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

Co-operative Group Limited News release

5th April 2023

Full Year Results Announcement: 52 weeks to 31 December 2022.

Co-op delivers against strategy and targets one million new members

· Early and targeted action against tough economic backdrop leads to strong operational performance and robust financial returns

· Focus on cash flow results in strong cash generation and significant reduction in net debt.

· Significant Co-op value returned to members, colleagues and communities in line with vision

· New focus to attract one million active new members over the next 5 years, with improved membership proposition to be rolled out in H1

Financial Highlights in brief

· Revenue £11.5bn*, up £0.3bn  (2021: £11.2bn)

· Underlying operating profit £100m**, maintained (2021: £100m)

· Underlying EBITDA £490m, down by £15m (2021: £505m)

· Group profit before tax £247m***, up by £190m (2021: £57m)

· Net cash from operating activities £455m, up by £277m (2021: £178m)

· Group net debt £333m, improved by £587m (2021: £920m)

* revenue also impacted by the sale of the petrol forecourt business which completed in October, reducing 2022 revenue by £150m

**underlying profit also impacted by the sale of the petrol forecourt business which completed in October, on a like for like basis profit increased by £10m from £90m in 2021 to £100m in 2022. 

*** includes £319m of profit from the sale of the petrol forecourt business, which completed in October

Financial and Business Development Highlights

· Despite very challenging markets, delivered a strong sales performance and maintained underlying profitability

o  £100m of additional energy and salary inflation absorbed

o  £37m invested in Q4 in holding prices on key products

o  Also includes impact of sale of petrol forecourts on revenue and profitability, with revenue £150m lower and underlying profit £10m lower as a result of the sale

· Entered 2022 with targeted cost savings of £50m, increasing to £101m at half year in recognition of challenging cost environment

o  Met target, delivering £101m of cost savings

o  Cost savings mitigated impact of energy and salary inflation landing this year.

· Cashflow has been a focus, resulting in strong cash flows and a significant reduction in net debt

o  Net debt down to £333m from £920m in 2021

o  Represents a £587m reduction - a significant shift when compared to an increase in net debt of £370m during prior year

o  Significant increase in cash generated from operating activities (£455m vs £178m in 2021) puts us in a good position as we enter 2023

· Sale of our petrol forecourt business completed in October

o  Overall generated net proceeds of £408m, and further reduced our lease commitments by £171m

· Active Co-op Membership grown for the first time in 5 years to 4.41 million members

Vision Highlights - Co-operating for a fairer world

· Continued to support our colleagues with cost of living challenges, and overall wellbeing, including:

o £55 million overall YOY investment into colleague pay including maintaining commitment to the real living wage.

o £12 million invested in payments onto colleague membership cards during the cost of living crisis.

o  Colleague discount extended to 30% on own brand products.

o  Further increased the amount colleagues could access from their basic pay in advance via partners Wagestream.

o  Provided further tailored support with partners including Grocery Aid, Keep Credit Union, Stepchange and Salary Finance.

o Implemented new refreshed colleague policies including fertility treatment policy, and menopause policy.

· Provided support through challenging times for local communities, including :

o £24.6m raised for local communities, taking total to £117m raised for our local communities since Local Community Fund launched in 2016.

o First retailer to launch a £1 million 'Warm Spaces' funding boost, to support local communities navigating rising energy costs.

o New partnership launched with Your Local Pantry, set to see its network triple within three years from 75 to 225 pantries across the UK.

o Also continued work with Hubbub to help expand its community fridge network to 500 locations by summer 2023.

o More than 1.5 million people signposted to information, activity, and support for mental wellbeing since 2020, through activity supported by our Co-op, including £8m raised for Mind, SAMH and Inspire.

o Added 2 new schools to our Co-op Academies Trust, taking the total to 29 schools, and 18,500 students with a focus on schools in the most economically deprived areas in the UK.

o Commitment to supporting British farmers maintained - 100% of our fresh and frozen meat is British - and we only use British meat as an ingredient in our products.

· Recognition of our wider support for sustainability and the planet including :

o Recipient of the Queen's Award for Enterprise for Sustainable Development 2022.

o Awarded the Relex Responsible Retailer Award for commitment to sustainability.

Outlook

· The Board remains confident in the strategy, as we drive growth through our core businesses via physical and digital routes to market, ambitiously grow our membership, whilst maintaining financial discipline and deliver upon our vision of co-operating for a fairer world. 

· The confidence and strength of the strategy was evidenced by the recent amendment and extension of the Revolving Credit Facility to March 2026. We have also begun early repayments of our 2024 bond maturity, with £100m repaid in February.

· We expect the volatile external environment and turbulent economic headwinds, including inflationary pressures to continue. However, the early action taken last year to strengthen the Co-op's financial position, leaves our Co-op well placed to face into, whilst not being immune from, such headwinds. Costs arising from this are expected to dampen profitability in the short-term.

· Despite this short-term impact, we look forward with confidence in driving strong performances across our business areas and our Co-op over the longer term.

· Importantly, as a member owned co-operative business, our Co-op is able to actively and consciously, prioritise and channel support for colleagues, members, and communities during the current cost of living environment.

· Delivery against our strategy will run in parallel with the clear succession plan in place for both our Chair Allan Leighton, whose 9 year maximum term ends in February 2024 and Senior Independent Director, Chris Kelly, whose maximum term also ends within the next 12 months.

Allan Leighton, Chair, Co-op comments

"The inflationary challenges facing most consumer-facing businesses are well known, so for our Co-op to have delivered this level of performance over the year is encouraging.

"We are, rightly, judged by our members on both the financial and social value we can create and it's clear that we've delivered on both sides of this equation. The future focus on growing membership is vital for ensuring the future success of our Co-op for generations to come.

"I'd like to thank Shirine, her management team and our 57,000 colleagues for delivering this performance at a time when our members needed a strong, resilient, and differentiated Co-op to shine."

Shirine Khoury-Haq, Chief Executive Co-op comments

"It's clear that our early action to significantly reduce our debt, improve our cash position, and tighten cost controls, has made a significant difference to the financial strength of our Co-op and has enabled us to look forward with confidence, despite continuing market uncertainty.

"We now have an even better foundation upon which to grow our businesses. We're also looking to grow our membership, putting membership at the heart of our Co-op, with ambitious plans to both attract new members, and deepen relationships with our existing members.

"And we will continue to bring our vision to life to make a genuine difference for our colleagues, members, and communities through these challenging times.

"I'd like to thank each and every one of our amazing colleagues for all of their hard work and support over the last year."

Business Highlights

Food / Wholesale

· Food revenue up by £134m to £7.81bn (2021: 7.67bn), and Wholesale revenue up by £53m to £1.44bn (2021: £1.39bn)

· Refreshed strategy 'Pure Convenience' launched in September, renews focus on convenience and continued commitment to offer great value - driven through our four routes to market across Retail, Franchise, Quick commerce and Wholesale

· Number of transactions a week increased by 5% to 16.4 million

· Continued expansion of online business, through website, and partners - revenues up 24% to £222m (2021: £179m). Online delivery services available in more than 1,800 individual food stores, and able to reach 81% of the population before year end

· Cost control measures, including reduction of energy consumption in stores, and tight prioritisation of spending, have ensured we continue to manage the external headwinds

· Our new largest regional distribution centre in Biggleswade became fully operational in 2022, with capacity to handle over two million cases of frozen, ambient, and fresh products a week

· Nisa's sales of Co-op branded products grew by 12.5% in 2022 to £199m (2021: £176.6m) and now represents 20% of total sales, excluding tobacco. 91% of Nisa partners now stock Co-op own brand products

Funeralcare

· Overall revenue increased by £7m to £271m (2021: £264m)

· Growth in share of the market for funerals, more than offset the lower death rate, with 93,867 funerals carried out (2021: 90,731)

· Direct Cremation and Direct Burial funeral options continue to grow in popularity making up 11.7% of our funerals (2021: 7.9%), as people continued to opt for unattended, lower cost services

· Funeral plan sales down to 16,774, (2021: 44,751), mainly driven by lower consumer confidence in overall market, ahead of regulation, as well as exiting some third party distribution arrangements due to changes in regulation

· Achieved Financial Conduct Authority (FCA) approval to sell, service and redeem funeral plans

· Continue to be recognised as providing one of the best funeral plans in the market, and awarded best funeral plan provider for the fifth year running by Moneynet

Insurance

· Overall income down to £24m (2021: £34m) reflecting the contracting motor insurance market following decline in new car sales and advent of new product and pricing regulation

· 164,620 new policy sales with refreshed products offering better cover, choice and prices (2021:167,176)

· While it was a challenging year in home and motor, due to external pressures, the business delivered a strong performance in travel, pet and life

· One of the first three insurers to be available through Amazon UK's new insurance platform

· New pet partnership with Markerstudy has seen number of customers holding a Co-op pet insurance product doubling over 12 months.

· New travel insurance partnership with AllClear has led to industry recognition and consumer champion Which? nominating Co-op as one of their recommended providers.

· Motor insurance campaign offering new and renewing members £50 to spend on their Co-op membership card saw us share £1.3m with individual members and raise over £130,000 for Co-op's Local Community Fund.

Legal

· Overall revenue increased by 19% to £46.3m (2021: £39.0m)

· Probate saw significant growth, taking on 24% more cases than in 2021, leading to revenues increasing by 28% year-on-year.

· The estate planning business had a very strong second half to the year, resulting in a 9% increase in revenue in 2022.

· Continued focus on digital with new tools and services, resulted in ability to serve a wider range of clients and 50% of clients coming to us through one of our digital channels

· Partnerships continued to drive growth - new contracts agreed with M&G, Newcastle Building Society, Saffron Building Society, Cancer Research UK and The Co-operative Bank.

ENDS

Media enquiries

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

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

Susanna Voyle, 07980 894557, svoyle@headlandconsultancy.com

Co-operative Group Limited

Annual Report and Accounts 2022

Chair's introduction

"For us to maintain a lasting Co-op impact we need to be clear in terms of our Vision, be commercially successful and have the underlying financial strength to face into whatever short to longer-term headwinds confront us."

Against a rather bleak external backdrop, we are pleased to say that our Co-op enters 2023 in a much stronger financial position than it was in a year ago, and has continued to deliver for our members, customers and communities throughout a challenging 2022. That's something we're very proud of, when we consider the events of the last 12 months and what we're continuing to face into this year. 

I wish, in writing this introduction, that we could be living in a world more certain of its future, more confident in its outlook and with its nations more peaceful and respectful in their approach to one another - alas, we know that isn't the case.

The tragic war in Ukraine continues to devastate that nation, with its impact reverberating around the world politically and economically. Our thoughts remain with those affected by the ongoing conflict, and we join them in hoping for peace to return as soon as possible to Ukraine.

Closer to home, it was a highly turbulent, unsettling and volatile year for those living in the UK. The death of Her Majesty The Queen in September marked the passing of our longest serving monarch. The outpouring of grief, respect and remembrance for a lifetime of service and devotion to both country and Commonwealth was both deeply moving and richly deserved.

Her Majesty's death occurred, as we know, during a period of intense political and economic upheaval, with three Prime Ministers and four Chancellors coming and going over a matter of weeks. Soaring inflation and rising interest rates dominated the news agenda and the UK entered a cost of living crisis not witnessed in decades, from which the country will take many years to recover.

On behalf of the Board, we would like to thank our CEO Shirine Khoury-Haq, the Operating Board and wider leadership team and our 57,000 Co-op colleagues for all that has been achieved, during a highly challenging but ultimately successful year for our group in 2022. Shirine was appointed as interim CEO in March, taking on the CEO role permanently in August - she has led through significant changes in our leadership structure and in our business strategies, ensuring our Co-op remains resilient in the face of a challenging environment across all of our businesses.

Much has been made of the need for 'businesses with purpose' to play more active roles in helping our country address some of the environmental and societal issues it faces. Our Co-op has origins that date back to 1844, when the Rochdale Pioneers came together with an enduring Purpose of championing a better way of doing business, going on to later establish the original business of purpose, anchored upon our ethical Values and Principles. 

There are notable parallels between the world we live in today and the world which prompted the Rochdale Pioneers to act. Both periods witnessed, and are witnessing, social and economic inequality as well as gaps in access to nutritious food, education, skills and opportunity. These are issues which our Co-op has always faced into and will continue to do so on behalf of our members and their communities.

For us to maintain a lasting Co-op impact, we need to be clear in terms of our Vision, be commercially successful and have the underlying financial strength to face into whatever short or longer-term headwinds confront us. Over the past year, Shirine and her team have brought this clarity to fruition and this report will detail how we have become financially stronger and commercially sustainable, whilst continuing to deliver on our Vision commitments. For the number of active members to increase for the first time in five years, from 4.27 million to 4.41 million, is a testimony to the increased confidence we hope our members have in our Co-op, and the improvements we're making to the way our businesses are run, but also the products and services they offer.

In the face of unprecedented levels of inflation, we have taken the tough but necessary decisions to significantly cut costs to mitigate these headwinds. We've prioritised our capital expenditure and investments. We've streamlined our business processes while at the same time introducing clear strategies for our Food, Funeralcare, Insurance and Legal Services businesses. We also successfully sold our petrol forecourts business, allowing us to focus on our core convenience business. The net result is a Co-op Group which has generated more cash, with net debt greatly reduced and with the foundations in place for us to grow more sustainably in the years ahead.

We are of course not immune to the stark realities facing all consumer-led businesses, with soaring energy and other inflation related costs continuing to weigh heavily on short-term expenses and operating profits. The actions we have taken already have provided us with the ability to weather this over the short term and to capitalise more fully over the longer term.

The Board accepts and understands that ongoing inflation in energy and salary levels will mean our profits are likely to reduce in 2023, as we face into another year of economic uncertainty and higher prices, while committing to invest in our colleagues and communities. The underlying strength of our Co-op provides reasons for optimism and long-term success when things stabilise.

The next 18 months will see change in our Board as Sir Christopher Kelly, Simon Burke, Stevie Spring, Paul Chandler and I all reach the maximum nine years of tenure and will step down at different points during 2023 and early 2024. Our Board remains whole-heartedly committed to supporting our businesses, colleagues and members as we transition through this change. We have been carefully planning ahead to ensure orderly succession, but also the continued momentum of everything we're proud to see our Co-op achieving.

Allan Leighton

Chair, The Co-op Group 

Chief Executive's overview

I am very glad that we were able to quickly foresee the impact of the economic upheaval and international events that were to affect our businesses. The pre-emptive actions we took at pace to address them have stabilised both our short and long-term future, giving our Co-op a solid platform for growth when market conditions allow. 

This is my first annual report as Group Chief Executive for our Co-op and I am honoured to have been given the opportunity to lead our amazing organisation through a year which has been fast-paced, challenging, tough and, at times, heart-breaking. 

Our Co-op has origins that date back to 1844 and a mission to provide fair, affordable and ethical access to food and other goods and services, with profits being shared amongst our members for their benefit and the benefit of their communities.

We were, and remain, the original business with purpose and, in today's modern world, co-operation and those ethical Principles will continue to remain at the heart of our decision making.

We're proud to be a trusted household name and a respected brand - we touch the lives and enter the homes of millions of people every day. When our members and customers buy Co-op products and services, they create value for themselves, for others and for their local communities.

