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

News release

7 April 2022

Full Year Announcement: 52 week period ended 1 January 2022

Co-op continues planned strategic investment for the benefit of colleagues, members and businesses

H2 sales and profitability impacted by food supply chain disruption during system transformation

Financial Highlights

· Total group revenue up £0.3bn to £11.2bn against pre pandemic levels (2019: £10.9bn), down slightly year-on-year, reflecting unprecedented Covid-related sales in 2020 (2020: £11.5bn) and impact of significant supply chain disruption and system transformation in Food in H2 to support moves to an increasingly multichannel offer.

· Profit before tax of £57m, up £33m on pre pandemic (2019: £24m); down £70m on last year (2020: £127m); one-off £99m gain* from early settlement of the Group Relief Liability owed to Co-operative Bank PLC.

· Underlying operating profit of £100m (2019: £173m, 2020: £235m); reflecting increased investment in colleagues and businesses and H2 supply chain impacts.

· Net debt £920m**, (2019: £695m, 2020: £550m) reflecting various factors, including increased capital expenditure, investment in stock during supply chain disruption, negative cash flow timings and furlough repayment; net debt has improved significantly since year end.

· More new members recruited than previous two years - 517,000 (2019: 470k) (2020: 445k); with almost two fifths (39%) aged 35 and under.

· £21m shared with members through member rewards and £10m in total saved by members by redeeming digital offers.

Key investments

· £140m invested in Food store estate, including opening 50 new stores; 87 store refits; 25 relocations and 15 store extensions, bringing us closer to our customers.

· £39m invested in enhancing Food supply chain; including our new depot which opened this year.

· £20m invested on annualised basis, aligning frontline colleague pay to Real Living Wage.

· £18m invested in reducing prices across our businesses for our members and customers.

Vision Highlights: 'Co-operating for a Fairer World'

· Supporting members and customers in the cost of living crisis, with £8.7m investment across 102 Honest Value products, absorption of supplier inflation on key products in our Food business, and holding prices in our Funeralcare business.

· Reached milestone of £100 million of funds shared with local communities, causes and charity partners over the last five years.

· More than 1 million members selected a Local Community Fund cause to support in the last round of funding.

· Raised more than £4.5m in 2021 through partnerships with Mind, Inspire and SAMH, supporting over 8,000 people to increase their resilience and mental wellbeing.

· Launched two major new colleague policies including a domestic violence policy and pregnancy loss policy.

· Key focus on colleague safety through 'Safer Colleagues, Safer Communities' campaign, investing in new technology and training, and successful campaigning for better protection in law for shopworkers against violence.

· Launched 10-Point Climate Plan, with significant commitments, including reaching net zero by 2040 and ambition to be world's first food retailer to produce carbon neutral own brand food and drink by 2025.

Outlook

Food and Life Services have enjoyed a good start to the year; Food sales have outperformed the market in the first quarter following availability improvements and focus on value.

· Looking ahead, Co-op 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.

· Court of Appeal increases judgment against IBM in relation to the long-standing dispute on the insurance IT transformation programme from approximately £13 million to approximately £80.5 million.

· The Board remains confident in the strategy, with a focus on driving growth through capital-light routes to market and a priority to further reduce debt while continuing to deliver against the Co-op vision of co-operating for a fairer world.

Allan Leighton, Chair, Co-op said:

"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.

"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, Interim Chief Executive, Co-op 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.

"The Co-op remains uniquely positioned. We continue to be driven by our vision of co-operating for a fairer world and have a platform of businesses in the right markets to drive change, and get closer to our members, customers and communities. The significant investment we have made across our business in recent years now provides the basis for us to move forwards in a more efficient manner.

"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."

Business Highlights

Food

· Total sales across Food and Wholesale up to £9.1bn, on two-year basis (2019: £8.9bn); down slightly on previous year (2020 £9.3bn) which was boosted by impact of initial lockdown on consumer behaviours.

· Strong underlying demand, with two-year like-for-like growth of 3.3% (excluding Fuel) and more than 9% in Wholesale. 

· In spite of disruption to our business in H2, we continued to invest, pushing ahead with the implementation of new buying and supply systems.

· Key investment activity included:

o Significant investment into logistics network to support availability and future growth, with biggest regional depot in Biggleswade.

o Plans to construct a new facility alongside Newhouse depot in North Lanarkshire this year.

o Opened 50 stores, refitted 87 stores.

· Invested in price including:

o Launched Honest Value range in Food stores across Q4 2020 & Q1 2021, investing £8.7m across 102 products.

o Invested in 94 GRO lines, committing £1.1m to align vegan product prices with meat-based equivalents.

o Absorbed supplier inflation on key lines in protein and dairy, protecting prices and customer offer.

· In Wholesale, recruited 546 new stores to be serviced by Nisa and launched the refreshed Nisa Reward Scheme in the period.

· Significant e-commerce expansion:

o More than doubled revenue in online business to £200m, through website and partnerships with Amazon, Starship and Deliveroo (2020: £70m) (2019: £4m).

o E-commerce operations available across 1,600 stores, in more than 450 locations, available to over 55% of the population.

o Looking to expand successful trial with Amazon Prime this year, with ambition to grow offering to serve 26m shoppers.

o Launched vending machines and micro-supermarkets in a wide range of locations including offices and hospitals, allowing customers to self-serve conveniently.

o Achieved fastest rollout of micro distribution hubs - more than doubling our ultra-fast grocery delivery services to 2,000 stores and reaching three-quarters of the population. .

· Continued to expand franchise operation with 22 new stores in 2021, totalling 36 stores, including first franchise in Scotland and first ever service station store in Cornwall.

· Growth across University partnership, servicing over 200k students with ten in-campus and off-campus stores.

Funeralcare

· Overall revenue slightly down on prior year by £8 million to £264 million (2020: £272 million), reflecting lower death rate after the peak of the pandemic.

· Strong performance in funeral planning, with number of new clients up 5% on previous year (2021: 44,751) (2020: 42,497).

· Fully compliant with all CMA requirements ahead of the September 2021 deadline and submitted FCA application and Regulatory Business Plan in October 2021.

· Continued to invest in and transform the business:

o offering more competitive prices to members and clients, maintaining prices since 2017 as well as reducing prices in direct cremations, making this increasingly popular option more affordable.

o transforming and modernising with new digital capabilities to provide an omni channel experience for clients, including new ways to pay online and live web chat.

o expanded choices to be more diverse and inclusive, including extension of African and Caribbean funeral options to additional locations and trialling a new eco proposition.

Insurance

· New capital-light and customer centric business model has driven return to profitability with new business sales of £34m, up on the previous year (2020: £6m).

· Core areas of home and motor insurance both performed strongly, in first year of new business model, attracting 162,000 new customers.

· Delivered a major investment in customer experience and attracted new UK insurers to meet members' needs, improving prices and competitiveness.

· Covid continued to impact a number of insurance product lines:

o Travel restrictions during the pandemic harmed consumer confidence and travel remained low.

o Pet insurance saw a 20% sales increase as the pandemic led to an increase in pet ownership.

· Broadened our long-standing relationship with Neighbourhood Watch with launch of Student Watch: a new national initiative designed to improve student safety whilst on campus and away from home.

Legal

· Overall revenue increased by 9% compared to previous year (2021: £39m) (2020: £37m) with profits also increased.

· Probate up 20% year-on-year with number of cases opened over 6,000, and the estate planning division growing revenue by 11% year on year.

· Continued investment in digital capabilities and the launch of new products and services, including a lasting power of attorney digital service and a digital probate administration service.

· Continued to expand B2B partnerships with 19 new partners including leading banks, financial services providers and charities.

ENDS

*Generated from early settlement of liability owed to Co-operative Bank PLC, agreed at £48m, against historic expected liability of £147m; further details in 'Our financial performance' section

**Excluding lease liabilities

Media Enquiries: For more information contact:

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

Susanna Voyle (07980 894557, svoyle@headlandconsultancy.com) 

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

Co-operative Group Limited

Annual Report and Accounts 2021

Chair's introduction

"We will work tirelessly to ensure we build upon our co-operative history while remaining future focused and inclusive, meeting the needs of our members and the diverse communities in which they live and work, and delivering on our Co-op Purpose and Vision."

No-one could deny the impact that Covid has had nationally and internationally, changing lives and changing our communities beyond recognition in many cases.

For some, however, the winds are changing. The risk of Covid remains globally, but the shadow it's cast across the UK has begun to shift, as measures and precautions adjust.

Before our Co-op starts to consider our future role, I want to take a moment to celebrate the extraordinary efforts and loyalty of our 60,000 colleagues since March 2020, particularly those on the frontline. They have kept our nation fed and helped so many say goodbye to loved ones, extending the hand of co-operation where it has been needed most.

I'd also like to take a moment to thank those leaders who have supported our Co-op teams through these times, which have continued to be both challenging and exceptional. At the helm throughout has been our CEO Steve Murrells and it was fitting that he was awarded a CBE in the New Year Honours List. Steve will formally step down at our 2022 AGM and we thank him for the ten years he's served with our Co-op. Shirine Khoury-Haq is our Interim CEO. Shirine is an excellent and well respected leader, and the Board and I look forward to working closely with her.

As we reflect on what we achieved during last year and outline our intentions for the coming 12 months, we must not lose sight of the commercial challenges we faced in to during the second half of last year, and the need for us to take decisive action in strengthening our financial position further as we head into 2022. We must also be mindful of the bigger picture and opportunity for our Co-op to make a meaningful difference in the years ahead. The last couple of years have exposed even more the inequalities that exist within society and we must play our part in helping the nation recover and redress the balance.

As a business so closely connected to our members and our communities, and with a Purpose that extends beyond maximising profit, we can and must make our presence felt even more strongly going forwards. Co-operation - within the UK, but also with our overseas partners - remains as powerful and as important as ever, and it needs to adapt, so that we can meet the needs of our members and communities in a modern and diverse UK. There are people and causes who need our help even more than before, and they cannot be left behind. Our Vision of 'Co-operating for a Fairer World' has never been more relevant. It has been guiding our actions throughout the pandemic and it will continue to do so into 2022 and beyond.

As much as we'll stand firm by our communities and support their recovery from the last 24 months, we'll also keep pace with the future and the issues that are still unfolding and mean the most to our members, making their voice heard when it comes to issues like climate change, diversity and inclusion and international developments. Diversity, as an area of focus in particular, is creating great perspective within our Co-op. I was very pleased to see our Diversity and Inclusion commitments published in 2020, and witness the continued hard work to meet those targets throughout 2021, although we're far from finished.

