TIDM42TF
RNS Number : 1985Z
Co-operative Group Limited
17 September 2020
Co-operative Group Limited
17 September 2020
Interim Results Announcement: 26 weeks to 4 July 2020
Co-op delivers for stakeholders during Covid-19 crisis
- Revenue up 7.6%, driven by exceptional Food and Wholesale performances
- GBP15m given to community causes in Covid-19 response
- Significant increase in costs from Covid-19; challenging
second half ahead with uncertain economic backdrop and need for
further investment
- Major initiatives to improve colleague pay and benefits, boost
diversity commitments and relaunch membership with increased
community focus
The Co-op Difference and Covid-19 Response
-- Co-op supported nation through Covid-19 crisis with
outstanding contribution from Co-op colleagues on the
frontline:
o 7,000 temporary posts filled to manage increased demand
o GBP13m paid to colleagues, recognising crucial frontline
work
-- Co-operate launched - new and innovative online platform,
linking volunteers and those in need - visited more than 103,500
times in H1
-- Member Pioneers supported more than 20,000 vulnerable people
a month in communities; sourced volunteers, secured funding for
urgent projects and established support groups
Financial Highlights
-- Total revenues up 7.6% to GBP5.8bn (2019: GBP5.4bn), driven
by exceptional performances from Food and Wholesale:
o Revenue in Food rose 5.2% to GBP3.9bn (2019: GBP3.7bn, an
increase of 9.9% LFL in Q2) as customers shopped closer to home and
ate out less frequently during lockdown. Like-for-like sales up
8.8% (excluding fuel) representing 7(th) year of like-for-like
growth; market share increased 0.5 percentage points to 7.1%
peaking in the 12 weeks prior to 14 June
o Nisa wholesale revenues increased 13.9% to GBP801m (2019:
GBP703m), benefitting from local shopping in lockdown and range
improvements under Co-op ownership
o Funeralcare revenue increased 3.5% to GBP148m (2019: GBP143m);
22% increase in volume offset by reduced average revenue per
funeral due to Covid-19 restrictions
o Legal services revenue flat year-on-year at GBP19m (2019:
GBP19m) , with increased demand for will and divorce services
-- The cost of Covid-19:
o Covid-19 costs of GBP54m, including additional recruitment and
PPE purchase; expected costs of GBP97m for the full year
o Co-op received GBP33m government support in first half in
business rates relief and furlough payments for limited number of
colleagues
o Co-op will not take government furlough job retention
bonus
-- Group underlying operating profit doubled to GBP121m (2019:
GBP59m), driven by strong performance from Food:
-- Food underlying operating profit of GBP175m (2019:
GBP120m)
-- Funeralcare underlying operating profit of GBP17m (2019:
GBP10m) reflecting increased volumes and strong cost control
-- Legal services underlying profitability of GBP2m (2019:
GBP3m)
-- Group Profit Before Tax up 35% at GBP27m (2019: GBP20m);
GBP40m negative impact from property revaluations, disposals and
one-off items (2019: GBP14m)
-- Tax charge of GBP43m (2019: GBP27m credit) relating to
deferred tax. Group loss after tax and discontinued items of GBP26m
(2019: profit GBP41m)
-- Capital expenditure of GBP157m, predominantly in Food; down
28% year-on-year (2019: GBP219m) reflecting pause of store openings
during Covid-19
-- Net debt reduced to GBP555m (2019 year-end: GBP695m)
excluding lease liability, reflecting strong trading cashflows,
lower capital expenditure and good working capital management
Community Response
-- GBP15m of funds given to charities and community causes as part of Covid-19 response:
o GBP1.5m worth of goods donated to food banks supported by food
charity FareShare; GBP650k raised for FareShare via text donation
campaign
o GBP3.4m worth of advertising spend donated to FareShare,
encouraging audiences to support food banks
o GBP400,000 raised by Co-op Members for Covid-19 fund, shared
across community-based causes, FareShare and a funeral hardship
fund
o GBP1m raised in charity partnership with Mind, Scottish
Association for Mental Health and Inspire
o GBP2.6m free school meal vouchers provided for 6,000 Co-op
Academy pupils
o GBP950,000 fund created for global communities, channelled to
Fairtrade suppliers and One Water sustainable water projects
o GBP4.5m from membership programme donated to 4,000 local
causes
Business & Operational highlights
Food
-- Food sales up 5.2% to GBP3.9bn - an increase of 9.9% LFL in
Q2; underlying profit rose 46% to GBP175m
-- Market share up at 7.1%, peaking in the 12 weeks prior to 14
June (H1 2019: 6.6%), highest share for almost 20 years
-- Customers in lockdown shopping closer to home driving sales
in convenience stores; 1.7m new households shopped at Co-op;
average basket size doubled as customers reduced visits
-- Robust safety measures introduced to protect customers and
colleagues, including Perspex screens and priority shopping times
for key workers
-- Store opening programme paused in lockdown
-- Pressure maintained on Government to act under Safer
Colleagues, Safer Communities campaign, in aid of protecting
shopworkers from violence and abuse
-- Covid-19 fuelled rapid increase in delivery and digital offer:
o Online orders increased fourfold
o In a move followed by many of our competitors, Deliveroo
partnership expanded, to increase local delivery for customers
-- Strong performance from Nisa wholesale business, successfully
delivering against strategy to get more Co-op products to more
customers in more communities:
o Trading sales at Nisa up 14% to GBP801m
o 304 new stores signed up
Funeralcare
-- Funeralcare revenues rose 3.5% to GBP148m; underlying profit rose to GBP17m
-- Funeral numbers rose 22% to 59,000; volume increase offset by
government funeral restrictions, which led to 20,000 simpler
services for bereaved
-- Extra PPE sourced and mortuary space secured
-- Hardship fund launched to help bereaved families of key workers
-- Innovative new propositions and services introduced for bereaved during pandemic:
o Cortege service developed with option to pause outside family
homes
o Funeral services streamed for those not able to attend
o Delayed celebration-of-life events developed
Insurance
-- Sale of underwriting business for GBP185m, unlocking 13-year
distribution agreement for Co-op Insurance Services Limited,
expected to complete during Q4; business treated as discontinued
ahead of completion
-- Sales of motor, travel and home insurance fell sharply in lockdown
-- Rapid response for customers:
o Home and car insurance amended to cover those working from
home
o Travel insurance suspended for 20 weeks; reinstated with cover
for Covid-19
-- New strategy focused on developing and distributing more
products, including life insurance cover for over 50s
Legal
-- Legal Services revenue flat year-on-year at GBP19m (2019: GBP19m)
-- Further investment in new technology and solutions, with
introduction of Bereavement Notification and Advice Service
-- Expansion in digital legal services covering probate,
personal injury, employment, and family law
-- Will writing services up 69%; divorce-related enquiries up 300%
Health
-- Co-op Health app registrations up 400%, reflecting shift in
customer behaviour during lockdown
-- By end of July app delivering more than 20,000 prescription
items a month with 4.8/5 customer service rating
Co-operating for a Fairer World in the second half
The Co-op vision of Co-operating for a Fairer World is focused
on the need to address inequality and injustice. Against the
backdrop of Covid-19, the Co-op is announcing four major
initiatives to make a real difference for colleagues, members, and
communities:
-- Significant improvements to colleague pay and benefits
o Working with trade union partner, USDAW, The Co-op will create
a plan to align our hourly pay rate with the Real Living Wage,
significantly boosting take home pay for 33,000 colleagues
o The move follows considerable pay increases over past five
years
o We are also introducing new and improved colleague member
benefits:
- Doubling of colleague member discount on own-brand products to
20% all year round and increasing discount across the full product
range for 13 special payday events each year
- The above is in addition to existing benefits across
Insurance, Health, Legal Services and Funeralcare, including up to
GBP700 off funerals for immediate family of colleagues
-- Radical new Diversity and Inclusion Commitments
o During 2020, The Co-op has continued to focus on strengthening
diversity and inclusion
o Plan for series of new commitments for Black, Asian and
minority ethnic colleagues, members, and communities:
- Pledge to increase percentage of leaders from Black, Asian, or
ethnic minority background from 3% to 6% by 2022 and 10% by
2025
- Requirement for diverse shortlists for leadership roles
- Working with Co-op Academies Trust to develop curriculum on
anti-racism; plan to lobby government for national roll out
- Annual publication of ethnicity pay gap from 2021; call on
government to make mandatory for all businesses
- Maximising use of apprenticeship levy; seeking partnerships
and opportunities focused on benefitting Black, Asian and ethnic
minority candidates
- Increasing to 25% the number of local causes supported that
include Black, Asian, and ethnic minority beneficiaries
- Increasing involvement of Black, Asian, and ethnic minority communities through membership
- Pledge to invest more money with supply chain partners with a strong focus on inclusion
- Offer more diverse funeral services and upskill our
Funeralcare colleagues to support the different needs of
customers
- All targets built on Co-operative movement commitments to
democracy, equality, equity, and solidarity
-- New routes to work
o Plan to offer 150 of government Kickstart work placements to
candidates in communities where opportunities are most needed;
commitment that at least 50% of placements will become
permanent
o Commitment to top up national minimum wage allowance, to
ensure candidate income is in line with colleagues pay
This is in addition to 1,200 apprentices currently active across
The Co-op Group
-- Planned re-launch of membership with significant increase in
money going to local causes and charities
o Membership programme to be relaunched for 4.5m members this
autumn
o Plan to significantly increase money going to community causes
and charities
o Increased data capabilities to be leveraged to increase
personalisation of rewards and benefits for members
Outlook
-- The Co-op continues to operate in highly competitive markets
and against the backdrop of a worsening consumer economy. In
addition, the business is planning for and dealing with further
local lockdowns as the Covid-19 pandemic continues. Over the second
half:
o In Food, the competition is set to intensify but we remain
well positioned. We have already resumed our store opening
programme and have made a commitment to invest GBP130m in opening
50 stores, giving 15 stores significant extensions, and giving 100
further outlets major makeovers, creating 1,000 jobs before the end
of the year
o In Funeralcare, the exceptional impact and challenges created
by Covid-19 will continue into the second half of the year. Since
the end of the first half, the Competition and Markets Authority
(CMA) published its provisional findings into the market. The Co-op
will continue to work closely with the CMA through the remainder of
process
o The insurance market will remain highly unpredictable, with
travel restrictions changing regularly and government regulation
around housing causing market spikes. However, we expect to
strengthen our insurance presence from Q4, following completion of
sale of underwriting business and increased focus and investment
into product and distribution business
-- Net debt at year end expected to be between GBP600m and GBP650m
As a co-operative, our approach remains the same. We will
continue to work hard to support and deliver for our members,
colleagues, communities, and other stakeholders, and that will
remain our focus as we enter into a challenging second half
Steve Murrells, Chief Executive of the Co-op, said:
"We are living in unprecedented times, but the response of our
Co-op has been exceptional and I'm immensely proud of my 60,000
colleagues who've helped to feed and care for the nation during
this difficult period. We've shown how our co-operative approach to
doing business provides enhanced value for our customer-members and
the communities in which they live. At a time of crisis, our
country needs a strong and progressive Co-op and these results
evidence that we are ready to deliver even more for our key
stakeholders.
"Our vision of co-operating for a fairer world has taken on even
greater resonance during this exceptional time, with the pandemic
bringing to light inequalities and injustices which no longer feel
remotely tolerable. Actions, however, clearly need to marry with
the words, which is why we have announced four important
initiatives - improvements to colleague pay and benefits; our new
diversity and inclusion commitments; the creation of new routes to
work and our relaunch of membership. Being a Co-op has never felt
more meaningful and right. The role of business in society is
changing and we are proud to lead the way. Everything we are doing
points to a Co-op in tune with the communities in which it
operates, one which is determined to innovate and drive change for
the benefit of our members and the places where they live and
work.
"The coming months and years remain uncertain, and we know our
own Co-op will not be immune to the pressures the recession brings
to family budgets and to local and national economies. We will
continue to invest within our core businesses to ensure that our
Co-op value resonates within Co-op households and local
communities."
Allan Leighton, Independent Non-Executive Chair of the Co-op,
said:
"Our nation is experiencing a year like no other and I think
it's safe to say that things will never be quite the same again.
The pandemic has led to a health and economic crisis, but it has
also highlighted deep seated unfairness and inequalities across the
world and surfaced a growing public intolerance for injustice. How
we 'build back better' to create a fairer and kinder world has
become central to public debate. As the UK's biggest co-operatively
owned business, we intend to be central to that conversation,
showing how commerce and community wellbeing must develop in
harmony for the good of us all.
"During the first half of 2020 we have shown that commerciality
and co-operability can thrive and feed off one another, when both
are given the same level of focus and importance. The Co-op is a
different kind of business, but one whose enduring value can best
be evidenced during times of need and hardship. In the difficult
times ahead, we will ensure that our Co-op continues to make the
world a fairer place to live in."
Ends
Media Enquiries :
The Co-op
Russ Brady
Tel: 07880 784442
Headland Consultancy
Susanna Voyle
Tel: 07980 894557
About the Co-op:
The Co-op is one of the world's largest consumer co-operatives
with interests across food, funerals, insurance, legal services and
health. It has a clear purpose of championing a better way of doing
business for you and your communities. Owned by millions of UK
consumers, the Co-op operates 2,600 food stores, over 1,000 funeral
homes and it provides products to over 5,100 other stores,
including those run by independent co-operative societies and
through its wholesale business, Nisa Retail Limited. It has more
than 65,000 colleagues and an annual revenue of over GBP10
billion.
Co - operative Group Limited
Interim Report 2020
'Co-operating for a fairer world'
Co-op delivers strong commercial growth and innovative community
support during lockdown
Commercial: Co-op feeds the nation and supports the bereaved
during the Covid emergency
-- Group revenue GBP5.8bn up 7.6%
-- Group profit before tax up 35% to GBP27m
-- Group underlying profit before tax GBP52m up GBP63m from 2019
-- Group loss after tax and discontinued items of GBP26m driven by tax charge of GBP43m
-- Food sales up 5.2% as nation went into lockdown
-- Funerals taken increased by 22% directly related to the pandemic
-- Debt down GBP140m to GBP555m
-- Completion of the sale of our insurance underwriting business expected during Q4
-- GBP13m awarded as Covid-19 'thank you' to front-line colleagues
-- 7,000 temporary posts filled which ensured we could feed the
nation and properly care for the bereaved during the national
crisis
Community: GBP15m given to support the most vulnerable at home
and abroad during the crisis
-- GBP1.5m worth of goods donated to food banks supported by
food charity FareShare; GBP650k raised for FareShare via text
donation campaign
-- GBP3.4m worth of advertising spend donated to FareShare,
encouraging audiences to support food banks
-- GBP400,000 raised by Co-op Members for Covid-19 fund, shared
across community-based causes, FareShare and a funeral hardship
fund
-- GBP1m raised in charity partnership with Mind, Scottish
Association for Mental Health and Inspire
-- GBP2.6m free school meal vouchers provided for 6,000 Co-op Academy pupils
-- GBP950,000 fund created for global communities, channelled to
Fairtrade suppliers and One Water sustainable water projects
-- GBP4.5m from membership scheme donated to 4,000 local causes
Outlook
Second half expected to be impacted by the recession and
on-going additional costs related to Covid-19.
CHAIR'S INTRODUCTION
Our nation is experiencing a year like no other. I think it's
safe to say that things will never be quite the same again. The
pandemic has led to a health and economic crisis, but it's also
highlighted deep seated unfairness and inequalities across the
world and surfaced a growing public intolerance for injustice. How
we 'build back better' to create a fairer and kinder world has
become central to public debate. As the UK's biggest co-operatively
owned business we intend to be central to that conversation,
showing how commerce and community wellbeing must develop in
harmony for the good of us all.
As a business providing essential services, we stepped up to
meet extraordinary challenges during the first half of this year
and we'll continue to do everything needed to support our members,
colleagues and customers through the pandemic. The coming months
remain uncertain, with the possibility of further localised
lockdowns and the ongoing disruption to previous patterns of
business and commerce. We're already seeing job losses hitting key
sectors of the economy and we expect the economic downturn to last
well into 2021. We know our own Co-op will not be immune to
pressures on family budgets and we plan to do all we can to make
things easier for our members and their communities.
Like many others, we've been learning to do things differently
this year and have found new ways to maintain accountability to our
members and respond to their concerns and priorities. Our AGM was
held in early June, a few weeks later than originally planned. We
used technology to create a socially distanced, interactive event
which saw more than 800 members joining us via a live broadcast,
more than we would normally have had at our traditional physical
venue. Many thousands watched a recording of the meeting during the
following days.
Our members passed a number of AGM motions, including calling
for a renewed commitment to ethical retailing with an emphasis on
the climate impact of our food products, the importance of animal
welfare and healthy eating. In response, we'll take the necessary
actions to reduce or eliminate our greenhouse gas (GHG) emissions
to achieve net-zero and bring forward our 2050 target as soon as
practically possible. We also remain dedicated to building and
sustaining a wider co-operative movement. Our ambition is to work
with others to energise the movement in a way which builds on the
successes of previous generations of co-operators who established
such firm foundations, whilst also learning from more recent
movements whose impact and relevance, especially amongst the young,
provides lessons for us all.
Our National Members Council has also moved its work online,
continuing its vital role in our democracy. Regular meetings have
been maintained, with members of our Executive team able to update
Council as we've responded to this exceptional year and Council
being able to question and hold the Board to account.
As we indicated in April when we announced our full year results
for 2019, we are reviewing our plans for this year and beyond, to
reflect changed priorities because of Covid-19. This has meant
speeding up the implementation of some work while slowing down
other areas.
While Covid-19 is continuing to dominate our business thinking,
we also know that the arrangements for Brexit are still unclear,
which is regrettable. However, we are, once again, prepared for all
scenarios.
Let me finish by thanking our incredible colleagues for their
immense hard work during the first half of the year. I've been
continually moved by their resilience and commitment.
Allan Leighton
Group Chair
CHIEF EXECUTIVE'S REPORT
In the last few months we've seen how our co-operative approach
to business and our co-operative support for local communities have
come together in our response to Covid-19. In my opinion,
businesses will be judged by how they reacted to the pandemic and
how well they focussed on doing the right things for their
colleagues and the communities they serve. It's in that context
that our work in the first half of the year should be seen.
The vision we adopted at the end of last year, 'Co-operating for
a fairer world' has taken on even greater resonance during this
exceptional time, with the pandemic surfacing many existing
inequalities and injustices. We're a Co-op with a social purpose at
our heart, owned by our millions of members, working for their
interests and accountable to them. In this extraordinary year,
we've shown what it is to be a better way of doing business.
As a food retailer, we played our part in keeping the nation fed
through the lockdown. Through our Nisa wholesale business, we
supported thousands more independent retailers to meet the needs of
the public. As a funeral provider, we supported tens of thousands
of families in circumstances which made their grief far harder to
bear. As a provider of insurance, health and legal services, we've
made it easier to access this support in a time of lockdown and
social distancing. For the communities we serve, we increased our
support to help the most vulnerable and directed financial help to
food banks and local causes dealing directly with the consequences
of the emergency.
In late April this year, when we published our annual results
for 2019, we summarised how we were responding to the pandemic
across our business operations and our community work. Here, I want
to give our members a further update on that work and report on the
progress of the wide-ranging initiatives we began in those early
weeks of the crisis.
Financial overview
Overall, our Co-op's revenue was up 7.6% to GBP5.8 billion, an
increase of GBP0.4 billion on the same time last year. Our
underlying profit before tax, which excludes the impact of
non-trading items, was up to GBP52 million an increase of GBP63
million. Our profit before tax of GBP27 million was up GBP7 million
from GBP20 million last half year. A tax charge of GBP43 million,
meant we recorded a loss of GBP26 million after tax and
discontinued items. The tax charge was particularly high in the
context of our profits and is explained in our financial
performance section.
The increases in revenue and underlying profit were driven
overwhelmingly by the surge in sales for our Food business. We saw
safety concerns leading consumers to shop closer to home, welcoming
the ease and convenience of our Co-op stores and their extensive
range. Our online offer has also expanded significantly during the
first half of the year, with more than 500 Co-op stores now
providing food to homes via our delivery partners and other low
carbon methods.
The Co-op's food retail market share was 7.2% by July - the
highest it's been for almost two decades, although this is now
dropping back as shopping behaviour changes once again with the
easing of lockdown conditions. The independent retailers supplied
by our Nisa wholesale business also grew ahead of the market.
