eurobond debt and repaid GBP274 million, leaving a principal
balance of GBP176 million. Additionally we rebased our interest
rate swaps in relation to our bonds, and this produced a net cash
inflow of GBP27 million due to changes in prevailing market rates
since they were first taken out.
Tax
The GBP26m tax credit arising at half-year is largely due to a
one-off credit of GBP31 million caused by a change to our method of
calculating the deferred tax arising on fixed assets additions.
Our balance sheet
IFRS 16 has significantly changed our balance sheet. As with the
income statement, these changes impact 2019 numbers but not the
comparatives for half and full year 2018. The table below shows the
amounts brought onto the balance sheet from the start of 2019.
GBPm
Assets
Property, Plant and Equipment (43)
Property, Plant and Equipment (Right of
Use Assets) 1,073
Finance Lease Receivables 55
Trade and Other Receivables (33)
Deferred Tax Asset 47
--------
1,099
Liabilities
Lease Liabilities (1,450)
Trade and Other Payables 47
Provisions 67
--------
(1,336)
Adjustment to Opening Reserves (237)
--------
The GBP0.9 billion increase in total assets from GBP9.5 billion
at 2018 year end to GBP10.4 billion at this half-year reflects
GBP1.1 billion of assets introduced under IFRS 16 as shown above,
offset by a GBP0.2 billion reduction in pension assets.
The actuarial surplus of our largest pension scheme, PACE,
decreased by GBP0.2 billion to GBP1.6 billion largely because the
interest rate used to value pension liabilities decreased from 3%
to 2.2%. The interest rate we select is based on advice from our
actuaries and is based on corporate bond rates as at 6 July. It's
important to remember that the accounting valuation of pension
schemes is quite different to the valuation basis used by Trustees.
The Trustees' valuation uses a more prudent basis which reflects
the low risk assets that we are invested in. Nevertheless we are
well funded and in surplus on this basis, though the surplus is
significantly lower than the GBP1.6 billion shown in our
accounts.
Total liabilities increased by GBP1.3 billion from year end to
GBP7.7 billion this half-year reflecting GBP1.4 billion of IFRS 16
adjustments relating to lease liabilities.
The assets and liabilities of CISGIL are classified as held for
sale because of the planned sale of the business to Markerstudy.
CISGIL became classified as held for sale in the second half of
last year.
Total equity, or members' funds, were GBP2.7 billion at
half-year, a fall of GBP0.4 billion from year end relating to the
GBP0.2 billion reduction in opening reserves from adopting IFRS 16
and the GBP0.2 billion decrease in pension assets discussed
above.
Looking ahead
The short term outlook is challenging. Brexit continues to bring
uncertainty particularly with the increasing prospect of leaving
the EU without a deal. We continue to plan and prepare as best we
can. We are also in the midst of turnaround plans for the funerals
business that has seen unprecedented market change. We expect that
the sale of CISGIL, our insurance underwriting business, will
proceed before year end but we await regulatory approval.
Despite this we are confident that we are well placed to meet
those challenges. We have sensitised our forecasts to include
pessimistic views on various risks such as the Brexit impact, a
general downturn in trading and a delay in the sale of CISGIL and
this gives us confidence that our funding and balance sheet
position are robust. Our Food business continues to deliver strong
like-for-like sales growth at rates above the food retail market.
We continue to innovate within our businesses to drive our
competitive advantage and we continue to invest in our stores and
branches. But most importantly we will continue to grow in a Co-op
way that is responsible and sustainable and benefits our members
and their communities.
Responsibility statement of the directors in respect of the
half-yearly financial report
We confirm that to the best of our knowledge:
-- the condensed set of financial statements has been prepared
in accordance with IAS 34 Interim Financial Reporting as adopted by
the EU
-- the interim management report includes a fair review of the
information required by DTR 4.2.7R of the Disclosure and
Transparency Rules, being an indication of important events that
have occurred during the first six months of the financial year and
their impact on the condensed set of financial statements; and a
description of the principal risks and uncertainties for the
remaining six months of the year
By order of the board of Co-operative Group Limited
Allan Leighton
Chair
11 September 2019
INDEPENT REVIEW REPORT TO CO-OPERATIVE GROUP LIMITED
Introduction
We have been engaged by Co-operative Group Limited ("the
Society") to review the condensed set of financial statements in
the half-yearly financial report for the 26 weeks ended 6 July 2019
which comprises the condensed consolidated income statement,
condensed consolidated statement of comprehensive income, condensed
consolidated balance sheet, condensed consolidated statement of
changes in equity, condensed consolidated statement of cash flows
and the related explanatory notes. We have read the other
information contained in the half yearly financial report and
considered whether it contains any apparent misstatements or
material inconsistencies with the information in the condensed set
of financial statements.
This report is made solely to the Society in accordance with
guidance contained in International Standard on Review Engagements
2410 (UK and Ireland) "Review of Interim Financial Information
Performed by the Independent Auditor of the Entity" issued by the
Auditing Practices Board. To the fullest extent permitted by law,
we do not accept or assume responsibility to anyone other than the
Society, for our work, for this report, or for the conclusions we
have formed.
Directors' Responsibilities
The half-yearly financial report is the responsibility of, and
has been approved by, the directors. The directors are responsible
for preparing the half-yearly financial report in accordance with
the Disclosure Guidance and Transparency Rules of the United
Kingdom's Financial Conduct Authority.
As disclosed in the general accounting policies section of the
2018 Annual Report, the annual financial statements of the Society
are prepared in accordance with IFRSs as adopted by the European
Union. The condensed set of financial statements included in this
half-yearly financial report has been prepared in accordance with
International Accounting Standard 34, "Interim Financial
Reporting", as adopted by the European Union.
Our Responsibility
Our responsibility is to express to the Society a conclusion on
the condensed set of financial statements in the half-yearly
financial report based on our review.
Scope of Review
We conducted our review in accordance with International
Standard on Review Engagements (UK and Ireland) 2410, "Review of
Interim Financial Information Performed by the Independent Auditor
of the Entity" issued by the Auditing Practices Board for use in
the United Kingdom. A review of interim financial information
consists of making enquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with International Standards on
Auditing (UK) and consequently does not enable us to obtain
assurance that we would become aware of all significant matters
that might be identified in an audit. Accordingly, we do not
express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the condensed set of financial statements
in the half-yearly financial report for the 26 weeks ended 6 July
2019 is not prepared, in all material respects, in accordance with
International Accounting Standard 34 as adopted by the European
Union and the Disclosure Guidance and Transparency Rules of the
United Kingdom's Financial Conduct Authority.
Ernst & Young LLP
Manchester
11 September 2019
Condensed Consolidated Income Statement
for the 26 weeks ended 6 July 2019
What does this show? Our income statement shows our income for the
year less our costs. The result is the profit or loss that we've
made.
26 weeks 26 weeks 52 weeks
ended ended 7 ended 5
6 July July 2018 January
2019 (unaudited 2019 (audited)
(unaudited) &
Continuing Operations re-presented*)
Notes GBPm GBPm GBPm
-------------------- --------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Revenue 1 5,389 4,829 10,162
Operating
expenses (5,315) (4,780) (10,072)
Other income 4 5 10
-------------------- --------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Operating
profit 1 78 54 100
-------------------- --------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Finance income 3 29 33 78
Finance costs 4 (82) (43) (85)
-------------------- --------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Profit before
tax 25 44 93
-------------------- --------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Taxation 5 26 (9) (19)
Profit from continuing
operations 51 35 74
------------------------------------- -------------- ------- ----------------------------- --------------- ----------------------
Discontinued Operation
------------------------------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Loss on discontinued operation, net
of tax 6 (6) (14) (230)
----------------------------------------------------- ----------------------------- ----------------------
Profit / (loss) for the period (all attributable
to members of the Society) 45 21 (156)
-------------------------------------------------------------- ----------------------------- --------------- ----------------------
Non-GAAP measure: underlying (loss) / profit
before tax
What does this show? The table below adjusts the operating profit
figure shown in the consolidated income statement above by taking
out items that are not generated by our day-to-day trading. This
makes it easier to see how our business is performing.
Continuing Operations 26 weeks 26 weeks 52 weeks
ended ended 7 ended 5
6 July July 2018 January
2019 (unaudited 2019 (audited)
(unaudited) &
re-presented*)
Notes GBPm GBPm GBPm
-------------------- --------- ---- -------------- ------- ----------------------------- --------------- ----------------------
Operating profit (as
above) 78 54 100
Add back
/ (deduct):
One-off
items 1 (7) (19) (9)
Property, business disposals and
closures 1 4 26 54
Change in value of investment properties (11) (11) (38)
Underlying segment operating profit 64 50 107
----------------------------------------------------- ------- ----------------------------- --------------- ----------------------
Less underlying loan
interest payable 4 (33) (32) (64)
Less underlying interest expense
on lease liabilities 3, 4 (37) - -
Underlying (loss) / profit before
tax (6) 18 43
----------------------------------------------------- ------- ----------------------------- --------------- ----------------------
* The results of our Insurance business are shown as discontinued
operations in the tables above which is consistent with the financial
statements for the 52 weeks ended 5 January 2019. The half-year
comparative figures for the 26 weeks ended 7 July 2018 have been
re-presented to reflect a similar classification. For more details
on the re-presentation, refer to the general accounting policies
section on page 50.
The Group has applied IFRS 16 (Leases) at 6 January 2019 using the
modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative impact of applying
the new standard is recognised in retained earnings at the date
of initial application. For more details on the impact of IFRS 16
(Leases), refer to the general accounting policies section on page
50.
Condensed Consolidated Statement of Comprehensive Income
for the 26 weeks ended 6
July 2019
What does this show? Our statement of comprehensive income includes
other income and costs that are not included in the consolidated
income statement on the previous page. These are usually revaluations
of property, pension schemes and some of our financial investments.
26 weeks ended 26 weeks 52 weeks
6 July 2019 ended 7 ended
(unaudited) July 2018 5 January
(unaudited 2019 (audited)
&
re-presented*)
Notes GBPm GBPm GBPm
----- -------------- -------- ------------ ------ --------------------- --------------- ---------------
Profit / (loss)
for the period 45 21 (156)
--------------------- -------- ------------ ------ --------------------- --------------- ---------------
Other comprehensive (losses)
/ income:
Items that will never be reclassified
to the income statement:
Remeasurement (losses) / gains
on employee pension schemes 7 (266) 455 178
Refinement of the derecognition
of pension surplus attributable
to The Co-operative Bank 7 - 31 31
Related tax on
items above 5 45 (83) (36)
--------------------- -------- ------------ ------ --------------------- --------------- ---------------
(221) 403 173
----- -------------- -------- ------------ ------ --------------------- --------------- ---------------
Items that are or may be reclassified
to the income statement:
Gains less losses on fair
value of insurance assets* 8 (5) (8)
Fair value losses on insurance
assets transferred to the
income statement* - (1) (1)
Related tax on
items above 5 (2) 1 1
--------------------- -------- ------------ ------ --------------------- --------------- ---------------
6 (5) (8)
----- -------------- -------- ------------ ------ --------------------- --------------- ---------------
Other comprehensive (losses)
/ income for the period net
of tax (215) 398 165
--------------------------------------------- ------ --------------------- --------------- ---------------
Total comprehensive (losses) /
income for the period (all attributable
to members of the Society) (170) 419 9
----------------------------------------------------- --------------------- --------------- ---------------
* The results of our Insurance business are shown as discontinued
operations in the tables above which is consistent with the
financial statements for the 52 weeks ended 5 January 2019.
The half-year comparative figures for the 26 weeks ended 7 July
2018 have been re-presented to reflect a similar classification.
For more details on the re-presentation, refer to the general
accounting policies section on page 50.
Condensed Consolidated Balance Sheet
as at 6 July 2019
What does this show? Our balance sheet is a snapshot of our financial
position as at 6 July 2019. It shows the assets we have and the amounts
we owe.
