TIDM42TF
RNS Number : 1974V
Co-operative Group Limited
05 April 2019
News release
5 April 2019
Annual Results Announcement: 52 Weeks to 5(th) Jan 2019
Co-op growth and community impact soars
Total revenue up 14%, Food like-for-like sales up 4.4%, Profit
before tax up 27%
GBP79 million returned to Co-op members and their
communities
Co-op difference highlights 2018: growing member value and
social impact
-- We rewarded our members and their communities for trading
with us as we returned GBP79m to them - GBP60m directly to members
and GBP19m to over 4,000 community projects across the UK.
-- We launched our Safer Colleagues, Safer Communities campaign,
aimed at ensuring colleague safety in the communities they serve
and to help identify the root causes of community crime.
-- We introduced the UK's first compostable carrier bags as part
of our initiative to tackle plastics which will see the Co-op stop
using hard-to-recycle plastics within five years.
-- Our pension fund is responding to the UK's social housing
crisis, by looking to invest up to GBP50m within the social and
affordable housing market.
-- We continued to grow the Co-op's investment for, and in, future generations:
o Six new Co-op Academy Schools were added in 2018.
o More than 1,000 apprentices worked within the business in
2018.
-- We continued to champion the causes that matter to our
members by tackling issues including Modern Slavery and loneliness
and driving the ongoing success of Fairtrade.
Financial and operational highlights: delivering a stronger
Co-op
-- Total revenues grew by 14% to GBP10.2bn, driven by our
acquisition of Nisa and a strong performance from Food.
o Like-for-like revenues continued to grow in Food (+4.4%) and
the Co-op has now enjoyed 5 consecutive years of like-for-like
revenue growth.
o Funeralcare and Life Planning revenue reduced year-on-year
(-1.0%), reflecting the change in customer trends within the
funeral sector.
-- Profitability exceeded expectations, reflecting the growth in
overall revenues, whilst still incorporating the GBP79m of member
and community reward.
o Profit before tax from continuing operations was up 27% to
GBP93m.
o Underlying profit before tax remained flat at GBP43m.
-- Capital expenditure of GBP414m ensured that the Co-op is well positioned for future growth:
o This included GBP326m within our Food business as we invested
in new stores, refits and new infrastructure.
o To further strengthen our Funeral & Life Planning
business, we invested GBP43m in infrastructure and technology
during 2018.
-- Net debt rose due to the Nisa acquisition, but remained below
our GBP900m debt ceiling target.
-- Surplus on pension schemes increased by GBP300m to GBP1.8bn (2017: GBP1.5bn).
Serving our members by growing our scale and ambition
Our Stronger Co-op, Stronger communities plan has gone from
strength to strength in 2018 with the Co-op further aligning our
business to our members' needs and significantly broadening the
positive impact we can have on society.
-- Community Wellbeing Index developed to deepen our
understanding of what communities need to help them thrive; three
main areas identified where future Co-op Investment can make a
significant difference:
o Physical and mental wellbeing
o Education and skills
o Community space
-- Our Local Community Fund helped every part of the UK,
returning more than GBP19m to 4,087 local causes, with each
receiving on average more than GBP4,500.
-- The relationship between the Co-op and our members continued
to strengthen, with growing engagement in our campaigns and Local
Community Fund and sales to our members growing to 35% of total
sales, in line with our targets.
-- Our 300 Member Pioneers are bringing people together around
our stores and funeral homes to discuss what matters most to their
community and how the Co-op can help improve their wellbeing.
-- We partnered with Neyber, a financial wellbeing company, to
offer our colleagues financial planning advice and an affordable
practical alternative to payday loans.
-- In Food, we saw our fastest growth in seven years.
o Like-for-like sales were up 4.4%.
o We invested GBP75m into opening more than 100 new food stores,
refitted 138 existing stores and created 1,600 new jobs.
o The successful acquisition of Nisa and expansion of our
wholesaling business has significantly grown our footprint and
capacity, making Co-op products available to many thousands of new
customers.
o We instigated major changes to supplier governance and
processes and introduced a new supplier charter in line with the
findings of a report by the Groceries Code Adjudicator into
historical supply practices at the Co-op.
o We strengthened our commitment to UK farming and British
produce with 100% of our fresh and frozen meat now coming from
British farms.
-- In challenging market conditions for Funerals & Life
Planning, we responded to changing market and member needs with the
launch of our direct to cremation service.
o Efforts to tackle funeral affordability saw the cost of our
Simple Funeral reduced in England and Wales by GBP200 for members
and GBP100 for non-members.
o Simplify Probate successfully integrated into the business,
making Co-op the UK's largest single provider of probate
services.
o We have worked closely with the CMA on their market study into
funeral services and inputted into HM Treasury's consultation on
funeral plan regulation.
-- In Insurance, we are clear in terms of our strategic
direction and the best means of creating increased value for our
members and their communities.
o The planned sale of our insurance underwriting business for
GBP185m will allow us to focus on our strategy of providing a
broader range of insurance products for members, via our
distribution business.
o The sales and profit figures for our insurance business are
therefore not included within our Profit Before Tax line, but
within discontinued items. The loss of GBP230m includes the
write-down of net assets but does not reflect the anticipated value
to be generated from the 13 year distribution agreement included
within the sale proceeds.
o We launched a market-disrupting Travel insurance product that
covers people of any age and health condition and was built with
input from members.
o Our 'Guarantee to beat' offer for Co-op members on home
insurance renewals has seen a 24% increase in member sales during
2018.
-- In New Ventures, the acquisition of Dimec, a healthcare
technology platform, will provide the Co-op with the building
blocks for a digitally enabled healthcare service for our
members.
o The service will connect patients to their GPs so they can
order repeat prescriptions online, helping to take pressure off the
NHS.
Outlook
-- As we enter the 175(th) anniversary of UK consumer
co-operation, we remain focused on the long-term growth of the
Co-op and the positive role we can play in communities. Despite a
challenging political and consumer backdrop, we are confident that
we can continue to drive the Co-op's commercial success and
increase our social impact in the process.
Steve Murrells, Chief Executive of the Co-op, said:
"Over the past year we have continued to successfully transform
the Co-op, leading to a 14% increase in revenues to GBP10.2bn and
the return of GBP60m directly to our members and GBP19m to over
4,000 community projects across the UK.
"The acquisition and integration of the Nisa wholesale business
has been a game changer in expanding our food footprint and we have
also set out the path by which we can offer our members a broader
range of compelling Co-op solutions in Insurance and Health.
"We continue to demonstrate that the Co-op is a good business
that does good for society as we lead on issues including single
use plastics, funeral affordability and social housing. It is this
determination to make a positive difference for all of our
stakeholders which will ensure that we fulfil our ambition to build
a Stronger Co-op and Stronger Communities."
Allan Leighton, Independent Non-Executive Chair of the Co-op,
said:
"A year into launching our Stronger Co-op, Stronger Communities
ambition and we continue to grow both sales and social impact. We
have also made significant investments to further align our
business with the needs of our members and deepen our understanding
of the communities in which they live.
"In these uncertain economic times we have the opportunity to
demonstrate that the Co-op Way of doing business has never been
more relevant than it is today. With the continued support of our
colleagues, members and communities, I have no doubt that we will
thrive in the years ahead. I am confident and excited about the
path we are following and the greater social impact we can create
for our members and their communities."
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 GBP10
billion.
Chairman's introduction
'A way of doing business that looks increasingly modern,
relevant and urgent'
Our Co-op is more than just a business, or even a family of
businesses. It's a belief that business should serve people and not
the other way around.
In 2019 we're marking the 175(th) anniversary of the consumer
co-operative movement in the UK. But it's not a moment for looking
back. With our nation deeply divided over Brexit, and with so many
challenges needing long-term solutions, co-operative thinking is
not just modern and relevant to our current needs, but increasingly
urgent.
Co-operation provides us with an outlook on business that offers
a holistic response to the needs of people and the communities in
which they live. It's a way of working that can tackle long-term
challenges with an ethical and sustainable response.
Our own Co-op Society is taking the best traditions of our past
and applying them to the world today. We are an organisation that's
commercially driven and community focused and we're addressing the
needs and concerns of the millions of Co-op members who
collectively own us. Our job is to create value for our members.
That means creating products and services that meet a genuine need
and doing this in an efficient and commercially successful way.
Through business success we're then able to address the wider
issues and concerns of our members such as supporting British
farmers, expanding our Co-op Academy schools or reducing our use of
plastic.
It's important to understand that our Co-op's commercial
activity and its community and campaigning work go hand-in-hand.
It's beyond philanthropy and traditional social responsibility
programmes. The support we give to local community causes or the
campaigning we do on modern slavery and tackling loneliness are as
important as running our food business or selling insurance cover.
For us, doing the right thing makes good commercial sense.
At the start of 2018 we launched our Stronger Co-op, Stronger
Communities ambition. We see the relationship between our business
and the communities we serve as mutually beneficial. The stronger
our Co-op becomes, the more good we can do for the communities we
trade in. We also believe that strong communities which see the
value of co-operation will decide to choose our Co-op more often.
This creates a virtuous co-op circle.
Let me take this opportunity to thank my fellow Board Directors,
our Executive team, our Council President and Vice Presidents and
all of our National Members' Council for their work as we continue
to strengthen all aspects of our Co-op in this anniversary
year.
Allan Leighton
Co-op Chair
Chief Executive's introduction
'Our strategic initiatives are setting us up for long term
success'
It's been a busy and productive first year for our Stronger
Co-op, Stronger Communities five-year ambition as we work to create
value for our millions of members.
-- we began our plan to treble the number of Co-op Academy schools we support
-- we launched a new campaign to help make our colleagues and communities safer
-- we expanded our support for British produce and to Fairtrade farmers
-- we reduced our use of plastic in food packaging
-- we lessoned our carbon footprint
-- we responded to funeral affordability
-- we supported our colleagues facing financial pressures
-- and our Co-op pension trustees announced their decision to
invest up to GBP50 million into the social and affordable housing
market over the next 12 months.
And in addition, in 2018 we gave back nearly GBP60 million to
our members through the 5% member reward. GBP19 million also went
to 4,000 local community causes through the 1% member reward that
creates our Local Community Fund plus additional funds from the
sale of carrier bags.
In the summer we launched our Future of Food ambition setting
out our ethics and sustainability priorities through to 2030. The
agenda we've set for ourselves recognises the need to integrate our
thinking across all aspects of food retail so that we can make the
greatest impact for our members and customers.
These are just some of the examples that prove that our Co-op is
a different way of doing business. It's a business which puts
people and communities first because that's what we were set up to
do. Success for us goes beyond bottom-line profit. Our social
purpose means our ambitions are far greater.
But any Co-op must also stay commercially-focused and
efficiently-run if it's to thrive for the long term.
In 2018 we made strategic changes in Food, Insurance, and
Funeral & Life Planning which will set our business up for
long-term success. It's these decisions that will enable us to
serve the needs of our members and give value back to them and
their communities for decades to come.
Commercial performance
Our Group turnover was GBP10.2 billion, boosted by our
acquisition of Nisa in the spring, and our Group underlying profit
before tax was GBP43 million in line with our 2017 performance.
This profit measure represents the core trading performance of our
business and reflects the GBP60 million charged to profit which we
generated and returned to members through our Co-op membership
rewards.
There are five notable business headlines to report
-- the outstanding year for our food stores
-- the challenging year for our funerals business
-- our acquisition of the Nisa wholesale business
-- the sale of our insurance underwriting business
-- and the purchase of the Dimec platform to prepare for our return to healthcare services
Food had an excellent year with the best growth in seven years.
Underlying operating profit was up 12% to GBP204 million.
The hot summer and a good England performance in the World Cup
certainly made a difference, but we wouldn't have been able to take
advantage of this if it hadn't been for great products, good
planning and our ever improving logistics network.
Our ambition to be the number one convenience food retailer
remains on track, driven by our 'Closer' strategy: closer to where
are customers are; closer to what they need; and closer to what
they care about.
Our acquisition of Nisa wholesaling and the additional deal
we've made to supply Costcutter Supermarkets Group, were
significant strategic decisions for our food business. This is a
rapid expansion of our wholesaling that means we'll reach hundreds
of thousands of new homes with our Co-op products and increase the
scale of the relationship with our suppliers.
Food retail remains one of the most competitive environments in
the UK economy and we are not just holding our own but leading the
way through innovation, expansion and a commitment to responsible
sourcing.
We remain the number one funeral and life planning business in
the UK market. However, that market is changing rapidly.
Choice and price are critical for our clients and in 2018 we
responded to these trends with new ways to commemorate the life of
a loved one and a continued commitment to improve funeral
affordability. We also invested heavily in infrastructure,
technology and standards and put in place changes to roles and
responsibilities for our colleagues.
However, we saw a sharp drop in underlying operating profit
(down GBP17 million on 2017) and a reduction in the number of
funerals we carried out. The reduction in profit was in part caused
by the growth in sales of our most affordable funerals. The sale of
funeral plans was also down reflecting a drop in the funeral plan
market as a whole. This was driven largely by negative media
commentary on the value and transparency of such products, even
though our own plans have received outstanding recognition from
industry experts. We've contributed our views to the Treasury
consultation on the regulation of pre-need funeral plans and have
responded to the Competition & Markets Authority (CMA) on its
study into at-need funerals and crematoria. We welcome improved
regulation for the industry and the CMA's decision to launch an
in-depth market investigation into the funerals sector.
Meanwhile, we saw significant growth in other parts of the
funeral and life planning business, in particular probate and will
writing. 2018 saw the successful integration of Simplify Probate
which we acquired in the spring.
We need to take stock of the changes we've made over the last
few years and understand in more depth the market dynamics in play.
In particular we need to see how our Co-op values and way of
working can be made clearer to our clients and ensure that our
offer remains attractive and relevant.
For Insurance during 2018, the priority was to develop plans for
the future of the business by removing the underwriting risk and
moving to a distribution model. This will allow us to provide more
of our members with a broader range of insurance products while at
the same time managing financial risk.
At the beginning of 2019 we announced the sale of our insurance
underwriting business to Markerstudy for GBP185 million and,
subject to regulatory approval, the deal should be completed by
summer 2019. Markerstudy will protect the jobs of many of our
existing insurance colleagues.
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. Meanwhile, we'll continue to work with
other partners to further develop our range of policies.
Our accounts for 2018 show our insurance underwriting business
as a discontinued operation but the loss shown does not include the
income we'll receive from the sale which relates to the
distribution agreement in future years. Our strategy is expected to
create sustained long-term returns for our insurance distribution
business.
The approach we've been moving to with Insurance was illustrated
by the launch of our new Travel insurance policy. It was the first
new product from our Insurance business for several years and was
built with input from our members and by using an external
underwriter. On launch of the policy we were recognised as a Which?
Recommended Provider.
In 2018 we carried out a strategic review of Co-op Electrical
and closed this part of our business in March 2019. Our decision
reflects the small scale of our online electrical offer which
accounts for less than 1% of annual Co-op turnover. Our review
showed that significant capital investment would be needed to
expand the business in a market which is facing significant
challenge and uncertainty.
A new venture in healthcare
In 2018 we re-entered the healthcare market in an innovative and
capital light way, through the acquisition of the digital start-up
Dimec.
With an increasingly ageing population with complex health
needs, we believe there should be a co-operative and digital
solution to the health challenges faced by our members and
customers today and in years to come. Our acquisition of Dimec
gives us a proven digital platform to help patients connect to
their GPs which makes ordering repeat prescriptions easier and
takes some pressure off the NHS. This new venture will begin
trading nationally in 2019.
Like other businesses, we've been preparing as best we can for
the possibility of a no deal departure from the European Union. Our
commitment to British farming provides our members and customers,
as well as our suppliers, with some welcome protection from any
increase in tariffs. However, we still source many of our fresh
food products from the EU and we are making contingency plans to
the best of our ability. Our priority is to do our best for our
members and customers through what could be a challenging time for
the whole nation.
Overall, we're confident about the progress we've made in 2018
and the investment decisions we've taken. But there's still much to
do to achieve our Stronger Co-op, Stronger Communities
ambition.
In 2019 we want to further develop our community work through a
deeper understanding of the needs and challenges faced by our
members. Our plan is to create practical resources, founded on
co-operative thinking, to help local communities thrive.
We'll also continue to grow our business and reach more
customers with our Co-op difference. We'll do this by opening more
Co-op Food stores, through revitalising our Funeralcare business,
through developing more Co-op Insurance products, and via our new
Healthcare venture. And we'll start telling our story to members
and customers with renewed pride and conviction.
I'd like to thank our colleagues across the business for their
continued hard work and commitment and for being the greatest
advocates for our Co-op.
Steve Murrells
Chief Executive
Stronger Co-op
To make our Co-op stronger we must grow, compete and innovate
while all the time doing business in a responsible way. To deliver
our business strategy we need our colleagues to be our greatest
advocates.
Growing
To create a stronger Co-op we want to grow our business by
attracting more members and customers. That means investing in
better infrastructure and technology, developing new products and
services, and finding new ways to share our Co-op difference.
New Food stores
During 2018 we invested GBP75 million into opening 102 new food
stores, including 30 in London, and carried out 138 refits of
existing stores. This expansion created 1,600 new jobs. We've now
opened 417 new stores in the last four years at a time when other
retailers are being forced to abandon the high street. We now have
2,582 Co-op Group food stores. The new stores we've been opening
have been more profitable than the ones we opened in 2012. We put
this down to improved location and the ever-improving range and
quality of our products.
In 2018 the first Co-op franchise store opened, owned by the
Costcutter Supermarket Group. The Co-op branded store in Guiseley,
near Leeds, has a wide range of Co-op products and offers
membership benefits. This includes a 5% reward when shoppers buy
own-brand products and services, with a further 1% donated to local
causes through our Local Community Fund. Our first franchise store
on a university campus opened in Leeds in February 2019 staffed by
students.
Attracting a younger generation
It's vital that we attract a younger generation of Co-op members
and customers who may not be familiar with who we are or the values
we stand for. In March 2018 we announced an exclusive partnership
with Live Nation to become the first UK food retailer to have a
supermarket at four major summer music festivals: Download,
Latitude, Reading and Leeds. At each festival we set up a 6,000
square foot shop to cater for 200,000 festival goers. Each store
stocked a wide range of items, including food, water, beer and
wine, toiletries, medicines and, to cover all eventualities, both
sun cream and rain ponchos.
Logistics investment
We've committed GBP28 million to expansion and modernisation of
our logistics and store estate in Scotland, including GBP6 million
for our new Dalcross distribution centre outside Inverness. We
committed over GBP20 million to invest in our Wellingborough
distribution centre to support our members and customers in
Central, East and South East England.
In November 2018 we announced plans to build a new GBP45 million
distribution centre in Biggleswade in Bedfordshire just off the A1.
When it opens in 2022 it will create 1,200 jobs.
Wholesale
Our biggest investment towards long-term growth came from the
rapid expansion of our wholesaling operation beyond supplying other
co-ops. In May we completed our acquisition of the Nisa wholesale
business. Nisa Partners own and operate their own stores and these
remain independent from our Co-op.
The acquisition means we're now supplying 4,000 stores serviced
by Nisa across the UK. From the spring we also became the exclusive
wholesale supplier to Costcutter Supermarkets Group and the
Costcutter, Mace, Simply Fresh, Supershop and Kwiksave convenience
stores it operates.
The Nisa and Costcutter stores mean our award-winning Co-op
branded food, with its commitment to ethical and sustainable
sourcing, will reach hundreds of thousands of new homes across the
country. Often in places where we have no existing Co-op stores.