We'll also continue to adapt to developments in consumer behaviour, technology and convenience to make Co-op even more accessible, ensure it stays relevant and create sustainable value for those who depend upon what we do.

As Steve will outline in his report, we must further ensure the security and long-term commercial viability of our Co-op, so that it can continue to serve and support for many more centuries to come. As we highlighted within our Interim report, the second half of the year proved to be a very challenging one within our Food business, where the well-publicised supply chain issues affecting the sector significantly impacted upon our trading performance. It is important that we keep our eyes totally centred on our business performance; our investment aligned with activity that will drive our price and product proposition; and our innovation focused on enabling us to compete and win within our chosen markets. 2022 is likely to be another testing year, but one we should face into with confidence and belief.

As always, I'd like to thank our Board and our Council for their continued commitment and dedication.

With everything we've achieved over the last year, the ability of our leaders and the diligence of our colleagues, we continue to be confident in reaching our objectives and performing in circumstances that remain unpredictable after an unprecedented two years. We will work tirelessly to ensure we build upon our co-operative history, while remaining future focused and inclusive, meeting the needs of our members and the diverse communities in which they live and work, and delivering on our Co-op Purpose and Vision.

Allan Leighton

Chair, The Co-op Group

Chief Executive's overview

"The pandemic has highlighted the need for strong and purpose-led businesses to play their part in helping to tackle the acute social, environmental and economic challenges which we face locally, nationally and internationally."

Time, I believe, will show that 2021 was an important and defining year for our Co-op. A year where our Vision and Purpose shone brightly; a year where our colleagues continued to do what matters most for our members and their communities; a year where we developed our strategic priorities for the future. It was a year, however, where we had to face into some significant trading challenges, especially within our Food business, to dig deep and start the work to build an even stronger Co-op for the future.

The arrival of the Omicron variant, in the latter part of the year, was a stark reminder that Covid, generally, is with us for the foreseeable future. It's a sobering thought when you consider the devastating impact Covid has had over the past two years, claiming millions of lives globally and affecting billions more people. I'm proud and humbled by the contribution made by over 60,000 colleagues in support of our members, customers and wider communities, including the teams who have kept Co-op Academies running so valiantly.

There is no doubt that Covid has accelerated the move to online shopping, but there can equally be no doubt that it has also accelerated a decline in wellbeing, with an increase in people seeking out support for mental health problems. A vibrant, local shopping experience provides so much more than just trade and economic value for a community - it provides a means of connecting and strengthening ties amongst people. As our nation looks to recover from the crisis, it is imperative that the wider role and purpose of shops is not forgotten or misconstrued.

The pandemic has highlighted the need for strong and purpose-led businesses to play their part in helping to tackle the acute social, environmental and economic challenges which we face locally, nationally and internationally - and we've seen, and will no doubt continue to see, these challenges exacerbated in 2022, by developments in Eastern Europe.

It is clear we are facing into a highly uncertain economic climate, where rising prices in particular are placing a real challenge on both consumer spending but also on corporate costs and expenditure. We cannot shy away from this reality and it is important that, during 2022, we take the action needed to strengthen our underlying financial position.

Over the past seven years, we have invested over £2.5 billion pounds of capital expenditure in rebuilding and maintaining our Co-op and Co-op is now well placed to consolidate this investment through our Food, Power and Life Services (Funeralcare, Legal Services and Insurance) businesses. As a consumer Co-op, they provide the fuel to power our Vision and we are excited about their prospects to make a continued, genuine impact for the benefit of more than four million active members.

It is the inherent strength of our Co-op that meant, despite the trading challenges - including the supply chain crisis in H2 and the pandemic - and their impact on our financial performance, we faced in the second half of the year, and we were still able to make headway in four key areas that make a meaningful difference to the lives of our members and communities:

· Supporting our communities: In 2021, we celebrated that together, since 2016, we've raised £100 million for local communities, causes and charity partners. See the 'Fairer for our members and communities' section for everything our Co-op achieved in the locations we serve.

· Fairer Access to Education and Employment for Young People: We launched Cooplevyshare.co.uk in 2021 - an online platform bringing businesses together to create new apprenticeships for candidates from under-represented groups, who may routinely be overlooked or discriminated against. We also joined a new £5.2m investment, giving more than 6,000 young people an opportunity to make their communities fairer and safer.

· Diversity and inclusion: I was delighted to see our colleague networks breathe life into a rich calendar of celebrations and significant landmarks for different cultures. These groups remain key to shaping how we become actively anti-racist, as do our diversity and inclusion commitments, helping us achieve true inclusivity and respect the diversity within our Co-op.

· Climate change: I made a point of attending COP26 in Glasgow in October to emphasise that climate action needs to be accessible and inclusive in order to make the difference that's so desperately needed. Co-op has its own 10-Point Climate Plan, which underpins our own mission to be a net zero business before 2040. More information is available in the 'Fairer for our planet' section of this report.

Commercially speaking, 2021 has reinforced our belief that we are in the right markets, where our Co-op difference can be felt and where sustainable value can be created then shared. In Food, we now have four routes to market: through our existing 2,500+ stores, but also through our growing ecommerce, wholesale and franchise operations. In Life Services, our Funeralcare business is transforming itself at pace, while our Insurance and Legal Services businesses are well placed to expand in a capital-light way.

While our trading performance was challenging in the second half of the year, it shouldn't overshadow the progress that our Co-op has made over the past five years. However, it remains the case that we are operating in a highly volatile environment, where the decisions we take now will have even greater significance for our Co-op in the year ahead.

Fundamental to our ongoing success as the UK's largest co-op is the role played by our 60,000 colleagues - our move to align pay for more than 33,000 frontline colleagues to the Real Living Wage, where pay wasn't already at that level, was a clear acknowledgment of this. We invested £19.7m on an annualised basis, aligning frontline colleagues' pay with the Real Living Wage.

Financial overview

Overall our total revenue was down 3% year-on-year to £11.2bn (2020: £11.5bn). This reduction was due primarily to the one-off nature of 2020, during which full lockdown measures led to marked changes in customer behaviour and shopping habits, especially during those times where restaurants and pubs were completely closed. Also, like many retailers, 2021 sales were impacted by challenges across global supply chains and our distribution network, as a further result of the pandemic.

It makes a meaningful year-on-year comparison difficult - comparing our most recent results to those from 2019 can therefore provide more meaningful insight. On that basis, total Co-op revenue is up by 2.6% from £10.9bn (2021: £11.2bn, 2020: £11.5bn), buoyed by a two year like-for-like sales increase (excluding fuel) in our Food business of 3.3% and the turnover of our insurance marketing and distribution business, following the sale of our underwriting operation in December 2020.

There are some other significant items within our figures this year that also make a simple year-on-year comparison more complicated, including a one-off gain of £99m. This is generated from an early settlement of a liability agreed at £48m against a historic liability of £147m, owed to Co-operative Bank PLC. Further details on this are available in the 'Our financial performance' section.

Our profit before tax of £57 million is down £70 million from the £127 million last year, but up from 2019 (£24m). Our underlying operating profit in 2021 was £100 million (2020: £235 million, 2019: £173 million) and we saw an underlying loss before tax of £32m compared to a £100m profit in 2020 (2019: £35m profit). A tax charge of £25 million meant we recorded an overall profit of £32m from continuing operations in 2021 (2020: £72m and 2019: £49m).

Costs and key investments

To put these figures into context, we continued to incur costs as a result of Covid in 2021, including safety measures across our estates and other expenses, which totalled £29.8m. The supply chain in H2 also cost our Co-op a total of £43m, driven by lost sales opportunities. We returned £15.5m in furlough support from 2020 - we did not receive any further furlough support in 2021. We received £20m of benefit from rates relief in Q1 whilst the impact of the pandemic was still at its height and then declined the business rate exemption after Q1.  

Primarily, our financial performance reflects a year of planned investment in line with our business goals and Vision. The underlying strength of our Co-op enabled us to execute a programme of strategic spending across key initiatives, including:

· £19.7m invested on annualised basis aligning frontline colleagues' pay with the Real Living Wage.

· £140m invested in our Food store estate, including opening 50 new stores; 87 store refits; 25 relocations and 15 store extensions, bringing us closer to our customers.

· £38.6m invested in Biggleswade depot, a key part of our Food infrastructure, opening in 2022.

· £8m invested in reducing prices for funerals, at a time where families across our whole country needed it most.

· £3.6m invested in developing ecommerce within our Food business, which has seen our group become available to 55% of the UK population as a result.

Offering great value is important for our members and customers, so we launched our Honest Value range in Food stores across Q4 2020 & Q1 2021, investing £8.7m across 102 products. We also invested in 94 GRO lines, committing £1.1m to align product prices within our vegan range to meat-based equivalents, removing barriers for members and customers interested in pursuing a meaningful lifestyle change.

Additionally we absorbed supplier inflation on key lines in protein and dairy, protecting our prices and customer offer.

This level of investment did contribute to our net debt increasing to £920 million by the end of the year. Whilst this level remains within our existing debt and banking facilities, we have clear plans in place to reduce this significantly over the coming three years, as we expand upon our capital-light routes to market within both our Food and Life Services businesses and maximise the potential of investments made in 2021.

Business unit updates

· Food

- Online services available to more than 55% of the population

Available in 1,600 stores, in 450+ locations by the end of 2021.

- 50 stores opened, 87 refitted, 25 relocated and 15 extended 

In retail, we opened 50 more stores, refitted 87, relocated 25 and extended 15. We also opened 22 franchise stores, including our first ever service station store in Cornwall.

We continued to trade across our four routes to market - retail, wholesale, franchise and ecommerce - adapting to meet the changing needs of our members and customers. We were not immune to the challenges felt across the industry, with Covid-19 and supply chain disruption having a significant impact throughout the year. At the same time, we were also going through a major transformation programme to upgrade our commercial, ranging and supply chain systems to our SAP software solutions, making the second half of the year a very challenging period, which had some effect on availability. Despite the inevitable disruption, the implementation was successfully completed and we are looking forward to making the most out of our new tools in 2022. 

In 2020, we experienced a peak in trading, triggered by the first wave of the pandemic, so, inevitably, this makes for a difficult year-on-year comparison, with total sales of £9.1bn in 2021 versus £9.3bn in 2020 across our Food and Wholesale segments. However, we can see a strong underlying demand with our two year like-for-like growth reaching 3.3% in Food (excluding fuel) and more than 9% in Wholesale, demonstrating our continued strength in the fiercely competitive retail market.

A year of investment

In 2021, we continued to invest in our colleagues and our supporting infrastructure in order to unlock our future growth ambitions.

