TIDM42TF
RNS Number : 0664B
Co-operative Group Limited
29 September 2022
Co-operative Group Limited
News release
29(th) September 2022
Interim Results Announcemen t: 26 weeks to 2 July 2022.
Co-op acts to strengthen balance sheet and support members
during cost of living crisis
- Decisive management action taken to reduce operational costs,
improve operational performance and prioritise capital
expenditure.
- Reduced net debt position from year end through improved
cashflow; sale of non-core petrol forecourt business (due in H2)
set to reduce debt significantly further.
- Continued vision commitments sees Co-op support its
colleagues, members and communities in light of the cost-of-living
crisis.
Financial & Business Development Highlights
-- In very challenging markets delivered a robust sales
performance, with revenues broadly flat versus H1 2021. Co-op Food
has revived its market share to 6.5% (Kantar) and was the fastest
growing retailer during the hot weather (NielsenIQ).
-- A clear focus on cost reduction has helped offset some of the
material external cost headwinds impacting the Group. Energy and
wage inflation increased costs by around GBP50m versus H1 2021
before mitigating cost savings, and rates holidays in H1 2021
create a further GBP20m adverse variance.
-- In year cost saving targets of circa GBP100m are helping to
partially mitigate these headwinds, rising to GBP150m in 2023 as
these savings annualise.
-- Strong cash flow management has generated a significant
improvement in cash generation, with GBP189m reduction in net debt
versus GBP162m increase in net debt over same period last year.
-- The sale of our non-core petrol forecourt estate (completion
due H2) will further reduce debt and allow headroom to reinvest in
our core convenience business.
-- Financial Conduct Authority (FCA) approval met to achieve
regulated status for funeral plan sales - the strength and heritage
of our brand puts us in a strong position for future growth.
Financial Highlights
H1 2022 in brief
o Revenue: GBP5.6bn
Flat compared with H1 2021 (GBP5.6bn)
o Underlying operating profit: GBP18m
Down GBP33m on H1 2021 (GBP51m)
o Group profit before tax: GBP7m
Down GBP37m on H1 2021 (GBP44m)
o Underlying EBITDA: GBP218m
Down GBP30m (H1 2021: GBP248m)
o Net cash from operating activities: GBP315m
Improves by GBP153m (H1 2021: GBP162m)
o Reduction in net debt: GBP189m
Compares to an increase in net debt of GBP162m H1 2021. A
GBP351m favourable swing versus last year. Net debt down to GBP731m
versus GBP920m last year end.
Cost of Living & Vision Commitments
-- Colleagues
o Improvements to the pay of 41,000 front line colleagues of up
to 5.3%, for all ages, including apprentices. This is in addition
to :-
-- Paid breaks and up to 10% pension contributions as well as up
to 31 days holiday.
-- A 20% food discount provided to colleagues.
-- Members and Customers
o GBP37m price investment starting this month to lower price of
120 key products with costs to be held into the New Year.
o Co-op members earned and redeemed GBP8.7m in personal rewards
by shopping with Co-op.
o GBP50 shopping bonus to members who purchase new or renew
motor insurance policies.
o Affordable digital Lasting Power of Attorney service launched
by Co-op Legal Services.
-- Community
o Over GBP14m pledged by 42 businesses towards Co-op Levy Share
targets, supporting more than 1,000 apprenticeships.
o Vital support for farmers with GBP19m in extra funding for UK
pig farmers.
o More than 4,500 local causes supported by Local Community Fund
in H1, sharing GBP1.5m.
-- Sustainability and the environment
o Co-op awarded prestigious Queen's Award for Enterprise for
Sustainable Development.
o Caboodle launched - a major not-for-profit platform to tackle
food waste, connecting all Co-op's store, other supermarkets, cafes
and restaurants with community groups and volunteers.
o Industry-first move to replace on-pack 'use by' guidance with
'best before' dates on own-brand yoghurts and 'freeze me' message
to own brand milk.
o Continued rollout of electric hearses, as the fleet moves away
from fossil fuels.
Shirine Khoury-Haq, Chief Executive of the Co-op, said:
"Against a highly challenging economic backdrop, we have made
significant progress in strengthening our balance sheet, whilst
continuing to support the needs of our colleagues, members,
customers and the communities in which we operate. Our clear focus
on developing our businesses, whilst controlling costs, improving
our cash-position and reducing debt is paying dividends.
"Looking ahead, while we are mindful of the continued economic
challenges, we have great confidence in the underlying strength of
the Co-op and all our businesses. Having faced into some tough
decisions in the first half, focused on cutting costs and improving
efficiency, we ended the period stronger both operationally and
financially.
"Since then, we have progressed further with the planned sale of
our non-core petrol forecourts business. This will strengthen us
more and provide the means to invest in our core businesses, whilst
enabling us to support our members, customers, colleagues and
communities through the cost-of-living crisis."
"I'd like to thank every single one of our colleagues for their
leadership in delivering our results and vision this year."
Allan Leighton, Chair of the Co-op, said:
"The first six months of the year have been a time of challenge
for us - as they have been for all businesses. I was delighted that
we were able to confirm Shirine Khoury-Haq as our permanent CEO
during this period. Her energy to move decisively on improving our
financial position, focusing on core business development, whilst
still delivering on our vision commitments, is helping us move
forwards with pace and purpose.
"We know that the current testing conditions will not ease in
the second half, and we will continue to face into the challenges,
by remaining focused and by building upon our incredible
co-operative heritage. I would like to thank all our colleagues for
their hard work and dedication in these extraordinary times."
Business Unit Performance & Highlights
Food
-- Continued to outperform our competitors in the UK convenience
sector and to invest in our business, including with the opening of
a new regional distribution centre.
-- Co-op's grocery sales grew period-on-period throughout H1
2022 driven by an increase in the shopping frequency - 16 million
shoppers use Co-op stores each week.
-- Overall revenue increased 1% year-on-year to GBP3.91bn while
underlying operating profits of GBP41m were down versus H1 2021
(GBP68m) due to inflationary pressures which have increased the
cost to deliver our proposition to customers and hit its highest
level of 8.3% in June 2022 since 2009.
-- Improvements in food availability seen throughout Q2, returning to pre-pandemic levels.
-- Our Wholesale business generated a solid sales performance of
GBP0.7 billion against challenging economic headwinds impacting all
retailers. Underlying profit was up to GBP4 million recognising the
shared benefits that can be passed through to Nisa customers with
consistent availability and a strong product range and offer.
Funeralcare
-- Growth in market share in H1 2022, but revenue fell by GBP3m
(H1 2022: GBP139m, H1 2021 GBP142m), driven by falling mortality
rates post-pandemic.
-- Rising energy costs and industry regulatory changes saw
underlying operating profit decline by GBP6m (H1 2022: GBP11m, H1
2021: GBP17m)
-- Achieved regulated status as a funeral plan provider from the FCA.
Insurance
-- Performed in line with forecast, with reduced revenue planned
to bed in new Markerstudy distribution business model and ways of
working (Insurance income H1 2022: GBP11m; H1 2021: GBP18m.)
-- Strong pet insurance sales following new product launch,
including cover for rescue dogs and cats.
-- New van insurance product to deliver further choice and value to its members and customers.
-- New 'equity release' later life mortgage options to
homeowners over the age of 55 launched in partnership with Legal
& General.
Legal
-- Revenue up more than 10% at GBP22m, driven by continued
growth of our market-leading probate business and an expansion of
our digital capabilities.
-- Growing digital presence with half of all clients using online tools to seek support.
-- Over 100 new colleagues, including apprentices, recruited to handle increased case volumes.
Outlook
-- Looking ahead, Co-op expects to face continued challenges
during the year, given the persistent inflationary pressures, which
is likely to prolong economic uncertainty amongst consumers and
businesses alike.
-- We are, however, due to the management actions taken in H1
better equipped to weather the effects of these immediate
pressures, whilst equally confident in our underlying business
strength and longer-term prospects.
-- Post half year, Co-op has agreed the sales of its non-core
petrol forecourt business for an enterprise value of GBP600m.
Proceeds will be used to reinvest into core businesses, price for
consumers and reduce net debt. Post completion of the deal,
expected in Q4 2022, it is anticipated that debt will fall to
approximately 1 x EBITDA.
-- The Board remains confident in the strategy, with a focus on
driving growth through our established routes to market,
maintaining financial discipline and continuing to deliver against
our vision of co-operating for a fairer world.
Media Enquiries:
Co-op
Russ Brady, 07880 784442, russ.brady@coop.co.uk
Cat Turner, 07834 090783, catherine.turner@coop.co.uk
Craig Noonan, 07702 505439, craig.noonan@coop.co.uk
Headland
Susanna Voyle, 07980 894557, svoyle@headlandconsultancy.com
About the Co-op:
Co-op is one of the world's largest consumer co-operatives with
interests across food, funerals, insurance and legal services.
Owned by millions of UK consumers, the Co-op operates over 2,500
food stores, over 800 funeral homes and provides products to over
5,000 other stores, including those run by independent co-operative
societies and through its wholesale business, Nisa Retail
Limited.
Employing almost 60,000 people, the Co-op has an annual turnover
of over GBP11billion and is a recognised leader for its social
goals and community-led programmes. The Co-op exists to meet
members' needs and stand up for the things they believe in.
Co-operating for a Fairer World
H1 2022 in brief
o GBP5.6bn
Revenue flat compared with H1 2021 (GBP5.6bn)
o GBP18m
Underlying operating profit, down GBP33m on H1 2021
(GBP51m*)
o GBP7m
Group profit before tax down GBP37m on H1 2021 (GBP44m**)
o GBP218m
Underlying EBITDA down GBP30m (H1 2021: GBP248m)
o GBP315m
Net cash from operating activities improves by GBP153m (H1 2021:
GBP162m)
o Group net debt down to GBP731m from GBP920m at 2021 year
end
Represents a GBP189m improvement/reduction (H1 2021: debt
increased by GBP162m). Net debt set to reduce further in H2 2022,
following the sale of petrol forecourt sites
* H1 2021 included the benefit of GBP20m of Government
assistance through rates relief in relation to the pandemic.
** H1 2021 included the benefit of a one-off gain of GBP99m
following the early settlement of a long term liability.
-- More than 4,500 local causes supported by Local Community
Fund in H1, with GBP16m earned by members for themselves and their
communities.
-- By the end of H1, more than 42 businesses had pledged over
GBP14m towards Co-op Levy Share targets, which will support more
than 1,000 apprentices
-- Just under GBP5.4 million accessed by colleagues through
Wagestream, at times where they really needed it
-- Caboodle launched - a major not-for-profit platform to tackle
food waste, connecting supermarkets, cafes and restaurants with
community groups and volunteers
-- Queen's Award for Enterprise and Sustainable Development
achieved, in recognition of Co-op's impact across carbon emissions,
recycling and sustainable pension investment
CHAIR'S INTRODUCTION
Our Co-op has been in existence for almost 180 years and
throughout that time we have had to face into many large-scale
challenges, impacting the lives of our colleagues, our members and
our other key stakeholders. Our ability to address these challenges
and to come out the other side, stronger and more resilient is why
we are well trusted and well recognised in the UK, as our market
research confirms. It is also the reason why our Co-op's business
model is so important globally, at times of need and heightened
pressure.
We are not immune, of course, to the stark realities surrounding
all consumer-facing businesses; in particular the spectre of
double-digit inflation, which is being directly fuelled by the
devastating and tragic war in Ukraine.
We must be capable of reacting to this so that our Co-op remains
financially strong and relevant for our colleagues, members and
customers. This will ensure that the value we generate can also
extend wider into supporting local communities and delivering our
Vision.
It is also vital during periods of change that we retain strong
leadership within our Co-op. In March, we announced that Shirine
Khoury-Haq was to be our Interim Group CEO and, in August, I was
delighted to announce her as our permanent CEO, but also our first
female Chief Exec. Shirine has made an immediate impact with both
the Board and the wider business in her new role, and we value the
insight she offers from her diverse background. Her energy to move
decisively on things, whilst staying true to her own values and
those of our Co-op, is infectious and is already seeing us move
forwards in a highly positive and progressive way. It was a real
testament to her integrity and passion to see her recognised in
EMPower's list of Top 100 Executives this year, as a leading
advocate for diversity and inclusion for people of colour within
global business.
Shirine articulated three immediate priorities for the business,
which she will talk about in more detail within her own section of
this report. One of these was to significantly reduce our
operational cost base and to refocus our capital expenditure more
acutely into areas that will generate clear top and bottom line
benefit. Over the past few years, whilst we've made clear strides
forward in so many areas, we haven't faced into our cost base as
forcibly as we've needed to.
Shirine and her management team have taken the steps necessary
to reduce our central overheads, refocus our capital expenditure
and embed a more sustainable cost-conscious environment.
This has meant taking tough but necessary decisions to help
secure the long term financial security of our Co-op. Whilst some
role reductions in our support areas have occurred, the wellbeing
of and support for our colleagues have continued to be of primary
importance.
This interim report will illustrate that we are now taking the
measures necessary to ensure we have a co-operative capable of
winning in our chosen markets, which is operating efficiently and
effectively within the parameters set by the Board, and still
delivers upon our Vision.
Our democracy remains fundamental in ensuring we remain true to
our founding Values and Principles. In May, we were delighted to be
able to welcome members to our AGM in person for the first time
since 2019, while we also streamed proceedings online, making the
most of both worlds to engage as many members as possible. Motions
were passed on member participation, climate change and inequality,
reflecting our unique, better way of doing business and supporting
our Vision of 'Co-operating for a Fairer World'.
It has also been wonderful to return to in-person meetings of
our Members' Council and Board. I was particularly pleased to be
able to meet the Council members who have joined since Covid
face-to-face for the first time. It has been inspiring to see our
new members engaging with such energy and enthusiasm alongside our
more long standing Council members, performing their critical role
in our governance and democracy.
We have also continued to consider our role in the wider
co-operative movement, working with Co-operatives UK and other
co-operative bodies and societies. Together, we have driven a
progressive and forward-looking co-operative movement that can play
a vital role for members and communities as we face into economic
uncertainty and the cost of living crisis alongside each other.
And, of course, we couldn't fulfil this role for our own members
without the dedication, hard work and commitment of our 59,000
leaders and colleagues. Each day, despite the challenges the
current climate brings them personally, they continue to show up as
their best selves and ensure that our Co-op is delivering great
products and services, as well as its Vision. My heartfelt thanks
and gratitude goes out to each and every one of them.
Finally, looking forward, we are clear on our short-term
priorities as we face into the eye of an external storm. We have
great confidence in the fundamental underlying strengths of our
business - our members, our colleagues, our core businesses in Food
and Life Services, our differentiated business model and our Vision
of 'Co-operating for a Fairer World'. Together we will come through
this challenging period and our Co-op will continue to deliver for
our members, their communities and the planet.
Allan Leighton
Chair, The Co-op Group
CHIEF EXECUTIVE'S REPORT
This is my first interim report as CEO, and I must start by
saying how delighted I am to be given the opportunity to lead our
Co-op.
It's a privilege for me to introduce this report, which
represents the amazing efforts of all 59,000 of my colleagues. I
want to thank them for everything we've achieved so far this
year.
We have faced, and we will continue to face challenges. I am
confident about the long term future of our organisation. This
confidence is fuelled by the underlying strength of our portfolio
of businesses, the power of our Vision, the talent we possess
across our Co-op and our willingness to prioritise, make tough but
necessary decisions and create resilience in volatile times.
And all these strengths, together with our Vision, 'Co-operating
for a Fairer World', are allowing us to continue to make a real and
tangible difference for our members, colleagues, communities and
the planet.
Our Co-op wouldn't exist without our members, including our
Members' Council and Member Pioneers, all of whom co-operate daily
alongside us, contributing to the success of our businesses and our
ability to deliver our Vision. My thanks and gratitude go to them
all.
We have so much to be proud of together in the first half of
2022. However, as you'll see from this report, the challenges that
are affecting the global economy, our members, colleagues and
communities also impacted our businesses.
