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Thursday 12 September, 2019

CIS General Ins

Interim Results 2019

RNS Number : 0460M
CIS General Insurance Limited
12 September 2019
 

CIS General Insurance Limited

12 September 2019

 

Co-operative Group Limited, the parent entity of CIS General Insurance Limited ('Co-op Insurance') has today announced its Interim Financial Results 2019. A copy of the Co-op Group announcement, which includes references to Co-op Insurance, is provided below.

Media Enquiries:

Russ Brady: Head of Group Public Relations

[email protected]

Tel: 07880 784442

 

 

 

Interim Results for the six months to 06 July 2019

Co-op community impact grows on strong Food performance 

 

Co-op highlights H1 2019: Investing for the benefit of our members and communities

·     £29 million returned to members and £6 million to 4,000 local causes.

·     Total sales increased by 12% to £5.4 billion.

·     22 consecutive quarters of like-for-like* sales growth in Food - total sales up by 3% and like-for-like sales up by 1.7%.     

·     Extended online food delivery trials in London using zero emission electric cargo bikes and by partnering with Deliveroo.

·     Funeral revenue falls by 6%, driven by an unexpected 10% fall in the death rate and our conscious decision to hold prices in a changing and competitive market

·     Funeralcare to concentrate on innovation, choice, flexibility and partnerships - giving the same level of focus and care to develop the business as the Co-op did with the reset of its food business five years ago.                

·     Co-op Health expected to be rolled out nationally by early 2020 bringing convenience to pharmacy and health services.

·     Re-entered the life insurance market, launching Co-op Life Cover, including innovative payment holiday option.

·     Successfully re-financed £300m of existing debt, through a Fairtrade Sustainability Bond - twice over-subscribed and a UK retailing first.   

·     The Co-op named Grocer of the Year at the Grocer Gold Awards and Consumer Business of The Year at The London Evening Standard Awards.

·     Co-op members back accelerated sustainability, packaging and community goals:

All Co-op direct Green House Gas emissions to be reduced by a further 50% by 2025.

We will ban the use of black and dark plastic packaging from October to make it easy to recycle.

Ambitious Co-operate 2022 community plan focusing on saving community spaces, improving wellbeing, skills and education.         

 

Financial highlights: In line with plan

·     Significant accounting standards change in H1 2019 following adoption of IFRS 16 in relation to lease accounting.

·     Total sales increased by 12% to £5.4 billion, reflecting full contribution of Nisa business and continued strong performance of our Food business.

Total Food sales grew by 3% to £3.7 billion and like-for-like sales by 1.7% despite highly competitive trading environment.

Funerals and Life Planning sales fell 6% to £163 million. Results driven by a 10% reduction in the death rate and the continued reshaping of the business in response to market changes.

·     Underlying business performance in line with plan, enabling £35m of member value to be generated.

 

On an IFRS 16 accounting basis for 2019:

Total Underlying Operating Profit** increased to £64m from £50m in 2018, of which:

Food was £120m (2018 £80m)

Funeral and Life Planning was £13m (2018: £28m)

Profit Before Tax reduced to £25m (2018: £44m)

On a non-IFRS 16 accounting basis for 2019 - Like-for-like:

Total Underlying Operating Profit reduced to £36m from £50m in 2018, of which:

Food was £95m (2018 £80m)

Funeral and Life Planning was £13m (2018 £28m)

Profit Before Tax reduced to £30m (2018: £44m)       

·     Supporting function costs increased by £13 million (excluding IFRS 16) due to greater investment in our digital capability and increased marketing activity to promote our Co-op difference.

175 year anniversary demonstrates long-term impact and sustainability:

This year marks 175 years since the Rochdale Pioneers opened their first Co-op shop and we continue to stay true to their founding principles by measuring our success not just in pure commercial terms but in the way we create value for our members and Society as a whole. Our Stronger Co-op, Stronger communities plan is helping us move from strength to strength as our customers recognise that choosing Co-op also means choosing to do good for their communities.

We want to help create stronger, more connected communities, which is why this summer we launched our Endangered Spaces campaign in partnership with Locality, with the aim of protecting 2,000 community spaces by the end of 2022.

The Co-op Foundation has awarded more than £1.4 million to help 20 community organisations grow their activities and secured £1 million of government funding to help over 7,500 young people improve local spaces.

 

In addition to our work on reducing plastic and greenhouse gas emissions, we have written to Local Councils which collect food waste but do not yet accept our compostable carrier bags in their collection services, to ask them to change their policy so we can play our part in reducing plastic contamination and diverting food waste from landfill.

The Co-op's ability to support our community and campaigning activities is driven by strong businesses:

·     Our Food business continued to perform well in a fiercely competitive market.

We have the highest shopper frequency in the market as customers regularly visit their Co-op - our 1.7% growth in like-for-like sales was a particularly strong performance, given outstanding sales last year on the back of the FIFA World Cup.

We had a successful Easter bank holiday, driven by a competitive offer and helped by the warm weather, and our summer saver deals have also proved popular.

In our wholesale operation 90% of Nisa partners have now taken lines from across Co-op's own brand products, which are now generating weekly sales in excess of £2.5m.

We've established six Co-op franchise stores; three are Costcutter-owned stores and three are on university campuses.

§ The university-based stores provide greater access to the student market, whilst providing valuable market data which we can feed into our business, to ensure our Co-op continues to meet the needs of a younger audience.

·     Under new leadership, our Funerals and Life Planning business has reviewed its strategy focusing on support for families, broadening customer choice, competitiveness and channels to market.

Sales during the period were significantly impacted by an unexpected 10% fall in the death rate. Funerals conducted in the period fell to 48,423 compared to 53,213 in H1 2018.

We welcomed the Government's announcement, in June to crack down on the use of high pressure and misleading tactics to sell funeral plans. We are working closely with the CMA investigation into the at-need funerals and crematoria markets.

·     In Insurance, we have invested to increase product development and raise the business's profile so we can meet the ever-increasing needs of our members in the future. 

In addition to returning to the life protection market, we introduced an innovative "graduated" product for young drivers, saving them an average of £300, as a reward for safe driving.

·     Our Legal Services business continues to perform well, with Probate revenue up 37% and Estate planning revenue up 20%. We are the leading provider of probate in the UK.

·     The launch of Co-op Health saw us return to the health sector, with a disruptive, capital light, digital offer giving customers a range of ways to access their medication, with a service provided by a brand they know and trust

This year we began a 'click & collect' trial, using lockers in Co-op food stores.

Outlook

·     With Brexit continuing to create uncertainty, we continue to plan and prepare as best we can. In the event of a "no deal" Brexit there is an increased risk of some disruption to our supply chain, however we will do all we can to protect our customers and members from this impact.      

·     We are progressing with the ambitious plans we have for our funerals business amid unprecedented market change. We are confident these changes will position the business for long-term success, providing our customers with the support and choices they require at their greatest time of need.

·     Likewise we are optimistic with the opportunities which exist in insurance, as we progress a deal with Markerstudy subject to regulatory approval, as well as our legal and health sectors, where our historical expertise and ambitious growth plans, provide the basis for us to increase member value in the years ahead. 

·     We will continue to innovate and invest further within our food business to maintain the competitive advantage within the convenience sector.

 

 

Steve Murrells, Chief Executive of the Co-op, said:

"We've enjoyed another good six months where the strength of our business has led to a further £35 million of value being generated for our members and their communities. Our food business continues to perform strongly in a highly competitive market and has now recorded 22 consecutive quarters of like-for-like sales growth. As our largest business, it is providing the fuel for our growth in terms of member value and community impact.   

"In funerals we are actively re-positioning the business to meet the changing needs of our members. We are the market leader but we will also lead the market in providing better choices and options for our customers in the years ahead. Likewise, the development in our insurance, legal and health businesses will enable us to significantly broaden the range of Co-op services, in areas where our members know the Co-op difference can be clearly seen." 

 

Allan Leighton, Chairman of the Co-op, said:

"We have made further progress during the first six months of this year and the strength of our business can be seen by our underlying financial position and through the increasing impact we're having in local communities.      

"The Co-op is now 175 years young, and we have worked hard to ensure that we remain relevant to all generations and in particular younger co-operators. Whether this is using our presence at eight music festivals to introduce people to our values and ways of doing things, or by developing motor insurance products specifically with the needs of young drivers in mind. The Co-op is thriving and we are committed to growing our Co-op difference and impact for generations to come."     

 

                                                                     Ends                 

 

Media Enquiries:

The Co-op

Jon Church
Tel: 07545 210812

Russ Brady 
Tel: 07880 784442

Tulchan Communications

Jonathan Sibun 
Tel: 020 7353 4200

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 63,000 colleagues and an annual revenue of over £10 billion.

 

*Like-for-like sales is a measure of year-on-year sales growth for stores that have been open for more than one year.

**Underlying Operating Profit excludes one-off items, property and business disposals and change in value of investment properties. A reconciliation of Underlying Operating Profit to Operating Profit is provided in note 1 of the Interim Financial Statements.

 

 

 

 

 

 

Co-operative Group Limited

 

Interim Report 2019

 

 

We're creating value for our members

12% growth in Group revenue

£78m Group operating profit

Co-op Health launched

£29m Returned to members through 5% reward [same as h1 in 2018]

£6m Returned to local communities through 1% reward [same as h1 in 2018]

Five more Co-op Academy Schools opened

Three Co-op franchise stores opened on University campuses

£2.5m Weekly Co-op own brand product sales through Nisa partners

£290m invested in sustainable businesses by Co-op pension fund

 

Chair's introduction

Through 2019 we're marking the 175th anniversary of the birth of the UK co-operative movement. The social and economic challenges of 2019 are very different from 1844, but fundamentally our approach to them remains the same. Our job is to run a commercial enterprise on behalf of our members that's responsible and successful and creates a better, fairer and more co-operative world. And at a time of growing political and social polarisation, thinking co-operatively looks more urgent than ever.

This report on the first half of the year shows that we continue to focus on being a competitive, innovative, responsible, and growing business. By building a stronger Co-op we can create stronger communities. We're using this anniversary year to identify the challenges of today for individuals, communities and the planet as a whole. We've been refining our work to better address those challenges.

Democratic accountability has always been a core principle of the co-operative movement. In 2019 we demonstrated this through our AGM and elections of our Member Nominated Directors (MNDs) and Members' Council Representatives.

Sarah McCarthy-Fry was elected as an MND for the first time this year. Sarah's been a committed co-operator for over 25 years and was previously a Labour and Co-operative MP, representing Portsmouth North, and served as a minister in Gordon Brown's government. Sarah is currently a finance director at GKN Aerospace. We welcome Sarah to the Board. Paul Chandler was re-elected. Gareth Thomas was not re-elected and I'd like to thank Gareth for the great service and professionalism he brought to us over the last two years. 

Our Members' Council is also a key element in ensuring we are accountable and listening to our members. The Council has continued to support, challenge and influence our thinking during the first half of the year. We are grateful for its passion and commitment.

Allan Leighton

Group Chair

 

 

Chief Executive's introduction

Value for a Co-op member comes in many forms. It's about more than individual reward and lowering prices. Our members want to do good in their community and they want their Co-op to make a difference in society. I'm delighted to say that in the first six months of this year we've achieved these things in numerous ways. We've grown the reach of our brand to new markets and new customers. We've innovated in our products and services. And we've developed our community support to encourage co-operative approaches to local challenges. I'm particularly pleased with the launch of our new Co-op Health business, the rapid growth of the Co-op Academy Trust and experiencing over five years of uninterrupted like-for-like sales growth in Food.

Through our Co-op member rewards we've returned £29m to individual members through the 5% reward and £6m to local causes through the 1% reward, that's in line with the same period last year.  We've also put in place new structures to help our growing network of Member Pioneers bring people and communities together. Meanwhile, we've launched our campaign to save 2,000 public spaces and stepped up our work to address crime in our towns and cities.

We know that climate change and plastics continue to be a concern for our members. It's also a real priority for us and we've made some great progress so far this year. By 2020 we will have eliminated the most difficult to recycle plastic packaging and all single-use plastic in our own-brand packaging will be gone by 2023.

 

Changes to financial reporting

Our headline business performance figures are difficult to compare with last year because of a significant change to financial reporting in respect of accounting for leases, called IFRS 16. This means that our financial commitments relating to leases are now shown on our balance sheet. It doesn't change how we run our business, nor the business cashflows, but it does have a significant impact on our reported profit and our balance sheet. So for this report, and in our full annual report next spring, we're including additional numbers in the finance review as though the new reporting regulations didn't apply so that year-on-year performance can be seen on a like-for-like basis.

Our Group turnover was £5.4 billion, an increase of 12% from half-year 2018, reflecting the full contribution of our Nisa business and continued strong Food performance. In an ever more competitive environment, like-for-like Food sales have increased by 1.7%.