During the second half of 2018 we aligned Nisa with our existing
wholesale work and we're now supplying more than 850 Co-op branded
products to Nisa and Costcutter stores.
Funeral & Life Planning, and Insurance
We opened 16 new funeral homes and refitted another 55. We now
have 1,049 funeral homes. Over the last few years we've been
re-branding our private named funeral homes in England, Scotland
and Wales as Co-op Funeralcare as part of our commitment to
transparency and to maximise the value of our national brand. In
November the last privately named home in Wales (Pontypool) made
the switch. We also opened two new state-of-the-art mortuaries at
Fareham and Reading and installed refrigeration at 237 funeral
homes.
In April we acquired Simplify Probate, the UK's second largest
provider of probate advice and support to families. We've now
successfully integrated the business adding to our existing
services including Will writing, lasting power of attorney and
funeral plans. The deal makes us the UK's largest single provider
of probate services. Our clients are already benefiting from faster
distribution of estate proceeds. In 2019 we'll continue to offer
probate services as part of our funeral support to families.
In Insurance we launched our first new product for many years
with our new Travel offer. This has paved the way for an expansion
of insurance products during the first four months of 2019.
Competitive
All the markets we trade in are highly competitive, with price
the deciding factor for many consumers. To stay relevant and strong
we've invested in keeping prices down in all areas of our
Co-op.
We are committed to offering customers value for money and we're
always investing in price as we react positively to the challenges
of the retail sector. Last year we invested GBP50m into cutting the
price of hundreds of food products as part of our ongoing
investment strategy.
We've been addressing funeral affordability for the last few
years and offering greater choice in funeral arrangements. Our
national survey into death and bereavement, the biggest ever
carried out in the UK, suggested that four million people suffered
financial hardship after bereavement. In September, as a response
to these findings, we made further changes to our funeral prices in
particular for our members. In addition, the growth of our probate
work is making it easier for families to pay for a funeral from the
estate of the deceased.
In Insurance we promised to beat the renewal quotes of our Co-op
members for their home and contents insurance, which led to an
increase in renewals. Our offer of Co-op Food vouchers for new
Home, Motor and Pet insurance customers also worked well and helped
us increase new business overall.
Innovative
No business can stand still and stay successful. Across the
decades our Co-op has always been at its best when we've understood
the changing needs of our members and anticipated social
trends.
In 2019 we'll re-enter the healthcare market. But we won't be on
the high street. Instead, we want to develop a digital approach
that will give us flexibility to test our ideas quickly without the
need for large-scale capital investment.
In September we bought the healthcare start-up Dimec, a digital
platform developed by a team of doctors as a way to connect
patients to their GPs so they can order repeat prescriptions
online. With an ageing UK population, we recognise that more and
more of our members, and other customers, could benefit from this.
Currently, there are 1.1 billion prescriptions written annually in
England. We believe this kind of online innovation will also take
pressure off the NHS.
The co-founders of Dimec are working with our new ventures team
on the development of the platform and we've created a national
medicine distribution hub within our Lea Green food depot in
Merseyside.
We've been introducing new technology across every part of our
Co-op during 2018. In Funeral & Life Planning we completed the
national roll-out of our industry-leading Guardian funeral
arrangement software which streamlines processes and reduces
internal bureaucracy. The Guardian technology also has the
potential to become customer-facing as it evolves. Most
importantly, it gives our colleagues more time to serve the needs
of bereaved families.
Our new Shifts App in Food is making it easier for colleagues to
access their work schedules and plan their week. It's a significant
advance in giving colleagues greater control and flexibility over
their work life. We've also been trialling 'pay in aisle'
technology for our Food stores and robotic home delivery.
In May we launched our new Cremation Without Ceremony funeral
costing GBP1,395 (GBP1,230 in Scotland), for those who would like a
simpler choice for their funeral without compromising on high
standards of care.
Cremation Without Ceremony has been brought to the public's
attention by both David Bowie and novelist Anita Brookner's funeral
wishes. The ceremony is different from a traditional funeral as
there are no mourners present at the cremation. The popularity
comes from more people choosing celebratory gatherings, rather than
a traditional funeral service. For most of our clients the decision
is less about cost and more about how they want to remember their
loved one.
Responsible
At the Co-op we've always believed that 'doing good' and 'doing
good business' go hand-in-hand. We see commercial responsibility as
central to our business model, so strengthening our ethics and
sustainability will help us to become a Stronger Co-op.
You can read more about our economic, social and environmental
commitments in this year's Co-op Way report.
Our new Future of Food strategy brings together and extends our
existing work on the environment, sustainability, sourcing,
plastics, waste management, animal welfare and how we treat our
suppliers.
100% of our energy is from renewables
We recognised the need to act on climate change long before most
businesses and we've reported on our climate impacts since 2005.
Our long-term aim was to halve our direct Green House Gas emissions
by 2020 compared to 2006. We achieved this target three years
early, in 2017. We're now going even further, and aiming to halve
our direct emissions again by 2025 compared to 2016.
100% of the electricity that powers our business, including all
of our stores, funeral homes and our Manchester Support Centre, is
generated from UK wind farms.
The UK's first compostable carrier bag
A key priority is to improve the recyclability of our product
packaging. Our long term target is for all our own-brand packaging
to be 'easy to recycle' by 2023, and 80% (by product line) to be
'easy to recycle' by 2020. By the end of 2018 we'd made good
progress, having reached 75% (2017: 71%).
In November we introduced the UK's first compostable carrier bag
to 1,400 Co-op stores replacing conventional single-use plastic
carrier bags. The new bags can be used to take your shopping home,
then as a liner for your food waste bin. This change will remove 60
million conventional plastic carrier bags a year and support local
authorities to increase food waste collection. As more local
councils roll out food waste collection we'll supply the bags to
more of our store estate.
The new material is a bioplastic and starch mix, produced in
Italy, which is as strong as conventional plastic bags. In the
spirit of co-operation we're sharing the information needed to
bring this to market with anyone who wants it.
All our pork is now outdoor-bred
We know our members and customers are concerned about animal
welfare and where the food they buy comes from. Respecting animal
welfare is an important part of our work in agriculture. For all
our Co-op branded fresh, frozen and prepared meat and poultry
products, our minimum welfare standard, and our main focus, is Red
Tractor. For higher welfare, we use RSPCA Assured or equivalent. In
2018, we developed our Co-op Pork Farming Group and moved to 100%
RSPCA Assured, Outdoor-Bred pork.
All our fresh and frozen meat is British
Since 2015, we've spent GBP2.5 billion on British meat, produce
and dairy products as part of our commitment to British farming.
All of our Co-op branded fresh meat is British including the meat
used in our sandwiches and ready meals. In 2018 we extended this
commitment to frozen products.
We've continued to support British farming financially and
through activities like sponsoring Love British Food. We've also
expanded our Farming Pioneers programme, where we work with the
next generation of farmers to build their skills.
In 2018 the first group of 20 young farmers graduated from a two
and half year programme with some great success stories of personal
and business development. We're now taking on a fourth cohort of
youngsters in 2019, with an ambition to roll this programme out to
100 young farmers.
Fairtrade - we're enabling women to become leaders
At Co-op we remain fully committed to Fairtrade at a time when
other retailers are pulling back or creating alternative ethical
brands which can take autonomy away from the suppliers themselves.
In 2018 we increased our Fairtrade sales by 6.3% while the UK
market overall fell by 8.3%. In 2019 we'll be celebrating the
25(th) anniversary of the Fairtrade mark.
In March, during Fairtrade Fortnight, we announced that all the
Fairtrade bananas, tea and coffee used as ingredients in Co-op
products would now also benefit Fairtrade producers and their
communities.
Since we announced in February 2017 that all the cocoa sourced
for use in Co-op own brand products would be done so on Fairtrade
terms the amount of Fairtrade cocoa sourced has increased by over
400%.
Many of the new generation of female farmers in West Africa face
legal, social and cultural barriers to working in the cocoa
industry. This means the younger generation are choosing to move
away from cocoa farms and into the city.
As part of Co-op's commitment to Fairtrade, we're funding the
Fairtrade Africa's Womens' leadership school projects, which are
working with women in Côte d'Ivoire to empower them as future
leaders. The projects train them in business skills such as
decision making, resource management and leadership. We're also
working with Kuapa Kokoo, a cocoa growing co-op in Ghana, to give
their women workers access to training.
We're already the world's largest seller of Fairtrade wine. In
May we announced that we'd switched more of our Co-op South African
wines to Fairtrade terms, giving hundreds of vineyard workers in
South Africa improved rights and farmers a guaranteed minimum price
for their grapes. It's one of the biggest-ever Fairtrade wine deals
in the UK and will mean another 2.5 million litres of Fairtrade
wine will be sold in 2019.
All our palm oil is sustainable
We use sustainably-sourced palm oil in our products. Palm oil
production has impacts on communities, deforestation, as well as
climate change and habitat loss. To make sure we don't contribute
to this, 100% of the palm oil in our food products has been
certified by the Roundtable on Sustainable Palm Oil since 2012, and
non-food has been included since 2016.
A safe used car for your new family
For the last three years Co-op Insurance has been researching
the safest used cars to buy for different groups of drivers. In
July we revealed our findings for first-time parents. Research
showed that 60% of new parents buy a new car before their first
baby is born and one of the top criteria is safety. Our own
research carried out with new parents revealed that 75% would like
to know more about safety issues when they buy.
Our pension fund is investing in social housing
In November our Co-op pension trustees announced their decision
to invest up to GBP50 million into the social and affordable
housing market over the next 12 months. This will provide
much-needed support for a sector where demand is clearly
outstripping supply.
Across the UK, there are an estimated 1.15 million households on
waiting lists for social homes. Many of these are key workers who
exceed the income threshold to qualify for social housing, but
struggle to afford to buy their own home near to where they
work.
An initial investment in 50 units at the Fair Acres development,
in Dunbar, Scotland, is being made, which upon completion, will be
let to East Lothian Council. 48 units in Glasgow and 71 units in
Yorkshire will also be built. The GBP50 million investment will
eventually provide 350 units.
Colleagues
Our colleagues are the greatest advocates for our Co-op and we
continue to make every aspect of their wellbeing a high priority.
To build a stronger Co-op we need colleagues who feel listened to,
respected and valued.
Consistently high engagement
At 76% (up 1% on 2017) engagement has now stayed relatively
stable for four years in a row. This continues to be above the
benchmark for other retailers (72%). There was an improvement in
colleagues' sense of belonging to our Co-op too. The annual
Talkback colleague survey focused on leadership and there was
positive feedback by colleagues on their team leaders - especially
about leaders keeping their promises, recognising success and
encouraging team members to have their say.
But there was clear room for improvement on involving colleagues
in decision making. Building on our annual Talkback survey, in 2018
we introduced more regular 'Talkback Pulse' surveys. This has
helped us listen more carefully to colleagues in particular parts
of the business and address specific areas of interest or
concern.
All our support through one colleague app
At the beginning of the year we launched LifeWorks, our new
wellbeing mobile app for Co-op colleagues. The app gives
easy-to-access support on a whole range of wellbeing topics, both
inside and outside of work - including health, wellbeing, family
life, work issues and money matters. It also makes it easier to
access our Co-op Employee Assistance Programme, where colleagues
can talk to experienced advisers in confidence 24/7.
The LifeWorks app also includes some great perks - with big
discounts and cashback deals from hundreds of high street and
online shops.
Celebrating our colleagues
In 2018 we introduced new, practical ways for colleagues and
managers to simply say 'thank you' for a job well done both face to
face and online. All colleagues are encouraged to show the ways
they appreciate their colleagues every day which helps them to be
at their very best.
Last year we launched our first ever #BeingCoop Awards to
celebrate outstanding achievements from our colleagues that make a
real difference to peoples' lives. Nominations were open to both
colleagues and Co-op members.
GBP2 million of affordable loans
As part of our commitment to supporting our colleagues outside
of the workplace, we partnered with Neyber, a financial wellbeing
company which helps UK employees better manage their finances
including debt. We wanted to offer our colleagues a practical
alternative to pay day loans and other kinds of high cost
borrowing. Neyber provides access to fair and affordable loans that
colleagues can repay directly from their salary. Since we launched
the scheme Neyber has given loans to 433 colleagues totalling GBP2
million.
In 2019, we'll launch a Workplace ISA (a tax-efficient savings
plan) and continue our close relationship with Co-op credit unions,
which also provide savings and lending services to our
colleagues.
1,000 apprentices
By the end of 2018, we'd met our goal to have 1,000 colleagues
on apprenticeship programmes across the business, including 572
colleagues who began their training during the year. We'll continue
with this commitment in 2019 and expand opportunities in our IT,
Finance and Logistics teams. Our apprenticeship programmes go right
up to degree level in our Food business and we pay the going rate
for the job and provide permanent contracts.
In 2018 we won a number of awards for our apprenticeship
programmes. Jasmine Joynt, one of our Insurance apprentices
recruited from a Co-op Academy, won the RateMyApprenticeship
Outstanding Intermediate Apprentice of the Year award and was also
highly commended in the region for the National Apprenticeship
Awards. Rachel Lee in our Food business won the Retail Week
Apprentice of the Year award. We were also named as a Top 100
employer of apprentices by RateMyApprenticeship.
We're tackling gender equality
Over the last few years we've championed gender diversity across
the business. We have one of the UK's few female retail CEOs in Jo
Whitfield, who leads our Food business, and our Executive team is
now four women and three men. Our Aspire Network for women in the
business has 1,000 members and is growing. In April we were named
in The Times Top 50 Employers for Women for the second time.
Throughout 2018 we began the implementation of our new diversity
and inclusion strategy, adopted in 2017, focusing on building a
culture that's equal, diverse and inclusive for all colleagues
including those with disabilities. On the issue of gender pay gaps,
we continue to be better than the national average and have made
further progress in closing the gap over the last 12 months.
However, like other large employers, there's still progress to be
made. Details on gender pay can be found in the remuneration report
in our 2018 Annual Report.
A bigger voice for colleagues
In July we started our new Colleague Voice Forum made up of 35
colleagues from across our Co-op. The group will meet quarterly to
develop new colleague initiatives. A pilot for the Forum has
already helped develop our colleague recognition scheme, our new
style of wage slips, and our performance process.
Strengthening membership
A Stronger Co-op must also mean a stronger relationship with our
members. Not only do we want to grow our membership, we want to
give our members an active role in our business and our
governance.
Member Sales Penetration across all our business areas by the
end of the year was 35% of sales.
2018 ended with more than 670,000 local cause selections made by
our members. Since we relaunched our membership proposition at the
end of 2016 1.2 million members have selected a local cause at
least once.
Our online platform for members to participate "Join in" has
become increasingly popular in 2018 amongst members and with
business teams across the Co-op.
To date the team has delivered 200 opportunities for members to
participate in their Co-op. Over 125,000 members have participated
on these projects and the numbers continue to grow. The
introduction of a new monthly "Join in" email to all marketable
members in 2018 has been a powerful driver for participation.
Some examples of 2018 "Join in" opportunities:
-- our first ever survey on death and bereavement saw 11,000 members responding
-- 14,000 members took part in our test of new digital coupons
-- our Insurance team has researched and developed six new
products including travel insurance, car care and life policies
with the help of members
-- members nominated almost 1,000 colleagues for our #BeingCoop awards in 2018
Following a full review of the Co-op Young Members' Board at the
start of 2018, the Exec approved the CYMB's proposal to restructure
and refocus their activity. The Board's new role will be focused on
encouraging a wider group of young people and acting as a gateway
for the Co-op to engage with them. Recruitment took place during
the second half of the year and a new Co-op Young Members' Group
began its work recently on two projects exploring a "Curriculum for
Life" for our Community team and engaging more young people in our
festival activity for our Food team.
You can read about the work of our National Members' Council in
the Council President's report in the 2018 Annual Report.
Stronger Communities
Our Co-op was set up to address a social purpose through a
successful commercial enterprise. Today we express this as building
'stronger communities'. There are many ways in which we do this and
we fulfil our commitment in a local, national and global way.
Our Local Community Fund helps every part of the UK
The most far-reaching example of how we're strengthening local
communities is the work we're supporting through our Local
Community Fund. In 2018 we returned more than GBP19 million to
4,087 local causes across the country. Each received, on average,
more than GBP4,500. That's significant money for small
organisations often under huge funding pressures.
As we've evolved the Fund's work we've looked to encourage
projects which build resilience and togetherness through
co-operation in ways that touch all parts of our society.
In Bromley in South London we're helping 'Living Well' which
works to tackle loneliness, homelessness and debt by providing
foodbanks, community lunches and group activities. With Co-op help,
Living Well is funding a local community choir. 'Dundee Bairns' in
Scotland is using our support to run a Fun and Food project for
children during the school holidays who in term time receive free
school meals. 'On Trak' in Bradford is teaching teenage boys
struggling with school life how to do bicycle maintenance. In
Manchester, 'City of Sanctuary' works with refugees and asylum
seekers and is using the money to pay for teaching English to the
new arrivals. These are just a handful of examples of how the Local
Community Fund is enabling members to support local causes that
enrich lives across the UK.
We shortlist projects for our members to choose from which bring
people together and address the root causes of social difficulties
across the country. We want to prioritise projects which help the
most marginalised and isolated.
We know that members who choose a local cause are likely to go
on to shop with us more. They see the link between doing good and
choosing Co-op. It's the reciprocal relationship of Stronger Co-op,
Stronger Communities in action.
Deepening our understanding of community need
The next stage of our community work is to deepen our
understanding of what communities most need to help them thrive. In
December we asked our Co-op members to try out a new tool we've
created to measure wellbeing in communities throughout the UK.
The Community Wellbeing Index, an idea developed with our
Council members, provides a snapshot of how communities score in
nine key areas - everything from education and skills to equality,
participation and trust. We've built it as a resource for
communities to use, but it's also been extremely valuable to us as
we set out to develop the next phase of our community
programme.
The index has already helped us identify areas where we think
Co-op community investment can make a difference and we have chosen
to prioritise three:
1. Physical and mental wellbeing
2. Education and skills
3. Community spaces
We'll have more to say about the Community Wellbeing Index and
how it's shaping our community plans in the coming months.
Our Member Pioneers are connecting local communities
A unique aspect of our community work is the role of Member
Pioneers. These are paid, part-time roles rather than add-on
responsibilities for our existing colleagues. We had 300 Member
Pioneers in place in 2018 with the aim to significantly grow this
number in the coming years. Our Member Pioneers are bringing people
together in the communities around our food stores and funeral
homes. They get people talking about what matters most in their
local community and work with other Co-op members, our Council,
colleagues and the local causes we support to tackle issues, make
connections and get things done.
Our Co-op Foundation empowering young people
The Foundation is the Co-op's own charity, which helps
communities work together to make things better. The Foundation is
governed by trustees from our Council, colleagues, and independent
trustees with significant experience of the charity sector.
In 2018, more than 63,000 Co-op Members chose to give a total of
GBP238,192, through their 1% reward, to support the Foundation's
Belong programme tackling youth loneliness. This UK-wide network of
projects has already made a measurable impact, connecting and
empowering more than 1,100 young people. This has been achieved by
developing young people's confidence and skills to navigate
challenging life transitions, such as leaving care, as well as
creating more opportunities for young people to become active
citizens who contribute to their communities.
In June, the Foundation announced a GBP2 million match funding
partnership with the government, the Building Connections Fund
Youth Strand, tackling youth loneliness among groups such as young
carers and those with disabilities or experiencing bereavement.
Delivering on a key commitment in its new loneliness strategy, in
November the government awarded the Foundation a further GBP1.4
million to extend this fund, with a focus on making community
spaces more inclusive for young people. Building on its existing
partnership with the #iwill Fund in England, and its support for
similar projects in Scotland, Wales and Northern Ireland, the Co-op
Foundation is now the UK's leading charity tackling youth
loneliness.