Our Funerals business saw a dramatic increase in the funerals we
arranged, with an increase of 22%, sadly reflecting the deaths
caused by Covid-19, and a related rise in non-Covid-19 deaths.
However, Government restrictions on how funerals could be conducted
meant that for many families only the most basic of arrangements
were possible or appropriate. Underlying profit before tax in
Funerals was up 70% to GBP17 million, an increase of GBP7
million.
Our new online Health business, which launched in May 2019 with
a focus on repeat prescriptions, benefited from increased demand
for home delivered medicines during lockdown. We saw an increase of
more than 400% in new registrations for the service between
mid-March and July. However, our Insurance business saw much
reduced sales during the spring and early summer, particularly for
motor and travel policies, in line with the rest of the sector. Our
Legal services business experienced an early increase in Will
writing work at the start of the pandemic, and then above average
inquiries about divorce as the strains on family relationships
created by lockdown began to show themselves.
Although our Food business has performed exceptionally well
through the crisis, our costs across all parts of the Co-op Group
have also increased. The additional costs during the first six
months of the year, directly related to Covid-19, have been around
GBP54 million. These costs included additional recruitment, the
purchasing of personal protective equipment (PPE), and increased
colleague sickness and absence linked to the virus. In contrast,
our support from the Government's emergency economic measures to
sustain the economy during the pandemic amounted to GBP33 million
during the first half - covering the business rates 'holiday' for
our Food stores and Funeral homes (which was universally applied to
all Highstreet businesses by the Chancellor) and furlough payments
to our colleagues. We estimate that the full year direct costs of
Covid-19 will be GBP97 million.
Wherever possible, when colleagues could no longer carry out
their work because of lockdown conditions, we moved them into other
roles to help those teams where the workload had dramatically
increased. However, there was around 5% of our workforce where that
wasn't possible, and we made use of the Government's furlough
scheme. In almost all cases, we 'topped up' the Government's 80%
support to 100% of their salaries. When we bring our colleagues
back from furlough, we will not be applying for the bonus payments
to businesses offered by the Chancellor for retaining their
employees.
As we look to the rest of this year and in to 2021, we expect
there to be on-going costs related to Covid-19 but on a lesser
scale than in the first half. Meanwhile, we'll be investing some of
the extra income from the start of the year into food price
reductions in the second half as our members and customers start to
feel the impact of the recession.
Emergency support for communities
The generosity of our members during this time has been
outstanding. Through a variety of channels our members and
customers donated GBP900,000 to FareShare which distributes to food
banks across the UK. This money was in addition to the GBP1.5
million worth of food we donated to the charity in March.
We also gave our members the opportunity to donate their unspent
5% Co-op member rewards to a new Co-op Members Fund, which included
support for FareShare. By the end of June, FareShare had been able
to distribute five million meals thanks to the Co-op's support. Our
Co-op fund has also enabled us to give emergency donations of
GBP500 each to 150 local causes who've been addressing immediate
need in their communities created by the pandemic, as well as
families struggling to afford funeral costs.
In July we launched a new multi-million-pound fund to support
food charities across the UK, as part of a campaign to highlight
the plight of the three million children in poverty and the
estimated eight million adults experiencing food insecurity since
the coronavirus lockdown.
The campaign draws attention to the growing number of UK
families where having a meal in the evening is not a given and
children and adults alike go hungry. It raised GBP2 million for the
National Emergency Trust (NET) helping to fund local food charities
up and down the UK.
As the nation's streets became deserted, we began selling copies
of the Big Issue in our stores providing 2,600 outlets for sales of
the magazine which supports the homeless to lift themselves out of
poverty.
To help our most in need pupils attending our Co-op Academy
schools, we provided GBP2.6 million worth of Co-op food
vouchers.
We are acutely mindful of the ongoing and longer-term needs of
our communities as the health and economic consequences of the
virus continue to play themselves out. We're reviewing our
community and campaigning priorities to make sure our work is
aligned to the changes we're seeing and to emerging needs. There
are further details of our community support later in this
report.
International response
During the Covid-19 crisis, our immediate priority was to
support our colleagues, members and customers in the UK. However,
we're a business which is globally connected through our world-wide
supply chain and our responsibilities do not stop at our
borders.
At the start of the summer we introduced our Wellbeing Charter,
specifically designed around the principle of our Future of Food
commitment to treat people fairly. The charter lays out our actions
to support our producers in the developing world tackle the impact
of coronavirus on their livelihoods, now and in the future.
We're building on solid foundations, like our leadership and
commitment to Fairtrade, our robust Ethical Trade programme , our
campaigning against modern slavery and our on-going investment in
clean water projects around the world.
We're repurposing GBP310,000 to support Fairtrade producers
through the coronavirus emergency. We're also increasing the
visibility of Fairtrade products in our stores to promote stronger
sales. The more sales, the more Fairtrade premium can be invested
by our Fairtrade farming communities in social projects which they
choose and manage. Fairtrade also guarantees a fair and reliable
income for the produce they grow.
With our partners at The One Foundation, we're directing the
GBP647,000 generated from Co-op water sales in the first half of
the year to clean water and sanitation projects, which will help to
tackle the spread of Covid-19 through better access to good
hygiene.
The Covid crisis has presented new concerns around the welfare
of workers across our international supply chain. Due to travel
restrictions, there's been a halt of essential audits and
inspections. So, we're working collaboratively to provide support
to our suppliers in understanding and addressing the impact of
Covid-19. We've taken a leadership role in building a coalition of
supermarkets to deliver supplier-facing webinars providing support
and guidance to protect workers during this period of unprecedented
change.
It's vital that as we repair and rebuild our economies we take
the opportunity to tackle climate change. The producers we've
supported are now feeling crisis upon a crisis with the pandemic
layering new uncertainty to livelihoods which are already directly
affected by climate related disruption. In 2019, we were the first
UK retailer to sign up to the United Nations' 'Our Only Future'
campaign , committing to play our part in capping global
temperature increases to 1.5degC above pre-industrial levels. We've
also joined the United Nations' 'Recover Better' campaign to
support the call for Governments across the world to prioritise a
recovery from Covid-19 that's consistent with a sustainable world
for future generations. We've set science-based targets to rapidly
decarbonise our business and the products we sell, and we've
pledged to further reduce our direct greenhouse gas emissions by
50% by 2025 as well as to reduce the emissions from our products
and services by 11% by 2025.
A further commitment to tackling climate change comes with our
re-launch of Co-op Power, a business to business venture, which
enables organisations to join a collective buying group for green
energy. Our Property team has also developed a way to convert our
food waste from our distribution centres into biogas energy which
can be used in high efficiency CHP engines.
Addressing racism
In the days following the horrific killing of George Floyd in
the United States, I felt compelled to speak out about the issue of
racial injustice which must also be central to the fairer and more
co-operative world we want to build as we recover from this global
pandemic.
I know that we have Co-op colleagues and members who experience
judgement and discrimination every single day because of the colour
of their skin. We can't go on like this.
As part of the global co-operative movement, we have a long
heritage of solidarity with the most disadvantaged and a commitment
to building equity and equality within and across communities.
Addressing institutional and cultural racism must be central to
that work.
As a business, we set out to value the talent, energy, passion
and commitment of all our colleagues regardless of their
upbringing, skin colour, sexuality or religion. In September we
announced new targets and commitments to address institutional
barriers to the recruitment of more Black, Asian and ethnic
minority colleagues to all parts of the business, with the goal of
increasing the number of senior managers from ethnic minority
groups from 3% to 6% by the end of 2022 and to 10% by 2025. In
addition, our leaders across the business will attend a new
inclusive leadership training programme. Through the lens of racial
discrimination, we're reviewing our products and services, our work
in local communities and schools, and our network of suppliers and
partners. It's also vital for us to look at how we represent the
diversity of our wider Co-op membership within our democratic
structures.
I want to thank again our colleagues for their work during this
extraordinary time. At the beginning of the lockdown our colleagues
had to implement rapid changes in our operations. In April we gave
a 'thank you' to our front-line colleagues working in Food and
Funerals in recognition of their extra effort and immense
commitment during this time. Colleagues were given GBP100 cash,
GBP50 worth of Co-op Food, plus an additional day's annual leave,
totalling more than GBP13 million.
Meanwhile, thousands of colleagues in our other businesses, and
in our support centre functions, have had to work from home for
months, many managing childcare and schooling responsibilities
too.
I thank all our colleagues in every part of the business for
their adaptability, resilience and continued hard work. They have
done their Co-op proud.
A very different second half
We know the commercial environment in the second half of the
year is going to be very different to the first half. We're not
expecting anything approaching the sales peaks in Food we saw
during the spring and early summer, unless a second national
lockdown is required. The situation for our Funerals business
remains unpredictable until control of the virus and further
advances in hospital treatment are achieved. We expect competition
across all our markets to become increasingly tough as price
becomes the dominant consumer consideration in response to a deep
recession.
When it comes to Brexit, it's no secret that many businesses,
particularly those in food retail, have called for a close ongoing
relationship with the EU to allow our well-established supply
chains to continue to operate smoothly come the end of the
Transition Period. That's not just for our commercial benefit -
today, our members and customers across the UK benefit from an
unprecedented choice of high-quality food thanks to our suppliers
across the globe.
The Government has set out its clear intent to secure a deal and
we hope both sides will work quickly and co-operatively so that we
have the clarity we need to prepare for the start of January 2021.
However, we are a dynamic business and will be prepared for all
possible scenarios so that we can continue to serve our members and
customers well into the future, come what may.
Steve Murrells
Chief Executive
Commercial update
Co-op Food
At the start of January our food business was set up for another
successful year. We were continuing to implement our 'Closer'
strategy: closer to our members and customers, physically and
virtually; closer to addressing their product needs; and closer in
responding to their ethical and environmental priorities.
At the beginning of the year we launched our new GRO range of
plant-based food recognising the need to help the public adopt more
sustainable diets to address climate change. In January and
February, we were trading well across all categories and expanding
our online ordering services and our new routes to home delivery.
Then Covid-19 struck and we had to respond, at rapid speed, to a
set of unprecedented trading conditions. Our colleagues stepped up
to the new challenges across our store estate, throughout our
logistics network, and at our support centre in Manchester.
Overnight we adopted new ways of working as we implemented
Government guidance. For our stores we set out new cleaning
regimes, one-way systems, social distancing, priority shopping
times, staffing at entrances to regulate customer numbers, and new
store layouts. We also temporarily adjusted our trading hours, so
we could replenish shelves and carry out additional cleaning. To
help our customers understand the changes, we put in place strong
and clear point of sale messaging and used in-store radio to guide
people and thank them for their co-operation. Importantly, we
empowered our store managers to make the right decisions locally to
keep their colleagues and our customers and members safe.
In the early days of the emergency we lobbied the Government for
our store colleagues to be given 'key worker' status along with
funeral colleagues. Throughout this time, the safety of our
colleagues was our top priority and our procurement teams rose to
the challenge of securing sufficient PPE. We swiftly put in place
plastic screens at our tills and between self-service check-outs.
We continue to innovate to keep customers safe by trialling a
traffic light queuing system at a number of stores to make it
easier for customers to observe social distancing when
shopping.
With pubs, restaurants and cafes closed and many office workers
moving entirely to home based working, many extra meals were being
prepared and eaten in the home. As a direct consequence, we saw
double digit sales growth across many of our categories. To cope
with the extraordinary demand for food and other household
products, we recruited 5,000 additional colleagues, many of them
within a single week in late March/early April. We targeted our
recruitment to the hospitality sector where we knew thousands were
losing their jobs.
We also accelerated our online and home delivery plans to
address the new needs and demand. Our online same-day delivery
service is now available across almost 100 towns and cities. The
rollout includes services from our own dedicated online shop, known
as shop.coop.co.uk, which uses low emissions transport including
eco-friendly bikes. It also includes our Deliveroo service which
now covers more than 1,000 store catchments.
We also teamed up with Buymie, a new mobile app, to offer
same-day home grocery deliveries to over 200,000 households across
Bristol. The move is the first partnership in the UK for
Ireland-based Buymie whose mobile app allows customers to book
personalised online home grocery deliveries.
Our colleagues have done a fantastic job in adapting throughout
the crisis and have remained focused on our customers and members.
It's through their commitment and dedication that we've seen them
receive the highest ever satisfaction scores.
We've seen significant sales growth for our Nisa partners,
who've benefited from the broader range of products we're able to
supply them, particularly within the fresh categories. Nisa trading
has been strong with sales up 14% to GBP801 million.
In the first six months of the year, Nisa signed up 304 new
stores including forecourt retailer Ascona Group. This builds on
record 2019 figures, marking a 40% like-for-like leap in store
number recruitment. Nisa continues to support its partners with
advice on social distancing, provision of PPE and ensuring
continuation of stock deliveries.
We had to pause our programme of new store openings at the start
of the crisis, but this got back on track in early July with the
opening of a new store in Pilton, the home of the world-famous
Glastonbury festival. Michael Eavis, the festival's founder, was a
huge champion of us coming to the village and helped us to
celebrate the store's opening. Over the last five years, we've
opened around 500 new shops across the country, more than any other
UK retailer. During the rest of the year, we'll be opening more new
stores and refitting others.
With economic hardships created by the recession, it's important
that our support for food banks and other forms of emergency help
for communities continues. Our ambition is that no good food goes
to waste, so when we have extra food at one of our depots, we'll
share it with those in need through our partnership with FareShare.
But, for food at our stores, we'll partner directly with local food
charities and community groups to share good food that would
otherwise have gone to waste.
In support of our campaign to highlight food poverty among
families, we launched a promotion for our 3 for 2 summer picnic
food range through which we donated 20p from each purchase to the
National Emergencies Trust (NET) to help those in need because of
Covid-19. By the end of the summer we'd raised GBP2 million.
As we began the second half of the year, we saw the exceptional
growth levels start to slow but remain well ahead of the market.
Shoppers are now venturing further from their homes and workers are
returning to offices. In the coming months we expect to see our
online sales continue to grow, reflecting the market as a
whole.
Co-op Funeralcare
At the start of the year we were focused on the implementation
of our turnaround strategy with its priorities of achieving high
standards of care; introducing innovative ways of keeping in touch
with our clients at every stage of the journey; increasing choice
and personalisation of funeral services; and addressing funeral
affordability. We were making strong progress in each of these
areas when the pandemic took hold, requiring us to re-prioritise
our plans and divert our full efforts to deal with the
emergency.
By the end of June, we had carried out 59,000 funerals in 2020.
That's a 22% increase on the same period last year.
The scale of the pandemic, the clinical guidance introduced for
the care of the deceased, the colleague safety measures and the
restrictions on funeral services, have together had a profound
effect on how we have been running our business.
Every part of our operation pulled together to meet the
challenges and ensure we could continue to support families at this
critical time. Our procurement team sourced extra PPE from around
the world; our property team secured additional mortuary space; our
coffin factory in Glasgow worked six days a week; our HR resourcing
team led a massive recruitment programme delivered at rapid speed;
and we introduced a suite of additional health and safety measures
to ensure we could continue to support our clients whilst
protecting our colleagues.
Throughout these months we advised Government at a national and
local level and lobbied for consistent practice across all local
authorities across the UK.
As the restrictions became clear, we quickly introduced new
propositions and services to support bereaved families, such as
arranging a cortege to pass and pause outside a family's home and
arranging live streaming of services.
During the pandemic, many families lost their loved ones
suddenly which has resulted in unexpected financial pressure at a
time where many were experiencing reduced wages or financial
uncertainty. Thanks to the generosity of our Co-op members, we set
up a new hardship fund to help families pay for funerals of key
workers. We've now widened this to anyone in hardship because of
Covid-19.
We've also been concerned about the longer-term emotional impact
that the pandemic has created. A report we published over the
summer showed that in the weeks following the start of the UK's
lockdown, 47% of bereaved adults in the UK had been denied their
final farewell to a loved one because of Government and local
authority restrictions. This has led to longer term issues of
grieving and emotional recovery. We've presented the key findings
of the report to the Government and are working with them,
bereavement charities, and other key organisations, to help support
families through their grief. We've also introduced a new
proposition to help families to have a 'delayed celebration of
life' for their loved one as restrictions begin to lift.
Overall, during the first half of the year, the type of funerals
we were able to offer were simpler and pared back and we therefore
experienced a significantly lower average selling price, whilst at
the same time our operational costs were higher. So, despite the
much higher numbers of funerals we've not seen the uplift in
profits we would normally see on the back of the increased volumes.
We expect to see the demand for simpler funerals to continue into
the second half, as a result of the economic downturn. Funeral
volumes are now impossible to predict and will be dependent on the
success of controlling Covid infections and of reducing the
mortality rates. We expect our operational costs to remain higher
due to ongoing restrictions and safety measures.
Whilst volumes for at need funerals were very high in the first
half of the year, we did see a marked reduction in funeral plan
sales which were down 33% versus the same period last year. This
was a consequence of our in-branch colleagues focusing on at need
funerals and being open for appointments only. As restrictions
lifted, we saw performance recover and we expect sales to return to
expected levels in the second half of the year.
In terms of regulation, in March we welcomed confirmation in the
Chancellor's budget that the Government is to legislate to bring
the pre-paid funeral planning market within the remit of the
Financial Conduct Authority (FCA) and provide protection to
consumers. Over the last two years we've been outspoken in calling
for greater direct regulation of this market. We've worked closely
with HM Treasury to share our expertise as a reputable provider and
outline why the best model for funeral plans is under the remit of
the FCA.
Over the summer, the Competition and Markets Authority (CMA)
published its provisional decision report into the funeral
industry, something we've been working on closely with them for the
last couple of years. We have, from the outset, welcomed the
Government's work on behalf of consumers and fully support a
statutory regulator for the funerals sector covering quality and
transparency with inspection and enforcement powers.
In its provisional decisions, the CMA has outlined some steps
that, if implemented in their final report, (due March 2021) will
need to be taken by funeral directors and crematoria to make sure
that bereaved families are given the best possible support at a
difficult time in their lives. We've sent our detailed written
response to the provisional decisions and will continue to engage
with the inquiry.
We're proud of the work we've done to support families over the
last few months and the CMA has acknowledged Covid-19 has had a
significant impact on our market and, in our view, will be likely
to change the way funeral businesses operate in the future.
We've been leading the way in price transparency, as we know
that bereaved families are looking for clarity on what's included
in their funeral arrangements. We've also worked hard over the last
few years to bring prices down and offer value for money in what
is, for many, one of the biggest purchases they will make in their
lifetime, ensuring there are more affordable options. We know that
every funeral is truly unique and personal to the family or
individual - this isn't a 'one size fits all' service so the cost
of a funeral can vary from family to family, depending on their
choices. It's important to note that the CMA report has been
backward looking in its assessment of pricing and the market has
changed considerably in recent years. Our Co-op has led the way in
expanding the affordable options we offer to families.
We aim to be the best in the market when it comes to offering
our clients full choice and we must continue to do this on every
occasion. Our new proposition trials are taking this to the next
level, offering a truly bespoke service at competitive prices, with
our existing high levels of quality maintained.
We'll continue to work closely with the CMA to support their
work and the implementation of the findings.
In the second half of the year we expect to see continued demand
for our simpler funeral offerings as the recession impacts family
budgets and financial concerns. Meanwhile, we'll continue to
deliver our turnaround plans for the business. We've learnt much
about our ability to introduce rapid change during the last few
months and some of the initiatives we introduced to respond to
situation will become part of our standard offering.
Co-op Insurance
As the pandemic took hold in the UK we took measures to reflect
in our insurance policies the restrictions which were introduced by
the Government as well as the efforts people were making to support
their local communities.
For anyone that needed to work from home or were self-isolating,
their home insurance cover was not affected and there was no need
to contact us. And this remains the case today . If our customers
had to drive to work instead of getting public transport because of
the impact of Covid-19, their car insurance policies also remained
valid. And if customers were using their car for voluntary purposes
in any capacity to support others who are impacted by Covid-19,
their cover was not affected. Additionally, key workers needing to
use their own car to drive to different places of work because of
the impact of Covid-19 were not affected. We have kept all of these
changes in place for the time being.
During the lockdown we saw a sharp drop in sales of car, travel
and new home insurance reflecting the Government restrictions on
work and movement. There were also far fewer claims being made.
Sales are now picking up as the economy opens up again, and motor
claims went up by 35% in the weeks following travel restrictions
being lifted.
