One year into its rebuild strategy, the Co-operative Group has reported a “stable” income and increased underlying profits for the financial year ending 2 January 2016.
The Group’s overall revenue fell from £9.4bn to £9.3bn. Within the Group’s businesses, revenue stayed flat in Food (£7bn), increased by 9.9% in Funeralcare (£399m) and fell in Insurance by 7.5% (£343m), Legal Services by 14.3% (£18m) and Electrical by 6% (£79m).
Debt at the Group, stayed at £0.7bn, while the costs of supporting functions increased to £160m from £129m in the previous year.
Underlying profit was reported at £81m, up from £73m last year. But profit before tax fell to £23m from £124m, which, said the Group, reflected “major investment in the business this year and 2014 profits being bolstered by £121m from one-off disposals last year”.
In Food, the number of stores across the UK increased by six to 2,802 (97 new stores opened, while 91 closed), and the number of staff increased by 1.9% to 62,459. The Group said it will continue to close larger stores, in favour of smaller convenience stores.
The underlying operating profit was up 3.3% to £250m (2014: £242m), with a like-for-like growth of 1.6%. In convenience stores, like-for-like sales rose by 3.8%.
In Funeralcare, the revenue increase to £399m was attributed to a 5% increase in the number of funerals to over 97,000 and a 25.6% rise in funeral plans sold to almost 35,000. Profit increased by 18.2% to £78m due to economies of scale across the business.
The floods across the north of England during December is set to cost the Insurance division around £13m, and this contributed to the overall loss of £13m during the year (2014: £1m loss). During 2015, the division also spent £47m on an insurance platform from IBM, which the Group says will give it a “market-leading digital platform” and will allow intelligent use of member data.
Legal Services reported a £6m increase in underlying profit on last year to £700,000. The profit was impacted by an investment in digital technology. Revenue also declined to £18m due to personal injury claims continuing to “normalise”, while it also “shaped and refined the business back to core service propositions”.
In Electrical, profitability was down £1.8m to a £1m loss due to “aggressive market conditions” and a decrease in buying volumes following the exit of department stores by other retail co-operatives. However it reported sales growth over Black Friday (89% rise) and Christmas (up 24%).
Chief executive Richard Pennycook, who is taking a voluntary pay cut, said 2015 had been a year of “further progress”. He added: “Our Rebuild programme is extensive, covering every aspect of our work, and the changes we have put in place to get our house in order have been considerable. I’m pleased to say that our progress has been faster than expected.
“I put that down not only to the approach we are following, but the determination and commitment of colleagues at every level and the affection that our members and customers hold towards the Co-op. All of this means we will be ready to relaunch the Co-op in the second half of this year.”
A statement from the Group said that with the “rescue” of the Co-op “complete”, Mr Pennycook has requested that his remuneration package be reduced. From 1 July, his base salary will be reduced from £1.25m to £750,000. All Group executives have also reduced their pension contributions from 16% of salary to 10%.
Chair Allan Leighton, who will continue to donate his £250,000 salary to The Co-operative Foundation, said: “The move by Richard to reduce his pay shows the Co-op difference in action, as we champion a better way to do business for our members and their communities.”
On the Group’s future, Mr Leighton added: “Even though we’re only just into the second year of our three-year Rebuild programme, we’re already confident enough of our progress to be planning a major relaunch of the Co-op in 2016. I can assure you this will be far more than a marketing makeover and the biggest thing to happen to our Co-op for 25 years.
“We’ll be announcing an entirely new Co-op membership that will be both innovative and compelling. This will be in addition to the annual member dividend which we hope to bring back once we start our Renewal phase.”
Nick Crofts, president of the members council, said: “Our Rebuild could be the great revival story of our times. This is certainly an exciting time for our Co-op.
“Over the coming three years, the Council will continue to develop the Meaningful Holding to Account Framework. Within this, there are four emerging priority areas – member value, how it is created, developed and sustained; being a leader ethically and sustainably; the member voice and member experience; and leadership within the national and global co-operative movement.
“These four thematic priorities are linked by one golden thread – that everything our Society does demonstrates our co-operative difference.”