As at 6 July As at As at 5
2019 (unaudited) 7 July January
2018 2019 (audited)
(unaudited)
Notes GBPm GBPm GBPm
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Non-current assets
Property, plant and equipment 2,005 2,056 2,046
Right-of-use assets 1,047 - -
Goodwill and intangible
assets 1,092 1,014 1,071
Investment properties 49 45 42
Investments in associates
and joint ventures 3 3 3
Other investments 12 1,244 1,711 1,223
Reinsurance contracts - 47 -
Derivatives - 31 27
Pension assets 7 1,747 2,238 1,984
Trade and other receivables 142 66 81
Contract assets (funeral
plans) 51 34 47
Reclaim Fund assets 202 221 209
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Total non-current assets 7,582 7,466 6,733
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Current assets
Inventories 446 433 458
Trade and other receivables 596 721 537
Contract assets (funeral
plans) 4 3 4
Cash and cash equivalents 207 480 282
Assets held for sale 8 1,125 12 1,113
Other investments 12 - 300 -
Reinsurance contracts - 15 -
Reclaim Fund assets 446 470 410
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Total current assets 2,824 2,434 2,804
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Total assets 10,406 9,900 9,537
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Non-current liabilities
Interest-bearing loans and
borrowings 9 982 1,072 976
Lease liabilities 9 1,270 15 28
Trade and other payables 176 77 214
Contract liabilities (funeral
plans) 1,390 1,279 1,353
Provisions 126 222 215
Derivatives 1 - -
Pension liabilities 7 103 136 125
Deferred tax liabilities 5 104 267 225
Insurance contracts - 295 -
Reclaim Fund liabilities 502 464 473
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Total non-current liabilities 4,654 3,827 3,609
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Current liabilities
Overdrafts - 4 -
Interest-bearing loans and
borrowings 9 42 96 66
Lease liabilities 9 183 - 4
Income tax payable 8 - 8
Trade and other payables 1,529 1,679 1,449
Contract liabilities (funeral
plans) 139 127 132
Provisions 70 91 82
Liabilities held for
sale 8 1,046 - 1,045
Insurance contracts - 444 -
Reclaim Fund liabilities 73 153 73
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Total current liabilities 3,090 2,594 2,859
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Total liabilities 7,744 6,421 6,468
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Equity
Members' share capital 73 73 73
Retained earnings 2,497 3,315 2,910
Other reserves 92 91 86
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Total equity 2,662 3,479 3,069
-------------------------------- ---- ---- --------------- ----------------------------- --------------- ----------------------
Total equity and liabilities 10,406 9,900 9,537
-------------------------------------- ---- --------------- ----------------------------- --------------- ----------------------
Condensed Consolidated Statement of Changes in Equity
for the 26 weeks ended 6 July
2019
What does this show? Our statement of changes in equity shows
how our net assets have changed during the year.
Members'
For the 26 weeks ended 6 July share Retained Total
2019 (unaudited) capital earnings Other reserves equity
Notes GBPm GBPm GBPm GBPm
------------------ ------------------------ --------------- ------------ --------------- --------------- -------
Balance at 7 January 2019 (as
originally reported) 73 2,910 86 3,069
Impact of adoption of IFRS 16 on opening
reserves as at 7 January 2019* - (284) - (284)
Tax on impact of IFRS 16 on reserves
as at 7 January 2019 5 - 47 - 47
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Balance at 7 January 2019 (after
impact of IFRS 16) 73 2,673 86 2,832
Profit for
the period - 45 - 45
------------------- ------------------------ --------------- ------------ --------------- --------------- -------
Other comprehensive losses:
Remeasurement losses on employee
pension schemes 7 - (266) - (266)
Gains less losses on fair value
of insurance assets - - 8 8
Tax on items taken directly to
other comprehensive income 5 - 45 (2) 43
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Total other comprehensive losses - (221) 6 (215)
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Balance at 6 July 2019 73 2,497 92 2,662
--------------------------------------------- --------------- ------------ --------------- --------------- -------
For the 26 weeks ended 7 July Notes
2018 (unaudited)
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Balance
at 6 January
2018 73 2,886 101 3,060
------------------- ------------------------ --------------- ------------ --------------- --------------- -------
Profit for
the period - 21 - 21
------------------- ------------------------ --------------- ------------ --------------- --------------- -------
Other comprehensive income:
Remeasurement gains on employee
pension schemes 7 - 455 - 455
Refinement of derecognition of
pension surplus attributable
to The Co-operative Bank 7 - 31 - 31
Gains less losses on fair value
of insurance assets - - (5) (5)
Fair value losses on insurance
assets transferred to the income
statement - - (1) (1)
Tax on items taken directly to
other comprehensive income 5 - (83) 1 (82)
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Total other comprehensive income - 403 (5) 398
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Revaluation reserve recycled
to retained earnings 5 (5) -
============================================= =============== ============ =============== =============== -------
Balance
at 7 July
2018 73 3,315 91 3,479
------------------- ------------------------ --------------- ------------ --------------- --------------- -------
For the 52 weeks ended 5 January Notes
2019 (audited)
Balance
at 6 January
2018 73 2,886 101 3,060
------------------- ------------------------ --------------- ------------ --------------- --------------- -------
Loss for
the period - (156) - (156)
------------------- ------------------------ --------------- ------------ --------------- --------------- -------
Other comprehensive income:
Remeasurement gains on employee
pension schemes 7 - 178 - 178
Refinement of derecognition of
pension surplus attributable
to The Co-operative Bank 7 - 31 - 31
Gains less losses on fair value
of insurance assets - - (8) (8)
Fair value losses on insurance
assets transferred to the income
statement - - (1) (1)
Tax on items taken directly to
other comprehensive income 5 - (36) 1 (35)
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Total other comprehensive income - 173 (8) 165
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Revaluation reserve recycled
to retained earnings - 7 (7) -
============================================= =============== ============ =============== =============== -------
Contributions by and distributions
to members:
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Shares issued less shares withdrawn - - - -
Contributions by and distributions
to members: - - - -
--------------------------------------------- --------------- ------------ --------------- --------------- -------
Balance at 7 January 2019 73 2,910 86 3,069
--------------------------------------------- --------------- ------------ --------------- --------------- -------
* The Group has applied IFRS 16 (Leases) at 6 January 2019 using
the modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative impact of applying
the new standard is recognised in retained earnings at the date
of initial application. For more details on the impact of IFRS
16 (Leases), refer to the general accounting policies section
on page 50.
Condensed Consolidated Statement of Cash Flows
for the 26 weeks ended 6 July 2019
What does this show? Our statement of cash flows shows the cash coming
in and out during the year. It splits the cash by type of activity
- showing how we've generated cash and then how we've spent it.
As at 6 As at As at 5
July 2019 7 July January
(unaudited) 2018 2019 (audited)
(unaudited)
Notes GBPm GBPm GBPm
---------------------- ---------------- -------------------- ------ --------------------- --------------- -----------------------
Net cash from operating activities 10 251 255 313
Cash flows from investing
activities
Purchase of property, plant
and equipment (154) (162) (335)
Purchase of
intangible
assets (35) - (50)
Proceeds from sale of property, plant
and equipment 13 41 81
Acquisition of businesses,
net of cash acquired (30) (24) (29)
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Net cash used in investing
activities (206) (145) (333)
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Cash flows from financing
activities
Interest paid on
borrowings (36) (12) (63)
Interest paid on lease liabilities (2018:
Interest paid on finance lease liabilities) (39) - -
Interest received
on subleases 2 - -
Interest received
on deposits - - 1
Issue / (repayment) of corporate
investor shares 9 5 (3) (2)
Repayment of
borrowings 9 (328) (14) (34)
Proceeds from new
borrowings 9 300 - -
Settlement of
interest
rate swaps 27 - -
Payment of lease liabilities (2018:
Payment of finance lease liabilities) (53) (2) (5)
-------------------------------------------------------------- ------ --------------------- --------------- -----------------------
Net cash used in financing
activities (122) (31) (103)
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Net (decrease) / increase in cash and
cash equivalents (77) 79 (123)
Net cash and overdraft balances transferred
to held for sale 2 - 8
Cash and cash equivalents at beginning
of period 282 397 397
-------------------------------------------------------------- ------ --------------------- --------------- -----------------------
Cash and cash equivalents at end of
period 207 476 282
============================================================== ====== ===================== =============== =======================
Analysis of cash and cash
equivalents
Overdrafts per
balance
sheet - (4) -
Cash and cash equivalents
per balance sheet 207 480 282
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
207 476 282
---------------------- ---------------- -------------------- ------ --------------------- --------------- -----------------------
Included in the above are cashflows from discontinued operations.
An analysis of these can be found in note 6.
As at 6 As at As at 5
July 2019 7 July January
(unaudited) 2018 2019 (audited)
Group Net Debt Notes (unaudited)
====================== ================ ==================== ====== --------------------- --------------- -----------------------
Interest-bearing loans and
borrowings:
- current (42) (96) (66)
- non-current (982) (1,072) (976)
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Total Interest-bearing loans
and borrowings (1,024) (1,168) (1,042)
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Lease liabilities:*
- current (183) - (4)
- non-current (1,270) (15) (28)
Total lease
liabilities (1,453) (15) (32)
---------------------- ---------------- -------------------- ------ --------------------- --------------- -----------------------
Total Debt (2,477) (1,183) (1,074)
---------------------- ---------------- -------------------- ------ --------------------- --------------- -----------------------
- Group cash 207 480 282
- Overdrafts - (4) -
---------------------------------------- ---------------------------- --------------------- --------------- -----------------------
Group Net Debt (2,270) (707) (792)
---------------------- ---------------- -------------------- ------ --------------------- --------------- -----------------------
Add back fair value / amortised
cost adjustment 9 33 71 46
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Group Net Debt (pre fair value / amortised
cost adjustment) 9 (2,237) (636) (746)
-------------------------------------------------------------- ------ --------------------- --------------- -----------------------
Group Net Debt (interest bearing loans
and borrowings only) (817) (692) (760)
-------------------------------------------------------------- ------ --------------------- --------------- -----------------------
Add back fair value / amortised
cost adjustment 9 33 71 46
---------------------------------------- -------------------- ------ --------------------- --------------- -----------------------
Group Net Debt (interest bearing loans
and borrowings only and pre fair value
/ amortised cost adjustment) 9 (784) (621) (714)
-------------------------------------------------------------- ------ --------------------- --------------- -----------------------
*The Group has initially applied IFRS 16 (Leases) at 6 January 2019
using the modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative impact of applying
the new standard is recognised in retained earnings at the date of
initial application. For more details on the impact of IFRS 16 (Leases),
refer to the general accounting policies section on page 50.
Notes to the interim financial statements
1 Operating segments
What does this show? This note shows how our different businesses
have performed. This is how we report and monitor our performance
internally. These are the numbers that our Board reviews during
the year.