In February we launched our new life insurance cover for over
50s, the latest in our growing portfolio of insurance products. We
recognised a gap in the market, so we worked with our members
across the Co-op to create a product which is flexible and
realistic for customers. In partnership with Royal London, the new
life insurance plan enables people to leave their loved ones a lump
sum of up to GBP10,000 when they pass away, even when faced with
periods of financial difficulty. The product offers several unique
features including allowing policyholders to take a payment holiday
from their monthly payments for up to six months, twice throughout
the lifetime of the policy, if they need to.
In September we began a campaign to raise awareness of the
pressures facing young drivers from other motorists. We insure
24,000 young drivers (aged 17-25) who use our telematics technology
to reduce their premiums by encouraging responsible driving
behaviour. Our research shows that 53% of our young drivers have
felt pressured by another motorist and 24% have felt physically
unsafe while driving because of harassment from other road users.
We've launched a T-plate sticker which young drivers can affix to
their vehicles to indicate they're using telematics technology and
are therefore obeying speed restrictions. Our aim is to create
safer drivers, safer roads and safer communities.
Before the end of the year we're expecting to complete the deal
to sell our insurance underwriting business for GBP185 million.
From the outset we've been clear of our intention to significantly
grow our insurance footprint and the completion of this deal will
unlock a 13-year distribution agreement for Co-operative Insurance
Services Limited (CISL) with Markerstudy Group, enabling us to
deliver upon our ambitious expansion plans.
Co-op Legal Services
Continuing its good progress in 2019, our Legal business has
been innovating with technology to make access to legal help more
convenient. Having developed digital legal advice technologies for
estate planning which makes sorting out your Will easier and more
effective, in 2020 we've been developing a suite of digital legal
advice services that cover probate, personal injury, employment and
family law. Our customers are making the most of the free legal
advice and guidance offered by our new range of services.
At the start of the lockdown we saw an increase in demand for
Will writing services, while since lockdown has lifted we've seen a
300% increase in divorce related enquiries reflecting the
tremendous stress many relationships have suffered during this
time. Online consultations with our legal advisors were already
growing before Covid-19 but the experience of the pandemic is
likely to increase that trend.
As Covid death rates began to soar, we introduced a Bereavement
Notification and Advice Service to help people deal with a late
loved one's affairs. The new service gives bereaved families help
informing financial institutions, stopping junk mail and closing
social media accounts. Typically, bereaved families are left to
deal with an average of twelve organisations, ranging from the
Government's Tell us Once service, to pension providers, insurers
and utility providers and corresponding with the Coroner. This new
service enables us to help bereaved families by providing a single
point of contact.
Co-op Health
The newest part of the Co-op, Co-op Health marked its first
birthday in May. It's entirely built on a digital platform and is
designed to offer a modern, convenient, solution to health
needs.
The initial focus of the business has been to provide online
ordering of repeat prescriptions. These are delivered either direct
to the customer's home or to their local Co-op at no extra cost to
the customer, or the NHS. The fulfilment and distribution operation
is based in Lea Green in Warrington alongside one of our Food
distribution depots. Our Co-op Health App, which can be downloaded
to a phone or tablet, is integrated with NHS and GP data which
makes it safe and stops inappropriate ordering. Central to our
Health offering is that we're the only online prescription provider
to have links into all GP systems.
New customer registrations grew by over 400% during the spring
and early summer reflecting the lockdown and shielding instructions
to vulnerable individuals. By the end of July, we were delivering
more than 20,000 prescription items each month with our customers
rating the service 4.8/5.
We've been listening to our customers and have now enhanced our
service to allow them to manage prescriptions on behalf of someone
else and we've introduced a way to place orders online via our
website in addition to the App, designed for those who don't have
smartphones. Whichever route they choose to register, they'll be
connected securely to one of over 10,000 GP surgeries in England to
view and select their medication in real time, with prescriptions
continuing to be fulfilled by our pharmacy in Lea Green.
Colleagues
Our colleagues right across the business have been outstanding
in how they've responded to the challenges of 2020. As the scale of
the emergency became clear, and new patterns of working were put in
place, we implemented a new approach to colleague communications
making sure that all of colleagues had the latest health guidance
and operational information they need each day.
Throughout lockdown, and beyond, we issued a weekly Co-op Care
email to all colleagues focused specifically on mental and physical
wellbeing. We covered many issues we knew were highly relevant at
this time, including: coping with fear and anxiety; bereavement;
personal resilience; and staying fit and motivated when working
from home.
We knew it was important for there to be more frequent
communications to our colleagues during this time, and for our most
senior leadership to be visible. Our CEO, Steve Murrells, recorded
short, weekly video updates messages from the end of March through
to the end of July reinforcing our daily messaging, highlighting
significant changes and thanking colleagues for their work.
To monitor and track how our colleagues were doing throughout
this time, we carried out two special Talkback surveys which
measured individual wellbeing including levels of personal anxiety
and concern for family members.
Colleague recognition
During this time, we also developed new ways to recognise and
thank the efforts of our colleagues. For colleagues working from
home we introduced digital thank you cards 'You're Incredible' and
'Not all Heroes wear Capes' to celebrate their achievements. We
added a new way to recognise exceptional colleague work during the
pandemic by giving our Co-op members and colleagues the opportunity
to nominate an individual for a Local Hero award. More than 1,000
nominations have been received so far and winners will be announced
in the second half of the year. We shared stories about the work of
our colleagues on our external social media platforms during May,
June and July to publicly celebrate their work.
Our Covid related acts of thanks and recognition were in
addition to our annual Being Co-op awards which received a thousand
nominations across thirteen categories.
In April we launched our new career celebration scheme to mark
and reward colleague milestones on their first anniversary of
employment with us and then at five-year intervals. The new scheme
means we'll be celebrating 9,000 colleagues a year, ten times more
than our previous career recognition scheme.
Diversity and Inclusion
During 2020 we've continued our focus on strengthening our
diversity and inclusion across all parts of the business.
For International Women's Day in March, we ran an event at our
Manchester support centre led by our Chief Financial Officer,
Shirine Khoury-Haq and our Group Secretary & General Counsel,
Helen Grantham who discussed their careers.
To mark Ramadan in April/May, we ran several virtual sessions on
understanding the importance of the festival and ran a sponsored
fast in which our CEO Steve Murrells, and our Chief People Officer,
Helen Webb, took part in along with other business leaders.
During June, July and August we once again showed our commitment
to the LGBT plus community through Pride events both internally and
externally. This year, with social distancing restrictions, we did
this through virtual educational sessions, social media campaigns,
and Pride flags in store. We've also recently changed the Pride
flag to use the progress chevron flag.
During our annual season of in-house training and development
Leadfest, we incorporated sessions such as 'what is systemic
racism?' 'what is white privilege?' and 'how to talk about
race'.
In September we launched new commitments, targets and ways of
working to address racial inequalities within our workplace and
with our other key stakeholder relationships, including our wider
membership, the communities we support, our suppliers and other
partnerships.
Among the changes we're making, we're going to:
-- Double the representation of Black, Asian, and minority
ethnic leaders and managers by the end of 2022, moving from 3% to
6%, and then to 10% by 2025.
-- Require diverse shortlists for all leadership roles.
-- Publish annually our ethnicity pay gap from 2021 and call on
the government to make this mandatory for all businesses.
-- Maximise the use of our apprenticeship levy and seek
partnerships and opportunities which focus on benefitting Black,
Asian and ethnic minority candidates.
-- Work with our Co-op Academies Trust to develop a new
curriculum on anti-racism so that the next generation knows what it
means to be anti-racist. We'll then lobby the government to roll
this out as part of the national school curriculum across the
UK.
-- Ensure stronger representation of Black, Asian and ethnic
groups across all our marketing platforms.
-- Increase the number of local causes whose projects include
Black, Asian, and ethnic minority beneficiaries to 25% through the
Local Community Fund.
Community
Our ability during the pandemic to support the local communities
in which we trade was helped enormously by the fact that we already
had established relationships, good understanding of local needs,
and a network of colleagues dedicated to creating stronger
communities.
Co-operate platform and Member Pioneers
We've long been committed to expanding local, grassroots,
co-operative action to meet local needs and as the lockdown began
we increased our efforts. Last year we began testing a new online
platform called 'Co-operate' which can link local projects to local
resources.
Our trials around Greater Manchester and parts of London were
already proving successful and in April we scaled up the platform
to make it available across the country. It's enabled volunteering
to help the vulnerable with their shopping and also connected
people, so they could share interests and new learning together
during a time of physical isolation.
In the first half of the year, more than 103,500 visits have
been made to the Co-operate platform to access services
including:
-- a matching service connecting volunteers with people or organisations that need help
-- signposting to online events to help bring people together in virtual communities
-- 'how to' guides and digital content to support people in
connecting with one another through lockdown
So far - 2,400 community groups have registered with the
Co-operate platform and 5,300 people have registered to offer
volunteer support.
The online Co-operate platform complements our physical network
of Member Pioneers. By September this year, we had 1,000 Member
Pioneers in place. During the lockdown our Pioneer colleagues
concentrated their efforts on supporting vulnerable people, keeping
people connected, finding volunteers and securing funding for
urgent projects. They played a key role in community response to
the pandemic by either establishing local support groups
themselves, signposting others to existing groups or individually
supporting food and medicine deliveries and face-mask production.
Through these efforts Member Pioneers supported an estimated 20,200
vulnerable people per month through lockdown.
We're recruiting additional Pioneer colleagues with the aim of
reaching 1,100 by the end of 2020, which will mean we have a Member
Pioneer covering all parts of the United Kingdom.
Financial help
Recognising that local fundraising would become very difficult
during social distancing restrictions, we chose to bring forward
the distribution of funds for the more than 4,000 local causes
currently being supported by our Co-op members. This would normally
have taken place in November, but we released GBP4.5 million during
the spring to help make sure immediate needs were met.
The themes we had identified in 2019, through local research and
the national data we consolidate to create our Community Wellbeing
Index, led us to focus our community support on three
interconnected areas: public spaces, mental wellbeing and skills.
We've seen how these have taken on even greater relevance over the
past few months.
How we use public spaces - indoors, outdoors, and online - and
how that relates to our individual and collective wellbeing has
become much better appreciated during lockdown; mental health for
many people has been damaged through an intense period of isolation
and restricted movement; and the hit to the economy will make
skills training, especially for a younger generation, a matter of
urgency.
Free school meals for Co-op Academy pupils
In March, as schools began to close because of the virus, we
knew that the 6,000 students who have free school meals across our
25 Co-op Academy Schools would need our help. The Co-op Academy
Trust has chosen to work in areas of high deprivation in the north
of England which means the number of children eligible for free
meals is on average around 32% in our schools, compared to the
national average of 13%. In one of Co-op Academy schools it reaches
67% of students.
Before the Government had responded to this issue, we organised
a scheme to give eligible Academy Trust pupils a weekly GBP20 Co-op
food voucher card - GBP5 higher than the normal value of free
school meals. We also extended this to children identified as being
from financially vulnerable families and to refugee children who
were not yet eligible for Government support. When the Government
commissioned its own national scheme to cover free meals during
lockdown, we chose to keep to our own more generous arrangements,
knowing that there was no guarantee of Government reimbursement at
a cost of over GBP900,000. Several hundred other schools chose to
make use of our Co-op voucher cards to support their own pupils
rather than use the Government provider.
We committed to providing our Co-op support during term time and
school holidays, including through the summer months, before the
Government made its U-turn on this following Marcus Rashford's
campaigning, which we'd supported.
To help with home study during the lockdown, the Academies Trust
provided 1,000 laptops to students who needed them.
The cost to the business of supporting our Academy children with
free school meals through to the end of the summer holidays was
GBP2.6 million. The Government's policy means that only a small
proportion of this can be recovered which limits our ability to
invest further in tackling food poverty in our Co-op Academy
schools.
Campaigning
Throughout the emergency, we've worked closely with relevant
Government departments and with our national trade bodies giving
advice on those areas of the economy where we have specialist
knowledge and understanding. As the scale of the emergency began to
emerge, we lobbied for 'key worker' status to be given to our Food
and Funeral colleagues. We also offered guidance on safety measures
for caring for the deceased and on the social distancing measures
for funeral services. Where we saw inconsistencies of practice over
burial arrangements, we also lobbied local authorities.
In early July the Government finally published its response to
its call for evidence from shop workers who've been the victims of
verbal and physical abuse in the workplace. We welcomed the
response and there are positive measures in it, but overall, we
believe more should be done to protect our colleagues and reset
expectations of what is acceptable in society - we do not believe
it should be part of the job to be abused and attacked.
As part of our Safer Colleagues, Safer Communities campaign, in
Summer 2019 we'd encouraged our colleagues in making 600
submissions to the call for evidence. We also sent the Government
our own 70-page report with ten recommendations for action.
Meanwhile, we've been backing Alex Norris MP's private member's
bill which puts forward stronger legislation to tackle crime
against store workers. In January we asked colleagues to write to
their MPs asking for the Government to respond to the submissions
we'd made. Within a few weeks, 5,000 letters had been posted. We
continue to believe that a new offence should be created to protect
shopworkers and we were disappointed that Government did not
propose new legislation. We will continue to work with other
retailers to back Alex Norris' Private Members Bill to afford
shopworkers the additional protection they need and deserve.
Looking ahead
We're now deep into recession and need to do all we can to
support our members and customers through some difficult months
ahead. Until a vaccine for Covid-19 is found and a global
immunisation programme is underway, we will not be free of the
health and social consequences of the virus. The economic
consequences could last even longer.
As we began the second half of the year we could see the market
environment for food retail changing rapidly with shopping patterns
altering again and competition becoming intense. The spike in
convenience food store shopping peaked in April and May and the
exceptional sales increases seen during those months have returned
to more normal levels. We've made a commitment to invest GBP130
million in opening 50 stores, giving 15 stores significant
extensions, and giving 100 further outlets major makeovers,
creating 1,000 jobs. We'll also extend the reach of our home
delivery channels at greater speed.
Meanwhile, funeral volumes remain unpredictable but will clearly
be linked to the nation's success in controlling further waves of
Covid-19 infections. However, the recession is likely to continue
to increase demand for simpler funerals which will reduce the
profitability of the business in the second half. In line with our
turnaround plans for Funeralcare, we'll focus on improved online
communications for our clients throughout the bereavement
journey.
The insurance market will remain highly unpredictable, with
travel restrictions changing regularly and government regulation
around housing causing market spikes. However, we expect to
strengthen our insurance presence from Q4, following completion of
the sale of our underwriting business and increased focus and
investment into our product and distribution business.
Across our Co-op we'll continue improving our operational
effectiveness and reducing our running costs, so we can invest
further in our price and service offerings and deliver additional
exclusive value and benefits for our members and customers.
Net debt at year end is expected to be between GBP600 million
and GBP650 million.
As a response to the hardships created by Covid-19 and the many
inequalities in society exposed by the pandemic, in the autumn
we'll be relaunching our Co-op membership scheme, doubling the
amount given to support the wellbeing of the nation through local
and national initiatives. In addition, improvements to our Co-op
app, launched in September 2019, will enable us to tailor more
offers to our members, giving them financial benefits where it
matters most in their week to week shop. The improved app will also
create an easier route to becoming a member and provide more ways
to join in and get involved with Co-op activities from designing
new products and services to volunteering. The new membership
proposition will also double (from 10% to 20%) the everyday
discount given to our colleague members on our own brand food
products. Alongside this, we're investing a further GBP1million to
our colleague wellbeing projects.
We've always valued the work of our colleagues on the frontline
and Covid-19 has demonstrated just how important their role is in
feeding the nation, caring for the deceased and bereaved, and
delivering our vision to create a fairer world. Pay levels for our
front-line colleagues have increased considerably over the last
five years, but now we want to go further. So, we're going to work
with our trade union partners, USDAW, to create a plan to improve
our hourly pay rates in the coming year so that they align to the
Real Living Wage.
In the community we'll give a further pay-out to more than 4,000
causes in November and begin our next round of nominations for
2021. We'll continue our support for food banks while at the same
campaigning to address the root causes of food poverty.
Our expansion plans for our Co-op Academies Trust will continue
with a further two schools expected to join the trust by the end of
the year.
Principal risks and uncertainties
The Directors have reviewed the principal risks and
uncertainties faced by Co-op and the risks set out in the 2019
Annual Report and Financial Statements remain relevant for the
second half of 2020.
The Directors use our Co-op enterprise risk management framework
to continuously monitor and re-assess our actions in relation to a
changing business environment. Consideration is given to emerging
risks and to any change in internal and external influences that
could impact our business model and how we operate.
Coronavirus Pandemic
The Coronavirus pandemic and the management of its impacts on
our colleagues, communities, customers and suppliers remains a
priority for 2020. We continue to operate in a period of
uncertainty and failure to effectively manage our response may lead
to a sustained reduction in performance across our businesses. Our
primary focus is to ensure we adopt social distancing, sanitisation
and Personal Protective Equipment measures in our stores, branches,
depots and support centres. These measures are essential to comply
with government guidelines (that we continue to follow) and to keep
our customers and colleagues safe. Most of our support centre
colleagues continue to work from home, where it is possible for
them to do so. We also considered if any new mitigations are
required, should there be a second wave of the virus in the coming
months. Our conclusion is that most measures are already in place
and our businesses are well-positioned to manage a resurgence of
the virus.
As the pandemic has evolved our Incident Management responses
have been adjusted to ensure appropriate action is taken to revise
our operations and mitigate the ongoing risks to our business. In
addition to our Incident Management processes we continue to
monitor and manage changes to our risk profile by considering the
impacts on our high-level risk categories and established principal
risks.
Category Impacts
Strategy
& Business * Redirection of resources to support our crisis
response and review of our strategic prioritisation
and choices during 2020 and possibly beyond
* Longer term impact of Lockdown and recovery on
macro-economic conditions and competitiveness
(increasing unemployment, household debt, inflation,
recession)
Finance
& Treasury * Some deterioration in funding levels of Defined
Benefit schemes and Funeral Plan Investment Portfolio
resulting from market volatility.
* Risk to the valuation of both trading and non-trading
properties, potentially resulting in increased levels
of asset impairment or higher onerous lease
provisions
Operational
& Customer * Risk to the health and wellbeing of our frontline
colleagues. Impact of new ways of working on
colleague wellbeing
* Increased stress on our supply chain and challenge to
viability of some 3rd Party Service Providers
Regulatory
& Compliance * Adapting to changes to regulation including but not
limited to: some exceptions to competition law, GCA
guidance, statutory sick pay, legal duty of care to
colleagues and customers amid risk of infection, and
funeral attendance and procedures
Brand &
Reputation * Altered member, community and colleague expectations
in a time of crisis
Brexit and transition from the European Union
The 2019 General Election results, and the sizeable majority
achieved by the UK Government have changed the Brexit outlook for
2020 . Following our exit from the EU on 31 January, negotiations
continue, but at present it does not seem likely that a
post-transition period agreement will be achieved between the EU
and UK. A 'No Deal Brexit' remains a distinct possibility, given
the Government's commitment to leave the Customs Union and Single
Market on 31 December 2020. Our planning and preparation work has
continued throughout the transition period to ensure we are best
positioned to adapt once the roadmap and precise regulatory
requirements are defined, but always on the assumption that no
agreement will be reached before the deadline of 31 December
2020.
The principal risks below have the potential to impact the
delivery of our business strategy and our commitment to create
value for our members and communities. These are summarised as
follows:
Risk Risk Description
Change Our five-year plan needs us to make changes
in the way we operate. If our plans are not
delivered in an effective way, we will not be
able to see the benefits of our change programmes.
-------------------------------------------------------
Brexit and Brexit and its potential impact on the UK economy
other market poses a major threat, in particular to our Food
conditions business.
-------------------------------------------------------
Competitiveness The competitive landscape in which we operate
means that we need to monitor our growth targets,
market share and competitor behaviour to remain
viable and innovative.
-------------------------------------------------------
Brand and We set ourselves high standards for responsible
Reputation retailing and service, as well as speaking out
on the issues that matter to our members. If
we don't meet those standards, or fail to demonstrate
our difference from our competitors, there's
a potential risk to our reputation.
-------------------------------------------------------
Pension obligations The measurement of our Defined Benefit liability
is sensitive to changes in several factors.
Although we have taken steps to significantly
minimise our exposure, adverse market movements
could result in a lower pension surplus and
may need our Co-op to pay additional contributions
in future.
-------------------------------------------------------
IT and cyber We hold data on our colleagues, customers, members
threats and partners. We are reliant on technology to
deliver our business operations so theft of
data or a cyber-attack could significantly disrupt
our operations.