It's this value that we use to deliver our Vision of 'Co-operating for a Fairer World' - supporting our members, colleagues, communities and the planet sustainably. That's what makes our Co-op unique now and throughout our rich history.

2022 was a truly incredible year across the globe, and one in which our organisation also saw many changes.

These included leadership changes and the introduction of our Operating Board, a necessary change to drive our priorities as one Co-op. It brings together our most senior leaders and decision makers, working together collaboratively on the decisions and actions we need to take to run our business effectively - and at pace. They ensure that our members, colleagues and Vision are at the heart of our organisation.

Structural changes to our teams meant we said goodbye to some colleagues, welcomed new colleagues and, through careful succession planning, provided career progression for others.

In this report, we welcome Matt Hood and Gill Stewart, our new Managing Directors of our Food and Funeralcare businesses, and also Peter Batt, new Managing Director of Nisa, to report on how their businesses performed last year.

While we entered 2022 hoping for a time of calm, after a couple of years of significant upheaval as a result of Covid, we quickly saw that volatility and significant change instead were on the cards.

As with practically all businesses across the UK, we saw substantial challenges across our markets as increased disruption and unpredictability continued to generate pressure. Consumer habits continued to shift as unprecedented levels of inflation and the cost of living crisis impacted household budgets.

I am very glad that we were able to foresee the impacts that economic upheaval and international events would have on our businesses. We have the advantage of being a member owned organisation and, as such, we were not only able to speak publicly about these challenges very early on, but we were also able to start addressing them at pace and engaging our members.

In March 2022, we set some short-term strategic priorities that would allow us to focus on what matters most to our members, colleagues, customers and communities, while protecting our Co-op from external headwinds.

Our focus has been rigorously and unapologetically aligned to these and this is beginning to show clearly in our performance. This in turn will stabilise the long term future for our Co-op and all who rely on it, particularly as 2023 is predicted to be another year of increasing inflation, interest rates and energy costs, as well as possible recession.

These focus areas were:

1. Ensuring our businesses continue to deliver to our members' and customers' expectations in the current climate, and outperform within their respective markets

Despite the many challenges, our businesses have all traded well, led in their respective markets, made considerable progress with their individual strategies and yielded many highlights of 2022.

Our Food business As we reported at the half year, profitability was partly affected by the rollout of our new SAP supply chain systems, as we continued to feel the effects of a global pandemic and supply chain crisis in H1 2022.

Our Technology and Food teams worked incredibly hard together to combat this. By the end of the year, availability had improved in our Food business - 94% of products were available in all our stores on average each day (against our target of 95% for the financial year) despite continued supply chain challenges.

In Q1, we opened our Biggleswade distribution centre. It's the largest, greenest depot in our network, with up to 1,000 colleagues, delivering up to two million cases a week to stores up and down the country. 

I also took the decision to review our Food strategy. We needed to identify, focus and invest only in the areas that played to and capitalised upon the strength of being the UK's number one convenience retailer. And, as in all of our businesses, we needed to find ways to remove unnecessary costs and increase efficiency.

Our Pure Convenience strategy launched in Q3 with a renewed focus on convenience and value. Lower pricing on key products, more focused ranging and better targeting what our customers and members want from our Co-op, combined with our decades of experience in the convenience market, will enable us to continue to grow our business through four key routes to market: Retail, Wholesale, Franchise and Online.

Recognising the challenging retail environment and the cost headwinds we have faced, our overall retail trading performance was strong, and we have managed to mitigate the pressures that these would have otherwise placed on our business. Revenue grew (sales for the full year were £7.8bn (2021: £7.7bn), basket size declined as customer behaviours shifted and profitability was also affected. Despite this, we continued to broadly maintain market share (2022: 6.1%, 2021: 6.2%).

Our Wholesale business Nisa saw strong growth in sales of Co-op own brand products, an increase in profitability and strong partner growth with the addition of over 475 new stores during 2022.

Funeralcare achieved an important milestone in 2022, with the creation and FCA approval of Co-op Funeral Plans Ltd, our regulated business supporting members and customers through the sales and redemption of funeral plans. Despite many changes and disruption in the marketplace, due to regulation and competitor activity, we had a positive performance and saw an increase in revenue for the year (2022: £271m, 2021: £264m) and market share (end of 2022: 14.67%, end of 2021: 13.92%).

Contributing factors to this strong performance include marketing investment and activity; a new all-colleague code, designed by colleagues to improve their experience of working for our Co-op; and first to market initiatives such as distribution of ashes via drone.

We also said a sad goodbye to our Managing Director Sam Tyrer in October after a long-planned exit, to pursue a career in a different industry. Former Chief Operating Officer, Gill Stewart, took up the role to lead our Funeralcare business and teams with a comprehensive hand over from Sam. Our colleagues continued to work tirelessly to ensure the best possible experience during such a difficult time for the families that trust us to care for their loved ones.

In 2022, we supported over 3,000 more families following the loss of a loved one, with an increase in popularity of lower cost Direct Cremation and Burial funeral options, and a slight decrease on tailored services, resulting in slight increases in both revenue and operating profitability.

Our Legal Services business outperformed the market and produced outstanding year-on-year growth with revenue up by 19%, to £46.3m (2021: £39.0m).

Our strategy to enable digital access to our products and enhancing our services led 50% of all clients to access Legal Services digitally during the year, with client satisfaction across all channels staying strong at 85%. 

We made significant progress in strengthening the growth of our business through major partnerships, with renewed contracts during 2022 including Newcastle and Saffron Building Societies and Cancer Research UK, and new partnerships with The Co-operative Bank PLC and Amazon UK.

Our Insurance business continued to develop during 2022 and build on the foundations created during 2021. Having products which are easily accessible to our members and customers is key, and we sought innovative ways to bring them to more places where our members and customers shop. We were one of the first insurers to bring our home insurance policies to Amazon UK.

Due to the external pressures affecting the insurance market specifically including car sales at an all-time low, cost of parts and labour increasing with inflation, regulatory changes impacting policy pricing and a decrease in consumers switching policies at renewal, performance was mixed.

However, challenges in Motor and Home products were offset by positive performances in Travel and Pet policies, with our new Pet partnership with Markerstudy doubling the number of customers holding pet policies with us.

And, of course, our Funeralcare, Legal Services and Insurance businesses continued to excel as a combined 'Life Services' portfolio, helping members and clients navigate life changing moments. In 2022, our Moving Home Hub continued to develop and support with buying, selling or moving home by bringing together products, services and information from our Legal Services and Insurance businesses. Also, our market leading funeral and legal expertise continued to offer joined up guidance and support bereaved families through their emotional moments and practical needs.

2. Improving operational efficiency

We entered 2022 with a plan which included increasing our operational efficiency. We knew our costs to operate and serve our members, customers and communities were too high, and we needed to reduce our capital expenditure and debt.

Everyone in our Co-op has pulled together and worked co-operatively to make this happen. Our results show that hard work beginning to pay off. Mike Hazell, our Interim Chief Financial Officer will explain our year end results in more detail in his financial overview. 

At times, this has involved taking some very difficult decisions, especially with the restructuring of many of our teams.

This has meant, though, that we were able to mitigate new headwinds in 2022, while maintaining our margin and delivering an underlying profit in line with what we achieved in 2021 despite significant increases in operating costs that were driven by external factors.

Also, as you'll see in Mike's update, we began 2022 with £920m of net debt, reducing to £731m at the end of H1 2022, and further to £333m at the end of 2022. This is thanks to trading well, managing our cost base, driving cashflow disciplines, the successful appeal of the IBM legal claim and the sale of our petrol forecourts. 

Sheer determination across our Co-op to reach our cost saving targets of £101m for the year mitigated significant increases in energy costs and salary inflation, driven by the external environment, which would otherwise have materially impacted Group profits this year.

It's a robust performance in what has been a difficult and disruptive trading year for many businesses. I'm very proud that, thanks to the efforts of everyone in our Co-op, we ended 2022 with a much improved and substantially more stable balance sheet to take us into 2023.

3. Delivering our Vision - 'Co-operating for a Fairer World'

Making things Fairer for our Members and Communities, Fairer for our Colleagues and Fairer for our Planet is always at the heart of everything our Co-op does.

There is much we can be proud of when we look back at 2022.

Through our community programmes and in true co-operation with colleagues, members and partner organisations, our focus on providing fair access to food, fair access to mental wellbeing support and fair access to opportunities for young people continued to be relevant and needed.

We simply couldn't do this without the support of our members, who, by trading with us and buying Co-op products and services, generate the value we re-invest in our businesses and re-distribute to communities and local causes. 

In 2022, we celebrated our members generating over £117m for local communities since 2016, when the Local Community Fund launched, followed by the Communities Partnership Fund in 2020 - £24.6m was raised through the Local Community Fund, Community Partnerships Fund and Carrier Bag Levy in 2022 alone and, during the year, the Local Community Fund supported over 4,000 individual community projects.

Our charity partnership with Mind, SAMH and Inspire, after three years of fundraising, hit our target of £8m (£8.33m) bringing communities together to support mental wellbeing across the UK. This was a staggering £2.3m more than our original £6m target.

And we found new routes to support those who found they needed it in 2022. More than £1.2m was raised for the Ukraine and Pakistan appeals driven by the Disaster Emergency Committee, which brings together 15 leading UK aid charities. 

Our network of Co-op academies grew to 29, providing fairer access to education for young people with the addition of two new academies in Manchester and Stoke-on-Trent. The Co-op Academies Trust was also successful in bidding to build a new free school in East Leeds - Co-op Academy Brierley will open in September 2023.

And in November, our charity, the Co-op Foundation, launched its new five-year strategy, 'Building communities of the future together', to deliver unrestricted grants in 2023 of up to £30,000 a year for five years to help organisations develop diverse young leaders of the future.

We cannot achieve our Vision alone, nor should we aim to. In 2022, our Co-op, our charitable Foundation and Co-op Academies Trust formed new partnerships which helped see young people in our schools get access to a healthier breakfast, see families in our communities gain greater access to affordable food and see the fair distribution of surplus food through our new platform Caboodle.

There's more detail on all of our community support and partnerships in our Vision update.

Despite the challenges and headwinds faced during 2022, we remained true to our Purpose of championing a better way of doing business. We were honoured that our efforts to operate our businesses sustainably and for the longevity of our planet were acknowledged with the Queen's Award for Sustainability in April 2022, followed by the Relex Responsible Retailer Award in July at the 2022 Retail Week Awards.

Our Co-op being involved in and influencing conversations that can drive external decision making - benefitting our members, customers, colleagues and communities - is a responsibility we take seriously and that sits within our core principles of co-operation.

During 2022, for the first time in my role as Chief Executive, I had the honour of being invited by the World Resources Institute to speak at COP27 about our pioneering water security partnerships with Water Unite and The One Foundation. Together we have raised over £20m since 2007, funding critical WASH (water, sanitation and hygiene) and water security programmes, positively impacting the lives of over 2.9 million people.

I joined the World Wildlife Foundation at their Commitment to Nature Steering Group, and the British Retail Consortium Climate Action Roadmap Steering Group, as their Chair.

Energy dominated the headlines during 2022 and as the war in Ukraine continued to push up prices and threaten supplies, with no visible end to the volatility, we joined forces with other leading retailers to request Government open discussions about the sourcing, security and investment in renewable energy sources.

Our commitment to our colleagues is to create a truly co-operative, diverse and inclusive workplace and culture, and to support their wellbeing.

2022 saw our first ever ethnicity pay gap report, the establishment of a new colleague fertility policy and refreshed menopause policy, offering greater support for colleagues.

We were also proud to maintain our first place Silktide ranking against 11 other UK retailers for our website accessibility.

Our colleagues were not immune to the increased cost of living. Rising costs were top of the agenda in every conversation during 2022. In April, we again re-aligned our minimum hourly rates to the Real Living Wage for all colleagues including younger colleagues and apprentices.

We also invested £12m in payments onto colleague membership cards, and we extended colleague discount to 30% on Co-op own brand products from 20 October until April 2023.

Thank you

2022 was another year of challenges for our Co-op, which our organisation met together and resiliently. Because of this, it was a year of incredible progress.

None of this would be possible without our members, colleagues and my leadership team.

Our Co-op is owned by our members. As Allan references in his introduction, I am delighted to have seen an increase in the number of active members choosing to be part of our Co-op. Every single member makes our organisation special, however I'm particularly pleased that, as Allan said, we've seen new growth in our active members, for the first time in five years. 

I'm grateful to our National Members' Council - a passionate group of members, including colleagues and other co-operative societies, totalling 100 people from a variety of backgrounds. The Council continued to champion the interests of our members across everything our Co-op does in 2022, inputting into areas including our Pure Convenience strategy in Food and our Diversity and Inclusion strategy. Their advice on our cost of living support to members, colleagues and communities proved invaluable. 

I thank them for their warm welcome when I took on my role and I look forward to their continued support and involvement in 2023, as we work together to ensure co-operation and membership sit firmly alongside delivering our Vision.

My heartfelt thanks and gratitude also go to each and every member, customer and client who has placed their trust in us over these 12 months by trading with our businesses and advocating our products and services.

My thanks also go to our amazing 57,000 colleagues, without whom our Co-op wouldn't be where it is today. Words cannot express how grateful I am to them for showing up and giving their very best each day as we faced the challenges and headwinds of 2022.

I am so proud of them for their hard work, passion and commitment to our organisation, members, customers and communities, and the care that they show for each other. I am also so grateful to them for speaking up and telling me both when we have gotten things right, and also when they think we could do better. Each and every colleague plays their part in making our Co-op the special place it is and working alongside them is a real honour.

I'm also thankful to my leadership team who have stepped up this year in the face of adversity, supporting and embracing the change, challenge and, at times, very difficult decisions that were necessary for us to affect the future course of our Co-op.

I thank them all for their bravery and commitment, and for their ability to take on new roles and responsibilities with incredible professionalism while maintaining a sense of perspective and humour.

One often hears that the CEO job is a lonely one. I can genuinely say that, with my leadership team, this is absolutely not the case. They are a strong, focused and supportive group of people that - along with our colleagues, our Board and our Council - make (almost!) every day working at our Co-op a joy.

All of us, together, truly co-operated for a fairer world during an incredible year. We should be very proud of what we've achieved. Our future is positive, and I'm looking forward to what 2023 brings.

Shirine Khoury-Haq

CEO, The Co-op Group 

Financial overview - from Mike Hazell, Interim Chief Financial Officer

Our headline performance

2022 was a year of significant macro-economic and geopolitical turbulence, translating into very difficult trading conditions for most businesses including our Co-op.

Our full year financial performance sits against a backdrop of a deep and lasting cost of living crisis, double digit food inflation, soaring energy costs and continued disruption to global supply chains from the impact of the war in Ukraine.

Despite this challenging backdrop, our Co-op has had a successful year, delivering a strong set of results, with a very solid profit performance, strong cashflows and a growing top line.

We have grown our sales, successfully maintained margin and managed our cost base to mitigate the significant cost inflation on ourselves, our members and our customers. This was also supported by some difficult decisions, including the restructuring of the team at our support centre.

There is no avoiding the impact that inflation is having on the profits of most businesses - for our Co-op, energy costs increased by £48m in 2022 compared to 2021, and salary inflation drove a further £55m of additional cost. Faced with such inflationary pressures, the renewed cost disciplines we have instilled in 2022 have served us well and we successfully delivered our targeted cost savings of £101m during the financial year, to mitigate these pressures.