In April, we aligned pay for over 33,000 frontline colleagues with the Real Living Wage, where it wasn't already. Then, later in July, we moved our stores to a three-tier management structure as part of our Fit for Future programme. We created new roles to retain talent, gave colleagues protected terms and were able to offer alternative positions to all colleagues affected.

In the second half of the year, we completed the roll out of our new SAP software solutions to improve ranging, stock holding, demand forecasting and availability in our Co-op stores, and our teams are adapting well to new ways of working.

We've also invested in our logistics network to further support availability and future growth. We ended 2021 on track to open our newest and biggest regional depot in Biggleswade in January 2022, which will handle over two million cases of frozen, ambient and fresh products a week. We also announced our plans to construct a new facility alongside our Newhouse depot in North Lanarkshire. Due to be completed in H2 2022, the new facility will allow us to upgrade part of the existing depot as well as strengthen our core logistics operation in Scotland.

All of this sets us up well for our next phase of growth.

Strengthening our four routes to market

As well as investing in our infrastructure, we have continued to invest in our physical estate and expand our reach through capital-light routes to market.

In retail, we opened 50 new stores in 2021, which takes us to 500 new stores opened over the last five years.

We've continued our focus on expanding our franchise operation with 22 new stores in 2021, taking us to a total of 36. We now have a nationwide presence by opening our first franchise in Scotland, as well as our first ever service station store in Cornwall. Our university partnership continued to grow too and we now service over 200k students with ten in-campus and off-campus stores. We were also really proud to have been named 'Emerging Franchisor of the Year' at the British Franchise Association awards, signalling our strong entry into this market.

Trading in Co-op Wholesale has been strong and in line with our Retail business. During 2021, we recruited 546 new stores to be serviced by Nisa and launched our refreshed Nisa Reward Scheme. As stated in our interim report, our like-for-like sales versus 2020 reflect the end of a supply agreement with McColl's Retail Group and the new customs and regulatory measures adversely impacting sales to retailers in the Republic of Ireland, following the EU exit.

In our online business, we've grown rapidly over 2021, more than doubling our revenues. In total, we delivered £200m worth of sales across our ecommerce website and through our partnerships with Amazon, Starship and Deliveroo, versus £70m in 2020 and £4m in 2019. Our online offer was available in 1,600 stores, in more than 450 locations by the end of 2021, available to over 55% of the population - our expansion efforts are the second largest online roll out globally.

In H2 we announced our trial with Amazon Prime. Prime customers in certain areas now have access to thousands of Co-op products with same-day delivery available for free for orders over £40, as part of the Prime membership. We are now successfully operating in five stores, with Amazon accounting for over 15% of these stores' sales and growing week-on-week. The trial is exceeding our expectations and we're looking forward to expanding the trial in 2022.

In 2021 we also launched a vending and micro-market solution in a wide range of locations including offices and hospitals, allowing customers to self-serve whenever is convenient for them. We look forward to significantly expanding this offer throughout 2022 and beyond.

Showcasing our Co-op Values through our products and services

Showcasing our Co-op Values through our products and services is still our point of difference.

In 2021 we really turned up the dial on how we partner with our suppliers on diversity and inclusion. After success with a pilot group, we rolled out our 'Endless Inclusion Hub' to all suppliers and are currently onboarding them to the site, to ensure we're integrating diversity and inclusion into all of our supplier partnerships.

We also launched Apiary, our supplier incubator scheme with a true purpose-led Co-op difference. We've focused on finding suppliers who give back to their local communities, and who are owned by women or entrepreneurs from ethnic minority communities. We'll be supporting them with mentoring and guidance, and together we hope to broaden the range of products in our stores to ensure that they truly reflect the communities that we serve.

As well as our ongoing price investments in 2021, we launched a series of new products to our everyday low price 'Honest Value' range. It now has around twice as many products as it did when we launched in 2020.

In 2021, we launched our 10-Point Climate Plan, making significant commitments to address the urgent issue of climate change. We announced that we'll be the world's first food retailer to produce carbon neutral own brand food and drink within five years. Also, we have a big focus on developing plans with our suppliers to reduce the environmental footprint associated with the products we sell, as this makes up 90% of our carbon footprint at Co-op.

In H2 we reached our target of making 100% of our own brand packing recyclable. This was achieved through the roll out of our soft plastics recycling scheme, enabling customers to easily recycle soft plastics through our in store units. We also reduced our plastic use even further by removing bags for life and rolled out our compostable carrier bags in their place.As part of our pledge to make lower carbon choices easier for customers we were the first retailer to price match our plant-based GRO range against equivalent meat products. During the COP26 conference we also ran a two week marketing campaign with the aim of educating members and customers on how to make choices that are fairer for the planet. 

· Funeralcare

- We remain market leaders across at need funerals, helping 90,731 families say their best goodbye to a loved one in 2021This is slightly down on 2020 due to the lower death rate and a number of strategic branch closures in the year.

- We supported 44,751 clients in planning for a funeral in 2021, through our funeral planning business

- Our customer satisfaction score was 99.3%Our professional and dedicated colleagues pride themselves on providing exceptional quality of care for the bereaved and deceased. Quality of care is the number one driver of client choice and our client satisfaction score reached a new high of 99.3% in September. 95% of client surveys returned (26,000) included a compliment.

While the UK experienced a further peak of Covid in Q1 2021, we have seen fewer deaths than in 2020, as the vaccination programme continues with its successful roll out.

As restrictions lifted, our clients were able to opt for fuller funeral services and, as such, our average revenue increased for 2021. However, it remains lower than 2019 due to our continued investment in price across our funeral options. We also made a series of strategic branch closures over the year.

Our funeral planning business remains strong and, in 2021, we supported 44,751 clients with their funeral planning needs; an increase of 5% on 2020.

All of this coupled with exceptional quality of care, demonstrated by our customer satisfaction score, means that we remain market leaders in at need funerals.

We have developed collaborative and robust relationships across Government and with our relevant regulatory bodies, the CMA and the FCA. We achieved full compliance with all CMA requirements ahead of the September 2021 deadline and submitted our FCA application and Regulatory Business Plan in October 2021. The FCA application is the first step in the journey to regulation and is where we provide details about our business and processes in order to be considered for approval. As the leading provider of funeral plans in the UK, every year we are proud to help thousands of clients with their funeral planning requirements and provide full confidence in our Co-op brand and Values. We are confident that regulation will raise standards across the sector and improve consumer confidence when purchasing a funeral plan.

Throughout the pandemic, our professional and dedicated teams have focused on caring for and supporting the nation's bereaved and deceased. Our performance has also been underpinned by the delivery of our bold and exciting Funeralcare strategy, which focuses on providing greater levels of personalisation, an improved digital offering for our clients and more sustainable choices across our funeral options, aligning to our Vision. We continue to offer more competitive prices to our members and clients and we have maintained prices since 2017.

Modern, diverse and inclusive in every way

Our aim is to offer the widest range of funeral options so everyone can have a unique and personal funeral, with fair and transparent pricing.

In 2021, we:

- Introduced new funeral options for our clients that are personal at every step of the way, including extending our African and Caribbean options to additional locations and trialling a new eco proposition.

- Launched a modern, diverse and inclusive rebrand, including a refresh of our marketing collateral, showcasing our inclusive funeral options on TV and radio.

- Reduced our prices, including the price of our direct cremations, making this increasingly popular option more affordable.

- Successfully launched a new direct cremation funeral plan in partnership with Memoria, a market leading private crematoria, as well as provided Funeral Benefit Options in partnership with the Post Office.

A true omni-channel approach to client engagement

Technology adoption has accelerated. However, our clients also want face-to-face support and contact at key points of their journey. We've combined digital innovation with investment in our physical estate to optimise client experience and choice when it matters most.

In 2021, we:

- Developed our online services enabling clients to see our full range of products, with full price transparency and the ability to start to plan a funeral online before visiting one of our branches.

- Introduced new ways to pay online, providing greater convenience for our clients whilst reducing time processing payments.

- Launched a new live web chat service for both funeral and funeral planning services.

More efficient ways of serving our clients

- To provide our clients with a caring and consistent experience whenever they need our support, we introduced a 'Best Arrangement' framework across all of our funeral homes.

- We invested in 1,600 new devices to help make the lives of our colleagues easier and to enable them to provide more seamless service and care to our clients.

- We introduced a new time and attendance technology platform across the business.

- We started to move towards a sustainable future across our large fleet of funeral vehicles. We are trialling Tesla and Nissan hearses with an ambition to be fully electric by 2030.

All of this couldn't have been achieved without our dedicated, caring and professional Funeralcare colleagues. This year we have built on our work to create a safe, diverse and inclusive environment. We've supported our colleague wellbeing with the development of our Psychological First Aiders and we have rolled out inclusion training to all managers. We recognise the unique and pivotal role our teams have in dealing with grief and bereavement on a daily basis - our focus in 2021 and into the future is to provide exceptional care for our colleagues who are the heartbeat of our business.

· Insurance

2021 was an important year for Co-op Insurance. Although we have a proud history of over 150 years of offering insurance, this was the first full year of our new partnership and distribution business model. We're already starting to see the benefits of this capital-light and customer focused model and look forward to growing our market presence in the years ahead. Our Insurance business generated profits of £15m (2020: £2m loss) on sales of £34m (2020: £6m) in 2021, following the sale of our underwriting business to Markerstudy in December 2020 and the start of the related 13 year distribution agreement for Car and Home insurance.

Home and Car insurance both performed well, with 162,000 new customers coming to Co-op Insurance in the year.

Our new Car and Home partnership has allowed us to make a major investment in the customer experience for these buyers. Also, thanks to this same partnership, we have been able to bring on a number of UK insurers to help meet more of our member and customer needs. This saw improvements in our competitiveness, with better value prices being offered.

Travel insurance has had a mixed year. 2021 has seen a number of different travel restrictions and measures from both the UK and other countries - consumer confidence remained quite low as a result of many cancelled flights, restrictions to navigate and the added expense of private Covid tests. At the end of the year, we successfully launched a new series of Travel products in readiness for the market opening up.

We also made a major upgrade to our Pet insurance products and we look forward to a very exciting year ahead for our Pet offerings. The pandemic saw more people get pets and protect them with insurance during the year, and this led to a 20% increase in sales on 2020.

Our two Life insurance products, in partnership with Royal London, have performed in line with our expectations. We improved our Over-50s Life insurance product in February, as research showed the need to simplify the product as some of the benefits were hard for customers to understand.

We've seen a positive improvement in both quote completion and conversion on the Over-50s product following these changes. We also worked in partnership with Funeralcare, to create greater value, offering a Funeral Benefit Option (FBO) to Over-50s customers.