While 2021 provided us with some unexpected headwinds, the first
six months of this year have proven to be even more challenging. We
began 2022 continuing to recover from the effects of the pandemic
while facing further economic uncertainty, as well as global
availability challenges. This was exacerbated by the war in Ukraine
and an inflationary cost of living crisis facing members,
customers, clients, colleagues and those communities and causes
that rely on us for support.
The rising cost of commodities, such as food, fuel and energy,
has created a more difficult business environment now than at the
beginning of 2021.
There's no doubt that a unique set of circumstances contributed
to our performance in the first six months of this year. Our
revenue remained stable at GBP5.6bn compared to the same period in
2021. However, economic headwinds and the increased cost to serve
members and customers have affected our performance, and our
EBITDA, operating profit, and profit before tax are all down in
comparison to the same period last year.
This has meant that we have had to make difficult decisions in
managing our Co-op, including reducing our cost base and some
planned investment. It has also meant that we have focused clearly
on cash generation and reducing our net debt, which we did, and by
over 20%, down to GBP731m from GBP920m at the end of H2 2021.
Our new Interim Chief Financial Officer Mike Hazell will go into
this in more detail as part of his Financial Overview.
To continue to achieve the commercial sustainability that allows
us to deliver our Vision, we must have a common understanding of
the issues and our operating environment, we must have clear goals,
we must act and make decisions well, but also at pace, we must do
fewer things, and do them better, and as one Co-op. This has
resulted in very different ways of working in our Co-op and is a
significant step toward a change in our culture. I am very grateful
to every one of my colleagues across all of our businesses for
embracing and leading these efforts so enthusiastically - and for
giving me their honest feedback along the way.
This unified approach is delivering results, as we saw some
wonderful innovation and commercial headway made in H1 across all
our businesses.
Our strategic priorities have remained tightly focused on three
main areas.
1. Ensuring our businesses continue to deliver to our customers'
and members' expectations in the current climate, and outperform
within their respective markets
This has included addressing availability challenges and
stabilising the performance of SAP in Food while delivering the
ethical, quality products our customers and members expect from us.
In January we opened our brand new Biggleswade depot - our largest
regional distribution centre, servicing our Food business.
And in Life Services we've been continuing to strengthen our
propositions by preparing our funeral plans business to achieve FCA
regulated status and developing our services, digital propositions,
partnerships and new products in Legal Services and Insurance.
2. Improving operational efficiency
We have continued to take steps to create a more cost-effective,
efficient and financially sustainable Co-op. At times, this has
meant taking the difficult decisions necessary to improve our cash
management and reduce our operating and capital expenditure, which
combined has helped see the marked improvement in our net debt
position from year end, which I referred to earlier.
Part of this work has also included proposals to restructure our
support centre team and field-based teams in H2, which has been
such an incredibly difficult step to take. We've worked hard to
support those affected by these decisions - support for the
wellbeing of all our colleagues will remain our top priority this
year.
3. Delivering our Vision - 'Co-operating for a Fairer World'
Everything we do supports the continued delivery of our Vision
for the benefit of our colleagues, members, communities and the
planet. As this report will show, we continued to deliver 'value
with Values' and stepped up to the role our Co-op has to play.
-- At our May AGM, we shared that our Food business was
trialling 'Caboodle' - a platform founded by Co-op and Microsoft,
with support from BJSS and Team ITG. It allows supermarkets, cafés
and restaurants to connect with community groups and volunteers, to
redistribute surplus food. By the end of June, we had successfully
completed a trial in 100 Food stores, which supported over 50
community groups, in preparation for sharing Caboodle with all
Co-op Food stores, allowing us to schedule thousands of surplus
food collections each month into early H2.
-- Our Legal Services business introduced new apprenticeships,
saving our first intake of candidates thousands in university
tuition fees, as part of their journey to becoming a solicitor.
-- Our Funeralcare business has trialled a series of new,
sustainable initiatives, which includes planting a tree for certain
funerals arranged.
-- Together, we were honoured to receive the Queen's Award for
Enterprise for Sustainable Development in April, in acknowledgement
of everything our Co-op does to be fairer for our planet.
-- We're also delighted that through the power of our
colleagues, members, customers and communities working together,
our fundraising efforts for our charity partners Mind, Inspire and
SAMH made incredible progress towards achieving our GBP8m target in
H2.
-- Our apprentices, of all ages, go from strength-to-strength
and it's fantastic to see them rating their experiences with our
Co-op during H1. We had more than 560 in situ within our Co-op by
the end of H2 2022. Their words and our efforts combined saw us
acknowledged within the National Apprentice Service Top 100
Employers in June.
-- We continue to make our Co-op a more diverse and inclusive
place to work. Using colleague data, we've been able to produce our
first ethnicity pay gap report, highlighting not only the
differences in average pay, but what we need to do in order to
address disparity. We've also updated how we collect diversity data
using colleague feedback and best practice.
More detail on all our businesses is available further on in
this report. We'll outline our progress against all strategic and
commercial priorities and, of course, delivery of our Vision more
completely in our full 2022 Annual Report and Accounts.
Looking ahead
As we look ahead to the rest of the year, we will continue to
apply the same discipline which has seen us respond positively to
the key priorities I set out on becoming the Interim CEO, while
reviewing our strategic response to the changing trading and
broader economic environment and creating more agility in our
central and frontline operations. We will continue to maintain this
momentum while, as a true purpose-led organisation and a proud
co-operative, we remain true to our Co-op Purpose, despite the
external challenges we are navigating.
The sale of our petrol forecourts, which was announced in
August, is part of our strategy to focus on our core convenience
offer and our four routes to market, in order to best meet the
needs of our customers and members.
We will also continue to be there for our colleagues, members
and customers through what will remain a highly challenging period.
Our Co-op will support their financial and mental wellbeing through
the high quality products and services we offer and also through
the extended community programmes we directly support.
I want to extend my heartfelt thanks to our members, customers,
our Members' Council, our Board, our Member Pioneers and our
partners for their continued support as we deliver this year.
I want to thank my amazing colleagues, whose dedication to our
Co-op is exemplary. I am so grateful for their unwavering focus on
delivering to our members' and customers' needs and for going
beyond the day job every day to also deliver to our communities
while caring for each other. I have loved getting to know so many
of them as I've taken on my new role and am in awe daily of what
they do and how they do it.
Finally, I want to thank my incredible leadership team who have
dealt with a great deal of change over the last couple of years,
and in the last few months. They have absolutely grabbed the
challenge and led it together in a way that leaves me very honoured
to be working with them.
Shirine Khoury-Haq
CEO, Co-op Group
FINANCIAL OVERVIEW - FROM MIKE HAZELL, INTERIM CHIEF FINANCIAL
OFFICER
Following a difficult year in 2021, the lasting effects of the
pandemic and its economic consequences continue to be felt in 2022.
This combined with the wide-ranging effects of the war in Ukraine
has led to an inflationary crisis driving up costs for consumers
and businesses alike.
Despite this challenging backdrop, we worked hard to maintain
our sales performance, and year-on-year total revenue across the
group was GBP5.6bn; consistent with our first half performance last
year.
These revenues translated to underlying earnings before
interest, taxes, depreciation and amortization (EBITDA) of GBP218
million for the half year, compared to GBP248 million in H1 last
year. The fall in underlying EBITDA has been driven by the
significant inflationary pressures that most businesses are having
to face this year.
The Group's energy costs increased from GBP41m in H1 2021 to
GBP59m in the first six months of this year, driven by the ongoing
unprecedented rise in energy commodity prices. H1 2021 also
included the end of the government rates holiday (business rates
relief H1 2022: GBP0m, H1 2021: GBP20m), impacting this year's
costs relative to last year.
After non-cash depreciation and amortisation of GBP200m, our
underlying operating profit was GBP18m in H1 2022, down from GBP51m
at the end of H1 2021.
Profit before tax was GBP7m for the half year (H1 2021: GBP44m).
H1 2021 included a one-off gain of GBP99m in relation to the
discount on the early settlement of the Group Relief creditor owed
to the Co-operative Bank PLC, driving the year-on-year adverse
movement. However, it was partially offset by the favourable mark
to market movements this year.
Our profit before tax takes into consideration several other
non-underlying impacts that are unique to 2022. At the half year,
we have reduced or 'impaired' the value of the assets that we hold
at around 50 of our Food stores by GBP21m, where our forecasts for
profitability do not support the asset values we were carrying.
This is more significant than in previous periods, as we have
adjusted our expectations to reflect the tough trading conditions
and associated squeeze on profitability that we are facing
into.
Furthermore, we have impaired the value of the leased asset that
we hold against our main support centre office space at One Angel
Square by GBP25m. This reflects the significant change in working
patterns for our support centre colleagues following the pandemic,
including more flexible and hybrid working solutions. This change
reduced how we utilise the Angel Square site which, under
accounting rules, requires us to reduce the value of the leased
asset that we hold.
Offsetting these losses, we have benefitted from net gains of
GBP51m within finance income, driven by favourable market movements
on the diesel positions we hold and the market valuation of our
Eurobond debt.
Tight control of cashflows, effective working capital management
and a more disciplined approach to capital expenditure all combined
to help significantly reduce our net debt during the first six
months of the year, taking us from GBP920m at 2021 year end, to
GBP731m at H1 2022. This GBP189m improvement (reduction) in net
debt compares to an increase of GBP162m over the same period last
year.
Likewise, as you will see from the following commercial updates
our individual businesses have all been working hard to tackle the
challenging market conditions. Our Food and Wholesale business saw
revenues increase by 1% year-on-year (H1 2022 GBP4.59bn, H1 2021
GBP4.55bn) resulting in underlying operating profits of GBP45m
versus GBP70m in H1 last year after the impact of the inflationary
pressures outlined above.
As mortality rates normalise post-pandemic, our Funeralcare
business saw a small reduction in sales year-on-year (H1 2022:
GBP139m, H1 2021: GBP142m). This combined with energy costs and
regulatory changes in the industry saw underlying operating profit
decline from GBP17m in H1 last year to GBP11m in the first half of
this year. Our Legal Services business continued to perform
strongly, after growing revenues 10% year-on-year (H1 2022: GBP22m,
H1 2021: GBP20m), which resulted in an underlying operating profit
of GBP4m for the half year (H1 2021: GBP2m).
COMMERCIAL UPDATE
Food
Our Food business continued to operate through an extremely
tough economic climate in H1 2022, facing global availability
challenges exacerbated by heart-breaking developments in Ukraine
and a cost of living crisis affecting our members, customers and
our business.
While we believe our trading environment will continue to adjust
over time, it affected our sales and profitability in H1 and, in
turn, put pressure on profit for the wider group, even though we
continued to outperform the convenience market in terms of growth
in the last 12 weeks of the half year (source: IRI convenience
market YoY value data to 2 Jul 2022).
In the first half of this year, we saw a 1% year-on-year
increase in revenue (H1 2022: GBP3.91bn, H1 2021: GBP3.86bn).
However, it's worth noting:
-- Fuel sales increased by just over GBP100 million (up 45%) and
this was primarily driven by rising cost prices across the market,
including those paid by our Co-op.
-- Rapid inflation increased other costs across the market,
which impacted our Group as we worked to serve our members and
customers.
-- When we consider our year-on-year comparisons, H1 2021
included a third national lockdown, which positively impacted our
financial performance, with more members and customers relying on
our stores instead of eating out at pubs and restaurants.
Therefore, our profitability fell in H1 this year, with an
underlying profit of GBP41 million (H1 2021: GBP68 million).
The cost of living crisis is also a contributing factor in the
fall in profitability in H1 2022, as customers adjusted how they
work, live and shop. Customers sought to economise by choosing
products in our stores at lower price points, including our Honest
Value brand.
Understandably, we also saw an overall reduction in basket sizes
and we absorbed significant energy inflation across our
organisation in H1, to shield our members and customers from
increased costs where we could. We also held or reduced prices on
around 4,000 food products in the first half of 2022.
Profitability was partly affected by the rollout of our new SAP
supply chain systems, as we continued to feel the effects of a
global pandemic and supply chain crisis in H1 2022. As with any new
software solution, we needed time and resource to embed the systems
and realise their potential over the first six months of the year,
after introducing them during challenging circumstances. The good
news is that we started to see encouraging improvements throughout
Q2, with availability returning to pre-Covid levels.
Also, at an industry level, the convenience channel share of the
overall UK grocery market reached 12.2% in June. It was the first
time since 2020 that this has been over 12%, and the first time it
had been ahead of the online channel in two years. Co-op's grocery
sales grew period-on-period throughout H1 2022, and we're one of
the only retailers for whom this was the case (using Kantar's
periodic data, where a period equals 4 weeks).
This growth was driven partly by an increase in the shopping
frequency of Co-op shoppers and partly by price inflation, which
affected the entire grocery market in H1. Grocery inflation climbed
steadily for 16 consecutive periods, reaching +8.3% in June 2022,
its highest level since 2009 (Data source: Kantar Worldpanel
take-home grocery sales 4 weeks to 12 June 2022).
Our Wholesale business, covering the former Nisa wholesale
business and our emerging franchise operations, generated sales of
GBP0.7 billion in H1 2022, broadly in line with the same period in
2021. This reflects a solid performance in light of the bigger
economic headwinds impacting all retailers. The underlying profit
of GBP4 million continues the upward trend of improving
profitability for Wholesale, demonstrating the underlying strength
of the collaboration between Co-op and Nisa and the associated
benefits that can be passed through to Nisa customers.
-- Our progress so far this year
Over the last few years, we've continued to invest in our
estate, infrastructure and people. Our focus on convenience has in
turn powered up our proposition, extending our reach through our
four routes to market - Retail, Online, Wholesale and Franchise -
to get closer to where people are.
In January this year, we began repositioning our fresh, chilled
and frozen meals, bringing them together consistently across all
our stores so customers could quickly shop our meal offers and
easily identify our new offers.
These changes set up the foundations to help us comply with the
Government's new High in Fat, Sugar and Salt (HFSS) regulation,
which comes into force for England-based stores of over 2,000 sqft
from October 2022, restricting the way HFSS food and drink products
are promoted and displayed in stores and ecommerce channels. During
H1, we began to alter the layout of over 1,500 stores and our
online equivalent to comply with the new rules. In H2 we'll provide
HFSS training to all our store colleagues in readiness for
October.
In January, we opened our new Biggleswade depot, our largest
regional distribution centre (660,000 sqft). The depot became fully
operational in H1, as the most sustainable and environmentally
friendly depot in our network, handling over two million cases of
frozen, ambient and fresh products a week. This depot brought
thousands of products closer to communities across the South and
South East.
In April, we also began to extend and enhance our Newhouse
distribution centre as we continued to strengthen our existing
logistics network in H1, ensuring we have the right distribution
facilities to deliver improved services and access to food
conveniently for our communities into the future.
We also began an 18-month programme to revamp every category in
our shops to ensure real customer value through our four levers of
price, promotions, range and quality. In May, we relaunched our
Food-To-Go range in time for summer, with sushi taking centre
stage. To make the range as sustainable as possible, we've removed
a significant amount of packaging from our sandwiches and salads
and replaced all single use cutlery in favour of wooden.
-- Improving our customers' shopping experience
In the first half of the year, we remained focused on improving
our customers' shopping experience to make it simple, efficient and
consistent every time, whilst personalising our offers and our
resonance with local communities.
We rapidly scaled our online offer through our online shop -
www.coop.co.uk/shop - and with partners including Deliveroo, Amazon
Prime and autonomous robot deliveries with Starship Technologies.
By the end of H1 2022, our online delivery services were available
in 1,794 stores across 852 locations, and Deliveroo was available
in 1,215 stores across 447 locations - that's almost a 50% increase
on H1 2021. Of those customers purchasing food products from
coop.co.uk, more than 46% were our members.
Making shopping quick, easy and convenient for our members and
customers is at the very heart of our approach. We aim to be the
most convenient home delivery service as we continue to innovate to
meet our customers' needs.
-- Helping food go further and reducing waste
According to data from food waste charity WRAP, only 80,000
tonnes of edible surplus food in the UK is shared with charities
and community groups out of more than 9.5m tonnes (Food surplus and
waste in the UK study, October 2021) and we want to see that
improve.