Recognising the difficult time many of our customers and members were experiencing, we sought wherever possible to protect our customers and absorb inflation. Throughout the year, we continued to focus on delivering the propositions and value that our customers need at this difficult time, including £38m of direct reward for our members and their communities. Importantly, we also sought to support our colleagues through the winter cost of living crisis with additional one-off support of £12m and by increasing our colleague discount to 30% on Co-op own brand products from 20 October until April 2023.

This solid financial performance, combined with a focus on balance sheet and cash, delivered a very strong cashflow position and a step-change reduction in our net debt. Part of this action included the sale of our petrol forecourts in October (roughly 5% of our Food store estate) which generated a significant one-off profit and cash proceeds.

Furthermore, through continued focus on cost control, management of working capital and our measured approach to capital investment, we strengthened our balance sheet significantly. This means we are well set to ride out the economic storm whilst still being able to invest in our longer-term future through capital light and commercial opportunities.

Group financial metrics

Revenues: Group revenue of £11.5bn is 3% higher than last year. We saw increased inflation but also smaller baskets and more conservative spending, according to our data. This represents a strong result across our portfolio of businesses in light of the challenging economic trading conditions. Sales in our main Food business are £134m higher than 2021 even though the comparative period included two more months (or around £150m) of sales from our petrol forecourts which we sold in October 2022. Like-for-like sales in our core convenience stores were up 3.2% with downward pressure on consumer spending from the cost of living crisis being offset by significant food inflation. Sales in our Wholesale, Funeralcare, Legal Services and Federal businesses are all also up in 2022, on the prior year.

Profitability: despite the significant inflationary cost pressures we have faced (particularly on energy and salaries), our robust sales performance and tight cost control means we have maintained our 2022 profit levels, broadly in line with 2021 levels at £100m (2021: £100m) and underlying EBITDA (earnings before interest, taxes, depreciation and amortisation) of £490m (2021: £505m). This is commendable given the challenging economic backdrop and demonstrates how hard all of our Co-op colleagues worked in 2022, driving efficiency throughout our business and helping shield our members and customers from the worst of the cost increases. Delivering in this way, despite the unprecedented headwinds, is all the more impressive when considering that 2021 included two more months of profit (around £10m) in our Food business from the petrol forecourts we subsequently sold in October 2022.

Full year underlying profit within our Food business fell slightly following the forecourt disposal, but this has been offset by improvements in our Wholesale, Funeralcare and Legal Services businesses.

At £5m, our operating profit in 2022 is £59m lower than 2021. Although our underlying operating profit is comparable to last year, we've incurred £59m more of non-underlying charges in 2022 compared to 2021. These changes primarily relate to the impairments we have recorded against some of the assets that we hold to reflect the continued difficult trading conditions we anticipate going forward as well as other non-recurring items. 

At £247m, profit before tax (PBT) is significantly higher than last year (2021: £57m). Although our operating profit is lower this year (as noted above) we have recorded a gain on the disposal of our petrol forecourts of £319m which increases our PBT number. This relative increase is partially offset by the one-off gain of £99m that we recognised in 2021 following the settlement of a long-term liability.

Net Debt: our net debt reduced by £587m to £333m (2021: £920m). This significant reduction was generated by the £408m net proceeds from the sale of our petrol forecourts (excluding lease disposals of £171m), £72m payment following the judgement on the IBM legal case but also a strong underlying cash performance in the Group, which generated positive cashflows from continuing operations of £383m.

Membership update

The cost of living crisis left our vulnerable members in even more need of the value we create across our Co-op, but also our support of local causes, safeguarding access to food and basic amenities across our communities. As economic challenges look set to continue into 2023, our Co-op took the decision to re-assess our membership offering and what more could be done for those 4.41 million members who were active over 2022. This is the first time we have seen this number grow in five years.

As always, we worked closely with our passionate National Members' Council in 2022, collaborating on how we best engage our members, who own our Co-op, and demonstrate how our Co-op Difference can offer meaningful support, especially during the cost of living crisis.

Council continued to help develop key initiatives that matter to our members, including the Warm Spaces funding boost for local community organisations, helping others to navigate energy costs during winter. It also remains an important touchstone for our Co-op's culture, championing work around diversity and inclusion.

Recruitment and rewards

592,000 new members joined us in 2022, more than 2021 (517,000) and we ended the year having achieved our target for active members, having also reactivated over 219,000 of our lapsed members.

And we're delighted to be attracting younger members - more than 45.3% of our new members are aged 35 and under. This is above the 40.4% target we set ourselves.

In 2022, we shared a bonus digital offer of £3 off a £10 shop with just under 190,000 new members to welcome them to our Co-op and encourage them to engage with our app.

Specifically, from May, we lowered the price of our lunchtime meal deal to £3.50 for all members, saving them 50p. More exclusive member deals were made available in 2022 than any other year, including a saving of £5 when members buy three Irresistible wines, Irresistible crisps at 90p and £1 off pizza.

Seven digital offers were sent to all members to mark the World Cup. Across November and December, members received a price reduction on Walkers Sensations and Ben and Jerry's ice cream. As a thank you for helping us raise £117m for local communities since 2016 (the year our Local Community Fund launched), members received an offer of 25% off a Co-op Irresistible product.

Engaging our members

Our members play a unique role in helping to power our Vision of 'Co-operating for a Fairer World'. They've been able to learn more about their Co-op and the big issues affecting their communities, and have helped choose how our funding is used while making sure we focus on the things that matter most.

They continued to help shape how we deliver our community missions nationally and locally, as well as the products and services we provide for members. They also added their voices to many campaigns and actions that helped us make a difference together. In 2022, members contributed to our Vision through 1.9 million participations and by volunteering over 116,000 hours of their time to our community, campaigning and co-operative participation activities.

To ensure our members' voice continues to be heard and their insight drives what we do, members help design new products and services, shape strategies and policies and support us with campaigning.

Over four dates in October, Co-op's Join In Live events were back online again and also in-person for the first time since 2019. Hosted by our National Members' Council, the events shared performance updates from our businesses and an overview of our Co-op's new community partnership with Your Local Pantry. They also offered opportunities to put questions to Board members, leaders from our Operating Board and generate conversations around what more could be done to support members, customers and colleagues through the cost of living crisis, with some members offering to support Local Pantries.

The events build upon those monthly opportunities to develop products, share thoughts and ideas and shape plans that go live on our members' online Join In platform. Our Member Pioneer team also take our Join In Live events to a local level throughout the year, theming them on important topics and initiatives and inviting members and customers to come along to stores and community spaces. More than 300 'Live Local' events - led by Member Pioneer Co-ordinators and attended by thousands of members, customers and local causes - were focused on Fairtrade, membership and sustainability.

And those successful collaborations with our members shone through in 2022, as further testimony to the role they play in shaping our business.

· In September, Crumbs - the gingerbread character available in our Food stores - was given a skeleton makeover for Halloween, thanks to design winner Lorcan Smith from North Hykeham in Lincoln.

· Co-op members played an important role in designing our new Co-op Irresistible Rosé wine. Based on member feedback during online wine events and a fizz and rosé masterclass, Co-op Solo Pale Spanish Rosé was developed based on what our members told us they prefer in terms of wine colour, bottle shape and label information.

· Announced in March, our first ever member-inspired ice cream hit Co-op freezers, after more than 90,000 members shared ideas on flavour combinations in 2022. Members who had been involved were invited to a special tasting event in Manchester before 900ml tubs of Raspberry Pavlova ice cream landed in our Food stores. The ice cream went on to sell more than 285,000 tubs before the end of the financial year.

To read more about how our Co-op rewards members, including 2p back for every £1 spent on selected Co-op branded products and services, as well as personalised and exclusive offers, please see our page 60 of our Co-operate Report.

Business unit updates

Food - from Matt Hood, Managing Director, Co-op Food

As with all retail organisations, throughout 2022, we've continued to operate in a challenging and demanding economic climate. The impact of the pandemic, Brexit and the ongoing war in Ukraine caused workforce shortages, supply chain constraints and drove a cost of living crisis, which affected our members, customers, communities and our business, resulting in changing consumer shopping habits and much more.

Our performance

As we reported for H1 2022, profitability was partly affected by the rollout of our new SAP supply chain systems, as we continued to feel the effects of a global pandemic and supply chain crisis.

However, performance in FY2022 overall was strong for our Food business, considering the significant headwinds in play across our market, including rising energy costs and inflation. We also stood by our commitment to invest in colleague pay during the year.

Mitigating actions that we'd already taken ensured tight cost control with available funds to navigate cost challenges:

· Energy initiatives to reduce our energy consumption through dimming lighting in stores with excess brightness and reducing target temperature in stores from 19 degrees to 17 degrees. This also helps us be 'Fairer for our Planet.'

· Tight prioritisation of spending helped us improve our cashflow.

· We closed some of our poor-performing stores and took the difficult decision in July 2022 to restructure some of the teams at our support centre in Manchester, as we faced tough trading conditions down to rising inflation in H1.

Nevertheless, profitability for the full year ended 11% lower than in 2021 (2022: £139m, 2021: £156m), albeit that £10m of this reduction is due to the sale of petrol forecourts in October.

Sales for the full year were £7.8bn; representing a slight increase on the previous year (2021: £7.7bn). Based on our own data (comparing the 2022 average selling price to that of 2021), our food sales (excluding fuel) were heavily impacted by increased cost prices driven by market wide inflationary pressures, with full year inflation of 5.9%, peaking at 8.9% in December 2022. In response, to support members, customers and colleagues, £37m was invested in our prices, across a series of popular products.

Inflationary increases offset lower volumes in the year, with unit volumes down 5.5% on 2021 (2022: 3.7 billion, 2021: 3.9 billion). Corroborated by our own data, customer behaviour incited 'smaller' baskets across the market, with fewer products per transaction on average during the year, although frequency of shop did increase. Product availability in our Food stores improved in 2022 - by the end of the year, availability continued to improve from Q4 2021 and 94% of products were available in all our stores on average each day (against our target of 95% for the 2022 financial year).

In October, we completed the sale of our 129-site petrol forecourt business to Asda for an enterprise value of £611m. This represented 5% of our retail estate of 2,564 stores. Fuel performance was strong in 2022 with sales £69m higher year-on-year (2022: £571m, 2021: £502m) despite only operating for 10 months of the year. Trading profit for our petrol station stores overall was £47m, which was £2m lower than 2021 (2021: £49m).]

Despite a turbulent year, we ended 2022 with a market share of 6.1% by the end of 2022 (2021: 6.2%) according to data from Kantar Worldpanel.

Margin held up well overall for the year, with new customer behaviour driving significant change in three key areas:

1. Cigarettes and tobacco sales - as lower margin products - were lower overall, as confirmed by data from IRI.

2. Our own data shows that customers switching to vapes increased significantly in 2022.

3. We saw an increase in the number of food to go soft drinks sold in 2022 compared to 2021, where customers shopped more multipack purchases during the pandemic.

In our Wholesale business, Nisa has had a successful 2022, despite these same economic challenges impacting all retailers.

Key highlights

· Refreshed strategy - Pure Convenience

Over the last few years, we've continued to invest in our estate, infrastructure and people. Our focus on convenience has, in turn, powered up our proposition, extending our reach through our four routes to market - Retail, Wholesale, Franchise and Online - to get closer to where people are. 

In September 2022, we unveiled our new-look Food strategy with a renewed focus on convenience and commitment to offer greater value, led by a £37m investment to slash the price of over one hundred products. 

Our refreshed strategy aims to capitalise on the experience we've gained in the market over the last decade. We've grown our business to operate more than 2,400 Co-op stores, supported by online platforms, built a nationwide franchise business and served almost 5,000 independent convenience stores through our wholesale arm.

· Product range

In response to the cost of living crisis, we lowered prices on more than 120 Co-op own brand products from pizza, pasta and burgers to fruit and vegetables, by as much as 36% in 2022, and 'locked' these prices into the new year to support our members, customers and communities who face rising household bills.

Our target shoppers come to us looking for treats, food on the go, inspiration in meals for the night and to top up their bigger shops. 

In the first half of 2022, we began repositioning our fresh, chilled and frozen meals, bringing them together consistently across all our stores so customers could quickly shop our meal offers and easily identify our new ones. These changes set the foundations to ensure we fully complied with the Government's new High in Fat, Sugar and Salt (HFSS) regulation, which came into force for England-based stores of over 2,000 sqft in October.

We know that creating member and customer value is our key to success, balanced with a sustainable cost to serve. This requires continued focus on range, investment in value and price and rewarding our members and customers for their loyalty.

To enable this, in 2022, we began an 18-month range review programme to revamp every category in our shops to ensure real customer value through our four levers of price, promotions, range and quality. Through this work, we began looking to balance branded versus own brand products, improve the distribution of our Honest Value range, improve packaging and our use of plastics and introduce member-only deals.

Whilst doing this, we also looked to reduce the number of products in our range, removing those we know don't matter as much to our members and customers. As well as helping us to improve overall value perception, work like this allows us to manage our overall cost to serve our members and customers.

· Online

We continued to focus on growing our online presence in 2022, supporting efforts to make shopping quick, easy and convenient for our members and customers. Our aim remains to be the most convenient home delivery service in the UK, as we continue to innovate to meet the needs of consumers.

Our online business (including the expansion of our own site offering and our offering through partners) could reach 81% of the UK population before the end of the year and revenue grew to be 24% more than we achieved in FY 2021 (2022: £222m, 2021: £179m). Our online delivery services were available in more than 1,800 individual Food stores across 859 locations in 2022, with stores acting as micro-distribution hubs in communities.

By the end of H2, Deliveroo was available in 1,296 stores (1,235 if we exclude our petrol forecourt sites), and Uber Eats in 1,001 stores. Of all the orders placed through our online shop (coop.co.uk) in 2022 overall, 64% of transactions came from Co-op members.

A key part of our online strategy in 2022 continued to be the development of our ecommerce offer, using the competitive advantage of our store footprint to provide fast home deliveries, click & collect and added services. 

Growing market share remains our priority, targeting 30% of the quick convenience market share (rapid delivery from store to door) within four years. We started to develop plans in 2022 to simplify the online delivery operation for our colleagues, working with our partners to move all their platforms to our hand-held terminals, meaning everything will be in one place for our store teams.

· Distribution

In January, we opened our new Biggleswade depot - our largest regional distribution centre (660,000 sqft). The depot became fully operational in H1 as the most sustainable and environmentally friendly depot in our network, handling over two million cases of frozen, ambient and fresh products a week. This depot brought thousands of products closer to communities across the South and South East. In April, we also began to extend and enhance our Newhouse distribution centre, as we continued to strengthen our existing logistics network, ensuring we have suitable distribution facilities to deliver improved services and access to food conveniently for our communities into the future.

A better way of doing business

We're committed to supporting British farmers - 100% of our fresh and frozen meat is British, and we only use British meat as an ingredient in our products. I'm proud that all our hard work has enabled us to continue to back British farmers when others pulled back in 2022, with our pledge to back British egg producers through a multi-million-pound support package for producers, on top of the £19m we also pledged to support pig farmers during the year. By supporting British farming, we believe we can boost the economies of communities across the UK and ensure the highest animal welfare standards.

