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

News release

8 April 2021 FINAL

Annual Results Announcement: 52 Weeks to 02 Jan 2021

Co-operation Works During Covid Crisis

The Co-op plays critical role in supporting members and communities during the pandemic

Group financial highlights

· Revenue was £11.5bn (2019: £10.9bn) with Food growth of 3.5% and Funeralcare revenue flat year-on-year

· Reported profit after tax and discontinued items was £77m (2019: £33m)

o Profit after tax and discontinued items (excluding change in accounting policy for funeral plans) of £49m (2019: £69m)

· Reported profit after tax from continuing operations of £72m (2019: £49m), and is net of a £55m tax charge

o Profit after tax from continuing operations (excluding change in accounting policy for funeral plans) of £44m (2019: £85m)

· Reported profit before tax was £127m (2019: £24m)

o Excluding change in accounting policy for funeral plans, profit before tax was £92m (2019: £67m)

· Net debt* of £550m (2019: £695m)

· Capex of £313m (2019: £407m), reflecting reduced investment in the business, due to the pandemic

· Additional Covid costs during the year of £84m**, including additional new colleagues, increased colleague absence linked to the virus, a colleague "Thank You" reward and the purchasing of personal protective equipment

* Excluding the IFRS 16 lease liability** Support from the Government's emergency economic measures amounted to £82m

Co-op highlights

All our Co-op colleagues, including temporary recruits, played an extraordinary role in caring for and feeding the nation during the crisis, enabling over 3,400 of the Co-op's community-based Food stores and funeral homes to remain open and a further 5,000 independent food stores to be supplied through the pandemic. Underpinning all of that, the business continued to drive its Community and Colleague support when it was needed most.

· Significant increase in Co-op Community & Campaigning Support

- Over £12m of funds given to charities and community causes, a further £15m shared with 4,500 local causes from our Local Community Fund

- FareShare had been able to distribute five million meals through our support

- £3.1m in Co-op food vouchers and technology equipment provided to 6,000 pupils at our academies

- Co-operate online volunteering and community platform launched, and 1,000 Co-op Member Pioneers provide dedicated support for the vulnerable during lockdown

- A key member of the Stop Child Food Poverty Taskforce, supporting Marcus Rashford in his successful campaign to extend free school meals

· Support of colleagues across the business

- £25m given to colleagues in recognition of their hard work and commitment

- Commitment to improving our hourly pay rates to align with the Real Living Wage in 2021, boosting pay for 33,000 colleagues with an investment of £53m per annum

- Commitments to tackle racial inequalities published and new Equality and Inclusion Think Tank mobilised

- Our efforts to ensure colleague safety accelerated through our 'Safer Colleagues, Safer Communities' programme

Operational highlights

· Food

- Another good year for Food business - Food sales of £7.8 billion up 3.5% on 2019, like-for-like sales up 6.9%

- Wholesale business achieved sales of £1.6 billion compared to £1.4 billion in 2019; a further 624 new independent stores signed up by Nisa

- During the pandemic, 56 new Co-op stores were opened, a further 105 were refitted and 13 more were extended

- Our online offer expanded significantly during the year, with 800 Co-op Food stores now providing food to homes via our delivery partners

· Funeralcare

- Increase in the number of funerals arranged, with over 10,000 more funerals than 2019 - an increase of 11.4%, sadly reflecting the excess deaths caused by Covid-19

- Government restrictions meant that only the most basic of arrangements were possible. As a result, and despite the increase in funerals conducted, revenue was flat year on year at £272m

- Marked reduction in funeral plan sales as colleagues focused on providing greater at need care

- As we right-sized the branch estate for the future we made the difficult decision to close 164 funeral homes

· Insurance and legal services

- Sales were much reduced during the spring and early summer, particularly for motor and travel insurance policies, as lockdown restrictions impacted trading across the sector

- Legal Services saw case volumes grow by 9% in 2020. The number of probate cases we took on also grew, though external factors impacted our overall performance

- Successful completion of the sale of our insurance underwriting business took place at the end of 2020. The sale enables us to unlock the potential of Co-op Insurance under a new operating model which will provide lower prices and more bespoke products