In April, we were the first convenience retailer in the UK to
replace on-pack use by guidance with best before dates on our
entire range of own brand yoghurts, to reduce food waste and help
combat the 42,000 tonnes of edible yoghurt thrown away in British
homes each year because it is out of date, according to WRAP.
We firmly believe that co-operation is crucial in helping tackle
food poverty and, in June this year, we launched a new digital
platform called Caboodle in partnership with Microsoft, and with
support from ITG and BJSS. Caboodle enables supermarkets, cafes and
restaurants to share surplus food online, using live notifications
to alert community groups, volunteers and charities when slots are
available. We started the roll out of Caboodle to all 2,500 Co-op
stores in H1.
Funeralcare
As economic and cost of living challenges continue to affect all
parts of our Co-op, members and customers have continued to lean
towards simpler and more economical options in Funeralcare too,
with more clients opting for our direct cremation and essential
funeral services than in previous years.
We have worked hard to shield our clients from wider
inflationary impacts and proactively reduced the price of our
direct cremation funeral option in September 2021 by over 28%, by
removing fees that were no longer necessary and making further
discounts. We also commenced a strong new marketing campaign
profiling our range of services and the personalisation offered by
Co-op Funeralcare. This led to a growth in our funeral market share
in the first half of 2022 - meaning that more clients are choosing
Co-op Funeralcare to support them when they need us the most.
We have also seen greater volatility in the number of deaths
across 2022, which added further challenges to our Funeralcare
business across the first half of the year. In the first quarter,
deaths were 2.8% below historic averages, increasing in the
following months so that deaths across the half year were 1.5%
higher than pre-Covid five year averages (albeit 6.3% lower than
2021 due to the impact of Covid in that year).
Within that context, year-on-year revenues were lower in H1 2022
(H1 2022: GBP139m, H1 2021: GBP142m) and we also saw a reduction in
underlying profit in the same period (H1 2022: GBP11m, H1 2021:
GBP17m) . We've also incurred costs in the application and
preparation for Financial Conduct Authority (FCA) regulation of our
funeral plans business.
As the leading provider of funeral plans in the UK, we're proud
to have worked closely with the FCA as part of our journey to
become regulated in H2 this year. We recognise the much needed
confidence it will give our consumers, offering valuable protection
at a time when they might feel most vulnerable.
Market demand for funeral plans has understandably been subdued
over the first half of 2022 due to significant changes in the
market and the failure of several other providers ahead of
regulation. However, we anticipate consumer confidence returning
across the second half of 2022 and then into future years. We
believe the strength and heritage of our Co-op brand, alongside our
award-winning funeral plans, places us in a strong position for
future growth.
Our commitment to help our clients say their best goodbye
remains at the heart of everything we do, and we know that this
goes far beyond the day of the funeral. At the start of the year,
we launched a new partnership with Cruse Bereavement Care, helping
communities to care for the grieving and encouraging people to talk
about death and grief more openly.
And, as part of our 'Co-operating for a Fairer World' Vision, we
are working hard to do our bit for the planet. Earlier this year we
trialled several eco funeral options, such as planting a tree for
certain funerals arranged, and we continue to invest in electric
vehicles and sustainable product options, setting ourselves up for
a greener future. We're proud to be one of the first UK funeral
directors to trial the fully electronic Tesla hearse and add the
electronic Nissan hearse to the trial later in July. We also began
a trial of the Maxus electric ambulance in February this year.
We've continued to develop our website and telephony channels to
improve client accessibility and ease across all our services. As
more of our clients are choosing to start their funeral arrangement
and initial research outside of a funeral home, we have been using
a programme of continuous improvement to ensure a seamless and
consistent experience across telephony, online and our branch
network. During H1, we developed a new website for launch in H2 to
support clients buying one of our regulated funeral plans, as well
as new digital bereavement content to complement the 1-to-1 support
clients receive in our funeral homes.
While we take all these steps, at the heart of our funeral
services business is our people. We are incredibly fortunate to
have the most professional and caring team of colleagues who
deliver beautiful and unique funerals for our clients and assist
with their funeral planning requirements every single day. As a
team, we pride ourselves on providing the highest levels of service
and care to the bereaved and the deceased, at a time when it is
needed the most. The H1 client satisfaction metrics for our funeral
services therefore represent continued excellence in this vital
space with a 97.4% satisfaction score.
Insurance
So far this year, our insurance business has performed in line
with our forecast, despite the challenging conditions experienced
by the Group overall. We predicted a reduced revenue this year
whilst our relationship with Markerstudy continues to be embedded
and we settle into our new distribution business model and ways of
working (Insurance income H1 2022: GBP11m; H1 2021: GBP18m.)
-- H1 performance
It's been a mixed year so far across our product range. The
changes to car and home insurance, brought about by the General
Insurance Pricing and Practices regulations introduced at the start
of the year, which ensures loyal customers are treated the same as
new customers, have impacted the whole market. We've seen a real
change in consumer behaviour as a result. Many customers are now
seeing no change or even a price decrease in their insurance at
renewal, which has resulted in fewer customers shopping around,
using price comparison websites or switching suppliers at renewal.
The car insurance market has also contracted at the same time, as
new car sales across the UK have hit a 25-year low, impacting the
number of customers in the market for new cover. We are also
starting to see shortages in the supply chain for spare parts,
which is beginning to impact vehicle repair times for our
customers, and the added knock on effect of inflation on claims
costs.
In contrast, our Pet insurance sales were very strong through
the first half of 2022. In January, we launched our new and
refreshed Pet insurance product. The new features of this
proposition, like giving a discount for adopted pets and offering
cover to older animals, provides the sort of product you would
expect from our Co-op and has supported its success.
The travel market opening again has also seen many customers
come to us for Travel insurance products to protect them whilst
they make their first trips in several years. After the
unprecedented effect of Covid on the travel industry, many
consumers are recognising the importance of a product with a high
level of protection from a brand they can trust - our product is
ideally placed to offer this. We continue to offer cover for any
age and any condition with 24/7 on-call support from a doctor, for
those times when members and customers need urgent help.
Our Commercial insurance product has also seen an improved
performance this year. Thanks to our working partnership with Nisa,
we're offering our services and products to our Nisa partners,
demonstrating a great opportunity for us to add value through the
whole Co-op Group and hopefully help partners offset some of their
increasing cost challenges.
Our Life insurance products have performed in line with our
predictions so far this year.
Over the past couple of years, we've worked incredibly hard to
improve all our products, making sure they're relevant for members
and customers and offer a real Co-op difference. We've also focused
on our customer experience and the accessibility of our products
and services. We continued to build on this during the first half
of 2022, to have some of our best customer satisfaction results
since we introduced our touchpoint survey two years ago.
During the first half of this year, we have launched the most
accessible experience for members and customers when it comes to
engaging with our refreshed Pet insurance product online. We worked
closely with Fable to assess the accessibility of our experience,
and also sought the opinion of disabled users. We will be using key
learnings from this project to further improve our website's
accessibility, ensuring everyone can use our online services.
We have continued to focus on simplifying insurance experiences
by making digital journeys and communications easier to understand.
These improvements have meant more users completing their online
journey with us.
We also launched an improved online claims experience for our
Car insurance customers to make managing their claims even
easier.
As part of our wider Co-op ambitions to provide support and help
to members and customers in their later life, we started a new
trial with our partners Legal & General to offer lifetime
mortgage products. This marks a milestone for us, as it's the first
time we've offered a non-mainstream insurance product in Co-op
Insurance Services (CISL). There are so many lifetime mortgage
products out there, but our trusted Co-op brand along with a market
leading partner in Legal & General will help our members and
customers find the right product for them. Legal & General is
an expert provider in this area that doesn't pay commission
directly to its advisors and is committed to getting the right
outcome for customers.
Legal Services
Our Legal Services business had an excellent start to the year.
Despite a challenging economic climate for the wider group and
other Life Services businesses, Co-op Legal Services (CLS)
increased revenue by 11% in H1 2022, year-on-year.
All our practice areas contributed to this strong business
performance, particularly our market-leading Probate business, in
which we opened 23% more cases in H1 2022 compared to H1 2021.
The advances we've made in the digital space over the last few
years and the number of partners we are now working closely with
have contributed to this success. Nearly 50% of our clients came to
us through digital channels in the first half of 2022. Our growing
library of digital tools, support and contact channels is helping
us support more clients in whichever way works for them. We're also
seeing more and more clients come to us from partner referrals. In
H1 2022 the number of organisations we partner with grew and, by
the end of the half year, we had over 50 partnerships in place.
To support our increased case volumes we've been growing our
team - over 100 new colleagues started in the first six months of
this year.
In 2021, we streamlined our assessment processes to offer new
routes into the legal profession. By doing this, we opened up legal
careers to a wider range of colleagues from non-traditional
backgrounds, as sector specific experience was no longer a
requirement to join our team. We continued to hone and develop our
essential criteria for recruitment in 2022, which helped us recruit
this high number of new colleagues.
We also introduced new apprenticeships in the first half of this
year - we'll be offering apprentice solicitor roles with full
training and a qualification at the end. Candidates will achieve a
legal career without the university fees, creating new routes in to
the profession for some students who might have previously found it
challenging.
When it comes to attracting and hiring more great people from a
range of sectors and backgrounds, we have already started to see
positive impacts on the representation of colleagues identifying as
disabled (increased to 17% in Q1 2022, compared to 5.4% Jan- Oct
2021) or LGBTQ+ (increased to 17% in Q1 2022, compared to 10%
Jan-Oct 2021). We believe these new routes to recruiting have
contributed to this.
Once our new colleagues begin working with us, training and
development programmes are key in making Legal Services a great
place to grow a legal career. We give our new colleagues a great
start in our business, as well as a love of all things legal;
existing colleagues also get the chance to grow. We created new
roles in our structure and training programmes to give our
colleagues the skills and experience they need to thrive with us.
30% of roles in CLS were filled by internal candidates in H1.
Although many aspects of our business are changing and evolving,
something that will always remain the same is our desire to give
clients a great experience, regardless of whether they're
interacting with us online, in their own homes or through our
digital tools. We're delighted that our customer service scores
continued to increase. Our customer satisfaction score for H1 was
at 87.2%, an increase of 1.7% compared the same period last year.
We're also really proud of our Trustpilot scores, which continued
to improve. Client reviews increased our score to 4.8 during the
first half of this year - which meant a rank of five fully green
stars on the site, giving clients confidence and trust in our
services based on real customer reviews.
VISION UPDATE
When we articulated our Vision of 'Co-operating for a Fairer
World' a few years ago, little did we know that its importance
would increase so much because of a chain of events that simply
could not have been predicted. Our activity to help make things
fairer for our members and communities, fairer for our colleagues
and fairer for our planet is as relevant now as it ever was.
The worsening economic and political picture impacted everyone
our Co-op serves and, during the first six months of the year, we
factored that carefully into how we delivered our Vision.
Our members, colleagues and customers, as ever, had been at the
heart of this activity. Their incredible support was in evidence
when they raised over GBP1.2 million via till, text, online member
reward channels and Co-op Foundation, in support of the DEC appeal
for Ukraine in H1. This money will go to meet the ongoing needs of
people affected by the conflict over the next three years. Also,
our Local Community Fund, generated by our members' spending,
shared around GBP1.5 million with more than 4,500 local causes in
April.
Our Wellbeing team has developed a wide range of colleague
benefits that can all positively impact our colleagues' lives.
Insight, however, told us that not enough of them knew about the
offer and what support they can expect, simply by being a Co-op
colleague. This is why the Co-op 'Wellbeing and Benefits' campaign
was created and rolled out at mid year.
The campaign saw us launch our first ever financial wellbeing
survey to all colleagues, creating a bespoke newsletter focused on
benefits and wellbeing, and a small concertina card outlining all
these colleague benefits, which was sent to over 20,000 frontline
colleagues.
We also ran face-to-face benefits roadshows, meeting thousands
of colleagues to discuss benefits available to them from channels
and advisors such as Salary Finance (previously Neyber) and our
credit unions. In the first half of the year, we also helped more
than 2,200 colleagues check their state benefit entitlement, to
ensure they were receiving everything they were entitled to.
Via the Wagestream app, which allows colleagues to access earned
pay between pay days and open a savings account paying 5% interest
- colleagues accessed nearly GBP5.4 million during H1, at times
where they really needed it.
Progressing our Diversity and Inclusion agenda remained another
key focus area during the first six months, with new initiatives
underpinning us, making things fairer for colleagues, members and
communities.
As part of our focus on driving racial equality and inclusion,
we published our Ethnicity Pay Gap Report for the first time in H1.
This showed the 2021 mean pay gap for colleagues from ethnic
minorities was -3.1% compared to their white colleagues, telling us
that they earn less on average.
Insights like these are powerful and also motivate us to think
what more we can, and should, be doing to make our Co-op a truly
inclusive place to work.
The report also identified important learnings, which we are
keen to share with the Government and other businesses to help
increase transparency and attain a uniform approach to making the
necessary changes. We have also written to Government officials,
calling for ethnicity pay gap reporting to be made mandatory.
In April, following colleague feedback, we enhanced our existing
menopause policy with a series of initiatives designed to help more
colleagues access the support they need in the workplace. Central
to this was the creation of a guide produced in partnership with
our unions Usdaw and Unite, designed to help managers provide
dedicated support for their team members. The guide has attracted a
lot of interest from the media and other employers, to whom we have
made it available free of charge.
In April 2021, we aligned our minimum hourly rates to the Real
Living Wage, as set by the Living Wage Foundation (
www.livingwage.org.uk ), and we subsequently aligned them to the
new rate from April 2022. For Customer Team Members (CTMs) in our
Food stores, this resulted in a 4.2% pay rise. We also increased
the pay rate differential between CTM and Team Leader roles. Our
hourly pay rates apply to all colleagues, including younger
colleagues and apprentices.
During the course of the year we have also continued to progress
one of our key community missions in support of education, skills
and opportunities. By the end of H1 2022, more than 42 businesses
had pledged over GBP14m towards Co-op Levy Share targets, which
will support more than 1,000 apprentices. This pioneering
initiative supported apprenticeships across 30 different
occupations by the beginning of July, providing life chances for
many individuals who quite simply would not have had that
opportunity or access previously. www.cooplevyshare.co.uk is just
one example of the innovative thinking required if we are to truly
'level up' the opportunities available for so many across the
UK.
And we remained open to what more we could do to support
communities. We worked closely with the Purpose Coalition
throughout H1 on an evaluation of our Co-op and its missions. This
independent group, led by the Right Honourable Justine Greening,
prepared a 'This is Purpose' report, focused on our Co-op, in the
first half of the year, ready for publication and presentation to
the House of Commons in H2. The report considers our Co-op, its
missions and what more we can do for communities, and the
partnerships we can create that will make a difference.
In May, we published a detailed report entitled 'Unfairy Tales',
which highlighted some stark home truths occupying the minds of our
younger generation. Children as young as ten were already thinking
they'd need to move away from their local area in the future to
achieve a better quality of life, whilst a third of the audience
surveyed were acutely aware of the rising cost of living and the
impact this would have upon them.
A key part of our community activity this year has been to
channel our support into programmes and issues which not only align
with our Vision, but have been further exposed by the pandemic. One
such area was bereavement support. In January, we announced a new
partnership with Cruse to provide a series of online services to
help communities talk more openly about loss and grief.
This joined-up community thinking was also at the heart of
Caboodle - a major not-for-profit platform that launched in June to
help support our fight on food waste. With our founding partner
Microsoft, supported by technology consultancy BJSS and Team ITG,
Caboodle enables supermarkets, cafes and restaurants to connect
with community groups and volunteers to redistribute surplus
food.
Our colleagues also made an incredible effort in the first half
of the year towards achieving an GBP8m target for our mental
wellbeing partnership with Mind, SAMH and Inspire in H2, creating
new services in local communities.