-------------------------------------------------------
People Our ability to attract and retain colleagues
with relevant skills and experience is important
to achieving a strong, competitive Co-op. If
we do not continue to recruit talent and to
invest in our colleagues, then it may impact
our operations and our ability to deliver on
our strategic plans.
-------------------------------------------------------
Misuse and/or We hold personally identifiable data on our
loss of data colleagues, customers, and members. We need
to make sure we protect and manage this data.
-------------------------------------------------------
Health and Faced with a rise in violent and abusive crime,
safety, and and busy retail environments, we need processes
security in place to protect our colleagues, members,
customers and visitors to our premises.
-------------------------------------------------------
Operational Failure to create the network capacity needed
resilience for future growth or an extended supply disruption
event could significantly affect the availability
of products and services in our stores resulting
in loss of sales.
-------------------------------------------------------
Regulatory Our Co-op is subject to laws and regulations
compliance across its businesses. Failure to respond to
changes in regulations or stay compliant could
affect profitability and our reputation through
fines and sanctions from our regulators and
affect our licence to operate.
-------------------------------------------------------
Pre-Need Funeral The measurement of our Pre-Paid Funeral Plan
Plan obligations obligations is sensitive to changes in several
factors. Adverse movements could result in lower
than expected funds being available and the
business receiving a lower amount per funeral
or may result in individual contracts becoming
onerous. A Co-op funeral plan provides a funeral
in line with the funeral plan specification
and terms and conditions, regardless of the
funds available.
-------------------------------------------------------
Environment The way we choose to run our business operations
and Sustainability and the products and services we provide impacts
our environment and the future of our planet.
Failure to run our operations in more sustainable
manner and ready our Co-op to transition to
a greener economy could contribute to more damage
to our environment and increased financial cost
and missed opportunities.
-------------------------------------------------------
Emerging Risks
The main emerging risks being monitored relate to changing
regulations:
-- Funeral Market Regulation: The outcome of the Competition
Market Authority's review into the funeral industry and HM
Treasury's proposals for the regulation of funeral plans is
expected to lead to changes in the funeral and funeral plan
markets. The funeral plans market will fall under the Financial
Conduct Authority's regulation. Secondary legislation is expected
to go through parliament this year. Accompanying this will be an
18-month transition period to ready our business prior to direct
regulation.
-- Pensions Regulation: The UK government is considering
increasing the scope and powers held by the UK Pensions Regulator.
Such changes may limit our freedom to implement aspects of
corporate activity without obtaining the consent of the pension
trustees and/or the Pensions Regulator.
More information on the principal risks and how Co-op mitigates
those risks can be found on pages 55-62 of the 2019 Annual
Report.
Our financial performance
Our half year results, as for most businesses worldwide are
dominated by the impact of Covid. In the early stages of lockdown
our Food business saw unprecedented demand that our logistics
network responded to exceptionally. Similarly, our funerals
business had to respond to operational challenges with increased
funeral numbers but also rearranging funerals in light of the Covid
restrictions. We incurred significant additional costs in ensuring
our customers and colleagues could operate safely and in rewarding
and supporting colleagues for their exceptional commitment in
extremely challenging circumstances.
Our revenue and profits increased strongly largely driven by the
exceptional demand in our food stores particularly in the early
stages of lockdown. Whilst our first half results are strong we see
difficult trading conditions ahead as we respond to the needs of
customers and members facing recession and employment uncertainty.
Additionally, we continue to experience cost pressures as we
prioritise safety across our estate whilst the exceptional sales
growth in the middle of the first half starts to slow down.
Revenue grew by 7.6% to GBP5.8 billion largely driven by Food
and Wholesale and this translated into an increase of GBP63 million
in underlying profit before tax to GBP52 million from a loss of
GBP11 million as shown below. Reported profit before tax increased
by 35% to GBP27 million. Our profits are shown after deducting the
amount our members have earned through the 5% and 1% member rewards
which totalled GBP33 million in the first half of the year (2019:
GBP35 million), the reduction reflecting reluctance to present
membership cards during Covid.
We show how we adjust profit before tax to get to our underlying
profit before tax in note 1 of our interim financial statements. We
also include a jargon buster to explain the accounting terms we
have to use.
2020 2019 (restated)
GBPm GBPm
Revenue 5,797 5,389
Underlying operating profit
Food 175 120
Wholesale (2) (7)
Funerals 17 10
Legal 2 3
Costs of supporting functions (67) (61)
Other (4) (6)
------ ----------------
Total underlying profit (a) 121 59
Property revaluations, disposals and
one-off items (40) 14
------ ----------------
Operating profit 81 73
Underlying interest (b) (32) (33)
Net underlying lease interest (c) (37) (37)
Non underlying interest 15 17
------ ----------------
Profit before tax 27 20
Tax (43) 27
Discontinued operations (10) (6)
------ ----------------
(Loss) / profit for the year (26) 41
------ ----------------
Underlying profit / (loss) before tax
(a)-(b)-(c) 52 (11)
------ ----------------
How our businesses have performed
Food sales rose by GBP0.2 billion to GBP3.9 billion from 2019,
with shop sales up GBP0.3 billion reflecting a like for like sales
increase of 8.8%. Fuel sales, impacted by the pandemic, were down
40% (GBP0.1 billion). Shop sales were particularly strong in the
period from April to June as our customers shopped more and closer
to home in their local Co-op convenience store. We saw trade
diverted from restaurants and pubs as customers enjoyed our
extensive range. Co-op's food retail market share was 7.2% by July
- the highest it's been for almost two decades, although this is
now dropping back as lockdown eases.
This strong sales growth saw underlying profit in our Food
business increase by 46% to GBP175 million. We incurred significant
additional costs in excess of GBP40 million as a result of Covid-19
including protective equipment, colleague reward and absence as
well as making our stores safe for customer and colleagues through
many measures such as implementing one-way systems, additional
cleaning, protective screens and hand sanitising. Margin rate was
impacted by a customer shift leading to higher mix of lower margin
items such as beers, wines and spirits and a reduction in higher
margin food to go. Despite these pressures, strong cost control and
increased productivity in stores and logistics meant the sales
growth converted into strong profitability.
Our Funerals business experienced a 22% increase in volumes,
tragically as a result of Covid-19 deaths and a related rise in
non-Covid-19 deaths. However, the funerals we could offer our
customers were restricted by Government Covid-19 measures leading
to only the most basic funerals being possible. Overall revenue in
funerals was GBP148 million, up 3.5%. Underlying profits increased
70% to GBP17 million from GBP10 million in 2019 with strong cost
control adding to the benefit of higher revenue, despite incurring
an additional GBP6 million of Covid-19 related costs to support and
protect colleagues and customers.
Our Wholesale business generated sales of GBP0.8 billion, a 14%
increase on 2019. As with our Food business we have seen customers
move to local Nisa stores and transfer trade from pubs and
restaurants. Nisa stores also benefited from the wider range Co-op
has been able to provide, especially fresh. Nisa recorded a small
loss in the first half but GBP5m better than last year. We continue
to see profit improvement and anticipate a profit for the business
in the full year.
Our Legal business performed well despite the impacts of
lockdown reducing property sales, personal injury claims and
bringing operational challenges such as arranging probate by
telephone rather than face to face. The business has responded well
and mitigated many of these impacts such that profits were only
marginally lower at GBP2 million.
Supporting functions costs increased by GBP6 million largely
reflecting a number of one-off benefits in 2019 from provision
releases such as litigation and self-insurance. Costs excluding
these are broadly flat with savings initiatives offsetting
inflation.
Before the end of the year we're expecting to complete the deal
to sell our insurance underwriting business, CISGIL, for GBP185
million . We treat the results of this business as discontinued and
so it is carried in our accounts at the price agreed in the deal
less costs to sell. The GBP10 million loss in discontinued
operations shown above therefore largely represents deal costs and
a small charge to reduce CISGIL's net assets down to the value of
the business in the agreed deal.
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):
2020 2019
GBPm GBPm
Property and business disposals (GBP39) (4)
Change in value of investment
properties - 11
One off items (1) 7
-------- -----
Total (40) 14
-------- -----
Property and business disposals include a loss of GBP16 million
relating to the planned sale of 106 of our funerals branches and
includes the write down of assets and closure provisions.
Disposals also includes a charge of GBP19 million relating to
the increase in our onerous lease provision. We are seeing the
economic impact of Covid-19 on certain parts of our property
portfolio, most notably where we have sublets on non-trading
properties included within our onerous lease portfolio. We have
changed our view on our ability to sublet a small number of retail
sites and this has increased our onerous lease provision by almost
GBP15 million. Additionally, we have changed the discount rate on
our onerous lease provision to reflect lower gilt rates and this
has increased the provision by a further GBP4 million.
We have reviewed our trading sites in Food and funerals for
potential impairment and booked GBP9 million of write downs on loss
making or partially profitable sites where forecast trading is not
expected to support the asset values. As part of this exercise we
considered a number of city centre locations, particularly in
central London, which were profitable but where trade has been
impacted by lower footfall as a result of Covid-19. We have taken
the decision not to impair those sites as we expect the impact to
be temporary. We give more detail on this in the financial
statements.
The losses on funeral closures, impairment and onerous lease
totalling GBP44 million are partially offset by profits on the sale
of a small number of food stores and lease surrenders.
The GBP11 million gain on our investment property portfolio in
2019 principally relates to planning permission gains on one
particular site. We have reviewed the 2020 investment portfolio and
are confident their value is supported. This includes sites where
values remain strong and not impacted by Covid-19.
One-off items in 2019 included a GBP7 million credit relating to
a reduction in the amounts we are required to pay for the
acquisition of Nisa which is payable over a number of years
depending on the trade passing through Nisa from its partners. This
year the required payments have risen by GBP1 million reflecting
the increase in trading volumes experienced this year.
Financing and debt
Our financing costs are shown in the table below (costs are
shown in brackets):
2020 2019
GBPm GBPm
Underlying interest payable (32) (33)
Net underlying lease interest (37) (37)
Net pension finance income 19 27
Fair value movement on quoted debt
and swaps (2) (2)
Non-underlying finance interest (2) (8)
Net financing costs (54) (53)
----- -----
Financing costs were flat overall year on year with lower
underlying interest reflecting lower debt across the period. Net
pension income fell as a result of a significant drop in the
discount rate that is applied to the net pension surplus.
Our total net debt of GBP2 billion at the end of the period,
including the IFRS 16 lease liability of GBP1.4 billion, was down
GBP175 million from the start of the year. Excluding the lease
liability, net debt was GBP0.6 billion, a reduction of GBP140
million from year end and GBP266 million lower than the half year
2019. This principally reflects strong trading cashflows backed up
by good management of working capital. Capital expenditure was also
lower as Covid-19 restricted our ability to carry out refit
activity.
Shortly after the half year end, on 8 July 2020 we fully repaid
the remaining GBP176 million balance of the 6.875% 2020 Eurobond.
This will reduce our cost of debt going forward.
Tax
The half year tax charge of GBP43 million all relates to
deferred tax and represents an effective tax rate of 163% on profit
before tax compared to an expected charge of GBP5 million were the
19% prevailing corporation tax rate applied to pre-tax profits. The
tax charge causes us to record a loss after tax and discontinued
items. Our tax rate is higher principally because of deferred tax
on two items. A GBP15 million impact due to the high proportion of
depreciation in our income statement that does not qualify for tax
relief and a GBP16 million impact due to the change in the
corporation tax rate from 17% to 19% introduced in the March 2020
Budget that increases our deferred tax liability.
We do not have a current year corporation tax liability because
of available tax reliefs and losses that offset taxable
profits.
The prior period GBP27 million tax credit was largely due to a
one-off credit caused by a change to our method of calculating the
deferred tax arising on fixed assets additions.
Our balance sheet
Net assets increased by GBP70 million from the start of the year
largely representing a GBP175 million increase in the net surplus
across our pension schemes. This was offset by an increase in
deferred tax liabilities of GBP70 million representing deferred tax
on the pension surplus increase and other deferred tax increases
noted above.
The actuarial surplus on our largest pensions scheme, PACE,
increased by GBP0.2 billion with assets increasing by GBP0.4
billion whilst liabilities increased by GBP0.2 billion. The
increase in assets may seem surprising in the current environment
but PACE holds very little in equities and has significant gilts
and credit assets that increased in value. Falling AA corporate
bond yields increased the value of the liabilities.
The assets and liabilities of CISGIL are classified as held for
sale because of the planned sale of the business to Markerstudy. We
continue to consolidate the Reclaim Fund Limited ('RFL') as it is a
100% owned subsidiary of the Group. However, RFL is a
not-for-profit organisation whose surplus is held entirely for the
benefit of Big Lottery Fund and as a result the Group gains no
financial benefit from RFL. If the Group were to cease
consolidating RFL, this would result in a one-off charge to the
income statement of GBP74 million.
In our 2019 annual report we noted that management had
identified a number of balance sheet items which contained
historical errors within Nisa largely as a result of an ineffective
balance sheet reconciliation process and poor controls. Because the
errors had a material impact on the prior period figures, we have
restated some prior period balances relating to Nisa as detailed in
our accounting policies note. We set out a detailed remediation
plan to address the control environment within Nisa and have
already made good progress in strengthening the finance team and
integrating the finance team and processes into our centralised
financial control structure.
Our accounting policies note also sets out a key judgement we
have made in relation to how the Group accounts for funeral plans
with reference to IFRS 15 (Revenue from contracts with customers)
noting the report of the auditors in the 2019 annual report was
qualified in relation to this accounting treatment. The note
includes details of the impact on the current half year results had
we adopted the alternative treatment requested by our auditors.
Looking ahead
The results for first half of 2020 represented a particularly
strong performance in very challenging operational and economic
circumstances. Revenue and profits grew strongly and our debt
reduced on the back of strong cashflow. This puts us in a good
position to cope with what we expect to be difficult times ahead.
With many in the UK impacted by unemployment, job uncertainty and
recession we see increasing pressure on price in Food retail whilst
the continued presence of Covid-19 brings particular uncertainty to
our funerals business. Covid-19 will also continue to bring
increased costs as we keep colleagues and customers safe.
Additionally, Brexit causes us to face further uncertainty.
However, we have demonstrated more than ever this year that we
are an adaptable and agile business able to cope with such
challenges and we remain confident about the future.
Condensed Consolidated Income Statement
for the 26 weeks ended 4 July
2020
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 4 ended ended 4
July 2020 6 July January
(unaudited) 2019 (unaudited 2020 (audited)
Continuing Operations & restated*)
Notes GBPm GBPm GBPm
------------------------------------ ------ ------------- ----------------- ----------------
Revenue 1 5,797 5,389 10,860
Operating
expenses (5,723) (5,320) (10,700)
Other income 7 4 9
--------------------------------------- ------ ------------- ----------------- ----------------
Operating
profit 1 81 73 169
--------------------------------------- ------ ------------- ----------------- ----------------
Finance income 3 21 29 61
Finance costs 4 (75) (82) (163)
--------------------------------------- ------ ------------- ----------------- ----------------
Profit before
tax 27 20 67
--------------------------------------- ------ ------------- ----------------- ----------------
Taxation 5 (43) 27 18
(Loss) / profit from continuing
operations (16) 47 85
--------------------------------------- ------ ------------- ----------------- ----------------
Discontinued Operation
------------------------------------- ------ ------------- ----------------- ----------------
Loss on discontinued operation,
net of tax 6 (10) (6) (16)
--------------------------------------- ------------- ----------------
(Loss) / profit for the period (all
attributable to members of the Society) (26) 41 69
----------------------------------------------- ------------- ----------------- ----------------
Non-GAAP measure: underlying profit / (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.
Continuing Operations 26 weeks 26 weeks 52 weeks
ended 4 ended ended 4
July 2020 6 July January
(unaudited) 2019 (unaudited 2020 (audited)
& restated*)
Notes GBPm GBPm GBPm
------------------------------------ ------ ------------- ----------------- ----------------
Operating profit
(as above) 81 73 169
Add back
/ (deduct):
One-off
items 1 1 (7) 5
Property, business disposals
and closures 1 39 4 22
Change in value of investment
properties - (11) (27)
Underlying segment operating
profit 121 59 169
--------------------------------------- ------ ------------- ----------------- ----------------
Less underlying loan
interest payable 4 (32) (33) (64)
Less underlying net interest
expense on lease liabilities 3, 4 (37) (37) (74)
Underlying profit / (loss)
before tax 52 (11) 31
--------------------------------------- ------ ------------- ----------------- ----------------
* For more details on the restatement, refer to the general
accounting policies section.
** Refer to note 1 for a definition of underlying profit / (loss)
before tax.
Condensed Consolidated Statement of Comprehensive Income
for the 26 weeks ended
4 July 2020
What does this show? Our statement of comprehensive income includes
other income and costs that are not included in the consolidated
income statement on the previous page. These are usually revaluations
of property, pension schemes and some of our financial investments.
26 weeks ended 26 weeks ended 52 weeks ended
4 July 2020 6 July 2019 4 January
(unaudited) (unaudited 2020 (audited)
& restated*)
Notes GBPm GBPm GBPm
------------------------------- ------ --------------- --------------- ----------------
(Loss) /
profit for
the period (26) 41 69
-------------------------------- ------ --------------- --------------- ----------------
Items that will never
be reclassified to the
income statement:
Remeasurement gains /
(losses) on employee
pension schemes 7 133 (266) (99)
Related tax
on items
above 5 (40) 45 17
-------------------------------- ------ --------------- --------------- ----------------
93 (221) (82)
------------------------------- ------ --------------- --------------- ----------------
Items that are or may
be reclassified to the
income statement:
Gains less losses on
fair value of insurance
assets** 4 8 8
Fair value losses on
insurance assets transferred
to the income statement** - - (2)
Related tax
on items
above 5 (1) (2) (1)
-------------------------------- ------ --------------- --------------- ----------------
3 6 5
------------------------------- ------ --------------- --------------- ----------------
Other comprehensive income
/ (losses) for the period
net of tax 96 (215) (77)
----------------------------------- ------ --------------- --------------- ----------------
Total comprehensive income
/ (losses) for the period (all
attributable to members of
the Society) 70 (174) (8)
------------------------------------------- --------------- --------------- ----------------
* For more details on the restatement, refer to the general accounting
policies section.
** Our Insurance underwriting business has been classified as a
discontinued operation in the Consolidated income statement with
assets and liabilities transferred to held for sale in the Consolidated
balance sheet.
Condensed Consolidated Balance Sheet
as at 4 July 2020
What does this show? Our balance sheet is a snapshot of our financial
position as at 4 July 2020. It shows the assets we have and the amounts
we owe.
As at 4 July 2020 As at 6 As at 4
(unaudited) July 2019 January
(unaudited 2020 (audited)
& restated*)
Notes GBPm GBPm GBPm
------------------------------- ------ ------------------ -------------- ----------------
Non-current assets
Property, plant and
equipment 1,941 2,005 2,001
Right-of-use assets 1,012 1,047 1,045
Goodwill and intangible
assets 1,104 1,115 1,087
Investment properties 16 49 16
Investments in associates
and joint ventures 3 3 3
Funeral plan investments 12 1,309 1,244 1,271
Pension assets 7 2,127 1,747 1,973
Trade and other receivables 143 101 111
Finance lease receivables 36 41 40
Contract assets (funeral
plans) 55 51 54
Reclaim Fund assets 150 202 206
---------------------------------- ------ ------------------ -------------- ----------------
Total non-current assets 7,896 7,605 7,807
-------------------------------- ------ ------------------ -------------- ----------------
Current assets
Inventories 456 446 454
Trade and other receivables 463 572 445
Finance lease receivables 10 14 11
Contract assets (funeral
plans) 5 4 4
Cash and cash equivalents 464 203 308
Assets held for sale 8 982 1,125 1,090
Reclaim Fund assets 474 446 478
---------------------------------- ------ ------------------ -------------- ----------------
Total current assets 2,854 2,810 2,790
-------------------------------- ------ ------------------ -------------- ----------------
Total assets 10,750 10,415 10,597
---------------------------------- ------ ------------------ -------------- ----------------
Non-current liabilities
Interest-bearing loans
and borrowings 9 802 982 803
Lease liabilities 9 1,253 1,270 1,277
Trade and other payables 163 176 183
Contract liabilities
(funeral plans) 1,483 1,390 1,435
Provisions 91 126 95
Derivatives 3 1 1
Pension liabilities 7 88 103 109
Deferred tax liabilities 5 204 101 134
Reclaim Fund liabilities 459 502 540
-------------------------------- ------ ------------------ -------------- ----------------
Total non-current liabilities 4,546 4,651 4,577
-------------------------------- ------ ------------------ -------------- ----------------
Current liabilities
Interest-bearing loans
and borrowings 9 217 42 200
Lease liabilities 9 182 183 193
Income tax payable - 8 7
Trade and other payables 1,703 1,553 1,520
Contract liabilities
(funeral plans) 161 139 137
Provisions 64 70 62
Liabilities held for
sale 8 900 1,046 1,015
Reclaim Fund liabilities 91 73 70
-------------------------------- ------ ------------------ -------------- ----------------
Total current liabilities 3,318 3,114 3,204
-------------------------------- ------ ------------------ -------------- ----------------
Total liabilities 7,864 7,765 7,781
---------------------------------- ------ ------------------ -------------- ----------------
Equity
Members' share capital 73 73 73
Retained earnings 2,721 2,485 2,654
Other reserves 92 92 89
---------------------------------- ------ ------------------ -------------- ----------------
Total equity 2,886 2,650 2,816
---------------------------------- ------ ------------------ -------------- ----------------
Total equity and liabilities 10,750 10,415 10,597
-------------------------------- ------ ------------------ -------------- ----------------
* For more details on the restatement, refer to the general accounting
policies section.