· Power

- In November we re-launched Co-op Power, our business to business clean energy buying group, with plans to significantly grow its membership in the years ahead. Recent corporate clients include Nationwide Building Society, Roadchef and the RNLI

· Health

- Our Health venture grew significantly during 2020 and responded brilliantly to the challenges presented by Covid, growing to become the 6th largest dispensary business by the end of the year

- However, it became clear that the business would require significant additional capital to move it forwards. As such the decision was taken to sell it to Phoenix UK Group, a leading Healthcare provider, a move which was announced in March this year

Outlook

Looking ahead, we see significant uncertainty and must continue to exercise financial prudence. The market remains highly competitive and, against the backdrop of a worsening consumer economy, the Co-op is planning for and dealing with continued lockdowns. We continue to rebuild the Co-op's balance sheet to secure the long-term future of the group.

We are working to respond to the changing needs of our customers, reflected in hyper-localism, further moves towards digitisation in all our businesses and providing value for money across the business.

As a co-operative, our approach and purpose will remain the same: championing a better way of doing business for our customers and members and their communities by offering a range of products and services which create value in its broadest sense.

Steve Murrells, Chief Executive of the Co-op, said:

"In 2020 we lived through a perfect storm, with every part of our lives turned upside down - socially and economically, mentally and physically. Along the way we discovered much about our society, some of it brilliant and inspiring, and some of it quite ugly thanks to the unfairness and inequality Covid-19 has revealed and exacerbated.

"During the last few years, we've created a business that is truly focused on delivering clear value and benefits for our members, customers and their communities. All that work proved to be essential in giving us the ability to respond to the immediate and sustained demands which the pandemic brought with it. Our Vision, Co-operating for a Fairer World, was our guiding light throughout, and our response to Covid-19 demonstrated the power of co-operative enterprise and the relevance of co-operative values."

Allan Leighton, Independent Non-Executive Chair of the Co-op, said:

"Covid-19 presented us with a national emergency and a unique set of business challenges and community needs which showed that co-operation was capable of making a difference during an extraordinary time in the nation's history. I am proud of how we rose to the challenge of the pandemic through our business operations and through our support to local communities. Creating Co-op value for our members has always been at the heart of our endeavours and I believe that reached new heights during 2020.

 "On behalf of the Board, I want to acknowledge the incredible commitment shown by Co-op colleagues across all parts and at all levels of the business throughout 2020. It was an outstanding achievement, which epitomised our Co-op way of doing business, throughout a year that none of us will forget."

Ends

Media Enquiries:

For more information, please contact Tom Cooledge (07773 097060, tom.cooledge@coop.co.uk); Fay Rajaratnam (07810 329390, frajaratnam@headlandconsultancy.com); Russ Brady (07880 784442, russ.brady@coop.co.uk); Susanna Voyle (079 8089 4557, svoyle@headlandconsultancy.com)

About the Co-op:

The Co-op is one of the world's largest consumer co-operatives with interests across food, funerals, insurance, legal services and health. Owned by millions of UK consumers, the Co-op operates 2,600 food stores, over 800 funeral homes and provides products to over 5,100 other stores, including those run by independent co-operative societies and through its wholesale business, Nisa Retail Limited.

Employing over 63,000 people, the Co-op has an annual turnover of over £11.5 billion. As well as having clear financial and operational objectives, the Co-op is a recognised leader for its social goals and community-led programmes. The Co-op exists to meet members' needs and stand up for the things they believe in.

CHAIR'S INTRODUCTION

"This report is our record of how we rose to the challenge of the pandemic through our business operations and through our support to local communities."

In just one short year, Covid-19 has changed the world.

Even though the national vaccination programme is now well underway, we already know that life in the UK, and around the world, will never quite be the same again.

In some respects, that's to be welcomed. As others have observed, the 'old normal' was not such a great place to live for many in Britain. Covid-19 not only revealed the unfairness and inequalities that stubbornly persist in our society, the virus also exacerbated it. Over the last 12 months, it's become clearer than ever how divided our nation is between the secure and the vulnerable. There's no doubt that we need to 'build back better' and take the opportunity of national recovery to make fundamental changes to how we live and the values we place at the core of society. To achieve that, build back better will also need to mean build back different. As a nation, we need to encourage and promote economic activity that puts people and communities first. As a co-operative business, that's been our way of thinking and working since our earliest days.