Whilst supporting our local communities has been a clear
priority, it hasn't been at the expense of us focusing upon wider
international and environmental issues. In April, our Co-op was
honoured with a Queen's Award for Enterprise for Sustainable
Development. The award recognised the reach and depth of our work
on reducing the impact of our operations in areas such as carbon
emissions, recycling and sustainable pensions. It was an honour for
our Co-op to receive this prestigious award, and testimony to the
fact that sustainability is truly embedded into the heart of what
we do as a business.
PRINCIPAL RISKS AND UNCERTAINTIES
Our Board and Risk and Audit Committee regularly review the
principal risks to our business, our position against our risk
appetite, and monitor progress to manage risks within that
appetite. Consideration is given to emerging risks and to any
changes in the internal or external environment that could impact
our strategy and how we operate. We regularly update our risks and
responses where required. The Board and Risk and Audit Committee
have reviewed the principal risks and uncertainties faced by our
Co-op.
Geopolitical events and the broader economic environment
We are experiencing changes in the economic environment that
have not been witnessed in over a generation. These are being
driven by the war in Ukraine, the recent political instability in
the UK and the continued effects of the pandemic. Inflationary
pressures combined with challenges in the supply chain and
shortages of raw materials have heightened uncertainty for our
members, customers and suppliers. The increased cost of living is
materialising in industrial action across multiple sectors of the
UK economy and impacting the availability of labour. In terms of
outlook, continued deterioration in the external environment,
coupled with a fall in consumer spending in the UK, could see the
UK economy entering a mild recession next year. In July, the
International Monetary Fund also warned of a global recession and
it predicted that the UK is expected to see the slowest growth of
all the G7 nations over the next year.
Covid
Following the removal of Covid restrictions, we maintain a safe
working environment for our colleagues. We have additional support
in place for those who are higher risk and more vulnerable to
infection, as well as those experiencing long-term effects of the
virus. We will monitor how the pandemic evolves. If restrictions
are reintroduced, we are well placed to respond and have
contingency plans in place across our operations.
Changes to our principal risks
Our principal risks set out in the 2021 Annual Report and
Accounts remain relevant for the first half of 2022. These are the
risks which, should they materialise, would have the most impact on
the delivery of our business strategy and our commitment to create
value for our members and communities.
Though the environment our businesses are operating within has
been impacted by the combined pressure of rising inflation,
geopolitical events and more intense competition, those stresses to
the supply chain in the grocery sector have most acutely affected
our Co-op, as Food is our largest business.
Our Co-op relies on a combination of external funding and
cashflow generation to run our businesses. The current economic and
geo-political environment has impacted our profitability and
cashflow generation. Our financial statements have been prepared on
a going concern basis and our directors reasonably expect the
business to have sufficient funding for the foreseeable future.
However, should such economic conditions prevail or deteriorate
further, our Co-op may need to take mitigating action to ensure
adequate funding and cashflows. Such mitigating actions could
include reducing or delaying capital expenditure, eliminating
discretionary costs and/or disposal of non-core assets. As a
result, we have elevated the risk related to funding and liquidity
to our principal risks.
The principal risks disclosed in our 2021 Annual Report and
Accounts remain the most significant to our business, with seven
intensifying due to changes in our internal and the external
environment.
Risk What's changed in the half year?
Change
We will make changes to * As part of rebalancing our cost structure, we are
the way we operate through reducing the level of transformation and change to
our four year plan. If focus on delivery of an optimised change portfolio to
our plans are not delivered support our strategy and in turn our Vision. An
in an effective way, we important part of this will be realising the benefits
will not be able to see from our investment in new SAP software solutions -
the benefits of our change improved ranging, stockholding, demand forecasting
programmes. and availability in our Co-op stores - by further
embedding into our Food business operations
-------------------------------------------------------------
Competitiveness and External
Environment * Economic conditions continue to severely impact real
The competitive and economic income for UK households, as well as significantly
landscape in which we operate increase our costs. Across all businesses, we
means that we need to monitor continue to focus on delivering compelling
our growth targets, market propositions in response to evolving customer needs
share and competitor behaviour and market trends. They have distinct plans to
to remain viable and innovative. maintain growth and continue to respond to the market
conditions they operate in. We're also undertaking a
full review of our strategy in Food given this
context and the necessity of economic sustainability
in a fierce market. Alongside this, we continue to
optimise our cost base and invest in our most
essential transformation activity
-------------------------------------------------------------
Technology and Cyber Threats
We hold data on our members, * We 've seen a significant increase in successful
colleagues, customers and ransomware attacks across multiple sectors of the
partners. We are reliant economy in the first half of 2022. Given the changes
on technology to deliver in the external landscape we are collaborating
our business operations closely with similar organisations and focusing on
so theft of data or a cyber-attack ransomware to further protect our environment. We
could significantly disrupt continue to adapt our cyber stance and strategy in
our operations. response to the threat level to protect ourselves and
minimise vulnerabilities
-------------------------------------------------------------
People
Our ability to attract * In a buoyant job market, we are seeing increased
and retain colleagues with competition among employers, particularly for certain
relevant skills and experience classes of job. This, together with a need for a more
while fostering a diverse aligned approach to internal talent mobility, has
and fairer workplace is made it harder to attract and retain talent in
important to achieving certain parts of our business
a strong, competitive Co-op.
If we do not continue to
recruit talent and to invest * The organisational design changes we are making in
in our colleagues, then 2022 will help establish the best structure to
it may impact our operations position Co-op to deliver against our strategic
and our ability to deliver priorities and ease the challenges we have seen in
on our strategic plans. the first half of 2022. Resources are in place to
support our colleagues' wellbeing through these
changes
-------------------------------------------------------------
Supply Chain and Operational
Resilience * The war in Ukraine has created shortages of raw
If we are unable to prevent, materials and disrupted energy supplies, which will
adapt or respond to a major likely continue into 2023. We are working closely
failure or external event with our suppliers to manage potential impacts. In
impacting a key part of the Food supply chain, challenges remain in the
our business or supply labour market for both agriculture and food
chain, it could significantly manufacturing following our exit from the European
affect the availability single market and the economic impact of the pandemic
and quality of products
and services delivered
to our members, colleagues,
customers and partners.
-------------------------------------------------------------
Pre-Paid Funeral Plan
Obligations * Over the short term, inflationary pressures may cause
The measurement of our the future cost of fulfilling a funeral to grow at a
pre-paid funeral plan obligations rate that is higher than the assets we hold. Covering
is sensitive to changes this cost will weaken our actuarial funding position.
in several factors. Adverse We do not expect high levels of inflation to last
movements could result beyond the short term and we anticipate the funding
in lower-than-expected position to improve thereafter
funds being available and
the business receiving
a lower amount per funeral,
or may result in individual
contracts becoming onerous.
-------------------------------------------------------------
Environment and Sustainability
The way we choose to run * Changes in the broader economic and geo-political
our business operations environment, along with increasing environmental
and the products and services regulation and associated costs, mean that the
we provide have both social resources and investment required to meet our
and environmental impacts commitment to being Net Zero by 2040 (ahead of the
and affects the future Government's target of 2050) are more challenging
of our planet. Running than originally anticipated
our business in a sustainable
manner is essential to
Co-op's commercial success,
to being climate resilient
and to transition to a
greener and fairer economy
.
-------------------------------------------------------------
Our remaining principal risks, Brand and Reputation, Misuse
and/or Loss of Personal Data, Health and Safety and Security,
Pensions Obligations and Regulatory Compliance remain stable. You
can find details of our remaining principal risks on pages 49-52 of
our Annual Report, available on www.co-operative.coop .
Emerging risks and trends
The size and diversity of our business means we regularly face
into change, assessing the associated emerging risks, opportunities
and implications it brings. We shape our responses depending on
their scale and how soon they will impact our business.
Food and energy security
As Russia responds to sanctions imposed by NATO, the supply of
energy becomes less secure and may lead to disruptions in the power
supply impacting our business, and power providers rationing energy
to maintain essential services. Power costs are a leading indicator
of other price increases and there may also be impacts on global
agriculture and manufacturing, creating further risks to global
food security and supply chains. We forward purchase energy to
minimise impacts of price fluctuation. As these older hedges
mature, we will have limited ability to protect the businesses who
purchase energy from us from price increases.
Worsening economic outlook
Due to current economic pressures and increases in the cost of
living, household budgets are coming under increasing pressure. We
expect to see changes in people's shopping habits as they seek to
maximise value. With economic difficulties, we tend to see
increases in theft and financial crime. We engage with the relevant
authorities to minimise the risk to our business, as well as
supporting community programmes which focus on the rehabilitation
of offenders.
Regulatory landscape
The various businesses within our Co-op are each affected in
different ways by changes in regulation. We continuously monitor
planned changes to regulation and adapt our business to meet the
new requirements. Particularly relevant to Co-op as a whole is the
outcome of the Government's consultation on restoring trust in
audit and corporate governance, and the requirement to disclose
climate-related financial information.
The UK Government has now published the outcome of its
consultation and we're continuing to understand the implications of
the proposed reforms for our Co-op as a large private company; in
particular changing expectations of our directors, systems, risk
and internal controls and reporting, along with the stronger review
powers for the regulator.
We are already underway with our work to comply with the
Government's mandate to disclose Taskforce for Climate-related
Financial Disclosure (TCFD) aligned financial information by 2023.
We are considering the physical and transition risk, as well as the
opportunities to our business because of changes to the
climate.
In our accounting and reporting we will adopt IFRS17 - Insurance
Contracts from January 2023, which will apply to all pre-paid
funeral plans. We are progressing our implementation plan and
impact assessment to meet the adoption date.
In our Food business we are continuing our work to respond to
changing regulations such as those around sales of High in Fat,
Salt and Sugar (HFSS) products and the Deposit Return scheme in
Scotland, which will come into force from August 2023.
Co-op Funeral Plans Limited was approved to sell pre-paid
funeral plans by the Financial Conduct Authority on 29 July 2022.
This follows intense activity in our funerals business to put in
place the structures, processes and culture to comply with the
newly introduced regulatory requirements for the industry. Looking
ahead, the Financial Conduct Authority intends to set out new rules
on consumer duty, which will also apply to funeral plan providers
coming into effect from the end of July 2023. They are anticipated
to have the greatest impact on the areas of consumer understanding
and consumer support.
OUR FINANCIAL PERFORMANCE
Summary of financial performance 2022 2021
GBPm GBPm
Revenue 5,643 5,616
---------------------------------------- ------ ------
Underlying operating profit:
Food 41 68
Wholesale 4 2
Funeralcare 11 17
Legal Services 4 2
Insurance 3 7
Costs of supporting functions (45) (44)
Other - (1)
Total underlying operating profit (a) 18 51
---------------------------------------- ------ ------
Property revaluations, disposals and
one-off items (38) (43)
Operating (loss) / profit (20) 8
---------------------------------------- ------ ------
Underlying interest (b) (28) (29)
Net underlying lease interest (c) (39) (37)
Net finance income / (cost) on funeral
plans 21 (9)
Other non-underlying net interest 73 12
One-off gain on settlement of Group
Relief Creditor - 99
Profit before tax 7 44
---------------------------------------- ------ ------
Tax (19) (7)
Discontinued operations * 60 10
Profit for the half year 48 47
---------------------------------------- ------ ------
Underlying loss before tax (a)-(b)-(c) (49) (15)
---------------------------------------- ------ ------
* Discontinued operations includes a gain of GBP78 million (less
tax charge of GBP18m) following the judgment that was handed down
by the Court of Appeal in April 2022 in relation to the historic
legal claim against IBM, as disclosed as a post balance sheet event
in the 2021 Annual Report and Accounts. The gain of GBP78 million
reflects GBP72 million of cash that was received in 2022 following
the Appeal judgment and a further GBP6 million received in 2021 in
connection with the earlier Technology and Construction Court
judgment, which was held on the balance sheet but has now been
released to the Income Statement within Discontinued
Operations.
Our headline performance
The first half of 2022 proved to be a particularly difficult
trading period. In line with all retailers, we had to face into an
unprecedented combination of broad, global economic challenges.
This saw downward pressure on revenue and significant increases in
costs, which is reflected within our results, as margins were
squeezed and profitability reduced.
As we looked to build back in the first half of 2022 from the
most challenging stages of the pandemic, new headwinds arose for
consumers and retailers in general. The cost of living crisis is
having a significant impact on the day-to-day lives and shopping
habits of our customers and members, as rising inflation and energy
costs have squeezed many household budgets to near breaking point.
Global supply chain issues, exacerbated by the conflict in Ukraine,
in combination with material rises in energy prices, have also
significantly increased the costs we incur to run our business and
serve our members.
Despite these material challenges, we continued to focus on our
members and customer propositions. Strong cost control and working
capital management saw our net debt levels reduce markedly from the
2021 year end position.
Total Group revenue is consistent with the first half of last
year at GBP5.6 billion. Modest gains in our Food and Legal Services
businesses were offset by a slight reduction in sales in our
Wholesale, Federal, Funeralcare and Insurance businesses.
Although Group sales were in line with the prior year, our
underlying operating profit decreased by GBP33 million to GBP18
million (H1 2021: GBP51 million). The costs that we incur to serve
our customers have increased significantly - both the input costs
of products that we sell and also the costs we incur to run our
businesses and serve our customers, such as energy prices. We've
worked hard to maintain our buying margin but our underlying
profitability has been impacted by costs rises - and in particular
the sharp rise in energy prices. After charging underlying interest
on our bank borrowings and leases, we made an underlying loss
before tax of GBP49 million compared to an equivalent loss of GBP15
million in the first half of 2021. Although our sales and profits
are generally higher in the second half of the year, our first half
result is still slightly behind our budget expectations.
Our operating loss of GBP20 million is down GBP28 million on the
H1 2021 figure of GBP8 million. This reduction in profitability was
mainly driven by the tough trading environment and inflationary
cost rises impacting our core businesses, with Group underlying
operating profit down by GBP33 million on the comparative period as
noted above. Similarly our EBITDA of GBP180 million and underlying
EBITDA of GBP218 million are both down against the comparative
period figures of GBP205 million and GBP248 million
respectively.
Our profits are shown after deducting the amount our members
have earned for themselves and their communities, which totalled
GBP16 million in the first half of the year (H1 2021: GBP21
million). Operating profit in the prior period also included GBP20
million of Government assistance in relation to the pandemic, which
we benefitted from in the first three months of 2021 through
business rate relief.
Profit before tax of GBP7 million is GBP37 million lower than
last year. This was driven by the fall in operating profit of GBP28
million noted above and a net reduction in finance income and
expenses of GBP9 million. Finance income in the prior period
included a one-off gain of GBP99 million in relation to the
discount on the early settlement of the Group Relief creditor owed
to the Co-operative Bank PLC. This has been offset to some degree
by GBP51 million of net gains from a favourable fair value movement
in the valuation of our Eurobonds and foreign exchange and
commodity derivatives (mainly diesel positions). Furthermore, the
net interest gain on funeral plans of GBP21 million compares
favourably to the net interest charge of GBP9 million in the
comparative period - investment returns on plan investments
outweighed the interest charged on plan liabilities. Finally, the
finance income recognised on our pensions schemes is also GBP8
million higher than last year.
After a tax charge of GBP19 million (H1 2021: GBP7 million) we
made a loss after tax from continuing operations of GBP12 million
(H1 2021: GBP37 million profit). Following the judgment handed down
on the IBM case in April, we also recorded a net gain after tax of
GBP60 million from discontinued operations (H1 2021: GBP10 million
gain) contributing to an overall profit for the Society of GBP48
million in the first half of 2022 (H1 2021: GBP47 million).
How our businesses have performed
Overall Food sales totalled GBP3.9 billion in H1 2022,
reflecting a moderate increase of GBP52 million in comparison to
the same period of 2021. Within these figures, fuel sales increased
by just over GBP100 million (up 45%), primarily driven by rising
prices at the pumps. The modest reduction in food sales (excluding
fuel) reflects the combined effect of food price inflation offset
by reduced volumes and transactions. Evolving customer behaviour
has seen shoppers look to trade down to value range products as the
cost of living crisis bites. The comparative period also includes
the impact of the third national lockdown at the start of 2021,
which buoyed sales as people shopped more locally and didn't eat
out at pubs and restaurants. Absolute sales of food (excluding
fuel) across all our store formats are down slightly with a
like-for-like of -0.7%, although convenience sales fared slightly
better with a positive like-for-like of 0.4%.