26 weeks ended *Underlying
6 July Revenue segment Property Change
2019 from operating One-off and business in value
(unaudited) external profit items disposals of investment Operating
customers (b) (b) (i) (b) (ii) properties profit
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ------------ --------- -------------- -------------- ----------
Food 3,726 120 - (6) - 114
Wholesale 703 (2) - - - (2)
Funeral and Life
Planning 163 13 - (1) - 12
Other businesses
(d) 11 (6) - (1) - (7)
Federal (e) 786 - - - - -
Costs from
supporting
functions - (61) 7 4 11 (39)
------------------ ----------- ------------ --------- -------------- -------------- ----------
Total 5,389 64 7 (4) 11 78
------------------ ----------- ------------ --------- -------------- -------------- ----------
26 weeks ended
7 July *Underlying
2018 (unaudited Revenue segment Property Change
and from operating One-off and business in value
re-presented) external profit items disposals of investment Operating
(a) customers (b) (b) (i) (b) (ii) properties profit
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ------------ --------- -------------- -------------- ----------
Food 3,607 80 - (2) - 78
Wholesale 269 (5) - - - (5)
Funeral and Life
Planning 174 28 - (1) - 27
Other businesses
(d) 28 (2) - - - (2)
Federal (e) 751 - - - - -
Costs from
supporting
functions - (51) 19 (23) 11 (44)
------------------ ----------- ------------ --------- -------------- -------------- ----------
Total 4,829 50 19 (26) 11 54
------------------ ----------- ------------ --------- -------------- -------------- ----------
52 weeks ended *Underlying
5 January Revenue segment Property Change
2019 (audited) from operating One-off and business in value
external profit items disposals of investment Operating
customers (b) (b) (i) (b) (ii) properties profit
GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------------ ------------ --------- -------------- -------------- ----------
Food 7,274 204 - (18) - 186
Wholesale 983 (11) - - - (11)
Funeral and Life
Planning 317 25 - (6) - 19
Other businesses
(d) 56 (4) - (8) - (12)
Federal (e) 1,532 - - - - -
Costs from
supporting
functions - (107) 9 (22) 38 (82)
------------------ ----------- ------------ --------- -------------- -------------- ----------
Total 10,162 107 9 (54) 38 100
------------------ ----------- ------------ --------- -------------- -------------- ----------
* The Group has initially applied IFRS 16 (Leases) at 6 January
2019 using the modified retrospective approach. Under this approach,
comparative information is not restated and the cumulative impact
of applying the new standard is recognised in retained earnings
at the date of initial application. For more details on the
impact of the IFRS 16 (Leases), refer to the general accounting
policies section on page 50. To further help the reader then
we've also included additional tables in 'Our financial performance'
section (page 21) showing 2019 results on both a reported basis
(prepared under IFRS 16) and a like-for-like with 2018 (excluding
IFRS 16).
a) In-line with our 2018 year-end accounts the results of our
Insurance business have been classified as discontinued operations
as the proposed sale of CISGIL was highly probable at the year-end
and half-year date. As such the results of our Insurance business
are no longer shown in the tables above and instead are shown
in the Discontinued Operations line at the bottom of the Consolidated
income statement. The assets and liabilities have also been
remeasured at fair value less costs to sell and are shown separately
in the balance sheet in Held for sale. See note 6 (Loss on discontinued
operations, net of tax) for further details.
b) Underlying segment operating profit is a non-GAAP measure
of segment operating profit before the impact of property and
business disposals (including individual store impairments),
the change in the value of investment properties and one-off
costs. The difference between underlying segment operating profit
and operating profit includes:
i) One-off items representing a GBP7m gain relates to a reduction
in the deferred consideration originally recognised following
the Nisa acquisition in 2018. Prior period figures included
a gain of GBP20m in relation to past service pension costs (retirement
discretion credit) and GBP1m (2017: GBPnil) of costs relating
to Bank separation activity.
ii) Losses from property and business disposals of GBP4m (2018:
GBP26m loss) - see table on page 35 for further details.
Notes to the interim financial statements continued
1 Operating segments continued
c) Transactions between operating segments excluded from the above
analysis are GBPnil (2018: GBP3m) sales of electrical goods by Co-op
Electrical to Food and GBP1m (2018: GBP1m) sales of legal cover on
insurance policies by Legal Services to Insurance.
d) The 'Other Businesses' segment includes activities which are not
reportable per IFRS 8. This mainly comprises the results of Co-op Electrical.
As announced at the 2018 year end Co-op Electrical ceased trading in
the second quarter of 2019.
e) Federal relates to the activities of a joint buying group that is
operated by the Group for other independent co-operative societies.
This is run on a cost recovery basis and therefore no profit is derived
from its activities.
f) A reconciliation between underlying segment operating
profit and profit before tax is provided below:
26 weeks 26 weeks 52 weeks
ended 6 July ended ended
2019 (unaudited) 7 July 5 January
2018 2019 (audited)
(unaudited
& re-presented*)
Notes GBPm GBPm GBPm
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
Underlying segment
operating
profit ** 64 50 107
Underlying
interest payable 4 (33) (32) (64)
Underlying interest
expense
on lease 3,
liabilities 4 (37) - -
Underlying (loss)
/ profit
before tax (6) 18 43
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
One-off items 7 19 9
Loss on property,
business disposals
and closures (see below) (4) (26) (54)
Change in value of
investment
properties 11 11 38
Finance income (excluding
any lease
interest shown net
above) 3 27 33 78
Other non-cash
finance costs 4 (10) (11) (21)
Profit before tax 25 44 93
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
* In-line with our 2018 year-end accounts then the results of our Insurance
business have been classified as discontinued operations following
the announcement of the proposed sale of CISGIL. As such the results
of our Insurance business are no longer shown in the table above and
instead are shown in the Discontinued Operations line at the bottom
of the Consolidated income statement. For more details on the re-presentation,
refer to the general accounting policies section on page 50.
** The Group has initially applied IFRS 16 (Leases) at 6 January 2019
using the modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative impact of applying the
new standard is recognised in retained earnings at the date of initial
application. For more details on the impact of IFRS 16 (Leases), refer
to the general accounting policies section on page 50. To further help
the reader then we've also included additional tables in 'Our financial
performance' section (page 21) showing 2019 results on both a reported
basis (prepared under IFRS 16) and a like-for-like with 2018 (excluding
IFRS 16).
26 weeks 26 weeks 52 weeks
ended 6 July ended ended
Losses from property, 2019 (unaudited) 7 July 5 January
business disposals 2018 2019 (audited)
and closures (unaudited)
GBPm GBPm GBPm GBPm GBPm GBPm
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
Disposals, closures
and onerous
contracts
- proceeds 12 41 77
- less net book
value written
off (15) (40) (77)
- provisions
recognised (1) (21) (42)
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
(4) (20) (42)
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
Impairment of property, plant and equipment,
right-of-use assets and goodwill - (6) (12)
--------------------------------------------- -------- -------- -------- -------- -------- --------
Loss on disposal (4) (26) (54)
------------------- --- ---------------- -------- -------- -------- -------- -------- --------
Notes to the interim financial statements continued
2 Supplier
income
What does this show? Sometimes our suppliers give us money back
based on the amount of their products we buy and sell. This note
shows the different types of income we've received from our suppliers
based on the contracts we have in place with them. This income
is taken off operating expenses in the income statement.
26 weeks 26 weeks 52 weeks
ended 6 ended 7 ended 5
July 2019 July 2018 January
(unaudited) (unaudited) 2019 (audited)
GBPm GBPm GBPm
---------------- ----- ---- ------------ ------------------ ------------------
Food - Long-term
agreements 64 67 142
Food - Bonus income 55 58 142
Food - Promotional
income 155 156 325
--------------------------- ------------ ------------------ ------------------
Total Food supplier
income 274 281 609
--------------------------- ------------ ------------------ ------------------
Wholesale - supplier
income * 31 - 45
--------------------------- ------------------ ------------------
Total Supplier
income 305 281 654
--------------------------- ------------ ------------------ ------------------
*Supplier income in Wholesale relates to Nisa following acquisition
on 8 May 2018. As such comparative figures for the 26 weeks ended
7 July 2018 have not been disclosed.
Percentage of Cost of Sales % % %
before
deducting Supplier Income
------------------------------- ------------ ------------------ ------------------
Food - Long-term
agreements 2.2% 2.4% 2.5%
Food - Bonus income 1.9% 2.0% 2.5%
Food - Promotional
income 5.5% 5.5% 5.7%
--------------------------- ------------ ------------------ ------------------
Total Food
supplier
income % 9.6% 9.9% 10.7%
----------------- ----- ---- ------------ ------------------ ------------------
Total Wholesale
supplier
income % 4.6% - 4.9%
----------------- ----- ---- ------------ ------------------ ------------------
All figures exclude any income or purchases made as part of the
Federal joint buying group.
3 Finance
income
What does this show? Finance income arises from the interest
earned on our pension scheme and interest from finance lease
receivables which have been discounted. We also include the movement
in the fair value of some elements of our debt and our interest
rate swap positions (which are used to manage risks from interest
rate movements) if these are gains. If they are losses, they
are included in Finance costs (see note 4).
26 weeks 26 weeks 52 weeks
ended 6 ended 7 ended 6
July 2019 July 2018 January
(unaudited) (unaudited) 2019 (audited)
GBPm GBPm GBPm
---------------- ----- ---- ------------ ------------------ ------------------
Net pension finance
income 27 21 41
Underlying interest
income from
finance lease
receivables 2 - -
Fair value
movement
on quoted debt - 12 37
----------------- ----- ---- ------------ ------------------ ------------------
Total finance income 29 33 78
--------------------------- ------------ ------------------ ------------------
Notes to the interim financial statements continued
4 Finance costs
What does this show? Our main finance cost is the interest that we've
paid during the year on the bank borrowings that help fund the business.
Other finance costs include the non-cash charge we incur each year
on long-term provisions as the payout moves one year closer (the discount
unwind) and the impact of unwinding the discounted lease liability.
We also include the movement in the fair value of some elements of
our debt and our interest rate swap positions (which are used to manage
risks from interest rate movements) if these are losses. If they are
gains, they are included in Finance income (see note 3).
26 weeks 26 weeks 52 weeks
ended ended ended
6 July 7 July 5 January
2019 2018 2019 (audited)
(unaudited) (unaudited
&
re-presented*)
GBPm GBPm GBPm
Loans repayable within
five years (15) (12) (28)
Loans repayable wholly or
in part after five years (18) (20) (36)
Underlying loan
interest
payable (33) (32) (64)
Fair value movement on quoted
debt (1) - -
Fair value movement on interest
rate swaps (1) (7) (11)
Underlying interest expense
on lease liabilities (39) - -
Non-underlying finance
interest (8) (4) (10)
Other finance costs (49) (11) (21)
Total finance costs (82) (43) (85)
* See general accounting policies section on
page 50 for details of the representation.
5 Taxation
What does this show? This note shows the tax charge recognised at half
year. This is calculated in four parts based on (i) the forecast effective
tax rate for the full year applied to our underlying half year trading
results (excluding the tax impact of any material transactions) (ii)
material transactions reflected in the half year results (iii) recognition
of the full impact of enquiries concluded by HMRC in the first half
of the year and (iv) an adjustment in respect of revised estimates
used to calculate the timing of when deferred tax charges arise.
The tax credit in respect of continuing operations of GBP26m (2018:
charge of GBP9m) and effective tax rate of 107% (2018: 20%) relates
to:
1. A review of the effective tax rate for the full year has been applied
to the underlying trading results (excluding recurring net pension
credits taken to the income statement) - this results in a tax credit
of GBP2m.
2. A review of material transactions reflected in the year gave rise
to a tax charge of GBP7m. These mainly relate to gains on property
disposals and pension credits taken through the income statement.
3. HMRC have not raised any further enquiries in the first half of
the year, as such the uncertain tax risk provision for existing enquiries
has remained unchanged from the 2018 year end.
4. The Society has reviewed its method of determining the temporary
differences arising in respect of accelerated tax depreciation on its
fixed assets and as a result has revised the estimation techniques
previously used therein. As a result of this we have reinstated deferred
tax assets on the balance sheet previously charged to the income statement.
The cumulative impact of this is a credit to the income statement of
GBP31m. This balance will then be released to the income statement
in future years in line with the revised method and as such solely
represents a timing impact. This is the main driver for the effective
tax rate.
A credit of GBP45m has been posted to other comprehensive income in
respect of the actuarial movement arising on the pension fund. A credit
of GBP47m has been posted to opening reserves arising from the adoption
of IFRS 16 and more information about this is provided in the general
accounting policies section on page 50. The net deferred tax liability
of the Group at half year is GBP111m (2018: GBP230m) and the corporation
tax creditor for continuing operations is GBP8m.
The Group does not expect to be tax-paying in respect of their full
year results due to the availability of losses arising in the current
year for discontinued operations and brought forward tax losses and
allowances. Deferred taxes in respect of brought forward tax losses
and allowances are fully recognised and offset against deferred tax
liabilities. A reconciliation of the opening deferred tax balance to
the closing balance is set out below:
26 weeks
ended
Movements in deferred tax in period 6 July
to 6 July 2019 2019 (unaudited)
GBPm
At beginning of the year
(net liability)* 230
Charged to opening
reserves:
Impact of adoption
of IFRS 16 (47)
Income statement
credit (29)
Charged to equity:
Employee pension
schemes (45)
Insurance assets 2
At end of period (net
liability)* 111
*Of the total net liability GBP7m (2018: GBP5m) is classed as Held
for sale (see note 8 and note 6).