Other Foundation activities which launched in 2018 included: a
new offer of interest-free loans and grants to help community
spaces improve their financial sustainability; and support for
charities and social enterprises to make better use of technology
to meet the needs of communities.
Campaigning - we're tackling loneliness for thousands of
people
In 2015, our members told us that loneliness is an issue that is
affecting communities across the UK. Since then we've raised GBP6.7
million to help thousands of people reconnect with their
communities. And we've secured lasting change on the issue through
our British Red Cross Community Connector services in 38 locations
across the UK. The results have been overwhelmingly positive, with
over 7,000 people supported to date to reduce their loneliness.
Moreover, we saw the first-ever Minister appointed with
responsibility for loneliness and, in October 2018, the
government's first ever Loneliness strategy was launched. Our
campaign - marked by how we have brought more than 40 organisations
together in the Loneliness Action Group which the Co-op co-chairs -
has been at the very forefront of making loneliness a national
issue to which the government has responded. The Loneliness Action
Group is a key part of the government's plan to deliver its
strategy. In addition, we've shared more than GBP6.6 million
between 2,634 local projects that are responding to loneliness and
promoting social inclusion in their communities through our Co-op
Local Community Fund.
Campaigning - we're helping the victims of modern slavery
rebuild their lives
For the past two years we've been raising awareness of modern
slavery and campaigning for better support for survivors, and we've
been recognised as one of the leading British businesses on the
issue and the only one to date to receive the Thomson Reuters Stop
Slavery Award.
Central to our campaign is our Bright Future programme which
offers victims of modern slavery a paid work placement and the
opportunity of a permanent job. Since its launch in 2017, our
partnership with the charity City Hearts has grown into a
multi-charity, multi-business partnership, coordinated through a
'National Matching System' - with the needs of slavery survivors at
its heart.
Our focus in 2018 was on creating new work placements within the
Co-op and with our new Bright Future Business Partners and
encouraging other businesses and charities to join us. 42
organisations are now co-operating to support victims into work
throughout the UK. We have seen 77 survivors referred with 61% of
those who take up a placement finding a full-time permanent role at
the end.
Without changes to the wider support available to victims from
the government, thousands of individuals are at risk of
homelessness, poverty and re-trafficking. During 2018 we continued
to push for change through new partnerships, forums and targeted
campaigns, including joining the 'Free for Good' coalition to
support Lord McColl's 'Modern Slavery (Victim Support) Bill' to
increase government support for victims.
Campaigning - we're creating safer communities for colleagues,
members and customers
Creating safer communities, starting with our own Co-op
colleagues in stores up and down the country, has become our latest
campaign and another way in which we'll help to build stronger
communities.
In 2018 we spent GBP4.5 million introducing new headsets for
Food store colleagues which help to improve safety and security in
our stores. Thanks to our members, we've invested GBP3.9 million in
over 1,200 local causes addressing some of the underlying issues
that are fuelling rising crime across the country.
We'll continue to invest in innovative measures to keep our
colleagues safe at work and we're urging the government to do more
to protect our colleagues through increased law enforcement and
criminal justice responses.
In the autumn we supported David Hanson MP's amendments to the
Offensive Weapons Bill. This would make attacks on shop workers
selling age-restricted goods an aggravated offence, carrying
heavier sentences. In November, we supported Usdaw's 'Respect for
Shop Workers' week, hosting 48 MPs in our Co-op Food stores as part
of our activity. These visits have helped MPs understand the
realities our colleagues face and our determination to protect
them. We've also received strong support from Co-op Party
representatives.
However, we know that as well as doing all we can to protect our
colleagues, we also need to use our assets to help tackle the root
causes of the crime we see in our stores. We've already launched
two pilots in London and Manchester to support grassroots groups
who are working to help people make choices which lead them away
from a life of violence and crime. We aim to develop best practice
by working in partnership with local charities and other
organisations to tackle the root causes of crime in our communities
which we'll share with the government, MPs and other relevant
groups sharing our concerns.
At the end of the year our Members' Council approved the
activity to tackle crime and violence as an official Co-op
campaign.
Our Safer Colleagues, Safer Communities report sets out why
tackling crime against colleagues and the communities in which they
live is so important to our Co-op, and shows what we will be doing
in the coming months and years.
We want to give 40,000 children a better start in life
In March 2018 we announced a huge expansion of our support for
the Co-op Academies Trust with a further GBP3.6 million over the
next four years to kick start the next phase of growth. Since then
six new academies, two secondary and four primary, have joined the
trust bringing the number to 18. Our ambition is to have 40 academy
schools in 2022. The Trust divides the academies, which are mainly
in economically deprived areas, into three hubs: Greater
Manchester, West Yorkshire, and Merseyside and North
Staffordshire.
The Co-op academies inspected by Ofsted in the past two years
have all received at least a "good" rating. This shows the success
the Trust has had in turning around the predominantly weak schools
it has taken on. Radically improving attendance has been a notable
achievement in the schools. In December, the influential Sutton
Trust's annual report on the performance of academy chains showed
that for the fifth year in a row the Co-op Academy Trust achieved
above-average outcomes in terms of progress for disadvantaged
students.
Our vision is to inspire a new generation of high-achieving,
aspirational, skilled and confident young people. We continue to
provide governance expertise from our business, including 50
governors who are Co-op colleagues.
Looking ahead
Stronger Co-op
We know that Brexit is likely to cause us some uncertainty in
2019 and we continue to plan for the various scenarios as best we
can. More information can be found in the Risk Management section
in the 2018 Annual Report.
Our Food business will continue to grow with more new stores
planned to open in 2019, showing our commitment to the communities
we serve. We'll continue with our aim to become the number one
convenience retailer in the UK by achieving our 'Closer' strategy:
closer to our customers through more stores, closer to the products
our customers need, and closer to the causes they care about.
As well as new stores, we'll increase our reach through our
expanded wholesale network and through franchising. We're
innovating our formats and exploring new ways to connect with
customers and members.
We'll remain focused on the things that our members and
customers care about, building on our commitment to sustainability
through our Future of Food programme, reducing plastics and
improving the recyclability of our packaging. We've already made
sure all of our palm oil is from sustainable sources and this year
we'll extend that commitment to soya. We'll continue to make sure
none of our products are contributing to deforestation. We'll also
maintain our commitment to reducing plastic and improving
recyclability of our packaging. Having launched our Future of Food
ambition in 2018 we plan to take a 'one co-op' view of the whole of
our business and take a consistent and holistic approach to all
aspects of sustainability.
In March 2019 the Groceries Code Adjudicator (GCA) found that we
had contravened the Groceries Supply Code of Practice in relation
to delisting and variation of supply agreements without reasonable
notice. We've sent a full apology to our suppliers following the
findings and had already taken decisive steps during 2018 to ensure
we treat suppliers fairly, including providing refunds to those
wrongly impacted by the introduction of charges. We welcomed that
the GCA found that we had not been, "malicious," or acted in a way,
"intended to result in gain." You can read more about our response
to the GCA report in our 2018 Annual Report.
In the first few months of 2019 we're taking stock of the
changes we've made to our Funeral business over the last few years.
We're looking in more depth at the factors that are rapidly
changing the marketplace with the aim of putting even greater focus
on the needs of our clients and their communities.
We'll recover ground lost in 2018 in funerals and the sale of
funeral plans and we'll continue to grow our probate services and
inheritance planning by integrating them into our funeral
provision. We're also looking for new ways to help clients cope
with funeral costs through integrating our probate work with our
funeral services and through alternative payment options including
instalment plans.
We're committed to transparency and in 2019 all of our services
and prices will be available to view and buy through a relaunched
website. An all-channel approach to marketing and a stronger use of
our Co-op brand will help us reach new clients and compete
effectively against independent operators. We'll continue to focus
on the needs of our Co-op members where we've seen significant
growth.
We'll continue to work with the Treasury on regulation of
pre-need plans and with the CMA following the launch of their
investigation into the funerals and crematoria markets.
Our new insurance model means we can continue to provide our
members and customers with an increasing set of high quality
products, which will maintain their distinctive Co-op character and
difference. In 2019 we've returned to providing a Life cover
product, working with Royal London, which will cover serious
illness as well as death. We've also just launched a new digital
product for student renters which allows them to cover mobile
phones, laptops and bikes. Our new Co-op Car Care product, covering
servicing and MOTs, is now available across the UK.
Using our new Dimec digital platform we'll begin to roll-out our
online repeat prescription business using part of our Lea Green
depot as a distribution hub.
Stronger Communities
Connecting our communities
This year we want to move to the next phase of our support for
local communities by using the data we're building through our
Community Wellbeing Index. We'll be talking to more of our members
to understand how we can best prioritise the three main issues that
are emerging: physical and mental wellbeing, community spaces, and
education and skills. We're also looking at digital ways to connect
communities facing similar issues so that they can share
experience, learning and solutions.
Campaigning
We'll continue to campaign on modern slavery and loneliness and
look for more businesses to join our Bright Future programme. Our
new Safer Colleagues, Safer Communities campaign will become our
main focus in 2019. We'll build partnerships with colleagues,
communities, Usdaw, the police and politicians to develop our
thinking, share knowledge and strengthen our resources to tackle
crime. Our aim is to start creating a best practice model that
helps tackle some of the root causes of violence and crime that can
then be taken up by others.
Co-op Academies Trust
In 2019 we aim to add a further nine schools to the Co-op
Academies Trust. Connell College will be the first sixth form
college to join the Trust and we'll be offering paid work
experience to its students as well as guaranteed interviews for our
apprenticeship schemes.
The new Director of the Trust, Chris Tomlinson, currently
Regional Director (Secondary), for Harris Federation, will take up
the post in the summer following the retirement of Frank
Norris.
Telling our story
We're convinced that co-operative ways of doing business are
relevant now more than ever, and have the ability to address many
of the challenges we face in society. We want our business to be an
inspiring example of a successful co-op that puts people and
communities first.
In 2018 we made significant progress on our Stronger Co-op,
Stronger Communities ambition. In 2019 we want to show to our
members, customers and the UK public that co-operative thinking can
make a significant different to their communities and the
challenges we face as a nation.
So we're going to tell our story with greater clarity,
conviction and emotion so more and more people understand how the
Co-op brings people together and keeps them together.
Our financial performance
Our sales increased in 2018 by GBP1.2 billion (14%) to GBP10.2
billion. GBP1 billion of this increase came from the acquisition in
May of Nisa's wholesaling operations and Food added GBP0.2 billion
of sales from excellent like for like sales growth.
Profit before tax was GBP93 million, up from GBP73 million in
2017. It's easier to understand our profit performance by breaking
profit before tax into two parts. The first and most important part
is our underlying profit before tax which was GBP43m, in line with
2017. This measure represents the core trading performance of our
businesses of GBP107 million less underlying interest of GBP64
million. Underlying profit is after we have charged GBP60 million
(2017 GBP61 million) returned to our members through the 5% member
reward. Our underlying profit performance is discussed in more
detail within the 'How our businesses have performed' section
below.
The second part of our profit before tax is made of
non-recurring items that don't come from trade with customers, like
profits or losses on the sale of properties we no longer need for
trading, or valuation changes on our debt or investment properties.
These are discussed in more detail below.
We announced on 18 January this year that we'll be selling our
insurance underwriting business, CIS General Insurance Limited
('CISGIL'), to Markerstudy and putting in place a long-term
arrangement to distribute insurance products under the Co-op brand.
The sales and profits of CISGIL are therefore not included within
our profit before tax number and instead they are moved to the
bottom of the income statement into the 'loss on discontinued
operations' line. The loss of GBP230 million also includes the
write-down of the net assets of the insurance business together
with some costs relating to the sale. More details of the loss on
discontinued operations are shown below.
How our businesses have performed
While overall underlying profit before tax was flat year on
year, our Food business had an excellent year with like for like
sales growth of 4.4% driving an increase of GBP22 million (12%) in
underlying segment operating profits. This is particularly pleasing
as food retail remains one of the most competitive environments in
the UK economy.
Our wholesale business started this year with our acquisition of
Nisa wholesaling and the additional deal we've made to supply
Costcutter Supermarkets Group. The underlying loss of GBP11 million
was in line with our expectations and includes initial set-up and
acquisition costs as we deliver better products and pricing into
the business.
Our funeral and life planning business had a difficult year in a
market that is experiencing unprecedented rapid change. We saw a
sharp drop in underlying segment operating profit, down GBP17
million to GBP25 million reflecting a reduction in the number of
funerals we carried out (down 3,000, or 3%, on 2017 adjusted to a
52 week basis as 2017 was a 53 week accounting year). Sales of
funeral plans were also down (12,000 fewer than in 2017 on a 52
week basis).
In contrast, other parts of the business saw significant growth,
in particular probate and will writing. Also 2018 saw the
successful integration of Simplify Probate which we acquired in the
spring.
The way we report our funeral and life planning business results
has changed from last year following the adoption of a new
accounting standard, 'IFRS 15 Revenue from Contracts with
Customers'. We no longer record any profit when we sell a funeral
plan. Instead we only record the profit when the funeral takes
place. This has reduced funeral and life planning sales and profits
by around GBP20 million each year as currently the number of plans
sold is higher than the number of plans redeemed. We have adjusted
the 2017 results so that they are prepared on the same basis as
2018. More information on this change is provided in the
restatements note in the general accounting policies section.
During 2018 we launched our 'Fuel for Growth' initiative looking
at ways to drive efficiencies through changing the way our
organisation is set up and how and where we spend our money. We aim
to achieve annual savings of over GBP100 million over the
programme. In 2018 this delivered around GBP30m of savings allowing
us to invest in the business as well as reducing our costs across
all business areas. Costs of supporting functions reduced by GBP7m
in the year mainly reflecting Fuel for Growth savings.
One-off items, non-trading items and joint ventures
The table shows how we get from reported profit before tax to
underlying profit before tax, adding back losses and subtracting
gains.
2018 2017
GBPm GBPm
Profit before tax 93 73
One-off items (9) -
Property and business disposals 54 4
Change in value of investment properties (38) (15)
Finance income and non-cash finance costs (57) (11)
Share of (profits) from associates and
joint ventures - (8)
------ ------
Underlying profit before tax 43 43
------ ------
One-off items of GBP9 million mainly relate to two pension items
that net off to a gain of GBP11 million overall. A GBP24 million
gain arising from changes in expected pension benefits is partially
offset by a GBP13m charge for the cost of aligning guaranteed
minimum pensions following a recent High Court judgement affecting
a large number of pension schemes.
The GBP38 million gain in the value of our investment properties
included GBP25m on three sites, two where planning permission was
received and one that was sold for a development opportunity. The
remaining increases arose from the year end valuation exercise.
Property and business disposals are shown below:
2018 2017
GBPm GBPm
Write down of assets on loss-making stores (12) (7)
Property and business disposals and closures (42) (9)
NOMA joint venture sale - 12
(54) (4)
------- ------
Property and business disposals and closures include costs of
GBP8 million relating to the closure in 2019 of Co-op Electrical
and a provision increase of GBP26 million for rent and other
holding costs arising from leases we are committed to on buildings
that we no longer use.
Last year's results also included a GBP12 million profit from
our investment in NOMA, a property joint venture to redevelop a
number of ex Co-op buildings and sites in central Manchester in
which we had a 50% share. We sold our stake in NOMA at the end of
2017.
Finance income and non-cash finance costs
The table below shows what we include in finance income and
non-cash finance costs, excluding the underlying finance interest
of GBP64m in both 2018 and 2017.
2018 2017
GBPm GBPm
Pensions interest 41 42
Fair value movement on quoted
debt 37 (11)
Fair value movement on interest
rate swaps (11) (12)
Other non-underlying interest (10) (8)
Finance income and non-cash finance
costs 57 11
------ ------
The main difference in our financing costs from 2017 is the fair
value movement on our quoted debt. The fair value movement depends
on the market value of some of our debt and so can be income or a
cost depending on what is happening in the financial markets. In
2018 this was income of GBP37 million whereas in 2017 it was a cost
of GBP11 million.
During the first half of 2018, we adopted a new accounting
standard, IFRS 9 Financial Instruments. The main impact of this
relates to how we value our quoted Eurobond debt. Previously this
was revalued every month according to its value in the financial
markets. With the adoption of IFRS 9 we now record some of this
debt (the portion that is not matched by interest rate swaps) at
'amortised cost'. Amortised cost means we don't revalue the debt
every month. We aren't required to restate last year's accounts for
the IFRS 9 change and so they aren't directly comparable. You can
find out more about this change on page 67.
Other non-underlying interest mainly relates to discount unwind
in the year. Discount unwind is explained in the jargon buster at
the back of this report.
Loss on discontinued operations
We announced the sale of our insurance underwriting business,
CIS General Insurance Limited ('CISGIL'), to Markerstudy in January
this year. In November 2018 our Board gave us the go ahead to
explore the sale in detail with Markerstudy and at that point
CISGIL became classified as a 'discontinued operation' in the
accounts. This means that we no longer treat CISGIL as an ongoing
business operation of Co-op and its results are not included within
profit before tax but instead shown at the bottom of our income
statement within the 'loss on discontinued operations' line.
At the point CISGIL became classified as discontinued, we are
required to write down the value of its net assets to the amount we
expect to receive when we sell it. We agreed a price of GBP185
million for the sale of CISGIL (GBP150m payable on sale and GBP35m
deferred). As part of the sale we put in place a long term
distribution arrangement for home and motor products marketed under
the Co-op brand. Once the arrangement completes Markerstudy will
underwrite Co-op insurance products, as well as looking after the
sales and service and claims handling. These products will be
marketed and distributed by Co-op.
In accounting for the sale we treat the GBP185 million proceeds
as being GBP84 million for the distribution arrangement and GBP101
million for the net assets of CISGIL. The GBP84 million of value
from the distribution arrangement can only be recognised once the
sale completes and therefore the impairment of GBP207 million shown
in the table below does not reflect GBP84m of value in the deal for
Co-op.
The GBP29m trading loss in the year was largely caused by the
impact of the significant weather event the 'Beast from the East'
in early 2018 that increased the cost of home and motor claims.
The analysis of the amounts included within loss on discontinued
operations is shown below.
2018 2017
GBPm GBPm
Impairment of CISGIL net assets:
Agreed sale proceeds (including GBP35m deferred
consideration) 185
CISGIL net assets at date it became discontinued (263)
------
(78)
Less:
discounting of deferred consideration and
other adjustments (2)
legal and professional transaction costs (13)
IT and migration costs (30)
deferred income attributable to distribution
arrangement (84)
------
Impairment (207)
Trading losses of CISGIL in the year (29) (21)
Tax 6 4
Total loss on discontinued operations (230) (17)
------ ------
The proposed sale will generate GBP125m cash for Co-op as shown
below:
GBPm
Sale proceeds (including GBP35m deferred consideration) 185
Less:
legal and professional transaction costs (13)
IT and migration costs recognised in 2018 (30)
Future migration, exit and support costs (17)
-----
Net cash 125
-----
Financing and cashflow
Net debt was GBP792 million at year end up from GBP775 million
last year (details of what is included in net debt are provided in
note 9).
The GBP775 million of net debt in 2017 included GBP74 million of
CISGIL debt that in 2018 has been transferred into liabilities held
for sale. The like for like increase in debt is therefore GBP91
million and this reflects our investment in the business,
particularly arising from the Nisa acquisition on 8 May 2018. We
acquired GBP65 million of Nisa debt and paid GBP26 million of
consideration in 2018 with a further GBP108 million (pre
discounting) payable over 4 years as explained in note 14. As we
realise all of the buying and working capital benefits the impact
of the acquisition on debt will be minimal.