As highlighted in our 2021 Annual Report, sales in the second
half of 2021 were impacted by industrywide disruption to global
supply chains following the pandemic. They were further exacerbated
as we transitioned to our new commercial, ranging and supply chain
systems, which resulted in lost sales opportunities by affecting
our ability to consistently offer customers the products we wanted
to. These impacts continued to a lesser degree into the first half
of 2022, and global supply chains and commodity markets have been
further impacted by the conflict in Ukraine.
Profitability within our Food business fell; we recorded an
underlying profit of GBP41 million (2021: GBP68 million). This is
partly due to the impact of inflation, which has increased the cost
to deliver our customer proposition and serve our members. The
comparative figures also benefitted from GBP18 million of
Government assistance through rates relief during the pandemic. The
increase in fuel sales has not flowed through to additional profit
as input costs have also increased.
We continue to embed our new commercial, ranging and supply
chain systems following the implementation of SAP and are working
hard to learn and fully realise the benefits of that investment
going forward.
Our Wholesale business (covering the former Nisa wholesale
business and our emerging franchise operations) generated sales of
GBP0.7 billion, broadly in line with 2021. This reflects a solid
performance in light of the broader economic headwinds impacting
all retailers. Underlying profit of GBP4 million continued the
upward trend of improving profitability for Wholesale,
demonstrating the strength of the collaboration between Co-op and
Nisa, and the associated benefits that can be passed through to
Nisa customers.
Our Funeralcare business experienced a 1.7% decrease in volumes
in comparison to last year, driven by the wider trend in the death
rate. Sales of funeral plans were also well down on the levels
experienced during the height of the pandemic. Underlying profit
decreased by around 35% in H1 2022 to GBP11 million from GBP17
million in the first half of 2021, as reduced sales and increased
input costs eroded margins. Furthermore, we continued to invest in
price and enhance customer choice through offering lower cost
funeral and cremation options for our members. We also incurred
significant set-up costs as we transition to a regulated
environment for funeral plans.
Our Legal Services business continued to perform well. At GBP22
million, revenue in the first half of 2022 is up GBP2 million
compared to the first half of 2021, driven by strong growth in new
probate cases opened, with profits increasing to GBP4 million from
GBP2 million in the comparative period. Our Insurance business
(marketing and distribution) recorded sales of GBP11 million and
underlying profit of GBP3 million. Its sales performance is in line
with the expected year-on-year reduction in income from the
declining back book of policies held by our Co-op, following the
13-year deal with Markerstudy. We continue to operate in a highly
competitive market which was also impacted by regulatory pricing
changes implemented at the start of the year.
Costs of GBP45 million for our Central Supporting functions are
in line with the prior year (2021: GBP44 million). We were able to
mitigate inflationary cost increases through operating savings
achieved as we continued to develop and embed a stronger
cost-control culture.
'Discontinued Operations' relates to our former insurance
underwriting business, which was sold in December 2020. The
recorded pre-tax profit of GBP78 million reflects the judgment that
was handed down by the Court of Appeal in April 2022, in relation
to the historic legal claim against IBM. This was disclosed as a
post balance sheet event in the 2021 Annual Report and
Accounts.
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):
The loss of GBP34 million on property disposals and closures
includes GBP56 million of impairment charges (H1 2021: GBP14
million) where we have reduced the carrying value of some of our
assets. The impairment figure includes a charge of GBP21 million
(H1 2021: GBP4 million) - we have reduced (impaired) the value of
the assets that we hold at around 50 of our Food stores, where our
forecasts of future profitability do not support the asset values
we were carrying. This is more significant than in previous periods
as we have adjusted our expectations to reflect the tough trading
conditions and associated squeeze on profitability that we are
facing into.
Furthermore, we have reduced (impaired) the value of the leased
asset that we hold against our main support centre office space at
1 Angel Square (1AS) by GBP25 million (H1 2021: GBPnil). This
follows the significant change in working patterns for our support
centre colleagues following the pandemic and subsequent transition
to more flexible and hybrid working solutions. This change has
reduced the utilisation of 1AS which, under accounting rules,
requires us to reduce the value of the leased asset that we
hold.
The comparative period includes a significant one-off charge of
GBP17 million, reflecting the costs of some organisational changes
made to colleague structures in our Food stores as part of the Fit
for Future programme.
Financing and debt
Our financing income and costs are shown in the table below
(costs are shown in brackets):
2022 2021
GBPm GBPm
Underlying bank and loan interest payable (28) (29)
Net underlying lease interest (39) (37)
Total underlying interest (67) (66)
------------------------------------------- ------ ------
Net pension finance income 20 14
Net finance income / (cost) on funeral
plans 21 (9)
Fair value movement on foreign exchange
contracts 27 3
Fair value movement on quoted debt and
swaps 24 (3)
Other non-underlying finance interest
(net) 2 (2)
One-off gain on settlement of Group
Relief Creditor - 99
Non-underlying interest income 94 102
------------------------------------------- ------ ------
Our underlying financing costs from our borrowings and lease
commitments are consistent with the prior period as our principal
loan balances have not changed. The value of the leases we have is
broadly comparable too.
Net pension income at GBP20 million is up from GBP14 million due
to the comparative increase in the net pension scheme surplus at
the start of the year, and an increase in the discount rate that is
used to calculate the net interest.
Following the change in accounting treatment for revenue
recognition, we now see a net interest income or charge on funeral
plans in our income statement. In the first half of 2022, the
returns on funeral plan investments outweighed the interest that we
accrued, so we show a net finance income of GBP21 million. This
compares to a GBP9 million charge in the prior year as investment
returns were outweighed by the interest charge. Interest on our
funeral plan liabilities accrues fairly evenly over time whereas
the returns on plan investments are more variable, being dependent
upon the short term market conditions in any given period.
Finance income includes a gain in the first half of 2022 of
GBP27 million on foreign exchange contracts and commodity
derivatives. The bulk of this relates to diesel positions, which
moved in our favour. The net market valuation of our Eurobond debt
and swaps also reduced, which shows as finance income of GBP24
million in the period.
Our total net debt of GBP2.1 billion at the end of the period,
including the IFRS 16 lease liability of GBP1.3 billion, is down
GBP0.3 billion from the start of the year. Excluding the lease
liability, net debt was GBP731 million; a decrease of GBP189
million from year end.
The reduction in debt was primarily driven by an increased cash
position (with cash up to GBP108 million from GBP60 million at 2021
year end) and a reduction in our overdraft, which is down from
GBP163 million to GBP40 million. This reflects the positive results
from our renewed focus (as we noted at 2021 year end) on cost
control, management of working capital and capital investment. The
market valuation of our Eurobond debt also moved in the first half
of the year, reducing the value of the debt shown on our balance
sheet by GBP29 million. Cash inflow in the first half of 2022 also
includes GBP72 million of cash received following the appeal
judgement on the IBM claim.
The principal amounts of our loans and borrowings were
consistent with the year end position and overall indebtedness
remained below the ceiling we set ourselves.
Tax
The half year tax charge of GBP19 million represented an
effective tax rate of 276% on a profit before tax of GBP7 million.
This is higher than the mainstream Corporation Tax rate of 19%
primarily due to depreciation on non-qualifying assets. The tax
charge also includes a GBP5 million charge from the impact of the
enacted Corporation Tax rate rise from 19% to 25% (due 1(st) April
2023). There is also a GBP44 million deferred tax charge taken to
other comprehensive income in relation to the movement in the
valuation of our pension schemes.
We do not have a current year Corporation Tax charge or
liability because of available tax reliefs and losses that offset
taxable profits.
Our balance sheet
Net assets have increased by GBP0.2 billion from the start of
the year. The main movement driving this is an increase in the net
pension surplus of GBP0.2 billion.
The actuarial surplus on our largest pensions scheme, PACE,
increased by GBP0.2 billion with asset values falling by GBP2.1
billion, whilst liabilities decreased by GBP2.3 billion. Asset
values have fallen considerably due to the uncertainty in global
financial markets, but this has been more than offset by an
increase in the discount rate which reduces the present value of
the scheme's obligations.
The assets and liabilities associated with the sale of our 129
petrol forecourt sites, which form part of our Food business, have
been classified as separate line items in our balance sheet under
the caption of 'Held for Sale'. This has been done as the sale of
these assets was highly probable at the balance sheet date. The
assets are valued at the lower of their book value and fair value
less costs to sell.
Going forward
Our results for the first half of the year reflect the
unprecedented trading and broader economic environment in which we
found ourselves and it's clear that these material headwinds will
continue in the near to medium term. Inflationary pressures on
household budgets will continue to change consumer behaviours as
well as increase the costs we incur to serve our customers. In
response to this, we'll need to continue to innovate and adapt our
customer proposition to ensure we deliver what our customers and
members want.
The difficult trading environment will continue to suppress
sales, growth and operating margins, requiring us to maintain our
laser-like focus on our cash position through appropriate
management of costs, working capital and capital investment.
Despite the ongoing external pressures, our core businesses
remain sound and resilient. It's clear our Vision and strategy are
more relevant than ever as we continue to strive to serve our
members as they face into a difficult and challenging economic
reality.
Condensed Consolidated Income Statement
for the 26 weeks ended 2 July
2022
What does this show? Our income statement shows our income for the
period less our costs. The result is the profit or loss that we've made.
26 weeks 26 weeks 52 weeks
ended ended ended
Continuing Operations 2 July 3 July 2021 1 January
2022 2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------ ------ ------------ ------------ ----------
Revenue 1 5,643 5,616 11,151
Operating
expenses (5,668) (5,613) (11,097)
Other income 5 5 10
--------------------------------------- ------ ------------ ------------ ----------
Operating (loss)
/ profit 1 (20) 8 64
------------------------------------- ------ ------------ ------------ ----------
Finance income 3 128 142 196
Finance costs 4 (101) (106) (203)
--------------------------------------- ------ ------------ ------------ ----------
Profit before
tax 7 44 57
--------------------------------------- ------ ------------ ------------ ----------
Taxation 5 (19) (7) (25)
(Loss) / profit from continuing
operations (12) 37 32
--------------------------------------- ------ ------------ ------------ ----------
Discontinued Operation
------------------------------------- ------ ------------ ------------ ----------
Profit on discontinued operation
(net of tax) 6 60 10 13
--------------------------------------- ------------ ----------
Profit for the period (all attributable
to members of the Society) 48 47 45
----------------------------------------------- ------------ ------------ ----------
Non-GAAP measure: underlying loss 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. We also take off the underlying
interest we pay (being the day-to-day interest on our bank borrowings
and lease liabilities).
26 weeks 26 weeks 52 weeks
ended ended ended
Continuing Operations 2 July 3 July 2021 1 January
2022 2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------------ ------ ------------ ------------ ----------
Operating (loss)
/ profit (as above) (20) 8 64
Add back
/ (deduct):
One-off
items 1 1 17 15
Property, business disposals
and closures 1 34 26 30
Change in value of investment
properties 3 - (9)
Underlying operating
profit 18 51 100
------------------------------------- ------ ------------ ------------ ----------
Less underlying loan
interest payable 4 (28) (29) (56)
Less underlying net interest
expense on lease liabilities 3, 4 (39) (37) (76)
Underlying loss
before tax (49) (15) (32)
------------------------------------- ------ ------------ ------------ ----------
The accompanying notes form an integral part of
these financial statements.
* Refer to note 1 for a definition of underlying (loss) / profit before
tax.
Condensed Consolidated Statement of Comprehensive Income
for the 26 weeks ended 2 July 2022
What does this show? Our statement of comprehensive income includes
other income and costs that are not included in the consolidated income
statement above. These are usually revaluations of property, pension
schemes and some of our financial investments.
26 weeks 26 weeks 52 weeks
ended ended ended
2 July 3 July 2021 1 January
2022 2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
-------------------------------------------- ------ ------------ ------------ ----------
Profit for the
period 48 47 45
--------------------------------------------- ------ ------------ ------------ ----------
Items that will never be reclassified
to the income statement:
Remeasurement gains / (losses) on employee
pension schemes 7 175 (95) 350
Related tax on items
above 5 (44) (17) (130)
--------------------------------------------- ------ ------------ ------------ ----------
131 (112) 220
-------------------------------------------- ------ ------------ ------------ ----------
Items that are or may be reclassified
to the income statement:
Gain on revaluation of Right-of-use
assets prior to transfer to Investment
property - - 5
------------------------------------------------ ------ ------------ ------------ ----------
- - 5
-------------------------------------------- ------ ------------ ------------ ----------
Other comprehensive (loss) / income
for the period net of tax 131 (112) 225
------------------------------------------------ ------ ------------ ------------ ----------
Total comprehensive income / (loss) for
the period
(all attributable to members of the Society) 179 (65) 270
-------------------------------------------------------- ------------ ------------ ----------
The accompanying notes form an integral part of these
financial statements.
Condensed Consolidated Balance Sheet
as at 2 July 2022
What does this show? Our balance sheet is a snapshot of our financial
position as at 2 July 2022. It shows the assets we have and the amounts
we owe.
As at 2 July As at 3 July As at 1 January
2022 2021 2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------------------------------- ------ ------------- ------------- ----------------
Non-current assets
Property, plant and
equipment 1,721 1,956 1,912
Right-of-use assets 920 1,063 1,086
Goodwill and intangible
assets 1,067 1,093 1,075
Investment properties 52 14 55
Investments in associates
and joint ventures 4 4 4
Funeral plan investments 12 1,399 1,344 1,372
Derivatives 4 2 -
Pension assets 7 2,464 1,799 2,262
Trade and other receivables 190 224 214
Finance lease receivables 28 30 30
Contract assets (funeral
plans) 42 62 43
Total non-current assets 7,891 7,591 8,053
-------------------------------- ------ ------------- ------------- ----------------
Current assets
Inventories 447 454 488
Trade and other receivables 547 556 551
Finance lease receivables 12 11 12
Derivatives 20 3 4
Contract assets (funeral
plans) 5 6 5
Cash and cash equivalents 108 130 60
Assets held for sale 8 276 2 7
Total current assets 1,415 1,162 1,127
-------------------------------- ------ ------------- ------------- ----------------
Total assets 9,306 8,753 9,180
---------------------------------- ------ ------------- ------------- ----------------
Non-current liabilities
Interest-bearing loans
and borrowings 9 765 803 796
Lease liabilities 9 1,158 1,265 1,306
Trade and other payables 38 55 44
Contract liabilities
(funeral plans) 1,575 1,606 1,614
Provisions 82 96 74
Derivatives 9 1 2
Pension liabilities 7 4 13 4
Deferred tax liabilities 5 397 185 314
Total non-current liabilities 4,028 4,024 4,154
-------------------------------- ------ ------------- ------------- ----------------
Current liabilities
Overdrafts - - 4
Interest-bearing loans
and borrowings 9 74 39 180
Lease liabilities 9 180 197 210
Trade and other payables 1,420 1,669 1,472
Contract liabilities
(funeral plans) 183 176 164
Derivatives 1 2 3
Provisions 34 42 52
Liabilities held for
sale 8 268 - 2
Total current liabilities 2,160 2,125 2,087
-------------------------------- ------ ------------- ------------- ----------------
Total liabilities 6,188 6,149 6,241
---------------------------------- ------ ------------- ------------- ----------------
Equity
Members' share capital 74 74 74
Retained earnings 3,038 2,529 2,859
Other reserves 6 1 6
Total equity 3,118 2,604 2,939
---------------------------------- ------ ------------- ------------- ----------------
Total equity and liabilities 9,306 8,753 9,180
-------------------------------- ------ ------------- ------------- ----------------
The accompanying notes form an integral part of these financial statements.
Condensed Consolidated Statement of Changes in Equity
for the 26 weeks ended 2 July
2022
What does this show? Our statement of changes in equity shows how
our net assets have changed during the year.
