Midcounties Co-op reports 16.5% rise in operating profits

The society hailed strong performances in its Food, Childcare, Funeral, Travel and Flexible Benefits businesses

Midcounties Co-operative has released its annual results for the year ended 27 January 2018, with operating profit before significant items up 16.5% to £13.3m.

Gross sales rose 10.2% to £1.48bn, and pre-tax profits were £5.4m, up from £4.3m the previous year.

Group chief executive Ben Reid said: “There were exceptional performances by our Childcare, Funeral and Travel groups, each of which declared record levels of profit, increasing profits by 30% between them.

“Our Food business continued its strong performance with positive like-for-like sales performances in each quarter. Flexible Benefits also performed strongly with profits ahead of plan by nearly 70%.

“However, neither Healthcare nor Energy achieved their budgets due to external factors which impacted their ability to deliver their anticipated profit.”

Mr Red said reduced government funding for prescriptions had hit the healthcare business, which “has had a considerable impact on the profits generated by the group”.

He said the energy sector was “very competitive with new entrants to the market offering heavily discounted tariffs creating considerable customer churn”, and the business had also been hit by increased gas costs following the introduction of a new gas settlement system.

“The impact of this unexpected increase in costs was approximately £2.1m in the year,” said Mr Reid. “Without this additional charge our energy business would have achieved its forecasted profit. This situation is currently under review by the regulator Ofgem and we await their findings with interest.”

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He said Midcounties was investing £25.1m on site acquisitions, branch refurbishments and our IT infrastructure. The society’s net debt rose to £55.9m at the year end, “in line with our cash flow projections and comfortably within agreed facilities”.

Mr Reid warned that Brexit continued to form a backdrop to a “challenging economic environment”, with increased costs from the national living wage and inflation in the food sector.

Midcounties group chief executive Ben Reid

“However, our strong trading performance and the Board’s continued commitment to invest in our businesses ensures that we are in a good position to face these challenges,” he added.

He said the society now has more than 667,000 members, its Regional Community programme has raised nearly £150,000 for local charity partners, and it has assisted over 9,000 young people at its 50 partner schools.

In terms of member engagement, it has developed a members’ app and broadcast its AGM live on the internet.

Individual business performances

Food Retail and Post Office recorded gross sales of £572m (2016/17:£572m) after an investment programme that opened three new stores in Bletchley, Upper Rissington, and Bourton-on-the-Water – its new flagship store – and completed 13 full refurbishments. The society acquired two new Post Offices in Watlington and Wotton-under-Edge.

Travel recorded gross sales of £363m (2016/17: £344m) with growth across all trading divisions – Retail, Consortium and Personal Travel Agents.

Energy saw gross sales of £420m (2016/17: £295m) and now has 333,000 customers. The business operates a Warm Home Discount scheme providing over £4m of support to 19,000 customers experiencing or at risk from fuel poverty. The society sources 100% of the electricity its supplies from renewable sources, including a number of local generators.

Healthcare saw gross sales of £32m (2016/17: £40m), and has reshaped the business by disposing of branches that no longer fit co-operative and commercial criteria and developing an improved online presence. It now has 30 branches in its core trading estate, found within food stores, community retail locations and health centres. NHS trading was hit by funding cuts, a reduction in the value received for supplying commonly prescribed drugs, and an increase in the cost of the drugs themselves.

In November, the business launched cooppharmacy.coop, a fully integrated online pharmacy and doctor site. Customers can now buy both over the counter and prescription products on the same site allowing us to provide better clinical advice.

The Flexible Benefits business, which offers employee benefit schemes to 1,000 clients, saw gross sales of £26m (2016/17: £29m). “The delay to the government’s Tax Free Childcare scheme provided us with further opportunities to recruit new childcare voucher users within existing client organisations, as well as recruiting new businesses up until October 2018,” said the report.

“This year we have formed a partnership with a competitor to offer our Cycle 2 Work scheme to their clients. The scheme provides access to bikes, safety equipment and clothing.”

Funerals reported gross sales of £34m (2016/17: £31m), providing over 7,300 funerals – a record number – and selling more than 3,000 pre-paid funeral plans.

“Following a £1 million investment into our flagship Wolverhampton and Walsall funeral homes, we made considerable improvements to the customer experience,” says the report. “The launch of a brand new funeral home in Sutton Coldfield also means we can better service the needs of our members and clients in this area.”

Childcare reported gross sales of £32m (2016/17: £30m). Midcounties says the business had a record year, with sales increasing by 6.5%, and a  5% increase in the number of nurseries judged as Outstanding by Ofsted, bringing the total to 40%.

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