When we adopted our new Vision at the start of 2020 - 'Co-operating for a Fairer World' - we had no idea how quickly that commitment would be put to the test. Covid-19 presented us with a national emergency and a unique set of business challenges and community needs, which would show if co-operation was capable of making a difference during an extraordinary time in the nation's history. This report is our record of how we rose to the challenge of the pandemic through our business operations and through our support to local communities. Creating Co-op value for our members has always been at the heart of our endeavours and I believe that reached new heights during 2020.

I doubt we could have achieved all we did last year if it had not been for the extensive investment and modernisation we've undertaken led by Steve over the last four years. Our commerciality has radically improved and so too has our approach to supporting local communities. The changes we'd made meant we were already a robust and resilient business as the pandemic arrived. And within local communities, we already had meaningful relationships and established assets on which to draw upon at a critical moment, as well as ways to connect with our members to understand what mattered to them and how we could support.

As Steve sets out in his introduction, since last summer we've been planning and implementing our longer-term response to the social and economic consequences of the pandemic. How we support our members and communities over the next few years will be just as critical as our response in the early months of the crisis. Our strategy to grow our business and expand the difference that co-operative values can make remains in place. However, we've reset some of our priorities to make sure we can compete strongly across all our markets during a time of recession. We've also looked carefully at how we should focus our community agenda and campaigning to make sure we're directing our support in the most meaningful way in the post-pandemic climate.

Throughout 2020 we maintained all aspects of our democratic governance, taking our regular Board and Council meetings online. For the first time in our history we asked our members not to attend our AGM in person and to move online, which attracted a greater 'attendance', through both live and playback viewings, than our normal physical meeting. Our autumn Council-led 'Join In' events were also held virtually. I'd like to thank our Board, Council and members for their flexibility and adaptability as we've all trialled, learned and evolved during these unprecedented times.

I'd like to thank Nick Crofts for all that he has achieved, along with his Council colleagues, as President of our National Members' Council. Nick will step down as Council President in July, when he reaches his maximum term of office and our Council will elect a successor then. I would also like to congratulate him on his appointment as CEO of the Co-op Foundation. Nick has been a key figure in the Co-op for more than a decade and a passionate advocate for co-operation. I'm delighted to see him join our charity as we work together to create a fairer future for all.

Finally, I want to acknowledge the incredible commitment shown by Co-op colleagues across all parts and at all levels of the business throughout 2020. It was an outstanding achievement, which epitomised our Co-op way of doing business, throughout a year that none of us will forget.

Allan Leighton

Chair, The Co-op Group

Chief Executive's overview

"…the impact of the pandemic is far from over, and 2021 brings new challenges, many of them related to the economic downturn and the challenges communities face. I'm confident that the Co-op will rise to those challenges as we continue to Co-operate for a Fairer World."

Over the last 12 months we've lived through a perfect storm, with every part of our lives turned upside down - socially and economically, mentally and physically. Along the way we've discovered much about our society, some of it brilliant and inspiring, and some of it quite ugly thanks to the unfairness and inequality Covid-19 has revealed and exacerbated.

And during the last few years, we've created a business that is operationally strong, commercially successful and which creates value for our members and their communities. All that work proved to be essential in giving us the ability to respond to the immediate and sustained demands which the pandemic brought with it. Our Vision, 'Co-operating for a Fairer World', was our guiding light throughout, and our response to Covid-19 demonstrated the power of co-operative enterprise and the relevance of Co-operative Values.

This year also saw us launch a bold set of commitments to address racial inequalities across our Co-op. When we were developing the commitments it was important to me that we had some independent experts around the room to help guide and challenge us. So we created the Equality and Inclusion Think Tank, bringing together some of the greatest activists with a wealth of experience. Let me take this opportunity to welcome Doyin Atewologun, Baroness Ruth Hunt, John Amaechi, Lord Simon Woolley and Leila McKenzie-Diel to our Co-op family. Our Board Director Lord Victor Adebowale has also joined the think tank. We have had great support from our Members' Council for our ambition in this area and I'd particularly like to thank their Diversity and Inclusion Group chaired by Margaret Casely-Hayford.

