Rebuild of the Co-op Group Underway
09 April 2015
Final results for Co-op Group Limited for the 52 weeks ended 3 January 2015
Group revenue of £9.4bn (2013: £9.7bn)
- Core Food convenience business delivers like-for-like sales increase of 3.2%, with like-for-like sales up 0.4% overall for the Food business
Group underlying operating profit** £172m (2013: £177m), reflecting robust performances in Food and Funerals, offset by losses in General Insurance
- Group returns to profit before member payments (equivalent to pre-tax profit in a PLC) of £124m (2013: loss of £255m)
- Net profit of £216m benefited from profit on disposal of Pharmacy and Farms businesses, compared with 2013 loss of £2.3bn following part disposal of Bank and write-down of Somerfield goodwill
- Central corporate costs reduced by £30m (2014: £146m, 2013: £176m)
- Previously committed capital obligation to Bank honoured, with final instalments of £313m paid in year
- Net debt significantly reduced to £808m (2013: £1.4bn)
- No dividend; Board anticipates dividend payments resuming after three-year Rebuild programme completes at the end of 2017
- First phase of a three-phase turnaround (Rescue, Rebuild, Renew) completed successfully
Richard Pennycook, Chief Executive of the Co-op Group, said:
“We made solid progress in 2014 as we successfully concluded the Rescue phase of our turnaround. The hard work of Rebuilding the Co-op Group for the next generation, and restoring it to its rightful place at the heart of communities up and down the UK, is now underway.
“We significantly reduced net debt, even after meeting our outstanding contributions to the Co-op Bank. This followed the successful sales of our Farms and Pharmacy businesses and detailed work to ensure we have the right cost base in place. Our core businesses continued to deliver for customers, with their financial performances reflecting challenging trading conditions across all of our markets and the different stages they are each at in terms of Rebuild.
“A significant element of our 2014 profit relates to one-off disposal gains on the sale of our Farms and Pharmacy businesses and property disposals. Without these we would, at best, have broken even. Against that backdrop, and given the need to invest in all our businesses, the Board will not be recommending a dividend to members and believes that a resumption of dividend payments is unlikely until the Rebuild phase is complete and we have returned to sustainable profitable growth.”
Allan Leighton, Independent Non-Executive Chair of the Co-op Group, said:
“I am putting together a Board which will be firmly focused on the tough job ahead of Rebuilding the Co-op, underpinned by the far-reaching governance reforms introduced in 2014.
“This is not just another commercial turnaround. The Co-op Group is different because we are owned by our members. They have a direct say in running the business, through electing Member representatives to the Board and the Council; and through having a say on key issues through the One Member One Vote democratic process. The communities we have traded in for generations have made us what we are today, so at the heart of our Rebuild plan is our purpose: “Championing a better way of doing business for you and your communities.” We are confident that with the help and support of our members, customers and colleagues we will be successful.”
Summary of business performance:
The performance of our businesses reflects how they are at different stages of the Rebuild process:
- Our Food business continued the implementation of the True North strategy, focused on the convenience market. The business delivered a robust performance, with like-for-like sales up 0.4% overall, and 3.2% in the core convenience estate. Underlying profits increased 1.5% to £251m. We acquired 82 new convenience stores and refurbished more than 700 stores; prices were lowered across 40 categories and the investment in own-brand product continued with over 170 awards for quality won during the year
- Funeralcare, where we are currently developing the next phase of our strategy, saw sales fall almost 2% by £7m in a year affected by a particularly low death rate. However, underlying profits rose by 6% to £66m after a clear focus on efficiencies
- General Insurance is now pursuing a new strategy, with a focus on providing motor and home insurance products targeted at Co-operative Group members. The business experienced difficult trading conditions, in line with the industry as a whole, with market premiums dipping across Home and Motor. Revenue was also impacted by a conscious decision to exit low-profit areas. Revenue fell to £371m (2013: £476m), leading to an underlying loss of £7m, compared to a profit of £36m in 2013
- Legal Services witnessed a year of significant change. Revenues declined by a third to £23m, due mainly to the decline of personal injury income following regulatory changes. However, decisive action taken on operating costs reduced prior year underlying losses from £9m to £5m in 2014, and in the second half of the year the business was trading profitably.
The governance reforms overwhelmingly approved by members in August 2014 paved the way for:
- The launch of the Group’s new Purpose – “Championing a better way of doing business for you and your communities”
- The creation of a new Group Board, to be made up of professional, Independent Non-Executive Directors, up to two Executive Directors and three Member Nominated Directors, all of whom are subject to election by members
- Key Board appointments being made with Allan Leighton as the Group’s first Independent Non-Executive Chair and Sir Christopher Kelly as Senior Independent Director
- The creation of a new national Members’ Council with the responsibility for holding the Group Board to account and promoting Co-operative values
Current transitional Board in place until the conclusion of the Annual General Meeting in May 2015, at which members will for the first time be able to shape the Society’s future under the new One Member One Vote system.