Condensed Consolidated Statement of Changes in Equity
for the 26 weeks ended 4 July 2020
What does this show? Our statement of changes in equity shows how
our net assets have changed during the year.
Members'
For the 26 weeks ended share Retained Other Total
4 July 2020 (unaudited) capital earnings reserves equity
Notes GBPm GBPm GBPm GBPm
------------------------------- ------- ------ ------------- -------------- ---------------- --------
Balance at 4 January 2020 73 2,654 89 2,816
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
Loss for the period - (26) - (26)
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
Other comprehensive income / (losses):
Remeasurement gains on employee pension
schemes 7 - 133 - 133
Gains less losses on fair value of
insurance assets - - 4 4
Tax on items taken directly to other
comprehensive income 5 - (40) (1) (41)
----------------------------------------- ------ ------------- -------------- ----------------
Total other comprehensive income - 93 3 96
----------------------------------------- ------ ------------- -------------- ---------------- --------
Balance at 4 July 2020 73 2,721 92 2,886
----------------------------------------- ------ ------------- -------------- ---------------- --------
For the 26 weeks ended 6 July 2019 Notes
(unaudited & restated*)
----------------------------------------- ------ ------------- -------------- ---------------- --------
Balance at 6 January 2019 73 2,665 86 2,824
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
Profit for the period - 41 - 41
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
Other comprehensive income / (losses):
Remeasurement losses on employee
pension schemes 7 - (266) - (266)
Gains less losses on fair value of
insurance assets - - 8 8
Tax on items taken directly to other
comprehensive income - 45 (2) 43
----------------------------------------- ------ ------------- -------------- ---------------- --------
Total other comprehensive (losses)
/ income: - (221) 6 (215)
----------------------------------------- ------ ------------- -------------- ---------------- --------
Balance at 6 July 2019 73 2,485 92 2,650
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
For the 52 weeks ended Notes
4 January 2020 (audited)
Balance at 6 January 2019 73 2,665 86 2,824
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
Profit for the period - 69 - 69
-------------------------------- ------- ------ ------------- -------------- ---------------- --------
Other comprehensive income / (losses):
Remeasurement losses on employee
pension schemes 7 - (99) - (99)
Gains less losses on fair value of
insurance assets - - 8 8
Fair value losses on insurance assets
transferred to the income statement - - (2) (2)
Tax on items taken directly to other
comprehensive income - 17 (1) 16
----------------------------------------- ------ ------------- -------------- ---------------- --------
Total other comprehensive (losses)
/ income: - (82) 5 (77)
----------------------------------------- ------ ------------- -------------- ---------------- --------
Revaluation reserve recycled to retained
earnings - 2 (2) -
========================================= ====== ============= ============== ================ --------
Contributions by and distributions
to members: - - - -
Balance at 4 January 2020 73 2,654 89 2,816
========================================= ====== ============= ============== ================ ========
* For more details on the restatement, refer to the general accounting
policies section.
Condensed Consolidated Statement of Cash Flows
for the 26 weeks ended 4 July 2020
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.
As at 4 As at 6 As at 4
July 2020 July 2019 January
unaudited) unaudited 2020 (audited)
& restated*)
Notes GBPm GBPm GBPm
----------------------------- ----- ---------- ------------- -------------- ----------------
Net cash from operating
activities 10 473 251 626
Cash flows from investing
activities
Purchase of property,
plant and equipment (102) (154) (352)
Purchase of intangible
assets (28) (35) (55)
Proceeds from sale of property,
plant and equipment 10 13 123
Acquisition of businesses,
net of cash acquired (27) (30) (32)
Disposal of business - - 15
------------------------------------- ---------- ------------- -------------- ----------------
Net cash used in investing
activities (147) (206) (301)
------------------------------ ----- ---------- ------------- -------------- ----------------
Cash flows from financing
activities
Interest paid on
borrowings (16) (36) (86)
Interest paid on
lease liabilities (36) (39) (78)
Interest received
on subleases 3 2 4
Interest received
on deposits 1 - 1
Issue / (repayment) of
corporate investor shares 9 6 5 (2)
6,
Repayment of borrowings 9 (70) (328) (343)
Proceeds from new
borrowings 9 - 300 299
Settlement of interest
rate swaps - 27 27
Payment of lease
liabilities (54) (53) (115)
------------------------------------- ---------- ------------- -------------- ----------------
Net cash used in financing
activities (166) (122) (293)
------------------------------ ----- ---------- ------------- -------------- ----------------
Net increase / (decrease) in cash
and cash equivalents 160 (77) 32
Net cash and overdraft balances
transferred to held for sale (4) 2 (2)
Cash and cash equivalents at
beginning
of period 308 278 278
------------------------------------- ---------- ------------- -------------- ----------------
Cash and cash equivalents at end
of period 464 203 308
------------------------------------- ---------- ------------- -------------- ----------------
Analysis of cash and
cash equivalents
Cash and cash equivalents
per balance sheet 464 203 308
------------------------------ ----- ---------- ------------- -------------- ----------------
* For more details on the restatement, refer
to the general accounting policies section.
Included in the above are cashflows from discontinued operations.
An analysis of these can be found in note 6. CISGIL repaid the GBP70m
12% Tier Two Notes due 2025 on the 11 of May 2020.
As at 4 As at 6 As at 4
July 2020 July 2019 January
(unaudited) unaudited 2020 (audited)
Group Net Debt Notes & restated*)
============================= ===== ========== ------------- -------------- ----------------
Interest-bearing loans
and borrowings:
- current (217) (42) (200)
- non-current (802) (982) (803)
------------------------------ ----- ---------- ------------- -------------- ----------------
Total Interest-bearing
loans and borrowings (1,019) (1,024) (1,003)
------------------------------ ----- ---------- ------------- -------------- ----------------
Lease liabilities:
- current (182) (183) (193)
- non-current (1,253) (1,270) (1,277)
Total lease liabilities (1,435) (1,453) (1,470)
------------------------------------- ---------- ------------- -------------- ----------------
Total Debt (2,454) (2,477) (2,473)
------------------------------------- ---------- ------------- -------------- ----------------
- Group cash 464 203 308
------------------------------ ----------------- ------------- -------------- ----------------
Group Net Debt (1,990) (2,274) (2,165)
------------------------------------- ---------- ------------- -------------- ----------------
Add back fair value /
amortised cost adjustment 9 30 33 33
------------------------------ ----- ---------- ------------- -------------- ----------------
Group Net Debt (pre fair value
/ amortised cost adjustment) 9 (1,960) (2,241) (2,132)
------------------------------------- ---------- ------------- -------------- ----------------
Group Net Debt (interest bearing loans
and borrowings only) (555) (821) (695)
------------------------------------------------- ------------- -------------- ----------------
Add back fair value /
amortised cost adjustment 9 30 33 33
------------------------------ ----- ---------- ------------- -------------- ----------------
Group Net Debt (interest bearing
loans and borrowings only and pre
fair value / amortised cost
adjustment) 9 (525) (788) (662)
------------------------------------- ---------- ------------- -------------- ----------------
* For more details on the restatement, refer
to the general accounting policies section.
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 4 July Underlying
2020 (unaudited) segment Property Change
Revenue operating and in value
from profit One-off business of Operating
external / (loss) items disposals investment profit
customers (b) (b) (i) (b) (ii) properties / (loss)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ----------- --------- ----------- ----------- ----------
Food 3,920 175 - (12) - 163
Wholesale 801 (2) - - - (2)
Funerals 148 17 - (18) - (1)
Legal 19 2 - - - 2
Other businesses (e) 2 (4) - - - (4)
Federal (f) 907 - - - - -
Costs from supporting
functions - (67) (1) (9) - (77)
------------------------- ----------- ----------- --------- ----------- ----------- ----------
Total 5,797 121 (1) (39) - 81
------------------------- ----------- ----------- --------- ----------- ----------- ----------
26 weeks ended 6 July Underlying
2019 (unaudited and segment Property Change
restated* - see also Revenue operating and in value
(a) below) from profit One-off business of Operating
external / (loss) items disposals investment profit
customers (b) (b) (i) (b) (ii) properties / (loss)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ----------- --------- ----------- ----------- ----------
Food 3,726 120 - (6) - 114
Wholesale 703 (7) - - - (7)
Funerals 143 10 - (1) - 9
Legal 19 3 - - - 3
Other businesses (e) 12 (6) - (1) - (7)
Federal (f) 786 - - - - -
Costs from supporting
functions - (61) 7 4 11 (39)
------------------------- ----------- ----------- --------- ----------- ----------- ----------
Total 5,389 59 7 (4) 11 73
------------------------- ----------- ----------- --------- ----------- ----------- ----------
* For more details on the restatement, refer to
the general accounting policies section.
52 weeks ended 4 Underlying
January segment Property Change
2020 (audited and Revenue operating and in value
restated from profit One-off business of Operating
- see (a) below) external / (loss) items disposals investment profit
customers (b) (b) (i) (b) (ii) properties / (loss)
GBPm GBPm GBPm GBPm GBPm GBPm
----------------------- ------------ ----------- --------- ----------- ----------- ----------
Food 7,505 283 - (9) - 274
Wholesale 1,423 (10) (29) - - (39)
Funerals 268 8 - (9) - (1)
Legal 39 6 - - - 6
Other businesses (e) 12 (8) - (1) - (9)
Federal (f) 1,613 - - - - -
Costs from supporting
functions - (110) 24 (3) 27 (62)
------------------------- ----------- ----------- --------- ----------- ----------- ----------
Total 10,860 169 (5) (22) 27 169
------------------------- ----------- ----------- --------- ----------- ----------- ----------
a) In line with our 2019 year-end accounts the results of our Insurance
underwriting business have been classified as discontinued operations
as the proposed sale of CISGIL was highly probable at the year-end
and half-year dates. As such the results of our Insurance underwriting
business are no longer shown in the tables above and instead are
shown in the Discontinued Operations line at the bottom of the Consolidated
income statement. The assets and liabilities have also been remeasured
at fair value less costs to sell and are shown separately in the
balance sheet in held for sale. See note 6 (Loss on discontinued
operations, net of tax) for further details. The results of our Legal
services business are now shown as a separate segment (for the 52
weeks ended 4 January 2020 and 26 weeks ended 6 July 2019, Legal
was aggregated with our Funerals business within a segment called
Funeral and Life Planning). This follows a change in the way the
information is reported to our Board.
b) Underlying segment operating profit / (loss) is a non-GAAP measure
of segment operating profit / (loss) before the impact of property
and business disposals (including individual store impairments),
the change in the value of investment properties and one-off costs.
The difference between underlying segment operating profit / (loss)
and operating profit / (loss) includes:
i) One-off items representing a GBP1m loss relates to an increase
in the contingent consideration payable that was originally recognised
as part of the Nisa acquisition in 2018 (2019: GBP7m gain reflecting
a reduction in contingent consideration payable).
ii) Losses from property and business disposals of GBP39m (2019:
GBP4m loss).
1 Operating segments
c) Operating profit for the 26 weeks ended 4 July 2020 includes GBP22m
of employee furlough payments received under the UK Government's Coronavirus
Job Retention Scheme and GBP11m of assistance through business rates
relief. These amounts have been netted against relevant cost lines
in operating profit.
d) Transactions between operating segments excluded from the above
analysis are GBPnil (2019: GBPnil).
e) The 'Other Businesses' segment includes activities which are not
reportable per IFRS 8. In the current period then this mainly comprises
the results of Co-op Health and Co-op Insurance Services (marketing
and distribution services excluding CISGIL). Co-op Health and Co-op
Insurance Services are currently immature businesses and will be shown
in their own separate segments once they reach an appropriate level
of maturity. In the comparative period then other businesses mainly
comprised the results of Co-op Electrical which ceased trading in the
second quarter of 2019.
f) 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.
g) A reconciliation between underlying segment operating
profit and profit before tax is provided below:
26 weeks 26 weeks 52 weeks
ended 4 July ended ended
2020 (unaudited) 6 July 4 January
2019 2020 (audited)
(unaudited
& restated*)
Notes GBPm GBPm GBPm
--------------------------------- ------- --------- --------- ------- ------- -------- --------
Underlying segment operating
profit 121 59 169
Underlying interest payable 4 (32) (33) (64)
Underlying net interest expense 3,
on lease liabilities 4 (37) (37) (74)
Underlying profit / (loss)
before tax 52 (11) 31
------------------------------------- ------- --------- --------- ------- ------- -------- --------
One-off items (1) 7 (5)
Loss on property, business
disposals
and closures (see below) (39) (4) (22)
Change in value of investment
properties - 11 27
Finance income (excluding any lease
interest shown net above) 3 19 27 57
Other non-cash finance costs 4 (4) (10) (21)
Profit before tax 27 20 67
------------------------------------- ------- --------- --------- ------- ------- -------- --------
* For more details on the restatement, refer to the general accounting
policies section.
26 weeks 26 weeks 52 weeks
ended 4 July ended ended
Losses on property, business 2020 (unaudited) 6 July 4 January
disposals 2019 2020 (audited)
and closures (unaudited)
GBPm GBPm GBPm GBPm GBPm GBPm
--------------------------------- ------- --------- --------- ------- ------- -------- --------
Disposals, closures and onerous
contracts
- proceeds 10 12 123
- less net book value written
off (2) (15) (94)
- provisions recognised (26) (1) (7)
------------------------------------- ------- --------- --------- ------- ------- -------- --------
(18) (4) 22
--------------------------------- ------- --------- --------- ------- ------- -------- --------
Impairment of property, plant and equipment,
right-of-use assets and goodwill (21) - (44)
---------------------------------------------- --------- --------- ------- ------- -------- --------
Loss on disposal (39) (4) (22)
------------------------------------- ------- --------- --------- ------- ------- -------- --------
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. The uncertainty that the Covid-19 pandemic
has brought and its impact on the UK economy is an indicator of impairment,
and impairment reviews have been performed on the Group's cash generating
units (CGUs).
The methodology for our impairment reviews is consistent with the
methodology disclosed in the 2019 annual report. However key judgements
regarding future cashflows have been updated to reflect current uncertainty
and current trends. In addition, long term growth (i.e. growth after
our five year forecast period) has been removed from our current models
given increased uncertainty for the UK economy.
Food
For our food business, the CGU is deemed to be each trading store.
An impairment charge of GBP7m has been made against non-current assets
within certain poorly-performing food stores. This charge is driven
by two main factors:
- A reduction in the assessed future profitability of certain stores
as a result of the increased uncertainty in the UK economy as a result
of the impact of Covid-19; and
- The underlying future performance of some stores, ignoring the impact
of Covid-19, has deteriorated such that their trading performance is
insufficient to cover their asset values.
Within our estate, there are eight food stores which have performed
poorly during the Covid-19 pandemic but have not been impaired because
it is anticipated that their performance will recover sufficiently
such that their assets are not impaired. The carrying value of non-current
assets within these eight food stores is GBP7m. These stores formed
part of our sensitivity and stress testing of our impairment model.
Reasonable downside sensitivities, including these stores not returning
to pre-pandemic trading levels, does not result in a material risk
of further impairment. In particular adjusting the growth rates and
discount rates within our models by +/- 1% does not change our impairment
calculations materially.
1 Operating segments
Impairment
Funerals
For Funeralcare, the CGU is deemed to be a local network of interdependent
branches, known as a 'hub'.
A GBP14m impairment charge has been recorded for the Funerals business.
GBP12m of this impairment relates to Funeral branches which have
been approved for closure. The remaining GBP2m impairment charge
relates to funeral hubs where future trading performance is not sufficient
to cover its assets. Again, sensitivity and stress testing has been
performed on these impairment models, with reasonable downside sensitivities
such as sensitising short term volumes does not result in any further
material impairment. In addition adjusting the long term growth rates
and discount rates within our models by +/- 1% does not change our
impairment calculations materially.
The Group has recorded a total of GBP21m of impairment in the period.
This is split by GBP8m of Property Plant and Equipment, GBP12m of
Right-of-use assets and GBP1m of Goodwill.
2 Supplier income
What does this show? Sometimes our suppliers give us money back
based on the amount of their products we buy and sell. This note
shows the different types of income we've received from our suppliers
based on the contracts we have in place with them. This income is
taken off operating expenses in the income statement.
26 weeks 26 weeks 52 weeks
ended 4 ended 6 ended 4
July 2020 July 2019 January
unaudited) (unaudited 2020 (audited)
)
GBPm GBPm GBPm
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
Food - Long-term
agreements 68 64 139
Food - Bonus income 40 55 148
Food - Promotional
income 174 155 330
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
Total Food supplier
income 282 274 617
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
Wholesale - supplier
income 77 31 130
--------------------- --------- ---- ----- ----- ---------------------- ---------------------
Total Supplier
income 359 305 747
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
Percentage of Cost of Sales before % % %
deducting Supplier Income
---------------------------------------------------- ------------- ---------------------- ---------------------
Food - Long-term
agreements 2.3% 2.2% 2.4%
Food - Bonus income 1.3% 1.9% 2.5%
Food - Promotional
income 6.0% 5.5% 5.8%
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
Total Food supplier
income % 9.6% 9.6% 10.7%
-------------------------------- ---- ----- ----- ------------- ---------------------- ---------------------
Total Wholesale supplier
income % 9.7% 4.6% 10.3%
-------------------------------- ---- ----- ----- ------------- ---------------------- ---------------------
All figures exclude any income or purchases made as part of the Federal
joint buying group.
3 Finance income
What does this show? Finance income arises from the interest earned
on our pension scheme and interest from finance lease receivables
which have been discounted. We also include the movement in the fair
value of some elements of our debt and our interest rate swap positions
(which are used to manage risks from interest rate movements) if
these are gains. If they are losses, they are included in Finance
costs (see note 4).
26 weeks 26 weeks 52 weeks
ended 4 ended 6 ended 4
July 2020 July 2019 January
(unaudited) (unaudited) 2020 (audited)
GBPm GBPm GBPm
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
Net pension finance
income 19 27 57
Underlying interest income from
finance lease receivables 2 2 4
Fair value gains on
funeral plan investments* - - -
-------------------------------- ---- ----- ----- ------------- ---------------------- ---------------------
Total finance income 21 29 61
--------------------- --------- ---- ----- ----- ------------- ---------------------- ---------------------
* Fair value gains of GBP63m (2019: GBPnil) received in the period
on funeral plan investments are treated as deferred income and reflected
in the consolidated balance sheet as an increase in contract liabilities
until the funeral is performed at which point the revenue is recognised.
See note 12 and our accounting policies for further details on how
we account for funeral plans.
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). Other finance costs also include the non-cash charge we incur
each year on long-term provisions as the payout moves one year
closer (the discount unwind).
26 weeks 26 weeks 52 weeks
ended ended ended
4 July 6 July 4 January
2020 2019 (unaudited) 2020
(unaudited) (audited)
GBPm GBPm GBPm
Loans repayable
within five years (13) (15) (30)
Loans repayable wholly
or in part after five
years (19) (18) (34)
Underlying loan
interest payable (32) (33) (64)
Underlying interest
expense on lease liabilities (39) (39) (78)
Total underlying
interest expense (71) (72) (142)
---------
Fair value movement
on quoted debt - (1) (7)
Fair value movement
on interest rate swaps (2) (1) (1)
Non-underlying
finance interest (2) (8) (13)
---------
Other finance costs (4) (10) (21)
---------
Total finance costs (75) (82) (163)
---------
5 Taxation
What does this show? This note shows the tax charge recognised
at half year. This is calculated in four parts based on (i) the
forecast effective tax rate for the full year applied to our underlying
half year trading results (excluding the tax impact of any material
transactions) (ii) material transactions reflected in the half
year results (iii) recognition of the full impact of enquiries
concluded by HMRC in the first half of the year and (iv) an adjustment
in respect of revised estimates used to calculate the timing of
when deferred tax charges arise.