In the context of the climate crisis, we recognise that global producers and farmers in our supply chains are some of the most vulnerable to the shocks of extreme weather and disease outbreaks, but are without the resources to protect themselves and their livelihoods.

Our ambition continues to be the achievement of net zero greenhouse gas emissions by 2040, 10 years ahead of international agreements. From products and packaging to power and pension fund investments, our Climate Plan details how Co-op will reduce the impact of operations. For more information about our Climate Plan and how we're supporting international communities, see our Co-operate Report. For more information about our new partnership with Your Local Pantry and how we worked together on a live stream at Christmas time, see our Vision update.

Wholesale - from Peter Batt, Managing Director, Nisa Retail

As with the wider Co-op Group, Nisa must remain commercially strong now and in the future, to continue supporting our customers' (or partners') stores, communities and shoppers. To ensure that, we took some difficult decisions in the financial year including the restructure of some of our teams, streamlining operations and making cost efficiencies to get Nisa into a position where we can reinvest in lower prices for our customers and their shoppers.

Our 2022 trading profit was £22m (2021: £9m), representing 1.5% of sales. This figure was enhanced in 2022 by £4.4m of one-off gains.

Sales in our Wholesale business were 3.8% higher than the prior year at £1,439m (2021: £1,386m). This represents a solid performance in light of significant inflationary pressures and tough economic headwinds, impacting consumers and retailers alike. Of that total, sales in our Nisa business were £1,385m and although retail like-for-like performance was down 2.5%, new member recruitment remained strong.

The performance and improving profitability of Wholesale demonstrates the underlying strength of the synergies between Co-op and Nisa. Ensuring the profitability of the business is important, so that we can continue to invest in Nisa in 2023 and beyond, and pass on associated benefits to our customers.

Nisa's sales of Co-op branded products grew by 12.5% in 2022 to £199m (2021: £176.6m) and now represents 20% of total sales, excluding tobacco. In Q4 2022, we made a significant investment in the pricing of Co-op branded products, to improve the margins our Nisa partners make but also ensuring retail selling prices remained competitive. Our data for financial year end 2022 shows just over 91% of Nisa customers were buying Co-op branded product.

Recruitment throughout 2022 remained strong, with 475 new stores added, with in-year sales of £66m (£113m annualised). Co-op disposal stores remain key for recruitment - we recruited 33 more year-on-year (2022: 88, 2021: 55) with total sales at £42m by financial year end.

Our Co-op is the major shareholder in Federal Retail and Trading Services Limited (FRTS), which is a joint buying group collectively owned by us and Independent Society Members (ISMs), which are all retail co-operatives.

The group operates for itself, but also acts as a wholesale to other independent co-operatives. Revenue for the year was £1,895m (2021: £1,756m).

FRTS continues to be run on a cost recovery basis, meaning the group doesn't make or record any profits from these sales. We continue to explore ways to maximise our impact as independent co-operative societies, in the increasingly competitive markets in which we operate.

Funeralcare - from Gillian Stewart, Managing Director, Co-op Funeralcare

2022 proved to be a very important year for our business. We achieved consistently high client satisfaction scores throughout, set up a new business - Co-op Funeral Plans Ltd - and then achieved Financial Conduct Authority (FCA) approval for that business to sell, service and redeem funeral plans.

We said goodbye to Sam Tyrer who, almost a year prior, had taken the decision to move on to her next challenge. I was then honoured to take on the Managing Director role, having previously been Chief Operating Officer, to continue the delivery of our business strategy. We also made great progress with the important work we began in 2021, to transform the culture within Funeralcare and make it a great place to work for everyone.

Business performance

A significant amount of work went into getting ready for funeral plan regulation and we were very proud to be granted authorisation when the UK's funeral plan market became regulated by the FCA on 29 July. We saw a reduction in funeral plan sales in the lead up to this date, as customers' confidence in the market overall was impacted pre-regulation and there were changes to our distribution channels due to regulation. Our plan sales for the year were 16,774, down from 44,751 in 2021, not least due to exiting some third party distribution arrangements not permitted under the new legislation.

In preparation, Co-op Funeral Plans Ltd (CFPL) was set up as a new legal entity and we started to sell funeral plans under the Co-op Funeralcare brand from this entity on 1 May 2022. Our regulatory compliance advisory function was introduced and over 700 colleagues became certified to sell, service and redeem funeral plans on 29 July 2022, the day that CFPL became regulated. We also launched a new digital Halo Plans system, which is a key part of our core system transformation programme, ensuring our systems and ways of working are regulatory compliant and future proof.

We continue to be recognised as providing one of the best funeral plans in the market. We've been recognised for the fifth year running as Moneynet's best funeral plan provider and awarded Highly Commended in the Best Funeral Plan Provider category by readers of the Money Pages.

There has been significant change in the wider funeral plan market, with 26 out of 70 players becoming authorised to sell funeral plans (these 26 players cover 87% of the market). This is expected to bring greater confidence in the market, now that it is under FCA regulation.

However, in the short term, it has led to some of our competitors ceasing to sell plans or even falling into insolvency. We have been in active discussions with the FCA throughout 2022 to provide assistance where customers have been affected by this. We were one of the providers who offered support to those who held plans with providers that are no longer operating, through the availability of a heavily discounted funeral plan as well as discounted funerals for some families at their time of need.

The death rate was low in the first few months of 2022, but increased in Q2 and remained at higher than historical average levels through the rest of the year, with a slight reduction overall year-on-year, as confirmed by data from the Office of National Statistics. We saw growth in our share of the market throughout the year, which more than offset the lower death rate and resulted in higher funeral numbers of 93,867 for 2022 compared to 90,731 in 2021. Clients continued to mention colleague interactions as the primary driver of high satisfaction scores for their experience.

Throughout 2022, our Direct Cremation and Direct Burial funeral options grew in popularity with members and clients, making up 11.7% of our funerals (an increase from 7.9% the previous year), as people continued to choose our unattended, lower cost services, as anticipated during the cost of living crisis. Our simpler Essential funeral option stayed at 11% of our funerals year-on-year. As a result, we saw clients move away from our higher cost, bespoke Tailored service, which made up 49.3% of our funerals in 2022, down from 51.7% the previous year.

These factors resulted in revenue of £271m for 2022, which is a marginal increase on the previous year's £264m in 2021.

We increased our investment in marketing activity in 2022, which had positive results. By focusing more on brand-led messaging in our advertising and the re-introduction of TV into our media mix, we saw a stronger response and improved return on investment compared to previous years. We continued to evolve our digital strategy by making our content more personal and relevant to the recipient's local community, as well as driving the conversation around grief and bereavement on a national level through our partnership activity with publisher Reach and podcast company Acast, developing podcasts which featured guests including Rev. Richard Coles and Coleen Nolan.

The higher revenue performance was partially offset by this increased marketing spend, and some inflationary headwinds with the business delivering improved operating profit in 2022 of £16m (vs £12m in 2021).

We're passionate about giving our clients truly unique and personal ways to remember their loved ones, so in November we led the market by becoming the first funeral provider to offer a service where ashes can be scattered by drone. Families now have the option to scatter their loved one's ashes by drone in memorable locations over land or sea. More than a third (35%) of those who have cremated a loved one in the past five years opted to scatter ashes in a location of significance.

Partnerships

To enable us to support the growing demand in Direct Cremation services, we welcomed a new partnership with crematoria provider Westerleigh on 1 August. They're the leading developer and operator of crematoria and cemeteries across the UK, as well as having state-of-the-art systems and processes to give our members and customers an improved service.

In January, we launched a partnership with Cruse Bereavement Services with the aim of helping people to talk about death and grief more openly, and empower people in their local communities to provide everyday bereavement support to those who have experienced loss. Related YouGov research we carried out showed 54% of UK adults had lost a loved one in the last five years. Of those who were bereaved, 31% said it impacted their mental health and 15% were left isolated.

This work continued throughout 2022 and, in October, we re-launched our Co-operate platform, which helps connect people with events, groups and activities happening in their local communities. We also updated our online hub to include more useful tips and information about grief and bereavement.

In November, we joined with Cruse and local MPs to host an event in Parliament highlighting our 'Connecting Communities' partnership and welcoming the findings of the UK Bereavement Commission. We also launched a new podcast in partnership with Cruse called 'Let's Talk About Grief', with the aim of opening up the conversation about grief and bereavement.

In November, we welcomed a new partnership with EverWith, the UK's largest memorial jewellery company, as we expand the services and support we provide to families beyond the day of the funeral.

Vision

As part of our focus on bereavement support within the community, colleagues in our funeral homes across the country encouraged people to come together and take part in Marie Curie's National Day of Reflection on 18 March, as the nation reflected on the second anniversary of the pandemic.

We also continued to innovate in the way we co-operate for a fairer planet. We invested further in environmentally friendly and sustainable alternatives, including the use of an electric fleet, trialling both electric hearses and ambulances. We also began trialling more eco-friendly funeral options.

Colleagues

Throughout 2022, we continued the work we began last year of looking into our culture. Our Funeralcare colleagues pioneered the launch of an All Colleague Code, with the purpose of creating a workplace where everyone feels they belong and has a safe space to work together. Both the Code and the launch approach have been positively received and we're seeing the difference it's making in how colleagues feel about working in Funeralcare. There was significant improvement in our annual colleague survey results across engagement, enjoyment with working for Co-op, empowerment and a decline in those colleagues who have witnessed or experienced bullying, harassment or discrimination at work since 2021.

We recognise how important our caring and professional colleagues are to our business and our clients' experience. They play a unique and valuable part in their local communities, where the support they provide goes beyond the day of the funeral. It's vital that our colleagues feel a sense of belonging at work and that they receive the care and support they need. We will continue building on the progress we've made over this past year, to ensure Funeralcare is an inclusive, diverse and safe place for everyone.

Insurance - from Charles Offord, Managing Director, Co-op Insurance

2022 saw further development of our insurance business with new partners, products and distribution channels added. We successfully transferred to new partners for Pet and Travel insurance and made our Co-op products available in more places where our members and customers shop. Like Home and Motor insurance, Pet insurance is now available across all main price comparison sites and Co-op Home insurance is now available through Amazon UK. In addition to extending our reach, we are also expanding our insurer partnerships to strengthen pricing and coverage to meet more of our member needs. 

We achieved revenue of £24m (2021: £34m) and profit of £8m, after an adjustment of £4m relating to the accounting treatment of deferred income following the sale of the underwriting business in 2020 (2021: £15m). This is as expected - our new distribution model continued to establish itself and - since the sale of our underwriting business and as part of the agreement - we continued to process those policies that were owned by our underwriting business before its sale to Markerstudy, and see, and have seen policies to their end.

Home and Motor insurance products

As with the whole insurance market this year, our performance has been mixed and subject to external pressures and changes caused by the pandemic, claims cost inflation and regulatory changes.

According to price comparison website commentators, overall customer demand for Motor insurance policies reduced by around 7%. This has happened for several reasons.

According to the Association of British Insurers' (ABI) Motor Insurance Premium Tracker, published in December, car insurance claims inflation went up by 16%, making them just over £3,000 each on average in the year to Q2 2022. The ABI reference a number of complex supply chain issues as responsible, as well as the increasing sophistication of vehicles (leading to more expensive repairs) and rises in the costs of raw materials and labour. 

Despite this, the ABI Tracker shows that the average price paid for motor insurance rose by a marginal two percent over the year to September 2022.

We also saw new pricing regulations come into effect for Home and Motor insurance from 1 January 2022, which treated loyal customers as favourably as new customers.

During 2022, 50% of consumers were seeing either a decrease or no change at renewal, the largest proportion since mid-2015. Shopping and switching rates were at their lowest point since 2009 (when market data collection began) as a result of lower renewal pricing, based on data from ConsumerIntelligence.com.

Despite these factors, we were still able to deliver 103,388 new Home and Motor Policy sales.

Although we've experienced challenging market conditions, we've continued to focus on improving our customer experience. In 2022, we introduced a new online claims portal which is already used by just under half of our Motor insurance customers going through a claim. Throughout 2022, we improved our online Motor insurance journey meaning 9% more users who start a quote with us are completing their quote compared to 2021, and we've also improved our quote follow up communications which drove a 60% increase in users visiting our 'retrieve quote' page, year-on-year. These improvements, plus others, make it easier than ever for members and customers to engage with Co-op Insurance.

These improvements in customer experience were recognised by The Institute of Customer Service in their UK Customer Satisfaction Index survey. In the insurance sector report, Co-op Insurance rose to number four across the industry. In addition to this, Co-op Insurance was the most improved brand in the year not only within the insurance sector but across all UK sectors.

Travel, Pet and Life insurance products

These challenges in Motor insurance have been offset by a strong performance from some of our other products. Travel, Pet and Life insurance have all performed very well in 2022, with 61,232 new policy sales. By the end of 2022, we'd refreshed all our insurance products with an aim to provide better cover, more choice and better prices. We added new features to help our products meet the needs of our customers and members. This included a discount on policies for rescue pets and providing cover for older pets who traditionally find it harder and more expensive to get protection through insurance.

Having focused on our product offering and customer experience for a number of years, in the second half of 2022 we moved our focus to extending our distribution and maximising the market leading products we have. We're now getting our products to more people, making insurance easier to buy and offering it in more places. 

We also put a renewed focus on our members and communities, and responded to the cost of living crisis with help for our members and the community causes we support.

Partnerships and distribution

Our new Pet insurance partnership with Markerstudy has gone from strength to strength since the new proposition was launched at the start of the year. Customer feedback has been positive, and this has been reflected in the sales of the products, with customers holding a Co-op Pet insurance product doubling in the space of 12 months.

Our new partnership with AllClear for Travel insurance has been very well received by customers. Their ability to support our 'any age, any condition' proposition, and also enhance this with the Doctor Anywhere online support, has led to industry recognition and consumer champion Which? nominating Co-op Travel insurance as one of their recommended providers.

At the end of the year, we announced that Co-op Home insurance was to be one of only three home insurance products offered through the new Amazon UK insurance store. This will ensure our Co-op Home insurance products are in front of millions more potential members and customers, in a way that suits them.

The increasing use of online platforms to distribute products will be a future development of our strategy to make it easy for members and customers to access our Co-op products.

Members and communities

In July, we launched our Motor insurance campaign, offering both new and renewing members £50 to spend on their Co-op membership card when they took out a policy directly with us. We ensured this applied to new members so more people could take advantage, while supporting the further growth of Co-op's membership base. Given the economic climate and cost of living crisis in the UK, we wanted to make sure our communities also benefited, so for each policy sold we also gave £5 to local causes.

By the time the offer came to an end in December 2022, we had shared £1.3m with individual members and raised over £130,000 for Co-op's Local Community Fund.

Legal Services - from Caoilionn Hurley, Managing Director, Co-op Legal Services

2022 has been a strong year for our Legal Services business - in the context of challenges and economic uncertainty, we've continued to grow our business. Revenue increased by 19% year-on-year to £46.3m (2021: £39.0m), and our underlying profit increased 60% to £8m (2021: £5m).

The majority of our growth came from the largest part of our business: probate. Our market leading business experienced huge growth, taking on 24% more cases than in 2021, leading to revenues increasing by 28% year-on-year.