The Group is at the start of a three-year Rebuild process, focused on restoring the business to its rightful place at the heart of communities up and down the UK
- We have confirmed our core businesses as being Food & Electrical, Funeralcare, General Insurance (GI) and Legal Services.
- We have developed a comprehensive plan for further improvement of the commercial performance of Food, our largest business, to ensure we better serve all our customers. We will continue to invest in price, product and our people by further improving our operational efficiency and cost base.
- We have a new strategy in place for the GI business, completely focused on its desire to become ‘the go-to insurance provider for members of the Group’. We will leverage GI’s competitive advantages through this member-centric focus, building strong data and analytical capabilities and developing key distribution partnerships
- We are developing similar plans for our Consumer Services businesses – Funerals and Legal.
- We have already made the Group more efficient, delivering a new target operating model; we are pushing further with efficiencies, making sure we have the appropriate cost base
- We will continue to improve our balance sheet by prudently managing our businesses while still investing for growth
The key focus through 2015 will be creating a revitalised membership proposition
Membership is at the heart of all Co-op businesses and we must create a truly distinct and compelling membership offer for the Co-op Group
To revitalise our membership proposition we will focus on the following:
Building on the introduction of ‘One Member One Vote’, by giving our members a real say in the business
- Finding new and innovative ways to share our success with our members
- Showing that we are caring and responsive to our members and the local lives they lead
Campaigning on issues that are relevant to our members’ lives and where we can show real leadership and make a tangible difference with local and national resonance
We now have a model of democratic ownership that keeps us firmly connected to our members while ensuring professional oversight of our business decision-making
At our AGM in May millions of members will be given the opportunity to join us, either in person or on-line, and they will be able to vote on key issues and question and challenge our new Board
By the end of 2017 we will have rebuilt the Group for long-term, sustainable success
- We do not expect to declare dividends for the next three years as we continue to repair the damage done to our balance sheet and further increase investment in all of our businesses.
- Overall Group trading in the first 12 weeks of the current year has been positive and is either in line with, or ahead of, expectations in all of our businesses
- In Food, we expect the market to remain competitive but will continue with the implementation of our True North strategy, aiming to acquire 100 new convenience stores and refit 255 stores
- In General Insurance, market conditions will remain challenging over the next 12 to 18 months
- 2015 is expected to be a less challenging year for our Funerals business, which expects to add a further 40 branches and to continue investing in upgrading its IT systems
The Co-op Group
- Jon Church: 07545 210812
- Russ Brady: 07880 784442
- Susanna Voyle or Jonathan Sibun: 0207 353 4200
Notes to Editors:
The Co-op Group is the UK’s largest mutual business, owned by more than eight million members. It is the UK’s fifth biggest food retailer operating across the country with almost 2,800 local, convenience and medium-sized stores.
Amongst its other wholly-owned businesses are the UK’s number one funeral services provider, a major general insurer and a developing legal services business.
The Group also has a minority shareholding in The Co-op Bank and a joint-venture travel business with Thomas Cook.
As well as having clear financial and operational objectives, the Group, which operates 3,500 outlets and employs approaching 70,000 people, is a recognised leader for its social goals and community-led programmes.
For the Group’s 2015 Annual General Meeting, 2.9 million members are eligible to vote having met the minimum level of qualifying purchases with Group businesses during the Group’s 2014 financial year. For further information see the Group’s Rules and Purchases Regulations.
Following overwhelming agreement from members at the SGM in August 2014, the Co-op Group is implementing significant governance reform, the main components of which are:
- The establishment of a Board composed of a majority of Independent Directors including; an Independent Chair, five Independent Non-Executive Directors, two Executive Directors, including the Group Chief Executive and three Member Nominated Directors All Board Directors will be expected to meet the high standards of competence commensurate with the needs of a business of the scale and complexity of the Group and a demonstrated commitment to Co-op Values and Principles
- The establishment of a Council to represent members and to act as guardian of the Group’s Purpose, Values and Principles and the Society’s Constitution, with the power to hold the Group Board to account. The Council will be composed of a maximum of 100 Members, included colleagues. The Council is led by a President, elected for a term of two years.
- The creation of a Senate, elected by the Council, to help co-ordinate the activities of the Council and to act as a nexus for interactions between the Council, the Board, the Executive and members
Co-op Group Limited announces that the 2014 Annual Report and Accounts have today been submitted to the National Storage Mechanism and will shortly be available for inspection at: www.hemscott.com/nsm.do
A copy of the Annual Report and Accounts are also available at: www.co-operative.coop/annual-results-2014
This announcement contains additional information for the purposes of compliance with the Disclosure and Transparency Rules. This information is extracted, in full unedited text, from the 2014 Annual Report and Accounts (the ‘Annual Report’). References to pages and page numbers refer to page numbers and notes to the annual accounts in the Annual Report.