Of course, the impact of the pandemic is far from over - 2021 brings new challenges, many of them related to the economic downturn and the challenges communities face. Our response to this new post-pandemic world will be just as important as our response to the initial emergency.

In the pages which follow, we have set out how we responded to the pandemic, through our businesses and the support we gave to our colleagues, as well as local and international communities. We'll also show how we've adapted our commercial strategies, how we're supporting our people and how we're focusing our community and sustainability work as we build back better and play our part in levelling up the country, so that everyone has the same opportunities to get on.

Financial overview

Overall, our Co-op's revenue was up 5.6% to £11.5bn, an increase of £0.6bn on 2019. Our underlying profit before tax, which excludes the impact of non-trading items and net interest expense from our funeral plans, was up to £100m - an increase of £65m. Our profit before tax of £127m was up £103m from £24m the previous year.

A tax charge of £55m, meant we recorded a profit of £77m after tax and discontinued items. The tax charge was particularly high in the context of our profits and is explained in the finance review.

The increases in revenue and underlying profit for our Food business were driven by realising optimisation and efficiency benefits, as well as the shift in consumer spending to more local and online food shopping because of the prolonged impact of the country's response to the pandemic and move to home working. Integral to Co-op Food's success has been its Retail Business Transformation programme (RBT). The system supports Co-op's ambitious growth strategy, introducing new technology to improve ranging, stock holding, availability and more accurate forecasting information. A new cloud-based supplier collaboration portal - Co-op Connect - is in place. We also saw lockdown restrictions leading consumers to shop closer to home, welcoming the ease and convenience of our Co-op stores and their extensive range and ability to fulfil orders online and receive their shopping as quick as in under 30 minutes.

Co-op's retail business, driven by its online expansion and wholesale operation, saw its biggest growth of the whole lockdown period in April 2020 (+42% YoY growth) as customers and members tried to avoid supermarket queues and stayed close to home. During that first four week period, 2.4 million new shoppers (1/3 of our customer base) walked through our doors. Our market share peaked at 7.4% in April, the highest it's been in years, and up from a full year average market share of 6.3% in 2019.  The Co-op's market share slipped back to 6% by the close of the year.

Independent retailers supplied by our Nisa wholesale business also grew their sales ahead of the market. In 2020, Nisa signed up 624 new independent stores and reported a sales increase of £154m (10.8%).

Our Funeralcare business saw an increase in the number of funerals we arranged, with 10,290 more funerals than 2019 - an increase of 11.4%, sadly reflecting the deaths caused by Covid-19. However, during the first, tighter lockdown, Government restrictions on how funerals could be conducted meant that for many families only the most basic of arrangements were possible or appropriate.

During later lockdowns, we were able to operate within slightly more relaxed restrictions. This allowed us to help more people attend funerals to say their best goodbye to family and loved ones.

Although our Food business has performed exceptionally well through the crisis, our costs across all parts of our Co-op have increased. The additional costs during the year, directly related to Covid-19, have been around £84m. These costs included additional new colleagues (targeted from the hospitality sector), the purchasing of personal protective equipment (PPE), rewarding colleagues for their outstanding efforts and increased colleague sickness and absence linked to the virus. In contrast, our support from the Government's emergency economic measures to sustain the economy during the pandemic amounted to £82m - covering the business rates 'holiday' for our Food stores and funeral homes and furlough payments to our colleagues.

Our Insurance business saw much reduced sales during the spring and early summer, particularly for motor and travel policies, as lockdown restrictions impacted trading across the sector.

Overall, Legal Services saw case volumes grow by 9% in 2020. The business experienced an early increase in will writing work at the start of the pandemic, and then above average inquiries about divorce as the strains on family relationships created by lockdown began to show themselves. The number of probate cases we took on also grew, though external factors impacted our overall performance. Cancelled house viewings, delayed house sales, reduced interest rates and delays in processing paperwork all impacted our revenue in 2020.

