Co-op.gp. 25 Regulatory News (42TF)

Co-operative Group Limited

4 April 2024

Stronger Co-op boosts membership; targets growth in 2024 and beyond

· Strengthened underlying financial performance with improvements in underlying operating profit, net cash, and further reductions in net debt, which has reduced by £827m in the last 2 years.

· Surpassed expectations with substantial membership growth, now reaching 5 million active member-owners.

· Supported colleagues, members and communities through cost-of-living crisis, with £70m in 2023, annualised to £90m investment in lowering food prices and improved member-owner offers.

· Well placed to drive growth with clear focus on increasing the number of member owners from 5 million to 8 million, by 2030, as well as targeting additional growth through our three core business areas of Food Retail, Business to Business (B2B) and Life Services.

Financial Highlights

* 2022 includes Group Revenue for the Petrol Forecourt business, which was strategically divested of in H2 2022, and both 2022 and 2023 include B2B revenue transacted as part of the transition agreement.

** Statutory comparative figures for 2022 have been restated to reflect the new accounting treatment for funeral plans under IFRS17. FY 2023 onwards is accounted for on this basis.

*** Group Profit Before Tax in FY 2022 and consequently the variance in 2023 includes £319m profit on disposal following the strategic divestment of the Petrol Forecourt business.

· Against a continued challenging economic backdrop, the Group delivered a robust sales performance. Excluding the impact of the petrol forecourt sale, revenue increased 4.7% or £0.5 billion.

· All business units delivered underlying revenue increases in the year.

· Enabled by business confidence and balance sheet strength, we invested in lowering food prices for members, helping to drive medium term growth.

· Underlying operating profit increased by £14 million, or 17%. This figure was all the more impressive given prior year includes earnings from the petrol forecourt business disposed of in 2022.

· Ongoing progress in strengthening the balance sheet resulted in a further reduction in net debt to £82 million - a decrease of £240 million year-on-year (2022: £322 million).

· A focus on working capital management contributed to an additional £147 million year on year net cash from operations, now totalling £602 million (2022: £455 million).

· EBITDA remained broadly flat at £468 million (2022: £473 million), a result which reflects the underlying strength of the business, given the inflationary headwinds, and with no earnings coming from the petrol forecourt business following its strategic disposal.

· Pension scheme net assets of £0.4bn (2022 £1.6bn) reflecting the successful pension "buy-in" agreed between the Trustee of the Co-operative "Pace" Pension Scheme and Rothesay Life plc, covering future pension liabilities and providing greater security to members of the scheme.

Shirine Khoury-Haq, Chief Executive of the Co-op, said:

"I'd like to thank all our exceptional colleagues, who have been instrumental in our success over the last year.

"Our relentless focus on strengthening our financial position has enabled us to navigate a highly turbulent external landscape, delivering increased value for our member-owners and planning for a future with confidence and with membership firmly back at the heart of our business. Over the last two years, our net-debt has reduced by 90% from over £900 million, to £82 million today. Whilst markets remain challenging, we are in firmly in control of our Co-op and our destiny.

Our success in attracting new members has seen us surpass our expectations with new sign ups last year higher than the previous two years combined. This momentum has continued into 2024 as we now stand at 5.2 million active member owners, and we expect to continue this journey and substantially increase the number of member-owners to 8 million by 2030. We look forward with confidence as we focus on growing our business for our member-owners, while simultaneously enhancing the value we deliver to them and their communities.

"2024 marks a significant shift as we begin putting in place the building blocks for our strategic growth plans across our Co-op, with a focus on growing our existing businesses including increasing our share of the quick commerce market and expanding our presence within the life services sector."

Debbie White, Chair of the Co-op, said:

"I'm delighted to have joined the Co-op at a pivotal moment. As we mark the 180th anniversary of the Co-op, its relevance in today's world has never been more apparent.

"The dedication and hard work of our 56,000 colleagues delivered both a financially strengthened Co-op, which ended the year in a much stronger position than the previous year, as well as a reinvigorated Co-op, which is well-placed to continue to grow membership and create more value for its member-owners. This includes expanding financial rewards, fostering more opportunities for engagement, and facilitating meaningful contributions to communities across the UK."