Profit before tax was £25 million but on a like-for-like basis, excluding the impact of IFRS 16, it was £30 million, down £14 million from 2018 mainly reflecting lower operating profit in our funerals business.

Our funerals business has had a challenging year with a fall in sales and profit. We have also seen unprecedented market change, which has required us to re-think and adapt our business to set it up for future success. Funeral sales were also impacted by an unexpected 10% fall in the death rate. We know there is more to do and are meeting these challenges head-on. We plan to reposition and grow the business by focusing on improved value, more innovation, and greater choice for families, making it easier for them to get the support and care they need and expect from Co-op.

The finance review on page 21 has more detail on our financial performance including our key underlying profit before tax measure, individual business profits and our balance sheet.

However, how we measure our success at Co-op goes well beyond the traditional corporate balance sheet. Just as it was for the Rochdale Pioneers 175 years ago, creating value for our members has a much broader meaning because, for us, commerce and social responsibility are bound together in a single endeavour.

It's what we do

Since May we've been explaining how choosing Co-op means choosing to do good in your community and around the world. Through our advertising, we're showing how trade with Co-op supports our ambition to grow Co-op Academies; how it helps us to expand our Member Pioneer network; how it allows us to continue our commitments to 100% British meat and our sourcing of Fairtrade; as well as our work to make our roads safer and, most importantly, our communities stronger.

In the year ahead we're determined to deliver on our purpose of championing a better way of doing business to create a stronger Co-op and stronger communities. We'll continue to make the connection between great products and services and 'doing good' for you and your community throughout our marketing plans. In November we'll highlight this message as we pay out millions of pounds to this year's local causes chosen by our members. And our Christmas advertising will build on this theme.

Commercial strategy

To enable that broad creation of value for our members we must continue to operate our business successfully. 

Our core food store business is performing well in a fiercely competitive market and we continue to innovate and reach new customers as this report shows. Our expanded wholesale operation supports this strategy, offering Co-op own brand products to independent store owners.

After a difficult 2018, our funerals business, under its new managing director, Sam Tyrer, is starting to implement the findings of our review to build a strong business for the long term. We're putting particular focus on the care we provide to families, customer choice, competitiveness and channels to market. We're also examining how to expand our offer to better address all aspects of how we say farewell to loved ones, including developing eco-friendly funerals and extending our range of services after the funeral. In the first phase of our plans, we're looking at how we best support our front line colleagues so they can prioritise their care to customers

The funeral market remains highly competitive and the unexpected fall in the death rate has been a key factor in our performance, as it has for our competitors. Meanwhile, we welcomed the government's announcement in June to crack down on the use of high pressure and misleading tactics to sell funeral plans which has given all funeral plan providers a poor reputation. We're also working with the Competition and Markets Authority (CMA) on their investigation into the at-need funerals and crematoria markets and welcome the work they are doing on behalf of consumers.

At the beginning of 2019 we announced the sale of our insurance underwriting business to Markerstudy. Part of the sale is to put in place a new long-term arrangement for distributing Co-op branded motor and home insurance products underwritten by Markerstudy. Our accounts for 2018 and 2019 show our insurance underwriting business as a discontinued operation.

As we wait for the deal to work its way through regulatory approval, our insurance business has continued to increase its profile and product development, together with other partners, so we can meet the ever-increasing needs of our members in the future.  This year has seen us return to the Life protection market and also launch new products for motorists and young home renters.

Our Legal Services business is continuing to do well across all of our practice areas, in particular probate, estate planning and family law.

We've re-joined the health market this year in an innovative and modern way based on digital technology. We're starting with a focus on repeat prescriptions because we believe we can offer a safe and distinctive service that can integrate with our food store estate to provide a range of delivery options. Ultimately, our aim is to promote good health in our communities by encouraging people to look after themselves, reducing preventable health problems and the burden on the NHS.

Awards

Over the last few years we've become used to winning numerous awards for the quality of our products and services and that's because we've given focus and investment to our core offering across all of our markets. This year though, we've won significant recognition for the business as a whole: Grocer of the Year at the Grocer Gold Awards; and Consumer Business of the Year by the Evening Standard. Our business leadership was recognised too in Jo Whitfield's Veuve Clicquot Business Woman Award. And finally, Co-operatives UK honoured us for being the 'Leading Co-operative of the Year'. You don't earn this calibre of recognition without being a distinctive business with a first-rate offering. Every one of our Co-op colleagues can take great pride in these achievements which show how we've successfully turned the business around in recent years.

Brexit

Like all big businesses, we've continued with our Brexit planning since the end of March and we know we need to be ready for all eventualities. If a negotiated withdrawal from the EU doesn't take place at the end of October, we expect some disruption to our supply chain, at least in the short term, and we'll do our best to protect our members from any inconvenience. We're particularly concerned about what a no-deal Brexit will mean for the British farmers whose produce we've championed over the last few years.

We're also mindful of how Brexit has exposed deep divisions within our communities with strong feelings of disempowerment and neglect expressed by many. These are serious matters that an economic resolution to Brexit will only partially address. We continue to believe that the values of co-operation can create stronger, more resilient communities and we're developing our ideas for 2020 on how we can use co-operation to bring back individual and communal self-confidence.    

As we pass the half-way mark, we don't underestimate the challenges we face in the second half, most notably Brexit and the turnaround of our funerals business. Despite this we are satisfied with our progress, in particular how we're staying modern and relevant as a commercial enterprise driven by our ambition to create a better, fairer and more co-operative world for our members.

Steve Murrells

Chief Executive

Stronger Co-op

For us, success means a great deal more than maximising bottom line profit, but to achieve our broader ambitions we must continue to be a growing, competitive, innovative and responsible business.  

GROWING 

Online

We're introducing new technology to grow our business in ways that make sense for our predominantly convenience store estate. In March we launched an online delivery service trial for our food stores. It's the first time that we've offered online delivery sales via a dedicated website. In addition, we're delivering the online orders using zero emission electric cargo bikes. The trial was initially launched at the Co-op's Kings Road store in Chelsea, London, but it's been rolled out to a further eight. In August it will expand into a further 13 stores in the capital. We've also extended our partnership with Deliveroo in London and Manchester to reach Edinburgh, Milton Keynes and Brighton.

Stores and Products

Our Co-op store estate continues to grow with 20 new shops opened in the first six months of the year and 94 refits developed. We have a strong focus on our offer and relaunched our Irresistible pizza range, highlighting our continued drive to raise quality and create innovative products.

Food to Go

Food to Go is the fastest growing category in convenience and this year we've begun working with Superdrug to offer a range of 40 Co-op lines in seven stores. They're all in highly transient locations in Edinburgh, Bristol and East Midlands' airports, as well as Brighton, Sheffield, London's Victoria and London's Fenchurch Street train stations. These trials are showing great results, helping us to tap into 'food to go hotspots', to grow our presence in new locations and reach new customers.

Wholesale 

In spring we marked the first year of our Wholesale expansion through the acquisition of Nisa. We've set up a single buying operation for all of the stores we supply, with Nisa partners able to select from 2,000 Co-op own brand products. We have seen a rapid uptake of this, with over 90% of Nisa partners having now taken lines from across the range.  Co-op own brand products are now generating weekly sales in excess of £2.5m from Nisa stores, and we are rapidly approaching our target of 10% of Nisa sales being Co-op own brand products. The integration of Nisa into the Wholesale business has transformed the proposition Nisa partners are able to offer their customers and we will work to ensure they continue to benefit from the wider offering. For more information please see the finance review on page 21.

Festivals

Building on last year's success, in April we announced an unprecedented presence at music festivals for 2019 in partnership with Live Nation. Through the summer we opened 6,000 ft. pop up shops at eight UK music festivals. Most notable was our festival store at Glastonbury which we branded as '31 Toad Lane' in recognition of the 175th anniversary of the Rochdale Pioneers opening their first shop. It allowed us to introduce our Co-op heritage and values to younger and older generations who are not familiar with the ethical values which have always underpinned our business and which align well with the festival's own outlook.

Co-op's festival partnership with Live Nation has also been recognised at a number of industry awards, including the Festival Supplier Awards, European Sponsorship Association Awards and the UK Sponsorship Awards.

Franchising

Franchising has long been a feature of consumer retail co-operatives on the continent and now we're beginning to use this way of reaching new markets in the UK. Unlike other major brands which have developed a franchise proposition, our Co-op franchise provides exactly the same offering as if we owned and ran the store ourselves. We currently have six franchises open via three Costcutter-owned stores and three on university campuses at Leeds, Kent and Newcastle with more confirmed to open this year. Our aim is to have 150 franchises open by 2022. We're carefully screening potential franchisees to ensure our values are aligned and commercial opportunities are strong for both parties. 

Opening our franchise store in February at Leeds University, the fifth biggest university in the UK, was a milestone for us. The average sales uplift in the franchised stores has been more than 80%. And our quality, convenience and ethical values are a great fit with the student population. Students are 'accelerated adopters' giving us early insight into likely market trends and they're an important demographic for us as we develop our food retail offer across our entire estate.  

Co-op Health

In May we launched Co-op Health with an initial focus on repeat prescriptions. The health market is changing fast and parts of it are clearly broken and need fixing. Our new app makes ordering repeat prescriptions easier for customers and more efficient for the NHS. Our app links directly into GP's surgeries and gives a convenient, safe and secure connection.

For our launch, the repeat prescriptions business focused on major cities like Manchester, Liverpool and London. By 2020 we'll be across all of England. Since the AGM the app has been downloaded nearly nineteen thousand times and we have more than five thousand active customers. We've also begun our 'click & collect' trial, using lockers in Co-op food stores. We'll soon increase the app's functionality as we continue to learn and understand more about what our customers need.  

 

COMPETITIVE

To remain competitive across all of our markets we need to make sure we run an efficient operation and continuously review our pricing. 

There's still intense competition in UK food retail and expanding our wholesaling operation means we have greater purchasing strength with our suppliers. At a more tactical level, our summer saver deals on popular products like beer and pizza proved popular. We also had a successful Easter bank holiday, driven by a competitive offer and helped by the warm weather. In addition, we're increasing the reasons for customers to come to our stores through providing Amazon and John Lewis collection lockers.

The approach we're moving to with Insurance, using an external underwriter, is reflected in our Travel insurance policy. Throughout the first half of the year, sales have been strong. This competitive new insurance product, which doesn't exclude holiday makers with existing health conditions, has kept ahead of target.

Addressing funeral affordability is a priority for us and we've continued to see a significant rise in the number of families choosing our 'Cremation Without Ceremony' product.

In 2018 we set ourselves long-term targets for cost reduction and we've met the targets set for the first-half of 2019. We'll continue to look for more opportunities so that we can invest into the growth of the business.

 

INNOVATIVE

Pay-in-Aisle

Research shows that consumers are using cash less and less, so we're rolling out more till-less technology in our food stores. During the summer we extended the trial of a new Pay-in-Aisle app to more than 30 stores. While cash is still common in convenience stores, we've seen a 10% decline in the popularity of notes and coins during the last two years, with contactless, cards and other payment methods now making up more than one in two transactions. Using the app, which we first began testing last year, customers scan products on their own device as they walk around the store. When they've finished shopping, the cost of the shop is deducted from their Apple or Google Pay account with a touch of a button.  

Graduated Young Driver

In the summer Co-op Insurance introduced a new policy designed to further reward our safest young drivers. The 'Graduated Young Driver' policy will offer drivers who've been on Co-op's Young Driver telematics policy for two yearsor more with a high Safe Driving Score the chance to be 'unboxed'. Qualifying customers who have proven to be consistently safe drivers can have their black box switched off, will be offered our most competitive rates, and by carrying forward their safe driving score can continue to save up to £300.

Life Insurance with payment 'breaks'

This year we've re-entered the life insurance market launching Co-op Life Cover. The product, which has been designed with input from Co-op Members, includes the option to take two six-month payment holidays throughout the lifetime of the policy after a 12 month qualifying period, allowing their policy to remain in force. Customers can also opt to reduce their cover level rather than pay back any shortfall at the end of the payment holiday window.

 

RESPONSIBLE

Sustainability

We know sustainability is an area our members feel passionately about and our Members' Council continue to push our thinking in this area. At our AGM our members voted to accelerate our work to reduce our Greenhouse Gas (GHG) emissions and backed global goals to limit warming to the most stringent of targets. Having halved our GHG emissions in the ten years from 2006, we're now going further by reducing our direct GHG emissions by 50% again by 2025. All Co-op stores, offices and funeral homes already use 100% renewable electricity.

Soy

In April we made a commitment to only source 100% sustainable soy as a way to prevent de-forestation and the loss of native vegetation caused by ever expanding soy cultivation.