Throughout this pandemic, our Co-op Health business has responded brilliantly. It's grown by over 1000% year on year and moved from being ranked 7,000th in the UK to 6th today, based on volume. At the same time, it has achieved exemplary customer satisfaction feedback, with 4.8 out of 5 stars on both Apple and Google stores as well as Trustpilot.

However, it became clear that the business would require significant additional capital to move it forwards. As such the decision was taken to sell it to Phoenix UK Group, a leading healthcare provider, a move which was announced in March this year.

I'd like to thank Tim Davies, who has been instrumental in leading the health business for the Co-op.

Emergency support for communities

Early in the crisis, it became clear to me that businesses would be judged by how well they responded to the pandemic and whether they put people and communities first. This would matter for many years to come, and long after the pandemic was over. If you ignored your responsibilities, or abandoned the most vulnerable, it would not be forgotten.

We were able to share more than £12m of funds with charities and community causes as part of our Covid-19 response, and we celebrated giving back a further £15m to 4,500 local causes as part of the annual payout from our Local Community Fund.

The generosity of our members during 2020 was outstanding. Through a variety of channels our members and customers donated £900,000 to FareShare, which in turn was distributed to food banks across the UK. This was in addition to the £1.5m worth of food we donated to the charity in March 2020. FareShare had been able to distribute five million meals thanks to our Co-op's support.

We also gave our members the opportunity to donate their unspent 5% Co-op member rewards to a new Co-op Coronavirus Members Fund. Our Co-op fund has also enabled us to give emergency donations of £500 each to 150 local causes who've been addressing immediate needs in their communities created by the pandemic, as well as families struggling to afford funeral costs.

As the nation's streets became deserted, we began selling copies of the Big Issue in our stores providing up to 2,600 outlets for sales of the magazine, which supports the homeless to lift themselves out of poverty.

In the second half of 2020 we used our summer food campaign to draw attention to the growing number of UK families facing food poverty. Through this we donated £1.5m to the National Emergency Trust (NET) to support food charities across the UK.

To help around 6,000 Co-op Academy pupils most in need, we provided over £3m in Co-op Food vouchers and technology, including 1,000 Chrome devices. At a national level, we worked both behind the scenes and as a member of the Stop Child Food Poverty Taskforce supporting Marcus Rashford in his successful campaign to persuade the Government to act decisively on tackling food poverty for school children during school holidays.

And our amazing colleagues, even when faced with the personal and professional challenges the pandemic brought, stepped up and raised over £3m for our chosen charity partners Mind, SAMH and Inspire.

But it wasn't just financial help that we gave during the first wave. We moved quickly from pilots to a national launch of our new online Co-operate platform, which blends virtual with physical communities and links volunteers to those in need. Between March and December, we had 183,000 visits to the site. Helping those shielding at home with their shopping was immensely important.

The new platform has complemented the work of our Member Pioneer community activists. They've been truly amazing and have together engaged with an estimated 30,000 people a month in our communities.

You can find more detail in responsible business performance in our Co-operate Report.

International response

Although, our immediate priority was to support our colleagues, members and customers in the UK, we are a business which is globally connected through our world-wide supply chain and our responsibilities did not stop at our borders.

At the start of the summer we introduced our Global Wellbeing Charter, specifically designed around the principle of our Future of Food commitment to treat people fairly. The charter lays out our actions to support our producers in the developing world in tackling the impact of Coronavirus on their livelihoods, now and in the future.

In July, we redirected £320,000 to support Fairtrade producers through the Coronavirus emergency. We've also increased the visibility of Fairtrade products in our stores to promote stronger sales.

As part of our ongoing support of The One Foundation we redirected £647,000 to communities for clean water and sanitation projects and to help tackle the spread and impact of Covid.

It's vital that as we repair and rebuild our economy, we take the opportunity to tackle climate change. We've joined the United Nations' 'Recover Better' campaign to support the call for governments across the world to prioritise a recovery from Covid-19 that's consistent with a sustainable world for future generations. We've set science-based targets to decarbonise our business and the products we sell, and we've pledged to further reduce absolute greenhouse gas emissions from our own operations by 50% by 2025 as well as to reduce product-related emissions by 11% by 2050. 

Evolving our post pandemic commercial strategy

Our aim is to help the nation and our own Co-op to build back better, and I hope, different. In developing our thinking, we wanted to build on the good work of the last few years and the experience, since March 2020. We also looked at available data on how the national and global economy was changing.