Our Estate Planning business had a very strong second half to the year, resulting in a 9% increase in revenue in 2022.

Our strategy of increased digitalisation and accessibility, growing and maintaining strong partnerships and our unique customer journeys has supported our growth this year and led to continued high performance for our clients. Our colleagues have been key in supporting this growth and our work in the charity sector is demonstrating our difference as a legal business.

Digital and accessible services

· Our continued work in the digital space contributed to our success as 50% of our clients came to us through one of our digital channels this financial year. 

· We focused on enhancing our existing digital tools in 2022, which clients can use to help them quickly and easily access our services or legal information. We launched a new and improved digital wills service, which led to improved conversion rates, leads and a better customer booking journey. We also improved some of our internal systems and processes to create efficiencies in how we manage consultant time and workload.

· As we develop digital tools, and improve the systems we use internally, it's a priority that they're accessible for everyone. Our aim is to help people use and understand the law and provide routes to our services that work for each client.

· We regularly check our website's accessibility as well as organising live user testing. We've used this information to improve our Lighthouse accessibility metrics to a market leading position, often reaching a perfect score of 100% in 2022.

Partnerships

· Our partnerships strategy continued to grow in 2022. We secured new long-term contracts with M&G, Newcastle Building Society, Saffron Building Society and Cancer Research UK , who will continue to refer their customers to us for estate planning services.

· We closed the year signing contracts with two new partners. We have partnered with The Co-operative Bank PLC for probate and estate planning. We have also signed an agreement with Amazon UK for our digital wills to be sold through their platform. We are the first legal firm to work with Amazon UK and this arrangement fits with our strategy of making legal services more affordable and accessible, bringing our services to new groups of customers in a way that works for them.

Client Service

No matter if clients come to us digitally, through a partner or a more traditional route, we want to give a great customer experience. We're delighted that our customer service scores stayed strong, and our customer satisfaction score for 2022 is 85% (2021: 86%). We're also really proud of our Trustpilot scores, which improved to 4.8 stars in 2022 (2021: 4.7 stars).

Supporting our growth through recruitment and D&I

· Our colleagues are key to supporting and delivering our strategy and, as we grow as a business, our recruitment approach and colleague numbers need to grow too. We continued to give opportunities for legal careers to a wider range of candidates from diverse backgrounds.

· We've continued to hone and develop our essential criteria and assessment for recruitment in 2022 which has helped us recruit 347 colleagues (this is 45% up compared to 2021.)

· In 2022, our new hires identifying as disabled went up from 5.4% between Jan - Oct 2021 to 13% in 2022. We also saw an increase in colleagues identifying as being from an ethnic minority. In 2022, a total 25% of our new colleagues identified as being from an ethnic minority background. We've seen this increasing throughout the year from 19% in Q1 of 2022.

· Inclusion training for line managers, the review of role profiles and recruitment criteria as well as improvements to the training we're able to give less experienced colleagues have all contributed to these increases.

Charity and community

· In 2022, we continued to play a strong role in the charity wills space. Our Estate planning team wrote 2,903 charity wills in 2022 (2021: 2,463), whilst pledges in wills written totalled an estimated £51m in 2022.

Vision update: Co-operating for a Fairer World2022 proved to be an incredibly challenging year for our business, but also those depending upon our Co-op, who remain at the very heart of our 'Co-operating for a Fairer World' Vision. When the Vision was introduced a few years ago, we couldn't have anticipated how it would be tested in years to come - we've seen it become increasingly relevant to our members and communities, our colleagues and our planet, all of which endured so much over the 12 months.

This has included the fallout from the war in Ukraine, which has affected energy security and the UK economy, through inflation and the availability of key goods. By the end of the year, the UK was facing the biggest fall in living standards since the 1920s, with members and colleagues anticipating headwinds for the short and long term, including increases in the price of food and fuel, but also fewer affordable mortgages and pension funds stretched to their limits.

'Co-operating for a Fairer World' allowed our Co-op to take important strides in tackling hardships and injustices, while also taking up new opportunities to improve the wellbeing and prospects of others. This year, our focus remained steadfastly upon making things Fairer for our Members and Communities, Fairer for our Colleagues and Fairer for our Planet.

Sharing with our members and communities

Our community plan has three interconnecting missions to support programmes developed to bring about meaningful change in local communities. These are:

· Fair access to food.

· Fair access to mental wellbeing support.

· Fair access to opportunities for young people.

Raising funds

At a time where the finances of our members and their communities had been so sorely tested, in 2022 our Co-op celebrated raising £117m for local communities, since 2016. This amount has been generated when members buy selected Co-op branded products and services, with 2p in every pound spent split between supporting:

· Our Local Community Fund, helping thousands of local community causes. 2016 marks the year that this fund launched.

· Our Community Partnerships Fund, creating targeted partnerships and resources to support vulnerable local communities across the UK.

Our Local Community Fund is at the heart of our Co-op's support for the communities that we serve, bringing to life the co-operative principle of concern for community at a genuinely local level. Co-op colleagues who live and work in communities across the UK, led by our Member Pioneers, play a key role in determining which projects will best meet the needs of their communities, while members chose to support a cause that matters to them more than one million times during 2022.

Our Local Community Fund supported over 4,000 community projects in 2022, offering a share of £12.4m, providing critical support during a challenging year.

· More than half of causes (53%) confirmed that the funding allowed them to develop new or improved partnerships with other local organisations.

· Co-op's support was seen to assist 43% of causes with mobilising volunteer support from their local communities.

· More than 47% of causes reported that their project, funded by Co-op, had helped them obtain further funding for their organisation.

We also secured a new partnership; our relationship with Crowdfunder's funding website allows those same local causes the chance to benefit from match funding and unlock additional support.

July saw the culmination of three years of fundraising across our Co-op on behalf of our charity partners Mind, SAMH (Scottish Association for Mental Health) and Inspire - three organisations well known for their work supporting mental wellbeing across the UK. After setting an initial fundraising target of £6m, our members, colleagues and customers raised £8.3m for these three causes in total. The money raised helped to launch more than 50 new mental wellbeing services in local communities across the UK, supporting over 22,000 people in 2022. 82% of service users said that they felt their mental wellbeing had improved as a result, and that they were better able to cope with the challenges they faced.

And as well as continuing to meet long-standing fundraising targets like these, our Co-op also found new and pragmatic routes to responding to the cost of living and its effects upon communities over 2022.

· Our Co-op pledged £19m in support of UK pig farmers, following our move to delist imported bacon from Food stores more than five years ago. Matt Hood, the new Managing Director for our Food business, encouraged other retailers to help the sector tackle high feed costs, exacerbated by the conflict in Ukraine and leading farming communities to suffer significant losses.

· Co-op became the first retailer to launch a £1m 'Warm Spaces' funding boost, to provide urgent support to local community organisations across the UK, as they help communities navigate rising energy costs during the cold winter months. Funds raised by Co-op members supported local groups in providing warm spaces for people to use over the coldest months, through its partnership with Crowdfunder. Eligible groups who were already offering a warm space, but wanting to increase opening times or extend existing services or activities during the winter, could also apply for match funding.

· Co-op was a founding member of the Disaster & Emergency Committee, when it was originally established. More than £1.2m was raised between members, colleagues and customers in 2022 for their appeal in response to the devastating events in Ukraine and Pakistan. In addition, the decision was made to remove Russian-made vodka from sale in our Food stores, and introduce Chernigivske Ukrainian Lager on to shelves in April, to support a business seeking safety and security for its employees.

And in December 2022, Nisa's Making a Difference Locally charity, which enables retailers to support good causes in their local community, reached £15m. The milestone amount has been raised for communities across the UK since the registered charity's formation in 2008, with more than £1.1m raised through the sale of Co-op brand products during its last financial year (July 2021 - June 2022).

Key partnerships and our Community Missions

Over the course of this year, we continued to focus upon our three Community Missions, ensuring long-term ambitions while making an immediate difference where needed, as communities still felt the effects of the pandemic and faced into a cost of living crisis. In 2022, we were able to put in place major new partnerships which greatly enhanced our efforts and impact in these three key areas.

· Fair access to food

We continued to deliver on our commitment with Hubbub to help its community fridge network expand to 500 locations by the summer of 2023, meaning it could distribute millions more meals than the original 100 locations when our partnership first began. Community fridges continue to offer more than just food - they were developed to bring people together to build skills, improve their mental wellbeing and increase their resilience. By the end of 2022, we'd identified 350 fridge locations.

And in September, we announced our significant new partnership with Your Local Pantry, intended to help improve household finances, while bringing people together around food.

The partnership will see Your Local Pantry network triple within three years from 75 to 225 pantries across the UK, with the addition of 150 new pantries, expected to see almost 650,000 visits by July 2025. The partnership will focus on communities where additional food solutions will make a significant difference to the cost of living. The first 20 Your Local Pantry locations had been identified, as part of the partnership, by the end of 2022.

Each location is run by uniformed staff and volunteers who manage the pantries. Pantries are open to all and work like any other grocery store, in that Your Local Pantry members - who pay a nominal subscription each week - choose the food from the shelves.

Members save, on average, £15 per shop and around £1,000 or more a year on shopping bills. Overall, the new locations are forecast to help Your Local Pantry members up and down the UK save an estimated £5m a year when fully operational.

Instead of a traditional Christmas TV commercial, with the potential to cost millions of pounds, our Co-op chose instead to spotlight Your Local Pantry, partnering with TV chef and rapper Big Zuu on a livestream across the country, from one of its locations in Peckham. The event included demonstrations around simple and nutritious recipes for only a few pounds, as well as an opportunity to meet Your Local Pantry volunteers and its members, who are working to help their community grow and thrive.

As part of our access to food mission, at our May Annual General Meeting, we announced Caboodle: a new digital platform built to help reduce food waste between founding partners Co-op and Microsoft, with technology consultancy BJSS and TeamITG.

The not-for-profit initiative enables supermarkets, cafés and restaurants to connect with community groups and volunteers and redistribute surplus food. Its ambition is the creation of a single place where food retailers and businesses across the hospitality sector can connect with volunteers and community groups in every city, town and village in the UK, helping to share food when and where it is needed.

Initially trialled in Co-op Food stores in Northern Ireland, Milton Keynes and London, the platform went live across 2,500 Co-op Food stores in July and supported a total 14% increase in the amount of surplus food redistributed to local community groups by our stores, year-on-year. More than 6,500 tonnes was shared in 2022, compared to under 5,800 tonnes in 2021.

News of Caboodle was publicly supported by WRAP - a climate action non-governmental organisation - which acknowledged its potential to curb food waste and redistribute to those who needed it. It has also been utilised by Co-op's partner Hubbub.

· Fair access to mental wellbeing support

As well as our ongoing support for Mind, SAMH and Inspire, teams across our Co-op invested time throughout 2022 and actively participated in key mental wellbeing initiatives intended to make a real difference in communities.

On Time to Talk Day, we partnered with Mind, SAMH, Inspire and Rethink Mental Illness on the nation's biggest conversation around mental health, encouraging nearly two million conversations to take place, both inside and outside of our Co-op. Senior leaders from our Manchester support centre spent time with Paul Farmer, the CEO of Mind, and local organisations to encourage conversations around greater support and open dialogues on mental health between families, friends, others within our communities and our colleagues.

Alongside this, more than 1.5 million people have been signposted to information, activity and support for mental wellbeing since 2020. This includes through our online community centre Co-operate (developed to bring people together to make good things happen in communities - coop.co.uk/co-operate), our Member Pioneers and Funeralcare business.

To further encourage openness and support, we began the year with a new partnership with Cruse Bereavement Support, brought about to help people discuss grief more openly. The initiative sought to empower mutual support across communities, to best help those who might have experienced a bereavement. Bite-size resources were developed to help signs of grief be identified, understood and normalised, and further signposts to support were made available. Over 13,000 people accessed new bereavement resources on Co-operate in 2022.

In addition, our agriculture and fisheries team worked with the Farm Safety Foundations to undertake important training to better understand mental health, in particular the challenges felt in rural communities, and garner new ideas on how they could best support these groups.

· Fair access to opportunities for young people

The impact of the pandemic and the cost of living crisis upon young people will be felt for years to come. Working with external partners has been key, enabling our Co-op to provide sustainable solutions to support those young people whose communities and prospects have been so badly affected.

The Peer Action Collective (PAC), which we launched alongside the Youth Endowment Fund and #iwill Fund, is rooted in our Vision of 'Co-operating for a Fairer World' and co-operative Values. The PAC provides 10-25 year-olds with a voice and the opportunity to make their own communities safer and fairer places. 

The £5.2m youth-led programme - £1.6m of which is funded by our members through their contribution to the Community Partnerships Fund - supported more than 6,000 young people across England and Wales in 2022, including 4,588 young people being heard as research participants, 1,310 young people taking social action as change makers and 169 people in paid employment as peer researchers.

In July, a new partnership between Co-op and UK Youth was developed in support of young people in Scotland and Northern Ireland making a difference through social action in local communities as part of the #iwill movement. The #iwill movement is a collaboration of over 1,000 organisations and 700 young #iwill ambassadors & champions from across the UK, supported by charities UK Youth and Volunteering Matters. The £250,000 investment from Co-op (again, funded by Co-op members through the Co-op Community Partnerships Fund) has been used to recruit, train and support new #iwill ambassadors across the nations. The 10-25 year-olds will work together to make a difference in their communities through social action.

Co-op Academies Trust

Our focus on young people continues with our growing network of 29 academies across the North, supporting our ambition to provide fair access to education. In 2022, Co-op Academies Trust added two new schools; it welcomed Co-op Academy New Islington in Manchester and Co-op Academy Glebe in Stoke-on-Trent, both Ofsted rated Outstanding primary schools. The Trust was also awarded a new free school by Leeds City Council, and will be officially opening Co-op Academy Brierley in September 2023. This will be the Trust's third special school for children with additional needs and its first through school, supporting children from the ages of 4-18.

Our network of schools remain an important part of our Co-op and to all within our group, who share our 'Co-operating for a Fairer World' Vision. In 2022, the Trust worked to ensure that every student (more than 18,500 of them) had access to a healthy nutritious breakfast before school. A newly-established and ongoing partnership between Co-op Food and Kellogg's sees cereal sales contribute towards the Trust's breakfast clubs. All Co-op Academies began to offer a breakfast club, and a free breakfast to 'Pupil Premium Students' who are students from low income households or have considerable disadvantages to their peers.

In May, our LGBTQ+ Respect colleague network hosted a conference for Academy libraries, in support of greater representation of diversity across books in our schools and, over the summer, all colleagues were invited to donate their favourite non-fiction, fiction books and magazines to be enjoyed by our students.

Following its success in 2021, our Co-op relaunched its virtual work experience programme for its Year 9 Academy students, engaging over 2,500 young people, helping them to reduce barriers to the best possible work experience opportunities, while they developed key employability skills through interactive sessions.

Co-op Foundation

Also supporting young people and communities in 2022 was our charity, the Co-op Foundation, which marked the year by launching its new five-year strategy: 'Building communities of the future together'. This strategy was co-created with Foundation colleagues, funded partners and our Co-op. It is led by a vision of future, fair co-operative communities shaped by almost 100 diverse young people, including Co-op colleagues, members and Academy students. See www.coopfoundation.org.uk for more information.