Our work on making communities safer in partnership with others moved on at pace in 2021. Our long standing relationship with Neighbourhood Watch broadened out with new activities, such as the launch of Student Watch: a new national initiative designed to improve student safety whilst on campus and away from home.

We also enhanced community spaces through the creation of a wonderful outdoor adventure play area on a Wildlife Trust site, and we continued our Neighbour of the year campaign for the fourth year. This year we introduced two new categories - 'Young Neighbour of the Year' and 'Community of the Year' - and once again, we were inundated with hundreds of wonderful examples of caring people who aimed to improve their communities by being good neighbours.

We're so proud that the impact this work has on communities was recognised with an external award, winning 'Best Community Initiative' at the Corp Comms Awards.

We further saw our insurance business do its bit for a fairer world with more than 103 million car insurance miles offset in 2021, through our car insurance climate partnership with Climate Care. 

· Legal Services

2021 was a strong year for Co-op Legal Services. The business has continued to grow despite facing into several challenges and exiting the small claims personal injury market, following the sale of our insurance underwriting business to Markerstudy Group.

The work we've done to develop our products and practice areas this year has set us up well, and we're confident we'll continue to grow the business at a fast rate in 2022.

In 2021, Legal Services revenue increased by 3% compared to the previous year (this is a 9% increase, when you exclude revenues generated from discontinuing operations). Earnings before interest and tax increased by 28% year-on-year (a 93% increase excluding revenues generated from discontinuing operations).

In Probate, we increased our case numbers. In 2021, cases opened increased by 20% year-on-year to over 6,000 cases. For our clients, this meant we distributed in the region of £1bn of assets to Probate beneficiaries with over 1,000 charitable donations from clients and beneficiaries.

In Estate Planning, we have also grown our revenues by 11% year-on-year. We've co-operated with a number of charities to make a difference, with 2,000+ charity pledges in wills written.

The last two years have presented external market challenges related to Covid-19. Consumer buying behaviours have been disrupted with all consultations and advice moved to remote meetings. Partner relationships have also been impacted by changed consumer journeys. Co-op Legal Services adapted to this, re-engineering operating models to serve partners and support client needs within these new constraints. These changes have been successful and, this year, delivered improved commercial outcomes. They are also important strategic enablers for future growth.

To drive continued growth in the business, we have continued to invest in our digital capabilities and have launched new products and services, including a lasting power of attorney digital service and a digital probate administration service.

In 2021, a key focus for us when developing digital products has been inclusion and accessibility. Our aim is to make the law accessible to everyone.

To empower users to make informed decisions, regardless of their situation, we design tools with user insights in mind. We design and test our digital services with real users, from a range of heritage backgrounds and accessibility needs. This gives us confidence that our new services are intuitive, accessible and inclusive.

This has led us to create products with features such as:

- 24/7 access to legal services.

- A personalised list of tasks to complete, which highlights risks when managing the estate of someone who has died.

- Clear, structured guidance allowing customers to form clear, legally binding instructions for their attorneys. It provides security that their health, wellbeing and finances are being managed as they would wish.

- A free-to-use executor tool. Everyone can access initial bespoke guidance to understand their legal responsibilities when managing the estate of someone who has died.

We're working to be inclusive in all areas of our Legal Services business. Supporting vulnerable clients continues to be a real focus for us, and we're very proud that a recent internal audit awarded us a 'Good' rating for our work in this area. This rating gives us even more confidence that we've got the right governance and control framework in place, we have the right information available, and our colleagues know how to identify and support vulnerable clients in the right way.

We've continued our work building partnerships with B2B clients including charities and commercial businesses and, in 2021, we onboarded 19 new partners. We are delighted to have built new partnerships across several sectors with leading banks, leading financial services providers and market leading charities.

Co-operating for a Fairer WorldWe live in a world where:

· Individuals feel they are not listened to or respected.

· Institutions and leaders are not trusted.

· Communities feel disconnected and vulnerable.

· Corporate actions can be at odds with the sustainability of the planet.

The pandemic has cruelly shone a spotlight on the gaping inequalities which already existed in our country. As one of the world's oldest co-operatives, our leaders can and must find solutions that help to address them.

'Levelling up' and 'Build back better' have become key phrases within a post-Covid narrative, to help encourage Government, industry and other agencies to work together and fix the major challenges we are facing. The words equally chime with an aspiration to create a more equal playing field, where no-one and no local community feels isolated or left behind.

But the words and music must come together if these gaps are to be bridged and a fairer, more equitable society is established.

Our Purpose of doing business a better and different way is based upon a simple but compelling concept, which is to return the value back to our members and the communities in which they live. Our Vision of 'Co-operating for a Fairer World' has never been so needed or relevant and, during the course of the year, we made significant progress in delivering against it.

Our Vision is based on three key and interconnecting areas of focus: 'Fairer for our members and communities', 'Fairer for our colleagues' and 'Fairer for our planet'.

Fairer for our members and communities

Membership, and the support this allows us to give to local communities, makes our Co-op what it is. Making life fairer for our members and communities sits firmly at the heart of delivering our Vision: 'Co-operating for a Fairer World.'

During 2021 we've focused heavily on recruiting more active members, allowing our customers to unlock greater value for themselves and make a difference locally.

Member recruitment

517,000 new members joined us in 2021, more than 2019 (470,000) and 2020 (445,000) - we ended 2021 having achieved our target for active members, having also reactivated over 260,000 of our lapsed members.

Our three acquisition campaigns have proved popular, recruiting 130,000 of our new members this year.

And we're delighted to be attracting more younger members - more than 200,000 (38.8%) of our new members are aged 35 and under. This is above the 33% target we set ourselves, and more than double the percentage of young shoppers that are among total UK grocery shoppers, as reported by Kantar.

Engaging our members

The way our members engage with us digitally continues to grow, with over 1.1m signing into our app, and 966,000 selecting a digital offer at least once during 2021 (53% of which were new to offers) - more than 26m offers were selected. Members who redeemed offers saved a total of £10m, resulting in an average saving of £13.37 per member. And, following a targeted direct mail to non-app users, we saw Co-op app downloads grow to 54k: the highest weekly total we've seen since September 2020.

Our members are at the heart of our business and the decisions we make. And that means more than just joining in on developing our products and services. Our members also have a say on the issues we champion, the causes we highlight, the injustices we tackle and where we use our voice to help make a difference.

For example, more than 16,000 of our members have helped us to shape our three areas of community focus. This year we've taken that one step further and they've been collaborating with us to develop the work funded by our Community Partnerships Fund, so that they're not only generating the funds that benefit communities, but also having an active say in how and where those funds are spent.

Last year, our members made their voices heard like never before. Working with our Food teams, more than 100,000 members designed a range of more than 16 member exclusive products from popcorn and pizzas - these new products hit the shelves in 2022. They also helped our in store teams design how we talk about membership and community and created new product reviews to bring products to life for our customers and members.

Climate change has long been a big issue for Co-op members. In the summer, over 14,000 members downloaded resources to highlight our new plastic recycling hubs in stores, and joined in to shape our climate change policy and support our COP26 activity. Over 66,000 members joined our campaigns this year, from colleague safety to standing alongside Marcus Rashford in support of free school meals.

We work with members to help bring to life our unique co-operative structure. In 2021, we worked with our National Members' Council to develop a range of online quizzes and activities to help members better appreciate our Co-op. Over 21,000 joined in, with topics including co-ops around the world, diversity and our campaigning tradition.

Back in January, thousands of members helped us understand more about how to tackle racism as we launched our anti-racism commitments. Members asked us to help them celebrate festivals and events that were key to different cultures and faiths. We launched our first two member activities this year for Eid Ul Adha and Diwali with videos created by members and factsheets designed to help members learn more and participate.

Throughout the year, 266,738 unique members joined in with Co-op 578,583 times, which is 50% up on 2020.

Supporting and understanding our communities

Our Local Community Fund allows our members to support local projects they care about, through raising funds just by choosing Co-op. Since we launched the fund back in 2016, we've shared more than £84m to help local causes deliver over 25,000 community projects across the UK.

Selected causes receive a share of the financial support generated by our members when they shop at Co-op. So we're delighted that, during 2021, a record-breaking one million members selected a Local Community Fund cause in our final round. This is the highest level of cause selection we've ever seen in a single round.

During the pandemic, we've adapted our community strategy to support our local communities' needs, making sure the power of our Co-operative Values is supporting local communities where and when they need us the most, during these difficult and challenging times.

We know the pandemic hit many communities hard, and we wanted to step up and play our part in supporting where help was needed most. In May 2021, we issued a survey to local causes to understand the impact of the pandemic on projects being supported through the fund.

Over 3,000 causes responded (making it a 66% response rate) providing valuable insight into the challenges they were facing. As a result, we continued to allow greater flexibility in the use of grants to enable causes to adapt their projects in light of the pandemic.

And, as challenges remained ongoing in 2021, we injected funds into our interim April payout to allow funding to reach communities as early as possible.

Our Community Wellbeing Index - as well as feedback from our members, colleagues and causes - is critical in driving support to those communities that need it most and informing where we can make the most significant, meaningful difference. Available on https://communitywellbeing.coop.co.uk, it draws upon multiple data sources to determine the wellbeing of more than 28,000 UK communities. It helps us appreciate exactly what our communities need and acts as the backbone of what we do and what we plan to do, to deliver against our Vision. It also leads how we work with key groups, including local causes, charities and Co-op Academies, so that we can work together to see our communities recover and build new resilience. We have a new annual report that outlines the findings - please see our Co-operate Report for more information, available on www.co-operative.coop 

Digital tools also help our communities connect. Co-operate (www.coop.co.uk/co-operate) is our online community centre which brings people together to make good things happen, empowering them to co-operate for a fairer world. 13,500 groups and activities on the platform are connecting with people across the UK. As of 2021, it now also offers a platform that helps us activate key projects for the benefit of our communities, including Hubbub, Peer Action Collective for young people, or the mental wellbeing support we have developed with Mind, SAMH and Inspire. More on these later in this report.

Raising funds together

Our Community Partnerships Fund is created by our members from money raised when they buy Co-op products and services, and it helps us tackle the big issues in society. After doubling support for communities through Co-op membership in 2020, this fund sits alongside the Local Community Fund, supporting thousands of local causes.

Since we launched the fund in September 2020, our members have raised £12.9m through their community reward - and generated £116,000 through donating their personal member rewards.

The fund has allowed us to work towards new projects with partners and even forge new relationships with like-minded organisations, interested in realising our Vision alongside our Co-op and making a difference to the lives of those in our communities who need it the most. In 2021, £4.8m was distributed from the fund, which included support for the Youth Endowment Fund and Hubbub, and a further £3.4m committed to support activity in 2022.