Notes to the financial statements continued
6 Loss on discontinued operation, net
of tax
What does this show? We classify any of our business segments as
discontinued operations if they have been disposed of during the
year or if they are held for sale at the balance sheet date (which
means they are most likely to be sold within a year). This note
shows the operating result for these segments as well as the profit
or loss on disposal.
Discontinued operation - Insurance
Co-op Insurance has been classified as a discontinued operation
in 2018 and 2019 as the sale of the business was highly probable
at the year-end and half-year date. The assets and liabilities have
been remeasured at fair value less costs to sell and are shown separately
in the balance sheet. The result for Co-op Insurance is shown in
a separate line at the bottom of the consolidated income statement
under Discontinued Operations and includes the charge resulting
from remeasuring the assets and liabilities of the business to fair
value less costs to sell.
On 18 January 2019 the Co-op announced it had exchanged contracts
for the sale of its insurance underwriting business (CIS General
Insurance Limited) to Markerstudy. The deal includes a 13 year agreement
with Markerstudy to distribute motor and home insurance products.
The deal is subject to regulatory approval and is expected to complete
during the second half of 2019. After the sale the Co-op will focus
on marketing and distributing insurance products instead of underwriting
them and the performance will be reported as a separate operating
segment. Markerstudy have committed to paying GBP150m of cash at
the point of disposal and GBP35m of deferred consideration over
3 years and 6 months. Of the GBP185m of income expected from Markerstudy
at the point of disposal, GBP101m will be allocated against assets
and liabilities of the disposal group and included in arriving at
the remeasurement charge of GBP207m as noted in the prior year on
initial recognition. The remaining GBP84m will be included as deferred
income (as required by IFRS 3 paragraph 52) because the Co-op group
will be being remunerated for future services. Post sale the Co-op
group will provide marketing and distribution services for Markerstudy.
The calculation of assets held for sale includes incremental costs
to sell. After selling the group (providing regulatory approval
is received) further costs may be incurred in a transitional period
of migration and co-operation with Markerstudy.
26 weeks 26 weeks 52 weeks
ended ended ended
6 July 7 July 5 January
Results of discontinued operation 2019 2018 (unaudited) 2019
- Insurance (unaudited) (audited)
GBPm GBPm GBPm
Revenue 162 160 323
Operating expenses (187) (205) (410)
Other income 14 31 67
Remeasurement adjustments recognised in
arriving
at fair value less costs to sell 6 - (207)
Operating loss from discontinued
operation (5) (14) (227)
Finance
costs (4) (4) (9)
Loss before tax from results of discontinued
operation (9) (18) (236)
Tax - relating to the pre-tax loss
on discontinued operation 3 4 6
Loss for the period from discontinued
operation (6) (14) (230)
Segmental analysis - Insurance 26 weeks 26 weeks 52 weeks
ended ended ended
6 July 7 July 5 January
2019 2018 (unaudited) 2019
(unaudited) (audited)
GBPm GBPm GBPm
Revenue from external
customers 162 160 323
Underlying segment
operating
loss (3) (5) (1)
Operating
loss (5) (14) (227)
Notes to the financial statements continued
6 Loss on discontinued operations, net of tax
continued
Co-op Insurance has been classified as a disposal group that is held
for sale at the balance sheet date. The assets and liabilities of
Insurance are recorded at fair value less costs to sell. Any remeasurements
that have been identified have been attributed to relevant assets
and liabilities in accordance with IFRS 5.
Disposal group at fair value less costs to As at 6th As at 5th
sell July 2019 January 2019
(unaudited) (audited)
GBPm GBPm
Non-current assets
Other investments
(Insurance
assets) 478 449
Reinsurance
assets 39 34
Current assets
Trade and other
receivables 220 206
Other investments
(Insurance
assets) 327 382
Reinsurance
assets 28 20
Current tax
assets 8 8
Total Insurance assets classified
as held for sale 1,100 1,099
Non-current liabilities
Interest-bearing loans
and borrowings 68 68
Insurance contract
liabilities 307 362
Deferred tax
liabilities 5 3
Current
liabilities
Insurance contract liabilities 424 373
Other payables and
provisions 230 229
Overdrafts 10 8
Total Insurance liabilities classified
as held for sale 1,044 1,043
Net assets of disposal group classified as
held for sale 56 56
IFRS 5 exempts certain assets and liabilities from the requirement
for re-measurement and this includes the Insurance assets noted in
the table above in Other investments. A re-measurement adjustment
of GBP169m (GBP175m as at 5 January 2019) is required to write down
the disposal group to its overall fair value less costs to sell and
has been reflected as a provision in the other payables and provisions
line. The decrease in the re-measurement adjustment in the period
of GBP6m is shown within discontinued operations in the income statement.
The closing carrying value of the net assets of the disposal group
is therefore recorded at fair value less costs to sell of GBP56m (GBP56m
as at 5th January 2019) in the above table. This GBP56m fair value
is comprised of GBP101m (GBP101m as at 5th January 2019) of expected
sales proceeds from the sale of Co-op insurance less costs to sell
of GBP43m (GBP43m as at 5th January 2019) and the impact on discounting
deferred consideration of GBP2m (GBP2m as at 5th January 2019). The
costs to sell of GBP43m (GBP43m as at 5th January 2019) include legal
and professional costs and necessary IT migration costs.
The table below shows a summary of the cash flows of discontinued
operations:
26 weeks 26 weeks ended 52 weeks ended
ended 6 7 July 2018 5 January
July 2019 (unaudited 2019 (audited)
(unaudited) & restated)
GBPm GBPm GBPm
Cash flows used in discontinued
operations:
Net cash used in
operating
activities (8) (4) (6)
Net cash used in
financing
activities (4) - (8)
Net cash used in discontinued operations (12) (4) (14)
Notes to the interim financial statements continued
7 Pensions
What does this show? This note shows the net position (either a surplus
or a deficit) for all of the Group's defined benefit (DB) pension schemes
and the key assumptions that our actuaries have used to value the Pace
scheme as well as showing how the total net position has changed during
the period.
6 July 7 July 5 January
2019 2018 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Pension schemes
in surplus 1,747 2,238 1,984
Pension schemes
in deficit (103) (136) (125)
Closing net retirement
benefit 1,644 2,102 1,859
The Group operates a number of defined benefit (DB) pension schemes,
the assets of which are held in separate trustee-administered funds
for the benefit of its employees and former employees. The Group also
provides pension benefits through defined contribution (DC) arrangements.
The main DB pension scheme for the Group is the Pace scheme which closed
to future service accrual on 28 October 2015. The actuarial valuations
for the Pace scheme have been updated to 6 July 2019 in accordance
with IAS 19. Valuations for the Somerfield, United, Plymouth and Yorkshire
schemes have also been updated for the 2019 interim financial statements.
6 July 7 July 5 January
2019 2018 2019
(unaudited) (unaudited) (audited)
----------
The principal assumptions used to determine
the liabilities of the Pace pension scheme
were:
Discount
rate 2.22% 2.91% 3.02%
RPI Inflation
rate 3.38% 3.33% 3.46%
Pension increases in payment (RPI
capped at 5.0% p.a.) 3.29% 3.18% 3.55%
Future salary increases 3.63% 3.58% 3.71%
6 July 7 July 5 January
2019 2018 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Opening net retirement
benefit attributable to
Group 1,859 1,553 1,553
Admin expenses paid from
plan assets (2) (2) (5)
Past service
items - 20 11
Net finance
income 27 21 41
Employer contributions 26 24 50
Remeasurement (losses)
/ gains (266) 455 178
Refinement of pension surplus attributable
to Co-operative Bank - 31 31
Closing net retirement
benefit 1,644 2,102 1,859
Notes to the interim financial statements continued
7 Pensions continued
6 July 2019 7 July 5 January
2018 (unaudited) 2019 (audited)
(unaudited)
Amounts recognised (unaudited) (audited)
in the balance sheet: (unaudited) GBPm GBPm GBPm
Fair value of plan
assets:
- Pace 9,092 8,611 8,353
- Somerfield Scheme 1,006 1,099 1,069
- Other schemes 865 853 849
Total assets 10,963 10,563 10,271
Present value of
liabilities:
- Pace (7,456) (6,567) (6,532)
- Somerfield Scheme (895) (905) (906)
- Other schemes (968) (989) (974)
Total liabilities (9,319) (8,461) (8,412)
Net retirement benefit
asset per balance sheet:
Pace 1,636 2,044 1,821
Somerfield Scheme 111 194 163
Total assets 1,747 2,238 1,984
Other schemes (103) (136) (125)
Total Liabilities (103) (136) (125)
Net Asset 1,644 2,102 1,859
Other schemes comprise the United Fund, the
Plymouth Fund and the Yorkshire Fund.
The present value of unfunded liabilities recognised in the balance
sheet is GBP6m (as at 7 July 2018 and 5 January 2019: GBP6m).
In January 2019, the Trustee of the Somerfield Pension Scheme
entered into a pension insurance buy-in contract with Pensions
Insurance Corporation (PIC). As a result of the transaction,
the scheme will receive regular payments from PIC to fund pension
payments into the future. The methodology to value this insurance
asset has resulted in a GBP55m decrease in the surplus of the
Somerfield scheme in the period.
Notes to the financial statements continued
8 Assets and liabilities held for sale
What does this show? This shows the value of any assets or liabilities
that we hold for sale at the year end (these generally relate
to properties or businesses that we plan to sell soon). When this
is the case, our balance sheet shows those assets and liabilities
separately as held for sale.
6 July 5 January
2019 7 July 2018 2019
(unaudited) (unaudited) (audited)
Assets held for sale GBPm GBPm GBPm
(a) Discontinued operation
- Insurance (see note
6) 1,100 - 1,099
(b) Other assets held
for sale (see below) 25 12 14
Total 1,125 12 1,113
Liabilities held for sale
(a) Discontinued operation
- Insurance (see note
6) 1,044 - 1,043
(b) Other liabilities
held for sale (see below) 2 - 2
Total 1,046 - 1,045
(a) Discontinued operation -
Insurance
Co-op Insurance has been classified as a discontinued operation
as at 6th July 2019 and as at 5 January 2019 as the sale of the
business was highly probable at the half-year and year-end date
respectively. The assets and liabilities have been remeasured
at fair value less costs to sell and are shown separately in the
balance sheet. Further detail is given in note 6 (Loss on discontinued
operations, net of tax) including a line-by-line balance sheet
detailing the impact of the remeasurement adjustments to fair
value less costs to sell and the carrying value of all insurance
assets and liabilities held for sale.
(b) Other assets and liabilities classified as held for sale are
below:
6 July 5 January
2019 7 July 2018 2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Property, plant and equipment 10 12 9
Investment properties 12 - 5
Goodwill 3 - -
Total assets 25 12 14
Deferred tax liabilities 2 - 2
Total liabilities 2 - 2
Notes to the interim financial statements continued
9 Interest-bearing loans and borrowings
What does this show? This note gives information about the terms
of our interest-bearing loans. This includes information about their
value, interest rate and repayment terms and timings. Details are
also given about other borrowings and funding arrangements such
as corporate investor shares and our leases. All items are split
between those that are due to be repaid within one year (current)
and those which won't fall due until after more than one year (non-current).
For a breakdown of IFRS 13 level hierarchies (which reflect different
valuation techniques) in relation to these borrowings, see note
12.