We invested GBP414 million of capital expenditure in 2018
principally on Food refits (GBP93 million) and new stores and
extensions (GBP92 million). We also invested GBP43 million in our
funerals business and GBP67 million in technology mainly upgrading
IT systems to improve supply chain and service to stores in the
Food business. This capital spend was partly funded by GBP81m of
cash from disposals, mainly property sales.
Underlying interest payable was flat year on year at GBP64
million.
The Trading Group is comfortably within the ratios of debt and
interest agreed with our banks and our funding position is strong.
A GBP450m tranche of our Eurobond expires in July 2020, our
intention was to partially re-finance this bond but the on-going
uncertainties around Brexit has meant we have not been able to
access the capital markets to issue a bond at a pricing level we
would be comfortable with. As an alternative approach we have
reached an agreement with our banks to provide a GBP180m liquidity
facility to provide us with additional headroom. We will continue
to monitor the markets and will look to issue a bond depending on
market conditions.
Tax
We won't be paying corporation tax in respect of the year
because we've brought forward capital allowances and tax losses in
excess of the taxable profit. These allowances and losses are
explained in more detail in notes 5 and in the 2018 Annual Report.
In 2018 we paid GBP196 million (2017:GBP201 million) to the
government in respect of VAT, business rates, Stamp Duty Land Taxes
and Employers' National Insurance.
We retained the Fair Tax Mark accreditation in 2018 showing that
we put our purpose, Co-operative Values and Principles into action
in the way we do business. Our tax policy can be found here:
www.co-operative.coop/ethics/tax-policy/.
Pensions
The surplus on our pension schemes on an accounting basis
increased by GBP300 million from GBP1.5 billion to GBP1.8 billion.
The main reason for the increase is that the interest rate used to
discount and value the pension scheme liabilities has increased
from 2.6% to 3% which reduces the valuation of the liabilities. The
interest rate we use is advised by our actuaries and is linked to
the same market data every year so is consistently applied.
It's important to remember that the way we value our pension
scheme for our accounts is determined by accounting rules and is
different to the way the pension trustees have to value the scheme
(the 'funding valuation'). The latest funding valuation of the PACE
scheme, which is by far the largest scheme, was carried out at 5
April 2016. It showed a funding level of 103% and a surplus of
GBP251 million. We don't pay any contributions into PACE because it
is in surplus but we have some smaller schemes in deficit into
which we are currently paying GBP50 million per annum.
During 2018 we completed the legal 'sectionalisation'
(effectively separation) of the pension assets and liabilities of
PACE between those relating to the Co-operative Bank and those
relating to the Group. This was a major achievement being one of,
if not the, largest pension scheme sectionalisations ever
completed.
Balance sheet
Our total equity increased by GBP54 million to GBP3.1 billion
with the main changes being the GBP300 million increase in the
pension valuation partly offset by the GBP207 million write down of
the net assets of the insurance business discussed in the
discontinued items note earlier.
The assets and liabilities of the general insurance business
were reclassified as held for sale on our balance sheet as a result
of the decision to sell the business. This means that the assets
and liabilities for 2018 are no longer split out on the balance
sheet but are included within two lines 'assets held for sale' of
GBP1.1 billion and 'liabilities held for sale' of GBP1 billion. The
2017 balance sheet comparatives for CISGIL are not restated so
that's why there is a large year on year reduction in other
investments and insurance contracts
Contract liabilities have increased by almost GBP200 million to
GBP1.48 billion. These relate to funeral plan sales and represent
the value of the future funeral we will perform for the plan
holder. The increase represents the value of new plans sold in the
year less plans redeemed. The increase in liabilities is matched by
corresponding increases in funeral plan investments, shown within
'Other investments' in the balance sheet, and increases in
instalment debtors (included within 'Trade and other receivables')
where customers pay by instalment rather than lump sum. Note 13 in
the 2018 Annual Report shows that we have a healthy surplus of
funeral plan investments above the cost of delivering those
funerals for the plan holder.
Intangible assets increased largely as a result of the
acquisition of Nisa which added goodwill of GBP75 million and other
intangibles of GBP47 million. More details of the acquisition are
shown in note 14 to the accounts.
Outlook
We have made great progress in 2018 but there's no doubt 2019
will be challenging with Brexit uncertainty, intense competition in
Food retail and a rapidly changing funerals market. However we are
well-placed to meet these challenges. Our Food business continues
to deliver strong sales and we have exciting new businesses
opportunities we believe can grow rapidly with limited capital
investment.
Consolidated income statement
for the period ended 5 January 2019
2018 2017 (restated*)
Continuing Operations Notes GBPm GBPm
-------- --------- -----------------
Revenue 1 10,162 8,943
Operating expenses (10,072) (8,839)
Other income 10 14
---------------------------------------------------------------------- -------- --------- -----------------
Operating profit 1 100 118
------------------------------------------------------------------- -------- --------- -----------------
Finance income 3 78 44
Finance costs 4 (85) (97)
Share of profits of associates and joint ventures - 8
--------------------------------------------------------------------- -------- --------- -----------------
Profit before tax from continuing operations 1 93 73
--------------------------------------------------------------------- -------- --------- -----------------
Taxation 5 (19) (2)
Profit from continuing operations 74 71
-------------------------------------------------------------------- -------- --------- -----------------
Discontinued Operation
------------------------------------------------------------------- -------- --------- -----------------
Loss on discontinued operation, net of tax 6 (230) (17)
(Loss) / profit for the period (all attributable to members of the Society) (156) 54
-------------------------------------------------------------------------------- --------- -----------------
Non-GAAP measure: underlying profit before tax**
2018 2017 (restated*)
Continuing Operations Notes GBPm GBPm
------------------------------------------------------------------------ ------- ----- -----------------
Operating profit (as above) 100 118
Add back losses / (deduct gains):
One-off items 1 (9) -
Property, business disposals and closures 1 54 4
Change in value of investment properties 1 (38) (15)
Less underlying interest payable 4 (64) (64)
Underlying profit before tax 43 43
========================================================================= ======= ===== =================
Add back: member rewards 60 61
------------------------------------------------------------------------ ------- -----------------
Underlying profit before tax and member rewards 103 104
-------------------------------------------------------------------------- ------- ===== =================
*For more details on the restatement, refer to the general accounting policies section on
page 67.
**Refer to note 1 for a definition of underlying profit before tax.
Consolidated statement of comprehensive income
for the period ended 5 January 2019
2018 2017 (restated*)
Notes GBPm GBPm
----------------------------------------------------------------------- ------ ------ -----------------
(Loss) / profit for the period (156) 54
Other comprehensive income:
Items that will never be reclassified to the income statement:
Remeasurement gains on employee pension schemes 178 112
Refinement of the derecognition of pension surplus attributable to The
Co-operative Bank 31 (374)
Related tax on items 5 (36) 44
173 (218)
----------------------------------------------------------------------- ------ ------ -----------------
Items that are or may be reclassified to the income statement:
Gains less losses on fair value of insurance assets** (8) (4)
Fair value gains on insurance assets transferred to the income
statement** (1) (3)
Related tax on items 5 1 1
(8) (6)
----------------------------------------------------------------------- ------ ------ -----------------
Other comprehensive income / (losses) for the period net of tax 165 (224)
====== =================
Total comprehensive income / (losses) for the period (all attributable to members
of the Society) 9 (170)
=================================================================================== ====== =================
*For more details on the restatement, refer to the general accounting policies
section on
page 67.
**Our Insurance business has been classified as a discontinued operation in the Consolidated
income statement with assets and liabilities transferred to held for sale in the Consolidated
balance sheet.
Consolidated balance sheet
as at 5 January 2019
2018 2017 (restated*)
Notes GBPm GBPm
-------------------- ------- ----------------- ------------------ ------------------------------
Non-current assets
Property, plant and
equipment 2,046 2,014
Goodwill and
intangible assets 1,071 897
Investment
properties 42 68
Investments in
associates and joint
ventures 3 3
Other investments 1,223 1,538
Reinsurance
contracts - 44
Derivatives 11 27 38
Pension assets 10 1,984 1,746
Trade and other
receivables 81 32
Contract assets
(funeral plans) 47 41
Deferred tax assets 234 245
Reclaim Fund assets 209 234
Total non-current assets 6,967 6,900
------------------------------- ----------------- ------------------ ------------------------------
Current assets
Inventories 458 389
Trade and other
receivables 537 634
Contract assets
(funeral plans) 4 3
Cash and cash
equivalents 282 403
Assets held for sale 8 1,113 6
Other investments - 415
Reinsurance
contracts - 14
Reclaim Fund assets 410 439
Total current assets 2,804 2,303
------------------------------- ----------------- ------------------ ------------------------------
Total assets 9,771 9,203
------------------------------- ----------------- ------------------ ------------------------------
Non-current liabilities
Interest-bearing
loans and borrowings 9 1,004 1,138
Trade and other
payables 214 75
Contract liabilities
(funeral plans) 1,353 1,168
Provisions 215 220
Pension liabilities 10 125 193
Deferred tax
liabilities 459 400
Insurance contracts - 289
Reclaim Fund
liabilities 473 446
Total non-current liabilities 3,843 3,929
------------------------------- ----------------- ------------------ ------------------------------
Current liabilities
Overdrafts - 6
Interest-bearing
loans and borrowings 9 70 34
Income tax payable 8 -
Trade and other
payables 1,449 1,400
Contract liabilities
(funeral plans) 132 115
Provisions 82 90
Liabilities held for
sale 8 1,045 -
Insurance contracts - 461
Reclaim Fund
liabilities 73 153
Total current liabilities 2,859 2,259
------------------------------- ----------------- ------------------ ------------------------------
Total liabilities 6,702 6,188
------------------------------- ----------------- ------------------ ------------------------------
Equity
Members' share
capital 73 73
Retained earnings 2,910 2,841
Other reserves 86 101
Total equity 3,069 3,015
------------------------------- ----------------- ------------------ ------------------------------
Total equity and liabilities 9,771 9,203
=============================== ================= ================== ==============================
*For more details on the restatement, refer to the general accounting
policies section on
page 67.
Consolidated statement of changes in equity
for the period ended 5
January 2019
Members' share
capital Retained earnings Other reserves Total equity
Notes GBPm GBPm GBPm GBPm
--------------------- ------ ----------------- ------------------ --------------- -------------
Balance at 6 January
2018 (as originally
reported) 73 2,914 101 3,088
Impact of fully
retrospective
adoption of IFRS 15* - (73) - (73)
----------------------- ------ ----------------- ------------------ --------------- -------------
Balance at 6 January
2018 (restated for
IFRS 15) 73 2,841 101 3,015
----------------------- ------ ----------------- ------------------ --------------- -------------
Impact of adoption of
IFRS 9 on liabilities
as at 6 January 2018* - 55 - 55
Tax on impact of IFRS
9 on liabilities as
at 6 January 2018* - (10) - (10)
----------------------- ------ ----------------- ------------------ --------------- -------------
Balance at 6 January
2018 (restated and
after effects of IFRS
9) 73 2,886 101 3,060
----------------------- ------ ----------------- ------------------ --------------- -------------
Loss for the period - (156) - (156)
----------------------- ------ ----------------- ------------------ --------------- -------------
Other comprehensive
income:
Remeasurement gains on
employee pension
schemes - 178 - 178
Refinement of
derecognition of
pension surplus
attributable to The
Co-operative Bank - 31 - 31
Gains less losses on
fair value of
insurance assets - - (8) (8)
Fair value gains 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 5 January
2019 73 2,910 86 3,069
======================= ====== ================= ================== =============== =============
Members' Retained Other Total
For the 53 weeks ended 6 January 2018 share earnings reserves equity
(audited & restated*) capital
Notes GBPm GBPm GBPm GBPm
============================================= ======= ========= ========== ========== ========
Balance at 31 December 2016 (as
originally reported) 72 3,062 107 3,241
Impact of fully retrospective
adoption of IFRS 15 - (57) - (57)
----------------------------------------------- ------- --------- ---------- ---------- --------
Balance at 31 December 2016 (restated
for IFRS 15) 72 3,005 107 3,184
----------------------------------------------- ------- --------- ---------- ---------- --------
Profit for the period
(as originally reported) - 70 - 70
Impact of fully retrospective
adoption of IFRS 15 - (16) - (16)
----------------------------------------------- ------- --------- ---------- ---------- --------
Profit for the period (restated
for IFRS 15) - 54 - 54
----------------------------------------------- ======= ========= ========== ==========
Other comprehensive income:
Remeasurement gains on employee
pension schemes - 112 - 112
Derecognition of pension surplus attributable
to The Co-operative Bank (374) (374)
Gains less losses on fair value
of insurance assets - - (4) (4)
Fair value gains on insurance assets
transferred to the income statement - - (3) (3)
Tax on items taken directly to
other comprehensive income 5 - 44 1 45
================================================ ====== ========= ========== ==========
Total other comprehensive income - (218) (6) (224)
================================================ ====== ========= ========== ========== ========
Contributions by and distributions
to members:
Shares issued less shares withdrawn 1 - - 1
------------------------------------------------ ========== ==========
Contributions by and distributions
to members: 1 - - 1
------------------------------------------------
Balance at 6 January 2018 (restated
for IFRS 15) 73 2,841 101 3,015
================================================ ====== ========= ========== ========== ========
*For more details on the restatement, refer to the
general accounting policies section on page 67.
Consolidated statement of cash flows
for the period ended 5 January 2019
2018 2017
Notes GBPm GBPm
========================================================================= ======= ======= ======
Net cash from operating activities 7 313 363
Cash flows from investing activities
Purchase of property, plant and equipment (335) (427)
Proceeds from sale of property, plant and equipment 81 186
Purchase of intangible assets (50) (4)
Acquisition of businesses, net of cash acquired 14 (29) (10)
Proceeds from sale of investments - 55
Dividends received from investments - 33
Net cash used in investing activities (333) (167)
-------------------------------------------------------------------------- ------- ------- ------
Cash flows from financing activities
Interest paid on borrowings (63) (75)
Interest received on deposits 1 -
Repayment of corporate investor shares 9 (2) (8)
Repayment of borrowings, net of derivatives 9 (34) (1)
Finance leases 9 (5) 8
Net cash used in financing activities (103) (76)
-------------------------------------------------------------------------- ------- ------- ------
Net (decrease) / increase in cash and cash equivalents (123) 120
Net cash and overdraft balances transferred to held for sale 6 8 -
Cash and cash equivalents at beginning of period 397 277
Cash and cash equivalents at end of period 282 397
--------------------------------------------------------------------------- ------- ------- ------
Analysis of cash and cash equivalents
Overdrafts (per balance sheet) 9 - (6)
Cash and cash equivalents (per balance sheet) 9 282 403
282 397
========================================================================= ======= ======= ======
Included in the above are cash flows from discontinued operations. An analysis of these can
be found in note 6.
Group Net Debt 2018 2017
Notes GBPm GBPm
=================================================================== === ====== ======== ========
Interest-bearing loans and borrowings:
- current (70) (34)
- non-current (1,004) (1,138)
==================================================================== === ====== ======== ========
Total Debt (1,074) (1,172)
- Group cash 282 403
- Overdraft - (6)
==================================================================== =========== ======== ========
Group Net Debt 9 (792) (775)
Add back fair value / amortised cost adjustment 9 46 138
Group Net Debt (pre fair value adjustment) 9 (746) (637)
===================================================================== ========== ======== ========
See note 9 for a full reconciliation of the movement in net debt.
Notes to the financial statements
1 Operating segments
2018
--------------------------------------------------------------------------------------------------------------
Revenue from Underlying Operating Additions to Depreciation
external customers segment profit / (loss) non-current and
(g) operating assets (f, g) amortisation
profit / (f)
(loss) (a)
GBPm GBPm GBPm GBPm GBPm
================= ===================== =============== ================ =============== ================
Food 7,274 204 186 326 (214)
Wholesale (e) 983 (11) (11) 2 (6)
Funeral and Life
Planning 317 25 19 41 (23)
Other businesses (c) 56 (4) (12) - -
Federal (h) 1,532 - - - -
Costs from supporting
functions - (107) (82) 38 (28)
Total 10,162 107 100 407 (271)
======================= =============== =============== ================ =============== ================
2017 (restated - see (d) below)
------------------------------------------------------------------------------------------------------------
Revenue from Underlying Operating profit Additions to Depreciation
external segment / (loss) non-current and
customers (g) operating assets (f, g) amortisation
profit / (loss) (f)
(a)
GBPm GBPm GBPm GBPm GBPm
Food 7,103 182 168 357 (215)
Wholesale (e) - - - - -
Funeral and Life
Planning 320 42 42 51 (22)
Other businesses
(c) 59 (3) (5) 1 -
Federal (h) 1,461 - - - -
Costs from
supporting
functions - (114) (87) 33 (27)
Total 8,943 107 118 442 (264)
a) 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, our share of the profits or losses from our
associates and joint ventures, and one-off items.
b) Each segment earns its revenue and profits from the sale of goods and provision of services,
mainly from retail activities.
c) The Group identifies its operating segments based on its divisions, which are organised
according to the different products and services it offers its customers. The operating segments
(and the captions) reported above are based on the periodic results reported into the Chief
Operating Decision Maker which is the Board and whether the respective division's results
meet the minimum reporting thresholds set out in IFRS 8 (Operating Segments). The results
of our Insurance business have been classified as discontinued operations following the announcement
of the proposed sale of CISGIL and are no longer shown in the tables above. See note 6 (Loss
on discontinued operations, net of tax) for further details. The 'Other Businesses' segment
includes activities which are not reportable per IFRS 8. 'Other businesses' is mainly Co-op
Electrical. Our Financial Services entities which are mainly holding and support companies,
and Reclaim Fund Limited are included within costs from supporting functions.
d) In addition to the restatement for discontinued operations (as noted above); the 2017 comparative
figures have also been restated following the adoption of IFRS 15 (Revenue from Contracts
with Customers). Also, the results from the Property support function (including changes in
value of investment properties) are now shown in costs from supporting functions net of some
recharges to the business (previously they were included within Food and Funeral and Life
Planning). The comparatives for Food, supporting functions and Funeral and Life Planning have
been adjusted to effect this. All segments are consistent with the information that is presented
to the Board. See general accounting policies section on page 67 for further details of the
restatements.
e) The tables include a new segment for Wholesale. This includes the results for Nisa (following
the acquisition on 8 May) as well as other central wholesale costs including transaction costs
of the Nisa acquisition. Transactions with independent society members through the joint buying
group are included in the Federal segment.
f) Additions to non-current assets are shown on a cash flow basis.
g) The Group's external revenue and non-current assets arise primarily within the United Kingdom.
The Group does not have a major customer who accounts for 10% or more of revenue. There are
no material transactions between the main operating segments.
h) Federal relates to the activities of a joint buying group that is operated by the Group
for itself and other independent co-operative societies. The Group acts as a wholesaler to
the other independent co-operatives and generates sales from this. This is run on a cost recovery
basis and therefore no profit is derived from its activities.
i) Transactions between operating segments excluded in the analysis are GBP3m (2017: GBP6m)
sales of electrical goods by Co-op Electrical to Food and GBP1m (2017: GBP1m) sales of legal
cover on insurance policies by Funeral and Life Planning to Insurance.
j) As noted in the Accounting Policies section (page 67) the adoption of IFRS 15 (Revenue
from Contracts with Customers) has had a significant impact upon the way in which revenue
is recorded in Funeral and Life Planning.
k) A reconciliation between underlying segment operating profit and operating profit is as
follows:
2018 Costs from
Funeral and Other supporting
Food Wholesale Life Planning businesses functions Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying segment operating
profit 204 (11) 25 (4) (107) 107
One-off items - - - - 9 9
Property, business disposals
and closures (18) - (6) (8) (22) (54)
Change in value of investment
properties - - - - 38 38
Operating profit / (loss) 186 (11) 19 (12) (82) 100
One-off items of GBP9m (credit) include GBP11m of pension items (net credit) less GBP2m of
other non-trading costs. Pension items include a GBP24m one-off gain arising from a change
to expected benefits offset by a GBP13m charge for the cost of aligning guaranteed minimum
pensions following a recent High Court judgement affecting a large number of pension schemes.