Our colleagues have been simply incredible throughout the pandemic. Not only have they stepped up and continued to play a vital role by feeding and supporting the nation, they've continued to support our work in communities.

Our innovative colleagues - including those on the frontline, working in the heart of our communities - found so many different routes to supporting others, whether that was fundraising, supporting charities in person, taking an active role in trusts or working closely with our Local Community Fund causes. During 2021 our colleagues, members and customers have raised over £4.5m for our national charity partners Mind, SAMH (Scottish Association for Mental Wellbeing) and Inspire, taking the total to £7m since 2019, to bring communities together to improve mental wellbeing.

Our three missions

Our community support continues to focus on three missions: Fairer Access to Food; Fairer Access to Mental Wellbeing Support and Fairer Access to Education and Employment for Young People.

· Fairer Access to Food

The need for emergency food support increased during the pandemic and, as the economic situation worsened, this need continued.

We know that many of the current food charity partnerships are serving communities in desperate need of immediate support. However, we also recognise that we need to move to ethical and sustainable relationships in the long term. We need to empower communities to manage access to food for their people, whether that's through providing meals for school children who need them, or offering the means to grow and enjoy fresh produce, as examples. 

That's why during 2021 we focused on: making sure that food that is fit to eat is used well, through distribution networks and through local partners; building capacity to help local communities increase resilience and have control over their own food journeys; and campaigning for change to help level the playing field for fair access to food.

We have a strong long standing interest in reducing food waste from our Co-op. Our Foodshare programme shares surplus food with local community groups - 88% of stores now have a Foodshare partner, with 28% of our Food stores' surplus food shared with these groups. Through our depot distribution network, we also continued to support FareShare by distributing 2.8 million meals in 2021.

We launched our Hubbub partnership in May, helping to double the size of the UK's Community Fridge Network from 100 to 200 locations. In December we announced a commitment to help the network expand to 500 locations, helping redistribute millions more meals by the end of 2023.

We're proud to have been one of the first retailers to confirm our participation in the End Child Food Poverty Taskforce convened by Marcus Rashford. The Taskforce campaigned for the Government to expand eligibility for the Free School Meal scheme to include every child, extend the Holiday Activity and Food Programme to all areas in England, and increase the value of Healthy Start Vouchers to £4.25 per week - a cause for which our members also actively used their voice.

· Fairer Access to Mental Wellbeing Support

Of equal importance is fairer access to mental wellbeing support, and we've seen the need for this grow rapidly. It's well documented that the pandemic has had a significant impact on the mental wellbeing of the nation, with 65% of adults and 68% of young people reporting that their mental health has declined. Data from Mind (2021), Coronavirus: the consequences for mental health, July 2021.

During 2021 we've continued our partnership with Mind, SAMH and Inspire to bring communities together to improve mental wellbeing. We're so proud that between our members, colleagues and customers, we've raised more than £4.5m for these three partners, taking the total to £7m raised since 2019.

And, as a result of our partnership, we've also been able to support over 8,000 people to increase their resilience and mental wellbeing - we now have more than 50 new services across the UK. We've signposted over 900,000 people to information, activity and support for mental wellbeing. Also, we were proud to add new insight on the vital role of community through our new research - 'Together Through Tough Times' - and have been using this to call on governments to build community resilience into post pandemic polices. The Together Through Tough Times report can be found on www.co-operative.coop 

· Fairer Access to Education and Employment for Young People

The nation's young people are at the heart of our support for communities. They're our future members and co-operators. Making sure that, through the power of co-operation, young people and their communities have fairer access to education and employment is incredibly important. We know that the impact of the pandemic will be felt for years to come. We want to be able to provide joined up, sustainable solutions that will make a difference to the lives of the next generation.

During 2021 we've been working hard to help young people be heard, make a difference and access opportunities.

We listened to around 5,000 young people from the UK, aged between 10-25, to understand how Covid had affected their lives, but also to share our findings with a wider audience as part of our 'Ghosted Generation' report. Our findings defined a massive 'Hope Deficit' - 60% of those asked believed that the pandemic would leave them permanently disadvantaged. The Ghosted Generation report can be found on www.co-operative.coop 

In October 2021 we launched the Peer Action Collective (PAC): a unique partnership with Youth Endowment Fund (YEF) and the #iwill Fund (a joint investment between The National Lottery Community Fund and Department for Digital, Culture, Media and Sport), investing £5.2 million to give 6,000 young people the chance to make their communities safer and fairer places to live. For more information, visit https://peeractioncollective.com 

Together, through PAC, a ground breaking network of 120 paid peer researchers aged 16-25 will be created, who'll find out about young people's experiences and understand what they need. The programme supports them to work with other young people to take what they learn and turn it into action, whether that's finding routes to work, setting up much needed social facilities or helping instil greater mental wellbeing across young people in our communities.

In February 2021, we also announced Cooplevyshare.co.uk - an opportunity for employers to come together and support apprenticeships for individuals from under-represented socio-economic groups.

Our Co-op Academies continue to go from strength to strength, educating over 17,000 young people across 27 northern academies by the end of 2021. They support our ambition to provide fair access to education, alongside other Co-op campaigns and commitments, such as Fairtrade and our sustainability commitments. We work in close partnership to deliver against our diversity and inclusion commitments, including the commitment to the development of an anti-racist curriculum.

We've developed activity to support Careers Education, Advice, Information and Guidance from Primary to Secondary to Post 16, including virtual work experience in partnership with a number of our suppliers. The Virtual Work Experience programme engaged more than 1,500 students, including those from Co-op Academies, during a five week period. 80 live sessions were available from 18 different sectors of Co-op, as well as 11 supplier sessions led by Kellogg's, Microsoft, ITV, Marsh, and Mitie. This was complemented by physical work experience opportunities for students with special education needs and disabilities and those that may become 'NEET' (Not in Education, Employment or Training), helping to inspire and inform students who require additional support in preparation for the world of work.

Our programmes help students to develop key employability skills from Foundation Stage to Post 16 years. We've also maintained our commitment to delivering the Co-op Young Business Programme, which offers substantial work placements, including at our Co-op, for students at Connell (our only academy with a sixth form college) in their final year. This is the only programme of its kind in the UK with paid placements. It looks to develop the knowledge students gain in the workplace, build their employability skills and give them work readiness. 

As part of our commitment to the Co-op Academies Trust, we also provide governance expertise from our business, which includes more than 80 Co-op colleagues who hold governor roles.

Where possible, our academies also support fair access to wellbeing and food, with a whole trust approach to mental wellbeing. Each academy must have the means to ensure mental wellbeing sits in equal priority to supporting the physical health of its students.

And we're delighted to see our Co-op Academy Failsworth supporting fairer access to food, with the students running the academy's own Community Fridge, accessible to the whole community.

Member Pioneers

We simply couldn't achieve everything we do, including against these three missions, without our Member Pioneers. They make great things happen in our communities and work tirelessly with Co-operate, other Co-op colleagues, members and local causes to ensure they can all recover and build new resilience.

We reached 1,000 Member Pioneers and Member Pioneer Co-ordinators in 2021, based in communities across the whole of the UK. They bring our Co-op Vision to life by connecting key contacts in their communities and bringing people together to increase co-operation.

During 2021 our Member Pioneers invested over 100,000 hours in our UK communities, including 28,000 hours supporting our three missions and more than 20,000 hours supporting our Local Community Fund.

They engage with an average of 38,000 people a month and reach more than 6m through their social media channels.

Our Member Pioneers actively get involved and support our Co-op campaigns and initiatives including Hubbub Community Fridges and our partnership activity with Mind, SAMH and Inspire. During 2021, they also delivered more than 300 Live Local events across the UK, bringing key themes - such as Fairtrade, Sustainability and the launch of our soft plastics recycling - to some of our most important audiences: our members, customers, colleagues and community causes.

For more information, or to get involved, visit www.communityspirit.co.uk or, to find your nearest Member Pioneer Co-ordinator, visit www.coop.co.uk 

Co-op Foundation

The Co-op Foundation is Co-op's charity and, during 2021, it continued to support delivery of our Vision: 'Co-operating for a Fairer World.'

The Foundation awarded its largest single grant to date to Refugee Action in September. Its £250k flexible grant was agreed in less than a week to help the team respond to the Afghan refugee crisis, fund longer-term support services and raise the voices of people with lived experience of the asylum system. 

The Foundation also provided flexible funding to help its community spaces partners overcome the long term impacts of Covid, with grants totalling £366,000. In addition, £296,000 was awarded from its Space to Connect partnership with Government to help partners expand their work boosting connections in communities. 

This grant giving built on the Co-op Foundation's commitment to flexible funding that saw it join a community of funders committed to open and trusting grant making. This community is co-ordinated by the Institute for Voluntary Action Research and the Foundation made eight pledges, including committing to being open with partners, acting with urgency and being proportionate with reporting. 

Also in 2021, Co-op Foundation ran year three of its 'Lonely Not Alone' campaign to tackle youth loneliness and improve youth mental wellbeing. Foundation research shows there are 1.9m chronically lonely young people in the UK. The campaign invited 10 to 25 year olds to share their stories of loneliness online to break down stigma. 3.1 million young people have now seen Lonely Not Alone and 97% have taken an action as a result.

The Foundation's partnership with Luminate continued through 2021 as it launched the second phase of its Federation programme. This is designed to help people use technology to speak out about inequality.  

Fairer for our colleagues

Throughout 2021 our colleagues continued to make an amazing difference for customers, members and each other. They've all stepped up and delivered despite the extraordinary circumstances the pandemic continued to create. Our priority was to ensure their wellbeing was safeguarded and they were given all the support and information they needed.

Safer Colleagues, Safer Communities

Our focus on keeping colleagues safe and feeling safer will never stop. We continue to invest significantly in technology and training in our shops to tackle violence, abuse and shoplifting.

On top of the 250 stores that already have them, 300 more stores were provided with body worn cameras in 2021, to be used when a colleague feels threatened by aggressive or violent behaviour. We know from our data and research that shoplifting is a key trigger for aggression against colleagues so we've invested in things such as product protection tags and fitted all of our assisted service tills with security cameras.

We also invested in 50 more safety focus stores, taking us to 100 stores overall. These stores are those worst affected by crime, with 45% of all reporting coming from these shops. We've invested in additional security measures, such as shutters, special glazing on doors and windows, intelligent CCTV and improved intruder detection. We've also closely supported the teams in these stores and developed their skills in how to deal with specific challenges in their shops.