For the 26 weeks ended 2 July Members' Retained Other Total
2022 (unaudited) share capital earnings reserves equity
Notes GBPm GBPm GBPm GBPm
------------------------------------- ------ --------------- ---------- ---------- --------
Balance at 1 January
2022 74 2,859 6 2,939
-------------------------------------- ------ --------------- ---------- ---------- --------
Profit for the
period - 48 - 48
-------------------------------------- ------ --------------- ---------- ---------- --------
Other comprehensive income /
(losses):
Remeasurement gains on employee
pension schemes 7 - 175 - 175
Tax on items taken directly to
other comprehensive income 5 - (44) - (44)
--------------------------------------- ------ --------------- ---------- ----------
Total other comprehensive income - 131 - 131
--------------------------------------- ------ --------------- ---------- ---------- --------
Balance at 2 July 2022 74 3,038 6 3,118
--------------------------------------- ------ --------------- ---------- ---------- --------
For the 26 weeks ended 3 July Members' Retained Other Total
2021 (unaudited) share capital earnings reserves equity
Notes GBPm GBPm GBPm GBPm
------------------------------------- ------ --------------- ---------- ---------- --------
Balance at 2 January
2021 74 2,594 1 2,669
-------------------------------------- ------ --------------- ---------- ---------- --------
Profit for the
period - 47 - 47
-------------------------------------- ------ --------------- ---------- ---------- --------
Other comprehensive income /
(losses):
Remeasurement losses on employee
pension schemes 7 - (95) - (95)
Tax on items taken directly to
other comprehensive income 5 - (17) - (17)
--------------------------------------- ------ --------------- ---------- ---------- --------
Total other comprehensive loss: - (112) - (112)
Balance at 3 July
2021 74 2,529 1 2,604
-------------------------------------- ------ --------------- ---------- ---------- --------
For the 26 weeks ended 1 July Members' Retained Other Total
2022 (audited) share capital earnings reserves equity
Notes GBPm GBPm GBPm GBPm
------------------------------------- ------ --------------- ---------- ---------- --------
Balance at 2 January
2021 74 2,594 1 2,669
-------------------------------------- ------ --------------- ---------- ---------- --------
Profit for the
period - 45 - 45
-------------------------------------- ------ --------------- ---------- ---------- --------
Other comprehensive income /
(losses):
Remeasurement gains on employee
pension schemes 7 - 350 - 350
Gain on revaluation of Right-of-use
assets prior to transfer to
Investment property - - 5 5
Tax on items taken directly to
other comprehensive income 5 - (130) - (130)
--------------------------------------- ------ --------------- ---------- ---------- --------
Total other comprehensive income: - 220 5 225
Balance at 1 January 2022 74 2,859 6 2,939
--------------------------------------- ------ --------------- ---------- ---------- --------
The accompanying notes form an integral part of these financial statements.
Condensed Consolidated Statement of Cash Flows
for the 26 weeks ended 2 July 2022
What does this show? Our statement of cash flows shows the cash coming
in and out during the period. It splits the cash by type of activity
- showing how we've generated cash and then how we've spent it.
26 weeks 26 weeks 52 weeks
ended ended ended
2 July 2022 3 July 2021 1 January
2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
---------------------------------------- ------ ------------ ------------- ----------------
Net cash from operating
activities 10 315 162 178
----------------------------------------- ------ ------------ ------------- ----------------
Cash flows from investing
activities
Purchase of property,
plant and equipment (62) (150) (297)
Purchase of intangible
assets (7) (11) (28)
Proceeds from sale of property,
plant and equipment 19 19 80
Acquisition of businesses,
net of cash acquired (2) (26) (30)
Disposal of business - 6 22
Payments to funds for
pre-paid funeral plans (36) (42) (93)
Receipts from funds for pre-paid funeral
plans performed and cancelled 57 54 105
-------------------------------------------------- ------------ ------------- ----------------
Net cash used in investing
activities (31) (150) (241)
----------------------------------------- ------ ------------ ------------- ----------------
Cash flows from financing
activities
Interest paid on
borrowings (10) (10) (57)
Interest paid on
lease liabilities (39) (39) (79)
Payments and interest
received on subleases 1 5 3
Settlement of Group Relief Creditor
owed to The Co-operative Bank Plc - (48) (48)
(Repayment) / issue of
corporate investor shares 9 (1) 6 1
Repayment of borrowings 9 - - (2)
RCF (repayment)
/ drawdown (123) - 163
Payment of lease
liabilities (66) (65) (134)
Derivative settlements 6 - 3
------------------------------------------ ------ ------------ ------------- ----------------
Net cash used in financing
activities (232) (151) (150)
----------------------------------------- ------ ------------ ------------- ----------------
Net increase / (decrease) in cash
and cash equivalents 52 (139) (213)
Cash and cash equivalents at beginning
of period 56 269 269
------------------------------------------ ------ ------------ ------------- ----------------
Cash and cash equivalents at end
of period 108 130 56
------------------------------------------ ------ ------------ ------------- ----------------
Analysis of cash and
cash equivalents
Cash and cash equivalents
(per balance sheet) 108 130 60
Overdrafts (per
balance sheet) - - (4)
------------------------------------------ ------ ------------ ------------- ----------------
108 130 56
---------------------------------------- ------ ------------ ------------- ----------------
The balances above include cashflows from Discontinued operations.
The accompanying notes form an integral part of these financial statements.
Group Net Debt As at 2 As at 3 July As at 1 January
July 2021 2022
2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
------ ------------ ------------- ----------------
Interest-bearing loans
and borrowings:
- current (74) (39) (180)
- non-current (765) (803) (796)
----------------------------------------- ------ ------------ ------------- ----------------
Total Interest-bearing
loans and borrowings (839) (842) (976)
----------------------------------------- ------ ------------ ------------- ----------------
Lease liabilities:
- current * (180) (197) (210)
- non-current * (1,158) (1,265) (1,306)
Total lease liabilities (1,338) (1,462) (1,516)
------------------------------------------ ------ ------------ ------------- ----------------
Total Debt (2,177) (2,304) (2,492)
------------------------------------------ ------ ------------ ------------- ----------------
- Group cash 108 130 60
----------------------------------------- ------- ------------ ------------- ----------------
- Overdrafts - - (4)
----------------------------------------- ------ ------------ ------------- ----------------
Group Net Debt (2,069) (2,174) (2,436)
------------------------------------------ ------ ------------ ------------- ----------------
Group Net Debt (excluding lease
liabilities) 9 (731) (712) (920)
------------------------------------------ ------ ------------ ------------- ----------------
*As at 2 July 2022 a total of GBP167m of lease liabilities have been
reclassified to liabilities held for sale (and excluded from the table
above); split GBP22m (current) and GBP145m (non-current). See Note 8
for further details).
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 Food Wholesale Funeral Insurance Legal Other Federal Costs Total
2 July 2022 businesses (d) from
(unaudited) (c) supporting
functions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Revenue from external
customers 3,912 679 139 11 22 - 880 - 5,643
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Underlying segment operating
profit / (loss) (a) 41 4 11 3 4 - - (45) 18
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
One-off items (a)
(i) 1 - - (1) - - - (1) (1)
Property, business disposals
and closures (a) (ii) (19) - - - - - - (15) (34)
Change in value of
investment
properties - - - - - - - (3) (3)
Operating profit
/ (loss) (b) 23 4 11 2 4 - - (64) (20)
-------------------- ------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Depreciation and
amortisation 169 4 13 - - - - 14 200
EBITDA (e) 192 8 24 2 4 - - (50) 180
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Underlying EBITDA
(e) 210 8 24 3 4 - - (31) 218
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
26 weeks ended Food Wholesale Funeral Insurance Legal Other Federal Costs Total
3 July 2021 businesses (d) from
(unaudited) (c) supporting
functions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Revenue from
external
customers 3,860 688 142 18 20 1 887 - 5,616
-------------------- ------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Underlying segment operating
profit / (loss) (a) 68 2 17 7 2 (1) - (44) 51
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
One-off items (a)
(i) (17) - - - - - - - (17)
Property, business disposals
and closures (a) (ii) (26) - (1) - - (1) - 2 (26)
Change in value of - - - - - - - - -
investment
properties
Operating profit
/ (loss) (b) 25 2 16 7 2 (2) - (42) 8
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Depreciation and
amortisation 163 2 14 - - - - 18 197
EBITDA (e) 188 4 30 7 2 (2) - (24) 205
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Underlying EBITDA
(e) 231 4 31 7 2 (1) - (26) 248
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
52 weeks ended Food Wholesale Funeral Insurance Legal Other Federal Costs Total
1 January 2022 businesses (d) from
(unaudited) (c) supporting
functions
GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm GBPm
---------------- ------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Revenue from
external
customers 7,671 1,386 264 34 39 1 1,756 - 11,151
-------------------- ------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Underlying segment operating
profit / (loss) (a) 156 7 12 15 5 (1) - (94) 100
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
One-off items (a)
(i) (17) - - - - - - 2 (15)
Property, business disposals
and closures (a) (ii) (36) - 2 - - (1) - 5 (30)
Change in value of
investment
properties - - - - - - - 9 9
Operating profit
/ (loss) (b) 103 7 14 15 5 (2) - (78) 64
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Depreciation and
amortisation 332 9 32 - 1 - - 31 405
EBITDA (e) 435 16 46 15 6 (2) - (47) 469
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
Underlying EBITDA
(e) 488 16 44 15 6 (1) - (63) 505
----------------------------- -------- ---------------- -------- ---------- ------ ------------- -------- -------------
a) Underlying segment operating profit / (loss) is a non-GAAP measure of
segment operating profit / (loss) before the impact of property and business
disposals (including impairment of non-current assets within our businesses),
the change in the value of investment properties and one-off items. The
difference between underlying segment operating profit / (loss) and operating
profit / (loss) includes:
i) One-off items comprises a charge of GBP1m (2021: GBP17m). The comparative
figure related to organisational changes to colleague structures within
our food store teams (under the Fit for Future programme).
ii) Losses from property and business disposals of GBP34m (2021: GBP26m
loss). This comprises a net gain on disposal and closure of properties
of GBP22m less impairment charges of GBP56m (see table overleaf for further
details).
b) Operating profit for the 26 weeks ended 2 July 2022 does not include
any government assistance received through business rates relief or through
employee furlough payments. Equivalent figures for both the 26 weeks ended
3 July 2021 and the 52 weeks ended 1 January 2022 were GBP20m of business
rates relief and GBPnil furlough payments. These amounts were netted against
relevant cost lines in operating profit.
c) The 'Other businesses' segment includes activities which are not reportable
per IFRS 8. In the comparative period then this mainly comprised the results
of Co-op Health which was sold on 6 April 2021.
d) 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.
e) EBITDA (earnings before interest, tax, depreciation and amortisation)
and underlying EBITDA are non-GAAP measure of performance which help us
to understand the profits our business segments are generating before capital
investment and interest charges. EBITDA is calculated by adding back depreciation
and amortisation charges to Operating profit (which is calculated before
interest charges). Underlying EBITDA is calculated in a similar way but
starting from underlying operating profit.
f) A reconciliation between underlying segment operating
profit / (loss) and profit before tax is provided below:
26 weeks 26 weeks 26 weeks
ended ended ended
2 July 2022 3 July 1 January
2021 2022
(unaudited) (unaudited) (audited)
Notes GBPm GBPm GBPm
--------------------------------------- --- --- -------------------- ------ --------- ------------ ------ ------ ------
Underlying operating profit 1 18 51 100
Underlying loan interest payable 4 (28) (29) (56)
Underlying net interest expense
on lease liabilities 3, 4 (39) (37) (76)
Underlying loss before tax (49) (15) (32)
--------------------------------------- --- --- -------------------- ------ --------- ------------ ------ ------ ------
One-off items 1 (1) (17) (15)
Gain / (loss) on property, business
disposals and closures (see below) 1 (34) (26) (30)
(Decrease) / increase in value
of investment properties 1 (3) - 9
Finance income (net pension
income) 3 20 14 30
Fair value movement on derivatives
(net) 3 22 - -
Fair value movement on Group
debt 3 29 - 5
Finance income (one-off gain on settlement
of Group Relief Creditor) 3 - 99 99
Finance income (funeral plans) 3 48 25 54
Finance costs (funeral plans) 4 (27) (34) (58)
Net other non-cash finance
income / (cost) 3, 4 2 (2) (5)
Profit before tax 7 44 57
--------------------------------------- --- --- -------------------- ------ --------- ------------ ------ ------ ------
Losses from property and business 26 weeks 26 weeks 26 weeks
disposals and closures and impairment ended ended ended
on non-current assets
2 July 2022 3 July 1 January
2021 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------------- --- --- -------------------- ------ --------- ------------ ------ ------
Disposals, closures and onerous
contracts
- proceeds 19 25 80
- less net book value written
off (2) (31) (71)
- provisions released / (recognised) 5 (6) (9)
22 (12) -
Impairment of property, plant and equipment,
right-of-use assets and goodwill (56) (14) (30)
Total (34) (26) (30)
Impairment
The Group reviews the carrying amounts of its property, plant and equipment,
right-of-use assets, intangible assets and goodwill to determine whether
there is any indication that those assets have suffered an impairment
loss.
This review is performed annually or in the event where indicators
of impairment are present. At 2 July 2022, the Group has considered
whether general uncertainty in the wider macro-economic environment
including the cost-of-living crisis, rising inflation, energy price
increases, the on-going conflict in Ukraine as well as the continuing
impacts of the COVID-19 pandemic has the potential to represent a significant
impairment indicator as at 2 July 2022. Despite the difficult trading
conditions and associated additional costs of serving our customers
the Group's main business areas have proven resilient and the performance
of the Group's cash-generating units has remained strong. Therefore,
management concluded that the impact of the factors noted on the longer
term outlook for these cash-generating units did not constitute an indicator
of significant impairment and hence a full impairment test across all
CGUs was not required. This judgement is unchanged from 1 January 2022.
The Group is currently working to identify the physical risk to our
business and supply chains from the changing climate, along with the
potential impact of policy, technology and market changes as we transition
to a lower carbon future. This is a developing area with inherent uncertainty
which is constantly evolving. The work being undertaken will help inform
our overall response to the risks and opportunities that are identified.
Our assessment of the impact of climate-related risk and related expenditure
is reflected in the financial models and plans and will continue to
be monitored in future periods.
The methodology for our impairment reviews is consistent with the methodology
disclosed in the 2021 annual report. This methodology is summarised
in the table below:
Assumption Food Segment Funeral Segment
Structure of A CGU is deemed to be a local network of interdependent
a Each individual food store is deemed to branches, known as a Funeralcare
CGU be an individual CGU. Hub.
Cash flow Future cash flows derived from Board Future cash flows derived from Board approved three-year plan
years / approved three-year plan cash flow cash flow projections.
assumptions assumptions.
These cash flows are extrapolated over the remaining lease
These forecasts are extrapolated over a term for leasehold properties
period of 2 years and then subject to a or into perpetuity for freehold properties. Perpetuities
long term included in cash flows where the
growth rate of 1.9% (2020: 0%) Hub is expected to be operational beyond its current lease
reflecting the UK's long-term post war terms. A growth rate of 1.9% (2020:
growth rate which is 0%) is applied beyond Board approved three-year plan horizon
in-line with industry norms for the (reflecting the UK's long-term,
period of the lease. Where lease terms post-war growth rate, which is in line with industry norms).
are shorter than
this, the remaining lease terms have The Group is currently working to identify the physical risk
been used. Perpetuities are included in to our business and supply chains
cash flows with from the changing climate, along with the potential impact of
0% growth (2020: 0%) where stores are policy, technology and market
expected to be operated beyond their changes as we transition to a lower carbon future. This is a
current lease term. developing area with inherent
uncertainty which is constantly evolving. The work being
Cash flows include estimated store undertaken will help inform our overall
capital maintenance costs based on the response to the risks and opportunities that are identified.
square footage Our assessment of the impact
of the store. of climate related risk and related expenditure is reflected
in the financial models and plans
The Group is currently working to and will continue to be monitored in future periods.
identify the physical risk to our
business and supply chains
from the changing climate, along with
the potential impact of policy,
technology and market
changes as we transition to a lower
carbon future. This is a developing area
with inherent
uncertainty which is constantly
evolving. The work being undertaken will
help inform our overall
response to the risks and opportunities
that are identified. Our assessment of
the impact
of climate related risk and related
expenditure is reflected in the
financial models and plans
and will continue to be monitored in
future periods.