In our commercial thinking, there were some very significant trends emerging that we needed to take full account of such as hyper-localism, value for money and the surge in online. We have a clear plan to deliver our Vision and strategy over the coming years. See the 'How are we building back better and different' section.

Our post pandemic social agenda

As we developed our plans and began to put in place our revised social agenda, we were guided by our new Vision, 'Co-operating for a Fairer World.' We've chosen to focus our efforts on making things fairer in three key areas and will join forces with others because together, we can make an even bigger difference:

· We're going to make things fairer for our colleagues - making sure they get a fair deal, have a safe place to work and support for their mental wellbeing - ensuring they can fulfil their potential.

· We're going to make life fairer for our members and communities - focused on social mobility including access to food, mental wellbeing and education, skills & employment for young people whilst maintaining our commitments to diversity and inclusion.

· And we're going to make things fairer for our planet - focused on delivering our sustainability plan, which in particular faces into the challenges and opportunities in tackling carbon reduction.

We've always valued the work of our colleagues on the frontline and Covid-19 has demonstrated just how important their role is in feeding the nation, caring for the deceased and bereaved, and delivering our Vision to create a fairer world. Pay levels for our frontline colleagues have increased by 25% over the last five years, but now we want to go further.

So, in 2021 we're working with our trade union partners, USDAW, to improve our hourly pay rates so that they align to the Real Living Wage. This will boost the pay for 33,000 of our colleagues and give their families greater financial resilience through a testing time in the UK's economy.

We'll also continue to prioritise colleague safety and wellbeing through our 'Safer Colleagues, Safer Communities' programme and through our colleague mental wellbeing initiatives.

In September as part of the relaunch of our Co-op membership rewards, we doubled the amount of money that goes to local communities and community organisations who are tackling the inequalities facing our society, supporting those communities that need it most. We estimate that in 2021 our members will help generate around £21m to support fairer access to food, mental wellbeing and education & employment for young people.

The pandemic and months in lockdown have taken a big toll on people's wellbeing. That's why our partnership with Mind, SAMH and Inspire is so important to bring communities together to improve mental wellbeing. Pilot services are currently being run in communities across the UK to test the role of community and resilience in mental wellbeing. These will continue to be rolled out to more communities in the coming months.

During 2020 we were also proud to partner with the Damilola Taylor Trust and the Rio Ferdinand Foundation to provide young people, from our most marginalised communities, an opportunity to take part in a youth voice project. Our work to support young people have a voice, learn new skills and access opportunities continues along with our pre-apprentice and apprentice programmes.

In 2021, to address ongoing food poverty, we'll continue our work to help more people to access the food they need, gradually moving away from emergency response towards more sustainable activity, such as increased food distribution through our local stores' Foodshare programme and support for a community fridges initiative through Hubbub.

In the autumn we launched new commitments, targets and ways of working to address racial inequalities within our workplace and our other key stakeholder relationships including our wider membership, the communities we support, our suppliers and other partnerships. We are focused on delivering against these commitments and on what more we should be doing in the inclusion space. You can read more about these in the Co-operate Report.

Our commitments to the environment and tackling climate change are long standing. In November we re-launched Co-op Power, our business-to-business clean energy buying group. Co-op Power already enjoys a collective buying power of £200 million a year and is now on a recruitment drive to bring more corporates onboard. Co-op Power has recently attracted Roadchef, Nationwide Building Society and The Royal National Lifeboat Institution to join the joint-buying operation. National Trust, PA Media Group and Emirates Airlines are already members. £100m in energy costs have been saved by members of Co-op Power so far, and the Co-op alone saved more than 143,000 tonnes of carbon in 2020, through the purchasing of renewable energy.

Amongst our other current key commitments:

· We've set science-based targets to reduce carbon emissions from our operations (compared to 2016) 50% by 2025 and from our products and services, 11% by 2050.

· We have aligned with the British Retail Consortium Climate Roadmap to be net zero by 2040 from both our operations and products.

· 100% of soy in Co-op products, including that embedded in animal feed, will be

deforestation-free and sustainable by 2025.