2017 (restated*) Funeral and Life Costs from
Food Wholesale Planning Other businesses supporting functions Total
GBPm GBPm GBPm GBPm GBPm GBPm
Underlying segment
operating profit 182 - 42 (3) (114) 107
One-off items - - - - - -
Property, business
disposals and
closures (14) - - (2) 12 (4)
Change in value of
investment properties - - - - 15 15
Operating profit /
(loss) 168 - 42 (5) (87) 118
*See general accounting policies section on page 67 for details of the restatement.
l) A reconciliation between underlying segment operating profit and
profit before tax is provided
below:
2018 2017 (restated*)
Notes GBPm GBPm
Underlying segment operating profit 107 107
Underlying interest payable 4 (64) (64)
Underlying profit before tax 43 43
One-off items 1 9 -
Loss on property, business disposals and closures (see table
below) 1 (54) (4)
Change in value of investment properties 1 38 15
Finance income 3 78 44
Non-cash finance costs 4 (21) (33)
Share of profits of associates and joint ventures - 8
- -
---------------------------------------------------------- ------ ------------------ ------------------
Profit before tax 93 73
*See general accounting policies section on page 67 for
details of the restatement.
Loss from property, business disposals and closures 2018 2017
GBPm GBPm GBPm GBPm
Sale of NOMA (50% stake in joint venture)
- proceeds - 35
- less net book value written off - (23)
-
---------------------------------------------------------- ----- ----- ------ -----
- 12
Food store sales to McColls Retail Group
- proceeds - 121
- less net book value written off - (114)
- 7
---------------------------------------------------------- ----- ===== ------ -----
Disposals, closures and onerous leases
- proceeds 77 85
- less net book value written off (77) (82)
- provisions recognised (42) (19)
(42) (16)
Impairment of property, plant and equipment and goodwill (12) (7)
------------------------------------------------------------- ----- ----- ------ -----
Loss on disposal (54) (4)
2 Supplier income
Supplier Income 2018 2017
GBPm GBPm
Food - Long-term agreements 142 149
Food - Bonus income 142 142
Food - Promotional income 325 337
Sub-total Food supplier income 609 628
------------------------------------------------------------------------------- ------- ---------------
Sub-total Wholesale supplier income 45 -
---------------------------------------------------------------------------- ------- ---------------
Total supplier income** 654 628
------------------------------------------------------------------------------- ------- ---------------
Percentage of Food's Cost of Sales before deducting Supplier Income % % (restated*)
---------------------------------------------------------------------------- ------- ---------------
Long-term agreements 2.5% 2.7%
Bonus income 2.5% 2.5%
Promotional income 5.7% 6.0%
Sub-total Food supplier income percentage 10.7% 11.2%
------------------------------------------------------------------------------- ------- ---------------
Sub-total Wholesale supplier income percentage of Cost of Sales 4.9% -
------------------------------------------------------------------------------- ------- ---------------
*The comparative percentage figures have been restated as a result of the change in accounting
treatment of rebates on Federal sales following the adoption of IFRS 15. See general accounting
policies section on page 67. All figures exclude any income or purchases made as part of the
Federal joint buying group.
**The Wholesale numbers are only for part of the 2018 year (post acquisition of Nisa) so no
combined Food and Wholesale percentages have been provided.
Supplier income recognised in Wholesale in the period following the acquisition of Nisa on
8 May 2018 is GBP45m. This represents 4.9% of cost of sales before deducting supplier income.
The Wholesale segment in 2018 wholly relates to Nisa, so no comparative has been provided
for 2017.
3 Finance income
2018 2017
GBPm GBPm
Net pension finance income 41 42
Fair value movement on quoted Group
debt (see note 9) 37 -
Discount unwind from trade receivables - 2
Net interest on funeral plan investments
and liabilities (see below) - -
Total finance income 78 44
Interest and bonus payments of GBP92m (2017: GBP103m) received
in the year on funeral plan investments are treated as deferred
income and reflected in the consolidated balance sheet as an increase
in contract liabilities until the funeral is performed at which
point the revenue is recognised. The net impact on the consolidated
income statement is GBPnil (2017: GBPnil). See note 11 for further
details of the accounting policy for funeral plans.
4 Finance costs
2018 2017 (restated*)
GBPm GBPm
--------------------------------------------- -----------
Loans repayable within five years (28) (27)
Loans repayable wholly or in part after five
years (36) (37)
Underlying interest payable (64) (64)
Fair value movement on quoted Group debt (see
note 9) - (11)
Fair value movement on interest rate swaps
(see note 11) (11) (12)
Non-underlying finance interest (10) (10)
Other finance costs (21) (33)
--------------------------------------------- -----------
Total finance costs (85) (97)
--------------------------------------------- -----------
*The comparative figures have been restated to reflect the transfer of our Insurance business
to discontinued operations. Refer to the general accounting policies section on page 67 for
further details.
Non-underlying finance interest includes the impact of discount unwind on payables and provisions
and the impact of IFRS 9 adjustments in relation to interest and fees on bonds carried at
amortised cost.
Fair value movements on forward currency transactions were immaterial in the current and prior
period.
Total interest expense on financial liabilities that are not at fair value through the income
statement was GBP38m (2017: GBP7m).
5 Taxation
2018 2017
(restated*)
Footnote GBPm GBPm
Current tax charge - current year (i) (5) (3)
Current tax credit - adjustment to group relief payable owed to The Co-operative
Bank (ii) 4 3
Current tax credit / (charge) - adjustment in respect of prior years (iii) 2 (1)
Net current tax credit / (charge) 1 (1)
Deferred tax charge - current year (iv) (26) (5)
Deferred tax credit - adjustments in respect of prior years (v) 6 4
Net deferred tax charge (20) (1)
Total tax charge - in respect of continuing operations (19) (2)
*See general accounting policies section on page 67 for details
of the restatement.
The tax on the Group's net loss before tax differs from the theoretical amount that would
arise using the standard applicable rate of corporation tax of 19% (2017: 19.25%) as follows:
2018 2017
(restated*)
Footnote GBPm GBPm
Profit before tax from continuing operations 93 73
Loss before tax from discontinued operation (236) (21)
Total (loss) / profit before tax (143) 52
Tax credit / (charge) at 19% (2017: 19.25%) 27 (10)
Deferred tax reconciliation: (iv)
Expenses not deductible for tax (including one-off costs) (vi) (4) (4)
Depreciation and amortisation on non-qualifying assets (vii) (3) (4)
Non-taxable (losses) / profits arising on business disposals (viii) (39) 2
Associated company profits (ix) - 1
Capital (gains) / losses arising on property disposals (x) (4) 10
Adjustment in respect of previous periods (v) 6 4
Restatement of deferred tax to blended rate (2017:17.1%) (xi) (2) 1
Subtotal of deferred tax reconciling items (46) 10
Current tax reconciliation:
Adjustment in respect of previous periods (iii) 2 (1)
Adjustment to group relief payable (ii) 4 3
Subtotal of current tax reconciling items 6 2
Tax (charge) / credit at the effective rate of -9% (2017: -4%) (13) 2
Tax charge reported in the income statement (19) (2)
Tax credit attributable to a discontinued operation 6 4
Total tax (charge) / credit (13) 2
*See general accounting policies section on page 67 for details of the restatement.
The net tax charge of GBP13m on a loss before tax of GBP143m gives an effective tax rate of
-9% compared to the standard rate of 19%. The effective tax rate is negative as normally a
loss before tax would lead to a tax credit rather than a tax charge. The main reason for this
difference between the effective rate and the standard rate is the remeasurement adjustments
recognised in arriving at the fair value of our insurance underwriting business following
the decision to sell the business. The remeasurement adjustments are not a deductible expense
for tax purposes. Further information is provided about the remeasurement in note 6 (Loss
on discontinued operations, net of tax).
Tax expense on items taken directly to consolidated statement of comprehensive income or consolidated
statement of changes in equity
2018 2017
GBPm GBPm
Actuarial gains and losses on employee pension scheme (36) 44
Insurance assets held at fair value through other comprehensive income 1 1
(35) 45
Of the tax taken directly to the consolidated statement of comprehensive income, GBP36m charge
(2017: GBP44m credit) arises on the actuarial movement on employee pension schemes. There
is also a GBP1m credit representing the movement in deferred taxation on insurance assets
held at fair value through other comprehensive income (2017: GBP1m credit). A further GBP10m
charge (2017: GBPnil) has been recognised in the consolidated statement of changes in equity
arising from the impact of the adoption of IFRS 9 on liabilities.
The Finance Act 2016 will reduce the main rate of corporation tax to 17% from 1 April 2020.
This will reduce our future current tax charge accordingly. Each deferred tax balance has
been measured individually based on the tax rate at which it is expected to unwind (either
17% or 19%). This results in a blended deferred tax rate of 17.1% at the balance sheet date.
Tax policy
We publish our tax policy on our website (https://www.co-operative.coop/ethics/tax-policy)
and we have complied with the commitments set out in that policy.
Footnotes to taxation note 5:
i) The Group is not tax-paying in the UK in respect of 2018 due to the fact it has a number
of brought forward capital allowances (GBP170m gross claimed in 2018) and tax losses (GBP5m
gross utilised in 2018) that are in excess of its taxable profit for the period. An amount
of current tax of GBP218k (2017: GBP265k) is in respect of a wholly-owned Isle of Man resident
subsidiary, Manx Co-operative Society, a convenience retailing business in the Isle of Man.
This is the Group's only non-UK resident entity for tax purposes, which employs 265 out of
our total Group headcount figure. All other colleagues are employed in the UK. The unaudited
2018 revenue of Manx Co-operative Society is GBP35m and all other revenue reflected in the
consolidated income statement is generated by UK trading activities. The unaudited 2018 profit
before tax of Manx Co-operative Society is GBP2m and all other income in the consolidated
income statement is generated by UK trading activities. The unaudited net assets of Manx Co-operative
Society at 5 January 2019 were GBP23m, compared to net assets of the consolidated Group of
GBP3,069m. The Manx assets represent the only overseas assets within the Group. A full copy
of the most recent accounts is available here https://www.co-operative.coop/investors/rules.
The presence of this IOM resident subsidiary has resulted in this additional tax charge of
GBP218k. If these activities had been carried out in the UK, any taxable profits would have
been reduced to nil due to the availability of capital allowances and tax losses. In addition
the Group has one company registered in the Cayman Islands, Violet S Propco Limited. This
dormant company is UK resident for tax purposes as it is managed and controlled entirely within
the UK. All tax obligations in respect of this company are therefore reported in the UK.
ii) The Group holds a creditor balance in relation to group relief claimed from The Co-operative
Bank ('the Bank'). Group relief is the surrender of tax losses made by one group company to
another which made taxable profits. In 2012 and 2013, the Bank had tax losses that it was
able to surrender to a number of Group companies which had taxable profits during those two
years. This group relief payable is linked to and held at prevailing tax rates. The timing
of the total group relief payable has further extended into periods when the tax rate will
be 17% and a credit is required to be booked in the income statement in respect of this item.
iii) A payment for historic group relief has been received from The Co-operative Bank which
reduces the tax charge by GBP2m as we did not have a debtor for this amount.
iv) Deferred tax is an accounting concept that reflects how some income and expenses can affect
the tax charge in different periods to when they are reflected for accounting purposes. These
differences are a result of tax legislation. The current year charge primarily relates to
deferred tax arising on our pension assets and the tax consequences of adopting IFRS 15 (Revenue
from Contracts with Customers). More information on IFRS 15 can be found in the general accounting
policies section on page 67. As the Group is not tax-paying in respect of 2018, the reconciling
items between the tax credit at the standard rate and the actual tax charge mostly affect
deferred tax as they will result in us having more capital allowances or losses to offset
against future profits.
v) Adjustments to tax charges in earlier years arise because the tax charge in the financial
statements is an estimate that is prepared before the detailed tax calculations are required
to be submitted to HMRC, which is 12 months after the year end. Also, HMRC may not agree with
a tax return some time after the year end and a liability for a prior period may arise as
a result. Provisions for uncertain tax positions booked in previous years of GBP6m have been
released in the year as a result of increased certainty gained through correspondence with
HMRC during 2018.
vi) Some expenses incurred by the Group may be entirely appropriate charges for inclusion
in its financial statements but are not allowed as a deduction against taxable income when
calculating the Group's tax liability. Examples of this include some repairs, entertaining
costs and legal costs.
vii) The accounting treatment of depreciation differs from the tax treatment. For accounting
purposes an annual rate of depreciation is applied to capital assets. For tax purposes the
Group is entitled to claim capital allowances, a relief provided by law. Some assets do not
qualify for capital allowances and no relief is available for tax purposes on these assets.
This value represents depreciation arising on such assets (primarily Land and Buildings).
viii) In 2017 the Group disposed of its shareholdings in Gilsland Spa Ltd, White Mill Windfarm
Ltd, Biggleswade Windfarm Ltd, TCCT UK Holdings Ltd and The Co-operative Bank. No tax arose
on the accounting profit due to the availability of the Substantial Shareholding Exemption.
This is a legislative exemption from capital gains for corporate entities who sell more than
10% of their shares in a trading entity.
In 2018, remeasurement adjustments have been recognised in arriving at the fair value of
our insurance underwriting business following the decision to sell the business. We are not
permitted to deduct the remeasurement adjustments when calculating our profits for tax purposes.
Further information is provided about the remeasurement in note 6. (Loss on discontinued operations,
net of tax).
ix) This represents the share of post-tax profits from associated companies that are not included
in the Group's tax charge, as tax is already included in the accounts of the associate.
x) During the year a number of properties were sold, where the taxable profit is in excess
of the accounting profit.
xi) It is a requirement to measure deferred tax balances at the substantively enacted corporation
tax rate at which they are expected to unwind. This figure represents the change in the tax
rate at which these deferred tax balances are expected to unwind.
6 Loss on discontinued operation, net of tax
Discontinued operation - Insurance
Co-op Insurance has been classified as a discontinued operation in 2018 as the sale of the
business was highly probable at the year end 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 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 GBP150m of cash at point of disposal and GBP35m of deferred consideration
over 3 years and 6 months. Of the GBP185m of income expected from Markerstudy at the point
of disposal, GBP101m will be allocated against assets and liabilities of the disposal group
and included in arriving at the remeasurement charge of GBP207m. The remaining GBP84m 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 2018 2017
GBPm GBPm
Revenue 323 331
Operating expenses (410) (417)
Other income 67 74
Remeasurement adjustments recognised in arriving at fair value less costs to sell (207) -
Operating loss from discontinued operation (227) (12)
Finance costs (9) (9)
Loss before tax from results of discontinued operation (236) (21)
Tax - relating to the pre-tax loss on discontinued operation 6 4
Loss for the period from discontinued operation (230) (17)
Relevant accounting policies covering the results of discontinued operations can be found
in the 2017 Annual Report: Revenue (note 2), Operating expenses (note 3), Other income (note
5) and Finance costs (note 7).
Segmental analysis - Insurance
Revenue from Underlying Operating loss Additions to Depreciation
external customers segment operating non-current assets and
(loss) / profit amortisation
GBPm GBPm GBPm GBPm GBPm
52 weeks ended 5 January 2019 323 (1) (227) 60 (61)
53 weeks ended 6 January 2018 331 11 (12) 61 (61)
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 (as shown in the table below) in accordance with IFRS 5.
Before Remeasurement to Disposal group at
remeasurement to fair value at cost fair value less
fair value less to sell cost to sell
costs to sell
GBPm GBPm GBPm
Non-current assets
Intangible assets (WIP) 2 (2) -
Intangible assets (deferred acquisition costs) 29 (29) -
Other investments (Insurance assets) 449 - 449
Reinsurance assets 34 - 34
Current assets -
Trade and other receivables 207 (1) 206
Other investments (Insurance assets) 382 - 382
Reinsurance assets 20 - 20
Current tax assets 8 - 8
Total Insurance assets classified as held for sale 1,131 (32) 1,099
Non-current liabilities
Interest-bearing loans and borrowings 68 - 68
Insurance contract liabilities 362 - 362
Deferred tax liabilities 3 - 3
Current liabilities
Insurance contract liabilities 373 - 373
Other payables and provisions 54 175 229
Overdrafts 8 - 8
Total Insurance liabilities classified as held for sale 868 175 1,043
Net assets of disposal group classified as held for sale 263 (207) 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. The intangible
assets in scope under IFRS 5 have been remeasured to fair value and IFRS 9 expected losses
provisioning has been applied to trade receivables. The remaining re-measurement adjustment
of GBP175m that is required to write down the disposal group to its overall fair value less
costs to sell has been reflected as a provision in the other payables and provisions line.
The closing carrying value of the net assets of the disposal group is therefore recorded at
fair value less costs to sell of GBP56m in the above table. This GBP56m fair value is comprised
of GBP101m of expected sales proceeds from the sale of Co-op insurance less costs to sell
of GBP43m and the impact on discounting deferred consideration of GBP2m. The costs to sell
of GBP43m include legal and professional costs and necessary IT migration costs.
The table below shows a summary of the cash flows of discontinued operations:
2018 2017
GBPm GBPm
Cash flows (used in) / from discontinued operations:
Net cash (used in) / from operating activities (6) 23
Net cash used in financing activities (8) (8)
Net cash (used in) / from discontinued operations (14) 15
During the period that the Co-op owned the insurance division, GBP62m was recognised in other
comprehensive losses and accumulated retained trading losses in relation to Co-op insurance.
Cash flows from investing activities were not significant for the discontinued operation in
2018 or 2017.
Overdrafts of GBP8m relating to discontinued operations are disclosed in the table above.
7 Reconciliation of operating profit to net cash flow from operating activities
2018 2017 (restated*)
GBPm GBPm
Operating profit (note 1) 100 118
Depreciation and amortisation charges (excluding deferred acquisition costs) 271 264
Non-current asset impairments 12 9
Loss / (profit) on closure and disposal of businesses and non-current assets 40 (4)
Change in value of investment properties (38) (15)
Non-cash gain in relation to past service pension costs (11) -
Retirement benefit obligations (46) (45)
(Increase) / decrease in inventories (20) 50
Increase in receivables (194) (128)
Increase in contract assets (funeral plans) (7) (9)
Increase in contract liabilities (funeral plans) 206 154
Increase / (decrease) in payables and provisions 6 (46)
Net cash flow from operating activities before net cash operating inflow from
discontinued
activities 319 348
Operating loss from discontinued activities (230) (12)
Impairment of assets held for sale 207 -
Fair value through income statement movement 51 14
Fair value through other comprehensive income movement (12) 18
Movement in deferred acquisition costs 1 1
Reinsurance assets 5 (5)
Loan receivables at amortised cost - 9
Insurance and other receivables - (23)
Insurance and participation contract provisions (17) 24
Insurance and other payables (11) (11)
Net cash flow from operating activities relating to discontinued operations (6) 15
Net cash from operating activities 313 363
*The comparative figures have been restated to reflect the impact of IFRS 15 (Revenue from
Contracts with Customers) and the transfer of our Insurance business to discontinued operations.