The first round of funding from this new strategy is the £1.5m Future Communities Fund. This was launched in November, to deliver unrestricted grants of up to £30,000 a year for five years to help organisations develop diverse young leaders of the future. Grants will be awarded in 2023, led by a 'Future Communities Collective' of 10 diverse young people working alongside the Foundation. 

In addition to developing its new strategy, the Foundation also built partnerships and awarded grants all over the UK in 2022.  

In June, the Foundation announced a new match-funding partnership with the UK-based Astra Foundation to continue its work tackling youth loneliness. Funding included a £450,000 grant to UK Youth and Youth Focus: North East to help upskill youth workers to better identify and tackle loneliness. This is an example of how the Co-op Foundation can leverage money from other funders to increase its impact and make Co-op member donations go further. 

Over the summer of 2022, the Foundation also awarded £1.4m of grants from its Carbon Innovation Fund partnership with Co-op Food to help reduce carbon emissions in food and farming; a £250k two-year grant to Refugee Action; and £1.2m of follow-on funding for 37 current #iwill Fund partners to build on their social action projects with young people. 

Co-op Foundation finished the year by putting young people in charge again. It launched year four of its annual Lonely Not Alone campaign to tackle the stigma of youth loneliness and signed the Power of Youth charter, committing to give young people a chance to shape their future. 

Working with others

During the first half of 2022, our Co-op worked closely with the Purpose Coalition throughout H1, to evaluate the impact of our work. This independent body, led by the Right Honourable Justine Greening, prepared a 'This is Purpose' report, focused on our Co-op, which was published and presented to the House of Commons in July. The report considered our Co-op, its missions and what more we can do for our communities, as well as the partnerships we can create that will make a difference. Along with many other ideas in many other areas, it also provided brilliant ideas to build on our flourishing programme of activity for greater social mobility, and for the greater education and employment of young people. We continued to work with Justine and her team through 2022, developing our plans to act on her recommendations.

In 2022, Cooplevyshare.co.uk - built for employers to come together, create opportunities and support apprenticeships for individuals from under-represented socio-economic groups - exceeded the initial three-year target of £15m we set when it launched in 2021.

Since its inception and before the end of the financial year, the service reached 54 donating employers and 138 receiving organisations, detailing potential apprenticeships. 1,397 matched apprentice opportunities have been confirmed over this time, to a value of £14m.

And towards the end of the year, we were named one of the UK's leading employers in the Social Mobility Index, which recognises employer-led social mobility and is developed by the Social Mobility Foundation. In 2022, we were one of just 12 businesses asked to join the Social Mobility Commission's Employer Advisory Group, put in place to drive social mobility in the workplace in the UK.

· Beyond the cheque

Underpinning all of our exceptional community achievements continues to be our Member Pioneers - we simply couldn't have achieved what we have without their hard work in our communities across the UK, connecting members, colleagues and local causes; helping them during a difficult 2022.

Our 1,000 Member Pioneers and Member Pioneer Co-ordinators invested over 116,000 hours in our UK communities over the year and engaged with an average of 51,000 people a month, reaching more than seven million through their social media channels. They played a critical role in activating campaigns, initiatives and national partnerships.

During 2022, they delivered more than 300 Live Local events, reaching those in our communities and colleagues alike with important messages, ideas and opportunities to participate. Themes ranged from Fairtrade to sustainability, and highlighted activity such as the launch of our soft plastic recycling.

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

Our 2022 Co-operate Report includes detail on the progressive actions we're taking to fulfil our Vision of Co-operating for a Fairer World, including our support of Fairtrade and international communities. To read the report, visit: www.co-operative.coop/ethics/sustainability-reporting

Colleague policies

Our colleagues have endured those same hardships as our members and communities, and we took the opportunity during 2022 to review and reassess key colleague policies, and their suitability for those dependent upon on them.

· Our leaders worked to shift perceptions at Co-op, and fundamentally change our culture when it came to menopause, challenging the stigma that it is a 'women's issue' when it should be considered a workplace issue, requiring the support of affected colleagues' whole teams.

After being one of the first retailers to launch a menopause policy back in 2019, we took the opportunity to refresh the policy in April, which included the introduction of a menopause support guide for all 4,500 managers across Food stores, funeral homes and our Legal Services and Insurance businesses.

A related guide was also made available to other employers for free, as part of an attempt to break the taboo of menopause in UK workplaces more widely. Developed in partnership with USDAW and Unite, as well as Co-op colleague networks, the guide is designed to help achieve a greater understanding of the menopause's impact and the supportive role our managers can play. Our Aspire colleague network - a network of Co-op volunteers that advocate and co-operate for a fairer world for all colleagues who identify as women - also continued to hold regular menopause coffee mornings throughout 2022. The sessions remain a safe space for colleagues to share their experiences and hear from related experts.

· Coinciding with National Fertility Week, a new colleague fertility treatment policy was launched in October.

The policy, as part of our commitment to create a truly inclusive workplace and deliver a fairer world for colleagues, provides flexible unrestricted paid time off for colleagues to attend medical appointments while undergoing fertility treatment, including colleagues using a surrogate.

Importantly it also recognises the need for paid time off for those colleagues whose partners are undergoing fertility treatment, to enable them to provide support through treatment, regardless of how long they have worked for Co-op or the number of hours they work.

Endorsed by charities Fertility Matters at Work and Surrogacy UK, the enhanced policy provides a range of flexible support, including a section which covers embryo transfer and pregnancy rights specifically. It also outlines access to counselling and wellbeing support, through partners Lifework and YuDoctor.

Even greater inclusivity for colleagues

2022 saw some important initiatives to make working within our Co-op even more achievable and accessible, especially to those from disadvantaged or diverse backgrounds.

· In February, Co-op Legal Services announced five new apprenticeships for students wishing to pursue a career in law, meaning candidates did not need to complete a university law degree - potentially saving them each over £36,000 in tuition fees.

The apprentice solicitor roles were open to students who had achieved three A-levels and five GCSEs, with the role undertaken over a six year period at which point candidates would qualify as solicitors, which goes beyond the outcome of a traditional law degree. Sitting within Co-op Legal Services' team of experts, roles are fully salaried and rise in line with career progression over the course of the 72-month period.

· In May, leaders were provided with new recruitment resources, to support hiring processes and considerations to aid the development of a more diverse culture at our Co-op.

Beyond recruitment and to support a more inclusive culture for those colleagues already part of our Co-op:

· 2022 saw us share our first ever ethnicity pay gap with colleagues and wider audiences, revealing the difference in pay between those who identify as being from ethnic minority backgrounds within our group, and white colleagues.

The report, published in June, was designed to bring greater transparency and challenge our ways of working in a similar way to the Gender Pay Gap Report, but with more intersectional insight that our Co-op could use. It has been shared with parliamentary and political stakeholders as part of our social mobility campaign where we are suggesting that this reporting should be mandatory. It's available to read here: www.co-operative.coop/ethics/ethnicity-pay-gap-report

· Access to important new resources was made available to our colleagues, to support greater inclusivity across our Co-op.

o  We shared an information pack ahead of International Non-Binary Day (14 July) with colleagues, explaining the event's significance and the best ways to role-model inclusive behaviours and bring our ambition for 'endless inclusion' to life.

o  Packs were also available for International Women's Day in March and programmes of events, activities and resources were shared with our colleagues in support of South Asian Heritage Month, Black History Month and other dates of significance.

o  In November, a new disability inclusion module was launched with the support of our Represent network for line managers and colleagues, aligned with Disability History Month. It includes insight from colleagues living with disabilities, helps line managers learn how they can better support disabled colleagues and offers signposts to those working to unlock their potential and thrive at work. Represent also placed within The Shaw Trust's Disability Power 100 in 2022, which celebrates Britain's most influential disabled people and organisations.

o  Namratta Bedi, co-chair of Rise, our colleague network for ethnic minority, hosted the network's first Vaisakhi session in April, raising awareness and discussing how the festival is celebrated for different reasons by different faiths and cultures. This day also marks the founding of the Sikhism faith by Guru Gobind Singhji in 1699. A related live cooking session with Co-op chef Ed Fraser was also made available to colleagues in our support centre and to all colleagues virtually.

o  Peter Batt, Managing Director for Nisa, was awarded Silver in the Page Group Diversity Champion category of the 2022 Retail Week Awards.

For an update on achievements against our diversity and inclusion commitments, see our Co-operate Report.

The wellbeing of our colleagues

As the year brought with it another raft of new and unique challenges, our priority was to protect all aspects of our colleagues' wellbeing, including their financial wellbeing.

In April 2021, we aligned our minimum hourly rates to the Real Living Wage, as set by the Living Wage Foundation (www.livingwage.org.uk), and we subsequently aligned them to the new rate from April 2022. For Customer Team Members (CTMs) in our Food stores, this resulted in a 4.2% pay rise. We also increased the pay rate differential between CTM and Team Leader roles. Our hourly pay rates apply to all colleagues, including younger colleagues and apprentices.

In September, we took the decision to offer further support as part of the rising cost of living, the ongoing risk of energy cap increases and increased inflation. Our work during the year to increase cashflow and stabilise our business made a one-off additional investment of £12m possible, with the most support going to those who weren't eligible to participate in our bonus plan, including many of our frontline colleagues. A payment of £50 was loaded on to eligible colleague membership cards in November and December, with plans to do so again in January, making £150 in total. Later in the year, the decision was also made to offer the majority of colleagues another financial boost, with a further £75 added to colleague membership cards in December - this reached more than 55,000 colleagues. Payments were structured so that they would not impact any universal credit payments and we also covered the benefit in kind tax due so colleagues would receive the full benefit. 

Beyond this £12m investment, colleague members saw an increase to 30% discount on Co-op own brand products, excluding alcohol, from 20 October until April 2023.

Talk Money Week in November signposted colleagues to tailored support whether they were dealing with a one-off surprise bill, building a savings buffer or handling debt. Pointers to Co-op's and partners' resources were made available - such as Grocery Aid; Keep Credit Union the Co-op Credit Union; debt charity Stepchange and lenders Salary Finance. We also increased how much colleagues could access from their basic pay in advance, through partners Wagestream.

Beyond supporting our colleagues' financial wellbeing, we continued to find routes to help ensure their physical and mental wellbeing was safeguarded. In May, following an initial pilot, we launched a brand new benefits partnership with YuLife for all colleagues, with access to a wellbeing app that rewards healthy behaviours like meditating, walking and cycling, with chances to earn vouchers to spend with well-known brands.

We also held a range of events and activities around Mental Health Awareness Week. For the theme of loneliness in 2022, a series of recorded sessions, on demand events, podcasts, videos and a quiz were all available. Signposts to further support were included as were free virtual exercise classes from partners Nuffield Health, including Yoga and Body Conditioning.

Our Co-op remained firm in 2022 that discrimination or abuse of any kind would not be tolerated in any part of our group. In March, as part of our efforts to ensure fair treatment for colleagues feeling bullied or harassed, we called out across our Co-op for those who had experienced discrimination of any kind at any time in their career to help shape our people, processes, systems, policy, procedure and training. We launched an all-colleague code for behaviours within our Funeralcare business, including a range of associated interventions such as listening groups to ensure the code was meaningful and supported outcomes from a cultural audit of behaviours. Work to address behaviours began in Logistics during 2022, and is expected to extend into Food stores in 2023.

Building on the success of our ongoing Safer Colleagues, Safer Communities campaign, Paul Gerrard, who oversees our campaigns and public affairs, was a keynote speaker in Westminster, as part of the USDAW Freedom from Fear Summit in November. Paul made clear our continued support for USDAW's campaign, reiterating that that there was no excuse for our frontline colleagues to feel anything other than safe and respected.

We also continued to monitor very closely the implementation of the new legal protections enacted by Holyrood and Westminster to ensure the criminal justice system takes every opportunity to ensure those who would abuse or attack shopworkers face the proper sanction for doing so.

Recognising our efforts for the planet

In April, we were honoured to receive the Queen's Award for Enterprise for Sustainable Development, in recognition of our excellence in sustainability. The award, which involves a rigorous application process, recognises the reach and depth of our work reducing the impact of operations, its focus on the UN sustainable development goals and its commitment to continually drive initiatives, which affect its environmental impacts and see real change. Initiatives such as introducing Europe's most extensive soft plastic in-store recycling scheme, to make all Co-op's own brand food and drink packaging easily recyclable, were considered.

Our Co-op was also awarded the Relex Responsible Retailer Award as part of the 2022 Retail Week Awards for our commitment to greater sustainability. Again, our soft plastic recycling scheme was acknowledged - data shared in July, to mark the scheme's first anniversary, showed that around 75% of polled members regularly used the bin in their local store, with 41% saying they used it once a week, 30% a few times a month and 29% more than once a week. Fruit and vegetable bags, bread bags and crisp packets were the items most recycled by members.

And our Food stores continued to find other ways of empowering members and customers to think and act more sustainably:

· In April, we removed 'use by' dates from all of our own brand yoghurts in a bid to reduce food waste and as part of an industry first move, favouring instead 'best before' dates.

· This same month, the Sustainable Fisheries Partnership, the Royal Society for the Protection of Birds and the Whale and Dolphin Conservation completed an independent audit of the risks to ocean wildlife in the fisheries that supply our Co-op. They deemed us 'one of the top retailers in the UK selling sustainable seafood.'

· As part of a relaunch of our food to go offering in May, we significantly reduced the amount of packaging in our food to go products and removed all single-use plastic cutlery in favour of wooden sporks.

· In a UK supermarket first, our Glastonbury festival store sold ice cubes in bags certified as 100% recyclable paper, which could be sorted at the event's onsite recycling centre in June. We also did not sell single-use plastic bottles at the store and only offered water in cans. Our soft plastic recycling units were made available at the store for customers to return their soft plastics.

· In August, we expanded our trial with tech-recirculation start-up Spring to help consumers cut e-waste and unlock the value in their old and unwanted phones and electronic devices. Self-service pods in selected Food stores allow consumers to sell their old devices quickly and conveniently, such as phones, tablets, e-readers and smartwatches, which then get repaired, refurbished, reused or recycled.

· And in November, we committed to removing all coloured milk bottle caps from shelves to move to clear caps across all our stores, which can be more easily recycled into food grade packaging. We also launched a trial in partnership with tech specialists Polytag to uncover the number of our own brand plastic bottles that are being recycled, to improve our understanding of true recycling figures and to help benchmark future rates for the industry.

Our Funeralcare business continued to invest in environmentally friendly initiatives, such as an electric fleet, including trials for both electric hearses and ambulances.

Our Co-op also continued to play a role in key conversations, using its influence to engage and inspire others to be 'Fairer for our Planet.' Leaders encouraged all colleagues to participate in Great Big Green Week, as the UK's biggest celebration of community action to tackle climate change and protect nature. Starting in September, resources were provided to support colleagues in organising related events, such as a plastic-free picnic or a nature trail; writing to their MP or finding local events or groups they could support, including a series of Sustainability Live events hosted by our Member Pioneer network.

And beyond our colleagues, we continued to campaign for UK Government to bring about change and participate in important conversations:

· Leveraging our position as a retailer with its own brand charity water - having shared £17m over the past 15 years with clean water and sanitation projects - Shirine Khoury-Haq joined other influential leaders via video at COP27 to work through how UK businesses could come together, co-operatively, and use water more responsibly, as a precious resource.