We've continued to campaign for better protection in law, working with MPs, unions and other retailers to get new legislation that increases the penalty given for violence towards a retail worker. In January 2021, the Scottish Parliament voted in favour of the Protection for Workers (Retail and Age-restricted Goods and Services) Bill, which creates a new statutory offence of assaulting, threatening or abusing a retail worker. We were also pleased that the Government has accepted the need for a change in law in England and we look forward to seeing that legislation put in place in the early part of 2022.

Colleague wellbeing

Colleague wellbeing is our number one priority, and the work we do to support colleagues is designed to ensure that they feel supported, as individuals. We're now in year two of the pandemic and we know this is impacting colleagues; helping to protect their wellbeing has been more important than ever.

Every month we share a #WellbeingWednesday Co-op Care newsletter with all colleagues. It supports their general wellbeing and gives them all the information they need to help them cope with any physical, mental and financial issues they have been facing during the pandemic.

We've done a lot of work to ensure our people policies are not only up to date, but also meet the needs of our colleagues, in line with our Co-operative Values.

There have been two major policy launches this year, the most recent being the launch of our new domestic violence policy. We know that the pandemic has brought more instances of domestic abuse and the policy is designed to help protect our colleagues as much as we can as their employer.

Our new pregnancy loss policy was developed with the Miscarriage Association and provides practical support for parents who experience pregnancy loss at any stage of pregnancy.

Through 2021 our approach to developing colleague wellbeing initiatives has continued to be based on insight and data directly from our colleagues:

· We've made our Headsmart mental health training available to all managers, to help them understand the importance of wellbeing, identify the signs of poor mental health and approach the issue.

· We've launched Wagestream to all colleagues, allowing thousands of them to access their earned pay between pay days and open a savings account paying 5% interest. Colleagues have told us Wagestream has reduced their stress levels and improved their finances.

· We've sent all our colleagues a wellbeing booklet and wallet card to show them all the support we have available in one place.

· We've launched a pilot of YuLife, which will incentivise colleagues for healthy behaviours. YuLife is an app that puts all Co-op benefits in one place and rewards colleagues for simple healthy activities, like walking and meditating, with YuCoin. YuCoin can be exchanged for vouchers from brands including Amazon, ASOS and Nike.

· We've continued our other partnerships to support physical, mental and financial wellbeing such as Smart Health, which provides all colleagues and their families with access to virtual GPs and support in areas such as mental health, complex medical cases, nutrition and fitness.

· Our wellbeing platform, provided by LifeWorks, has continued to grow in popularity, giving colleagues access to a range of self-help wellbeing resources. We're also continuing to partner with Stepchange, Neyber, Co-operative Credit Union and Keep Credit Union to bring quality financial wellbeing guidance to colleagues. We've created a wellbeing hub to help our leaders easily access all wellbeing content from one place to support their teams.

· During Mental Health Awareness Week, we ran 40 virtual events on numerous mental wellbeing topics, inviting partners such as Mind, SAMH and Inspire to host.

And for our office-based colleagues, our 'Working Well for Everyone' programme has continued to be there for colleagues who are hybrid working at home and in the office, offering flexibility and choice around how, where and when they work. We've also launched a new Hybrid Working Policy to give colleagues and leaders clarity around this.

Diversity and inclusion

Our diversity and inclusion strategy has seen continued increased focus this year, and we've explored what it really means for all our colleagues more than ever before. Our aim for colleagues is to create an inclusive culture where everyone has a sense of belonging and has a fair, equal chance to fulfil their potential.

Our key activities for 2021 focused on development, learning and delivering against our commitments to racial equality and inclusion, which we made in September 2020. We've made good progress and you can read a full update on www.coop.co.uk 

· We've delivered over 3,000 inclusion learning opportunities alongside a more diverse range of activity through our Inclusion Calendar.

· We've ensured inclusion objectives are embedded in our individual and collective leadership goals this year with all our senior leaders striving to lead by example.

· We launched our Advancing Diverse Talent Programme, developed for ambitious colleagues from ethnic minority backgrounds, to furnish them with skills and techniques to draw upon, against barriers to development and progression.

· We've created a programme of learning that celebrates all facets of diversity, bringing Rosh Hashanah and Trans Awareness Week to the forefront. We have worked in a more intersectional way across our colleague networks, in support of understanding more about our colleagues and their lived experiences.

· We launched our first English as a Second Language offering for colleagues, having listened to feedback and ideas from our colleagues. We saw more than 400 people sign up.

· We've also translated policies into several different languages for the first time, starting with our new Domestic Abuse Policy.

· Our discovery groups and listening circles focused on areas such as how we celebrate cultural events, and accessibility to items needed for prayer and cultural practice.

· We've also been analysing our colleague data to understand how we can drive better decisions that support not only our most marginalised colleagues, but all of our colleagues. Our ongoing focus on data has seen us working alongside our leaders to understand the value of our colleague diversity information and its role in decision making. 65% of our 60,000 colleagues have shared their data with us.

Our colleague networks have been integral to our work, representing our diverse colleague base and helping us champion best practice. Our networks include Represent (for disabled colleagues); Aspire (women); Respect (LGBTQ+); Strive (young colleagues aged 18-30); Rise (ethnic diversity) and PACT (parents and carers). These networks have been heavily involved in how we've shaped our Inclusion Calendar of events and ensure our colleagues have been represented in the most authentic way.

We've taken the time to mark cultural and religious events and days throughout 2021, to recognise and celebrate the varying identities of our colleagues.

Fair pay and meaningful work

In early 2021, as part of our commitment to reward colleagues fairly, we aligned pay rates with the Real Living Wage. In 2021, all our Customer Team Members in our stores received a pay increase of 5.6%, with similar pay increases to other frontline roles across Co-op.

Our apprenticeship programme opens up a route to lifelong skills for our colleagues and communities. In May 2021, we launched Cooplevyshare.co.uk to support apprenticeships for individuals from lower socio-economic backgrounds, different ethnic minorities and other under-represented groups, working with other employers, including our suppliers, to bring together target funding of £15 million to create opportunities. By the end of 2021, the service now had 30 donating employers with £7.2m in the fund and 59 receiving organisations detailing potential apprenticeships. 442 matched apprentice opportunities had been confirmed, to a value of £4.06m.

In 2021, there were over 600 apprentices aged 16 to 70+ across 30 different programmes within our Co-op. We've created a Young Business Leaders programme with Connell Sixth Form College (a Co-op Academy) which offers a pathway into entry level Co-op apprenticeships.

Despite this being a very challenging year for our Funeralcare colleagues, 87 have achieved their full apprenticeship while, in Legal Services, we've recruited both Paralegal and Solicitor apprentices, as an alternative to a traditional university route.

In October, we began the recruitment of more than 300 LGV driver apprenticeships, in response to the driver crisis facing the nation, offering opportunities to those already working for Co-op, or those who were aspiring to. Within three months, apprentices will become fully operational drivers, with a starting salary of between £23,753.60 to £25,584.00, depending on location. By the end of 2021, we'd already recruited 56 of these apprentices.

For more information on our pensions and related investments, please see our Co-operate Report.

Transforming our leadership

To help us deliver our Vision we need leaders who are connected to it and motivated by our Purpose. By focusing on 'Leading Well for Everyone', our leadership development strategy - 'Leadershift' - supports our wellbeing, community and sustainability agendas. 700 leaders, across nearly 1,500 places accessed live content in 2021, and many others sought out related offline materials.

We also started leadership conversations around Race at Work, with an in-depth and impactful leadership programme for our Executive and their teams.

Our commitment to inclusion was evidenced in our recruitment of leaders, with 57% female hires and 36% of hires from diverse or under-represented backgrounds, including across ethnicity and sexuality.

Over 200 leaders participated in our fifth annual festival of learning and development - 'Leadfest' - which focused on innovation, exploring a range of techniques to facilitate conversations about our Co-op ways of working.Fairer for our planet

It cannot be overstated: climate change is real and life threatening. The science is clear and indisputable. Tackling climate change has long been one of our priorities but now, more than ever, new ways of thinking and unprecedented co-operation will be needed.

2021 has been a hugely significant year for climate change and the world watched as the UK Government hosted the largest climate change conference ever, COP26.

And it was a significant year for us, as we published our important 10-Point Climate Plan. The plan serves as our blueprint for how we will play our part in addressing the climate emergency and is built on three principles:

· We'll follow the science in our target setting and decision making. Above all else we must rapidly reduce the carbon we put into the air.

· We'll work for a fair and just transition for people and planet. Solving the climate crisis can't come at the expense of those who can least afford it.

· We'll co-operate to drive systems change because we recognise that we are stronger and more effective when we work with others.

Our route to net zero by 2040

Our priority above anything else is to rapidly reduce our carbon emissions. We've been working closely to follow the guidance and recommendations of the Science Based Target initiative, which includes rapid carbon reduction aligned to keeping global warming to 1.5°C above pre-industrial temperatures in the short term. It also includes a long term goal of net zero emissions by 2040 and compensation for our emissions in the meantime through carbon neutrality, funding verified carbon offset projects.

Following an external audit of our 2021 greenhouse gas data, we are pleased to announce that we've met our 2025 science-based targets for direct emissions three years early. We targeted to reduce our emissions from running our business by 50% by 2025, compared to 2016 and, since 2016, we have reduced emissions by 50.9%. In line with our 10-Point Climate Plan, we will set out our next rolling science-based target in 2022.

To read more about our carbon footprint, see our Co-operate Report.

Climate justice for people and the planet

In 2021, we launched our 'Climate Justice for People and Planet' report that builds on our 10-Point Climate Plan. Coinciding with the report, we announced our strengthened relationship with Fairtrade Africa and the Fairtrade Foundation, which will see us support producers that are already experiencing the impact of climate change first hand and also those who will do in the future.

It's crucial that we ensure producers in low income countries receive adequate support to cover the cost of adapting to climate change and transitioning to low carbon production. We'll channel our current investment in individual projects into a strategic programme directed by 12 producer organisations in tea, coffee and flower supply chains in sub-Saharan Africa.

We also committed to spending in excess of 0.7% of pre-tax profit to international development projects, and encourage other retailers to follow. More detail is available in the Climate Justice Report, available at www.coop.co.uk/climate 

Together we can make a difference to climate change

Co-operation is the only way we can realistically avert the worst impacts of this crisis. Over the last year, we have begun to move from an organisational approach towards a systemic approach, forming strategic partnerships, leading where we can, following where others are ahead and, once again, campaigning and lobbying for change.

In 2021, I chaired the British Retail Consortium Climate Action Roadmap Steering Group. Together, this group will continue to support industry and supply chains to reach net zero carbon emissions by 2040 and play a part in making things fairer for our planet.