As at 6 As at 7 As at
July 2019 July 2018 5 January
2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Non-current
liabilities:
GBP11m 6.875% Eurobond
Notes
due 2020 (fair value)* 12 309 296
GBP165m 6.875% Eurobond Notes due
2020 (amortised cost) 168 170 169
GBP105m 7.5% Eurobond
Notes
due 2026 (fair value) 117 126 115
GBP245m 7.5% Eurobond
Notes
due 2026 (amortised
cost) 263 266 264
GBP300m 5.125% Sustainability Bond
due 2024 (amortised cost)* 299 - -
GBP109m 11% final
repayment
subordinated notes due
2025 109 109 109
GBP16m Instalment
repayment
notes (final payment
2025) 14 15 14
GBP10m 2.57% Nisa bank
term
loan (facility expires
2021) - 9 9
GBP70m 12% Financial Services Callable
Dated Deferrable Tier Two Notes due 2025** - 68 -
Total (excluding lease
liabilities) 982 1,072 976
Lease liabilities (2018:
Finance
lease liabilities)*** 1,270 15 28
Total Group interest-bearing loans
and borrowings 2,252 1,087 1,004
* The Group issued a GBP300m Sustainability bond in May 2019. The
bond is repayable in May 2024 and has an interest rate of 5.125%.
The Co-operative Group Limited also completed a tender offer in
May 2019 on the 2020 6.875% bond. This saw the Group buy back GBP274m
(of the principal balance of GBP285m) from bond holders for cash
consideration of GBP290m.
** Debt relating to CISGIL has been transferred to held for sale
(see note 6) as at 6 July 2019 and 5 January 2019.
*** The Group has applied IFRS 16 (Leases) at 6 January 2019 using
the modified retrospective approach. Under this approach, comparative
information is not restated and the cumulative impact of applying
the new standard is recognised in retained earnings at the date
of initial application. For more details on the impact of IFRS 16
(Leases), refer to the general accounting policies section on page
50.
As at 6 As at 7 As at
July 2019 July 2018 5 January
2019
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Current
liabilities:
GBP165m 6.875% Eurobond Notes due 2020
(amortised cost) - interest accrued 11 10 5
GBP245m 7.5% Eurobond Notes due 2026 (amortised
cost) - interest accrued 17 16 8
GBP300m 5.125% Sustainability Bond due
2024 (amortised cost) - interest accrued 2 - -
GBP21m 8.875% First
Mortgage
Debenture Stock 2018 - 21 -
GBP16m Instalment
repayment
notes (final payment
2025) 1 1 1
GBP110m Nisa asset backed
invoice discounting
facility - 43 31
GBP355m Syndicate
revolving
credit facility drawdown - - 15
Corporate investor
shares 11 5 6
Total (excluding lease
liabilities) 42 96 66
Lease liabilities (2018:
Finance
lease liabilities)* 183 - 4
Total Group interest-bearing loans
and borrowings 225 96 70
Notes to the interim financial statements continued
9 Interest-bearing loans and borrowings continued
Reconciliation of
movement
in net debt
Net debt is a measure that shows the amount we owe to banks and
other external financial institutions less our cash and short-term
deposits.
For 26 weeks ended Impact
6 July 2019 on adoption
(unaudited) Start of IFRS Acquisition Non cash Cash End of
of period 16 of Subsidiary movements flow period
GBPm GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and
borrowings:
- current (66) - - (19) 43 (42)
- non-current (976) - - 9 (15) (982)
Lease liabilities
- current (4) (177) - (55) 53 (183)
- non-current (28) (1,273) - 31 - (1,270)
Total Debt (1,074) (1,450) - (34) 81 (2,477)
Group cash:
- cash & overdrafts 282 - - 2 (77) 207
Group Net Debt (792) (1,450) - (32) 4 (2,270)
Comprised of:
Trading Group Debt (1,074) (1,450) - (34) 81 (2,477)
Trading Group Cash 214 - - 2 (27) 189
Trading Group Net
Debt (860) (1,450) - (32) 54 (2,288)
Co-operative Banking
Group
cash and overdrafts 68 - - - (50) 18
Group Net Debt (792) (1,450) - (32) 4 (2,270)
Less fair value /
amortised cost
adjustment 46 - - (13) - 33
Group Net Debt before
fair
value / amortised cost
adjustment (746) (1,450) - (45) 4 (2,237)
For 26 weeks ended Impact
7 July 2018 on adoption
(unaudited) Start of IFRS Acquisition Non cash Cash End of
of period 16 of Subsidiary movements flow period
GBPm GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and
borrowings:
- current (32) - (57) (26) 19 (96)
- non-current (1,130) - (9) 67 - (1,072)
Lease liabilities
- current (2) - - - 2 -
- non-current (8) - - - (7) (15)
Total Debt (1,172) - (66) 41 14 (1,183)
Group cash:
- cash 403 - 1 - 76 480
- overdraft (6) - - - 2 (4)
Group Net Debt (775) - (65) 41 92 (707)
Comprised of:
Trading Group Debt (1,104) - (66) 41 14 (1,115)
Trading Group Cash 314 - 1 - 63 378
Trading Group Net
Debt (790) - (65) 41 77 (737)
CISGIL debt and
overdrafts (74) - - - 2 (72)
Co-operative Banking
Group
cash and overdrafts 89 - - - 13 102
Group Net Debt (775) - (65) 41 92 (707)
Less fair value /
amortised
cost adjustment 138 - - (67) - 71
Group Net Debt before
fair
value / amortised cost
adjustment (637) - (65) (26) 92 (636)
Notes to the interim financial statements continued
9 Interest-bearing loans and borrowings continued
For 52 weeks ended 5 January Impact
2019 (audited) on adoption
Start of IFRS Acquisition Non cash End of
of period 16 of Subsidiary movements Cash flow period
GBPm GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and borrowings:
- current (32) - (57) (14) 37 (66)
- non-current (1,130) - (9) 142 21 (976)
Lease liabilities
- current (2) - - - (2) (4)
- non-current (8) - - - (20) (28)
Total Debt (1,172) - (66) 128 36 (1,074)
Group cash:
- cash 403 - 1 - (122) 282
- overdraft (6) - - 8 (2) -
Group Net Debt (775) - (65) 136 (88) (792)
Comprised of:
Trading Group Debt (1,104) - (66) 60 36 (1,074)
Trading Group Cash 314 - 1 - (101) 214
Trading Group Net Debt (790) - (65) 60 (65) (860)
CISGIL debt and overdrafts (74) - - 76 (2) -
Co-operative Banking Group
cash and overdrafts 89 - - - (21) 68
Group Net Debt (775) - (65) 136 (88) (792)
Less fair value adjustment 138 - - (92) - 46
Group Net debt before
fair value / amortised
cost adjustment (637) - (65) 44 (88) (746)
10 Reconciliation of operating profit to net cash
flow from operating activities
What does this show? This note shows how our operating profit figure,
as reported in the income statement, is reconciled to the net cash
from operating activities as shown as the starting position in the
cash flow statement. Non-cash items are added back to or deducted from
the operating profit figure to show how much cash is generated from
our operating activities.
26 weeks 26 weeks 52 weeks
ended ended ended 5
6 July 7 July January
2019 2018 2019
(unaudited) (unaudited (audited)
& restated*)
Continuing Operations: GBPm GBPm GBPm
Operating profit from
continuing operations 78 54 100
Depreciation and amortisation charges (excluding
deferred acquisition costs) 189 135 271
Non-current asset impairments - 6 12
Loss on disposal of businesses
and non-current assets 4 20 40
Change in fair value of
investment properties (11) (11) (38)
Non-cash gain in relation to
past service pension costs - - (11)
Retirement benefit obligations (23) (43) (46)
Decrease / (increase)
in inventories 11 5 (20)
Increase in receivables (29) (91) (194)
Increase in contract assets
(funeral plans) (5) (3) (7)
Increase in contract liabilities
(funeral plans) 44 111 206
Increase in payables
and provisions 1 76 6
Net cash flow from operating activities (continuing
operations) 259 259 319
Discontinued Operations:
Operating loss (discontinued
operations) (5) (14) (230)
Remeasurement to fair
value at cost to sell (6) - 207
Fair value through income
statement 26 38 51
Fair value through other comprehensive
income movement 8 (8) (12)
Movement in deferred acquisition
costs (1) - 1
Reinsurance assets (13) (4) 5
(Increase) / decrease in insurance
and other receivables (13) 2 -
Increase / (decrease) in insurance
and participation contract provisions 2 (7) (17)
Decrease in insurance
and other payables (6) (11) (11)
Net cash flow from operating activities (discontinued
operations) 2 (4) (6)
Net cash flow from operating
activities 251 255 313
Notes to the interim financial statements continued
11 Commitments and contingent liabilities
What does this show? This note shows how the value of capital expenditure
that we're committed to spending at the balance sheet date and provides
an update on the contingent liabilities included in our 2018 annual
report.
a) Capital expenditure not accrued for, but committed
by the Group at 6 July 2019 was GBP13m (7 July 2018:
GBP11m).
b) There are no significant changes to the contingent liabilities
of the Group as disclosed in the 2018 annual report.
12 Financial instruments and fair values of financial
assets and financial liabilities
What does this show? This note shows the value of investments that
are held by our businesses, mainly in Funerals and Insurance, and
also shows how our financial assets and liabilities are recorded.
Other investments as per the 6 July 7 July 5 January
balance sheet: 2019 (unaudited) 2018 (unaudited) 2019 (audited)
GBPm GBPm GBPm
Current - 300 -
Non-current 1,244 1,711 1,223
Total Other Investments 1,244 2,011 1,223
Other investments held by the 6 July 7 July 5 January
Group are as follows: 2019 (unaudited) 2018 (unaudited) 2019 (audited)
GBPm GBPm GBPm
Fair value through income or
expense:
Funeral plan investments 1,244 1,170 1,223
Deposits with credit
institutions
(Insurance)* - 174 -
Fair value through other
comprehensive
income:
Listed debt securities
(Insurance)* - 667 -
Total Other Investments 1,244 2,011 1,223
*All insurance investments have been transferred to held for sale
as at 6th July 2019 and 5th January 2019. See note 6 (Loss on discontinued
operations, net of tax) for details.
Fair values of the Trading Group
recognised
in the balance sheet
The following table provides an analysis of the financial assets
and liabilities of the Trading Group that are recognised at fair
value. These are grouped into three levels based on the following
valuation techniques:
-- Level Fair value measurements are those derived from quoted prices
1 (unadjusted) in active markets for identical assets or liabilities.
-- Level Fair value measurements are those derived from inputs other
2 than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
-- Level Fair value measurements are those derived from valuation techniques
3 that include inputs for the asset or liability that are not
based on observable market data (unobservable inputs).
Notes to the interim financial statements continued
12 Financial instruments and fair values of financial
assets and financial liabilities continued
Fair values of the Trading Group recognised
in the balance sheet continued
6 July 2019 (unaudited) Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Assets
Financial assets at
fair value through
income or expense
- Funeral plan
investments - - 1,244 1,244
Total financial assets
held at fair value - - 1,244 1,244
Liabilities
Financial liabilities
at fair value through
income or expense
- Fixed-rate sterling
Eurobond - 129 - 129
- Funeral plan
liabilities - - 1,529 1,529
- Derivative financial
instruments - 1 - 1
Total financial liabilities
held at fair value - 130 1,529 1,659
There were no transfers between Levels 1 and 2 during the period
and no transfers into and out of Level 3 fair value measurements.
For other financial assets and liabilities of the Group including
cash, trade and other receivables / payables then the notional
amount is deemed to reflect the fair value.
The table above (and the comparative tables below) only show
those funeral plan assets and liabilities that are "financial
assets and liabilities". They don't include funeral plan assets
in respect of instalment plans that are shown within debtors.
The coverage of our funeral plan assets over plan liabilities
as at the last actuarial valuation is shown in the table as at
the end of this note and indicates we have headroom of over 12%.