Soy plays a part in the production of many products and the average European eats more than 60kg a year. The increasing demand for soy animal feed and rising global consumption of meat is having a major impact on the environment and wildlife.

Plastic

We'll have eliminated the most difficult to recycle plastic packaging by 2020 and all single-use plastic in our own-brand packaging by 2023. By 2021, we'll use a minimum of 50% recycled plastic in own-brand plastic trays, pots and bottles. All our own-brand packaging will be easy to recycle by 2023 (80% by 2020).

Our pop-up store at the Glastonbury festival gave us the opportunity to trial our 100% compostable packaging for ten types of our sandwiches. We also sold recyclable aluminium cans of spring water and refillable water bottles and brought back our pioneering deposit return scheme for plastic bottles which can be placed in reverse vending machines.

Pensions

In June the defined contribution section of the Co-op's pension fund changed its investment strategy to invest more in companies that score highly for sustainability and with an emphasis on mitigating climate change. This means approximately £290m out of Co-op employees' £315m defined contribution assets will be invested in a fund with a conscious bias towards companies and bonds that score well on environmental, social and corporate governance performance.

Meanwhile, affordable housing projects in East Lothian, Glasgow and Yorkshire have been built thanks to the £50m investment in social housing which our Pension fund announced in 2018. 

 

Sustainability Bond

At the end of May, we became the first UK retailer to issue a sterling-denominated Sustainability Bond. It's raised £300m and we're using the funds exclusively on supporting and promoting Fairtrade, including Fairtrade producers and their communities. Co-op intends to allocate the net proceeds of the Sustainability Bond issuance to the costs of bringing Fairtrade products to customers, marketing and promoting Fairtrade products and wider Fairtrade movement. Our continued commitment to Fairtrade comes as some other major retailers are scaling back their investment despite it being a key source of support for communities around the developing world.

Campaigning

The safety of our colleagues has been a concern of our members for some time and at the end of last year we adopted our new campaign 'Safer Colleagues and Safer Communities' with the support of our Members' Council. We're tackling crime in our stores through investment in technology and security but we also want to address the root causes of the problem in our communities and influence the government and judicial system.

At our AGM we announced our new partnership with the Damilola Taylor Trust and we'll be funding one of its skills training programmes for young people at risk of falling into a life of crime. Following the call for evidence by the Home Office, we encouraged and supported more than 600 of our colleagues to come forward and record their experience of crime in the workplace. We've also submitted our own 70-page report with ten key recommendations for the government to consider.

We've commissioned new academic research into violence on shop workers and we published the findings in September. In November we'll be hosting a conference to mark the beginning of Usdaw's 'Freedom from Fear' week. Meanwhile, we're continuing to invest in store technology such as our intelligent CCTV equipment which helps us to gather evidence and work with the police to secure convictions.

Our campaigns on loneliness and slavery continue to be influential in the public debate on these issues. In May we hosted the Loneliness Action Group's national conference with the government Minister for Loneliness, Mims Davies MP, speaking. We also published new research on the effectiveness of our Community Connector programme and on loneliness in the BAME community.

The first six months of the year have seen significant progress for our slavery campaign, including increased government support for slavery survivors and strengthening of the Modern Slavery Act's requirements for business. Our Bright Future partnership, which is providing training and work opportunities, is now the biggest employment programme of its kind for slavery survivors in the world.

Child bereavement

We've taken the lead in calling on the government to waive child burial and cremation fees, to ensure there is consistent support for bereaved parents across the country. Following our continued campaigning, we were pleased that the government has now implemented the Children's Funeral Fund, meaning that more parents across England will have access to some financial support.

 

Stronger Communities

We've used this year to develop our ideas for how we support local communities so that we're addressing today's challenges in a co-operative way. Our community plan, developed with input from our Members' Council, builds on all the work we've been doing since 2016 to create stronger communities. As this work has evolved, we've been putting ever greater emphasis on projects which will bring people together and promote co-operative solutions.

Through our Wellbeing Index, and our broader research and consultation work with members and communities, we've identified three priorities for our community work.

 

- Community spaces

- Physical and mental wellbeing; and

- Education and skills

We're aligning the work of our Member Pioneers behind this plan and giving priority through our Local Community Fund to local causes working on these issues. We're also working closely with our charity arm, The Co-op Foundation, to focus on these areas.

Community spaces 

We want to create stronger, more connected communities that bring people together. To achieve that, communities need good physical spaces, both indoor and out, and we know these are under threat. One of the best ways to address social exclusion and mental and physical illness is to help and support people to connect with their local communities. We want to encourage that to happen by making it easier for communities to create, secure and use social spaces, and encouraging local initiatives that bring people together and address isolation and health issues. We also want to build powerful virtual community spaces too where local initiatives can be shared, calls for support made, and connections built that will enable great things to happen.

At the start of the summer we launched our Endangered Spaces campaign in partnership with the charity Locality. Our aim is to protect 2,000 community spaces by the end of 2022. By early September we'd had nearly 1,000 applications from community groups looking for financial or specialist support to help 'save' local spaces.

Our Co-op charity, The Co-op Foundation, has already awarded more than £1.4 million to help 20 community organisations grow their activities and secured £1 million of government funding to help more than 7,500 young people improve local spaces. As part of Endangered Spaces, Space to Connect, its new £1.6 million partnership with government, will build on this work.

We've also begun a partnership with the charity Steel Warriors to create outdoor gym equipment in community spaces manufactured from melted knives taken off the streets by the police. And we're recruiting local trainers to teach new skills using the equipment. The first gym is being launched in September in Ruskin Park, Lambeth.

 

Mental and physical wellbeing     

 

We know that health issues - both physical and mental - are becoming more urgent and better understood. Mental health diagnoses are rising, particularly among younger people. Our Wellbeing Index data shows high levels of prescriptions relating to depression, diabetes and obesity in some areas of the UK. Meanwhile, nearly half of adults believe they've had a diagnosable mental health condition at some point in their lives. We also know, through our work to tackle loneliness, that mental and physical health issues are a huge driver of social exclusion and therefore isolation.

 

Education and skills

We want to support individuals and communities to reach their full potential across all life stages. This is especially important in our fast-changing digitally driven world. Co-op Academy Schools and our apprenticeship programme will have an important part to play in this. So too will our digital hub in Federation in Manchester. As part of our aim to promote co-operation, we want to explore ways to share skills, especially across the generations. We'll look to create a platform for doing this.

Our main focus this year will be on Spaces, however we'll be working in all three areas continuously because we recognise that they all connect and overlap.

Co-op Academies Trust

Promoting co-operative education and skills remains a central theme of our responsible approach to business

Since the start of 2019, the trust has added five new schools including two special schools in Bradford. This makes Co-op Academies Trust not only the fastest growing academy trust but also the most diverse in terms of age and ability. 

The Trust now educates more than 15,000 students with a full range of abilities, from early years to sixth form. There are now 23 Co-op academies and colleges across northern England in some of the most economically challenged areas in the UK.

Member Pioneers

We already have 300 Member Pioneers around the country and are constantly adding to them. By 2020 we aim to have a Member Pioneer in each of our communities acting as community catalysts. In February this year, following extensive discussions with our Members' Council and consultation with our trade union partners, we announced a new team structure for our Member Pioneers. We've introduced a National Member Pioneer Manager, ten field-based Member Pioneer Managers, and approximately 120 Member Pioneer Co-ordinators, each working two and a half days each week. This new structure is enabling us to better manage and co-ordinate their work and make sure it's aligned to our priorities. 

Looking ahead

For the rest of 2019 and beyond, we're going to continue to grow all of our businesses in a responsible and sustainable way that's good for our members and for their communities.

We'll keep innovating in all areas and maintain our competitiveness and relevance in the markets in which we operate. In Food we'll continue our trials of new online ordering and delivery technology and continue to improve and expand our reach through wholesaling and franchising.

In Funerals we'll implement our turnaround plans so that we become not only the biggest provider but the leader in setting the highest standards of care and the greatest choice. In Insurance we'll continue to develop new products and see through our deal with Markerstudy. And in Legal we'll be extending the reach of the business through partnerships and introducing new technology into our offer.

In all we do, we'll continue to show the link between choosing Co-op and choosing to do good.

 

 

Principal risks and uncertainties

 

The Directors have reviewed the principal risks and uncertainties faced by Co-op and the risks set out in the 2018 Annual Report and Financial Statements are still relevant for the second half of 2019.

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.

Brexit - with a deal or without a deal

A disorderly Brexit, or the threat of withdrawal from the European Union on unfavourable terms, still poses a significant risk to the structure of the UK economy and could also impact many parts of our business, our partners and the markets we operate in. We're still very much focused on Brexit uncertainty and, as the political and economic situation evolves, we'll develop and reassess our response plans.

Changes to principal risks

We've identified a new principal risk in 2019. The value of our funeral plan investment portfolio is sensitive to a number of factors, such as funeral costs and macroeconomic and market conditions. This can mean that, when plans become due, the available funds are lower than expected, making them less profitable than planned. We closely monitor the management of the portfolio and make adjustments as conditions change. Our latest actuarial valuation of the plans showed that the value of investments is £120m above the wholesale cost of performing the funerals. The risk in this area is to our future profits and not to the funeral plan holder, whose funeral is guaranteed under our plans. Given the size of this portfolio, we've called this risk out separately in the principal risks outlined below.

Following the Grocery Code Adjudicator's (GCA) investigation which completed in March 2019 into Co-op's compliance with elements of the Groceries Supply Code of Practice (Code), we've developed a clear implementation plan. Activity has been underway for some time and good progress made to address the underlying findings of the five recommendations made by the GCA.  We are putting fixes in place quickly and effectively and taking effective steps to ensure full compliance with the Code. The 2019 GCA survey results, announced in June, reported Co-op as the most improved retailer. It was confirmation that our activity is having a positive impact and that we're taking the findings of the GCA's report seriously. Monitoring of our compliance and risk management activity is included within the Regulatory Compliance risk below, which remains stable.

The 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

Potential consequences to the Co-op

1

Change

Transformational change is not performed effectively and, because of the volume and complexity, the planned benefits of our various business change programmes may not be realised. This would prevent us from fully meeting our strategic objectives.

2

Brexit and other market conditions

A disorderly Brexit and/or other negative market conditions may lead to changes in consumer spending. Challenges to the availability of labour, increased cost of funding and disruptions to parts of our supply chain may threaten our objectives and business model. The mitigation of this risk is likely to be increased investment into working capital.

3

Competitiveness

Competitor actions, new entrants and disruptive innovation may lead to changes in our competitive landscape and impact our profitability, preventing us from fully realising the benefits in our strategic plans and reducing the value that we provide to our members and customers.

4

Revenue targets

Not achieving our planned sales growth targets would affect the sustainability of our business model and potentially restrict our investment in communities.

5

Brand and ethical framework

 

Failure to create a brand proposition and ethical framework that strengthens our Co-op, would make it more difficult to balance profit, member value and ethics

6

Health and safety, and security

 

Weaknesses in our health and safety arrangements and physical security practices and procedures could put customers and colleagues at risk

7

Regulatory compliance

Our Co-op is subject to various laws and regulations across its businesses. Failure to respond to changes in regulations or maintain compliance could affect profitability through fines and sanctions from our regulators and result in reputational damage.

8

Misuse and/or loss of data

Personal data is inappropriately accessed, shared and/or not managed in line with expectations; affecting customer and member confidence and leaving our Co-op open to regulatory fines and reputational damage

9

IT security and cyber threats

Our ability to serve customers is highly dependent on our IT systems. An external cyber threat or technology incident could restrict the provision of products and services to our customers and members, leaving our Co-op open to financial loss, regulatory fines and reputational damage.

10

Pension obligations

Adverse movements in a number of macro-economic conditions, including interest rates and inflation expectations, could reduce returns on our investment portfolios and impact our pension and funeral plan liabilities. A potential deficit could require our Co‑op to pay additional offsetting contributions or absorb additional costs.

11

People

If we do not recruit and retain capable colleagues, and invest in their development, it could impact our ability to build a strong Co-op and deliver on our strategic objectives.

12

Supply chain interruption

Failure to create the network capacity needed for future growth and/or extended supply disruption could significantly impact the availability of products and services in our stores, resulting in a loss of sales and reduced revenue.

13

Pre-Need Funeral Plan obligations (New)

The measurement of our Pre-Paid Funeral Plan obligations is sensitive to changes in a number of 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. 

 

 

 

 

Emerging Risks

 

The main emerging risks being monitored relate to changing regulations. In the food and drink sector this is expected to place restrictions on the promotion of food with high fat, salt and sugar content.