The tax charge in respect of continuing operations of GBP43m (26
weeks ended 6 July 2019 restated*: credit of GBP27m; and 52 weeks
ended 4 January 2020: credit of GBP18m) and effective tax rate
of 163% (26 weeks ended 6 July 2019 restated*: 136%; and 52 weeks
ended 4 January 2020: 27%) 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 GBP27m.
2. A review of material transactions reflected in the year gave
rise to a net tax charge of GBPnil. The tax impact of these material
transactions mainly relate to losses on property disposals (tax
credit of GBP3m) off-set by pension credits taken through the income
statement (tax charge of GBP4m).
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 4 January 2020.
4. The Finance Act 2019 being brought into legislation meant the
Corporation Tax rate, which was due to reduce to 17% on 1 April
2020, was no longer to be implemented. This has meant that the
Corporation Tax rate has remained at the rate of 19%. This means
that certain tax assets and liabilities of the Group need to be
restated to the prevailing 19% tax rate in the half-year results.
The impact of this is:
- a GBP1m net tax charge in relation to the restatement of deferred
tax assets and liabilities
- a GBP15m tax charge in relation to the restatement of the group
relief payable to The Co-operative Bank.
The restatement of these assets and liabilities is the main driver
for the effective tax rate.
A charge of GBP25m 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 GBP15m has been posted to other
comprehensive income in respect of the restatement of the deferred
tax liability related to the pension fund.
The net deferred tax liability of the Group at half year is GBP209m
(as at 6 July 2019 restated* GBP108m; and 4 January 2020: GBP138m)
and the corporation tax creditor for continuing operations is GBPnil.
The Group does not expect to be tax-paying in respect of its full
year results due to the availability of losses arising in the current
year for discontinued operations and brought forward tax losses
and allowances. Deferred taxes in respect of brought forward tax
losses and allowances are fully recognised and offset against deferred
tax liabilities. A reconciliation of the opening deferred tax balance
to the closing balance is set out below:
26 weeks
ended
4 July
Movements in deferred tax in 2020
period to 4 July 2020 (unaudited)
GBPm
---------
At beginning of the
year (net liability)** 138
Charged to the
Income Statement:
Current period
movement 29
Impact of change to
deferred tax rate 1
Charged to equity:
Employee pension
schemes 25
Insurance assets 1
Impact of change to
deferred tax rate 15
At end of period
(net liability)** 209
---------
* For more details on the restatement, refer to
the general accounting policies section.
**Of the total net liability GBP5m (as at 6 July 2019: GBP7m; and
4 January 2019: GBP4m) is classed as held for sale (see notes 8
and note 6).
6 Loss on discontinued operation,
net of tax
What does this show? We classify any of our business segments
as discontinued operations if they have been disposed of during
the year or if they are held for sale at the balance sheet date
(which means they are most likely to be sold within a year).
This note shows the operating result for these segments as well
as the profit or loss on disposal.
Discontinued operation - Insurance (underwriting business)
Co-op Insurance (underwriting business) has been classified
as a discontinued operation in both 2019 and 2020 as the sale
of the business was highly probable at each reporting date.
The assets and liabilities have been remeasured at fair value
less costs to sell and are shown separately in the balance sheet.
The result for Co-op Insurance (underwriting business) is shown
in a separate line at the bottom of the consolidated income
statement under Discontinued Operation and includes the charge
resulting from remeasuring the assets and liabilities of the
business to fair value less costs to sell.
On 18 January 2019, the Co-op announced it had exchanged contracts
for the sale of CISGIL to Markerstudy. The deal involved a 13
year distribution agreement with Markerstudy to distribute motor
and home insurance products. On 16 June 2020, the Co-op signed
revised legal agreements for a sale of CISGIL to Soteria Finance
Holdings Ltd which, subject to regulatory approval, is expected
to complete in 2020. After the sale the Group will be focussed
on marketing and distributing insurance products instead of
underwriting them and the performance will be reported as a
separate operating segment in 2020. The revised transaction
structure has not changed the substance of the transaction or
the disposal accounting. Of the GBP185m of income expected from
a deal, GBP101m will be allocated against assets and liabilities
of the disposal group and included in arriving at the remeasurement
charge of GBP181m. The remaining GBP84m will be included as
deferred income because the Co-op group will be being remunerated
for future services. Post sale the Co-op group will provide
marketing and distribution services to CISGIL and Markerstudy.
The calculation of assets held for sale includes incremental
costs to sell and the estimate of the migration and other costs
that may be incurred in a transitional period after selling
the business (providing regulatory approval is obtained).
26 weeks 26 weeks 52 weeks
ended ended ended
Results of discontinued operation 4 July 6 July 4 January
- Insurance (underwriting 2020 2019 2020
business) (unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Revenue 157 162 315
Operating expenses (187) (205) (423)
Other income 38 32 68
Remeasurement adjustments recognised
in arriving at fair value less costs
to sell (11) 6 26
Loss from discontinued
operation (3) (5) (14)
Finance
costs (5) (4) (9)
Loss before tax from results of
discontinued operation (8) (9) (23)
Tax - relating to the pre-tax (loss)
/ profit on discontinued operation (2) 3 7
Loss for the period from discontinued
operation (10) (6) (16)
Segmental analysis - Insurance 26 weeks 26 weeks 52 weeks
ended ended ended
4 July 6 July 4 January
2020 2019 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Revenue from external
customers 157 162 315
Underlying segment
operating
profit / (loss) 13 (3) (10)
Operating
loss (3) (5) (14)
6 Loss on discontinued operations, net
of tax
Co-op Insurance (underwriting business) has been classified as
a disposal group that is held for sale at the balance sheet date.
The assets and liabilities of Insurance are recorded at fair value
less costs to sell. Any remeasurements that have been identified
have been attributed to relevant assets and liabilities in accordance
with IFRS 5.
Disposal group at fair value As at 4 July As at 6 As at 4 January
less costs to sell 2020 (unaudited) July 2020 (audited)
2019
(unaudited)
GBPm GBPm GBPm
Non-current assets
Other investments
(Insurance assets) 510 478 438
Reinsurance
assets 27 39 36
Current assets
Trade and other
receivables 181 220 207
Other investments
(Insurance assets) 228 327 374
Reinsurance
assets 34 28 25
Current tax
assets - 8 7
Total Insurance assets classified
as held for sale 980 1,100 1,087
Non-current liabilities
Interest-bearing loans
and borrowings - 68 69
Lease liabilities 1 - 1
Insurance contract
liabilities 278 307 281
Deferred
tax liabilities 5 5 4
Current
liabilities
Insurance contract liabilities 416 424 458
Other payables and
provisions 192 230 196
Overdrafts 8 10 6
Total Insurance liabilities
classified as held for sale 900 1,044 1,015
Net assets of disposal group
classified as held for sale 80 56 72
IFRS 5 exempts certain assets and liabilities from the requirement
for re-measurement and this includes the Insurance assets noted
in the table above in Other investments. The intangible assets
in scope of IFRS 5 have been remeasured to fair value and IFRS
9 expected losses provisioning has been applied to trade receivables.
The remaining re-measurement adjustment of GBP160m that is required
to write down the disposal group to its overall fair value less
costs to sell has been reflected as a provision in the other payables
and provisions line. The closing carrying value of the net assets
of the disposal group is therefore recorded at fair value less
costs to sell of GBP80m in the above table. This GBP80m fair value
is comprised of GBP117m of expected sales proceeds from the sale
of Co-op insurance less remaining costs to sell of GBP35m and
the impact on discounting deferred consideration of GBP2m. The
remaining costs to sell of GBP35m include legal and professional
costs and necessary IT migration costs. There has also been GBP13m
of costs incurred during 2020, the majority of which are IT migration
and transition costs.
The table below shows a summary of the cash flows of discontinued
operations:
26 weeks 26 weeks 52 weeks ended
ended 4 July ended 4 January
2020 (unaudited) 6 July 2019 2020 (audited)
(unaudited)
GBPm GBPm GBPm
Cash flows used in discontinued
operations:
Net cash from / (used
in) operating activities 50 (8) (26)
Net cash used in
financing activities (73) (4) (8)
-----
Net cash used in discontinued
operations (23) (12) (34)
Net cash used in financing activities includes the repayment of
GBP70m 12% Tier Two Notes due 2025 on the 11 of May 2020.
Cash flows from 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.
4 July 6 July 4 January
2020 2019 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Pension schemes
in surplus 2,127 1,747 1,973
Pension schemes
in deficit (88) (103) (109)
-----------
Closing net retirement
benefit 2,039 1,644 1,864
-----------
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 4 July 2020 in accordance
with IAS 19. Valuations for the Somerfield, United, Plymouth and Yorkshire
schemes have also been updated for the 2020 interim financial statements.
4 July 6 July 4 January
2020 2019 2020
(unaudited) (unaudited) (audited)
The principal assumptions used to determine
the liabilities of the Pace pension scheme
were:
Discount
rate 1.66% 2.22% 1.97%
RPI Inflation
rate 3.08% 3.38% 3.18%
Pension increases in payment (RPI
capped at 5.0% p.a.) 3.02% 3.29% 3.11%
Future salary increases 3.33% 3.63% 3.43%
-----------
4 July 6 July 4 January
2020 2019 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Opening net retirement
benefit attributable to
Group 1,864 1,859 1,859
Admin expenses paid from
plan assets (2) (2) (3)
Net finance
income 19 27 57
Employer contributions 25 26 50
Remeasurement gains
/ (losses) 133 (266) (99)
Closing net retirement
benefit 2,039 1,644 1,864
-----------
7 Pensions
4 July 2020 (unaudited) 6 July 2019 4 January 2020
(unaudited) (audited)
Amounts recognised (unaudited)
in the balance sheet: (unaudited) GBPm GBPm (audited) GBPm
Fair value of
plan assets:
- Pace 9,408 9,092 9,057
- Somerfield
Scheme 1,115 1,006 1,124
- Other schemes 1,001 865 987
Total assets 11,524 10,963 11,168
Present value
of liabilities:
- Pace (7,389) (7,456) (7,188)
- Somerfield
Scheme (1,009) (895) (1,020)
- Other schemes (1,087) (968) (1,096)
Total liabilities (9,485) (9,319) (9,304)
Net retirement benefit
asset per balance sheet:
Pace 2,019 1,636 1,869
Somerfield scheme 106 111 104
Yorkshire scheme 2
Total assets 2,127 1,747 1,973
Other schemes (excluding
Yorkshire scheme above) (88) (103) (109)
Total Liabilities (88) (103) (109)
Net Assets 2,039 1,644 1,864
Other schemes comprise the United Fund,
the Plymouth Fund and the Yorkshire scheme.
The present value of unfunded liabilities recognised in the balance
sheet is GBP5m (as at 6 July 2019 and 4 January 2020: GBP6m).
The Trustees of the Co-operative Group Pension Scheme (Pace) entered
into pension insurance buy-in contracts with Aviva, in January 2020
and Pension Insurance Corporation (PIC), in February 2020, each
worth cGBP1,000m. A further pension buy-in contract with Aviva was
entered into in April 2020, worth cGBP350m. As a result of these
transactions, the scheme will receive regular payments from Aviva
and PIC to fund all future pension payments for c16,500 current
pensioners. The methodology used to value this transaction resulted
in a decrease in the value of the surplus in the Pace Scheme of
cGBP400m. As the insurance contracts are assets of the scheme and
the scheme has retained all responsibility to meet future pension
payments to pensioners this is not recognised as a settlement and
consequently the decrease in value is recognised as a charge through
Other Comprehensive Income.
In January 2019, the Trustee of the Somerfield Pension Scheme entered
into a pension insurance buy-in contract with Pensions Insurance
Corporation (PIC). As a result of the transaction, the scheme will
receive regular payments from PIC to fund pension payments into
the future. The methodology to value this insurance asset resulted
in a GBP55m decrease in the surplus of the Somerfield scheme in
the prior year.
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.
4 July 4 January
2020 6 July 2019 2020
(unaudited) (unaudited) (audited)
Assets held for sale GBPm GBPm GBPm
------------ ----------
(a) Discontinued operation
- Insurance (see note
6) 980 1,100 1,087
(b) Other assets held for sale
(see below) 2 25 3
----------
Total 982 1,125 1,090
Liabilities held for sale
----------
(a) Discontinued operation -
Insurance (see note 6) 900 1,044 1,015
(b) Other liabilities held -
for sale (see below) - 2
Total 900 1,046 1,015
(a) Discontinued operation -
Insurance (underwriting business)
Co-op Insurance (underwriting business) has been classified as
a discontinued operation in both 2019 and 2020 as the sale of
the business was highly probable at each reporting date. The assets
and liabilities have been remeasured at fair value less costs
to sell and are shown separately in the balance sheet. Further
detail is given in note 6 (Loss on discontinued operations, net
of tax) including a line-by-line balance sheet detailing the impact
of the remeasurement adjustments to fair value less costs to sell
and the carrying value of all insurance assets and liabilities
held for sale.
(b) Other assets and liabilities classified as held for sale are
below:
4 July 4 January
2020 6 July 2019 2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Property, plant and equipment 2 10 3
Investment properties - 12 -
Goodwill - 3 -
Total assets 2 25 3
Deferred tax liabilities - 2 -
Total liabilities - 2 -
9 Interest-bearing loans and borrowings
What does this show? This note gives information about the terms
of our interest-bearing loans. This includes information about their
value, interest rate and repayment terms and timings. Details are
also given about other borrowings and funding arrangements such
as corporate investor shares and our leases. All items are split
between those that are due to be repaid within one year (current)
and those which won't fall due until after more than one year (non-current).
For a breakdown of IFRS 13 level hierarchies (which reflect different
valuation techniques) in relation to these borrowings, see note
12.
As at 4 As at 6 As at 4
July 2020 July 2019 January
2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Non-current liabilities:
GBP11m 6.875% Eurobond Notes
due 2020 (fair value) - 12 -
GBP165m 6.875% Eurobond Notes due
2020 (amortised cost) - 168 -
GBP105m 7.5% Eurobond Notes
due 2026 (fair value) 121 117 121
GBP245m 7.5% Eurobond Notes
due 2026 (amortised cost) 260 263 261
GBP300m 5.125% Sustainability Bond
due 2024 (amortised cost) 299 299 299
GBP109m 11% final repayment
subordinated notes due 2025 109 109 109
GBP20m Instalment repayment
notes (final payment 2025) 13 14 13
Total (excluding lease liabilities) 802 982 803
Lease liabilities 1,253 1,270 1,277
Total Group non-current interest-bearing
loans and borrowings 2,055 2,252 2,080
Debt relating to CISGIL has been transferred to held for sale (see
note 6) as at 4 July 2020, 6 July 2019 and 4 January 2020.
As at 4 As at 6 As at 4
July 2020 July 2019 January
2020
(unaudited) (unaudited) (audited)
GBPm GBPm GBPm
Current
liabilities:
GBP11m 6.875% Eurobond Notes
due 2020 (fair value) 11 - 11
GBP165m 6.875% Eurobond Notes due
2020 (amortised cost) 165 - 167
GBP165m 6.875% Eurobond Notes due 2020
(amortised cost) - interest accrued 11 11 5
GBP245m 7.5% Eurobond Notes due 2026 (amortised
cost) - interest accrued 17 17 9
GBP300m 5.125% Sustainability Bond due
2024 (amortised cost) - interest accrued 2 2 2
GBP20m Instalment repayment
notes (final payment 2025) 1 1 1
GBP400m Sustainable revolving
credit facility - - 1
Corporate investor
shares 10 11 4
Total (excluding lease liabilities) 217 42 200
Lease liabilities 182 183 193
Total Group current interest-bearing
loans and borrowings 399 225 393
9 Interest-bearing loans and borrowings
Reconciliation of movement in
net debt
Net debt is a measure that shows the amount we owe to banks and other
external financial institutions less our cash and short-term deposits.
For 26 weeks ended 4 July Start Non cash Cash End of
2020 (unaudited) of period movements flow period
GBPm GBPm GBPm GBPm
Interest-bearing loans and borrowings:
- current (200) (11) (6) (217)
- non-current (803) 2 (1) (802)
Lease liabilities
- current (193) (43) 54 (182)
- non-current (1,277) 24 - (1,253)
Total Debt (2,473) (28) 47 (2,454)
Group cash:
- cash & overdrafts 308 - 156 464
Group Net Debt (2,165) (28) 203 (1,990)
Less fair value / amortised
cost adjustment 33 (3) - 30
Group Net Debt before fair value
/ amortised cost adjustment (2,132) (31) 203 (1,960)
For 26 weeks ended 6 July Impact
2019 (unaudited & restated*) on adoption
Start of IFRS Non cash Cash End of
of period 16 movements flow period
GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans and borrowings:
- current (66) - (19) 43 (42)
- non-current (976) - 9 (15) (982)
Lease liabilities
- current (4) (177) (55) 53 (183)
- non-current (28) (1,273) 31 - (1,270)
Total Debt (1,074) (1,450) (34) 81 (2,477)
----------
Group cash:
- cash and overdrafts 278 - 2 (77) 203
Group Net Debt (796) (1,450) (32) 4 (2,274)
Less fair value / amortised cost
adjustment 46 - (13) - 33
----------
Group Net Debt before fair value
/ amortised cost adjustment (750) (1,450) (45) 4 (2,241)
* For more details on the restatement, refer to the
general accounting policies section.
9 Interest-bearing loans and borrowings
For 52 weeks ended 4 January Impact
2020 (audited) on
adoption
Start of IFRS Non cash End of
of period 16 movements Cash flow period
GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans
and borrowings:
- current (66) - (182) 48 (200)
- non-current (976) - 176 (3) (803)
Lease liabilities
- current (4) (177) (127) 115 (193)
- non-current (28) (1,273) 24 - (1,277)
Total Debt (1,074) (1,450) (109) 160 (2,473)
Group cash:
- cash & overdraft 278 - - 30 308
Group Net Debt (796) (1,450) (109) 190 (2,165)
Less fair value adjustment 46 - 1 (14) 33
Group Net debt before fair
value / amortised cost
adjustment (750) (1,450) (108) 176 (2,132)
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
4 July 6 July 4 January
2020 2019 2020
(unaudited) (unaudited (audited)
&
restated*)
Continuing Operations: GBPm GBPm GBPm
------------ ---------------------
Operating profit from continuing
operations 81 73 169
Depreciation and amortisation charges (excluding
deferred acquisition costs) 189 189 379
Non-current asset impairments 21 - 73
Loss / (gain) on closure or disposal of
businesses and non-current assets 18 4 (22)
Change in fair value of
investment properties - (11) (27)
Retirement benefit obligations (23) (23) (46)
(Increase) / decrease in
inventories (2) 11 (7)
Increase in receivables (89) (28) (14)
Increase in contract assets
(funeral plans) (2) (5) (7)
Increase in contract liabilities
(funeral plans) 72 44 87
Increase in
payables
and provisions 158 5 67
Net cash flow from operating activities
(continuing operations) 423 259 652
Discontinued Operations:
Operating loss from discontinued
operations (3) (5) (14)
Remeasurement adjustments recognised in
arriving at fair value less costs to sell 11 (6) (26)
Fair value through income
statement 31 26 (1)
Fair value through other comprehensive
income movement 53 8 23
Movement in deferred acquisition
costs 8 (1) 2
Reinsurance assets 1 (13) (9)
Decrease / (increase) in insurance
and other receivables 23 (13) 3
(Decrease) / increase in insurance
and participation contract provisions (47) 2 5
Decrease in insurance and
other payables (27) (6) (9)
Net cash flow from operating activities
(discontinued operations) 50 (8) (26)
Net cash flow from operating
activities 473 251 626
* See general accounting policies section
for details of the restatement.
11 Commitments and contingent liabilities
What does this show? This note shows how the value of capital expenditure
that we're committed to spending at the balance sheet date and provides
an update on the contingent liabilities included in our 2019 annual
report.
Capital expenditure not accrued for, but committed
by the Group at 4 July 2020 was GBP19m (6 July 2019:
GBP13m).