7 July 2018 (unaudited) Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Assets
Financial assets at
fair value through
income or expense
- Funeral plan
investments - - 1,170 1,170
- Derivative financial
instruments - 31 - 31
- Insurance investments - 174 - 174
Financial assets at
fair value through
other comprehensive
income
- Insurance investments - 667 - 667
Total financial assets
held at fair value - 872 1,170 2,042
Liabilities
Financial liabilities
at fair value through
income or expense
- Fixed-rate sterling
Eurobond - 435 - 435
- First mortgage
debenture - 21 - 21
- Funeral plan
liabilities - - 1,406 1,406
Total financial liabilities
held at fair value - 456 1,406 1,862
5 January 2019 (audited) Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Assets
Financial assets at
fair value through
income or expense
- Funeral plan
investments - - 1,223 1,223
- Derivative financial
instruments - 27 - 27
Total financial assets
held at fair value - 27 1,223 1,250
Liabilities
Financial liabilities
at fair value through
income or expense
- Fixed-rate sterling
Eurobond - 411 - 411
- Funeral plan
liabilities - - 1,485 1,485
Total financial liabilities
held at fair value - 411 1,485 1,896
* All insurance investments have been transferred to held for
sale as at 5 January 2019 and 6 July 2019. See note 6 (Loss on
discontinued operations, net of tax) for details.
Notes to the interim financial statements continued
12 Financial instruments and fair values of financial assets
and financial liabilities continued
Basis of valuation of Level 2 financial assets and liabilities:
Derivatives - forward exchange contracts, such as the Group's
interest rate swaps, are either marked to market using listed
market prices or valued by discounting the contractual forward
price and deducting the current spot rate. For interest rate swaps,
broker quotes are used. Those quotes are back-tested using pricing
models or discounted cash flow techniques.
Insurance investments (fair value through income or expense) -
short term cash deposits and repo agreements are initially measured
at fair value, being purchase price on the date our Insurance
business (CISGIL) commits to the purchase. Directly attributable
transactions costs are expensed immediately on recognition.
Insurance investments (fair value through other comprehensive
income) - holdings in debt securities are initially measured at
fair value, being purchase price on the date which CISGIL commits
to purchase plus directly attributable transaction costs. Subsequent
valuation is at fair value (based on clean bid prices at the balance
sheet date without any deduction for transaction costs) with movements
recognised in other comprehensive income as they arise. An effective
interest rate for each holding is calculated on initial recognition
and subsequently recognised in the income statement over the lifetime
of the debt security. Where there is evidence of impairment, the
extent of any impairment loss is recognised in the income statement.
On disposal, gains or losses previously recognised in other comprehensive
income are transferred to the income statement.
Eurobonds and debenture - on inception these drawn-down loan commitments
were designated as financial liabilities at fair value through
the income statement. The Group adopted IFRS 9 from 7 January
2018 and subsequently only GBP285m of the original par value of
GBP450m 2020 notes and GBP105m of the original par value of GBP350m
2026 notes were designated as financial liabilities at fair value
through the income statement. Fair values are determined in whole
by using quoted market prices. The remaining Eurobonds are held
at amortised cost using an effective interest rate. In May 2019,
the Co-operative Group Limited completed a tender offer on the
2020 6.875% bond, purchasing GBP274m of the GBP285m principal
balance from bond holders.
Basis of valuation of Level 3 financial assets and liabilities:
Funeral plans - when a customer takes out a funeral plan the initial
plan value is recognised as an investment asset in the balance
sheet and at the same time an equal liability is also recorded
in the balance sheet representing the deferred income to be realised
on performance of the funeral service covered by each of the funeral
plans. The investments are held in insurance policies or cash-based
trusts and attract interest and bonus payments throughout the
year dependent upon market conditions. The plan investment is
a financial asset, which is recorded at fair value each period
through the income statement using valuations provided by the
insurance policy provider or reflecting the trust cash balances.
Under IFRS 15 any income or bonus payments attributable to the
plan assets are not treated as finance income (in the income statement)
as they do not reflect the completion of the performance obligation
to perform the funeral for the customer. Instead these balances
are held on the balance sheet as additional deferred income within
Contract liabilities until the delivery of the funeral when they
are recognised as revenue along with the original plan value.
Where there is no active market or the investments are unlisted,
the fair values are based on commonly-used valuation techniques.
An analysis of the movement and reconciliation between the opening
and closing balance is shown in the table below.
Funeral Plan Investments 6 July 2019 7 July 2018 5 January
(unaudited) (unaudited) 2019 (audited)
GBPm GBPm GBPm
At start of period 1,223 1,076 1,076
New plan purchases 66 99 126
Plans redeemed or cancelled (45) (69) (71)
Interest and bonus applied - 64 92
At end of
period 1,244 1,170 1,223
The Group holds investments on the balance sheet in respect of
funeral plan policies which are invested in either individual
whole of life policies, trusts or life assurance products. The
investments are subject to an annual actuarial valuation. The
most recent valuation was performed as at 30 September 2018 and
reported headroom on a wholesale basis of GBP120m (2017: GBP142m).
30 September 30 September
Actuarial Valuation (Unaudited) 2018 2017
GBPm GBPm
Total Assets 1,156 1,013
Liabilities:
Present value (wholesale
basis) 1,036 871
Total Liabilities 1,036 871
Headroom 120 142
Headroom as a % of liabilities 12% 16%
Notes to the interim financial statements continued
13 Membership and community reward
What does this show? This note shows the number of active members
that we have at the end of the period as well as the benefits
earned by those members for themselves and their communities
during the period. Active members are defined as those members
that have traded with one or more of our businesses within the
last 12 months.
6 July 2019 7 July 2018 5 January
(unaudited) (unaudited) 2019 (unaudited)
Members m m m
Active Members 4.6 4.6 4.6
Membership and community rewards
(within income statement) GBPm GBPm GBPm
Member reward (5%) earned 29 29 60
Community reward (1%)
earned 6 6 12
Total reward 35 35 72
Accounting policies and basis of preparation
What does this show? This section outlines the overall approach
to preparing the financial statements. This section also sets
out new accounting standards, amendments and interpretations
endorsed by the EU and their impact on the Group's financial
statements.
These condensed consolidated interim financial statements of
Co-operative Group Limited ('the Society') for the period ended 6
July 2019 ('the interim financial statements') include the Society
and its subsidiaries (together referred to as 'the Group') and the
Group's investments and joint ventures.
The audited consolidated financial statements ('the 2018 annual
report') of the Group for the year ended 5 January 2019 are
available upon request from the Society's registered office at 1
Angel Square, Manchester, M60 0AG.
The interim financial statements as at and for the 26 weeks
ended 6 July 2019 are unaudited and do not constitute statutory
accounts. They have been reviewed by the auditors and their report
is set out on page 27 of this statement.
Statement of compliance
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as endorsed and
adopted for use in the European Union, and the Disclosure and
Transparency Rules (DTR) of the Financial Services Authority. They
do not include all the statements required for full annual
financial statements and should be read in conjunction with the
2018 annual report.
The comparative figures for the financial year ended 5 January
2019 presented within these financial statements are not the
Society's statutory financial statements for that financial year.
Those financial statements have been reported on by the Society's
auditors. The report of the auditors was (i) unqualified, (ii) did
not include a reference to any matters in which the auditors drew
attention by way of emphasis without qualifying their report, and
(iii) contained no statement that the Society did not keep
appropriate accounting records.
These interim financial statements were approved by the Board of
Directors on 11 September 2019.
Accounting estimates and judgements
The preparation of the interim financial statements requires
management to make judgements, estimates and assumptions that
affect the application of accounting policies and the reported
amounts of assets, liabilities, income and expenses. Actual results
may differ from these estimates. Estimates and underlying
assumptions are reviewed on an on-going basis. Revisions to
accounting estimates are recognised in the period in which the
estimates are revised and in any future periods affected.
In preparing these interim financial statements, the significant
judgements and estimates made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were consistent with those that applied in the 2018 annual report
with the exception of the adoption of IFRS 16 (detail of judgements
within note (A) below).
New standards and accounting policies adopted by the Group
Except as described below, the accounting policies applied in
preparing these interim financial statements are consistent with
those described in the 2018 annual report.
(A) New standards:
The Group has adopted IFRS 16 (Leases) from 6 January 2019. A
number of other new standards are effective from 6 January 2019 but
they do not have a material effect on the Group's financial
statements as detailed further in note (B). This note explains the
impact of the adoption of IFRS 16 on the Group's financial
statements.
(i) The effect of the adoption of IFRS 16
IFRS 16 introduced a single, on-balance sheet accounting model
for lessees. As a result, the Group, as a lessee, has recognised
right-of-use assets representing its rights to use the underlying
assets and lease liabilities representing its obligation to make
lease payments.
The Group has applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial application
is recognised in retained earnings at 6 January 2019. Accordingly,
the comparative information presented for 2018 has not been
restated - i.e. it is presented, as previously reported, under IAS
17 and related interpretations.
Impact on the consolidated balance sheet (increase / (decrease))
as at 6 January 2019:
GBPm
Assets
Right-of-use assets 1,073
Property, plant and equipment (43)
Trade and other receivables 22
Deferred tax asset 47
Total assets 1,099
Equity
Retained earnings (237)
Total equity (237)
Liabilities
Lease liabilities 1,450
Trade and other payables (47)
Provisions (67)
Total liabilities 1,336
Impact on the consolidated income statement for the period ended
6 July 2019 with increases in costs shown as a negative figure and
a reduction in costs shown as a positive figure:
GBPm
Depreciation expense (included in operating
expenses) (51)
Rent expense (previously included in
operating expenses) 79
Underlying operating profit 28
Profit/loss on disposals 4
Operating profit 32
Finance costs (37)
Profit before tax (5)
Taxation (1)
Profit for the period (all attributable
to members of the society) (6)
IFRS 16 has no impact on the Group's cash and overall cash flows
however there is a change in the classification of cash flows in
the cash flow statement with lease payments previously categorised
as net cash used in operations, whereas these cash flows are now
split between a principal element and an interest element which are
categorised as financing activities.
Impact on the statement of cash flows (increase/(decrease)) for
the period ended 6 July 2019:
GBPm
Net cash flows from operating
activities 89
Net cash flows from financing
activities (89)
(ii) Nature of the effect of adoption of IFRS 16
The Group's leasing activities and how these are accounted
for
In previous reporting periods (including the 2018 financial
statements for the year end 5(th) January 2019), leases of
property, plant and equipment were classified as either finance or
operating leases. Payments made under operating leases (net of any
incentives received from the lessor) were charged to profit or loss
on a straight-line basis over the period of the lease.
From 6 January 2019, leases are recognised as a right-of-use
asset and a corresponding liability at the date at which the leased
asset is available for use by the Group. Each lease payment is
allocated between the liability and finance cost. The finance cost
is charged to profit or loss over the lease period so as to produce
a constant periodic rate of interest on the remaining balance of
the liability for each period. The right-of-use asset is
depreciated over the shorter of the asset's useful life and the
lease term on a straight-line basis.
Assets and liabilities arising from a lease are initially
measured on a present value basis. Lease liabilities include the
net present value of the following lease payments:
-- fixed payments less any lease incentives receivable
-- variable lease payment that are based on an index or a rate
-- payments of penalties for terminating the lease, if the lease
term reflects the lessee exercising that option.
The lease payments are discounted using the interest rate
implicit in the lease. If that rate cannot be determined, the
lessee's incremental borrowing rate is used, being the rate that
the lessee would have to pay to borrow the funds necessary to
obtain an asset of similar value in a similar economic environment
with similar terms and conditions.
Right-of-use assets are measured at cost comprising the
following:
-- the amount of the initial measurement of lease liability
-- any lease payments made at or before the commencement date
less any lease incentives received
-- any initial direct costs, and
-- restoration costs.
Under IFRS 16, right-of-use assets are tested for impairment in
accordance with IAS 36 impairment of assets. This replaces the
previous requirement to recognise a provision for onerous lease
contracts. However an onerous provision is still held on balance
sheet for onerous non-rental costs such as service charges on
leasehold properties, as these costs are outside of the scope of
IFRS 16. The impact of this is a reduction in the onerous lease
provision of GBP58m as at 6 January 2019.
Payments associated with short-term leases and leases of
low-value assets are recognised on a straight-line basis as an
expense in profit or loss. Short-term leases are leases with a
lease term of 12 months or less. Low-value assets comprise
IT-equipment and small items of office furniture.