Discount Post tax discount rate representing the Post tax discount rate representing the Funeralcare segment's
rate Food segment's weighted average cost of weighted average cost of capital
capital (WACC), (WACC), subsequently grossed up to a pre-tax rate of 9.5%
subsequently grossed up to a pre-tax (2020: 8.2%).
rate of 7.3% (2021: 8.2%).
Post tax WACC calculated using the capital asset pricing
Post tax WACC calculated using the model.
capital asset pricing model.
Certain inputs into the capital asset pricing model are not
Certain inputs into the capital asset readily available for non-listed
pricing model are not readily available entities. As such, certain inputs have been obtained from
for non-listed industry benchmarks which carries
entities. As such, certain inputs have a measure of estimation uncertainty. However, as discussed in
been obtained from industry benchmarks the sensitivity section below,
which carries this estimation uncertainty level is not deemed to be
a measure of estimation uncertainty. material.
However, as discussed in the sensitivity
section below, In each of the current and comparative years, sensitivity
this estimation uncertainty level is not analysis has been performed in
deemed to be material. relation to our Funeralcare Hub impairment testing, testing
for a 1% increase in discount
In each of the current and comparative rate and a decrease in growth to minus 1%; within both these
years, sensitivity analysis has been sensitivities no additional material
performed in impairment was calculated. The sensitivity analysis performed
relation to our store impairment considers reasonably possible
testing, testing for a 1% increase in changes in the discount rate and growth rate assumptions.
discount rate and a
decrease in growth to minus 1%; within
both these sensitivities no additional
material impairment
was calculated. The sensitivity analysis
performed considers reasonably possible
changes in
the discount rate and growth rate
assumptions.
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.
Supplier Income 26 weeks 26 weeks 52 weeks
ended ended ended
2 July 3 July 2021 1 January
2022 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Food - Long-term
agreements 75 77 158
Food - Bonus income 22 24 82
Food - Promotional
income 147 176 341
Total Food supplier
income 244 277 581
Wholesale - Long-term
agreements 12 12 27
Wholesale - Bonus
income 4 8 19
Wholesale - Promotional
income 40 48 99
Total Wholesale Supplier
income 56 68 145
Total Supplier
income 300 345 726
Percentage of Cost of Sales (before % %%
deducting Supplier Income)
Food - Long-term
agreements 2.5% 2.5% 2.6%
Food - Bonus income 0.7% 0.8% 1.4%
Food - Promotional
income 4.8% 5.8% 5.7%
Total Food supplier
income % 8.0% 9.2% 9.7%
Wholesale - Long-term
agreements 1.9% 1.8% 2.0%
Wholesale - Bonus
income 0.7% 1.1% 1.4%
Wholesale - Promotional
income 6.2% 7.1% 7.3%
Total Wholesale supplier
income % 8.8% 10.0% 10.7%
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. If they are gains then we also include
the movement in the fair value of some elements of our debt, our
interest rate swap positions, foreign exchange contracts and commodity
derivatives (which are used to manage risks from interest rate
movements). If they are losses, they are included in Finance costs
(see Note 4). If they are gains, then we also show the fair value
movement on our funeral plan investments.
26 weeks 26 weeks 52 weeks
ended ended ended
2 July 3 July 1 January
2022 2021 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Net pension finance
income 20 14 30
Underlying interest income from
finance lease receivables 1 1 3
Fair value movement on foreign exchange
contracts and commodity derivatives 27 3 5
Fair value movement on
quoted Group debt 29 - 5
One-off gain on settlement of Group Relief
Creditor owed to The Co-operative Bank
Plc - 99 99
Other non-underlying finance
income 3 - -
Finance income (excluding
funeral plans) 80 117 142
Unrealised fair value movement
on funeral plan investments 48 25 54
Finance income (on funeral
plans) 48 25 54
Total finance
income 128 142 196
4 Finance costs
What does this show? Our main finance costs are the interest that
we've paid during the year on our bank borrowings (that help fund
the business) and the interest payments we incur on our lease liabilities.
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). We also include the interest that accrues on the funeral plans
we hold and any impact of discounting on funeral plan instalment
debtors if it is a charge.
26 weeks 26 weeks 52 weeks
ended ended ended
2 July 3 July 1 January
2022 2021 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Loans repayable
within five years (28) (15) (56)
Loans repayable wholly
or in part after five years - (14) -
Underlying loan interest
payable (28) (29) (56)
Underlying interest expense
on lease liabilities (40) (38) (79)
Total underlying interest
expense (68) (67) (135)
Fair value movement on
interest rate swaps (5) (3) (5)
Other non-underlying finance
interest (1) (2) (5)
Finance costs (excluding
funeral plans) (74) (72) (145)
Interest accruing on funeral
plan liabilities (27) (29) (54)
Discounting on funeral
plan debtors - (5) (4)
Finance costs (on funeral
plans) (27) (34) (58)
Total finance
costs (101) (106) (203)
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 Group does not expect to be tax-paying in respect of its half
year results due to the availability of brought forward tax losses
and allowances. The tax charge therefore relates to forecast use
or movements of deferred tax assets or liabilities.
The tax charge in respect of continuing operations of GBP19m (26
weeks ended 3 July 2021: charge of GBP7m; and 52 weeks ended 1 January
2022: charge of GBP25m) and effective tax rate of 276% (26 weeks
ended 3 July 2021: 16%; and 52 weeks ended 1 January 2022: 45%) 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 charge of GBP2m.
2. A review of material transactions reflected in the 26 week period
ended 2 July 2022 gave rise to a net tax charge of GBP14m. The tax
impact of these material transactions mainly relate to losses on
property disposals (tax credit of GBP5m) offsetting fair value movements
(tax charge of GBP10m), net pension credits (tax charge GBP4m) and
net funeral plan finance income (tax charge of GBP4m). See Note 1
for more detail of non-underlying profit movements.
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
remains unchanged from as at 1 January 2022.
4. The Finance Act 2021 enacted the Corporation Tax rate rise from
19% to 25% on 1 April 2023. The deferred tax assets and liabilities
of the Group were restated to the prevailing 25% tax rate last year,
where these were materially expected to unwind after 1 April 2023.
Current year movement in deferred tax is therefore restated to reflect
a rate of 25% and not the current 19% corporation tax rate. The impact
of this rate change is a GBP5m net tax charge in relation to the
restatement of these deferred tax assets and liabilities.
A charge of GBP33m has been posted to other comprehensive income
in respect of the actuarial movement arising on the Group's pension
schemes. In addition, a charge of GBP11m has been posted to other
comprehensive income in respect of the restatement of the deferred
tax liability related to the Group's pension schemes.
The net deferred tax liability of the Group at half year is GBP397m
(as at 3 July 2021: GBP185m; and 1 January 2022: GBP314m) and the
corporation tax creditor for continuing operations is GBPnil.
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:
Movements in deferred tax in 26 weeks
period to 2 July 2022 ended 2 July
2022 (unaudited)
GBPm
At beginning of the
year (net liability) (314)
Charged to the Income
Statement:
- Current period
movement (14)
- Impact of change
to deferred tax rate (5)
- Tax charge relating to discontinued
operations (see Note 6) (18)
Assets moved to Held for
Sale in the Balance Sheet:
- Assets moved to Held
for Sale (see Note 8) (2)
Charged to equity:
- Employee pension
schemes (33)
- Impact of change
to deferred tax rate (11)
At end of period
(net liability) (397)
6 Profit on discontinued operation,
net of tax
What does this show? We classify any of our business operating
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 (underwriting business)
The sale of our insurance underwriting business completed on 3 December
2020. The results of that business have been classified as a discontinued
operation since 2019 and shown in a separate line at the bottom
of the consolidated income statement under Discontinued Operations.
As part of the sale agreement Co-op continued to supply certain
agreed services in the first half of 2021 under a service agreement
(TSA). The costs and recoveries associated with that agreement are
included in the table below within operating expenses and operating
income respectively and are shown within Discontinued operations
in the Consolidated Income statement. Other income also includes
a gain of GBP78m (2021: GBP12m) following the judgment that was
handed down by the Court of Appeal in April 2022 in relation to
the historic legal claim against IBM as disclosed as a post balance
sheet event in the 2021 Annual Report and Accounts. The gain of
GBP78 million reflects GBP72 million of cash that was received in
2022 following the Appeal judgment and a further GBP6 million that
was received in 2021 following the original judgment but which was
held on the balance sheet until the outcome of the Appeal was known
at which point it has been released to the Income Statement within
Discontinued Operations.
26 weeks 26 weeks 52 weeks
ended ended ended
2 July 3 July 1 January
2022 2021 2022
Results of discontinued operation - Insurance (unaudited) (unaudited) (audited)
(underwriting business)
GBPm GBPm GBPm
Operating
income - 14 12
Operating expenses - (16) (13)
Other income 78 12 13
Profit before tax from discontinued
operation 78 10 12
Tax - relating to the pre-tax
profit on discontinued operation (18) - 1
Profit for the period from discontinued
operation 60 10 13
Segmental analysis - Insurance (underwriting 26 weeks 26 weeks 52 weeks
business) ended ended ended
2 July 3 July 1 January
2022 2021 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Operating
income - 14 12
Underlying segment operating
profit / (loss) - (2) (1)
Operating
profit 78 10 12
The table below shows a summary of the
cash flows of discontinued operations:
Cash flows used in discontinued operations: 26 weeks 26 weeks 52 weeks
ended ended ended
2 July 3 July 1 January
2022 (unaudited) 2021 (unaudited) 2022 (audited)
GBPm GBPm GBPm
Operating profit from
discontinued operations 78 10 13
Decrease in discontinued
payable* (6) - -
Net cash from discontinued
operations 72 10 13
*GBP6m payment on account received in relation to fees following
the original IBM judgment in May 2021 was held on the balance and
only released to the Income statement (Discontinued operations)
in 2022 following the appeal judgment.
Cash flows from financing and investing activities
were not significant in any period.
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.
2 July 3 July 1 January
2022 2021 2022
Net retirement benefit asset (per (unaudited) (unaudited) (audited)
balance sheet)
GBPm GBPm GBPm
--------------------------------------------
Pension schemes
in surplus 2,464 1,799 2,262
Pension schemes
in deficit (4) (13) (4)
Closing net retirement
benefit 2,460 1,786 2,258
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 2 July 2022 in
accordance with IAS 19. Valuations for the Somerfield and United schemes
have also been updated for the 2022 interim financial statements.
Assumptions 2 July 3 July 1 January
2022 2021 2022
(unaudited) (unaudited) (audited)
The principal assumptions used to determine
the liabilities of the Pace pension scheme
were:
Discount
rate 3.75% 1.90% 1.90%
RPI Inflation
rate 3.38% 3.38% 3.48%
Pension increases in payment (RPI
capped at 5.0% p.a.) 3.27% 3.29% 3.37%
Future salary increases 3.63% 3.63% 3.73%
2 July 3 July 1 January
2022 2021 2022
Net Retirement
benefit asset (unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Opening net retirement
benefit attributable to
Group 2,258 1,854 1,854
Admin expenses paid from
plan assets (2) (2) (5)
Net finance
income 20 14 30
Employer contributions 9 15 27
Settlements (trivial commutation
exercises) - - 2
Remeasurement gains
/ (losses) 175 (95) 350
Closing net retirement
benefit asset 2,460 1,786 2,258
Amounts recognised in the balance sheet: 2 July 3 July 1 January
2022 2021 (unaudited) 2022 (audited)
(unaudited)
GBPm GBPm GBPm
Fair value of plan
assets:
- Pace 7,396 9,189 9,486
- Somerfield scheme 1,128 1,173 1,141
- United scheme 822 818 825
Total assets 9,346 11,180 11,452
Present value of liabilities:
- Pace (5,117) (7,461) (7,399)
- Somerfield scheme (1,019) (1,102) (1,033)
- United scheme (746) (826) (758)
- Unfunded liabilities (4) (5) (4)
Total liabilities (6,886) (9,394) (9,194)
Net retirement benefit asset
per balance sheet:
Pace 2,279 1,728 2,087
Somerfield scheme 109 71 108
United scheme 76 - 67
Total assets 2,464 1,799 2,262
United scheme - (8) -
Unfunded liabilities (4) (5) (4)
Total Liabilities (4) (13) (4)
Net Assets 2,460 1,786 2,258
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.
2 July 3 July 1 January
2022 2021 2022
Assets and liabilities classified
as held for sale (unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Property, plant
and equipment 91 2 3
Right-of-use assets
(leases) 130 - 1
Goodwill and intangible
assets 3 - 3
Inventories 21 - -
Trade and other
receivables 29 - -
Deferred tax -
assets 2 -
Total assets 276 2 7
Lease liabilities (167) - (2)
Trade and other
payables (101) -
Total liabilities (268) - (2)
We have announced our intention to sell our 129 Petrol Forecourt
sites, which form part of our Co-op Food business. As at 2 July 2022,
the assets and liabilities associated with these sites have been
classified as held for sale in our consolidated balance sheet as
their disposal was highly probable at the half-year date. Assets
have been measured at the lower of their carrying value and fair
value (less costs to sell). The financial results associated with
these locations continues to be shown within our Food operating segment
(see Note 1) within Continuing operations as they do not meet the
criteria to be classed within Discontinued operations. Our expectation
is that the sale will complete in the last quarter of the year; see
Note 14 for further details.
9 Interest-bearing loans and borrowings
What does this show? This note gives information about our interest-bearing
loans including their value, interest rate and repayment 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).
See Note 12 for a breakdown of the IFRS 13 level hierarchies (which
reflect different valuation techniques) in relation to these borrowings.
2 July 3 July 1 January
2022 2021 2022
Non-current liabilities: (unaudited) (unaudited) (audited)
GBPm GBPm GBPm
GBP105m 7.5% Eurobond Notes
due 2026 (fair value) 94 128 123
GBP245m 7.5% Eurobond Notes
due 2026 (amortised cost) 256 258 258
GBP300m 5.125% Sustainability Bond
due 2024 (amortised cost) 299 299 299
GBP109m 11% final repayment
subordinated Notes due 2025 109 109 109
GBP20m 11% Instalment repayment
Notes (final payment 2025) 7 9 7
Total (excluding lease liabilities) 765 803 796
Lease liabilities* 1,158 1,265 1,306
Total Group non-current interest-bearing
loans and borrowings 1,923 2,068 2,102
2 July 3 July 1 January
2022 2021 2022
Current
liabilities: (unaudited) (unaudited) (audited)
GBPm GBPm GBPm
GBP245m 7.5% Eurobond Notes due 2026 (amortised
cost) - interest accrued 19 19 9
GBP300m 5.125% Sustainability Bond due 2024
(amortised cost) - interest accrued 2 2 2
GBP20m 11% Instalment repayment
Notes (final payment 2025) 3 3 2
GBP109m 11% final repayment subordinated
Notes due 2025 - interest accrued 7 6 -
GBP400m Sustainable revolving
credit facility (RCF) 40 - 163
Corporate investor
shares 3 9 4
Total (excluding lease liabilities) 74 39 180
Lease liabilities* 180 197 210
Total Group current interest-bearing
loans and borrowings 254 236 390
*As at 2 July 2022 a total of GBP167m of lease liabilities have been
reclassified to liabilities held for sale; split GBP22m (current)
and GBP145m (non-current). See Note 8 for further details).