Further details of the impact of these items are shown in the general accounting policies
section on page 67.
8 Assets and liabilities held for sale
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
Assets held for
sale Liabilities held for sale
(a) Discontinued operation - Insurance (see
note 6) 1,099 - 1,043 -
(b) Other assets and liabilities held for
sale (see below) 14 6 2 -
Total 1,113 6 1,045 -
(a) Discontinued operation - Insurance
Co-op Insurance has been classified as a discontinued operation in 2018 as the sale of the
business was highly probable at the year end date. The assets and liabilities have been remeasured
at fair value less costs to sell and are shown separately in the balance sheet. Further detail
is given in note 6 (Loss on discontinued operations, net of tax) including a line-by-line
balance sheet detailing the impact of the remeasurement adjustments to fair value less costs
to sell and the carrying value of all insurance assets and liabilities held for sale.
2018 2017 2018 2017
GBPm GBPm GBPm GBPm
(b) Other assets and liabilities classified as held Assets held for
for sale sale Liabilities held for sale
Investment
property 9 - 2 -
Property, plant and
equipment 5 6 - -
14 6 2 -
Investment properties with a fair value of GBP9m were transferred to assets held for sale
during the year.
GBP5m net book value of property was transferred, and plant and equipment with a cost of GBP1m
but net book value of GBPnil was also transferred during the year from tangible fixed assets.
9 Interest-bearing loans and borrowings
Non-current liabilities: 2018 2017
Ref GBPm GBPm
GBP285m 6.875% Eurobond Notes due 2020 - (fair value) (a) 296 502
GBP165m 6.875% Eurobond Notes due 2020 (amortised cost) (a) 169 -
GBP105m 7.5% Eurobond Notes due 2026 (fair value) (a) 115 436
GBP245m 7.5% Eurobond Notes due 2026 (amortised cost) (a) 264 -
GBP109m 11% Final repayment subordinated notes due 2025 109 109
GBP16m Instalment repayment notes (final payment 2025) 14 15
GBP10m 2.57% Nisa bank term loan (facility
expires 2021) 9 -
Non-current portion of finance lease liabilities 28 8
Trading Group interest-bearing loans and borrowings 1,004 1,070
GBP70m 12% Financial Services Callable Dated Deferrable Tier Two
Notes due 2025* - 68
Total Group interest-bearing loans and borrowings 1,004 1,138
*Debt relating to CISGIL has been transferred to held for sale (see note 8).
Current
liabilities: 2018 2017
Ref GBPm GBPm
GBP165m 6.875% Eurobond Notes due 2020 (amortised cost) - interest accrued (b) 5 -
GBP245m 7.5% Eurobond Notes due 2026 (amortised cost) - interest accrued (b) 8 -
GBP21m 8.875% First Mortgage Debenture Stock
2018 (a) - 21
GBP16m Instalment repayment notes (final payment 2025) 1 1
GBP110m Nisa asset backed invoice discounting
facility (c) 31 -
GBP355m Syndicate revolving credit facility
drawdown 15 -
Corporate investor
shares 6 8
Current portion of finance lease liabilities 4 2
Other unsecured loans - 2
70 34
(a) When they started, these drawn-down loan commitments were designated as financial liabilities
at fair value through the income statement. The Group has adopted IFRS 9 (Financial Instruments)
from 7 January 2018 and subsequently only GBP285m of the original par value of GBP450m 2020
notes and GBP105m of the original par value of GBP350m 2026 notes are designated as financial
liabilities at fair value through the income statement. Upon adoption of IFRS 9, the unhedged
proportion of the Eurobonds were restated to amortised cost, resulting in a reduction in the
carrying value of GBP55m and a corresponding credit to reserves (as shown in the consolidated
statement of changes in equity). See general accounting policies section on page 67 for details
of the impact of the new standard. All of the other liabilities, except the finance lease
liability, are classified as loans and receivables in accordance with IAS 39 (Financial Instruments:
Recognition and Measurement).
(b) Included within current liabilities is GBP5m of accrued interest in relation to the GBP165m
6.875% Eurobond Notes due 2020 held at amortised cost (within non-current liabilities) and
GBP8m of accrued interest in relation to the GBP245m 7.5% Eurobond Notes due 2026 held at
amortised cost (within non-current liabilities).
(c) Balance relates to a funds in use invoice discounting facility taken on following the
acquisition of Nisa. This arrangement has been treated as a current borrowing with a balance
of GBP31m as at 5 January 2019. The balance on acquisition of Nisa on 8 May 2018 was GBP57m
(see note 14).
See the Financial risk management note in the 2018 annual report for more information about
the Group's exposure to interest rate and foreign currency risk, and a breakdown of the Group's
borrowings by the three-level fair value hierarchy (which reflects different valuation techniques)
as defined within IFRS 13 (Fair Value Measurement).
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 the cash that we have and any short-term deposits. Some of our Eurobonds and First Mortgage
Debenture Stock borrowings are held as financial liabilities at fair value through the income
statement. The fair value movement on these liabilities is shown under non-cash movements
in the tables below. The total cumulative fair value movement on these liabilities is also
shown at the bottom of each table.
For period ended 5 Start of period Acquisition of Subsidiary Non-cash movements* Cash Movement in End of
January 2019 flow corporate period
investor
shares
GBPm GBPm GBPm GBPm GBPm GBPm
Interest-bearing loans and
borrowings:
- current (34) (57) (14) 33 2 (70)
- non-current (1,138) (9) 142 1 - (1,004)
Total Debt (1,172) (66) 128 34 2 (1,074)
Group cash:
- Cash 403 1 - (122) - 282
- Overdraft (6) - 8 (2) - -
Group Net Debt (775) (65) 136 (90) 2 (792)
Comprised of:
Trading Group debt (1,104) (66) 60 34 2 (1,074)
Trading Group cash 314 1 - (101) - 214
Trading Group Net Debt (790) (65) 60 (67) 2 (860)
CISGIL debt and overdrafts (74) - 76 (2) - -
Co-operative Banking Group cash and
overdrafts 89 - - (21) - 68
Group Net Debt (775) (65) 136 (90) 2 (792)
Less impact of adopting IFRS 9** 55 - (55) - - -
Less fair value / amortised cost
adjustment 83 - (37) - - 46
Group Net Debt before fair value /
amortised cost adjustment (637) (65) 44 (90) 2 (746)
*The non-cash movement in CISGIL debt and overdrafts of GBP76m relates to the transfer of
CISGIL balances to liabilities held for sale comprising: (i) GBP68m 12% Tier Two loan notes
in non-current interest bearing loans and borrowings and (ii) GBP8m overdraft in CISGIL debt
and overdrafts.
**See general accounting policies section on page 67 for details of the impact of the new
standard.
For period ended 6 Start of period Acquisition of Non-cash Cash flow Movement in End of period
January 2018 subsidiary movements corporate
investor shares
GBPm GBPm GBPm GBPm GBPm GBPm
Interest-bearing
loans and
borrowings:
- current (21) - (21) - 8 (34)
- non-current (1,141) - 10 (7) - (1,138)
Total Debt (1,162) - (11) (7) 8 (1,172)
Group cash:
- Cash 283 - - 120 - 403
- Overdraft (6) - - - - (6)
Group Net Debt (885) - (11) 113 8 (775)
Comprised of:
Trading Group debt (1,095) - (11) (6) 8 (1,104)
Trading Group cash 208 - - 106 - 314
Trading Group Net
Debt (887) - (11) 100 8 (790)
CISGIL debt and
overdrafts (73) - - (1) - (74)
Co-operative
Banking Group
cash and
overdrafts 75 - - 14 - 89
Group Net Debt (885) - (11) 113 8 (775)
Less fair value
adjustment 127 - 11 138
Group Net Debt
before fair value
adjustment (758) - - 113 8 (637)
Terms and repayment schedule
The 6.875% (inclusive of 1.25% coupon step up) Eurobond Issue 2020 has an original value of
GBP450m (carrying amount of GBP465m) and the 7.5% (inclusive of 1.25% coupon step up) Eurobond
Issue 2026 has an original value of GBP350m (carrying amount of GBP379m). These bonds have
each been paying an additional 1.25% coupon since 8 July 2013 following the downgrade of the
Group's credit rating to sub-investment grade. Both these bonds are to be paid to holders
on maturity at par value.
In December 2013 the Group issued two subordinated debt instruments - GBP109m 11% final repayments
notes due 2025 and GBP20m instalment repayment notes, final payment 2025. As at 6 January
2018 the amounts outstanding are final repayment notes of GBP109m and the instalment repayment
notes of GBP14m.
The Groups's GBP355m Revolving Credit Facility expires in February 2021.
Corporate investor shares
Corporate investor shares represent borrowings the Group has with other co-operative societies.
The rate of interest payable on the borrowings is determined by reference to the London Interbank
Offered Rate (LIBOR). The borrowings are split into Variable Corporate Investor Shares (VCIS)
and Fixed Corporate Investor Shares (FCIS). The VCIS are repayable on demand and the rate
of interest that is charged is fixed across all societies based on a policy of LIBOR minus
0.5% with a minimum of 0.25%. The FCIS are fixed term borrowings at fixed rates of interest
(currently 1%). Corporate investor shares may be issued to existing corporate members who
hold fully paid corporate shares and are registered under the Co-operative and Communities
Benefit Act 2014.
Finance lease liabilities
Finance leases have the following maturities in the Trading Group:
2018 2017
GBPm GBPm
Less than one year 4 2
Greater than one year but less than five years 14 4
Greater than five years 14 4
32 10
The increase in finance leases primarily relates to vehicles in our Food business.
No contingent rents are payable under the terms of the lease agreements and the difference
between the total future minimum lease payments and their present value is immaterial.
10 Pensions
2018 2017
GBPm GBPm
Pension schemes in surplus 1,984 1,746
Pension schemes in deficit (125) (193)
Closing net retirement benefit 1,859 1,553
Defined benefit (DB) plans
The Group operates five funded DB pension schemes all of which are closed to future accrual.
This means that colleagues can no longer join or earn future benefits from these schemes.
The assets of these schemes are held in separate trustee-administered funds to meet future
benefit payments.
The Group's largest pension scheme is the Co-operative Group Pension Scheme ('Pace') which
accounts for approximately 80% of the Group's pension assets. The DB section of Pace ('Pace
Complete') closed to future service accrual on 28 October 2015. Further information about
Pace is set out below.
Defined contribution (DC) plans
Since the closure of the DB schemes, the Group provides all colleagues with DC pension benefits
through the DC section of Pace. Colleagues are able to select the level of contributions that
they wish to pay. The contribution paid by the Group varies between 1% and 10% of pensionable
salary depending on the contribution tier that the scheme member has selected.
Contributions are based on the scheme member's basic pay plus any earnings in respect of overtime,
commission and shift allowance. Colleagues who meet automatic enrolment requirements are currently
enrolled into the tier with 2% colleague and 3% employer contributions. With effect from April
2019, the auto-enrolment tier will have a 3% colleague and 5% employer contribution.
The Pace DC section provides benefits based on the value of the individual colleague's fund
built up through contributions and investment returns. The Group has no legal or constructive
obligation to pay contributions beyond those set out above. There is therefore no balance
sheet items for DC pension benefits except for any accrued contributions.
Balance sheet position for DB plans
The table below summarises the net surplus in the balance sheet by scheme:
Net Net
2018 2017
GBPm GBPm
Schemes in surplus
The Co-operative Group Pension Scheme (Pace) 1,821 1,603
Somerfield Pension Scheme 163 143
Total schemes in surplus 1,984 1,746
Schemes in deficit
United Norwest Co-operatives Employees' Pension Fund (82) (133)
Yorkshire Co-operatives Limited Employees' Superannuation Scheme (5) (11)
The Plymouth and South West Co-operative Society Limited Employees' Superannuation Fund (32) (43)
Other unfunded obligations (6) (6)
Total schemes in deficit (125) (193)
Total schemes 1,859 1,553
Recognition of accounting surplus
Any net pension asset disclosed represents the maximum economic benefit available to the Group
in respect of its pension obligations. The Group has carried out a review of the provisions
for the recovery of surplus in its pension schemes. This review concluded that all of the
DB schemes can recoup surplus via a right to refunds and this is reflected in the balance
sheet position.
Critical accounting estimates
For IAS 19 disclosure purposes, DB obligations are determined following actuarial advice and
are calculated using the projected unit method. The assumptions used are the best estimates
chosen from a range of possible actuarial assumptions which may not necessarily be borne out
in practice.
Financial assumptions
2018 2017
Discount rate 3.02% 2.62%
RPI Inflation rate 3.46% 3.44%
Pension increases in payment (RPI capped at 5% p.a.) 3.35% 3.25%
Future salary increases 3.71% 3.69%
The discount rate has been derived by reference to market yields on sterling-denominated high
quality corporate bonds of appropriate duration consistent with the schemes at that date.
Demographic assumptions
The Group has used best estimate base mortality tables which reflect the membership of each
scheme. Allowance has been made for future improvements in line with the Continuous Mortality
Investigation (CMI) 2016 projections and a long-term future improvement rate of 1.25% p.a.
(2017: CMI 2016 1.25% p.a.).
For illustration, the average life expectancy (in years) for mortality tables used to determine
scheme liabilities for Pace is as follows. These are broadly similar to the life expectancies
used for other schemes.
Life expectancy from age 65 2018 2017
Male currently aged 65 years 21.9 22.0
Female currently aged 65 years 23.5 23.6
Male currently aged 45 years 23.3 23.4
Female currently aged 45 years 25.1 25.1
Sensitivities
The measurement of the Group's DB liability is particularly sensitive to changes in certain
key assumptions, which are described below. The methods used to carry out the sensitivity
analysis presented below for the material assumptions are the same as those the Group has
used previously. The calculations alter the relevant assumption by the amount specified, whilst
assuming that all other variables remained the same. This approach is not necessarily realistic,
since some assumptions are related: for example, if the scenario is to show the effect if
inflation is higher than expected, it might be reasonable to expect that nominal yields on
corporate bonds will also increase. However, it enables the reader to isolate one effect from
another. It should also be noted that because of the interest rate and inflation hedges, changes
in the liability arising from a change in the discount rate or price inflation would be expected
to be largely mitigated by a change in assets.
2018 2017
Change in liability from a 0.1% increase in discount rate (168) (180)
Change in liability from a 0.1% increase in RPI inflation 128 134
Change in liability from a 0.25% increase in long-term rate of longevity improvements 96 109
Changes in the present value of the defined benefit obligation (DBO) 2018 2017
GBPm GBPm
Opening defined benefit obligation 8,985 11,152
Interest expense on DBO 231 275
Remeasurements:
a. Effect of changes in demographic assumptions (50) (106)
b. Effect of changes in financial assumptions (474) 223
c. Effect of experience adjustments 47 (26)
Benefit payments from plan (518) (667)
Refinement / (derecognition) of scheme liabilities attributable to Co-operative Bank 202 (1,866)
Past service items (note 1) (11) -
Closing defined benefit obligation 8,412 8,985
Past service items of GBP11m are included within one off gains of GBP9m in note 1.
Changes in the fair value of the plan assets 2018 2017
GBPm GBPm
Opening fair value of plan assets 10,538 12,879
Interest income 272 317
Return on plan assets (excluding interest income) (299) 203
Administrative expenses paid from plan assets (5) (3)
Employer contributions 50 49
Benefit payments from plan (518) (667)
Refinement / (derecognition) of plan assets attributable to The Co-operative Bank 233 (2,240)
Closing fair value of plan assets 10,271 10,538
11 Financial instruments, derivatives and valuation of financial assets and liabilities
Derivatives
Derivatives held for non-trading purposes for which hedge
accounting has not been applied are as follows:
2018 2017
Contractual/ Contractual/
notional Fair value Fair value notional Fair value Fair value
amount assets liabilities amount assets liabilities
GBPm GBPm GBPm GBPm GBPm GBPm
Interest rate
swaps 390 27 - 390 38 -
Total recognised
derivative
assets 390 27 - 390 38 -
Valuation of financial assets and liabilities
The following summarises the major methods and assumptions used in estimating the value of
financial instruments reflected in the annual report and accounts:
a) Financial instruments at fair value through the income statement
Deposits with credit institutions (Insurance)
All insurance investments have been transferred to held for sale. See note 6 (Loss on discontinued
operations, net of tax) for further details. In the prior year the fair value of financial
assets designated at fair value through the income statement, being short-term (less than
one month) fixed rate deposits, approximates to their nominal amount.
Investments in funeral plans
Where there is no active market or the investments are unlisted, the fair values are based
on commonly used valuation techniques.
Derivatives
Forward exchange contracts, such as the Trading Group's interest rate swaps, are either marked
to market using listed market prices or by discounting the contractual forward price and deducting
the current spot rate. For interest rate swaps, broker quotes are used. Those quotes are back-tested
using pricing models or discounted cash flow techniques. Where discounted cash flow techniques
are used, estimated future cash flows are based on management's best estimates and the discount
rate is a market-related rate for a similar instrument at the balance sheet date. Where other
pricing models are used, inputs are based on market-related data at the balance sheet date.
The Group's derivatives are not formally designated as hedging instruments but under IFRS
9 (Financial Instruments) they are used to match against a proportion of the Eurobond liabilities
carried at fair value through the income statement, showing as a cost of GBP11m in 2018 and
GBP12m in 2017 (see note 4).
Fixed rate sterling Eurobonds
The fixed rate sterling Eurobond values are determined in whole by using quoted market prices.
b) Financial instruments at fair value through other comprehensive income (Insurance)
All insurance investments have been transferred to held for sale. See note 6 (Loss on discontinued
operations, net of tax) for further details. In the prior year the fair value of listed debt
securities is based on clean bid prices at the balance sheet date without any deduction for
transaction costs. Assets are regularly reviewed for impairment. Objective evidence of impairment
can include default by a borrower or issuer, indications that a borrower or issuer will enter
bankruptcy or the disappearance of an active market for that financial asset because of financial
difficulties. These reviews give particular consideration to evidence of any significant financial
difficulty of the issuer or measurable decrease in the estimated cash flows from the investments.
c) Interest-bearing loans and borrowings - amortised cost
These are shown at amortised cost which presently equate to fair value or are determined in
whole by using quoted market prices. Fair value measurement is calculated on a discounted
cash flow basis using prevailing market interest rates.
d) Receivables and payables
For receivables and payables with a remaining life of less than one year, the nominal amount
is deemed to reflect the fair value, where the effect of discounting is immaterial.
The table below shows a comparison of the carrying value and fair values of financial instruments
for those liabilities not disclosed at fair value.
Financial liabilities Carrying value 2018 Fair value 2018 Carrying value 2017 Fair value 2017
GBPm GBPm GBPm GBPm
Interest-bearing loans and
borrowings 631 638 203 215
The Group adopted IFRS 9 on 7 January 2018 and subsequently only GBP285m of the GBP450m fixed
rate sterling Eurobond 2020 notes and GBP105m of the GBP350m 2026 notes are designated as
financial liabilities at fair value through the income statement. The remaining Eurobonds
are held at amortised cost (GBP446m as at 5 January 2019) using an effective interest rate.
As allowed by IFRS 9 the comparative figures have not been restated.