Adjustments recognised on adoption - Lease liabilities
On adoption of IFRS 16, the Group recognised lease liabilities
in relation to leases which had previously been classified as
'operating leases' under the principles of IAS 17 Leases. These
liabilities were measured at the present value of the remaining
lease payments, discounted using the lessee's incremental borrowing
rate as of 6 January 2019. The weighted average lessee's
incremental borrowing rate applied to the lease liabilities on 6
January 2019 was 5.55%.
For leases previously classified as finance leases the entity
recognised the carrying amount of the lease asset and lease
liability immediately before transition as the carrying amount of
the right of use asset and the lease liability at the date of
initial application. The measurement principles of IFRS 16 are only
applied after that date.
GBPm
Operating lease commitments disclosed
as at 6 January 2019 2,160
Discounted using the lessee's incremental borrowing rate
of at the date of initial application 1,418
Add: finance lease liabilities recognised as at 6 January
2019 32
(Less): short-term leases recognised on a straight-line
basis as expense (4)
(Less): low-value leases recognised on a straight-line
basis as expense (3)
Add/(less): adjustments as a result of a different treatment
of extension and termination options 39
Lease liability recognised as
at 6 January 2019 1,482
Of which are:
Current lease liabilities 181
Non-current lease liabilities 1,301
The lease liability recognised as at 6 January 2019 of GBP1,482m
is comprised of the additional lease liabilities brought onto
the balance sheet on the adoption of IFRS 16 of GBP1,450m and
lease liabilities that existed on the balance sheet prior to
the adoption of IFRS 16 of GBP32m.
Adjustments recognised on adoption - Right-of-use assets
The associated right-of-use assets for property leases were
measured on a retrospective basis as if the new rules had always
been applied. Other right-of use assets were measured at the amount
equal to the lease liability, adjusted by the amount of any prepaid
or accrued lease payments relating to that lease recognised in the
balance sheet as at 5 January 2019.
The recognised right-of-use assets relate to the following
types of assets:
6 July 2019 6 January 2019
GBPm GBPm
Property 1,004 1,025
Plant & equipment 43 48
Total right-of-use assets 1,047 1,073
Adjustments recognised on adoption - practical expedients
applied
In applying IFRS 16 for the first time, the Group has used the
following practical expedients permitted by the standard:
-- the use of a single discount rate to a portfolio of leases
with reasonably similar characteristics
-- the accounting for operating leases with a remaining lease
term of less than 12 months as at 6 January 2019 as short-term
leases
-- the exclusion of initial direct costs for the measurement of
the right-of-use asset at the date of initial application, and
-- the use of hindsight in determining the lease term where the
contract contains options to extend or terminate the lease.
The Group has also elected not to reassess whether a contract
is, or contains a lease at the date of initial application.
Instead, for contracts entered into before the transition date the
Group relied on its assessment made applying IAS 17 and IFRIC 4
Determining whether an Arrangement contains a Lease.
Impact on lessor accounting
The Group subleases a number of properties. Under IFRS 16, an
intermediate lessor accounts for the head lease and the sublease as
two separate contracts. The intermediate lessor is required to
classify the sublease as a finance or operating lease by reference
to the right-of-use asset arising from the head lease (and not by
reference to the underlying asset as was the case prior to the
adoption of IFRS 16). Therefore, where the Group has subleased a
property for the remaining term of the head lease and on similar
terms to the head lease, the right-of-use asset is derecognised and
a finance lease receivable is recognised in its place.
The impact of IFRS 16 on the Groups subleases was the
recognition of a finance lease receivable of GBP69m on 6 January
2019. An allowance for lifetime expected credit losses has then
been recognised, as required by IFRS 9 which impairs the receivable
to GBP55m.
(iii) Summary of new accounting policies
Right-of-use assets
The Group recognises right-of-use assets at the commencement
date of the lease (i.e., the date the underlying asset is available
for use). Right-of-use assets are measured at cost, less any
accumulated depreciation and impairment losses, and adjusted for
any remeasurement of lease liabilities. The cost of right-of-use
assets includes the amount of lease liabilities recognised, initial
direct costs incurred, and lease payments made at or before the
commencement date less any lease incentives received. Unless the
Group is reasonably certain to obtain ownership of the leased asset
at the end of the lease term, the recognised right-of-use assets
are depreciated on a straight-line basis over the shorter of its
estimated useful life and the lease term. Right-of-use assets are
subject to impairment.
Lease liabilities
At the commencement date of the lease, the Group recognises
lease liabilities measured at the present value of lease payments
to be made over the lease term. The lease payments include fixed
payments (including in-substance fixed payments) less any lease
incentives receivable, variable lease payments that depend on an
index or a rate, and amounts expected to be paid under residual
value guarantees. The lease payments also include the exercise
price of a purchase option reasonably certain to be exercised by
the Group and payments of penalties for terminating a lease, if the
lease term reflects the Group exercising the option to terminate.
The variable lease payments that do not depend on an index or a
rate are recognised as expense in the period on which the event or
condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group
uses the incremental borrowing rate at the lease commencement date
if the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease
liabilities is increased to reflect the accretion of interest and
reduced for the lease payments made. In addition, the carrying
amount of lease liabilities is remeasured if there is a
modification, a change in the lease term, a change in the
in-substance fixed lease payments or a change in the assessment to
purchase the underlying asset.
Short-term leases and leases of low-value assets
The Group applies the short-term lease recognition exemption to
its short-term leases of machinery and equipment (i.e., those
leases that have a lease term of 12 months or less from the
commencement date and do not contain a purchase option). It also
applies the lease of low-value assets recognition exemption to
leases of office equipment that are considered of low value (i.e.
below GBP5,000). Lease payments on short-term leases and leases of
low-value assets are recognised as expense on a straight-line basis
over the lease term.
Significant judgement in determining the lease term of contracts
with renewal options
The Group determines the lease term as the non-cancellable term
of the lease, together with any periods covered by an option to
extend the lease if it is reasonably certain to be exercised, or
any periods covered by an option to terminate the lease, if it is
reasonably certain not to be exercised.
The Group has the option, under some of its leases to lease the
assets for additional terms of 5 to 10 years. The Group applies
judgement in evaluating whether it is reasonably certain to
exercise the option to renew. That is, it considers all relevant
factors that create an economic incentive for it to exercise the
renewal. After the commencement date, the Group reassesses the
lease term if there is a significant event or change in
circumstances that is within its control and affects its ability to
exercise (or not to exercise) the option to renew. The Group
included the renewal period as part of the lease term for leases of
property due to the significance of these assets to its
operations.
The changes in accounting policies noted above will be reflected
in the Group's consolidated financial statements (as at and) for
the year ending 4 January 2020.
(iv) Amounts recognised in the statement of financial position
and profit or loss
Set out below, are the carrying amounts of the Group's
right-of-use assets and lease liabilities and the movements during
the period:
Plant Property Total Lease liabilities
and equipment
GBPm GBPm GBPm GBPm
Finance leases previously
recognised 33 - 33 (32)
On adoption of IFRS 16 15 1,025 1,040 (1,450)
As at 6 January
2019 48 1,025 1,073 (1,482)
Additions 2 32 34 (35)
Disposals - (7) (7) 11
Depreciation
expense (5) (48) (53) -
Interest expense - - - (39)
Payments - - - 92
As at 6 July
2019 45 1,002 1,047 (1,453)
The Group recognised rent expense from short-term leases of
GBP3m for the period ended 6 July 2019.
(B) Other changes:
The comparative figures presented within these financial
statements for the financial year ended 5 January 2019 and the
interim period ended 7 July 2018 are consistent with the 2018
annual report and 2018 interim report respectively, with the
exception of the re-presentation noted below.
The results of our Insurance business were classified as a
discontinued operation in the 2018 Annual report with half-year
comparative figures re-presented for comparative purposes as shown
in the table below. The consolidated balance sheet has not been
re-presented as at 7 July 2018 as our Insurance business was not
classified as held for sale as a discontinued operation at that
point in time.
Half year comparatives:
Consolidated Income Statement for 26 weeks ended 7 July
2018:
GBPm Originally Transfer
reported to discontinued
operation
Continuing Operations Re-presented
Revenue 4,989 (160) 4,829
Operating expenses (4,985) 205 (4,780)
Other Income 36 (31) 5
Operating Profit 40 14 54
Finance income 33 - 33
Finance costs (47) 4 (43)
Profit before Tax 26 18 44
Tax (5) (4) (9)
Profit after Tax from continuing
operations 21 14 35
Discontinued Operations
Loss on discontinued operations,
net of tax - (14) (14)
Profit for the period 21 - 21
A number of other new standards are effective from 1 January
2019 but they do not have a material effect on the Group's
financial statements (see below).
New and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for reporting periods commencing after 6 January
2019:
-- IFRS 16 Leases;
-- IFRIC 23 Uncertainty over income tax treatments;
-- IFRS 9 (amendments) - Prepayment features with negative compensation;
-- IAS 28 (amendments) - Long-term interests in joint ventures;
-- IAS 19 (amendments) - Plan Amendments, curtailment or settlement;
-- Annual improvements to IFRSs 2015-2017 Cycle; amendments to
IFRS 3, IFRS 11, IAS 12 and IAS 23.
Standards, amendments and interpretations issued but not yet
effective
Details of those standards that may impact the Group's accounts
in future periods are given in the 2018 annual report. The adoption
of the following standards will or may have a material impact when
adopted. Management has undertaken an initial assessment of the
expected impact of applying the new standards on the Group's
financial statements and details are shown in the 2018 annual
report.
-- Amendments to references to conceptual framework in IFRS Standards; *
-- Definition of a Business (Amendments to IAS 1 and IAS 8);
-- IFRS 17 Insurance Contracts.**
* Effective 1 January 2020. ** Effective 1 January 2021.
Going concern
The Directors have considered the Group's business activities,
together with the factors likely to affect its future development,
performance and position (as set out in the Stronger Co-op section
on page 13 of the 2018 Annual Report). The Directors have also
assessed the financial risks facing the Group, its liquidity
position and available borrowing facilities. These are principally
described in note 20 in the 2018 Annual Report. In addition, notes
20 and 29 also include details of the Group's objectives, policies
and processes for managing its capital, its financial risk
management objectives and its financial instruments and hedging
activities.
In making their assessment the Directors have noted that the
consolidated group accounts show a net current liability position.
The Group meets its working capital requirements through a number
of separate funding arrangements, as set out in detail in note 29
of the 2018 Annual Report, certain of which are provided subject to
continued compliance with certain covenants (Debt Covenants).
Profitability and cash flow forecasts for the Group, prepared for
the period to September 2020 (the forecast period), and adjusted
for sensitivities considered by the Board to be reasonably possible
in relation to both trading performance and cash flow requirements,
indicate that the Group will have sufficient resources available
within its current funding arrangements to meet its working capital
needs, and to meet its obligations as they fall due.
After making all appropriate enquiries, the Directors have a
reasonable expectation that the Society and the Group have access
to adequate resources to enable them to continue in operational
existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the Group's
financial statements.
Jargon buster (unaudited)
There are lots of technical words in our accounts which we have
to use for legal and accounting reasons. We've set out some
definitions below to help you understand some of the difficult
phrases accountants like to use. There is also a "What does this
show?" introduction to every note to the accounts describing in
simple terms what the note is trying to show. When a word is in
bold in the table below that means you can also find the definition
of that word in this table.
Amortisation Similar to depreciation, but for intangible
assets.
Amortised cost We value some of our debt based on its amortised
cost. This is the present value of the expected
future cash flows in relation to the debt.
Asset This is an amount on our balance sheet where
we expect to get some sort of benefit in
the future. It could be a building we use
or are planning to sell, some cash or the
amount of money a customer owes us.
Assets held for sale Sometimes we have to sell things. When we've
decided to make a large disposal before
the end of the period but the asset hasn't
been sold yet, we have to show it in this
line on the balance sheet and reduce its
value (impairment) if necessary.