· Shirine also represented our Co-op at the WWF Retailer's Commitment for Nature Steering Group with other retail CEOs, to make our members' voices heard on how we can come together and halve the environmental impact of UK shopping baskets by 2030.

· As chair of the British Retail Consortium's Climate Action Roadmap Steering Group, Shirine addressed other businesses at a Climate Action Showcase towards the end of October. It was a celebration of everything that has been achieved by the steering group, but also by our Co-op, in terms of reducing harmful emissions, waste and driving towards net zero.

· Our Co-op joined other retailers and some of the biggest co-operatives in the UK alongside Community Energy England in December to call on the Government to prioritise incentives that encouraged investment in renewable energy. The group's signed letter pressed for an overhaul of the planning regime to fast-track new wing and solar schemes and create fairer pricing for green energy used by households and industry. For more information on our energy strategy, see the Co-operate Report 2022.

Also, in 2022, total Scope 1 and 2 greenhouse gas emissions continued to decrease by 9.58% in 2022 (location-based emissions in 2021: 320 ktCO₂e, 2022: 288 ktCO₂e). This is due to using less energy, less fuel, a decrease in emissions from fugitive refrigerant gases and the UK grid electricity mix generating lower carbon emissions. For more data and detailed updates on our Climate Plan, as well as work to reduce our carbon emissions, see our Co-operate Report.

Task Force on Climate-Related Financial Disclosures

As a large organisation, our Co-op is committed to complying with the UK Government's mandate to disclose Task Force on Climate-Related Financial Disclosures (TCFD) aligned financial information - we signalled an intention to do just that in our 2021 Annual Report and Accounts and we will do by 2023.

During 2022, we evolved our plans and worked to identify the physical and transitional risks and opportunities to our business and supply chains from the changing climate, along with the potential impact of policy, technology and market changes as we move to a lower carbon future. We made progress here but recognise that there is more to do in the next year.

As an ethically responsible business, we are committed to playing our part in addressing the climate emergency. In 2021, we set out our blueprint - a Climate Plan, which sets out our pathway to achieving net zero by 2040, 10 years ahead of international agreements.

It details how Co-op will reduce the impact of operations and products across our Food, Funeralcare, Legal Services and Insurance businesses. The Plan sets out targets, endorsed by the Science-Based Targets initiative (SBTi), in line with the carbon reduction that is required to cap global temperature increases and meet the goals of the Paris Agreement.

You can read more about our Climate Plan and related activities in our 2022 Co-operate Report, including:

· Focusing the missions relating to running our stores, transport and logistics network.

· Our work to improve the robustness of supply chain emissions data.

· Our work on establishing a new supplier engagement programme to accelerate Scope 3 emissions reduction.

· How we are collaborating for system change.

Governance

All environmental and sustainability matters including climate change risks are currently managed within our Co-op's overall risk management framework and reported through the Risk & Audit Committee to the Board.

In 2023, the Board will review this governance structure in the light of TCFD requirements.

Strategy

Our Co-op has carried out an initial, high level risk and opportunity identification with the assistance of DNV - providers of risk management services across multiple industry sectors. Our technical and sustainability teams continue to have a good understanding of the climate-related risks we face in different parts of our business. However, in the second quarter of 2022, we went through a structured process to test and challenge our thinking as we prepared for our first disclosure. Supported by experts from DNV, we worked with colleagues across the business to map our risks and opportunities and explore possible responses.

Information gathered through an online survey and key stakeholder interviews was analysed and used as the basis for a facilitated workshop, during which participants integrated and built upon initial findings, moving on to identify practical responses to the material issues raised. Risks fall in to two broad categories: Physical and Transitional.

Physical risks principally relate to:

· The impact of flooding and extreme heat on operations. Whilst it isn't practical to carry out individual assessments on each of our premises, an assessment has been carried out on principal premises, including distribution centres where, although there is overall a 15% risk of flood damage, specific vulnerabilities have flood defences.

· The global food supply chain contributes to and is impacted by climate change and many of our key sourcing communities are already experiencing its impacts. In the medium to long term, we can expect to experience disrupted supply chains, shortages and increased food prices if steps aren't taken to adapt food supply chains to climate change. We are working with our suppliers to better understand these risks and work with them to create climate adaptation plans to help address the challenges.

Transitional risks are made up of several components:

· Carbon pricing relating to greenhouse gas emissions - our Co-op is in the process of developing a long-term sustainability strategy and transition plan which will address all aspects of our energy use. In the meantime, we are focusing on applying energy saving projects around refrigeration, doors, windows and lighting to our estate on a rolling programme as well as re-fitting existing stores and fitting out new ones with the most efficient products available. The cost of this is already built into our current budget and Four-Year Plan. Some 1,200 Energy Saving Opportunities Scheme audits have been conducted.

· Market risks - there is a reduced opportunity to shift customer behaviour away from animal products because of the convenience business model and heavy reliance on carbon-intense milk, eggs and mince.

· Policy & Legal risks - resources and investment required for the volume of incoming regulation and legislation may exceed our Co-op's current capacity in transport and logistics in particular.

· Technology risks - investing in new energy friendly technology in agriculture.

During 2023, we will validate and finalise this initial analysis then carry out a detailed impact assessment to determine the timescale, likelihood and financial effect of each risk, as well as available mitigations.

We will carry out scenario analysis, both qualitative and quantitative, to determine our resilience to the effects of varying climate change scenarios.

Risk management

Climate change is recognised as a principal risk to our Co-op. The way we identify, assess, manage and monitor risk is explained within our report in full.

Metrics and targets

Our plan sets out targets, endorsed by the Science-Based Targets initiative (SBTi) across all scopes. Our current targets reach to 2025 - however, recognising the need to decarbonise further and faster, we are now resetting these across all scopes, in the near and long term. This will ensure that they are in line with keeping the global temperature increase to no more than 1.5 degrees Celsius above pre-industrial temperatures.

We are expecting these updated targets to be released and validated by the SBTi in late 2023. Our long-term goal is to reach net zero greenhouse gas emissions from both operations and products by 2040 at the latest. We have also set a target that suppliers that collectively contribute to 50% of our emissions will have set science-based net zero targets aligned to 1.5ºC by 2025.

In 2021, we reported that we had met our target to reduce our operational (Scope 1 and 2) emissions by 50% compared to 2016 reduction, three years early. You can read about how we have reduced our Scope 1 and 2 emissions during 2022. We measure and report our indirect greenhouse gas emissions (Scope 3) every two years. The most recent report was in 2021 (for emissions over the period 2020/21), where we quantified an 8% reduction in Scope 3 emissions since 2016. In the 2023 Co-operate Report, we will publish an updated Scope 3 inventory, covering the period 2021/22. We align to the Greenhouse Gas Protocol Corporate Standard and the Science Based Targets Initiative Criteria. Our Basis of Reporting is published online here: www.co-operative.coop/sustainability-reporting-our-reporting

In addition, Co-op is taking action on other climate related metrics including water, food waste reduction, healthy and sustainable diets and responsible sourcing. For more information, see our Co-operate Report.

Looking Ahead

We look ahead to 2023 with confidence and optimism for a co-operative and stable trading year resulting in delivery of our Vision, 'Co-operating for a Fairer World'.

We will continue to strengthen and evolve our organisation, placing our members, colleagues, co-operation and our Co-op Difference at the heart of everything we do, whilst at the same time carefully investing and continuing our ambition to create a more modern and agile Co-op that is strategically positioned to grow sustainably when the economy and market conditions allow. 

Our organisation is now in a much stronger place due to the focused actions we took in 2022 to significantly strengthen our balance sheet, reduce our net debt position, strengthen our cash position, decrease our operating costs and prioritise improvements to inefficient processes and systems.

We'll be mindful of the world around us, and we will continue to support members, colleagues and customers through the cost of living crisis. We have the capability to adapt our businesses at pace, as economic and consumer behaviour demands.

We, along with many others, fully expect the challenging external conditions to continue throughout 2023.

High levels of inflation are predicted to continue until at least mid-year, before beginning to fall and a recession, both here in the UK and globally, remains a significant possibility. We are committed to doing all we can to shield members, colleagues and customers from this, and other rising costs, as much as we possibly can.

We, along with other organisations, and indeed many households, are facing energy costs that will be as much as double what they have been in previous years.

Energy was a core focus point for us in 2022. While the future of energy still looks uncertain, we've been working hard to reduce our energy consumption through capital light quick wins, simplifying processes and implementing energy efficiency changes across our businesses, sharing the details with partners across our Nisa business. You can read more information on our energy efficiency and other activities in our Co-operate Report.

Despite this we have every reason to expect great things from our Co-op, during 2023 and into the future.

We have confidence in all of our businesses. They are market leaders with strong strategies to take them forward, as well as the leadership and plans in place to deliver them.

Our 2022 strategic priorities have evolved for 2023 and we will continue to focus tightly on a smaller number of priorities that support the growth of our Co-op and protect our ability to deliver our Vision:

Delivering on our financial plan

We will continue to build on the progress made during 2022 in enhancing our financial controls and processes, adding rigour and governance to ensure that our financial targets are met, that our Co-op is operating as efficiently as it possibly can and that we're generating the value we need to invest in our growth plans for our businesses, and re-distribute through delivery of our Vision.

Accelerating growth

We'll seek to grow our Co-op cautiously, and in a way that supports the creation of a more modern Co-op for a modern world.

Where we choose to invest, we will do it in a capital light and cash generative way, leveraging partnerships and modern routes to market, making the most of the assets and strengths that we have.

Our Food business will remain true to convenience. We'll maximise the four established routes to market that we have (Retail, Wholesale, Franchise and Online) and also re-open our new store and refits programme in 2023. This will all be while cautiously remaining within the financial and capital parameters we've set for ourselves.

Our Funeralcare business will continue to focus on a personal service, further building our propositions and continuing its digital transformation to allow clients access to us in the most convenient way for them.

Legal Services will continue its incredible journey with digital products and services in partnership with some of the UK's largest financial services providers.

And in Insurance, we'll continue to innovate and make the new products and services we introduced in 2022 work hard, alongside making our products easier to buy through partnerships, such the one we have with Amazon UK.

We'll do all of this with membership, co-operation and our Co-op Difference firmly in our sights. We'll be reviewing our membership strategy to attract, reward and retain our members, alongside how we better engage them in our modern Co-op, not only in what we do, but also how they can support and influence what we do.

And the time is now right for us to review our Co-op Group strategy and our Vision, to ensure that we're truly a successful, co-operative business. A business that is adding the most value possible where our members, colleagues and customers need us the most.

Supporting members, colleagues and customers through the cost of living crisis

We are committed to doing all we can to shield members, colleagues and customers from this, and rising costs, as much as we possibly can.

We will continue, as in previous years, to align frontline colleague pay to the real living wage.

We'll do all we can to not pass increased prices due to inflation onto our members and customers.

Operating our business efficiently

We will continue to operate our business as effectively and efficiently as possible, ensuring cost is ever present in our decision making processes, embedding a culture of cost consciousness that will empower everyone in our Co-op to be more efficient and effective.

We will deliver 2023 savings already identified during our work over the last 12 months, stopping any activity that isn't included in our growth plans, or that doesn't support our strategic priorities.

Our focus on energy efficiency will continue with investments into technology and equipment to help us reduce our energy consumption in our Food business. And we'll explore even more energy saving opportunities across Logistics and Funeralcare.

And by listening to our colleagues we'll identify those areas in our businesses that not only cause us, and them, issues operationally, but that also cause us to be less efficient. During 2023, we'll be investing £11m, one of the largest amounts invested in our store technology for over 11 years, to address some of the legacy and obsolete systems, and technology platforms that our colleagues tell us stop them serving our members and customers effectively.

This includes printers, wi-fi, payment and bakery terminals, back office PC's and, in 50% of our stores, replacing self-service checkouts.

2023 will also begin an investment phase for our Funeralcare business as we start the journey to remediate our legacy property estate and refresh our fleet of vehicles over the coming years.

And, of course, we'll achieve all of these aims co-operatively, with a future focused, cost-conscious growth mindset, in the way that only we can.

In summary

2023 will be another challenging year for our Co-op. However, the actions taken during 2022 see us well placed to weather the ongoing headwinds of inflation, rising energy and payroll costs and forecasted recession. Nevertheless, it is for these reasons that we realistically plan a lower level of profit this year.

However, the underlying strength of our business, passion and determination of our members and colleagues and the compelling nature of our Vision gives us every confidence and optimism for the future.

Our Co-op was created to address social and economic unfairness and we are still ideally placed to make things fairer for our members, communities, colleagues and the planet in the future.

Together, we'll win as a modern, decisive Co-op, and deliver our Vision of 'Co-operating for a Fairer World.'

Our financial performance

Economic backdrop

As noted in our CFO's Financial Overview, 2022 has proven to be a particularly challenging year for most businesses, but our Co-op has successfully navigated the turbulent markets and ended the year in a significantly stronger financial position.

Our members and customers have been facing into a sharp and prolonged cost of living crisis, with soaring inflation and spiralling household bills squeezing family budgets to near breaking point.

Throughout 2022, there has been downward pressure on consumer spending compounded by significant cost inflation for businesses. This has hit profits, stifled growth and ultimately seen the UK economy bordering on recession.

Our headline performance

Despite the challenging backdrop, our Co-op has delivered a creditable set of results with a solid profit performance, strong cashflows and a growing top line.

We have grown our sales, successfully maintained margin and managed our cost base to mitigate the significant cost inflation on ourselves, our members and our customers. This was supported by some difficult decisions, including the restructuring of the team at our support centre.

There is, however, no avoiding the impact that inflation is having on the profits of most businesses - for our Co-op, energy costs increased by £48m in 2022, compared to 2021, and salary inflation drove a further £55m of additional cost. Faced with such inflationary pressures, the renewed cost disciplines we have instilled in 2022 have served us well and we successfully delivered our targeted cost savings of £101m during the financial year.

Recognising the difficult time many of our customers and members were experiencing, we sought wherever possible to protect our customers and absorb inflation. Throughout the year, we continued to focus on delivering the proposition and value that our customers need, including £38m of direct reward for our members and their communities. Importantly, we sought to support our colleagues through the winter cost of living crisis with additional one-off support of £12m, and by increasing our colleague discount to 30% on Co-op own brand products from 20 October until April 2023.

This solid financial performance, combined with a focus on balance sheet and cash, delivered a very strong cashflow position and a step-change reduction in our net debt. Part of this action included the sale of our petrol forecourts in October (roughly 5% of our Food store estate) which generated a significant one-off profit and cash proceeds.

Furthermore, through continued focus on cost control, management of working capital and our measured approach to capital investment, we strengthened our balance sheet significantly. This means we are well set to ride out the economic storm whilst still being able to invest in our longer-term future through capital light and commercial opportunities.

Our Group financial metrics

· Underlying operating profit: our main measure of trading performance at £100m (2021: £100m) is in line with the prior year. This is a strong result despite the impact of material inflationary cost increases - rising energy costs and salary inflation, for example, added an additional £103m of costs compared to 2021, which we had to absorb in 2022.

Despite the inflationary pressures, underlying profit within our Food business only fell slightly and includes the impact of the disposal of our forecourt estate at the end of October - thereby reducing our 2022 profits by two months of fuel profits, or around £10m, in comparison to 2021. The slight fall in profits in Food has largely been offset by improvements in our Wholesale, Funeralcare and Legal Services businesses and overall we have traded well, held our trading margins and managed our cost base across our portfolio of businesses.