 

The outcome of the Competition Market Authority's review into the funeral industry and HM Treasury's proposals for the regulation of funeral plans are expected to lead to changes in the funeral and funeral plan markets.

 

More information on the principal risks and how Co-op mitigates those risks can be found on pages 41-42 of the 2018 Annual Report.

 

 

Our financial performance

Our accounts have changed significantly this year because of a major new accounting standard, IFRS 16, which we've adopted from the start of the year. It makes understanding our financial performance compared to last year more difficult, so we've included some additional information below to help explain it more easily.

IFRS 16 requires us to put leases onto our balance sheet that previously were not included, in particular over 3,000 leases on trading properties that we rent. In total, lease liabilities of £1.5 billion (representing future financial commitments) and a 'right of use' asset of £1.1 billion (reflecting the value of our right to use the asset) were brought onto our balance sheet. In our full year income statement operating profit will benefit by around £60 million as annual rental payments of around £160 million are no longer included and are replaced by additional depreciation (£100 million). However the full year profit before tax impact will be £10-£15 million adverse after charging lease interest of £75 million. Although our 2019 results are prepared under IFRS 16, 2018 numbers are not required and so are not directly comparable. We've included tables below to show 2019 on both a reported basis (prepared under IFRS 16) and like-for-like with 2018 (excluding IFRS 16).

 

2019 per income statement

 

2019 excluding IFRS 16

 

2018

 

£m

 

£m

 

£m

Revenue

5,389

 

5,389

 

4,829

 

 

 

 

 

 

Underlying operating profit:

 

 

 

 

 

Food

120 

 

95

 

80

Wholesale

(2)

 

(2)

 

(5)

Funeral and Life Planning

13 

 

13

 

28

Costs of supporting functions

(61)

 

(64)

 

(51)

Other

(6)

 

(6)

 

(2)

Total underlying profit (a)

64

 

36

 

50

 

 

 

 

 

 

Property revaluations, disposals and one off items

14

 

10

 

4

Operating profit

78

 

46

 

54

 

 

 

 

 

 

Underlying interest (b)

(33)

 

(33)

 

(32)

Net underlying lease interest (c)

(37)

 

             -  

 

             -  

Non underlying interest

17

 

17

 

22

Profit before tax

25

 

30

 

44

 

 

 

 

 

 

Tax

26

 

27

 

(9)

Discontinued operations

(6)

 

(6)

 

(14)

Profit for the year

45

 

51

 

21

 

 

 

 

 

 

Underlying (loss) /profit before tax (a)-(b)-(c)

(6)

 

3

 

18

 

 

Revenue increased to £5.4 billion, up £0.6 billion, or 12%, compared to 2018. Our wholesale business accounts for £0.4 billion of this increase, reflecting that we acquired Nisa in May 2018 so had two months trade compared to a full six months this year. Our Food business continues to perform strongly with a 3% increase in sales to £3.7 billion.

Profit before tax was £25 million compared to £44 million in 2018. However on a like-for-like for basis, excluding the impact of IFRS 16, it was £30 million, down £14 million from 2018 mainly caused by a £15m fall in operating profit in our funerals business. Trading performance is discussed in more detail below.

Our profits are shown after deducting the amount our members have earned through the 5% and 1% member rewards which totalled £35 million in the first half of the year (2018: £35 million).

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 on page 56 to explain the accounting terms we have to use.

How our businesses have performed

Food sales of £3.7 billion were up 3% on 2018, with like-for-like sales up 1.7%. The growth in like-for-like sales is particularly pleasing given that last year sales were very strong on the back of the World Cup and favourable summer weather.

Underlying profit in our Food business was £120 million in 2019 compared to £80 million in 2018. However on a like-for-like basis excluding IFRS 16, profit was £95 million, up 19% on last year, reflecting the strong sales performance together with good cost control.

Our Wholesale business generated sales of £0.7 billion in the period and made an operating loss of £2.2 million compared to a £5 million loss last year.  The £2.2 million loss comprises a trading profit of £0.4 million offset by £2.6 million of amortisation charges (similar to depreciation) on the intangible assets arising on acquisition. The 2018 loss included one-off costs of buying the Nisa business.

Our Funeral & Life Planning business saw sales fall by 6% to £163 million largely reflecting lower funeral numbers this year. The market remains highly competitive and the unexpected fall in the death rate has been a key factor in our performance, as it has for our competitors. We have responded to customer desire for lower cost funerals and cremation without ceremony for which there is growing demand and this too has reduced selling prices and has an impact on profit. We conducted 48,423 funerals in the first half of 2019 compared to 53,213 in the first half of 2018.

The fall in volumes reduced Funeral & Life Planning underlying profit to £13 million, down £15 million on 2018 (£28 million).

Supporting functions costs increased by £13 million on a like-for-like basis (excluding IFRS 16) reflecting continued investment in members and one-off gains in 2018. Additionally in 2019 we invested in membership initiatives and IT as we move away from datacentres into more flexible Cloud arrangements. This additional investment was partially funded by cost savings generated by our 'Fuel for Growth' programme including organisational design changes.

We announced the sale of our insurance underwriting business, CIS General Insurance Limited ('CISGIL'), to Markerstudy in January this year. In our year end accounts CISGIL became classified as a 'discontinued operation' which means that we no longer treat it as an ongoing business operation of Co-op and so its results are not included within profit before tax. This treatment remains appropriate at half-year on the basis that we expect the sale to complete later this year. The £14 million loss in prior year represented the trading loss of the business in the first half of 2018.

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):

 

2019 per income statement

 

2019 excluding IFRS 16

 

2018

 

£m

 

£m

 

£m

Property and business disposals

(4)

 

(8)

 

(26)

Change in value of investment properties

11

 

11

 

11

One off items

7

 

7

 

19

Total

14

 

10

 

4

 

 

Property and business disposals include the profit or loss on disposal of trading units together with costs of vacant or closed properties. The 2018 loss of £26 million included vacant property cost provisions of £21 million.

The £11 million gain on our investment property portfolio in 2019 principally relates to planning permission gains on one particular site.

One-off items in 2018 included a profit of £20 million from changes to pension benefits. The £7 million credit in 2019 relates 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.

Financing

Our financing costs are shown in the table below (costs are shown in brackets):

 

2019 per income statement 

 

2019 excluding IFRS 16

 

2018

 

£m

 

£m

 

£m

Underlying interest payable

(33)

 

(33)

 

(32)

Net underlying lease interest

(37)

 

-

 

-

Net pension finance income

27

 

27

 

21

Fair value movement on quoted debt and swaps

(2)

 

(2)

 

5

Non-underlying finance interest

(8)

 

(8)

 

(4)

 

 

 

 

 

 

Net financing costs

(53)

 

(16)

 

(10)

 

 

As noted above IFRS 16 brings interest on the lease liability into our income statement. At half-year lease interest was £37 million on a total lease liability of £1.5 billion.

Excluding IFRS 16 lease interest, financing costs were £6 million higher this year. Underlying interest was £1m higher. The remaining increase comprises to £4 million of costs and fees relating to the refinancing of our bond debt (included within non-underlying interest) and a £7 million adverse movement in fair values offset by a £6 million increase in pension interest income. The adverse fair value movement arises because in 2018 we had a gain from revaluing our debt according to its market value at that time.

Our total net debt at the end of the period, including the IFRS 16 lease liability of £1.5 billion was £2.3 billion. Excluding the lease liability, net debt was £0.8 billion, up from the same time last year (£0.7 billion) but in line with 2018 year end. Net capital expenditure this year was £206 million compared to £145 million in the first half of 2018.

In the first half of 2019 we raised £300 million in the first sustainable bond issued by a UK retailer at a coupon of 5.125% maturing in May 2024. We tendered our existing £450 million 2020 Eurobond debt and repaid £274 million, leaving a principal balance of £176 million. Additionally we rebased our interest rate swaps in relation to our bonds, and this produced a net cash inflow of £27 million due to changes in prevailing market rates since they were first taken out.

Tax

The £26m tax credit arising at half-year is largely due to a one-off credit of £31 million caused by a change to our method of calculating the deferred tax arising on fixed assets additions.

Our balance sheet

IFRS 16 has significantly changed our balance sheet. As with the income statement, these changes impact 2019 numbers but not the comparatives for half and full year 2018. The table below shows the amounts brought onto the balance sheet from the start of 2019.

 

 

 

£m

Assets

 

 

 

Property, Plant and Equipment

 

 

(43)

Property, Plant and Equipment (Right of Use Assets)

 

1,073

Finance Lease Receivables

 

 

55

Trade and Other Receivables

 

 

(33)

Deferred Tax Asset

 

 

47

 

 

 

1,099

 

 

 

 

Liabilities

 

 

 

Lease Liabilities

 

 

(1,450)

Trade and Other Payables

 

 

47

Provisions

 

 

67

 

 

 

(1,336)

 

 

 

 

Adjustment to Opening Reserves

 

 

(237)

 

The £0.9 billion increase in total assets from £9.5 billion at 2018 year end to £10.4 billion at this half-year reflects £1.1 billion of assets introduced under IFRS 16 as shown above, offset by a £0.2 billion reduction in pension assets.

The actuarial surplus of our largest pension scheme, PACE, decreased by £0.2 billion to £1.6 billion largely because the interest rate used to value pension liabilities decreased from 3% to 2.2%. The interest rate we select is based on advice from our actuaries and is based on corporate bond rates as at 6 July. It's important to remember that the accounting valuation of pension schemes is quite different to the valuation basis used by Trustees. The Trustees' valuation uses a more prudent basis which reflects the low risk assets that we are invested in.  Nevertheless we are well funded and in surplus on this basis, though the surplus is significantly lower than the £1.6 billion shown in our accounts.

Total liabilities increased by £1.3 billion from year end to £7.7 billion this half-year reflecting £1.4 billion of IFRS 16 adjustments relating to lease liabilities.

The assets and liabilities of CISGIL are classified as held for sale because of the planned sale of the business to Markerstudy. CISGIL became classified as held for sale in the second half of last year.

Total equity, or members' funds, were £2.7 billion at half-year, a fall of £0.4 billion from year end relating to the £0.2 billion reduction in opening reserves from adopting IFRS 16 and the £0.2 billion decrease in pension assets discussed above.

 

Looking ahead

The short term outlook is challenging. Brexit continues to bring uncertainty particularly with the increasing prospect of leaving the EU without a deal. We continue to plan and prepare as best we can. We are also in the midst of turnaround plans for the funerals business that has seen unprecedented market change. We expect that the sale of CISGIL, our insurance underwriting business, will proceed before year end but we await regulatory approval.

Despite this we are confident that we are well placed to meet those challenges. We have sensitised our forecasts to include pessimistic views on various risks such as the Brexit impact, a general downturn in trading and a delay in the sale of CISGIL and this gives us confidence that our funding and balance sheet position are robust. Our Food business continues to deliver strong like-for-like sales growth at rates above the food retail market. We continue to innovate within our businesses to drive our competitive advantage and we continue to invest in our stores and branches. But most importantly we will continue to grow in a Co-op way that is responsible and sustainable and benefits our members and their communities.

 

 

 

 

 

Responsibility statement of the directors in respect of the half-yearly financial report

We confirm that to the best of our knowledge:

·      the condensed set of financial statements has been prepared in accordance with IAS 34 Interim Financial Reporting as adopted by the EU

·      the interim management report includes a fair review of the information required by DTR 4.2.7R of the Disclosure and Transparency Rules, being an indication of important events that have occurred during the first six months of the financial year and their impact on the condensed set of financial statements; and a description of the principal risks and uncertainties for the remaining six months of the year

By order of the board of Co-operative Group Limited

 

 

 

Allan Leighton 

Chair

 

11 September 2019

 

 

INDEPENDENT REVIEW REPORT TO CO-OPERATIVE GROUP LIMITED

 

Introduction

We have been engaged by Co-operative Group Limited ("the Society") to review the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 6 July 2019 which comprises the condensed consolidated income statement, condensed consolidated statement of comprehensive income, condensed consolidated balance sheet, condensed consolidated statement of changes in equity, condensed consolidated statement of cash flows and the related explanatory notes. We have read the other information contained in the half yearly financial report and considered whether it contains any apparent misstatements or material inconsistencies with the information in the condensed set of financial statements.

 

This report is made solely to the Society in accordance with guidance contained in International Standard on Review Engagements 2410 (UK and Ireland) "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society, for our work, for this report, or for the conclusions we have formed.

 

Directors' Responsibilities

The half-yearly financial report is the responsibility of, and has been approved by, the directors. The directors are responsible for preparing the half-yearly financial report in accordance with the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

As disclosed in the general accounting policies section of the 2018 Annual Report, the annual financial statements of the Society are prepared in accordance with IFRSs as adopted by the European Union. The condensed set of financial statements included in this half-yearly financial report has been prepared in accordance with International Accounting Standard 34, "Interim Financial Reporting", as adopted by the European Union.

