Co-op Group sales and profits fall amid warning of forthcoming headwinds
Manchester-based Co-op Group saw sales and profits fall for the year to January 1, 2022, and warned of “stark headwinds” in the forthcoming year, today (April 7).
Group revenues of £11.15bn were lower on the previous year’s £11.47bn due to COVID-related factors, the impact of significant supply chain disruption, and system transformation in the food division in the second half of the financial year. Pre-pandemic sales, in 2019, were £10.9bn.
Pre-tax profits fell £70m, to £57m, but were better than the pre-pandemic 2019 figure of £24m.
Net debt of £920m compared with £695m in 2019 and £550m in 2020. The group said this reflected various factors, including increased capital expenditure, investment in stock during supply chain disruption, negative cash flow timings and furlough repayment. It added that net debt has improved significantly since year end.
The Co-op also revealed that the Court of Appeal increased the judgment against IBM in its long-running dispute on the group’s insurance IT transformation programme from £13m to around £80.5m. The Co-op’s original claim against IBM was for £128m in wasted project costs.
The group managed to recruit more new members than the previous two years – 517,000, compared with 470,000 in 2019, and 445,000 in 2020 – with almost two fifths aged 35 and under.
It shared £21m with Co-operative members through member rewards and £10m in total was saved by members by redeeming digital offers.
During the financial year the group invested £140m in the food store estate, including opening 50 new stores, along with 87 store refits, 25 relocations and 15 store extensions.
Also, £39m was invested in enhancing the food supply chain, including a new depot.
The group spent £20m on aligning frontline colleague pay to the Real Living Wage, while £18m was invested in reducing prices for members and customers.
The new financial year has seen food and life services make a good start, with food sales outperforming the market in the first quarter following availability improvements and focus on value.
Looking ahead, the Co-op said it expects to face continued challenges during the year, including the final implementation of the business transformation in food, current inflationary pressures and the economic uncertainty facing customers, members and colleagues.
Last month the Co-op announced that chief executive Steve Murrells will stand down in May after 10 years with the group.
Shirine Khoury-Haq, group CFO and CEO of Co-op Life Services, was appointed interim group CEO – the first female to hold the position.
Co-op Group chair, Allan Leighton, said today: “The past year has been a challenging one for our Co-op, but we continued as planned with our investment strategy to strengthen our Co-op’s future state.
“I would like to thank our colleagues across the business whose passion and support continues to inspire and drive us forwards. We would all like to thank Steve Murrells for his outstanding contribution to our Co-op over the past 10 years and congratulate Shirine Khoury-Haq on her appointment.”
He added: “The economic headwinds look stark and will be tricky to navigate, but through our continued planned strategic investments our Co-op is well placed to ride out the storm and prosper beyond.”
Shirine Khoury-Haq said: “The Co-op is a business designed for the long term and that is the path we are on. The last year has seen us facing some significant challenges, including significant supply chain issues in the second half coming at the same time as our food business transformation and increasing inflationary pressures. The difficult operating environment disproportionately impacted our food business, given its focus on the community convenience market, with an operating model that is more reliant on flexibility in the supply chain.
“As we look ahead, our focus must be on accelerating growth in our food business through our four routes to market, whilst expanding our life services businesses, from funeralcare to insurance and legal services. We must also ensure our businesses are there for our members, customers, communities and suppliers who are experiencing the effects of the cost of living crisis, as we continuing to focus on our Honest Value range in food and affordable services across life services.
“I am delighted to be leading this unique business and look forward to working with all our colleagues to take our Co-op to the next phase of its development.”