· Revenue: total Group sales of £11.5bn are 3% higher than last year. This represents a strong result across our portfolio of businesses in light of the challenging economic trading conditions.

Sales in our food business are £134m higher than last year even though the comparative period includes two more months (or around £150m) of sales from our petrol forecourts which we sold in October 2022. Like-for-like sales in our core convenience stores were up 3.2%. Sales in our Wholesale, Funeralcare, Legal Services and Federal businesses are all also up on the prior year.

· Operating profit: At £5m, our operating profit in 2022 is £59m lower than 2021. Although our underlying operating profit is comparable to last year, we've incurred £59m more of non-underlying charges in 2022 compared to 2021. These charges primarily relate to the impairments we have recorded against some of the assets that we hold to reflect the continued difficult trading conditions we anticipate going forward as well as other non-recurring items. 

· PBT: At £247m, profit before tax (PBT) is significantly higher than last year (2021: £57m). Although our Operating profit is lower this year (as noted above) we have recorded a gain on the disposal of our petrol forecourts of £319m, which increases our PBT number. This relative increase is partially offset by the one-off gain of £99m that we recognised following the settlement of a long-term liability and the corresponding release of provision. 

· Underlying PBT: at a loss of £31m, underlying PBT is comparable to last year and consistent with our underlying operating profit performance. Underlying PBT includes underlying interest charges on our bank borrowings and leases, which has remained consistent year-on-year at £131m (2021: £132m).

· Underlying EBITDA: again, this is broadly in-line with the prior year at £490m (2021:£505m) and consistent with our comparable underlying trading performance. Underlying EBITDA excludes interest, depreciation and amortisation charges.

· Net debt: our net debt improved significantly to £333m (2021: £920m) - a decrease of £587m (2021: net debt increased by £370m). Net debt saw significant reduction in H1, and was anticipated to do the same in H2, before net proceeds of £408m from the sale of our petrol forecourt estate and an additional £72m following the judgement on the IBM legal case. We also generated cash from continuing operations of £383m (2021: £165m) driven by a solid trading performance and careful working capital management. Furthermore, we also transferred lease liabilities of £171m as part of the forecourt disposal.

· Member reward: our profits are reported after deducting the amount our members have earned through the 2% community and member rewards, which totalled £38m in the year (2021: £40m). Co-op colleague members also received £12m of one-off winter cost of living support, as well as seeing colleague discount on own brand products increased to 30% between 20 October and April.

How our businesses have performed

· Food

We took the strategic decision to sell our entire petrol forecourt estate to Asda at the end of October, so our results for 2022 don't include the results from those 129 sites (around 5% of our estate) for the last two months of the year. The deal completed on 30 October 2022 and the sale is therefore not impacted by the ongoing CMA review.

Total Food sales of £7,805m are 1.7% higher than the prior year (2021: £7,671m) representing an increase of £134m. This is a solid performance in light of the challenging trading environment and the loss of two months of sales from the forecourt sites (around £150m sales impact). The comparative period also includes the impact of the third national lockdown at the start of 2021, which buoyed our sales.

Throughout 2022, the squeeze on household budgets impacted customer choices, dampening volumes and transaction frequency, although this was offset by food price inflation. Like-for-like sales in our core convenience estate were up 3.2% and we maintained our market share. This demonstrates the resilience of our core convenience business and how our customer offer continues to resonate with our members.

At £139m (2021: £156m), underlying profit is down slightly on the prior year, driven by the higher energy and salary costs the business had to absorb. The comparator also includes two months of extra profit from the forecourt sites (around £15m profit impact).

Excluding the impacts of the forecourt sale and resulting two month profit reduction versus the prior year, our underlying profitability is broadly flat in 2022 compared to 2021, which is a commendable performance given the difficult trading environment and the level of cost inflation we have had to absorb. In line with many businesses, we have seen sharp rises in the costs we incur to serve our customers - with energy costs and salary inflation adding an additional £103m of cost which we had to absorb in 2022, in comparison to 2021.

Where possible, we've tried to shield our customers from the impact of this cost inflation, and we've also worked hard to manage our own cost base. This has allowed us to maintain our trading margin and return a credible top-line sales and underlying profit result.

· Wholesale

Sales in our Wholesale business are 3.8% higher than last year at £1,439m (2021: £1,386m) with growth both through our Nisa partners and our franchise stores. This represents a solid performance in light of significant inflationary pressures and the tough economic headwinds impacting consumers and retailers alike. Although our retail like-for-like performance in Nisa was down 2.5%, new member recruitment remained strong. 

Profitability has continued its year-on-year improvement with our Nisa business registering an increase of £14m to £22m (2021: £8m) as we continued to see the benefits and efficiencies of the collaboration between Co-op and Nisa, as well as the savings from an overhead cost review and restructure carried out during the year. Our results also reflect £4m of benefit from non-recurring items. This was part of the work in 2022 to support Nisa being in a position where it can reinvest in lower prices for our customers and their shoppers.

· Funeralcare

Funeral volumes were up 3.5% to around 94,000 with volumes increasing in the second half in-line with the wider death rate, after a dip in death rate in the first quarter of 2022. This - together with a growth in our market share (end of 2022: 14.67%, end of 2021: 13.92%) offset by a continuation of clients choosing our simpler and unattended funeral options, which affects our average sales price - contributed to an increase in sales of 2.7% to £271m.

Profitability is up year-on-year due to the revenue increase as well as greater efficiency in our operations, offset by inflationary pressures as well as additional costs as a result of the regulation. 

Volumes of funeral plans sold were lower than prior years at just below 17,000 (representing a fall of 63%) as a result of our decision to exit some third-party distribution channels (due to regulation) and client uncertainty in the run-up to industry regulation with the FCA.

· Insurance

Our Insurance business recorded sales of £24m (2021: £34m) and profit of £8m (2021: £15m). This reduction is in-line with our expectations as we establish our new distribution model and work through the continued run-off of the historic backbook of policies, following the sale of our insurance business and Home and Motor insurance distribution agreement that we entered into with Markerstudy. All the insurance markets in which we operate remained highly competitive with inflationary cost rises for claims squeezing our margins. Customer behaviour was also impacted by the regulatory pricing changes implemented at the start of 2022, with fewer customers shopping around and switching suppliers.

We continue to see good traction outside of our core policies of Home and Motor (such as Pet and Life insurance) and we'll continue to develop our product and customer offering and extend our reach as illustrated by our newly launched partnership with Amazon UK.

· Legal Services

The strong growth we have seen in recent years has continued with sales up £7m to £46m (2021: £39m) and profits up to £8m (2021: £5m). This further validates our strategy of developing our digital services offering and blending it with expert advice - driving consumer access in what remains a fragmented market where we can lead.

· Central Support Centre costs

Costs from our central support functions are broadly in-line with last year at £92m (2021: £94m) as we've worked really hard to manage inflationary cost pressures through disciplined cost control management. We'll continue to strive to drive down our cost base and improve the efficiency of our support functions and operations while reaping the benefit of the re-organisational changes we've implemented to our structures and ways of working.

Property and business disposals, impairments and investment properties

· Impairments: every year we review our portfolio of trading sites for potential impairment of assets (where the value of the asset is no longer supported by future forecasts of cashflows and profitability, and so we reduce the value of the assets we hold through a charge to our profits).

The impairment charge of £105m (2021: £30m) comprises £60m against right-of-use assets (leases), £30m of fixtures and fittings and £15m of intangibles, where forecasts of future cashflows do not support the value of those assets.

The charge is predominantly in our Food business and often relates to loss-making sites. It is larger in 2022 due to the prudent approach we have taken when assessing future profitability, in light of the challenging cost environment we expect to see in the near term.

As noted at the half-year, we have also partially impaired the value of the leased asset for our central support centre by £20m reflecting the change in utilisation we've seen as we transition to a more flexible and hybrid working model.

Furthermore, we have reduced the carrying value of certain ancillary elements of the intangible asset we hold against our logistics and supply chain infrastructure by £15m following some minor changes to the way that we intend to use the assets going forward.

Other disposals and closures - the £64m reflects the net gain we have made on other individual and non-core properties that we have sold during the year.

· Investment properties: we revalue these properties each year to reflect their latest fair value. The loss in 2022 of £15m (2021: £9m gain) reflects a downward market valuation on the properties we hold (or on those which we sold during the year).

One-off items

· Organisational changes: we've recorded a significant one-off charge of £26m, reflecting redundancy costs we've incurred. These follow some changes we have made to colleague structures in our support centre, to ensure that we are set up in the best way to efficiently support our customer facing colleagues.

· Colleague support: due to the unprecedented pressures our colleagues are facing from the cost of living crisis, we have also directly helped those member colleagues who need it the most with one-off support totalling £12m added to their membership cards.

· Prior year (2021): one-off items included a £17m charge reflecting the costs of organisational changes we made to colleague structures in our Food stores as part of the Fit for Future programme.

Sales of Petrol forecourts

· We sold our entire petrol forecourt estate to Asda at the end of October for net cash proceeds of £408m (and transferred £171m of lease liabilities) which generated an accounting profit of £319m. Further details of the sale are given in Note 35 to the financial statements within the report in full.

Financing costs/ income

· Underlying interest: our underlying financing costs from our borrowings and lease commitments are consistent with the prior period. The value of our principal loan balances and the leases that we held during the year did not change significantly, so the interest charges are similar to those of 2021.

· Pensions interest: net finance income is based on the pension scheme surplus on an accounting basis at the start of each year. The £13m increase reflects the increase in the accounting surplus at the start of 2022.

· Funeral plans net finance cost: the valuation gains on funeral plan investments of £29m in 2022 were outweighed by the interest we accrued on our plan liabilities of £54m - so we show net finance costs of £25m in our income statement. The charge is higher as returns on plan assets are lower than in 2021 due to market conditions.

· FX contracts: we saw favourable market valuation movements of £20m (2021: £5m) on the forward contracts we have in place for commodities (mainly diesel), which we use to hedge our exposure to future prices rises.

· Quoted debt / swaps: the net market valuation of some of the Group's debt instruments and interest rate swaps moved in our favour generating a net gain of £17m (2021: £nil).

· Group Relief Creditor: the £99m gain in the prior year relates to the settlement of the Group Relief Creditor owed to The Co-operative Bank PLC, which generated a one-off gain in 2021.

Net debt and cash

Excluding lease liabilities, net debt reduced by £587m from the start of the FY 2022 to  £333m at year end (2021: £920m). This is a significant achievement and is a consequence of the positive action we had taken to reduce our indebtedness and to strengthen our balance sheet.

Our cash position improved year-on-year with net cash from continuing operations of £383m in 2022 (2021: £165m), generated by our robust trading performance, careful working capital management and disciplined cost control as we strived to mitigate the impact of cost inflation. Our measured approach to capital investment, for example, saw us invest less than in 2021 at £147m (2021: £325m) and tighter management of stock balances improved stock levels by £55m.

Our cash and net debt position was further improved following the sale of our petrol forecourt estate to Asda at the end of October, which generated cash proceeds of £408m and by the receipt of £72m in the first half of 2022, following the appeal judgement on the IBM claim. 

Our strengthened balance sheet position will allow us to continue to invest in our business in line with our strategic priorities and to capitalise on commercial growth opportunities as they arise. Tax

As has been the case in recent years, we won't be paying corporation tax in respect of 2022 because we have brought forward tax losses and capital allowances which can be used to offset any liability.

In 2022, we paid £206m (2021: £170m) to the Government in respect of VAT, business rates, stamp duty land taxes and employers' national insurance. The year-on-year increase mainly reflecting reduced business rates in the prior year as the Government sought to support businesses through the later stages of the pandemic.

The total tax charge reported in the income statement for continuing operations of £4m is made up of a £13m current tax charge and a £17m deferred tax credit. The current year deferred tax credit mainly relates to movements on our pension assets. There is also a £44m deferred tax credit impact to reserves arising from the change in tax rate at 19% to 25%.

See Notes 8 and 15 for more detail on Tax.

We retained the Fair Tax Mark accreditation in 2022 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 decreased by £0.2bn from the start of 2022. The main movements include a decrease in the net pension surplus of £0.7bn offset by an improvement in our cash position of £0.4bn. Our lease liabilities have reduced by £0.3bn following the sale of our petrol forecourts and our right-of-use assets and property plant and equipment reduced by a combined £0.5bn following the disposal.

Furthermore, as outlined above, our net deferred tax liability has also decreased significantly, falling by £158m from £314m (2021) to £156m primarily due to the decrease in our pension net surplus and the change to the tax rate.

The actuarial surplus on our largest pensions scheme, PACE, decreased by £0.6bn with asset values falling by £3.5bn whilst liabilities decreased by £2.9bn. Against a backdrop of market uncertainty, rising inflation and interest rates - investment returns and asset values fell significantly in 2022. However, scheme liabilities also reduced markedly following a significant increase in the discount rate, which is used to calculate the present value of the scheme obligations. This is due to rising AA corporate bond yields, as the market reflected ongoing economic uncertainty, and demonstrates that the pension schemes are well hedged and able to withstand material changes in market conditions. Despite the surplus reducing, the accounting funding level has increased, from 125% to 129%. The fall in asset values in absolute terms is higher than the fall in liabilities as PACE started the year with a net asset surplus of £2.1bn which has reduced to £1.5bn at the end of the year (the relative percentage fall in both assets and liabilities is comparable). 

Property, plant and equipment has decreased by £281m, which mainly reflects the net impact of £104m of additions, net disposals of £111m, depreciation of £244m and impairment of £30m.

The value of the funeral plan investments that the Group held in 2022 is consistent with the prior year at £1,369m (2021: £1,372m). This reflects net movements from an increase of £76m for new plans, a reduction of £108m from redeemed or cancelled plans and favourable market returns in relation to the value of those investments held of £29m.

Contract liabilities relating to funeral plans have decreased by £55m in the year, with amounts recognised as revenue during the year (which reduces the liability) outweighing new plans and the deferred revenue (which increases the liability) from the interest we accrue on plan liabilities.Going forward

The tough trading environment we are facing is unlikely to change in the short term. The squeeze on household budgets and ongoing high levels of inflation will continue to influence customer behaviour and maintain pressure on sales, margins and profitability. Indeed the cost pressures in 2023 are likely to be greater than those felt in 2022, as the full year impact of 2022 events take effect.

As we have done this year, we will have to continue to work hard to mitigate those inflationary cost rises wherever possible and navigate our businesses through another year of challenging trading conditions. We have proven in 2022 that by taking early and decisive action, we can deliver a strong performance in difficult markets. This approach, together with the significantly stronger financial position we ended 2022 in, puts us in a strong position to deliver a successful 2023 for our customers and members.

As noted above, our net debt reduced considerably in 2022 and we significantly deleveraged our balance sheet. Subsequently, in early 2023, we have taken steps to reduce the level of principal debt that we hold and the Group has bought back £100m of the £300m Sustainability Bond from bond holders. Furthermore, the Group has also amended and extended its existing rolling credit facility until March 2026, to further secure our medium-term funding position and available facilities. Further details are given in the financial statements - see Note 34 (Events after the reporting period).