Midcounties Co-op lifts operating profit 25% to £19m

The society is still making adjustments to compensate for financial difficulties at its Co-op Energy business last year

Midcounties Co-op, the independent retail society whose businesses range from food and pharmacies to energy and childcare, has reported an increased operating profit of £19m for the year to 25 January.

This marks a 25% increase on the previous year, with gross sales in the society’s core businesses rising 15.6% to £1.3bn.

The year saw Midcounties sign a deal with Octopus Energy, which has taken over ownership and responsibility for the society’s Co-op Energy business, which dented last year’s profits after struggling in a turbulent market.

Under the deal, Midcounties Co-operative will retain responsibility for acquiring new customers under the Co-op Energy brand as part of its wider utilities strategy.

In this year’s report to members, group chief executive Phil Ponsonby said: “Our partnership with Octopus Energy, announced in September, has removed the risks and liabilities that were threatening both the business and the society, thus achieving a key objective for the year.

“Your board and management can now be confident to direct investment
and resource into our core businesses, a welcome outturn and a positive position for the longer-term future of the society.”

But he added: “However, the significant changes … and discontinuation
of the operations has resulted in a number of one-off multi-million pound write downs to the assets of the business, which, in addition to the trading losses in the energy operations prior to the partnership, has resulted in a very significant accounting loss for the year of £89.7m.”

But Midcounties’ Food business had another strong year, with like-for-like sales growth of 3.3% in the key convenience division. Mr Ponsonby said it has continued to focus on local sourcing and food provenance to differentiate from its competitors, has introduced a number of key operational efficiencies and is taking some “difficult decisions around its more marginal stores”.

Gross sales were £612m (2018/19: £594 million).

The Travel business also performed strongly, he said, despite a difficult first few months where Brexit uncertainty hit customer confidence. The business doubled in size after recruiting 100 new branches after the collapse in September of Thomas Cook. Gross sales were £554m (2018/19: £397m).

Midcounties’ Childcare arm has grown sales and profit, said Mr Ponsonby, adding: “Our Little Pioneers brand is gaining real traction in the market, helping the business to stand out from its competitors in a truly co-operative way. We have ambitious plans to grow the business over the next five years.”

Gross sales were £36m (2018/19: £34m).

The society made adjustments at its Funeral division in response to
the lower death rate and shifting pattern of demand, improving efficiencies and ways of working. Gross sales were £33m (2018/19: £34m).

But its pharmacy business still faces challenges rising from the five-year freeze on government funding. The society is continuing its strategy to dispose of the majority of its branches and focus on its growing online offer.

“Where we have disposed of branches,” said Mr Ponsonby, “we have put our colleagues at the heart of negotiations ensuring that jobs have been
retained. This process is never easy for colleagues and I would like to thank them for their understanding and professionalism during this period.”

The society’s Phone Co-op business returned to profitability; gross sales were £11m (2018/19: £7m).

Mr Ponsonby added: “We expect the Energy business to be profitable in 2020, a significant turnaround from the last few years, and are planning to combine our energy and telecoms businesses to facilitate the introduction of combined offers to help make consumers’ lives easier.”

He said the society would continue to introduce cost savings and efficiencies to relieve pressure on the balance sheet from the performance of the Energy business.

The report also outlines the impact of the Covid-19 pandemic on the society, which held its first steering group meeting on the crisis on on 10 March. Midcounties has invested heavily in PPE, tillpoint screens and directional signs. Changes have been made to cleaning specifications and fixed sanitiser units installed for customers.

The society has temporarily closed two thirds of its nurseries, restricted half of its funeral homes to closed contact arrangements and consolidated its travel operations into a virtual call centre operated by colleagues working from home. Most central support colleagues are working from home.

“The operational challenges have been considerable,” said Mr Ponsonby. “The challenges on our supply chain have resulted in new suppliers being introduced particularly in Food and Healthcare, and in the pursuit of PPE. Many of the new suppliers have been local.”

The pandemic has also impacted the Travel business, with customers asking to amend or cancel bookings.

Midcounties has recruited 950 temporary colleagues to help in its Food stores. In addition, a number of colleagues from its Childcare and Travel businesses have been redeployed to support our Food stores.

Where colleagues have not been redeployed or are on the ‘at risk’ list and have been placed on the 12-week isolation period, the society says it has used the government’s job retention scheme and furloughed approximately 1,900 colleagues, on full pay.

The report says it has maintained close contact with USDAW, and introduced enhanced benefits for all colleagues working in public-facing operations.

“The pandemic has had a profound impact on activity across the country, and all our principal businesses have been affected,” said Mr Ponsonby. “I am clear that businesses with well-defined goals and longerterm thinking, that keep to their values as they address the issues, will prosper and thrive as we come out of this crisis.”