 

Our Responsibility

Our responsibility is to express to the Society a conclusion on the condensed set of financial statements in the half-yearly financial report based on our review.

 

Scope of Review

We conducted our review in accordance with International Standard on Review Engagements (UK and Ireland) 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity" issued by the Auditing Practices Board for use in the United Kingdom. A review of interim financial information consists of making enquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing (UK) and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.

 

Conclusion

Based on our review, nothing has come to our attention that causes us to believe that the condensed set of financial statements in the half-yearly financial report for the 26 weeks ended 6 July 2019 is not prepared, in all material respects, in accordance with International Accounting Standard 34 as adopted by the European Union and the Disclosure Guidance and Transparency Rules of the United Kingdom's Financial Conduct Authority.

 

 

Ernst & Young LLP

Manchester

11 September 2019

 

 

 

 

Condensed Consolidated Income Statement

 

 

for the 26 weeks ended 6 July 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What does this show? Our income statement shows our income for the year less our costs. The result is the profit or loss that we've made.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26 weeks ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited & re-presented*)

52 weeks ended 5 January 2019 (audited)

 

 

Continuing Operations

 

 

 

 

 

 

 

 

 

Notes

£m

£m

£m

 

 

Revenue

 

 

 

1

5,389

4,829

10,162

 

 

Operating expenses

 

 

 

 

(5,315)

(4,780)

(10,072)

 

 

Other income

 

 

 

 

4

5

10

 

 

Operating profit

 

 

 

1

78

54

100

 

 

Finance income

 

 

 

3

29

33

78

 

 

Finance costs

 

 

 

4

(82)

(43)

(85)

 

 

Profit before tax

 

 

 

 

25

44

93

 

 

Taxation

 

 

 

5

26

(9)

(19)

 

 

Profit from continuing operations

 

 

51

35

74

 

 

 

 

 

 

 

 

 

 

 

 

Discontinued Operation

 

 

 

 

 

 

 

 

Loss on discontinued operation, net of tax

6

(6)

(14)

(230)

 

 

Profit / (loss) for the period (all attributable to members of the Society)

45

21

(156)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-GAAP measure: underlying (loss) / profit 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.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26 weeks ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited & re-presented*)

52 weeks ended 5 January 2019 (audited)

 

 

Continuing Operations

 

 

 

 

 

 

 

 

 

Notes

£m

£m

£m

 

 

Operating profit (as above)

 

 

 

78

54

100

 

 

Add back / (deduct):

 

 

 

 

 

 

 

 

 

    One-off items

 

 

 

1

(7)

(19)

(9)

 

 

    Property, business disposals and closures

1

4

26

54

 

 

    Change in value of investment properties

 

(11)

(11)

(38)

 

 

Underlying segment operating profit

 

64

50

107

 

 

Less underlying loan interest payable

 

4

(33)

(32)

(64)

 

 

Less underlying interest expense on lease liabilities

3, 4

(37)

-

-

 

 

Underlying (loss) / profit before tax

 

(6)

18

43

 

 

 

 

 

 

 

 

 

 

 

 

* The results of our Insurance business are shown as discontinued operations in the tables above which is consistent with the financial statements for the 52 weeks ended 5 January 2019. The half-year comparative figures for the 26 weeks ended 7 July 2018 have been re-presented to reflect a similar classification. For more details on the re-presentation, refer to the general accounting policies section on page 50.

 

 

The Group has applied IFRS 16 (Leases) at 6 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative impact of applying the new standard is recognised in retained earnings at the date of initial application. For more details on the impact of IFRS 16 (Leases), refer to the general accounting policies section on page 50.

 

 

 

 

 

 

 

Condensed Consolidated Statement of Comprehensive Income

 

 

for the 26 weeks ended 6 July 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited & re-presented*)

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

£m

£m

£m

 

 

Profit / (loss) for the period

 

 

 

 

45

21

(156)

 

 

 

 

 

 

 

 

 

 

 

 

 

Other comprehensive (losses) / income:

 

 

 

 

 

 

 

Items that will never be reclassified to the income statement:

 

 

 

 

 

 

Remeasurement (losses) / gains on employee pension schemes

7

(266)

455

178

 

 

Refinement of the derecognition of pension surplus attributable to The Co-operative Bank

7

-

31

31

 

 

Related tax on items above

 

 

 

5

45

(83)

(36)

 

 

 

 

 

 

 

 

(221)

403

173

 

 

 

 

 

 

 

 

 

 

 

 

 

Items that are or may be reclassified to the income statement:

 

 

 

 

 

 

Gains less losses on fair value of insurance assets*

 

 

8

(5)

(8)

 

 

Fair value losses on insurance assets transferred to the income statement*

 

-

(1)

(1)

 

 

Related tax on items above

 

 

 

5

(2)

1

1

 

 

 

 

 

 

 

 

6

(5)

(8)

 

 

Other comprehensive (losses) / income for the period net of tax

 

(215)

398

165

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total comprehensive (losses) / income for the period (all attributable to members of the Society)

(170)

419

9

 

 

 

 

 

 

 

 

 

 

 

 

 

* The results of our Insurance business are shown as discontinued operations in the tables above which is consistent with the financial statements for the 52 weeks ended 5 January 2019. The half-year comparative figures for the 26 weeks ended 7 July 2018 have been re-presented to reflect a similar classification. For more details on the re-presentation, refer to the general accounting policies section on page 50.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Balance Sheet

 

 

 

 

as at 6 July 2019

 

 

 

 

 

 

 

 

What does this show? Our balance sheet is a snapshot of our financial position as at 6 July 2019. It shows the assets we have and the amounts we owe.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 6 July 2019 (unaudited)

As at 7 July 2018 (unaudited)

As at 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

£m

£m

£m

 

 

Non-current assets

 

 

 

 

 

 

 

 

Property, plant and equipment

 

 

 

2,005

2,056

2,046

 

 

Right-of-use assets

 

 

 

 

1,047

-

-

 

 

Goodwill and intangible assets

 

 

 

1,092

1,014

1,071

 

 

Investment properties

 

 

 

 

49

45

42

 

 

Investments in associates and joint ventures

 

 

3

3

3

 

 

Other investments

 

 

 

12

1,244

1,711

1,223

 

 

Reinsurance contracts

 

 

 

-

47

-

 

 

Derivatives

 

 

 

 

-

31

27

 

 

Pension assets

 

 

 

7

1,747

2,238

1,984

 

 

Trade and other receivables

 

 

 

142

66

81

 

 

Contract assets (funeral plans)

 

 

 

51

34

47

 

 

Reclaim Fund assets

 

 

 

 

202

221

209

 

 

Total non-current assets

 

 

 

7,582

7,466

6,733

 

 

Current assets

 

 

 

 

 

 

 

 

 

Inventories

 

 

 

 

446

433

458

 

 

Trade and other receivables

 

 

 

596

721

537

 

 

Contract assets (funeral plans)

 

 

 

4

3

4

 

 

Cash and cash equivalents

 

 

 

207

480

282

 

 

Assets held for sale

 

 

 

8

1,125

12

1,113

 

 

Other investments

 

 

 

12

-

300

-

 

 

Reinsurance contracts

 

 

 

-

15

-

 

 

Reclaim Fund assets

 

 

 

 

446

470

410

 

 

Total current assets

 

 

 

2,824

2,434

2,804

 

 

Total assets

 

 

 

 

10,406

9,900

9,537

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Interest-bearing loans and borrowings

 

9

982

1,072

976

 

 

Lease liabilities

 

 

 

9

1,270

15

28

 

 

Trade and other payables

 

 

 

176

77

214

 

 

Contract liabilities (funeral plans)

 

 

 

1,390

1,279

1,353

 

 

Provisions

 

 

 

 

126

222

215

 

 

Derivatives

 

 

 

 

1

-

-

 

 

Pension liabilities

 

 

 

7

103

136

125

 

 

Deferred tax liabilities

 

 

 

5

104

267

225

 

 

Insurance contracts

 

 

 

 

-

295

-

 

 

Reclaim Fund liabilities

 

 

 

502

464

473

 

 

Total non-current liabilities

 

 

 

4,654

3,827

3,609

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Overdrafts

 

 

 

 

-

4

-

 

 

Interest-bearing loans and borrowings

 

9

42

96

66

 

 

Lease liabilities

 

 

 

9

183

-

4

 

 

Income tax payable

 

 

 

 

8

-

8

 

 

Trade and other payables

 

 

 

1,529

1,679

1,449

 

 

Contract liabilities (funeral plans)

 

 

 

139

127

132

 

 

Provisions

 

 

 

 

70

91

82

 

 

Liabilities held for sale

 

 

 

8

1,046

-

1,045

 

 

Insurance contracts

 

 

 

 

-

444

-

 

 

Reclaim Fund liabilities

 

 

 

73

153

73

 

 

Total current liabilities

 

 

 

3,090

2,594

2,859

 

 

Total liabilities

 

 

 

 

7,744

6,421

6,468

 

 

Equity

 

 

 

 

 

 

 

 

 

Members' share capital

 

 

 

73

73

73

 

 

Retained earnings

 

 

 

 

2,497

3,315

2,910

 

 

Other reserves

 

 

 

 

92

91

86

 

 

Total equity

 

 

 

 

2,662

3,479

3,069

 

 

Total equity and liabilities

 

 

 

10,406

9,900

9,537

 

 

 

 

 

 

 

 

 

 

 

 

Condensed Consolidated Statement of Changes in Equity

 

 

 

for the 26 weeks ended 6 July 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What does this show? Our statement of changes in equity shows how our net assets have changed during the year.

 

 

 

 

 

 

 

 

 

 

 

 

For the 26 weeks ended 6 July 2019 (unaudited)

 

Members' share capital

Retained earnings

Other reserves

Total equity

 

 

 

 

 

Notes

£m

£m

£m

£m

 

 

Balance at 7 January 2019 (as originally reported)

 

73

2,910

86

3,069

 

 

Impact of adoption of IFRS 16 on opening reserves as at 7 January 2019*

-

(284)

-

(284)

 

 

Tax on impact of IFRS 16 on reserves as at 7 January 2019

5

-

47

-

47

 

 

Balance at 7 January 2019 (after impact of IFRS 16)

 

73

2,673

86

2,832

 

 

Profit for the period

 

 

-

45

-

45

 

 

Other comprehensive 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

5

-

45

(2)

43

 

 

Total other comprehensive losses

 

-

(221)

6

(215)

 

 

Balance at 6 July 2019

 

73

2,497

92

2,662

 

 

 

 

 

 

 

 

 

 

 

 

For the 26 weeks ended 7 July 2018 (unaudited)

Notes

 

 

 

 

 

 

Balance at 6 January 2018

 

 

73

2,886

101

3,060

 

 

Profit for the period

 

 

-

21

-

21

 

 

Other comprehensive income:

 

 

 

 

 

 

 

Remeasurement gains on employee pension schemes

7

-

455

-

455

 

 

Refinement of derecognition of pension surplus attributable to The Co-operative Bank

7

-

31

-

31

 

 

Gains less losses on fair value of insurance assets

 

-

-

(5)

(5)

 

 

Fair value losses on insurance assets transferred to the income statement

 

-

-

(1)

(1)

 

 

Tax on items taken directly to other comprehensive income

5

-

(83)

1

(82)

 

 

Total other comprehensive income

 

-

403

(5)

398

 

 

Revaluation reserve recycled to retained earnings

 

 

5

(5)

-

 

 

Balance at 7 July 2018

 

 

73

3,315

91

3,479

 

 

 

 

 

 

 

 

 

 

 

 

For the 52 weeks ended 5 January 2019 (audited)

Notes

 

 

 

 

 

 

Balance at 6 January 2018

 

 

73

2,886

101

3,060

 

 

Loss for the period

 

 

-

(156)

-

(156)

 

 

Other comprehensive income:

 

 

 

 

 

 

 

Remeasurement gains on employee pension schemes

7

-

178

-

178

 

 

Refinement of derecognition of pension surplus attributable to The Co-operative Bank

7

-

31

-

31

 

 

Gains less losses on fair value of insurance assets

 

-

-

(8)

(8)

 

 

Fair value losses on insurance assets transferred to the income statement

 

-

-

(1)

(1)

 

 

Tax on items taken directly to other comprehensive income

5

-

(36)

1

(35)

 

 

Total other comprehensive income

 

-

173

(8)

165

 

 

Revaluation reserve recycled to retained earnings

 

-

7

(7)

-

 

 

Contributions by and distributions to members:

 

 

 

 

 

 

 

Shares issued less shares withdrawn

 

-

-

-

-

 

 

Contributions by and distributions to members:

 

-

-

-

-

 

 

Balance at 7 January 2019

 

73

2,910

86

3,069

 

 

* The Group has applied IFRS 16 (Leases) at 6 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative impact of applying the new standard is recognised in retained earnings at the date of initial application. For more details on the impact of IFRS 16 (Leases), refer to the general accounting policies section on page 50.