We're supporting our customers and members to make lower carbon choices. From May 2021 we reduced the price of our plant-based GRO range to match the price of their meat and dairy-based counterparts.

During the two weeks of the COP26 conference, as part of some guerrilla marketing, we rebranded our stores to Co-op26 and also ran a campaign to educate customers to make lower carbon choices. As part of this, we announced our partnership with the global 'Count Us In' campaign, aiming to mobilise one billion people over the next decade in reducing carbon pollution and challenge leaders to deliver global systems change. 

Finally, Co-op will focus its campaigning influence to drive improvements at a national and global level, collaborating with Government and other businesses to lead the change that we need to make as an industry; all while developing easy ways for our customers and members to do good for themselves and the planet.

Reducing our impact through our businesses

The carbon emissions from running our business have continued to reduce at pace, driven by a combination of our Co-op using less energy, having greater control of refrigerant leaks, using less impactful refrigerant gases and there being more renewable energy in the UK grid. In the first half of 2021, our operations achieved carbon neutrality (i.e. where carbon emissions within a set boundary are balanced by action to reduce, avoid or remove emissions elsewhere), and we pledged to be the first supermarket to have carbon neutral own brand products by 2025.

On plastics, we took action to reduce our contribution to plastic pollution in the first half of the year. Back in 2007, we were the first retailer to launch certified compostable carrier bags and, in April, we rolled them out to all of our Food stores - removing all 'bags for life' in the process.

To support this, we launched our Bags to Rights report that calls for all single use carrier bags to be compostable, the price of reusable bags to increase (to encourage more than one use) and for it to be mandatory for all retailers to report on the sales of all plastic bags.

We also launched our new soft plastics recycling scheme, available in most Co-op shops. This final piece of the jigsaw allows us to reach 100% own brand packaging recyclability. For more information, see our Co-operate Report.

Co-op Insurance celebrated 15 years since it brought the first UK car insurance policy with carbon offsetting to the market. Every customer who purchases vehicle cover directly through Co-op Insurance sees ten percent of their motor carbon emissions offset through carbon mitigation schemes across the world, for the first year of their policy, at no extra cost. This includes rainforest protection projects in Sierra Leone, provision of safe drinking water in Kenya and stoves that use less fuel in India, Ghana and Kenya.

2021 also marked ten years of carbon neutrality for Co-op Funeralcare, across its operations. We only use wood certified by the Forest Stewardship Council in the coffins we manufacture and have developed a set of natural and eco funeral services and options. In Funeralcare, we've also committed to install electric vehicle charging points as standard across new and refitted care centres opening this year and beyond.

Creating an even stronger and more agile Co-opOur Co-op exists to create value and give this back to our members and to the communities we serve. A stronger Co-op means stronger communities and, for this to happen, it's vital that we remain commercially successful and relevant within our core markets.

Against a backdrop of economic uncertainty, availability issues, inflation and continued volatility as a result of Covid, it had become even more apparent that we needed to consolidate upon the investment and progress we had made in prior years.

During the latter part of the year, we started to look at how we could create a more resilient, agile and sustainable business for the future.

As a result of this, we spent the last quarter of 2021 reviewing our strategy, our financial position and how we could achieve more with the resources that we have. The result of this work has enabled us to map a journey that will see us tighten our strategic areas of focus during the next three to four years.

Speaking on behalf of the Executive, during that time we're going to focus on how we can win commercially as a Co-op by:

· Diversifying and developing our Food business further in response to both consumer and market trends, whilst maintaining our convenience and community-led approach.

We'll do this by:

o Increasing investment into our ecommerce, franchise and wholesale business areas, whilst retaining our physical retail footprint across thousands of local communities.

o Continuing new product development - launching new products, which excite and delight our members and customers locally, whilst maintaining a sharp focus on price and promotional activity.

· Developing our Life Services businesses so that each area strengthens its own unique market position, but collectively delivers more commercial and member value in the years ahead. We'll do this by delivering a range of new Life Services propositions, securing more sales and generating more Co-op value through increasing B2B activity and exciting new partnerships.

To deliver upon our priority areas, we also need to significantly reduce our operating expenses and improve our core financial metrics, especially our net debt position in the years ahead.

We have a plan to achieve this by:

o Significantly reducing our operating expenses permanently by at least £50m in 2022, rising to £100m by 2023. This will allow us to increase efficiency and to provide the means to invest for profitable growth.

o Reducing and re-focusing our capital expenditure, allowing us to reduce our debt levels significantly.

o Fixing legacy technology areas, which will improve both resilience and efficiency as we move forward at pace with our planning and delivery.

Co-op is an incredible business with a compelling Vision and Purpose, which are both so relevant for the world we share and care about.

This is why Co-op leaders will continue to focus and invest in the things that matter most to colleagues, members and communities.

We'll use our technology and digital capabilities to carry on delivering the insight and propositions we need to create compelling Co-op products and services for our members and customers.

Our support for communities, diversity and inclusion and colleague safety initiatives remains unwavering and vitally underpins delivery of our Vision.

Leaders will continue bringing more consumers to our Co-op and then convert them into active members; building new generations of co-operators, co-operating together to help build a fairer world.

In the coming years, Co-op's business strategy will be focused even more tightly around delivering value in support of our Vision. It won't be easy and will require leaders to take brave and decisive action, but the prize is considerable and necessary, and will allow Co-op to help the country recover and build new resilience.

And I wish my colleagues the very best on this exciting journey. I have had ten wonderful years at the Co-op and am very proud of all that we have achieved and how we've shown that a purpose-led organisation, focused on a strong Vision of fairness and Values can make such a difference. Thanks once again to our amazing colleagues, from me - we have been there for millions of members and customers when they have needed us the most.

Steve Murrells

CEO, The Co-op Group

Our financial performance

* Refer to Note 1 of our financial statements for a definition of underlying profit before tax.

** The one-off gain of £99m relates to the settlement of the Group Relief Creditor owed to the Co-operative Bank PLC when a

settlement of £48m was agreed in February 2021 against a liability of £147m. See Note 6 (Finance Income) for further details.

Our headline performance

Once again our full year results have been significantly impacted by the ongoing global pandemic - the challenging trading conditions that we have experienced this year are reflected in our relative financial performance with lower sales, profits and cash generation in comparison to the prior year. The varying stages of lockdown restrictions that have been in place over the last two years have strongly influenced customer behaviour and our ability to support and serve our members and communities. This means it is hard to make meaningful comparisons between the results for this year and those for last year.

The contrast is most significant in our Food and Wholesale businesses. Because of this, we have included some additional financial measures in our business performance commentary below that compares our most recent results to those in the equivalent period in 2019, which was not impacted by the pandemic. We've done this to try to provide our members with extra information that looks to get beyond the complicated comparative picture. We believe this gives our members further insight to help them assess the underlying performance of their Co-op against more appropriate comparatives, and is designed to supplement rather than replace our standard statutory reporting.

In the first half of 2020 we saw unprecedented levels of sales in our Food and Wholesale businesses as customers looked to shop closer to home at their local convenience store. In contrast, fuel sales were significantly down as we were all encouraged to stay at home and so didn't use our vehicles. In 2021 grocery sales have since fallen back from the unusual levels that were seen when the first national lockdown came into force, whereas fuel sales are up significantly in comparison following the easing of travel restrictions. Funeral volumes are also lower this year in comparison to the death rate that was experienced at the height of the pandemic in the prior year, although there are now fewer restrictions on the type of service we can offer - last year we could only deliver the most basic of funerals to our clients.

Total Group revenue fell by £0.3 billion to £11.2 billion from £11.5 billion in 2020. This reflects a 2.8% decrease compared to 2020 and was anticipated as we saw the annualisation of the unusual customer behaviour at the start of the pandemic in both our Food and Wholesale businesses. In line with many retailers, we also saw an adverse impact on sales in the second half of this year due to reduced availability of certain products in our Food stores following the effect of Covid on global supply chains and our distribution network. Total Group sales are, however, up by £0.3 billion (2.6%) in comparison to 2019 reflecting steady two year growth in these businesses with two year like-for-likes in Food (excluding fuel) of 3.3% and in Wholesale of 9%.

As anticipated, our profits are lower than last year. This is driven by a combination of the significant planned strategic investments that we have made into our businesses and colleagues, as well as the annualisation of the impact of Covid on customer behaviour and associated additional costs, and supply chain issues resulting from the pandemic that have impacted our profits year-on-year. These tough trading conditions have seen us generate less cash than in previous years. In combination with our continued investment into our businesses, this means our working capital position has reduced and net debt has increased (this is explained in more detail below in 'Net Debt and Investment' section).

The reduction in Group profitability is in part offset by the new income stream from our recently launched Insurance (marketing and distribution) business and reduced costs from support functions as a result of operating model activity undertaken in 2020. After charging underlying interest on our bank borrowings and leases we made an underlying loss of £32 million compared to a profit of £100 million in 2020 (2019: £35m). Operating profit of £64 million has reduced in line with the underlying performance being £143 million down on the prior year figure of £207m (2019: £173m).

Profit before tax (PBT) was £57 million compared to £127 million in 2020 (2019: £24m). This reflects the reduction in operating profit noted above, but also includes a £32 million relative adverse net interest charge on funeral plans (the charge in the current period is £4 million whereas it was a gain of £28 million in the comparative period). The comparative swing reflects lower investment returns on funeral plan investments and follows the significant change in how we account for funeral plans that we adopted in 2020. Our PBT also includes a significant benefit of £84 million of net gains from one-off items which we explain in more detail below (comprising a net £15 million charge within Operating profit and a £99 million gain in Finance income). One-off items do not form part of our underlying profit but are included in our profit before tax figures. We show how we adjust profit before tax to get to our underlying profit before tax in Note 1 of our financial statements.

Our profits are reported after deducting the amount our members have earned through the 2% community and member rewards, which totalled £40 million in the year (2020: £58 million). Our operating profit also includes £20 million of Government assistance (2020: £66 million), which we benefited from in the year through business rate relief.

As noted in our 2020 Annual Report, our Board agreed to repay the £15.5m of furlough payments that we received in 2020. These repayments have been made in 2021 and charged to operating profit in the current period results - we have not received any further furlough support in 2021.

The final run off of costs and income from the sale of our insurance underwriting business to Markerstudy (which completed in December 2020) is shown in Discontinued Operations and as part of the sale agreement our Co-op has continued to supply Markerstudy with certain agreed transitionary services in 2021. The recorded profit of £13 million in Discontinued Operations mainly reflects payments received in respect of a legal claim.