The table below analyses financial instruments by measurement basis:
2018 Fair value Fair value through other Other amortised Loans and Total
through income comprehensive income cost Receivables
statement
GBPm GBPm GBPm GBPm GBPm
Assets
Other investments 1,223 - - - 1,223
Derivative financial
instruments 27 - - - 27
Trade and other receivables - - - 516 516
Cash and cash equivalents - - 282 - 282
Total financial assets 1,250 - 282 516 2,048
Liabilities
Interest-bearing loans and
borrowings 411 - 631 - 1,042
Trade and other payables - - 1,475 - 1,475
Funeral plans 1,485 - - - 1,485
Overdrafts - - - - -
Total financial liabilities 1,896 - 2,106 - 4,002
The table above excludes any financial assets or liabilities in relation to Reclaim Fund.
The balance sheet of Reclaim Fund has not been included on a line-by-line basis but instead
it is separately disclosed within the Group balance sheet. Reclaim Fund balances include assets
and liabilities at both fair value and amortised cost and these have been valued in accordance
with IFRS 9.
2017 (restated*) Fair value Fair value through other Other amortised cost Loans and Total
through income comprehensive income Receivables
statement
GBPm GBPm GBPm GBPm GBPm
Assets
Other investments 1,288 665 - - 1,953
Derivative financial
instruments 38 - - - 38
Trade and other receivables - - - 606 606
Cash and cash equivalents - - 403 403
Total financial assets 1,326 665 403 606 3,000
Liabilities
Interest-bearing loans and
borrowings 959 - 203 - 1,162
Trade and other payables - - 1,282 - 1,282
Funeral plans* 1,283 - - - 1,283
Overdrafts - - 6 - 6
Total financial liabilities 2,242 - 1,491 - 3,733
*Funeral plan liabilities have been restated for IFRS 15. See general accounting policies
section on page 67 for details of the restatement.
The following table provides an analysis of financial assets and liabilities that are valued
or disclosed at fair value, by the three-level fair value hierarchy as defined within IFRS
13 (Fair Value Measurement):
-- Level 1 Fair value measurements are those derived from quoted prices (unadjusted) in active markets
for identical assets or liabilities.
-- Level 2 Fair value measurements are those derived from inputs other than quoted prices included
within
Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or
indirectly (i.e. derived from prices).
-- Level 3 Fair value measurements are those derived from valuation techniques that include inputs for
the asset or liability that are not based on observable market data (unobservable inputs).
Based upon guidance issued by The Committee of European Securities Regulators, in the prior
year insurance related debt securities were only classified in Level 1 if it could be demonstrated
on an individual security-by-security basis that they were quoted in an active market, i.e.
that the price quotes obtained were representative of actual trades in the market (through
obtaining binding quotes or through corroboration to published market prices). As pricing
providers could not guarantee that the prices that they provided were based on actual trades
in the market then all of the corporate bonds were classified as Level 2.
Valuation of financial instruments
2018 Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through the income statement
- Funeral plan investments - - 1,223 1,223
- Derivative financial instruments - 27 - 27
- Insurance investments* - - - -
Financial assets at fair value through other
comprehensive income
- Insurance investments* - - - -
Total financial assets at fair value - 27 1,223 1,250
Liabilities
Financial liabilities at fair value through the income
statement
- Fixed rate sterling Eurobond - 411 - 411
- First mortgage debenture - - - -
- Funeral plan liabilities - - 1,485 1,485
Total financial liabilities at fair value - 411 1,485 1,896
*All insurance investments have been transferred to held for sale. See note 6 (Loss on discontinued
operations, net of tax) for further details.
The Group adopted IFRS 9 on 7 January 2018 and subsequently only GBP285m of the GBP450m fixed
rate sterling Eurobond 2020 notes and GBP105m of the GBP350m 2026 notes are designated as
financial liabilities at fair value through the income statement. See general accounting policies
section on page 67 for details of the impact of the new standard. The remaining Eurobonds
are held at amortised cost using an effective interest rate (see also note 9 for full details
of the Group's loans and borrowings).
The values of Eurobonds carried at amortised cost are disclosed in note 9. The equivalent
fair value for the unhedged proportion of bonds that are now carried at amortised cost would
be GBP178m for the 2020 Eurobond and GBP295m for the 2026 Eurobond.
There were no transfers between Levels 1 and 2 during the period and no transfers into and
out of Level 3 fair value measurements. For other financial assets and liabilities of the
Group including cash, trade and other receivables / payables then the notional amount is deemed
to reflect the fair value.
The table above (and the comparative tables below) only show those funeral plan assets and
liabilities that are "financial assets and liabilities". They don't include funeral plan assets
in respect of instalment plans that are shown within debtors. The coverage of our funeral
plan assets over plan liabilities as at the last actuarial valuation is shown in the table
at the end of the Other investments note in the 2018 annual report and indicates we have headroom
of over 12%.
As at year end, the Group held Low Cost Investment Plans with a contract liability of GBP69m,
representing 14,566 plans.
2017 (restated*) Level 1 Level 2 Level 3 Total
GBPm GBPm GBPm GBPm
Assets
Financial assets at fair value through the income statement
- Funeral plan investments - - 1,076 1,076
- Derivative financial instruments - 38 - 38
- Insurance investments - 212 - 212
Financial assets at fair value through other comprehensive income
- Insurance investments - 665 - 665
Total financial assets at fair value - 915 1,076 1,991
Liabilities
Financial liabilities at fair value through the income
statement
- Fixed rate sterling Eurobond - 938 - 938
- First mortgage debenture - 21 - 21
- Funeral plan liabilities* - - 1,283 1,283
Total financial liabilities at fair value - 959 1,283 2,242
*Funeral plan liabilities have been restated for IFRS 15. See general accounting policies
section on page 67 for details of the restatement.
The following table allows comparison of insurance investment debt securities (other than
those classified at fair value through the income statement) on the basis of the current carrying
amount, fair value and amortised cost (before impairment).
Investments in debt securities held at fair value through other comprehensive income: 2018 2017
GBPm GBPm
Carrying amount - 665
Fair value - 665
Amortised cost - 647
Interest rates used for determining fair value
The Trading Group uses the government yield curve as of the
period end plus an adequate constant credit spread to discount
financial instruments. The interest rates used are as follows:
2018 2017
Derivatives 1.11% - 1.42% 0.70% - 1.51%
Loans and borrowings 4.36% - 4.92% 3.96% - 5.01%
12 Commitments and contingent liabilities
a) Capital expenditure not accrued for, but committed by the Group at the year end was GBPnil
(2017: GBPnil).
b) Commitments under operating leases:
The Group's operating leases include stores, warehouses and vehicles. These have varying terms,
restrictions and renewal rights. The commercial terms of the Group's operating leases vary,
however they commonly include either a market rent review or an index-linked rent review.
The timing of when rent reviews take place differs for each lease. At 5 January 2019, the
future minimum lease payments under non-cancellable operating leases were:
2018 2017
Land and
buildings Other Land and buildings Other
GBPm GBPm GBPm GBPm
Within one year 192 8 177 7
In two to five years 675 9 659 9
In over five years 1,276 - 1,335 -
2,143 17 2,171 16
The total of future minimum sublease payments expected to be received under non-cancellable
subleases less than 50 years is GBP127m (2017: GBP208m).
Commitments relating to associates and joint ventures are disclosed in the Investments in
associates and joint ventures note in the 2018 annual report.
13 Related party transactions and balances
2018 2017
Relationship GBPm GBPm
Sales to associated undertakings and joint ventures on normal trading terms (i) - 0.2
Subscription to Co-operatives UK Limited (ii) 0.7 0.7
i) Details of the Group's associates and joint ventures are set out in the Investments in
associates and joint ventures note in the 2018 annual report.
ii) The Group is a member of Co-operatives UK Limited.
The Group's Independent Society Members (ISMs) include consumer co-operative societies which,
in aggregate, own the majority of the corporate shares with rights attaching. The Co-operative
Group has a 76% shareholding in Federal Retail and Trading Services Limited which is operated
as a joint buying group by the Group for itself and other independent co-operative societies.
The Group acts as a wholesaler to the other independent co-operatives and generates sales
from this and the arrangement is run on a cost recovery basis and therefore no profit is derived
from its activities. Sales to ISMs, on normal trading terms, were GBP1,532m (2017: GBP1,461m)
and the amount due from ISMs in respect of such sales was GBP123m at 5 January 2019 (2017:
GBP122m). No distributions have been made to ISMs based on their trade with the Group in either
the current or prior years.
Transactions with directors and key management personnel
Disclosure of key management compensation is set out in the Remuneration Report. A number
of small trading transactions are entered into with key management in the normal course of
business and are at arms length. Key management are considered to be members of the Executive
and directors of the Group. At the balance sheet date, a number of key management personnel
had transacted with our Funeral, Food and Legal divisions. These transactions totalled GBP20,000
(2017: GBP25,000). Other than the compensation set out in the Remuneration Report, there were
no other transactions greater than GBP1,000 with the Group's entities (2017: GBPnil). Total
compensation paid to key management personnel is shown overleaf.
2018 2017
Key management personnel compensation GBPm GBPm
Short-term employee benefits 7.3 8.5
Post-employment benefits 0.4 0.5
Other long-term benefits 1.6 2.6
Termination benefits 0.0 0.0
Total 9.3 11.6
NOMA
The Group transacted in the prior period with the NOMA joint venture in relation to the head
lease of the CIS Tower in Manchester. All transactions were at arms length. NOMA sold its
leasehold interest in the CIS Tower, Miller Street to Castlebrook Investments in June 2017
and subsequently paid the Group a dividend of GBP33m representing its 50% share of the net
proceeds. On 22 December 2017 the Group completed the sale of its stake in NOMA to Hermes
Real Estate.
14 Acquisition of Subsidiaries
On 8 May 2018, the Group acquired 100% of Nisa Retail Limited (Nisa). This followed approval
from Nisa members on 13 November 2017, CMA approval on 23 April 2018 and formal court sanction
of the Scheme of Arrangement on 4 May 2018.
Nisa is a brand and buying group of independent retailers and wholesalers in the UK. It is
an organisation that was owned by its members prior to the Group's acquisition and operated
by using the collective buying power of its shareholders to negotiate with suppliers.
Consideration transferred - Nisa
The following table summarises the fair value, at the acquisition date, of each major class
of consideration transferred:
Note GBPm
Cash (initial consideration) (i) 24
Cash (deferred consideration) (ii) 74
Cash (rebate consideration) (iii) 28
Total consideration transferred 126
(i) Cash (initial consideration) - initial payment of GBP22m (equivalent to GBP20,000 per
member) and GBP2m payment in relation to amounts due to Nisa Trust.
(ii) Cash (deferred consideration) - comprising the discounted present value of significant
cash payments to former members of Nisa at the end of April 2019, 2020 and 2021. The gross
undiscounted value of these payments is GBP80m. Of this deferred consideration GBP2m was paid
in October 2018 bringing total payments in 2018 to GBP26m. The half-year provisional number
of GBP75m for deferred consideration has been adjusted to GBP74m in the light of renewed forecasts.
(iii) Cash (rebate consideration) - quarterly payments for four years linked to member purchasing
volumes after acquisition. The gross undiscounted value of these payments is GBP30m.
Acquisition related costs -
Nisa
The Group also incurred costs related to the acquisition of GBP5m. These costs have been included
within operating expenses as incurred.
Acquisitions - Other
The remainder of cash acquisition expenditure related to healthcare and legal acquisitions
in 2018. The fair value of cash consideration transferred on other acquisitions in the reporting
period and the value of cash or cash equivalent balances brought on to the balance sheet at
acquisition are not material for disclosure.
Identifiable assets acquired and liabilities assumed - Nisa
The following table summarises the recognised amounts recorded at fair value of assets acquired
and liabilities taken on at the acquisition date.
GBPm
Property, plant and equipment 26
Intangible assets 47
Inventories 49
Trade and other receivables 116
Trade and other payables (111)
Deferred tax liability (11)
Borrowings (current) - funds in use invoice discounting facility (57)
Loans and borrowings (non-current) (8)
Total identifiable net assets acquired 51
Measurement of fair values
The valuation techniques used for measuring the fair value of material assets acquired were:
Property, plant & equipment The main properties have been independently valued in accordance with the RICS
Appraisal and
Valuation Manual. Fair value is based on current prices in an active market
for similar properties
in the same location and condition.
Intangible assets The fair value of the relationship with former Nisa members has been valued
using the income
approach.
Inventories The fair value of inventory has been assessed using a market comparison
approach and determined
based upon the estimated selling price in the ordinary course of business less
the estimated
costs of completion and sale, and a reasonable profit margin based on the
effort required
to complete and sell the inventories.
Deferred tax of GBP11m has also been provided in relation to these
adjustments.
Fair values measured on a provisional basis
All assets acquired and liabilities assumed have been measured on a provisional basis. The
accounting for the acquisition will be revised if adjustments are identified as a result of
new information being obtained within a year of the acquisition date about facts and circumstances
that existed at the acquisition date. The related deferred tax calculations will also be revised
if necessary.
Goodwill
The acquisition took place on 8 May 2018 and provisional goodwill arising on the acquisition
has been recognised as follows:
GBPm
Fair value of consideration transferred 126
Fair value of identifiable net assets (51)
Goodwill (provisional) 75
The goodwill is mainly attributable to the combined buying benefits that are expected to be
achieved following the acquisition. None of the goodwill recognised is expected to be deductible
for tax purposes.
Revenue, profit and cash flow contribution.
The acquired Nisa business generated GBP983m of revenue, losses of GBP11m to profit before
tax and GBP28m to operating cash flows. If Nisa had been part of the Group for the full year,
it would have generated GBP1,498m of revenue, losses before tax of GBP6m (after GBP5m of acquisition
costs) and GBP21m to operating cash flows.
Other acquisitions
Goodwill of GBP6m associated with other acquisitions has been recognised in the reporting
period. Details of other acquisitions and related fair value accounting are not considered
to be material for disclosure.
General accounting policies
Status of financial information
The financial information, which comprises the Consolidated
income statement, Consolidated statement of comprehensive income,
Consolidated balance sheet, Consolidated statement of changes in
equity, Consolidated statement of cash flows and related notes, is
derived from the full Group financial statements for the 52 weeks
to 5 January 2019 and does not contain all information required to
be disclosed in the financial statements prepared in accordance
with International Financial Reporting Standards.
The Group Annual Report and Financial Statements 2018, on which
the auditors have given an unqualified report and which does not
contain a statement under part 7, section 87(4) or (7) of the
Co-operative and Community Benefit Societies Act 2014, will be
submitted to the Financial Conduct Authority following the 2019
Annual General Meeting, and made available to members by no later
than 26 April 2019.
General information
Co-operative Group Limited ('the Group') is a registered
co-operative society domiciled in England and Wales. The address of
the Group's registered office is 1 Angel Square, Manchester, M60
0AG, and the trading locations of all stores and branches can be
located on our website https://finder.coop.co.uk/food.
Basis of preparation
The Group accounts have been prepared in accordance with the
Co-operative and Communities Benefit Act 2014 and applicable
International Financial Reporting Standards as endorsed by the EU
(IFRS) for the 52 week period ended 5 January 2019. As permitted by
statute, a separate set of financial statements for the Society are
not included.
The accounts are presented in pounds sterling and are
principally prepared on the basis of historical cost. Areas where
other bases are applied are explained in the relevant accounting
policy in the notes. Amounts have been rounded to the nearest
million.
The accounting policies set out in the notes have been applied
consistently to all periods presented in these financial
statements, except where stated otherwise.
The accounts are prepared on a going concern basis. See later
section on 'Going Concern'.
Basis of consolidation
The financial statements consolidate Co-operative Group Limited,
which is the ultimate parent society, and its subsidiary
undertakings. The Group controls an entity when it is exposed to,
or has rights to, variable returns from its involvement with the
entity and has the ability to affect those returns through its
power over the entity. The financial statements of subsidiaries are
included in the consolidated financial statements from the date
that control commences until the date that control ceases.
A diagram setting out the composition of the Group and its
principal subsidiaries, joint arrangements and associates can be
found in the annual report. A full list of subsidiaries that make
up the Group for the purposes of these financial statements can be
found at:
http://www.co-operative.coop/corporate/aboutus/oursubsidiaries/
Associates are those entities in which the Group has significant
influence, but not control, over the financial and operating
policies. The consolidated financial statements include the Group's
share of the total comprehensive income of associates on an
equity-accounted basis, from the date that significant influence
commences until the date that significant influence ceases.
A joint venture is an arrangement where the Group has joint
control and has rights to the net assets of the arrangement, rather
than rights to its assets and obligations for its liabilities.
Definition of Trading Group and Financial Services
Throughout the financial statements reference is made to the
Financial Services activities of the Group to distinguish them from
Trading Group activity. The Financial Services entities comprise
CIS General Insurance Limited (CISGIL) and other smaller entities
(mainly holding, ancillary companies and the Reclaim Fund Limited).
This distinction is made as the Trading Group, CISGIL and the rest
of Financial Services are separately funded.
Accounting dates
The Group and the Trading Group subsidiaries prepare their
accounts to the first Saturday of January unless 31 December is a
Saturday. These financial statements are therefore prepared for the
52 weeks ended 5 January 2019. Comparative information is presented
for the 53 weeks ended 6 January 2018. Since the financial periods
are virtually in line with calendar years, the current period
figures are headed 2018 and the comparative figures are headed
2017. The comparative amounts are not entirely comparable with the
results of 2018, which are based on a shorter period (52 weeks
compared to 53 weeks).
The Financial Services subsidiaries of the Group have prepared
accounts for the period ended 31 December 2018. This differs from
the Group and other Trading Group subsidiaries. For the period
ending 5 January 2019, there are no significant transactions or
events which need to be adjusted for to reflect the difference in
reporting dates.
One-off items and non-GAAP (Generally Accepted Accounting
Procedures) measures
One-off items include costs relating to activities such as large
restructuring programmes and costs or income which would not
normally be seen as costs or income relating to the underlying
principal activities of the Group.
To help the reader make a more informed judgement on the
underlying profitability of the Group, a non-GAAP measure:
underlying profit before tax, has been presented. This is shown at
the bottom of the income statement and we show the adjustments
between this measure and operating profit. In calculating this
non-GAAP measure, property and business disposals (including
individual store impairments), the change in value of investment
properties, and one-off items are adjusted for.
Offsetting
Financial assets and financial liabilities are offset and the
net amount reported in the balance sheet when there is a legally
enforceable right to do so and there is an intention to settle on a
net basis, or realise the asset and settle the liability
simultaneously.
Significant accounting judgements, estimates and assumptions
The preparation of financial statements that comply with IFRS
requires management to make judgements, estimates and assumptions
that affect the application of policies and reported amounts of
assets and liabilities, income and expenses. The estimates and
associated assumptions are based on historical experience and
various other factors that are believed to be reasonable under the
circumstances, the results of which form the basis of making the
judgements about carrying values of assets and liabilities that are
not readily apparent from other sources. Actual results may differ
from these estimates.
Key judgements:
In the process of applying the Group's accounting policies,
management has made the following key judgements which have the
most significant impact on the consolidated financial
statements:
-- Revenue from contracts with customers: Funeral plans
IFRS 15 (Revenue from contracts with customers) requires that
revenue should be recognised in respect of separate performance
obligations delivered to the customer. In applying the new revenue
standard to funeral plan sales the Group has concluded that the
only separate performance obligation is the funeral itself and
therefore revenue can only be recognised at the date the plan is
redeemed and the funeral is performed.
-- Assets held for sale and discontinued operations: Insurance
On the 18(th) January 2019 the Group announced its intention to
sell its Insurance business (CISGIL) to a third party
(Markerstudy). As the Group were actively committed to the sale at
the balance sheet date and it is deemed to be highly probable to
happen within one year then it is judged that the carrying amount
of CISGIL will principally be recovered through a sale transaction
rather than though continuing use. As such the assets and
liabilities of CISGIL are shown as held for sale in the Group's
consolidated balance sheet and the results of CISGIL have been
classified as discontinuing operations in the income statement. A
key judgement within the classification as held for sale is the
valuation of the assets and liabilities of CISGIL which are shown
at fair value less costs to sell.