Associate When we have significant influence over
a company (usually by owning 20-50% of a
company's shares and/or having a seat on
its Board), we call that company an associate.
Balance sheet This shows our financial position - what
assets we have and the amounts we owe (liabilities).
Capital expenditure When we spend money on items that will become
assets (such as property or IT systems)
this is shown as capital expenditure. The
costs are not shown in the income statement
of the year it's spent - instead the costs
are spread over the life of the asset by
depreciation or amortisation.
Cash flow statement This shows how much cash has come in during
the period and how we've spent it.
CISGIL This is the society that deals with our
insurance business - CIS General Insurance
Limited.
Commitments Where we've committed to spend money on
something (such as building projects) but
we're not technically liable to pay for
it, we don't put the amount on the balance
sheet but we disclose the amount in the
commitments note.
Comprehensive income This is our profit for the period plus other
comprehensive income.
Consolidated As this report is based on the financial
performance and position of many societies
and companies around the Group, we have
to add up all those entities and the total
is the consolidated position.
Contingent asset This is an amount that we might get in the
future. Unless it's almost certain that
we'll get the amount, we're not allowed
to put it on the balance sheet but we show
the amount in the contingent assets and
liabilities note.
Contingent liability This is an amount that we might have to
pay in the future. If it's only possible,
rather than probable, that we'll have to
pay the amount, then we won't show the amount
on the balance sheet but we show the amount
in the contingent assets and liabilities
note.
Contract assets These are costs we've incurred in advance
of being entitled to receive payment from
a customer under a contract, such as costs
incurred in setting up a funeral plan.
We hold these on the balance sheet until
we've delivered all the services to our
customer and are entitled to receive payment.
Contract liabilities This is where a customer has paid us in
advance of them receiving goods or services
under a contract (for example, a funeral
plan). We have to hold this on the balance
sheet until the customer receives the service
they've paid for.
Corporate investor This is money that other societies invest
shares with us and we pay them interest on it.
The societies can get their money back
at any time.
Credit This is an increase in income/reduction
in costs on the income statement or an
increase in a liability/reduction in an
asset on the balance sheet.
Current An asset or liability that is expected
to last for less than a year.
Debenture This is a type of loan that we've issued
and are paying interest on.
Debit This is a decrease in income/increase in
costs on the income statement or a decrease
in a liability/increase in an asset on
the balance sheet.
Debt Loans that we've issued and are paying
interest on.
Debt security This is a type of investment held by our
Insurance business and is a form of loaning
money to another organisation.
Deferred acquisition These are amounts which our insurance business
costs pays to secure business. It then holds
these costs on the balance sheet and amortises
over the length of the insurance period.
Deferred consideration This is an amount we'll be paying to a
seller for businesses we've bought or an
amount we'll be getting from a buyer for
businesses that we've sold.
Deferred tax Sometimes our assets and liabilities are
worth more or less on our balance sheet
than they are for tax purposes. The tax
on the difference in value is called deferred
tax and can be an asset or liability depending
on whether the value is greater in the
balance sheet or for tax purposes.
Defined benefit schemes This is a pension scheme where an amount
is paid out to an employee based on the
number of years worked and salary earned.
Defined contribution This is a pension scheme where an amount
schemes is paid into the scheme and at retirement
the employee draws on the amount that has
been invested over the years.
Deposits with credit When customers pay us premiums, we put
institutions the money in high-quality corporate bonds
so that if an insurance policy needs to
pay out, we have the money there. Deposits
with credit institutions are the amounts
we've invested in these corporate bonds.
Depreciation There are some assets that the Co-op will
have for a while (such as vehicles). When
we buy them, the cost goes on our balance
sheet and then depreciation spreads the
cost of the asset evenly over the years
we expect to use them in the income statement.
Derivatives These are financial products where the
value goes up or down based on an underlying
asset such as currency, a commodity or
interest rate.
Discount rate This is the amount that we are discounting
by. It's a percentage and varies based
on what we expect interest rates or inflation
to be in the future.
Discount unwind Every year the amount that we're discounting
is going to be worth more as we get nearer
to paying or receiving it. We have to put
that increase in value (the discount unwind)
through our income statement.
Discounting When we have to pay or receive cash in
the future, accountants like to take off
part of the amount if it's a big amount
(like on our onerous leases). This is because
cash we pay or receive in the future is
going to be worth less than it is now -
mainly because of inflation.
Disposals When we have sold an asset.
Effective tax rate This is the average tax rate we pay on
our profits. This might be different to
the standard corporation tax rate, for
example, if we aren't allowed to deduct
some of our costs for tax purposes. In
our interim financial statements, we use
an estimate of this average tax rate for
the full year based on our business forecasts.
Equity This is the difference between the assets
we own and the liabilities we owe - theoretically,
this is how much money would be left for
our members once every asset is sold and
every liability is paid.
Eurobond Notes This is our largest, fixed interest debt
that we pay interest on to fund our businesses'
operations.
Fair value movement There are some things on our balance sheet
which we have to revalue every year. This
includes some of our debt, investment properties
and our pension schemes. The change in
value is called fair value movement.
Finance costs These are usually the interest we pay on
our debt, but can also be other things
such as the fair value movement on our
debt or the discount unwind of liabilities.
Financial instruments A collective term for debt or derivatives
that we have.
Financial Services This is a group of companies within the
Group that provide financial products such
as insurance.
First Mortgage Debenture This is a small debt we owe that is secured
Stock against some properties - a bit like a
mortgage.
Funeral plans A member may not want his or her family
to pay a large single sum for a funeral
when he or she dies. Therefore, the member
can pay for it gradually or in lump sums
over a number of years and the Group will
invest that money.
Funeral plan investments When a customer gives us money for their
funeral in the future, we invest this money.
The balance of these investments is held
on the balance sheet.
Goodwill When we buy a business or a group of assets,
sometimes we pay more for it than what
its assets less liabilities are worth.
This additional amount we pay is called
goodwill and we put it on our balance sheet.
(the) Group This is Co-operative Group Limited and
all companies and societies that it owns.
IAS International Accounting Standards. The
Group use these as the accounting rules.
There are many different IASs that cover
various accounting topics (e.g. IAS 38
is for intangible assets)
IFRIC International Financial Reporting Interpretations
Committee. These are interpretations of
IASs or IFRSs that the Group also has to
abide by.
IFRS International Financial Reporting Standards.
Similar to IAS, but cover different subjects.
Impairment Sometimes our assets fall in value. If
a store, branch, business or investment
is not doing as well, we have to revalue
it and put the downward change in value
as a cost in our income statement.
Income statement This not only shows our income as the name
suggests, but also what our costs are and
how much profit we've made in the period.
Intangible asset We have assets at the Co-op that we can't
see or touch which are shown separately
to other assets. These include things like
computer software and goodwill.
Interest rate swaps We like to know what interest we're going
to be paying in the future so we can manage
our businesses effectively. We enter into
arrangements with banks so that we can
do this - for example, if we have debt
where the interest rate can vary, we can
buy an interest rate swap which means that
instead we'll pay a fixed rate of interest.
The value of these swaps can go up or down
depending on how the market expects interest
rates to change in the future.
Inventories This represents what goods we're trying
to sell. The cost of this is shown on our
balance sheet.
Investment properties Properties that we don't trade out of,
and which we might rent out or hold onto
because the value might increase, are called
investment properties.
Invoice discounting Invoice discounting is an arrangement with
facility a finance company so that we can be paid
for amounts we are owed on invoices earlier
than the date our customers are due to
pay us.
Joint ventures A joint venture is a company where we own
exactly 50%.
Liability This is an amount on our balance sheet
which we'll have to pay out in the future.
Like-for-like sales Comparison of sales between two periods
of time (for example, this year to last
year), removing the impact of any store
openings or closures.
Listed debt securities People can trade some of our debt such
as the Eurobonds. When this is the case,
it's a listed debt security.
Member rewards These are the benefits that members have
earned for themselves during the period
as part of the 5% membership offer.
Net assets Same as equity.
Net debt This is the debt we have less any cash
that we might have.
Non-current An asset or liability that is expected
to last for more than one year.
Non-GAAP measure GAAP stands for Generally Accepted Accounting
Principles. This is the common set of accounting
principles, standards and procedures that
companies must follow. Sometimes, companies
want to provide different measures to help
readers understand their accounts (such
as underlying profit) where there isn't
a standard definition - these measures
are called non-GAAP measures.
One-off items Items that are not regular in size or nature
and would otherwise cloud the underlying
profitability of the Group are stripped
out. This could include a large IT project
or a large restructuring exercise.
Onerous leases When we close a store which we pay rent
on, sometimes we still have to pay rent
until the lease runs out. When this happens,
we make a provision for the amount of the
rental payments we will have to pay in
future and hold this on the balance sheet
until we finish the rent payments.
Operating profit This is our profit before we have to pay
any interest to our lenders or tax to the
tax authorities.
Operating segments This is an accounting term for the different
businesses we have. When the financial
performance of one of our businesses is
reviewed separately from the other businesses
by our Board, we call that business an
operating segment and its sales and profit
are disclosed in note 1.
Other comprehensive Sometimes we have big fair value movements
income on long term assets and liabilities. The
income statement is meant to show the performance
during the period, so to avoid this being
distorted by these big changes, they are
shown separately as other comprehensive
income.
Payables Another name for liabilities.
Present value This is the value of a future cost or income
in today's money and is arrived at by discounting.
Provisions This is a liability, but one where we're
unsure what the final amount we have to
pay will be. We use our best estimate of
the costs and hold that on the balance
sheet.
Receivables When someone owes us some money, we hold
that amount as a receivable on our balance
sheet.
Reclaim Fund This is an entity we own that helps money
in dormant bank accounts be used for charitable
purposes.
Reinsurance contracts When we sell an insurance policy, we might
want to resell that policy to another insurance
company so that we can manage the level
of risk we face in case a major claim comes
in. When we're owed money from the other
insurer then this is shown as an asset
and if we have reinsured for another insurer
we would show a liability.
Related party This is a company or person that is closely
linked to the Co-op. It's usually a member
of our Board or Executive or their close
family plus companies such as our associates
and joint ventures.
Remeasurement gains There are lots of assumptions that are
/ losses on employee used when valuing pensions. If those assumptions
pension schemes change this can have a big effect on the
size of the pension asset or liability.
So that we don't distort the income statement,
this effect is shown in other comprehensive
income.
Repayment notes This is a type of loan, which we repay
either in instalments or in a lump sum
at the end of the loan.
Repo agreements This is a type of short-term investment
used by our Insurance business.
Reserves This is the amount of equity we have, but
excluding any share capital.
Restated Sometimes we change the numbers that we
showed in last year's accounts. This might
be because we have changed where or how
we record certain things or it could be
that we have corrected an error. There
are strict rules around what can be changed
and when we make changes we explain why
in the accounting policies.
Retained earnings This is all the profits we've made since
the beginning of time for the Co-op that
have not yet been paid out to members.
Retirement benefit Another term for our pension liabilities.
obligations
Revaluation reserve When we revalue a property upwards, we're
not allowed to put this unrealised gain
through our income statement or within
retained earnings as law dictates that
this can't be distributed to members until
the property is sold. It's then ringfenced
as a specific reserve.
Share capital This is the amount of money that our members
have paid us to become members less any
amounts that we've repaid to them when
they cancel their membership.
Subsidiary This is a company or society that is owned
by another company.
Supplier income Sometimes our agreements with suppliers
mean they will give us money back based
on the amount of their products we buy
and sell. We call this supplier income.
Trading Group This is the Group less any Financial Services
companies.
Underlying profit This is an alternative measure of the trading
performance of the Group which excludes
one-off items or large gains or losses
we might have made on selling assets.
Unrealised gains An asset may have gone up in value, but
we've not sold it. If this is the case,
the profit from the gain is unrealised
as we've not sold the asset yet.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR SFLFAFFUSESU
(END) Dow Jones Newswires
September 12, 2019 02:00 ET (06:00 GMT)
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