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 the 26 weeks ended Non-cash movements Cash
2 July 2022 (unaudited) flow
Start
of End of
period New leases Other period
GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and borrowings:
- current (180) - (18) 124 (74)
- non-current (796) - 31 - (765)
Lease
liabilities
- current (210) (10) (65) 105 (180)
- non-current (1,306) (67) 215 - (1,158)
Total Debt (2,492) (77) 163 229 (2,177)
Group cash:
- cash & overdrafts 56 - - 52 108
Group Net
Debt (2,436) (77) 163 281 (2,069)
Other non-cash movements on lease liabilities includes the transfer
of GBP167m of lease liabilities to liabilities held for sale; split
GBP22m (current) and GBP145m (non-current). See Note 8 for further
details.
For the 26 weeks ended Non-cash movements Cash
3 July 2021 (unaudited) flow
Start
of End of
period New leases Other period
GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and borrowings:
- current (16) - (25) 2 (39)
- non-current (803) - - - (803)
Lease
liabilities
- current (191) (15) (95) 104 (197)
- non-current (1,234) (97) 66 - (1,265)
Total Debt (2,244) (112) (54) 106 (2,304)
Group cash:
- cash and overdrafts 269 - - (139) 130
Group Net
Debt (1,975) (112) (54) (33) (2,174)
For the 52 weeks ended Non-cash movements Cash
1 January 2022 (audited) flow
Start
of End of
period New leases Other period
GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and borrowings:
- current (16) - - (164) (180)
- non-current (803) - 5 2 (796)
Lease
liabilities
- current (191) (34) (198) 213 (210)
- non-current (1,234) (210) 138 - (1,306)
Total Debt (2,244) (244) (55) 51 (2,492)
Group cash:
- cash and overdrafts 269 - - (213) 56
Group Net
Debt (1,975) (244) (55) (162) (2,436)
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
2 July 2022 3 July 1 January
2021 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Operating (loss) / profit from continuing
operations (Note 1) (20) 8 64
Depreciation and amortisation charges 200 197 405
Non-current asset impairments 56 14 30
Gain / (loss) on closure or disposal of
businesses and non-current assets (24) 12 (2)
Decrease / (increase) in fair value of
investment properties 3 - (9)
Retirement benefit obligations (6) (14) (24)
Decrease / (increase) in inventories 20 6 (28)
Increase in receivables (1) (46) (17)
Decrease / (increase) in contract assets
(funeral plans) 1 (2) 18
(Decrease) / increase in contract liabilities
(funeral plans) (47) 24 (19)
Increase / (decrease) in payables
and provisions 61 (47) (253)
Net cash flow from operating activities
(continuing operations) 243 152 165
Net cash flow from operating activities
(discontinued operations) 72 10 13
Net cash flow from operating activities 315 162 178
Net cash flow from operating activities (discontinued operations)
includes GBP68m of cash received following the judgment handed down
on 4 April 2022 by the Court of Appeal on the IBM case (this was disclosed
as a post balance sheet event (Note 34) in our 2021 Annual Report
and Accounts) and a further GBP3m of monies also received in 2022
relating to the original judgment in 2021.
11 Commitments and contingent liabilities
What does this show? This note shows 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 2021 annual
report.
Capital commitments - Capital expenditure which the Group is committed
to at 2 July 2022 (but which has not been accrued for at that date
as it has not yet been incurred) was GBP8m (3 July 2021: GBP14m).
Contingent liabilities - In common with other retailers, the Group
has received Employment Tribunal claims from current and former
food store colleagues alleging their work is of equal value to that
of distribution centre colleagues and differences in pay and other
terms are not objectively justifiable. The claimants are seeking
the differential in pay (and other terms) together with equalisation
going forward. There are circa 1,600 claims. The claims are at an
early stage; the number of claims, merit, outcome and impact are
all highly uncertain. No provision has been made as it is not possible
to assess the likelihood nor quantum of any outcome. There are substantial
factual and legal defences to the claims and the Group intends to
defend them robustly.
12 Funeral plan investments and fair values of financial assets
and financial liabilities
What does this show? Our Funerals business holds some investments
in relation to funeral plans. This note provides information on
these investments as well as how any other financial assets and
liabilities are valued.
Funeral plan investments as 2 July 3 July 1 January
per the balance sheet: 2022 (unaudited) 2021 (unaudited) 2022 (audited)
GBPm GBPm GBPm
------------------------
Current - - -
Non-current 1,399 1,344 1,372
Funeral plan investments 1,399 1,344 1,372
Fair value through the income 2 July 3 July 1 January
statement: 2022 (unaudited) 2021 (unaudited) 2022 (audited)
GBPm GBPm GBPm
------------------------
Funeral plan investments 1,399 1,344 1,372
Total Funeral plan
investments 1,399 1,344 1,372
Fair values recognised in
the balance sheet
The following table provides an analysis of the financial assets
and liabilities 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
3 techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
Fair values recognised in the balance
sheet continued
2 July 2022 (unaudited) Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through
income or expense
- Derivative financial instruments - 24 - 24
- Funeral plan investments - - 1,399 1,399
Total financial assets held at fair
value - 24 1,399 1,423
Liabilities
Financial liabilities at fair value
through income or expense
- Fixed-rate sterling Eurobond - 94 - 94
- Derivative financial instruments - 10 - 10
Total financial liabilities held
at fair value - 104 - 104
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 that are "financial assets". 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
at the end of this note and indicates we have headroom of over 27%
on a pre-tax wholesale basis.
3 July 2021 (unaudited) Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through
income or expense
- Derivative financial instruments - 5 - 5
- Funeral plan investments - - 1,344 1,344
Total financial assets held at fair
value - 5 1,344 1,349
Liabilities
Financial liabilities at fair value
through income or expense
- Fixed-rate sterling Eurobond - 128 - 128
- Derivative financial instruments - 3 - 3
Total financial liabilities held
at fair value - 131 - 131
1 January 2022 (audited) Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through
income or expense
- Funeral plan investments - - 1,372 1,372
- Derivative financial instruments - 4 - 4
Total financial assets held at fair
value - 4 1,372 1,376
Liabilities
Financial liabilities at fair value
through income or expense
- Fixed-rate sterling Eurobond - 123 - 123
- Derivative financial instruments - 5 - 5
Total financial liabilities held
at fair value - 128 - 128
Basis of valuation of Level 2 financial assets and liabilities:
Derivatives - the Group uses derivative financial instruments to
provide an economic hedge to its exposure to interest rate risks
arising from operational, financing and investment activities. In
accordance with our Treasury policy, the Group does not hold or
issue derivative financial instruments for trading purposes. Derivatives
entered into include swaps, forward rate agreements and commodity
(diesel) swaps. Derivative financial instruments are measured at
fair value and any gains or losses are included in the income statement.
Fair values are based on quoted prices and where these are not available,
valuation techniques such as discounted cash flow models are used.
Interest payments or receipts arising from interest rate swaps are
recognised within finance income or finance costs in the period
in which the interest is incurred or earned.
Eurobonds - 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 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.
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 a 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 to Co-op by the insurance policy provider.
The plan values represent what the policy provider would pay out
on redemption of the policy at the valuation date with the main
driver being underlying market and investment performance. The performance
obligation to deliver the funeral is treated as a contract liability
(deferred income) under IFRS 15. The deferred amount is subject
to adjustment to reflect a significant financing component which
is charged to the income statement each period. The liability accretes
interest in-line with the discount rate applied to the plan on inception.
The discount rate applied is based on an estimated borrowing rate
between the customer and the Group at the point the contract is
entered into. The contract liability is held on the balance sheet
as additional deferred income until the delivery of the funeral
at which point the revenue is recognised.
Funeral plan investments 2 July 3 July 2021 1 January
2022 2022
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
At start of period 1,372 1,331 1,331
New plan investments (including
on-going instalments) 36 42 92
Plans redeemed or cancelled (57) (54) (105)
Unrealised fair value movement on
funeral plan investments (see Note
3) 48 25 54
At end of period 1,399 1,344 1,372
The Group holds investments on the balance sheet in respect of funeral
plan policies which are invested in either individual whole of life
policies and, to a much smaller extent, independent trusts (<5%
of total). The investments are subject to an annual actuarial valuation.
This gives an assessment as to the headroom of the funeral plan
investments over an estimated present value (on a wholesale basis)
of delivering the funerals on a portfolio basis. The most recent
valuation was performed as at 30 September 2021 and reported headroom
on a wholesale basis (pre-tax) of GBP295m (2019: GBP129m).
Funeral Plan Investments Actuarial 30 September 30 September
Valuation (pre-tax) 2021 2020
GBPm GBPm
Total Assets 1,397 1,287
Liabilities:
Present value (wholesale basis) 1,102 1,158
Total Liabilities (pre-tax) 1,102 1,158
Headroom (pre-tax) 295 129
Headroom as a % of liabilities
(pre-tax) 27% 11%
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.
Members 2 July 3 July 2021 1 January
2022 2022
(unaudited) (unaudited) (unaudited)
m m m
Active Members 4.3 4.2 4.2
-----------
Membership and community rewards
(within the income statement) GBPm GBPm GBPm
Member reward earned 10 11 21
Community reward earned 6 10 19
-----------
Total reward 16 21 40
-----------
Member and Community rewards are earned at 2% of member
spend on selected Co-op products and services.
14 Events after the reporting date
What does this show? This note gives details of any significant
events that have happened after the balance sheet date but before
the date that the accounts are approved. These are things that are
of such significance that it is appropriate to give a reader of
the accounts further detail as to the impact of such events on the
financial statements or any expected likely impact in future periods.
Colleague structure changes - on 21 July 2022 the Group announced
proposed changes to our ways of working to support our strategic
priorities in response to the particularly challenging trading environment
the Group is facing. As a result of these changes, we will need
to adapt and restructure our teams. The changes primarily relates
to support centre colleagues and it is expected that around 400
colleagues will leave our Co-op in the second half of the year once
a consultation process has completed. The announcement is a non-adjusting
post balance sheet event and any costs or provisions associated
with the proposals will be assessed for 2022 year end reporting.
Petrol forecourt sale - on 31 August 2022 the Group announced our
intention to sell our 129 Petrol Forecourt sites, which form part
of our Co-op Food business, to Asda, for a value of approximately
GBP600m (which will include cash consideration of GBP438m and is
also inclusive of IFRS 16 lease liabilities of approximately GBP162m
with final amounts to be confirmed on completion). As at 2 July
2022, the assets and liabilities associated with these sites have
been classified as held for sale in our consolidated balance sheet
as their disposal was highly probable at the half-year date. Our
expectation is that the sale will complete in the last quarter of
the year. The announcement is a non-adjusting post balance sheet
event and accounting for the disposal will be assessed for 2022
year end reporting.
Accounting policies and basis of preparation
What does this show? This section outlines the overall approach to
preparing the interim financial statements. This section also gives
details of the impact of any new accounting standards that we've applied
for the first time and the expected impact of upcoming standards that
will be adopted in future years where that impact is likely to be
significant.
These condensed consolidated interim financial statements of
Co-operative Group Limited ('the Society') for the period ended 2
July 2022 ('the interim financial statements') include the Society
and its subsidiaries (together referred to as 'the Group').
The audited consolidated financial statements ('the 2021 annual
report') of the Group for the year ended 1 January 2022 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 2 July 2022 are unaudited and do not constitute statutory
accounts.
Statement of compliance
These interim financial statements have been prepared in
accordance with UK adopted IAS 34 Interim Financial Reporting 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 2021 annual report.
The comparative figures for the financial year ended 1 January
2022 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 and filed with the Mutuals Public Register. 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 28 September 2022.
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 2021 annual report
except where stated within the notes to these accounts.
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 2021 annual report.
(A) New standards:
The Group has considered the following standards and amendments
that are effective for the Group for the period commencing 2
January 2022 and concluded that they are either not relevant to the
Group or do not have a significant impact on the financial
statements:
-- Amendments to IFRS 3 Reference to the Conceptual Framework
-- Amendments to IAS 16 Property, Plant and Equipment (Proceeds before Intended Use)
-- Annual Improvements to IFRS Standards 2018-2020 Cycle
(Amendments to IFRS 1 First-time Adoption of International
Financial Reporting Standards, IFRS 9 Financial Instruments, and
IAS 41 Agriculture)
-- IAS 37 Onerous contracts (amendments re cost of fulfilling a contract)
(B) 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 2021 annual report. The adoption
of the following standards will or may have a material impact when
adopted. Management continue to assess the expected impact of
applying the new standards on the Group's financial statements and
details are shown in the 2021 annual report.
-- IFRS 17 Insurance Contracts.*
* Effective 1 January 2023.
Impact of Covid-19, the Russia / Ukraine conflict, rising energy
costs and inflation on interim financial statements
Management has considered the ongoing impact of Covid-19, the
conflict in Ukraine and rising energy costs and inflation and
associated squeeze on consumer spending on the Group's accounting
policies, judgements and estimates. Impairment reviews have been
carried out in the period to reflect the current economic
environment. The results of these impairment reviews have been
detailed in note 1.
Impact of Climate Change on our Interim financial statements
In preparing the Groups' Consolidated Financial statements
management has considered the impact of climate change covering
both the financial statements and the disclosures included in the
Strategic report. This included an assessment of the potential
impact of, and associated responses to, climate change, and how
that could impact the non-current assets that we hold as well as
our expectations of future trading conditions. This assessment did
not identify any requirement to shorten asset lives of the Group's
asset base and neither did it identify any material risks arising
from climate change, accordingly, there has been no material impact
on the valuation of the Group's assets or liabilities or the
cashflow forecasts used to assess the going concern basis and the
viability statement. Furthermore, our forecasts do not include any
material spend in relation to climate change. The Group will keep
this assessment under review and continue to monitor developments
in the future.
Going concern
The financial statements are prepared on a going concern basis
as the directors have a reasonable expectation that the Group has
enough money to continue in business for the foreseeable
future.
Our Co-op borrows money from banks and others, and as part of
this process, we have checked that we can comply with the terms of
those agreements, for example, banking covenants and facility
levels. Accounting standards require that the foreseeable future
covers a period of at least 12 months from the date of approval of
the financial statements, although they do not specify how far
beyond 12 months a Board should consider. The assessment of going
concern relies heavily on the ability to forecast future cashflows
over the going concern assessment period, to 30 September 2023.
In making their assessment the directors have considered a wide
range of information relating to present and future conditions,
including future forecasts of profitability, cash flow and covenant
compliance, and available capital resources.
The potential scenarios which could lead to our Co-op not being
a going concern are:
a. Not having enough cash to meet our liabilities as they fall
due. Throughout the going concern period the facility limit within
which we need to operate is GBP1,168m, which includes GBP779m
non-bank facilities and GBP400m bank syndicate facilities;
and/or
b. A breach of the financial covenants implicit in our bank
facility agreement.
-- Net Debt Leverage: Consolidated net debt as a multiple of
bank-defined EBITDA must not exceed 3.00:1.00 at each six-monthly
covenant test date.
-- Adjusted Interest Cover: The bank-defined EBITDA (further
adjusted by a fixed rental figure) as a multiple of the
consolidated net finance charges, must not fall below 1.75:1.00
measured at each six-monthly covenant test date.
The Group has been in compliance with all covenants applicable
to this facility within the financial year and is forecast to
continue to be in compliance for 12 months from the date of signing
of the financial statements. Further mitigating actions could also
be taken should it be required, including reducing capital
expenditure and price investment.
Post the 2021 year-end balance sheet date, there have been
positive changes to the liquidity position. We note at the
half-year end date, of the total GBP1,168m of facilities available
to us, we were GBP839m drawn down and our net debt position was
GBP731m, excluding lease liabilities. It is being assumed that
amounts due for repayment in the going concern period are
repaid.
We have reviewed our actual results in the first half of 2022
against those that were used in the going concern forecast and
assessment for our 2021 financial statements and conclude that
there are no material differences between the actuals and the
forecast that was used which would change the going concern
assessment and assumption.
The Directors, having made appropriate enquiries, consider that
adequate resources exist for the Group to continue in operational
existence for a period of at least 12 months from the date of
approval of these financial statements and that, therefore, it is
appropriate to adopt the going concern basis in preparing the
consolidated financial statements as at and for period ended 2 July
2022.
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END
IR LPMFTMTITBFT
(END) Dow Jones Newswires
September 29, 2022 04:00 ET (08:00 GMT)
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