As part of the calculation of the fair value of the business,
the expected consideration of circa GBP185m was taken into account.
Of this consideration GBP84m will be treated as deferred income
upon completion of the sale of the insurance group (in line with
the requirements of IFRS 3 paragraph 52 b) in respect of
remuneration for future marketing and distribution services. The
calculation of this deferred income was subject to detailed
scrutiny by management. Of the remaining GBP101m proceeds allocated
to assets and liabilities held for sale, this was then reduced by
costs to sell and discounting of deferred consideration in arriving
at the fair value less cost to sell of GBP56m. See note 6 for
details.
-- Useful economic lives: Property, plant and equipment
Our Food business invests around GBP100m each year to refurbish
its existing store portfolio (refits) and a further GBP100m on new
store acquisitions. A key accounting judgement is to determine the
period over which to spread the costs of the assets in line with
how long we think these assets will last. With reference to the
quality of the assets that are bought and the planned refit cycle
for the estate portfolio then the current judgment is that 10 years
best reflects the likely economic life of these assets. This
represents a change to the judgement applied in previous reporting
periods (which was 8 years) and reflects the enhanced quality (and
hence expected life) of the assets that are bought. The in-year
impact of this change in judgement is a decrease in the
depreciation charge within the Food business of GBP6m.
-- Consolidation of Reclaim Fund
The Group is required to consolidate Reclaim Fund Limited (RFL)
as it is a 100% owned subsidiary of the Group. However, RFL is a
not-for-profit organisation whose surplus is held entirely for the
benefit of Big Lottery Fund and as the Group derives no financial
benefit from RFL nor can it access RFL's reserves. A judgment has
therefore been made that it is most appropriate to the user of the
accounts to not consolidate the balance sheet of RFL on a
line-by-line basis but instead to disclose it as single line items
on the Group Balance sheet for current and non-current assets and
liabilities.
Estimates and assumptions:
The key assumptions and areas of uncertainty around key
assumptions at the reporting date that have a significant risk of
causing a material adjustment to the carrying amounts of assets and
liabilities within the next financial year, are described
below.
The Group based its assumptions and estimates on information
available when the financial statements were prepared. Existing
circumstances and assumptions about future developments, however,
may change due to market changes or circumstances arising that are
beyond the control of the Group. Such changes are reflected in the
assumptions when they occur.
-- Pensions (note 10) - the Group's defined benefit pension
obligations are determined following actuarial advice and are
calculated using the projected unit method. The assumptions used
are the best estimates chosen from a range of possible actuarial
assumptions which may not necessarily be borne out in practice. The
most significant assumptions relate to the determination of the
discount rate, future salary increases, mortality rates and future
pension increases. Due to the complexities involved in the
valuation and its long-term nature, the Group's defined benefit
obligation is highly sensitive to changes in these assumptions.
Further details of the financial and demographic assumptions that
have been used are shown in note 10 along with associated
sensitivities to those assumptions.
-- Impairment of non-financial assets - the carrying amount of
non-financial assets (such as property, plant and equipment or
goodwill and intangibles) is reviewed at each balance sheet date
and if there is any indication of impairment, the asset's
recoverable amount is estimated. The recoverable amount is the
greater of the fair value of the asset (less costs to sell) and the
value in use of the asset. An impairment loss is recognised
whenever the carrying amount of an asset or its cash-generating
unit (CGU) exceeds its estimated recoverable amount. For property
assets then the fair value less costs to sell are measured using
internal valuations based on the rental yield of the property.
The Group estimates the value in use of an asset by projecting
future cash flows into perpetuity and discounting the cash flows
(DCF) associated with that asset at a post-tax rate of between
8-10% dependent on the business. Cash flows are projected using the
relevant business' four-year plan. Cash flow projections beyond
four years (and therefore outside of the four-year plan period) use
a steady or declining growth rate dependent on the business. The
recoverable amount is sensitive to the discount rate used for the
DCF model as well as the expected future cash-inflows and the
growth rate used for extrapolation purposes. For the Group then
these estimates are most relevant to goodwill and other intangibles
with indefinite useful lives. The key assumptions used to determine
the recoverable amount for the different CGUs, and the sensitivity
analysis that is undertaken, are disclosed and further explained in
the note.
-- Tax and Deferred tax (note 5) - the Group's tax charge is
made up of current and deferred tax and is calculated based on the
expected manner of realisation or settlement of the carrying amount
of assets and liabilities, using tax rates enacted or substantively
enacted at the balance sheet date. Significant management judgement
is required to determine the amount of deferred tax assets and
liabilities that can be recognised, including estimates as to the
likely timing and the level of future taxable profits, together
with future tax planning strategies. See disclosures in note for
details of the key estimates and assumptions that are made.
-- Insurance claims and reserves - CISGIL has access to
historical data and trends relating to its general insurance
business and uses a combination of recognised actuarial and
statistical techniques to estimate the expected cost of claims made
under insurance contracts. See note for further details of the
methodology, key assumptions and sensitivity analysis that is
undertaken.
-- Provisions - a provision is recognised in the balance sheet
when the Group has a legal or constructive obligation as a result
of a past event, and it is probable that an outflow of economic
benefits will be required to settle the obligation. If the effect
is material, provisions are determined by discounting the expected
future cash flows at a pre-tax rate that reflects current market
assessments of the time value of money and, where appropriate, the
risks specific to the liability. The most significant provision for
the Group relates to onerous leases on properties that are no
longer used for trading purposes and significant assumptions and
estimates are made in relation to the estimation of future cash
flows and the discount rate applied.
New and amended standards and interpretations:
The Group has applied all endorsed IFRSs that are effective on a
European basis for the Group's financial statements for the period
ended 5 January 2019 and the comparative period.
The Group applied IFRS 15 and IFRS 9 for the first time.
The nature and effect of the changes as a result of adoption
of these new accounting standards are described below.
Several other amendments and interpretations apply for the
first time in 2018, but do not have an impact on the financial
statements of the Group. The Group has not early-adopted
any standards, interpretations or amendments that have been
issued but are not yet effective.
(A) Changes in significant accounting policies
The Group has initially adopted IFRS 15 Revenue from Contracts
with Customers and IFRS 9 Financial Instruments from 7 January
2018.
The effect of initially applying these standards is mainly
attributed to the following:
IFRS 15:
-- later recognition of revenue on funeral plan sales so that no
revenue is recognised until the plan is redeemed and the funeral
performed;
-- deferment of fulfilment costs (which are costs directly
relating to the plan sale which otherwise wouldn't have been
incurred) associated with delivering the funeral until the funeral
is delivered;
-- treatment of rebates paid to members of a joint buying group
operated by Food division as a reduction in revenue and cost of
sales; and
-- the Group has adopted the standard using the fully
retrospective approach which means that the comparative figures
have been restated as shown in the tables below.
Presentational changes have also been made to the balance sheet
following the adoption of IFRS 15:
Contract liabilities; a contract liability is presented in the
balance sheet where a customer has paid an amount of consideration
prior to us undertaking the service for the customer (such as
funeral plans paid for in advance). These liabilities are split
between due within one year and over one year and prior years are
restated in this respect;
Contract assets: a contract asset is recognised when our right
to consideration is conditional on something other than the passage
of time, for example, we need to take some action before the
customer has to pay us (such as funeral costs incurred before the
funeral has taken place); and
Other balance sheet items
Provisions, tax, trade receivables and reserves for prior years
have been restated as a consequence of adopting IFRS 15.
IFRS 9:
-- that element of the Group's Eurobonds that is unmatched by
interest rate swaps reverted to being measured at amortised cost
(rather than being measured at fair value through the income
statement);
-- the comparative income statement and balance sheet figures in
relation to our Eurobonds have not been restated and the opening
balance sheet value of the bonds which are now carried at amortised
cost has been restated with a corresponding pre-tax adjustment of
GBP55m being made to opening reserves as at 6 January 2018 (as
permitted by IFRS 9);
-- the consolidated statement of changes in equity reflects a
GBP10m deferred tax adjustment in respect of the GBP55m amortised
cost restatement to opening reserves;
-- financial assets held by the Funeral and Life Planning
business continue to be accounted for as financial assets with
movements in fair value taken to the income statement where
appropriate (see note 11 for further details of the accounting
policy for funeral plans);
-- the Insurance business has reclassified assets previously
classified as available for sale assets to financial assets held at
fair value through other comprehensive income. Available for sale
assets no longer exists as a category of asset under IFRS 9, but
movements in the value of these assets were taken to other
comprehensive income previously, so adoption of the standard has
had minimal impact in this respect;
-- there were no changes to accounting for the Reclaim Fund
assets or liabilities upon adoption of IFRS 9; although there were
some changes to descriptions of assets and liabilities; and
-- as indicated in the 2017 annual report, the Group has changed
how it assesses impairment of investments and receivables but this
has not had a material impact.
Summary impact of new accounting standards on key metrics:
Impact of IFRS 15:
GBPm As at 6 January 2018
Originally Impact After
Reported of IFRS impact
15 of IFRS
15*
Underlying profit before tax (non GAAP
measure) 65 (20) 45
Profit before tax 72 (20) 52
Impact of IFRS 9 on Group net debt:
GBPm As at 6 January 2018
As reported Impact After
of IFRS impact
9 of IFRS
9
Group net debt (775) 55 (720)
Less fair value / amortised cost adjustment 138 (55) 83
Group net debt before fair value / amortised
cost adjustment (637) - (637)
*Restated balances are shown prior to restatement for treatment
of Insurance as a discontinued operation. See restatement section
below.
Summary impact of adopting new accounting standards on
comparative financial statements:
Income statement for 53 weeks ended 6 January 2018:
GBPm Originally IFRS 15 After
reported impact
of IFRS
15*
Funeral Food /
and Life FRTS
Planning
Revenue 9,470 (23) (173) 9,274
Operating expenses (9,432) 3 173 (9,256)
Other income 88 - - 88
Operating Profit 126 (20) - 106
Finance income 44 - - 44
Finance costs (106) - - (106)
Share of profits of associates
and joint ventures 8 - - 8
Profit before Tax 72 (20) - 52
Tax (2) 4 - 2
Profit after Tax 70 (16) - 54
*Restated balances are shown prior to restatement for treatment
of Insurance as a discontinued operation. See restatement section
below.
Balance sheet as at 6 January 2018:
GBPm Originally IFRS 15 Restated
reported
Funeral
and Life
Planning
Non-current assets 6,868 32 6,900
Current assets 2,301 2 2,303
Total Assets 9,169 34 9,203
Non-current liabilities 3,937 (8) 3,929
Current liabilities 2,144 115 2,259
Total Liabilities 6,081 107 6,188
Equity & Reserves 3,088 (73) 3,015
Restatements
The comparative figures presented within these financial
statements for the financial year ended 6 January 2018 are
consistent with the 2017 annual report with the exception of the
restatements noted below and the impact of adopting IFRS 15 and
IFRS 9 as outlined above:
- following the Group's announcement to sell CISGIL, the results
of the Group's Insurance business for the comparative period have
been reclassified to discontinued operations and the impact on the
Group's consolidated income statement is shown below:
GBPm Restated Discontinued Re-stated
for IFRS
15
(as above)
Revenue 9,274 (331) 8,943
Other Income 88 (74) 14
Operating profit 106 12 118
Finance Costs (106) 9 (97)
Tax 2 (4) (2)
Profit from Continuing Operations 54 17 71
- the results from the Property support function (including
changes in value of investment properties) are now shown in costs
from supporting functions net of some recharges to the business
(previously they were included within Food). The comparatives for
Food, supporting functions and Funeral and Life Planning have
therefore been adjusted accordingly to effect this and the impact
on segmental operating profit is shown in the table below. All
segments are consistent with the information that is presented to
the Board.
GBPm Food Funerals Supporting Other Businesses Total
Functions
Operating Profit (as
reported) 202 66 (125) (5) 138
Restatements noted
above (34) (4) 38 - -
Impact of IFRS 15 - (20) - - (20)
Operating Profit (restated) 168 42 (87) (5) 118
Other new and amended standards adopted by the Group
The Group has applied the following standards and amendments for
the first time for reporting periods commencing after 7 January
2018:
-- IFRS 2 (amendments) - to clarify the classification and
measurement of share-based payment transactions;
-- IFRS 4 (amendments) - regarding the interaction of IFRS 4 and
IFRS 9;
-- IAS 40 (amendments) - to clarify transfers of property to, or
from, investment property;
-- IFRS 1 and IAS 28 (amendments) - annual improvements to IFRSs
2014 - 2016 Cycle - various standards;
-- IFRIC 22 - Foreign currency transactions and advance
consideration.
The adoption of these standards and amendments did not have a
material impact upon the Group's accounts.
Standards, amendments and interpretations issued but not yet
effective
Certain new accounting standards and interpretations have been
published that are not mandatory for 5 January 2019 reporting
periods and the Group has not early adopted the following standards
and statements.
The adoption of these standards is not expected to have a
material impact on the Group's accounts:
-- IFRIC 23 - Uncertainty over income tax treatments. *
-- IFRS 9 (amendments) - Prepayment features with negative
compensation. *
-- IFRS 10 & IAS 28 (amendments) - Sale or contribution of
assets between an investor and its associate or joint
venture. **
-- IAS 19 (amendments) - Plan amendment, curtailment or
settlement. *
-- IAS 28 (amendments) - Long term interests in associates and
joint ventures. *
-- Annual improvements 2015 - 2017 Cycle (issued December 2017).
These improvements cover IFRS 3 (Business combinations), IFRS 11
(Joint arrangements), IAS 12 (Income taxes) and IAS 23 (Borrowing
costs).*
* Effective 1 January 2019.
** Deferred indefinitely - the Group will adopt when effective
and endorsed by the EU.
The adoption of the following standards will or may have a
material impact on the Group's accounts when adopted and the
Group's assessment of the impact of these new standards and
interpretations is set out below:
Title IFRS 16 Leases
Nature of IFRS 16 was issued in January 2016 and it replaces
the change IAS 17 Leases, IFRIC 4 Determining whether an Arrangement
contains a Lease, SIC-15 Operating Leases-Incentives
and SIC-27 Evaluating the Substance of Transactions
Involving the Legal Form of a Lease. IFRS 16 sets
out the principles for the recognition, measurement,
presentation and disclosure of leases and requires
lessees to account for all leases under a single on-balance
sheet model similar to the accounting for finance
leases under IAS 17. Under the new standard, an asset
(the right to use the leased item) and a financial
liability to pay rentals are recognised. Lessees will
be required to separately recognise the interest expense
on the lease liability and the depreciation expense
on the right-of-use asset. The only exceptions are
for short-term leases (leases with a term of less
than 12 months) and low-value leases (e.g. personal
computers).
Impact The Group plans to adopt IFRS 16 using a modified
retrospective approach. For the portfolio of directly
leased properties, right-of-use assets will be calculated
as though IFRS 16 had always applied. For all other
leases, the asset value will be equal to the lease
liability as at the date of transition. Prior reporting
periods presented will not be restated. The Group
will elect to use the exemptions proposed by the standard
on lease contracts for which the lease terms ends
within 12 months as of the date of initial application,
and lease contracts for which the underlying asset
is of low value.
During 2018, the Group has performed further impact
assessments of IFRS 16. The most material impact of
the new standard will be that assets and liabilities
associated with approximately 3,000 property leases
will need to be brought on to the balance sheet and
the Group's estimate of the impact of this is noted
below:
Property leases: (Estimated impact on the statement
of financial position (increase/(decrease)) as at
06 January 2019):Balance Sheet: GBPm
Assets
Property, Plant & Equipment (Right-of-Use
Assets) 1,020
Finance Lease Receivables 74
Trade and Other Receivables (18)
Deferred Tax Asset 33
Liabilities
Lease liability 1,451
Trade and Other Payables (26)
Provisions (162)
Decrease in Opening Reserves (154)
Estimated impact on the consolidated income statement
with increases in costs shown as a negative figure
and a reduction in costs shown as a positive figure.
Income Statement: GBPm
Depreciation expense (included
in Operating Expenses) (97)
Operating Lease Rentals (included
in Operating Expenses) 156
Operating Profit 59
Finance Costs (91)
Income Tax Expense (2)
Profit for the year (34)
Due to the adoption of IFRS16, the Group's operating
profit will improve, while its interest expense will
increase. This is due to the change in the accounting
for expenses of leases that were classified as operating
leases under IAS 17.
Non-property leases:
The Group has assessed which of its other contractual
commitments could contain leases in scope for IFRS
16. These could include vehicles, equipment, IT systems
and anything else where the Group is paying to use
and benefit from an underlying asset as part of a
contractual arrangement. The majority of these identified
assets relate to vehicles, and the estimated impact
of bringing these onto the balance sheet is to increase
Right of Use Assets and Lease Liabilities by approximately
GBP9m. There is not anticipated to be a material impact
to the Group's profit in relation to these leases.
Date of Mandatory for financial years commencing on or after
adoption 1 January 2019. The Group intends to adopt the standard
by the Group using the modified retrospective transition approach.
This means comparative information will not be re-stated.
Right of use assets relating to property leases will
be measured as if IFRS 16 had always been applied,
but discounting at an incremental borrowing rate at
the date of transition, and for all other leases the
asset value will equal the lease liability.
Title IFRS 17 Insurance Contracts
Nature of IFRS 17 is a comprehensive new accounting standard
the change covering recognition, measurement, presentation and
disclosure of insurance contracts and replaces IFRS
4 Insurance Contracts.
In contrast to IFRS 4, the new standard provides a
comprehensive model (the general model) for insurance
contracts, supplemented by the premium allocation
approach (which is mainly for short-duration contracts
such as certain non-life insurance contracts). IFRS
17 requires insurance liabilities to be measured at
a current fulfilment value and provides a more uniform
measurement and presentation approach for all insurance
contracts.
Impact The standard will be effective for annual periods
beginning on or after 1 January 2021 and management
are currently assessing the impact of the new standard
upon the Group's Insurance business.
Date of Applicable to annual reporting periods beginning on
adoption or after 1 January 2021. Not yet endorsed for use
by the Group in the EU.
Going concern
The Directors have considered the Group's business activities,
together with the factors likely to affect its future development,
performance and position (as set out in the Stronger Co-op section
on page 10). The Directors have also assessed the financial risks
facing the Group, its liquidity position and available borrowing
facilities. These are principally described in note 9 to the
accounts. In addition, note 9 to the accounts and note 29 of the
2018 Annual Report also include details of the Group's objectives,
policies and processes for managing its capital, its financial risk
management objectives and its financial instruments and hedging
activities.
In making their assessment the Directors have noted that the
consolidated group accounts show a net current liability position.
The Group meets its working capital requirements through a number
of separate funding arrangements, certain of which are provided
subject to continued compliance with certain covenants (Debt
Covenants). Profitability and cash flow forecasts for the Group,
prepared for the period to September 2020 (the forecast period),
and adjusted for sensitivities considered by the Board to be
reasonably possible in relation to both trading performance and
cash flow requirements, indicate that the Group will have
sufficient resources available within its current funding
arrangements to meet its working capital needs, and to meet its
obligations as they fall due.
After making all appropriate enquiries, the Directors have a
reasonable expectation that the Society and the Group have access
to adequate resources to enable them to continue in operational
existence for the foreseeable future. For this reason, they
continue to adopt the going concern basis in preparing the Group's
financial statements.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
FR EALLLESSNEFF
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April 05, 2019 02:00 ET (06:00 GMT)
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