 

 

 

 

 

 

 

Condensed Consolidated Statement of Cash Flows

 

 

for the 26 weeks ended 6 July 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

What does this show? Our statement of cash flows shows the cash coming in and out during the year. It splits the cash by type of activity - showing how we've generated cash and then how we've spent it. 

 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

As at 6 July 2019 (unaudited)

As at 7 July 2018 (unaudited)

As at 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

Notes

£m

£m

£m

 

 

 

 

 

 

 

 

 

Net cash from operating activities

 

10

251

255

313

 

 

 

 

 

 

 

 

 

Cash flows from investing activities

 

 

 

 

 

 

Purchase of property, plant and equipment

 

 

(154)

(162)

(335)

 

Purchase of intangible assets

 

 

 

(35)

-

(50)

 

Proceeds from sale of property, plant and equipment

 

13

41

81

 

Acquisition of businesses, net of cash acquired

 

 

(30)

(24)

(29)

 

Net cash used in investing activities

 

 

(206)

(145)

(333)

 

Cash flows from financing activities

 

 

 

 

 

 

Interest paid on borrowings

 

 

 

(36)

(12)

(63)

 

Interest paid on lease liabilities (2018: Interest paid on finance lease liabilities)

(39)

-

-

 

Interest received on subleases

 

 

 

2

-

-

 

Interest received on deposits

 

 

 

-

-

1

 

Issue / (repayment) of corporate investor shares

 

9

5

(3)

(2)

 

Repayment of borrowings

 

 

9

(328)

(14)

(34)

 

Proceeds from new borrowings

 

 

9

300

-

-

 

Settlement of interest rate swaps

 

 

 

27

-

-

 

Payment of lease liabilities (2018: Payment of finance lease liabilities)

 

(53)

(2)

(5)

 

Net cash used in financing activities

 

 

(122)

(31)

(103)

 

Net (decrease) / increase in cash and cash equivalents

 

(77)

79

(123)

 

Net cash and overdraft balances transferred to held for sale

 

2

-

8

 

Cash and cash equivalents at beginning of period

 

282

397

397

 

Cash and cash equivalents at end of period

 

207

476

282

 

Analysis of cash and cash equivalents

 

 

 

 

 

 

Overdrafts per balance sheet

 

 

 

-

(4)

-

 

Cash and cash equivalents per balance sheet

 

 

207

480

282

 

 

 

 

 

207

476

282

 

Included in the above are cashflows from discontinued operations. An analysis of these can be found in note 6.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 6 July 2019 (unaudited)

As at 7 July 2018 (unaudited)

As at 5 January 2019 (audited)

 

Group Net Debt

 

 

Notes

 

Interest-bearing loans and borrowings:

 

 

 

 

 

 

 - current

 

 

(42)

(96)

(66)

 

 - non-current

 

 

(982)

(1,072)

(976)

 

Total Interest-bearing loans and borrowings

 

 

(1,024)

(1,168)

(1,042)

 

Lease liabilities:*

 

 

 

 

 

 

 

 - current

 

 

(183)

-

(4)

 

 - non-current

 

 

(1,270)

(15)

(28)

 

Total lease liabilities

 

 

 

(1,453)

(15)

(32)

 

Total Debt

 

 

 

(2,477)

(1,183)

(1,074)

 

 - Group cash

 

207

480

282

 

 - Overdrafts

 

-

(4)

-

 

Group Net Debt

 

 

 

(2,270)

(707)

(792)

 

Add back fair value / amortised cost adjustment

 

9

33

71

46

 

Group Net Debt (pre fair value / amortised cost adjustment)

9

(2,237)

(636)

(746)

 

 

 

 

 

 

 

 

 

Group Net Debt (interest bearing loans and borrowings only)

 

(817)

(692)

(760)

 

Add back fair value / amortised cost adjustment

 

9

33

71

46

 

Group Net Debt (interest bearing loans and borrowings only and pre fair value / amortised cost adjustment)

9

(784)

(621)

(714)

 

 

 

 

 

 

 

 

 

*The Group has initially applied IFRS 16 (Leases) at 6 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative impact of applying the new standard is recognised in retained earnings at the date of initial application. For more details on the impact of IFRS 16 (Leases), refer to the general accounting policies section on page 50.

 
                                                                   

 

 

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 6 July 2019 (unaudited)

 

Revenue from external customers

*Underlying segment operating profit (b)

One-off items (b) (i)

Property and business disposals (b) (ii)

Change in value of investment properties

Operating profit

 

 

 

 

£m

£m

 

£m

 

£m

 

£m

£m

 

 

Food

 

 

3,726

 

120

 

-

 

(6)

 

-

 

114

 

 

Wholesale

 

 

703

 

(2)

 

-

 

-

 

-

 

(2)

 

 

Funeral and Life Planning

 

 

163

 

13

 

-

 

(1)

 

-

 

12

 

 

Other businesses (d)

 

 

11

 

(6)

 

-

 

(1)

 

-

 

(7)

 

 

Federal (e)

 

 

786

 

-

 

-

 

-

 

-

 

-

 

 

Costs from supporting functions

 

 

-

 

(61)

 

7

 

4

 

11

 

(39)

 

 

Total

 

 

5,389

 

64

 

7

 

(4)

 

11

 

78

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26 weeks ended 7 July 2018 (unaudited and re-presented) (a)

 

Revenue from external customers

*Underlying segment operating profit (b)

One-off items (b) (i)

Property and business disposals (b) (ii)

Change in value of investment properties

Operating profit

 

 

 

 

£m

£m

 

£m

 

£m

 

£m

£m

 

 

Food

 

 

3,607

 

80

 

-

 

(2)

 

-

 

78

 

 

Wholesale

 

 

269

 

(5)

 

-

 

-

 

-

 

(5)

 

 

Funeral and Life Planning

 

 

174

 

28

 

-

 

(1)

 

-

 

27

 

 

Other businesses (d)

 

 

28

 

(2)

 

-

 

-

 

-

 

(2)

 

 

Federal (e)

 

 

751

 

-

 

-

 

-

 

-

 

-

 

 

Costs from supporting functions

 

 

-

 

(51)

 

19

 

(23)

 

11

 

(44)

 

 

Total

 

 

4,829

50

 

19

 

(26)

 

11

 

54

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

52 weeks ended 5 January 2019 (audited)

 

Revenue from external customers

*Underlying segment operating profit (b)

One-off items (b) (i)

Property and business disposals (b) (ii)

Change in value of investment properties

Operating profit

 

 

 

 

£m

£m

 

£m

 

£m

 

£m

£m

 

 

Food

 

 

7,274

 

204

 

-

 

(18)

 

-

 

186

 

 

Wholesale

 

 

983

 

(11)

 

-

 

-

 

-

 

(11)

 

 

Funeral and Life Planning

 

 

317

 

25

 

-

 

(6)

 

-

 

19

 

 

Other businesses (d)

 

 

56

 

(4)

 

-

 

(8)

 

-

 

(12)

 

 

Federal (e)

 

 

1,532

 

-

 

-

 

-

 

-

 

-

 

 

Costs from supporting functions

 

 

-

 

(107)

 

9

 

(22)

 

38

 

(82)

 

 

Total

 

 

10,162

107

 

9

 

(54)

 

38

 

100

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

* The Group has initially applied IFRS 16 (Leases) at 6 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative impact of applying the new standard is recognised in retained earnings at the date of initial application. For more details on the impact of the IFRS 16 (Leases), refer to the general accounting policies section on page 50. To further help the reader then we've also included additional tables in 'Our financial performance' section (page 21) showing 2019 results on both a reported basis (prepared under IFRS 16) and a like-for-like with 2018 (excluding IFRS 16). 

 

a) In-line with our 2018 year-end accounts the results of our Insurance business have been classified as discontinued operations as the proposed sale of CISGIL was highly probable at the year-end and half-year date. As such the results of our Insurance 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. 

 

b) Underlying segment operating profit is a non-GAAP measure of segment operating profit 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 and operating profit includes:

 

i) One-off items representing a £7m gain relates to a reduction in the deferred consideration originally recognised following the Nisa acquisition in 2018. Prior period figures included a gain of £20m in relation to past service pension costs (retirement discretion credit) and £1m (2017: £nil) of costs relating to Bank separation activity.

 

ii) Losses from property and business disposals of £4m (2018: £26m loss) - see table on page 35 for further details.   

 

 

 

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1    Operating segments continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

c) Transactions between operating segments excluded from the above analysis are £nil (2018: £3m) sales of electrical goods by Co-op Electrical to Food and £1m (2018: £1m) sales of legal cover on insurance policies by Legal Services to Insurance.

 

d) The 'Other Businesses' segment includes activities which are not reportable per IFRS 8. This mainly comprises the results of Co-op Electrical. As announced at the 2018 year end Co-op Electrical ceased trading in the second quarter of 2019.

 

e) 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.

 

f) A reconciliation between underlying segment operating profit and profit before tax is provided below:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26 weeks ended 6 July 2019 (unaudited)

 

26 weeks ended 7 July 2018 (unaudited & re-presented*)

 

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes

 

£m

 

 

£m

 

 

£m

 

Underlying segment operating profit **

 

 

 

 

 

64

 

 

50

 

 

107

 

Underlying interest payable

 

 

 

 

4

 

(33)

 

 

(32)

 

 

(64)

 

Underlying interest expense on lease liabilities

 

 

 

3, 4

 

(37)

 

 

-

 

 

-

 

Underlying (loss) / profit before tax

 

 

 

 

 

 

(6)

 

 

18

 

 

43

 

One-off items

 

 

 

 

 

 

7

 

 

19

 

 

9

 

Loss on property, business disposals and closures (see below)

 

 

 

(4)

 

 

(26)

 

 

(54)

 

Change in value of investment properties

 

 

 

 

 

11

 

 

11

 

 

38

 

Finance income (excluding any lease interest shown net above)

 

3

 

27

 

 

33

 

 

78

 

Other non-cash finance costs

 

 

 

 

4

 

(10)

 

 

(11)

 

 

(21)

 

Profit before tax

 

 

 

 

 

 

25

 

 

44

 

 

93

 

* In-line with our 2018 year-end accounts then the results of our Insurance business have been classified as discontinued operations following the announcement of the proposed sale of CISGIL. As such the results of our Insurance business are no longer shown in the table above and instead are shown in the Discontinued Operations line at the bottom of the Consolidated income statement. For more details on the re-presentation, refer to the general accounting policies section on page 50.

 

** The Group has initially applied IFRS 16 (Leases) at 6 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative impact of applying the new standard is recognised in retained earnings at the date of initial application. For more details on the impact of IFRS 16 (Leases), refer to the general accounting policies section on page 50. To further help the reader then we've also included additional tables in 'Our financial performance' section (page 21) showing 2019 results on both a reported basis (prepared under IFRS 16) and a like-for-like with 2018 (excluding IFRS 16). 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Losses from property, business disposals and closures

 

26 weeks ended 6 July 2019 (unaudited)

 

26 weeks ended 7 July 2018 (unaudited)

 

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

£m

 

£m

£m

 

£m

£m

 

Disposals, closures and onerous contracts

 

 

 

 

 

 

 

 

 

 

 

 

 

 - proceeds

 

 

 

 

 

12

 

 

41

 

 

77

 

 

 - less net book value written off

 

 

 

 

 

(15)

 

 

(40)

 

 

(77)

 

 

 - provisions recognised

 

 

 

 

 

(1)

 

 

(21)

 

 

(42)

 

 

 

 

 

 

 

 

 

(4)

 

 

(20)

 

 

(42)

 

Impairment of property, plant and equipment, right-of-use assets and goodwill

 

-

 

 

(6)

 

 

(12)

 

Loss on disposal

 

 

 

 

 

 

(4)

 

 

(26)

 

 

(54)

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

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 ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited)

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

£m

£m

£m

 

 

Food - Long-term agreements

 

 

 

 

64

67

142

 

 

Food - Bonus income

 

 

 

 

55

58

142

 

 

Food - Promotional income

 

 

 

 

155

156

325

 

 

Total Food supplier income

 

 

 

 

274

281

609

 

 

Wholesale - supplier income *

 

 

 

 

31

-

45

 

 

Total Supplier income

 

 

 

 

305

281

654

 

 

 

 

 

 

 

 

 

 

 

 

*Supplier income in Wholesale relates to Nisa following acquisition on 8 May 2018. As such comparative figures for the 26 weeks ended 7 July 2018 have not been disclosed.