Strategic Highlights - co-operating to build more value for our member-owners every day.

Our strengthened financial position has enabled us to take proactive decisions to support our member-owners, colleagues, and their communities amidst the cost-of-living crisis. Furthermore, we continue to demonstrate our Co-op difference in how we do business.

· £70 million, annualising to £90 million invested into lowering prices across key lines in our Food stores and introduced member-only pricing.

· £44m invested year on year in colleague support with cost of living, with all Customer Team members in stores receiving a pay increase of 10.1% through our commitment to Real Living Wage and the introduction of a permanent 30% colleague discount on own-brand products, with Co-op the sole food retailer to offer this benefit.

· Prioritised colleague safety through our retail crime campaign, advocating for change and campaigning with Government while working with local communities to tackle the root causes of crime.

· First national retailer to become a champion of Sustainable Palm Oil communities, based in the UK, promoting sustainable palm oil practices and advocating for meaningful action.

· Over £23 million now pledged by 84 organisations to Co-op's Levy Share scheme, matching over 2,000 apprenticeships to more than 140 different roles.

· In 2023, almost £24m was raised to support local communities through members choosing Co-op, with 4 million people benefiting in our members' communities, on the issues our member owners care about.

· A £1 million commitment to our Academy schools, - including providing access to food supporting just under 150 families a week, through Community Fridges at Co-op Academy Failsworth, Priesthorpe, Manchester and Oakwood.

· Buy-in transaction announced in November 2023 by the Trustee of the Co-op Section of the Co-operative Pension Scheme ("Pace") with Rothersay Life PLC - which represents a significant step in our continuing strategy of de-risking our pensions exposure helping strengthen our Co-op for the benefit of our members and is a positive outcome for those current and former colleagues who are Pace members.

Membership Highlights

· Over 1 million new members joined us in 2023, increasing our active membership base to over 5 million member owners, a 14% year on year increase (2022: 4.4 million).

· Sales penetration from members in our Food stores reached a historic high of 37%, with members now averaging 12.9 visits every 12 weeks (2022: 12.4 visits).

· Officially launched the first pre-sale tickets for new Co-op Live venue in Manchester exclusively to our member-owners - with 70,000 people joining Co-op membership to get pre-sale tickets since August, and many going on to trade with the Co-op.

· Co-op App introduced innovative features, offering member-owners opportunities to win discounts on shopping, prizes, and exclusive experiences. Members engaged with these features more than one million times throughout the year.

· Continued growth in younger members, with active member owners under the age of 25 rising 52% to 362,333 in 2023 (2022: 211,176).

Outlook

· The Board is confident in the Co-op's strategy as we focus on prioritising growth in our business and membership, in a way that creates value for our member-owners, while also maintaining strong financial discipline.

· The work undertaken over the past two years to significantly strengthen the Co-op's financial position has enabled us to effectively navigate any ongoing economic volatility. And we are now well-positioned to pursue our strategic growth initiatives across our business.

· To accelerate our growth ambition and simplify how we run our business, we are creating three core business areas - Food Retail, Business to Business and Life Services, enabling us to more easily capture growth in our existing markets and fully realise adjacent market opportunities.

· We have established clear long-term ambitions for 2030 in support of our vision of "Co-operating to build more value for our member-owners every day". This will see Co-op membership increase from 5 million to 8 million by the end of this decade.

Business Unit Performance & Highlights

Food Retail

· Food revenue marginally down at £7.3 billion (2022: £7.8 billion), driven primarily by the sale of the petrol forecourt business. Revenue was up 4.3% or £0.3 billion (2022 £7.0 billion), excluding the impact of the petrol forecourt sale

· Food underlying operating profit increased 11% year-on-year to £154 million (2022: £139 million), attributable to enhancements in cost efficiencies, including improvements in availability, waste reduction, optimised stock-holding, and overall reduction in our cost-to-serve.

