Wage inflation and energy costs hit Co-op’s half year results

Shirine Khoury-Haq

Inflation and energy costs have taken their toll on half year profits at the Manchester-based Co-op Group.

Announcing interim results for the period to July 2, 2022, the group revealed flat revenues of £5.6bn, but a £37m reduction in pre-tax profits, which came in at £7m, compared with £44m the previous year.

The group said energy and wage inflation increased costs by around £50m versus the same period in 2021.

However, group net debt was down to £731m versus £920m last year end.

In a bid to tackle rising costs, the group has targeted savings of around £100m, rising to £150m in 2023 as these savings annualise.

The sale of the non-core petrol forecourt estate to Asda, expected to complete in the second half of the financial year for £600m, will further reduce debt and allow headroom to reinvest in the core convenience business.

Today’s results show that Co-op Food has revived its market share to 6.5% and was the fastest growing retailer during the hot weather.

In Funeralcare, the division achieved growth in market share in the first half, but revenue fell by £3m to £139m, driven by falling mortality rates post-pandemic.

Insurance performed in line with forecast, with reduced revenue planned to bed in the new Markerstudy distribution business model and ways of working. Income was £11m, down from £18m.

The Legal division boosted revenues by more than 10%, at £22m, driven by continued growth of the probate business and an expansion of digital capabilities. More than 100 staff, including apprentices, have been recruited to handle increased case volumes.

The group is also beginning a £37m price investment this month to lower the price of 120 key products, with costs to be held into the New Year.

The price investment is part of an ambition to make the Co-op the largest convenience retailer in the UK, promising the biggest shake-up in its near 180-year history with growth plans built on a large-scale network of franchise stores – as it fleshed out a commitment from early in the year to grow via capital light means.

The community retailer aims to more than treble its existing franchise stores within three years and grow its ecommerce business by building on its successful tie-ups with Uber Eats, Deliveroo and Amazon to support its own direct to consumer online business shop.coop.co.uk.

Chief executive, Shirine Khoury-Haq, said: “Convenience is one of the fastest growing channels within the grocery market and our refreshed strategy aims to capitalise on the experience we’ve gained in the market over the last decade. We’ve grown our own business to operate more than 2,500 Co-op operated stores, have built a nationwide franchise platform and serve almost 5,000 independent convenience stores through our wholesale-arm.

“As we face into a cost-of-living crisis we are determined to make life fairer for our members, customers and communities in these extraordinary times and lowering prices for shoppers is the first step in our strategy.”

Addressing the interim results, she said: “Against a highly challenging economic backdrop, we have made significant progress in strengthening our balance sheet, whilst continuing to support the needs of our colleagues, members, customers and the communities in which we operate.

“Our clear focus on developing our businesses, whilst controlling costs, improving our cash position and reducing debt is paying dividends.

“Looking ahead, while we are mindful of the continued economic challenges, we have great confidence in the underlying strength of the Co-op and all our businesses. Having faced into some tough decisions in the first half, focused on cutting costs and improving efficiency, we ended the period stronger, both operationally and financially.”

She added: “Since then, we have progressed further with the planned sale of our non-core petrol forecourts business. This will strengthen us more and provide the means to invest in our core businesses, whilst enabling us to support our members, customers, colleagues and communities through the cost-of-living crisis.”

Group chair, Allan Leighton, said: “The first six months of the year have been a time of challenge for us – as they have been for all businesses.

“I was delighted that we were able to confirm Shirine Khoury-Haq as our permanent CEO during this period. Her energy to move decisively on improving our financial position, focusing on core business development, whilst still delivering on our vision commitments, is helping us move forwards with pace and purpose.

“We know that the current testing conditions will not ease in the second half, and we will continue to face into the challenges, by remaining focused and by building upon our incredible co-operative heritage.”