 

 

 

 

 

 

 

 

 

 

 

 

Percentage of Cost of Sales before deducting Supplier Income

%

%

 

 

Food - Long-term agreements

 

 

 

 

2.2%

2.4%

2.5%

 

 

Food - Bonus income

 

 

 

 

1.9%

2.0%

2.5%

 

 

Food - Promotional income

 

 

 

 

5.5%

5.5%

5.7%

 

 

Total Food supplier income %

 

 

 

9.6%

9.9%

10.7%

 

 

Total Wholesale supplier income %

 

 

 

4.6%

-

4.9%

 

 

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 ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited)

52 weeks ended 6 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

£m

£m

 

 

Net pension finance income

 

 

 

 

27

21

41

 

 

Underlying interest income from finance lease receivables

 

2

-

-

 

 

Fair value movement on quoted debt

 

 

 

-

12

37

 

 

Total finance income

 

 

 

 

29

33

78

 

 
                                         

 

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

4    Finance costs

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

What does this show? Our main finance cost is the interest that we've paid during the year on the bank borrowings that help fund the business.  Other finance costs include the non-cash charge we incur each year on long-term provisions as the payout moves one year closer (the discount unwind) and the impact of unwinding the discounted lease liability. 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).

 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

26 weeks ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited & re-presented*)

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

£m

£m

 

 

Loans repayable within five years

 

 

 

 

 

(15)

(12)

(28)

 

 

Loans repayable wholly or in part after five years

 

 

 

 

(18)

(20)

(36)

 

 

Underlying loan interest payable

 

 

 

 

 

(33)

(32)

(64)

 

 

Fair value movement on quoted debt

 

 

 

 

(1)

-

-

 

 

Fair value movement on interest rate swaps

 

 

 

 

(1)

(7)

(11)

 

 

Underlying interest expense on lease liabilities

 

 

 

 

(39)

-

-

 

 

Non-underlying finance interest 

 

 

 

 

 

(8)

(4)

(10)

 

 

Other finance costs

 

 

 

 

 

(49)

(11)

(21)

 

 

Total finance costs

 

 

 

 

 

(82)

(43)

(85)

 

 

 

 

 

 

 

 

 

 

 

 

 

* See general accounting policies section on page 50 for details of the representation.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 credit in respect of continuing operations of £26m (2018: charge of £9m) and effective tax rate of 107% (2018: 20%) 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 credit of £2m.
2.    A review of material transactions reflected in the year gave rise to a tax charge of £7m. These mainly relate to gains on property disposals and pension credits taken through the income statement.  
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 has  remained unchanged from the 2018 year end.
4.   The Society has reviewed its method of determining the temporary differences arising in respect of accelerated tax depreciation on its fixed assets and as a result has revised the estimation techniques previously used therein. As a result of this we have reinstated deferred tax assets on the balance sheet previously charged to the income statement. The cumulative impact of this is a credit to the income statement of £31m. This balance will then be released to the income statement in future years in line with the revised method and as such solely represents a timing impact. This is the main driver for the effective tax rate.

 

A credit of £45m has been posted to other comprehensive income in respect of the actuarial movement arising on the pension fund. A credit of £47m has been posted to opening reserves arising from the adoption of IFRS 16 and more information about this is provided in the general accounting policies section on page 50. The net deferred tax liability of the Group at half year is £111m (2018: £230m) and the corporation tax creditor for continuing operations is £8m.

 

The Group does not expect to be tax-paying in respect of their 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 6 July 2019 (unaudited)

 

 

Movements in deferred tax in period to 6 July 2019

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

 

 

At beginning of the year (net liability)*

 

 

 

 

 

 

230

 

 

Charged to opening reserves:

 

 

 

 

 

 

 

 

 

 

  Impact of adoption of IFRS 16

 

 

 

 

 

 

 

(47)

 

 

Income statement credit

 

 

 

 

 

 

 

(29)

 

 

Charged to equity:

 

 

 

 

 

 

 

 

 

 

  Employee pension schemes

 

 

 

 

 

 

 

(45)

 

 

  Insurance assets

 

 

 

 

 

 

 

2

 

 

At end of period (net liability)*

 

 

 

 

 

 

 

111

 

 

*Of the total net liability £7m (2018: £5m) is classed as Held for sale (see note 8 and note 6).

 

 

Notes to the financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

 

Co-op Insurance has been classified as a discontinued operation in 2018 and 2019 as the sale of the business was highly probable at the year-end and half-year 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 is shown in a separate line at the bottom of the consolidated income statement under Discontinued Operations 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 its insurance underwriting business (CIS General Insurance Limited) to Markerstudy. The deal includes a 13 year agreement with Markerstudy to distribute motor and home insurance products. The deal is subject to regulatory approval and is expected to complete during the second half of 2019. After the sale the Co-op will focus on marketing and distributing insurance products instead of underwriting them and the performance will be reported as a separate operating segment. Markerstudy have committed to paying £150m of cash at the point of disposal and £35m of deferred consideration over 3 years and 6 months.  Of the £185m of income expected from Markerstudy at the point of disposal, £101m will be allocated against assets and liabilities of the disposal group and included in arriving at the remeasurement charge of £207m as noted in the prior year on initial recognition. The remaining £84m will be included as deferred income (as required by IFRS 3 paragraph 52) because the Co-op group will be being remunerated for future services. Post sale the Co-op group will provide marketing and distribution services for Markerstudy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The calculation of assets held for sale includes incremental costs to sell. After selling the group (providing regulatory approval is received) further costs may be incurred in a transitional period of migration and co-operation with Markerstudy.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Results of discontinued operation - Insurance

 

 

26 weeks ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited)

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

£m

£m

 

 

Revenue

 

 

 

 

 

 

 

162

160

323

 

 

Operating expenses

 

 

 

 

 

(187)

(205)

(410)

 

 

Other income

 

 

 

 

 

 

14

31

67

 

 

Remeasurement adjustments recognised in arriving at fair value less costs to sell

6

-

(207)

 

 

Operating loss from discontinued operation

 

 

(5)

(14)

(227)

 

 

Finance costs

 

 

 

 

 

 

(4)

(4)

(9)

 

 

Loss before tax from results of discontinued operation

 

(9)

(18)

(236)

 

 

Tax - relating to the pre-tax loss on discontinued operation

 

3

4

6

 

 

Loss for the period from discontinued operation

 

 

(6)

(14)

(230)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Segmental analysis - Insurance

26 weeks ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited)

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenue from external customers

 

 

 

 

162

160

323

 

 

Underlying segment operating loss

 

 

 

 

(3)

(5)

(1)

 

 

Operating loss

 

 

 

 

 

 

(5)

(14)

(227)

 

 

 

 

 

Notes to the financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6    Loss on discontinued operations, net of tax continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Co-op Insurance 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 less costs to sell

As at 6th July 2019 (unaudited)

As at 5th January 2019 (audited)

 

 

 

 

 

 

 

 

£m

£m

 

 

Non-current assets

 

 

 

 

 

 

 

 

Other investments (Insurance assets)

 

 

 

 

478

449

 

 

Reinsurance assets

 

 

 

 

 

39

34

 

 

Current assets

 

 

 

 

 

 

 

 

 

Trade and other receivables

 

 

 

 

220

206

 

 

Other investments (Insurance assets)

 

 

 

 

327

382

 

 

Reinsurance assets

 

 

 

 

 

28

20

 

 

Current tax assets

 

 

 

 

 

8

8

 

 

Total Insurance assets classified as held for sale

 

1,100

1,099

 

 

 

 

 

 

 

 

 

 

 

 

Non-current liabilities

 

 

 

 

 

 

 

 

Interest-bearing loans and borrowings

 

 

 

68

68

 

 

Insurance contract liabilities

 

 

 

 

307

362

 

 

Deferred tax liabilities

 

 

 

 

 

5

3

 

 

Current liabilities

 

 

 

 

 

 

 

 

 

Insurance contract liabilities

 

424

373

 

 

Other payables and provisions

 

 

 

 

230

229

 

 

Overdrafts

 

 

 

 

 

10

8

 

 

Total Insurance liabilities classified as held for sale

 

1,044

1,043

 

 

Net assets of disposal group classified as held for sale

56

56

 

 

 

 

 

 

 

 

 

 

 

 

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. A re-measurement adjustment of £169m (£175m as at 5 January 2019) is required to write down the disposal group to its overall fair value less costs to sell and has been reflected as a provision in the other payables and provisions line.  The decrease in the re-measurement adjustment in the period of £6m is shown within discontinued operations in the income statement. The closing carrying value of the net assets of the disposal group is therefore recorded at fair value less costs to sell of £56m (£56m as at 5th January 2019) in the above table. This £56m fair value is comprised of £101m (£101m as at 5th January 2019) of expected sales proceeds from the sale of Co-op insurance less costs to sell of £43m (£43m as at 5th January 2019) and the impact on discounting deferred consideration of £2m (£2m as at 5th January 2019). The costs to sell of £43m (£43m as at 5th January 2019) include legal and professional costs and necessary IT migration costs.

 

 

 

 

 

 

 

 

 

 

 

 

The table below shows a summary of the cash flows of discontinued operations:

 

 

 

 

 

 

 

26 weeks ended 6 July 2019 (unaudited)

26 weeks ended 7 July 2018 (unaudited & restated)

52 weeks ended 5 January 2019 (audited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

£m

£m

£m

 

 

Cash flows used in discontinued operations:

 

 

 

 

 

Net cash used in operating activities

 

 

 

(8)

(4)

(6)

 

 

Net cash used in financing activities

 

 

 

(4)

-

(8)

 

 

Net cash used in discontinued operations

(12)

(4)

(14)

 

 
                                                     

 

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

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.

 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 July 2019

7 July 2018

5 January 2019

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

 

£m

£m

£m

 

Pension schemes in surplus

 

 

 

1,747

2,238

1,984

 

Pension schemes in deficit

 

 

 

(103)

(136)

(125)

 

Closing net retirement benefit

 

 

 

1,644

2,102

1,859

 

 

 

 

 

 

 

 

 

 

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 6 July 2019 in accordance with IAS 19. Valuations for the Somerfield, United, Plymouth and Yorkshire schemes have also been updated for the 2019 interim financial statements.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 July 2019

7 July 2018

5 January 2019

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

The principal assumptions used to determine the liabilities of the Pace pension scheme were:

 

 

 

 

Discount rate

 

 

 

 

2.22%

2.91%

3.02%

 

RPI Inflation rate

 

 

 

 

3.38%

3.33%

3.46%

 

Pension increases in payment (RPI capped at 5.0% p.a.)

 

3.29%

3.18%

3.55%

 

Future salary increases

 

 

 

3.63%

3.58%

3.71%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 July 2019

7 July 2018

5 January 2019

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

 

£m

£m

£m

 

 

 

 

 

 

 

 

 

 

Opening net retirement benefit attributable to Group

 

 

1,859

1,553

1,553

 

Admin expenses paid from plan assets

 

 

(2)

(2)

(5)

 

Past service items

 

 

 

 

-

20

11

 

Net finance income

 

 

 

 

27

21

41

 

Employer contributions

 

 

 

26

24

50

 

Remeasurement (losses) / gains

 

 

 

(266)

455

178

 

Refinement of pension surplus attributable to Co-operative Bank

 

-

31

31

 

Closing net retirement benefit

 

 

 

1,644

2,102

1,859

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

7    Pensions continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  6 July 2019

(unaudited)

7 July 2018 (unaudited)

5 January 2019 (audited)

Amounts recognised in the balance sheet:

 

 

 (unaudited) £m

             (unaudited) £m

(audited) £m

Fair value of plan assets:

 

 

 

 

 

 

 

 - Pace

 

 

 

 

 

9,092

8,611

8,353

 - Somerfield Scheme

 

 

 

 

1,006

1,099

1,069

 - Other schemes

 

 

 

 

865

853

849

Total assets

 

 

 

 

10,963

10,563

10,271

Present value of liabilities:

 

 

 

 

 

 

 

 - Pace

 

 

 

 

 

(7,456)

(6,567)

(6,532)

 - Somerfield Scheme

 

 

 

 

(895)

(905)

(906)

 - Other schemes

 

 

 

 

(968)

(989)

(974)

Total liabilities

 

 

 

 

(9,319)

(8,461)

(8,412)

 

 

 

 

 

 

 

 

 

Net retirement benefit asset per balance sheet:

 

 

 

 

Pace

 

 

 

 

 

1,636

2,044

1,821

Somerfield Scheme

 

 

 

 

111

194

163

Total assets

 

 

 

 

1,747

2,238

1,984

Other schemes

 

 

 

 

(103)

(136)

(125)

Total Liabilities

 

 

 

 

(103)

(136)

(125)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net Asset

 

 

 

 

 

1,644

2,102

1,859

 

 

 

 

 

 

 

 

 

Other schemes comprise the United Fund, the Plymouth Fund and the Yorkshire Fund.