· Online sales continued to grow, reaching £311 million (2022: £222million). We secured the top position in the quick convenience market in the second half of the year (Neilsen), expanded our partnership with Just Eat to over 1,000 stores, and aim to grow from 23% currently to capture 30% of the overall quick convenience market share in the next 4 years.

· We invested £70 million annualising to £90 million in lowering pricing across 770 key product lines to support our member owners, including the introduction of almost 200 member prices, which was further extended to include branded product lines in early 2024.

Business to Business (B2B)

· Wholesale* revenue grew by £39 million, 2.9%, to £1.4 billion (2022: £1.4 billion), while profitability decreased to £13.2 million (2022: £21.2 million) due to investments in enhancing our proposition for retailers to ensure their ongoing competitiveness. We added 425 stores in 2023 and aim to gain a further 400 in 2024.

· Franchise* revenue increased to £56 million (2022: £54 million), with the addition of three new franchise stores and a new trial format in three petrol stations. We have a strong pipeline of launches planned for 2024, including our first stores located in NHS hospitals.

· Federal services revenue saw an increase of £0.2 billion (2023: £2.1 billion; 2022: £1.9 billion), reflecting our continued support for the co-operative movement in the UK.

*Wholesale and franchise are reported together in segment reported financials.

Life Services

Funeralcare

· Revenue increased by £6 million to £281 million (2022: £275 million) driven by a 2% year-on-year rise in volumes (2023: 95,924; 2022: 93,867).

· Profit Before Tax increased to £13 million (2022: £11 million), although impacted by external inflationary pressures. Despite these challenges, we made active choices to absorb as much of the inflationary costs as possible to support our member-owners. (Due to the adoption of IFRS17 accounting standard, profit before tax is now an appropriate measure to compare year on year performance).

· Funeral plan sales saw an increase to 17,032 (2022: 16,774) as consumer confidence began to rebound following the introduction of regulation.

· Overall satisfaction among our Funeral Plan clients stands at 92%, earning us recognition for the sixth consecutive year as Moneynet's 'Best Funeral Plan Provider'.

Legal

· A strong finance performance, with revenue up 47% year-on-year to £68 million (2022: £46 million), and underlying operating profit amounting to £21 million (2022: £8 million) a 162% increase year on year.

· Our largest practice areas of probate and estate planning demonstrated strong performances, with a 20% increase in probate cases and a 37% increase in new estate planning cases.

· Our commitment to digital innovation continues to drive performance, evidenced by an average of 2-3 technology releases per week.

· We continued growth in partnerships and achieved a significant milestone by becoming the first legal firm to offer services to millions of customers via Amazon's platform. We added 10 new partners, including The Co-operative Bank and Barnardo's.

· Our overall Trustpilot score for 2023 was rated as excellent, reflecting our unwavering commitment to customer satisfaction and service excellence.

Insurance

· Revenue increased by £5 million to £29 million (2022: £24 million), accompanied by increased profitability, reaching £14 million (2022: £8 million).

· Growth was primarily driven by strong performance in travel and pet. Pet insurance sales increased 44% year-on-year, supported by our members' input to shaping a differentiated offer for adopted pets.

· Continued external headwinds in motor throughout 2023 and home in the latter part of the year, in line with the market.

· The impact of tighter household budgets resulted in a decline in performance for life insurance amidst a contracting market. However, a newly refreshed proposition, with additional benefits for 2024, is expected to enhance performance in this segment.

A copy of our 2023 Annual Report and Accounts is available to view on our website at

https://www.co-operative.coop/investors/reports. A copy has also been submitted to the National Storage Mechanism and will shortly be available for inspection at https://data.fca.org.uk/#/nsm/nationalstoragemechanism.

Media Enquiries

Co-op

Russ Brady, 07880 784442, russ.brady@coop.co.uk

Cat Turner, 07834 090783, catherine.turner@coop.co.uk

Citigate Dewe Rogerson

Angharad Couch, 07507 643004, angharad.couch@citigatedewerogerson.com

Jos Bieneman, 07834 336 650, jos.bieneman@citigatedewerogerson.com