How our businesses have performedFood sales of £7.7 billion are down 1.2% on 2020 levels (2019: up 2.2%) with like-for-likes excluding fuel down by 2.9%. This reflects the annualisation of the impact of Covid-19 in the prior year and the particularly high food sales that we experienced in the second quarter of 2020. In line with many retailers, we saw an adverse impact on sales in the second half of 2021 due to reduced availability of certain products in our Food stores following the effect of Covid on global supply chains. We have been tracking our two year like-for-like sales figure (excluding fuel) as a better reflection of relative performance which has grown by 3.3% (this compares sales in 2021 against sales in 2019 on a like-for-like basis).

Despite the disruption from the pandemic, we have continued to invest significantly in our Food business as planned during 2021. This includes continued investment in price, customer proposition and range, as well as considerable expenditure on our business processes and infrastructure to ensure our operations are optimised for the future. We have also invested in our colleagues through our commitments on the Real Living Wage and we have continued to incur ongoing costs to keep our customers and colleagues safe throughout the pandemic.

As well as lower sales in comparison to the prior year, changing customer habits have also impacted margins with smaller basket sizes and higher sales of low margin fuel being seen, than we saw during the pandemic. Supply chain issues in the second half of the year also particularly impacted our distribution network and our ability to consistently offer our customers the products we would want, which again impacted sales and profits.

Overall, these factors contributed to a 55% reduction in underlying profits which are down to £156 million from £350 million in 2020 (2019: £283 million). As noted above, Food's 2021 results also include the repayment of £13.6 million of furlough assistance we received in that business in 2020.

Our Wholesale business achieved sales of £1.4 billion in the year compared to £1.6 billion in 2020, representing a decrease of 12%. As with our Food business in the prior year, we saw customers move to local Nisa stores and transfer trade from pubs and restaurants with like-for-like sales growth of 16%. The decrease in this year follows the unprecedented circumstances of last year and our like-for-like sales versus 2020 are down 6%. However, this still reflects a solid performance in light of some considerable headwinds, including the planned loss of McColl's Retail Group as a customer, as well as the impact of the EU exit on our customer base in the Republic of Ireland. Recruitment of new members remains strong. Nisa saw an increase of more than 9% on sales on a two year like-for-like basis. Within Wholesale, Nisa recorded a profit in 2021 of £8m which is £1m better than 2020 and £18m better than 2019. The increase in profitability is driven by underlying sales growth and new partner recruitment and we continue to drive efficiency in our business model through the wider Co-op Group buying benefits and other profit driving initiatives.

Revenue in our Funeralcare business was down slightly year-on-year at £264 million (2020: £272 million and 2019: £272 million). This comparative performance reflects the tragic increase in funeral volumes that we experienced as a result of the pandemic in 2020. The death rate has reduced in 2021 and we have continued to see growing demand for lower cost funeral options such as Direct Cremation. We conducted 90,731 funerals in 2021 compared to 100,920 in 2020: a decrease of 10%. Despite the reduction in volumes, strong cost control and the removal of restrictions on ceremonies has maintained underlying profit levels at £12 million (2020: £16 million).

We have continued to grow our Legal Services business with a slight increase in sales to £39 million (2020: £37 million) and profits up to £5 million (2020: £4 million) and, following its launch in December 2020, our Insurance (distribution and marketing) business generated profits of £11m (2020: £2m loss) on sales of £31m (2020: £6m), showing the agility and success of the revised business model.

Costs for our Central Supporting functions have decreased by £36 million to £94 million (2020: £130 million). This reflects a continued focus on cost control throughout our businesses as well as the relative year-on-year savings generated by our target operating model programme and the associated costs to achieve that transition in the comparative period.

Property revaluations, disposals and one-off items 

The table above shows one-off items, disposals and property valuation gains in the year (losses are shown in brackets). Further detail is given below:

As we do every year, we have reviewed our trading sites across our businesses for potential impairment of assets. The write down of £30 million (2020: £36 million) relates to goodwill, right-of-use assets and fixtures and fittings on stores, branches and other properties that are not generating enough cash to support the value of those assets. The charge is predominantly in our Food business and often relates to loss making sites. The 2020 figure was higher as it included £16m of impairments on stores identified with high freehold asset values when compared to their expected future profitability.

As part of this assessment, careful judgment has been applied in relation to the future trading expectations of those stores that have been particularly affected by the impact of Covid-19 on our customers' shopping habits (such as those in city centre locations) and we'll keep them under close review as lockdown restrictions continue to ease.

We hold a variety of properties which we don't occupy or trade from, which we rent out or hold for capital growth. We revalue these properties each year to reflect their latest fair value. The gain in 2021 of £9m (2020: £1m) reflects an upward valuation on the properties we hold (or on those which we sold during the year) with a gain of £6m achieved on one specific site (Summerville Farm).

We've recorded a significant one-off charge of £17 million reflecting the costs of some organisational changes we have made to colleague structures in our Food stores as part of the Fit for Future programme, to ensure we are set up in the best way to efficiently serve our customers. This is offset by a £2m gain following the reduction in the liability that we hold in relation to the remaining contingent consideration we expect to make for the acquisition of Nisa, which depends upon the trade passing through Nisa from its partners.

In the prior year, one-off items included a £15 million gain following a legal ruling that saw repayment of business rates we had previously paid over many years on external facing ATMs, which was offset by a £3m charge in relation to changes to historic pension liabilities.

FinancingOur financing costs and income are shown in the table below (costs are shown in brackets):

Our financing costs from our borrowings and lease commitments were broadly consistent with the prior year with lower underlying bank and loan interest reflecting comparatively lower principal debt across the period, as we repaid the remaining £176 million balance of the 6.875% 2020 Eurobonds on 8 July 2020.

Pensions finance income is based on the pension scheme surplus on an accounting basis at the start of each year and the £7 million decrease mainly reflects a comparative fall in the discount rate that is used to calculate the net interest income.

In 2021 the gains on funeral plan investments of £54 million were outweighed by the interest we accrued of £58 million so we show net finance costs of £4 million. Investment returns of £88m were higher in 2020 and outweighed the interest we accrued of £60 million, such that we showed a net finance income on funeral plans of £28 million.

The one-off gain of £99 million relates to the settlement of the Group Relief Creditor owed to the Co-operative Bank PLC when a settlement of £48 million was agreed in February 2021 against a liability of £147 million.

Net debt and investment

Our total net debt at the year end was £2.4 billion including the IFRS 16 lease liability of £1.5 billion. Excluding the lease liability, net debt was £920 million. This represents an increase of £370 million from the £550 million at 2020 year end. The increase in net debt is driven by a reduced net cash position at year end which is £213 million down on the 2020 year end position of £269 million, as well as increased gross debt of £157m as we have drawn down on our available banking facilities. The tough trading conditions that we have experienced throughout the year have seen us generate less cash than in previous years and, because we have continued to invest steadily in our businesses, our cash position has reduced and net debt has increased. However, we remain comfortably within the ratios of debt and interest agreed with our banks and our funding position is secure. Details of what is included in net debt are provided in Note 21.

The increase in our indebtedness includes a significant net adverse movement in our working capital position with a marked reduction in the amounts we owed to our supplier partners in comparison to last year. More cash was also tied up in inventories at the year end following a relative stock build in the run up to Christmas, in response to uncertainty around product availability due to supply chain and ongoing market challenges. As planned we also invested significantly in our customer proposition, colleagues and business processes throughout the year, which has had a knock on impact on our cash position. Robust cost control and working capital management will be a key focus for management going forward.

Our cashflow for the year also includes the impact of non-recurring items such as the £48 million settlement of the Group Relief creditor owed to the Co-operative Bank PLC, and repayment of the £16 million furlough assistance received in 2020, but repaid in 2021.

We invested £325 million of capital expenditure in 2021 (2020: £313 million) principally on refits and new stores in Food and refurbishing funeral homes, as well on technology to upgrade IT systems to improve our supply chain and service to Food stores. We also made deferred payments of £30 million relating to the acquisition of Nisa where consideration is payable over several years. This capital spend was partly funded by £102 million of cash from disposals and property sales.

Tax 

We won't be paying corporation tax in respect of the year because we have brought forward tax losses and capital allowances. In 2021 we paid £170 million (2020: £150 million) to the Government in respect of VAT, business rates, Stamp Duty Land Taxes and Employers' National Insurance.

The total tax charge reported in the income statement for continuing operations of £25m is made up of a £1m current tax charge and a £24 deferred tax charge. The current year deferred tax charge mainly relates to deferred tax arising on movements on our pension assets and fixed assets. There is also a £14m deferred tax charge arising due to the change in tax rate from 19% to 25%.

See Notes 8 and 15 for more detail on Tax.

We retained the Fair Tax Mark accreditation in 2021 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

Our balance sheet

The overall net assets of the Group have increased by £0.3 billion from the start of the year. The main movements include an increase in the net pension surplus of £0.4 billion, a reduced cash position as noted above, offset by the reduction in non-current payables following the early settlement of the Group Relief Creditor due to the Co-operative Bank PLC. Furthermore, as outlined above, our net deferred tax liability has also increased significantly due to the increase in our pension net surplus and the change to the tax rate.

The actuarial surplus on our pensions schemes increased by £0.4 billion with asset values falling by £0.3 billion whilst liabilities decreased by £0.7 billion. Market uncertainty has seen asset values fall as investment returns have underperformed against the discount rate. However, the decrease in assets has been outweighed by a greater reduction in liabilities driven by an increase in the discount rate (due to rising AA Corporate bond yields) which reduces the present value of the scheme obligations.

Property, plant and equipment has decreased by £43 million which mainly reflects the net impact of £262 million of additions, net disposals of £38 million, depreciation of £254 million, impairment of £5 million and net transfers out of £8 million.

Non-current Trade and other payables have decreased by £170 million, which mainly reflects the settlement of the Group Relief Creditor of £147 million and £30 million of contingent consideration payments to Nisa partners following the acquisition of the business.

The value of the funeral plan investments that the Group holds has increased by £41 million. This reflects net movements from an increase of £92 million for new plans, a reduction of £51 million from redeemed plans and favourable market returns in relation to the value of those investments held. Contract liabilities relating to funeral plans have increased by £40 million in the year reflecting £98 million of new plans sold in the year with amounts recognised as revenue during the year (which reduces the liability) broadly offset by an increase in deferred revenue (which increases the liability) from the interest we accrue on plan liabilities. We now offset member discounts (2021: £24m) given on plan sales against the contract liability, whereas previously these were held within Contract assets and the liability is further reduced by £49m of cancelled plans or plans redeemed outside of the Group.