12 Financial instruments and fair values of financial
assets and financial liabilities
What does this show? Our Funerals business holds some investments
on behalf of customers in relation to funeral plans. This note provides
information on these investments as well as how any other financial
assets and liabilities are valued.
4 July 6 July 4 January
Funeral plan investments as 2020 2019 (unaudited) 2020
per the balance sheet: (unaudited) (audited)
GBPm GBPm GBPm
-----------
Current - - -
Non-current 1,309 1,244 1,271
------ ----------- ------------------------ ---------
Funeral plan investments 1,309 1,244 1,271
4 July 6 July 4 January
Funeral plan investments held 2020 2019 (unaudited) 2020
by the Group are as follows: (unaudited) (audited)
GBPm GBPm GBPm
-----------
Fair value through the income
statement:
Funeral plan investments 1,309 1,244 1,271
------ ----------- ------------------------ ---------
Total Other Investments 1,309 1,244 1,271
*All insurance investments have been transferred to held for sale
as at 4th July 2020, 6th July 2019 and 4th January 2020. See note
6 (Loss on discontinued operations, net of tax) for details.
Fair values of the Trading Group recognised
in the balance sheet
The following table provides an analysis of the financial assets
and liabilities of the Trading Group that are recognised at fair
value. These are grouped into three levels based on the following
valuation techniques:
-- Level Fair value measurements are those derived from quoted prices
1 (unadjusted) in active markets for identical assets or liabilities.
-- Level Fair value measurements are those derived from inputs other
2 than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices)
or indirectly (i.e. derived from prices).
-- Level Fair value measurements are those derived from valuation
3 techniques that include inputs for the asset or liability
that are not based on observable market data (unobservable
inputs).
12 Financial instruments and fair values of financial assets
and financial liabilities
Fair values of the Trading Group recognised in the
balance sheet
4 July 2020 (unaudited) Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through
income or expense
- Funeral plan investments - - 1,309 1,309
Total financial assets held at fair
value - - 1,309 1,309
Liabilities
Financial liabilities at fair value
through income or expense
- Fixed-rate sterling Eurobond - 132 - 132
- Derivative financial instruments - 3 - 3
Total financial liabilities held at
fair value - 135 - 135
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 as at the
end of this note and indicates we have headroom of over 7%.
6 July 2019 (unaudited) Level Level Level Total
1 2 3
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through
income or expense
- Funeral plan investments - - 1,244 1,244
Total financial assets held at fair
value - - 1,244 1,244
Liabilities
Financial liabilities at fair value
through income or expense
- Fixed-rate sterling Eurobond - 129 - 129
- Derivative financial instruments - 1 - 1
Total financial liabilities held at
fair value - 130 - 130
4 January 2020 (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 - - 1,271 1,271
Total financial assets held at fair
value - - 1,271 1,271
Liabilities
Financial liabilities at fair value
through income or expense
- Fixed-rate sterling Eurobond - 132 - 132
- Derivative financial instruments - 1 - 1
Total financial liabilities held at
fair value - 133 - 133
* All insurance investments have been transferred to held for sale
as at 4 July 2020, 6 July 2019 and 4 January 2020. See note 6 (Loss
on discontinued operations, net of tax) for details.
12 Financial instruments and fair values of financial
assets and financial liabilities
Basis of valuation of Level 2 financial assets and liabilities:
Derivatives - forward exchange contracts, such as the Group's
interest rate swaps, are either marked to market using listed
market prices or valued by discounting the contractual forward
price and deducting the current spot rate. For interest rate
swaps, broker quotes are used. Those quotes are back-tested
using pricing models or discounted cash flow techniques.
Insurance investments (fair value through income or expense)
- all insurance investments have been classified as held for
sale in both 2018 and 2019. See note 6 (Loss on discontinued
operations, net of tax) for further details. The fair value
of financial assets designated at fair value through the income
statement, being short-term (less than one month) fixed rate
deposits, approximates to their nominal amount.
deposits, approximates to their nominal amount.
Insurance investments (fair value through other comprehensive
income) - all insurance investments have been transferred to
held for sale. See note 9 (Loss on discontinued operations,
net of tax) for further details. The fair value of listed debt
securities is based on clean bid prices at the balance sheet
date without any deduction for transaction costs. Assets are
regularly reviewed for impairment. Objective evidence of impairment
can include default by a borrower or issuer, indications that
a borrower or issuer will enter bankruptcy or the disappearance
of an active market for that financial asset because of financial
difficulties. These reviews give particular consideration to
evidence of any significant financial difficulty of the issuer
or measurable decrease in the estimated cash flows from the
investments.
Eurobonds and debenture - on inception these drawn-down loan
commitments were designated as financial liabilities at fair
value through the income statement. The Group adopted IFRS 9
from 7 January 2018 and subsequently only GBP285m of the original
par value of GBP450m 2020 notes and GBP105m of the original
par value of GBP350m 2026 notes were designated as financial
liabilities at fair value through the income statement. Fair
values are determined in whole by using quoted market prices.
The remaining Eurobonds are held at amortised cost using an
effective interest rate. In May 2019, the Co-operative Group
Limited completed a tender offer on the 2020 6.875% bond, purchasing
GBP274m of the GBP285m principal balance from bond holders.
Basis of valuation of Level 3 financial assets and liabilities:
Funeral plans - when a customer takes out a funeral plan the
initial plan value is recognised as an investment asset in the
balance sheet and at the same time an equal liability is also
recorded in the balance sheet representing the deferred income
to be realised on performance of the funeral service covered
by each of the funeral plans. The consideration receivable from
a funeral plan is variable and depends on the amount the plan
investment grows by and the timing of the funeral, both of which
are outside the Group's control. 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 using valuations provided
by the insurance policy provider or reflecting the trust cash
balances. The performance obligation to deliver the funeral
is treated as a contract liability (deferred income) under IFRS
15. This contract liability accretes each period by the fair
value movement on the plan assets and is held on balance sheet
as additional deferred income until the delivery of the funeral
when it is recognised as revenue along with the original plan
value.
Funeral Plan Investments 4 July 2020 6 July 2019 4 January
(unaudited) (unaudited) 2020 (audited)
GBPm GBPm GBPm
At start of period 1,271 1,223 1,223
New plan investments
(including
on-going instalments) 38 66 111
Plans redeemed or
cancelled (63) (45) (74)
Fair value movement on
investments
recognised as deferred
income 63 - 11
------------------
At end of
period 1,309 1,244 1,271
------------------
The Group holds investments on the balance sheet in respect
of funeral plan policies which are invested in either individual
whole of life policies, trusts or life assurance products. The
investments are subject to an annual actuarial valuation. The
most recent valuation was performed as at 30 September 2019
and reported headroom on a wholesale basis of GBP89m (2018:
GBP120m).
Actuarial Valuation 30 September 30 September
(Unaudited) 2019 2018
GBPm GBPm
---------------------
Total Assets 1,296 1,156
----------------------------
Liabilities:
Present value
(wholesale
basis) 1,207 1,036
Total Liabilities 1,207 1,036
----------------------------
Headroom 89 120
Headroom as a % of
liabilities 7% 12%
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.
4 July 6 July 4 January
2020 (unaudited) 2019 (unaudited) 2020 (unaudited)
Members m m m
Active Members 4.5 4.6 4.6
Membership and community
rewards (within
income statement) GBPm GBPm GBPm
Member reward (5%)
earned 28 29 59
Community reward (1%)
earned 5 6 11
Total reward 33 35 70
14 Prior period restatement
What does this show? Occasionally we realise that the numbers
we published in the accounts last year may not have been quite
right due to an error. When this is the case it may be appropriate
to revise (restate) the prior year numbers to correct them
for the error. In such circumstances then this note explains
how the error happened, what we have done to correct it and
the impact this has had on the Group's accounts in the prior
year.
1) During 2019 management identified a number of balance sheet
items which contained material historical errors within Nisa.
A number of these errors were as a result of an ineffective
balance sheet reconciliation process. In the 2019 annual report,
the 2018 comparatives were restated to reflect these historical
errors. These errors also impacted the reported consolidated
balance sheet as at 6 July 2019, the consolidated income statement
for the 26 weeks ended 6 July 2019, and the cashflow statement
for the 26 weeks ending 6 July 2019. As a result, we have
restated the prior period numbers as set out below.
2) Finance lease receivable balances were originally recognised
in the balance sheet within current and non-current Trade
and other receivables as at 4 July 2019 following adoption
of IFRS 16 (Leases). These have subsequently been disclosed
as a separate line item in the balance sheet. This re-presentation
is consistent with that adopted in the balance sheet as at
4 January 2020 and there is no impact on net assets, the consolidated
income statement or the consolidated statement of cashflows.
A summary of the impact of the prior period adjustments on
the consolidated income statement for the 26 week period ended
6 July 2019, the consolidated balance sheet as at the 6 July
2019 and the consolidated cashflow statement for the 26 week
period ended the 6 July 2019 is as follows:
Consolidated income As previously Nisa Adjustments Restated
statement reported
for the 26 week period
ended
6 July 2019
GBPm GBPm GBPm
--------------------- ---
Revenue 5,389 - 5,389
Operating
expenses (5,315) (5) (5,320)
Other income 4 - 4
Operating
profit 78 (5) 73
Finance income 29 - 29
Finance costs (82) - (82)
Profit before
tax 25 (5) 20
Taxation 26 1 27
Profit from continuing
operations 51 (4) 47
14 Prior period restatement
As previously Nisa Adjustments Finance Restated
reported lease / represented
Consolidated balance sheet receivables
as at 6 July 2019 representation
GBPm GBPm GBPm GBPm
Non-current assets
Goodwill 1,092 23 - 1,115
Trade and other receivables 142 - (41) 101
Finance lease receivables - - 41 41
Other non-current assets 6,348 - - 6,348
Total non-current assets 7,582 23 - 7,605
Current assets
Inventories 446 - - 446
Trade and other receivables 596 (10) (14) 572
Finance lease receivables - - 14 14
Cash 207 (4) - 203
Other current assets 1,575 - - 1,575
Total current assets 2,824 (14) - 2,810
Total assets 10,406 9 - 10,415
Non-current liabilities
Deferred tax liabilities 104 (3) - 101
Non-current liabilities 4,550 - - 4,550
Total non-current liabilities 4,654 (3) - 4,651
Current liabilities
Trade and other payables 1,529 24 - 1,553
Other current liabilities 1,561 - - 1,561
Total current liabilities 3,090 24 - 3,114
Equity
Share Capital and Other
Reserves 165 - - 165
Retained earnings 2,497 (12) - 2,485
Total equity 2,662 (12) - 2,650
Total equity & liabilities 10,406 9 - 10,415
Consolidated statement As previously Nisa Adjustments Restated
of cashflows for the 26 reported
week period ended 6 July
2019
GBPm GBPm GBPm
Net cash from operating
activities 251 - 251
Net cash used in investing
activities (206) - (206)
Net cash used in financing
activities (122) - (122)
Net cash and overdraft balances
transferred to held for
sale 2 - 2
Cash and cash equivalents
at beginning of the period 282 (4) 278
Cash and cash equivalents
at end of the period 207 (4) 203
15 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.
GBP176m Eurobond repayment - in line with the contractual
expiry terms of the instrument then the Group repaid GBP176m
of the principle balance of the 6.875% 2020 Eurobond on the
8 July 2020.
16 Contingent Assets
What does this show? Sometimes we have a possible asset from
a past event but we're not absolutely certain that we will
get the benefit of the asset (or to what value that will be)
and we'll only be sure following the outcome of a future uncertain
event or exercise. Such items are known as contingent assets.
Due to the uncertainty then we don't include such assets in
our reported figures but instead we give details in the supporting
notes.
Refund of Automatic Teller Machines (ATMs) business rates
following Supreme Court judgement - Within our food stores
we have a significant number of externally-facing ATMs. In
2013, the Valuation Office Agency, which is part of HMRC and
compiles the business rates list for England and Wales determined
that external-facing ATMs should be separately assessed for
business rates in addition to store business rates already
incurred by retailers, and this was applied with effect from
1st April 2010. Retailers, including the Group, successfully
challenged the assessment, culminating in a Supreme Court decision
in May 2020, ruling that external-facing ATMs form part of
the stores offering and should not be subject to a separate
business rates assessment.
As a result of the ruling, it is expected that the Valuation
Office Agency will update the business rates list accordingly
via settling the outstanding appeals. Once the rating list
is updated the local billing authorities will then start to
process these amendments in order for refunds of historic business
rates that were paid for external ATMs to be recovered.
It is not yet practicable to estimate the financial effect
of the Supreme Court judgement on the Group's results and the
Group continues to work through its estimation of monies owed.
It is expected that The Co-operative Bank will seek to claim
a proportion of any monies which are recovered. This covers
the period from 2010, when the business rate amendment was
effective, until the bank disposed of the ATMs in 2014.
Accounting policies and basis of preparation
What does this show? This section outlines the overall approach
to preparing the financial statements. This section also sets
out new accounting standards, amendments and interpretations
endorsed by the EU and their impact on the Group's financial
statements.
These condensed consolidated interim financial statements of
Co-operative Group Limited ('the Society') for the period ended 4
July 2020 ('the interim financial statements') include the Society
and its subsidiaries (together referred to as 'the Group') and the
Group's investments and joint ventures.
The audited consolidated financial statements ('the 2019 annual
report') of the Group for the year ended 4 January 2020 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 4 July 2020 are unaudited and do not constitute statutory
accounts.
Statement of compliance
These interim financial statements have been prepared in
accordance with IAS 34 Interim Financial Reporting as endorsed and
adopted for use in the European Union, and the Disclosure and
Transparency Rules (DTR) of the Financial Services Authority. They
do not include all the statements required for full annual
financial statements and should be read in conjunction with the
2019 annual report.
The comparative figures for the financial year ended 4 January
2020 presented within these financial statements are not the
Society's statutory financial statements for that financial year.
Those financial statements have been reported on by the Society's
auditors. The report of the auditors was qualified in relation to
the accounting treatment for funeral plans with reference to IFRS
15 'Revenue from contracts with customers'. Details as to the basis
for the qualification are set out in the independent auditors
report on page 207 of the 2019 annual report.
These interim financial statements were approved by the Board of
Directors on 16 September 2020.
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 2019 annual report
except where stated within the notes to these accounts.
As outlined in the General Accounting Policies section of the
2019 annual report (page 197) then a significant judgement has been
made in relation to how the Group accounts for funeral plans with
reference to IFRS 15 (Revenue from contracts with customers) and as
noted above the report of the auditors was qualified in relation to
this accounting treatment.
In line with the 2019 annual report then the table below shows
the impact on our reported figures for the 26 week period ended 4
July 2020 under the alternative treatment (applying a financing
component to the funeral plan transactions):
GBPm - Continuing operations Unaudited
26 weeks ended 4 July 2020
As Reported Adjustment Applying
financing
Revenue 5,797 2 5,799
Operating expenses (5,723) - (5,723)
Other income 7 - 7
Operating Profit 81 2 83
Finance income 21 63 84
Finance costs (75) (32) (107)
Profit before tax 27 33 60
Taxation (43) (6) (49)
Loss from continuing operations (16) 27 11
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 2019 annual report.
(A) New standards:
The Group has considered the following standards and amendments
that are effective for the Group for the period commencing 5
January 2020 and concluded that they are either not relevant to the
Group or do not have a significant impact on the financial
statements :
-- Amendments to References to the Conceptual Framework in IFRS Standards;
-- Definition of Material (Amendments to IAS 1 and IAS 8);
-- Interest Rate Benchmark Reform (Amendments to IFRS 9, IAS 37 and IFRS 7)
-- Definition of a Business (Amendments to IFRS 3)
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 2019 annual report. The adoption
of the following standards will or may have a material impact when
adopted. Management has undertaken an initial assessment of the
expected impact of applying the new standards on the Group's
financial statements and details are shown in the 2019 annual
report.
-- IFRS 17 Insurance Contracts.*
* Effective 1 January 2023.
(B) Other changes:
The results of our Legal Services business are now shown as a
separate operating segment (note 1). For the 52 weeks ended 4
January 2020 and 26 weeks ended 6 July 2019 they were included in
Funeral and Life Planning. This follows a change in the way the
information is reported to our Board.
The comparative figures presented within these financial
statements for the interim period ended 6 July 2019 are consistent
with the 2019 interim report except for the re-statements noted
below.
Wholesale - during 2019 management identified a number of
balance sheet items which contained historical errors within Nisa.
A number of these errors were as a result of an ineffective balance
sheet reconciliation process. Because the errors had a material
impact on the prior period figures, a prior year restatement has
been carried out of the consolidated balance sheet as at 6 July
2019, the 2019 consolidated income statement for the 26 weeks ended
6 July 2019, and the 2019 cashflow statement for the 26 weeks
ending 6 July 2019. The errors identified also impact the
acquisition accounting and the full year 2019 figures. Those
figures were restated in our 2019 financial statements. Details of
the restatement and the impact on these Interim 2020 financial
statements are outlined in Note 14 (Restatements). The summary
impact is noted below.
Finance lease receivables - balances that were originally
recognised in the balance sheet within current and non-current
Trade and other receivables as at 4 July 2019 following adoption of
IFRS 16 (Leases) have subsequently been disclosed as a separate
line item in the balance sheet. This re-presentation is consistent
with that adopted in the balance sheet as at 4 January 2020 and
there is no impact on net assets, the consolidated income statement
or the consolidated statement of cashflows.
Half year comparatives:
Consolidated Income Statement for period ending 6 July 2019
GBPm - Continuing operations Originally Wholesale Restated
Reported
Revenue 5,389 - 5,389
Operating expenses (5,315) (5) (5,320)
Other income 4 - 4
Operating Profit 78 (5) 73
Finance income 29 - 29
Finance costs (82) - (82)
Profit before tax 25 (5) 20
Taxation 26 1 27
Profit from continuing operations 51 (4) 47
Consolidated Balance sheet as at 6 July 2019
GBPm Originally Wholesale Finance Restated
Reported lease receivables
Goodwill 1,092 23 1,115
Trade and other receivables 142 - (41) 101
Finance lease receivables - - 41 41
Other non-current assets 6,348 - - 6,348
Total non-current assets 7,582 23 - 7,605
-
Inventories 446 (10) - 446
Trade and other receivables 596 (10) (14) 572
Finance lease receivables - - 14 14
Cash and cash equivalents 207 (4) - 203
Other current assets 1,575 - - 1,575
Total current assets 2,824 (14) - 2,810
Total assets 10,406 9 - 10,415
Deferred tax liabilities 104 (3) - 101
Other non-current liabilities 4,550 - - 4,550
Total Non-current liabilities 4,654 (3) - 4,651
Trade and other payables 1,529 24 - 1,553
Other current liabilities 1,561 - - 1,561
Total Current liabilities 3,090 24 - 3,114
Total liabilities 7,744 21 - 7,765
Share capital and other
reserves 165 - - 165
Retained Earnings 2,497 (12) - 2,485
Total Equity 2,662 (12) - 2,650
Total Equity and liabilities 10,406 9 - 10,415
Consolidated Statement of Cashflows for period ended 6 July
2019
GBPm Originally Wholesale Restated
Reported
Net cash from operating activities 251 - 251
Net cash used in investing activities (206) - (206)
Net cash used in financing activities (122) - (122)
Net cash and overdraft balances transferred
to held for sale 2 - 2
Cash and cash equivalents at the beginning
of the period 282 (4) 278
Cash and cash equivalents at the end
of the period 207 (4) 203
Impact of Covid-19 on interim financial statements
Management has considered the impact that Covid-19 has had on
the Group's accounting policies, judgements and estimates.
Impairment reviews have been carried out in the period to reflect
the current economic environment and to reflect the increased
uncertainty within the UK economy. The results of these impairment
reviews have been detailed in note 1. Judgements within the Group's
provisions have also been refreshed in light of Covid-19, in
particular vacant property provisions where the ability to sublet
vacant properties have reduced due to the impact of Covid-19 on the
retail sector. The increase in provisions in the period can be seen
within note 1 to the accounts.
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 we have also
checked that we can comply with the terms which we have agreed with
them, for example, banking covenants and facility levels.
In assessing the appropriateness of the going concern basis of
preparation, the directors have considered the going concern
position and outlook of the Group. In particular the Group has
included in its assessment that, following the repayment by CISGIL
of GBP70m of sub-debt to external investors earlier in the year,
the Group is supporting a GBP70m Ancillary Own Funds ("AOF")
instrument in favour of CISGIL which is being proposed to ensure
CISGIL continues to meet its solvency capital requirement should it
be required in the future. 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.