 

 

The present value of unfunded liabilities recognised in the balance sheet is £6m (as at 7 July 2018 and 5 January 2019: £6m).

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 has resulted in a £55m decrease in the surplus of the Somerfield scheme in the period.

 

 

 

Notes to the financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

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.

 
 
 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

6 July 2019

7 July 2018

5 January 2019

 

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

Assets held for sale

 

 

 

 

 

£m

£m

£m

 

(a) Discontinued operation - Insurance (see note 6)

 

 

 

 

 

1,100

-

1,099

 

(b) Other assets held for sale (see below)

 

 

 

 

 

25

12

14

 

Total

 

 

 

 

 

                   1,125

12

1,113

 

 

 

 

 

 

 

 

 

 

 

Liabilities held for sale

 

 

 

 

 

 

 

 

(a) Discontinued operation - Insurance (see note 6)

 

 

 

 

 

1,044

-

1,043

 

(b) Other liabilities held for sale (see below)

 

 

 

 

 

2

-

2

 

Total

 

 

 

 

 

                   1,046

-

1,045

 

 

 

 

 

 

 

 

 

 

 

(a) Discontinued operation - Insurance

 

 

 

 

 

 

Co-op Insurance has been classified as a discontinued operation as at 6th July 2019 and as at 5 January 2019 as the sale of the business was highly probable at the half-year and year-end date respectively. 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:

 

 

 

 

 

 

 

6 July 2019

7 July 2018

5 January 2019

 

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

 

 

£m

£m

£m

 

Property, plant and equipment

 

 

 

 

10

12

9

 

Investment properties

 

 

 

 

 

12

-

5

 

Goodwill

 

 

 

 

 

3

-

-

 

Total assets

 

 

 

 

 

25

12

14

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

2

-

2

 

Total liabilities

 

 

 

 

 

2

-

2

 

 

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

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 6 July 2019

As at 7 July 2018

As at 5 January 2019

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

 

£m

£m

£m

 

Non-current liabilities:

 

 

 

 

 

 

 

£11m 6.875% Eurobond Notes due 2020 (fair value)*

 

 

12

309

296

 

£165m 6.875% Eurobond Notes due 2020 (amortised cost)

 

168

170

169

 

£105m 7.5% Eurobond Notes due 2026 (fair value)

 

 

117

126

115

 

£245m 7.5% Eurobond Notes due 2026 (amortised cost)

 

 

263

266

264

 

£300m 5.125% Sustainability Bond due 2024 (amortised cost)*

 

299

-

-

 

£109m 11% final repayment subordinated notes due 2025

 

 

109

109

109

 

£16m Instalment repayment notes (final payment 2025)

 

 

14

15

14

 

£10m 2.57% Nisa bank term loan (facility expires 2021)

 

 

-

9

9

 

£70m 12% Financial Services Callable Dated Deferrable Tier Two Notes due 2025**

-

68

-

 

Total (excluding lease liabilities)

 

 

982

1,072

976

 

Lease liabilities (2018: Finance lease liabilities)***

 

 

1,270

15

28

 

Total Group interest-bearing loans and borrowings

 

2,252

1,087

1,004

 

 

 

 

 

 

 

 

 

 

* The Group issued a £300m Sustainability bond in May 2019. The bond is repayable in May 2024 and has an interest rate of 5.125%. The Co-operative Group Limited also completed a tender offer in May 2019 on the 2020 6.875% bond. This saw the Group buy back £274m (of the principal balance of £285m) from bond holders for cash consideration of £290m.

 

** Debt relating to CISGIL has been transferred to held for sale (see note 6) as at 6 July 2019 and 5 January 2019.

 

*** The Group has applied IFRS 16 (Leases) at 6 January 2019 using the modified retrospective approach. Under this approach, comparative information is not restated and the cumulative impact of applying the new standard is recognised in retained earnings at the date of initial application. For more details on the impact of IFRS 16 (Leases), refer to the general accounting policies section on page 50.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

As at 6 July 2019

As at 7 July 2018

As at 5 January 2019

 

 

 

 

 

 

(unaudited)

(unaudited)

(audited)

 

 

 

 

 

 

£m

£m

£m

 

Current liabilities:

 

 

 

 

 

 

 

 

£165m 6.875% Eurobond Notes due 2020 (amortised cost) - interest accrued

11

10

5

 

£245m 7.5% Eurobond Notes due 2026 (amortised cost) - interest accrued

17

16

8

 

£300m 5.125% Sustainability Bond due 2024 (amortised cost) - interest accrued

2

-

-

 

£21m 8.875% First Mortgage Debenture Stock 2018

 

 

-

21

-

 

£16m Instalment repayment notes (final payment 2025)

 

 

1

1

1

 

£110m Nisa asset backed invoice discounting facility

 

 

-

43

31

 

£355m Syndicate revolving credit facility drawdown

 

 

-

-

15

 

Corporate investor shares

 

 

 

11

5

6

 

Total (excluding lease liabilities)

 

 

42

96

66

 

Lease liabilities (2018: Finance lease liabilities)*

 

 

183

-

4

 

Total Group interest-bearing loans and borrowings

 

225

96

70

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

9     Interest-bearing loans and borrowings continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 6 July 2019 (unaudited)

 

 

Start of period

Impact on adoption of IFRS 16

Acquisition of Subsidiary

Non cash movements

Cash flow

End of period

 

 

 

 

 

£m

£m

£m

£m

£m

£m

 

 

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 & overdrafts

 

282

-

-

2

(77)

207

 

 

Group Net Debt

 

 

(792)

(1,450)

-

(32)

4

(2,270)

 

 

Comprised of:

 

 

 

 

 

 

 

 

 

 

Trading Group Debt

 

 

(1,074)

(1,450)

-

(34)

81

(2,477)

 

 

Trading Group Cash

 

 

214

-

-

2

(27)

189

 

 

Trading Group Net Debt

 

(860)

(1,450)

-

(32)

54

(2,288)

 

 

Co-operative Banking Group cash and overdrafts

68

-

-

-

(50)

18

 

 

Group Net Debt

 

 

(792)

(1,450)

-

(32)

4

(2,270)

 

 

Less fair value / amortised cost adjustment

 

 

46

-

-

(13)

-

33

 

 

Group Net Debt before fair value / amortised cost adjustment

(746)

(1,450)

-

(45)

4

(2,237)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For 26 weeks ended 7 July 2018 (unaudited)

 

 

Start of period

Impact on adoption of IFRS 16

Acquisition of Subsidiary

Non cash movements

Cash flow

End of period

 

 

 

 

 

£m

£m

£m

£m

£m

£m

 

 

Interest-bearing loans and borrowings:

 

 

 

 

 

 

 

 

 - current

 

(32)

-

(57)

(26)

19

(96)

 

 

 - non-current

 

(1,130)

-

(9)

67

-

(1,072)

 

 

Lease liabilities

 

 

 

 

 

 

 

 

 

 

 - current

 

(2)

-

-

-

2

-

 

 

 - non-current

 

(8)

-

-

-

(7)

(15)

 

 

Total Debt

 

 

(1,172)

-

(66)

41

14

(1,183)

 

 

Group cash:

 

 

 

 

 

 

 

 

 

 - cash

 

403

-

1

-

76

480

 

 

 - overdraft

 

(6)

-

-

-

2

(4)

 

 

Group Net Debt

 

 

(775)

-

(65)

41

92

(707)

 

 

Comprised of:

 

 

 

 

 

 

 

 

 

 

Trading Group Debt

 

 

(1,104)

-

(66)

41

14

(1,115)

 

 

Trading Group Cash

 

 

314

-

1

-

63

378

 

 

Trading Group Net Debt

 

(790)

-

(65)

41

77

(737)

 

 

CISGIL debt and overdrafts

 

(74)

-

-

-

2

(72)

 

 

Co-operative Banking Group cash and overdrafts

89

-

-

-

13

102

 

 

Group Net Debt

 

 

(775)

-

(65)

41

92

(707)

 

 

Less fair value / amortised cost adjustment

138

-

-

(67)

-

71

 

 

Group Net Debt before fair value / amortised cost adjustment

(637)

-

(65)

(26)

92

(636)

 

 
                               

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

9     Interest-bearing loans and borrowings continued

 

 

 

For 52 weeks ended 5 January 2019 (audited)

Start of period

Impact on adoption of IFRS 16

Acquisition of Subsidiary

Non cash movements

Cash flow

End of period

 

 

 

£m

£m

£m

£m

£m

£m

 

Interest-bearing loans and borrowings:

 

 

 

 

 

 

 

 - current

(32)

-

(57)

(14)

37

(66)

 

 - non-current

(1,130)

-

(9)

142

21

(976)

 

Lease liabilities

 

 

 

 

 

 

 

 

 - current

(2)

-

-

-

(2)

(4)

 

 - non-current

(8)

-

-

-

(20)

(28)

 

Total Debt

 

(1,172)

-

(66)

128

36

(1,074)

 

Group cash:

 

 

 

 

 

 

 

 - cash

403

-

1

-

(122)

282

 

 - overdraft

(6)

-

-

8

(2)

-

 

Group Net Debt

 

(775)

-

(65)

136

(88)

(792)

 

Comprised of:

 

 

 

 

 

 

 

 

Trading Group Debt

 

(1,104)

-

(66)

60

36

(1,074)

 

Trading Group Cash

 

314

-

1

-

(101)

214

 

Trading Group Net Debt

(790)

-

(65)

60

(65)

(860)

 

CISGIL debt and overdrafts

(74)

-

-

76

(2)

-

 

Co-operative Banking Group cash and overdrafts

89

-

-

-

(21)

68

 

Group Net Debt

 

(775)

-

(65)

136

(88)

(792)

 

Less fair value adjustment

138

-

-

(92)

-

46

 

Group Net debt before fair value / amortised cost adjustment

(637)

-

(65)

44

(88)

(746)

 

 

 

 

 

 

 

 

 

 

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 ended 6 July 2019

26 weeks ended 7 July 2018

52 weeks ended 5 January 2019

 

 

 

 

 

 

 

 

 

 

 

 

(unaudited)

(unaudited & restated*)

(audited)

 

Continuing Operations:

 

 

 

£m

£m

£m

 

Operating profit from continuing operations

 

 

 

78

54

100

 

Depreciation and amortisation charges (excluding deferred acquisition costs)

189

135

271

 

Non-current asset impairments

 

 

 

-

6

12

 

Loss on disposal of businesses and non-current assets

 

 

4

20

40

 

Change in fair value of investment properties

 

 

 

(11)

(11)

(38)

 

Non-cash gain in relation to past service pension costs

 

 

-

-

(11)

 

Retirement benefit obligations

 

 

 

(23)

(43)

(46)

 

Decrease / (increase) in inventories

 

 

 

11

5

(20)

 

Increase in receivables

 

 

 

(29)

(91)

(194)

 

Increase in contract assets (funeral plans)

 

 

 

(5)

(3)

(7)

 

Increase in contract liabilities (funeral plans)

 

 

 

44

111

206

 

Increase in payables and provisions

 

 

 

 

1

76

6

 

Net cash flow from operating activities (continuing operations)

259

259

319

 

Discontinued Operations:

 

 

 

 

 

 

 

Operating loss (discontinued operations)

 

 

 

(5)

(14)

(230)

 

Remeasurement to fair value at cost to sell

 

 

 

(6)

-

207

 

Fair value through income statement

 

 

 

26

38

51

 

Fair value through other comprehensive income movement

 

 

8

(8)

(12)

 

Movement in deferred acquisition costs

 

 

 

(1)

-

1

 

Reinsurance assets

 

 

 

 

(13)

(4)

5

 

(Increase) / decrease in insurance and other receivables

 

 

(13)

2

-

 

Increase / (decrease) in insurance and participation contract provisions

 

2

(7)

(17)

 

Decrease in insurance and other payables

 

 

 

(6)

(11)

(11)

 

Net cash flow from operating activities (discontinued operations)

2

(4)

(6)

 

Net cash flow from operating activities

 

 

251

255

313

 

 

 

 

Notes to the interim financial statements continued

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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 2018 annual report.

 
 
 

 

 

 

 

 

 

 

 

 

a) Capital expenditure not accrued for, but committed by the Group at 6 July 2019 was £13m (7 July 2018: £11m).

 

 

 

b) There are no significant changes to the contingent liabilities of the Group as disclosed in the 2018 annual report.

 

 

 

 

 

 

 

 

 

 

 

 

 

12