As we report on going concern, COVID-19 is having a material
impact on the operations of our businesses and we are incurring
significant additional costs, particularly in payroll as we recruit
additional colleagues to meet demand and cover the work of those
colleagues who are absent and being paid.
In undertaking our assessment we included assumptions on the key
impacts of Covid-19 on the financial projections including (but not
limited to) impacts on:
-- Food store and funeral branch payroll
-- Logistics payroll
-- Investment in protective equipment
-- Increased cleansing and sanitation costs within store costs
-- Front line colleague reward
-- Type and size of funeral in response to restrictions on number of attendees
-- (placed by government guidelines and in some cases even
stricter restrictions by some crematoria) and people not being able
to attend due to self-isolation
-- The impact on demand in our Food business, taking into
account a prudent but realistic view of the experience of the last
few weeks
-- The impact of government support for businesses - particularly business rates
-- The Group's ability to control the level and timing of its
capital expenditure programme (cGBP600m over the going concern
timeframe)
In summary the business rates support provided by government
combined with the increased sales demand assumed within our Food
business goes some way to limiting the significant incremental
costs highlighted above.
As it is impossible to predict with a high degree of certainty,
we have applied prudent sensitivities across all of our businesses
alongside some overarching pan-group sensitivities including
sensitivities relating to Brexit. This allows the directors to have
a reasonable expectation that the Group has access to adequate
resources, under a severe but plausible stress test, to enable it
to continue in operational existence for the foreseeable
future.
For the purposes of going concern, prior to the Covid-19
pandemic, we assumed that no new facilities from re-financing were
required or needed. We do not anticipate any change in this
assumption, but this will be kept under review.
In addition, the Group has an accordion option with the banking
syndicate to obtain GBP100m of additional revolving credit
facilities, whilst available to the Group, this has prudently not
been included in our assessment.
Jargon buster (unaudited)
There are lots of technical words in our accounts which we have
to use for legal and accounting reasons. We've set out some
definitions below to help you understand some of the difficult
phrases accountants like to use. There is also a "What does this
show?" introduction to every note to the accounts describing in
simple terms what the note is trying to show. When a word is in
bold in the table below that means you can also find the definition
of that word in this table.
Accounting surplus When a pension scheme has more assets than
(pensions) the amount it expects to pay out in the
future (the present value of its liabilities)
then it has an accounting surplus.
Accrued income When we've performed a service but haven't
billed the customer yet, we hold the amount
due on the balance sheet as accrued income.
Once we bill the customer the balance is
then moved to receivables.
Actuarial best estimate In our Insurance underwriting business we
have to recognise liabilities for the likely
cost of claims. As part of the method for
calculating these liabilities we use an
actuarial best estimate, which is the weighted
average of all future claims and cost scenarios.
It's calculated using historical data, actuarial
methods and judgement. A best estimate will
normally be designed to be neither too optimistic
or too pessimistic.
Amortisation Similar to depreciation, but for intangible
assets.
Amortised cost We value some of our debt based on its amortised
cost. This is the present value of the expected
future cash flows in relation to the debt.
Asset This is an amount on our balance sheet where
we expect to get some sort of benefit in
the future. It could be a building we use
or are planning to sell, some cash or the
amount of money a customer owes us.
Assets held for sale Sometimes we have to sell things. When we've
decided to make a large disposal before
the year end but the asset hasn't been sold
yet, we have to show it in this line on
the balance sheet and reduce its value (impairment)
if necessary.
Assets in the course These are assets that we're in the middle
of construction of building. They're on our balance sheet
as we've spent money already building them,
but they aren't ready for us to use them
yet so we're not depreciating them.
Associate When we have significant influence over
a company (usually by owning 20-50% of a
company's shares and/or having a seat on
its Board), we call that company an associate.
Balance sheet This shows our financial position - what
assets we have and the amounts we owe (liabilities).
Banking Syndicate We have an agreement in place with a collection
of banks (known as our Banking Syndicate)
that gives us quick access to borrowings
should we need them.
Benefit payments (pensions) This is the amount our pension funds pays
out to pensioners.
Capital expenditure When we spend money on items that will become
assets (such as property or IT systems)
this is shown as capital expenditure. The
costs are not shown in the income statement
of the year it's spent - instead the costs
are spread over the life of the asset by
depreciation or amortisation.
Cash flow statement This shows how much cash has come in or
gone out during the year and how we've spent
it.
Cash Generating Unit A CGU is the smallest identifiable group
(CGU) of assets that generate cash inflows that
are largely independent of the cash inflows
from other assets or groups of assets. For
our Food business this is defined as an
individual store, and for our Funeral's
business this is defined as a regional care
centre and the funeral branches which it
serves as they are heavily interrelated.
CISGIL This is the society that operates the Insurance
underwriting business - CIS General Insurance
Limited.
Claims incurred This is the amount of insurance claims we've
paid in the year plus any change in our
estimate of future claims we may have to
pay.
Claims paid This is the amount of insurance claims we've
paid out in the year.
Claims reported This is the amount on our balance sheet
where we know what the claim is and how
much is going to be paid out.
Commitments Where we've committed to spend money on
something (such as building projects) but
we're not technically liable to pay for
it, we don't put the amount on the balance
sheet but we disclose the amount in the
commitments note.
Comprehensive income This is our profit for the year plus other
comprehensive income.
Consolidated As this report is based on the financial
performance and position of many societies
and companies around the Group, we have
to add up all those entities and the total
is the consolidated position.
Contingent asset This is an amount that we might get in the
future. Unless it's almost certain that
we'll get the amount, we're not allowed
to put it on the balance sheet but we show
the amount in the contingent assets and
liabilities note.
Contingent liability This is an amount that we might have to
pay in the future. If it's only possible,
rather than probable, that we'll have to
pay the amount, then we won't show the amount
on the balance sheet but we show the amount
in the contingent assets and liabilities
note.
Contract assets These are costs we've incurred in advance
of being entitled to receive payment from
a customer under a contract, such as costs
incurred in setting up a funeral plan. We
hold these on the balance sheet until we've
delivered all the services to our customer
and are entitled to receive payment.
Contract liabilities This is where a customer has paid us in
advance of them receiving goods or services
under a contract (for example, a funeral
plan). We have to hold this on the balance
sheet until the customer receives the service
they've paid for.
Corporate investor This is money that other societies invest
shares with us and we pay them interest on it.
The societies can get their money back at
any time.
Credit This is an increase in income/reduction
in costs on the income statement or an increase
in a liability/reduction in an asset on
the balance sheet.
Current An asset or liability that is expected to
last for less than a year.
Current tax This is the amount we expect to pay in tax
for the year based on the profits we make.
Debenture This is a type of loan that we've issued
and are paying interest on.
Debit This is a decrease in income/increase in
costs on the income statement or a decrease
in a liability/increase in an asset on the
balance sheet.
Debt Loans that we've issued and are paying interest
on.
Debt security This is a type of investment held by our
Insurance underwriting business and is a
form of loaning money to another organisation.
Deferred acquisition These are amounts which our Insurance underwriting
costs business pays to secure business. It then
holds these costs on the balance sheet and
amortises over the length of the insurance
period.
Deferred consideration This is an amount we'll be paying to a seller
for businesses we've bought or an amount
we'll be getting from a buyer for businesses
that we've sold.
Deferred tax Sometimes our assets and liabilities are
worth more or less on our balance sheet
than they are for tax purposes. The tax
on the difference in value is called deferred
tax and can be an asset or liability depending
on whether the value is greater in the balance
sheet or for tax purposes.
Defined benefit schemes This is a pension scheme where an amount
is paid out to an employee based on the
number of years worked and salary earned.
Defined contribution This is a pension scheme where an amount
schemes is paid into the scheme and at retirement
the employee draws on the amount that has
been invested over the years.
Deposits with credit When customers pay us premiums, we put the
institutions money in high-quality corporate bonds so
that if an insurance policy needs to pay
out, we have the money there. Deposits with
credit institutions are the amounts we've
invested in these corporate bonds.
Depreciation Some assets the Co-op will have for a while
(such as vehicles). When we buy them the
cost goes on our balance sheet and then
depreciation spreads the cost of the asset
evenly over the years we expect to use them
in the income statement.
Derivatives These are financial products where the value
goes up or down based on an underlying asset
such as currency, a commodity or interest
rate.
Discontinued operations When we sell a large business, we report
its results at the bottom of the income
statement so that it's easier for readers
to see the performance of the Group's other
continuing businesses.
Discount rate This is the amount that we are discounting
by. It's a percentage and varies based on
what we expect interest rates or inflation
to be in the future.
Discount unwind Every year the amount that we're discounting
is going to be worth more as we get nearer
to paying or receiving it. We have to put
that increase in value (the discount unwind)
through our income statement.
Discounting When we have to pay or receive cash in the
future, accountants like to take off part
of the amount if it's a big amount (like
on our onerous leases). This is because
cash we pay or receive in the future is
going to be worth less than it is now -
mainly because of inflation.
Disposals When we have sold an asset.
EBITDA This is operating profit excluding any depreciation
or amortisation. The letters stand for earnings
before interest, tax, depreciation and amortisation.
Effective tax rate This is the average tax rate we pay on our
profits. This might be different to the
standard corporation tax rate, for example,
if we aren't allowed to deduct some of our
costs for tax purposes.
Equity This is the difference between the assets
we own and the liabilities we owe - theoretically,
this is how much money would be left for
our members once every asset is sold and
every liability is paid.
Eurobond Notes This is our largest, fixed interest debt
that we pay interest on to fund our businesses'
operations.
Expected credit losses This is an estimate of the amount of our
receivables which will not be repaid.
Fair value movement There are some things on our balance sheet
which we have to revalue every year. This
includes some of our debt, investment properties
and our pension schemes. The change in value
is called the fair value movement.
Fee and commission This is income which our Insurance underwriting
income business receives for distributing products
which it doesn't underwrite.
Finance costs These are usually the interest we pay on
our debt, but can also be other things such
as the fair value movement on our debt or
the discount unwind of liabilities.
Finance income This is mainly the interest on our pension
assets, but can also be other things such
as the fair value movement on our debt or
the discount unwind of receivables.
Finance lease A finance lease is a way of providing finance.
Effectively a leasing company (the lessor
or owner) buys the asset for the user (usually
called the hirer or lessee) and rents it
to them for an agreed period.
Financial instruments A collective term for debt or derivatives
that we have.
Financial Services This is a group of companies within the
Group that provide financial products such
as insurance.
First Mortgage Debenture This is a small debt we owe that is secured
Stock against some properties - a bit like a mortgage.
Fuel Refers to fuel sales generated from our
petrol forecourts.
Funds in use invoice Invoice discounting is an arrangement with
discounting facility a finance company so that we can be paid
for amounts we are owed on invoices earlier
than the date our customers are due to pay
us. 'Funds in use' is just the term for
the amount we owe to the finance company.
Funeral plans A member may not want his or her family
to pay a large single sum for a funeral
when he or she dies. Therefore, the member
can pay for it gradually or in lump sums
over a number of years and the Group will
invest that money.
Funeral plan investments When a customer gives us money for their
funeral in the future, we invest this money.
The balance of these investments is held
on the balance sheet.
Goodwill When we buy a business or a group of assets,
sometimes we pay more for it than what its
assets less liabilities are worth. This
additional amount we pay is called goodwill
and we put it on our balance sheet.
(the) Group This is Co-operative Group Limited and all
companies and societies that it owns.
Hedging Sometimes we want to protect ourselves in
case we have to pay more in the future for
something. This could happen if the value
of the pound falls so we have to pay more
when buying something abroad or if interest
rates go up. We take out derivatives to
protect us from this and this process is
known as hedging.
IAS International Accounting Standards. The
Group use these as the accounting rules.
There are many different IASs that cover
various accounting topics (e.g. IAS 38 is
for intangible assets)
IFRIC International Financial Reporting Interpretations
Committee. These are interpretations of
IASs or IFRSs that the Group also has to
abide by.
IFRS International Financial Reporting Standards.
Similar to IAS, but cover different subjects.
Impairment Sometimes our assets fall in value. If a
store, branch, business or investment is
not doing as well, we have to revalue it
and put the downward change in value as
a cost in our income statement.
Income statement This not only shows our income as the name
suggests, but also what our costs are and
how much profit we've made in the year.
Intangible asset We have assets at the Co-op that we can't
see or touch which are shown separately
to other assets. These include things like
computer software and goodwill.
Interest rate swaps We like to know what interest we're going
to be paying in the future so we can manage
our businesses effectively. We enter into
arrangements with banks so that we can do
this - for example, if we have debt where
the interest rate can vary, we can buy an
interest rate swap which means that instead
we'll pay a fixed rate of interest. The
value of these swaps can go up or down depending
on how the market expects interest rates
to change in the future.
Inventories This represents the goods (the stock) we're
trying to sell. The cost of this is shown
on our balance sheet.
Inventory provision If some of our stock isn't selling, we write
those costs off to the income statement
and hold a provision against those goods
on the balance sheet.
Investment properties Properties that we don't trade from, and
which we might rent out or hold onto because
the value might go up, are called investment
properties.
Invoice discounting Invoice discounting is an arrangement with
facility a finance company so that we can be paid
for amounts we are owed on invoices earlier
than the date our customers are due to pay
us.
Joint ventures When we own 50% of a company we call it
a joint venture. Sometimes associates are
called joint ventures commercially as they're
ventures with other parties, but are called
associates for accounting purposes. A joint
venture is a company where we own exactly
50%.
Lease Liability This represents the discounted future payments
we are due to make to suppliers in exchange
for the right to use their equipment or
property.
Liability This is an amount on our balance sheet which
we'll have to pay out in the future.
Like-for-like sales The measure of year-on-year sales growth
for stores that have been opened for more
than one year. This is a comparison of sales
between two periods of time (for example,
this year to last year), removing the impact
of any store openings or closures.
Listed debt securities People can trade some of our debt such as
the Eurobonds fair. When this is the case,
it's a listed debt security.
Member payments This is an amount we've paid our members
in the year and approved at the AGM such
as dividends.
Member rewards These are the benefits that members have
earned for themselves during the year as
part of the 5% membership offer.
Net assets Same as equity.
Net debt This is the debt we have less any cash that
we might have.
Net operating assets Net assets less investments, funeral bonds,
deferred tax, pension surplus and drawn
debt.
Non-controlling interest This is the equity in a subsidiary which
is owned by another shareholder. For example,
if we only own 60% of a company, the other
40% is the non-controlling interest.
Non-current An asset or liability that is expected to
last for more than one year.
Non-GAAP measure GAAP stands for Generally Accepted Accounting
Principles. This is the common set of accounting
principles, standards and procedures that
companies must follow. Sometimes, companies
want to provide different measures to help
readers understand their accounts (such
as underlying profit) where there isn't
a standard definition - these measures are
called non-GAAP measures.
One-off items Items that are not regular in size or nature
and would otherwise cloud the underlying
profitability of the Group are stripped
out. This could include a large IT project
or a large restructuring exercise.
Onerous leases When we close a store we sometimes still
have to pay running costs until the lease
runs out (such as rates). When this happens,
we make a provision for the amount of the
running costs we will have to pay in future
and hold this on the balance sheet. Rental
costs are excluded from this provision now
we have adopted IFRS 16 (Leases) as those
costs are included in the lease liability.
Operating profit This is our profit before we have to pay
any interest to our lenders or tax to the
tax authorities.
Operating segments This is an accounting term for the different
businesses we have. When the financial performance
of one of our businesses is reviewed separately
from the other businesses by our Board,
we call that business an operating segment
and its sales and profit are disclosed in
note 1.
Other comprehensive Sometimes we have big fair value movements
income on long term assets and liabilities. The
income statement is meant to show the performance
during the year, so to avoid this being
distorted by these big changes, they are
shown separately as other comprehensive
income.
Parent This is the owner of a subsidiary.
Payables Another name for liabilities.
PAYE Pay As You Earn. A tax which is paid on
wages.
Pension interest This is the interest that we're allowed
to show in our income statement and is the
discount rate used to discount the pension
liabilities multiplied by the pension surplus
or deficit last year.
Performance obligations These are promises to provide distinct goods
or services to customers.
Prepayment When we pay in advance for a cost which
relates to services that will be received
over a future period of time (for example,
rent or insurance), we hold that cost on
our balance sheet as a prepayment and then
spread the cost over the period of the service.
Present value This is the value of a future cost or income
in today's money and is arrived at by discounting.
Provision for unearned When we sell an insurance policy, some of
premiums the premium we receive may not relate to
the current financial year if the insurance
cover goes beyond the end of the year. We
have to put any amounts which relate to
later years on the balance sheet as a liability.
Provisions This is a liability, but one where we're
unsure what the final amount we have to
pay will be and when we'll have to settle
it. We use our best estimate of the costs
and hold that on the balance sheet.
Quota share Quota share is a type of reinsurance contract
where we share premiums and losses with
a reinsurer based on a fixed percentage
and is a way of reducing our risk.
Realised gains This is when we sell an asset for a profit.
Receivables When someone owes us some money, we hold
that amount as a receivable on our balance
sheet.
Reclaim Fund This is an entity we own that helps money
in dormant bank accounts to be used for
charitable purposes.
Reinsurance contracts When we sell an insurance policy, we might
want to resell that policy to another insurance
company so that we can manage the level
of risk we face in case a major claim comes
in. When we're owed money from the other
insurer then this is shown as an asset and
if we have reinsured for another insurer
we would show a liability.
Related party This is a company or person that is closely
linked to the Co-op. It's usually a member
of our Board or Executive or their close
family plus companies such as our associates
and joint ventures.
Remeasurement gains There are lots of assumptions that are used
/ losses on employee when valuing pensions. If those assumptions
pension schemes change this can have a big effect on the
size of the pension asset or liability.
So that we don't distort the income statement,
this effect is shown in other comprehensive
income.
Repayment notes This is a type of loan, which we repay either
in instalments or in a lump sum at the end
of the loan.
Repo agreements This is a type of short-term investment
used by our Insurance underwriting business.
Reserves This is the amount of equity we have, but
excluding any share capital.
Restated Sometimes we change the numbers that we
showed in last year's accounts. This might
be because we have changed where or how
we record certain things or it could be
that we have corrected an error. There are
strict rules around what can be changed
and when we make changes we explain why
in the accounting policies.
Retained earnings This is all the profits we've made since
the beginning of time for the Co-op that
have not yet been paid out to members.
Retirement benefit Another term for our pension liabilities.
obligations
Return on plan assets This is the income our pension assets have
(pensions) generated in the year.
Revaluation reserve When we revalue a property upwards, we're
not allowed to put this unrealised gain
through our income statement or within retained
earnings as law dictates that this can't
be distributed to members until the property
is sold. It's then ring-fenced as a specific
reserve.
Revolving Credit Facility This is money that our lenders have agreed
we can borrow if we need to. It works a
bit like an overdraft.
Right of use asset This is an asset that we don't own legally,
(ROU) but which we lease from another party. The
asset represents the value the Co-Op has
in being able to use the asset over the
length of a lease contract.
ROCE Return on capital employed. This is based
on our underlying profit we make in the
year less any pension interest earned divided
by the net operating assets we have.
Sale and leaseback This is when an asset is sold to a third
party and then immediately leased back under
a lease agreement. For the Co-op, this usually
relates to the sale of a building such as
a store.
Sensitivity analysis When an item on our balance sheet varies
in value from year to year based on some
estimates that we make, we show a sensitivity
analysis which shows you how much the asset
or liability would change by if we were
to change the estimate.
Share capital This is the amount of money that our members
have paid us to become members less any
amounts that we've repaid to them when they
cancel their membership.
Society The Co-operative Group Limited is a registered
co-operative society. We sometimes refer
to our collective whole as 'the Group' or
'the Society' and the terms are broadly
interchangeable.
Subrogation This is an insurer's right to recover the
amount it has paid for a loss from the party
that caused the loss.
Subsidiary This is a company or society that is owned
by another company.
Supplier income Sometimes our agreements with suppliers
mean they will give us money back based
on the amount of their products we buy and
sell. We call this supplier income.
Trading Group This is the Group less any Financial Services
companies.
Underlying profit This is an alternative measure of the trading
performance of the Group which excludes
one-off items or large gains or losses we
might have made on selling assets.
Unrealised gains An asset may have gone up in value, but
we've not sold it. If this is the case,
the profit from the gain is unrealised as
we've not sold the asset yet.
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END
IR GPUUUBUPUGGQ
(END) Dow Jones Newswires
September 17, 2020 02:00 ET (06:00 GMT)
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