· We will reduce food waste generated in our stores and depots by 50% by 2030, compared to 2015.

· All Co-op own brand packaging will be easy to recycle by Q2 in 2021.

We know all of these areas are close to the hearts of our members and their representatives on our Council. We'll continue to listen to them as we move our agenda forward.

Improving operational efficiency

In order to deliver on our commitments to help our members, customers, colleagues and our local communities, we'll need to be even more efficient and cost conscious in how we run the business during 2021 and beyond.

During 2020 we worked on our new operating model across many parts of our Manchester Support Centre, merging some teams, removing duplication of roles and tasks and bringing together shared areas of skills and capability. In 2021 this work will continue to drive efficiency and effectiveness, along with a shift in our ways of working. We're improving our cost base in Food through our 'Better Buying' activity and through the implementation and rollout of the Retail Business Transformation programme, which is delivering efficiencies in stores and logistics as well as removing costs.

We're also developing more cross-trading opportunities so that our members and customers understand how our business areas complement each other and can address their needs.

We expect 2021 to be another very challenging year but one where our Co-op will continue to thrive and deliver clear value for our members and their communities.

It will present the opportunity to show the importance of co-operation as the UK looks to build back better and, we hope, different. If we are to avoid falling back into old ways that tolerate inequality and unfairness, then we must develop economic planning, at every level, which puts the wellbeing of people and communities first.

I'd like to finish by once again saying how proud I am of my Co-op colleagues. The last 12 months have been intensely demanding for us, as individuals, as family members and as employees. I have witnessed incredible dedication and passion towards our Co-op by colleagues, often juggling additional home and work demands.

This includes my six colleagues, including a Nisa partner, who were recognised in the Queen's New Year and Birthday Honours this year. I want to congratulate Joanne Gates BEM, Liz Mclean BEM, Jo Whitfield CBE, Abdul Majid MBE, Jean Marie Hughes MBE and Nick Speight MBE for their awards.

Each of our business units have been essential in keeping the country running this year and it's great that the efforts of several colleagues have been recognised at this highest level.

A huge 'thank you' to everyone for all you've done during this exceptional time.

Steve Murrells

CEO, The Co-op Group

How we responded to the pandemic - our commercial response

No part of our business operations was left untouched by the pandemic. Our aim was to adapt as quickly as necessary to the new conditions and ensure we could continue to serve our members and customers while keeping them and our colleagues safe.

Food response

Overnight, our Co-op responded to the need to feed the nation by collaborating with the Government and adopting new ways of working, not only in our Food stores but across our logistics network depots. The dedication, resilience and strong community values of our colleagues was instrumental in responding to the pandemic and we thank them for their hard work.

For our stores we set out new cleaning regimes, one-way systems, social distancing, priority shopping times, staffing at entrances to regulate customer numbers and new store layouts. We also temporarily adjusted our trading hours, so we could replenish shelves and carry out additional cleaning. To help our customers understand the changes, we put in place strong and clear point of sale messaging and used in-store radio to guide people and thank them for their co-operation. Importantly, we empowered our store managers to make the right decisions locally to keep their colleagues, our customers and our members safe. In depots, we introduced social distancing and PPE kit to aid working. We have kept guidance from Government under constant review in order to enable us to continue to improve the measures we have in place in store as the evidence has evolved, guided throughout by keeping our members, customers and colleagues safe as our utmost priority.

In the early days of the emergency we lobbied the Government for our store colleagues to be given 'key worker' status along with Funeralcare colleagues. Throughout this time, the safety of our colleagues was our key goal and our procurement teams rose to the challenge of securing sufficient PPE. We swiftly put in place plastic screens at our tills and between self-service check-outs. We continued to innovate to keep customers safe by trialling a traffic light queuing system at a number of stores to make it easier for customers to observe social distancing when shopping. We also collaborate with Government to make sure we have a voice in the things that matter most for our colleagues, customers, members and our Co-op.

With pubs, restaurants and cafes closed and many office workers moving entirely to home based working, many extra meals were being prepared and eaten in the home. As a direct consequence, we saw double digit sales growth across many of our categories. To cope with the extraordinary demand for food and other household products, we recruited 5,000 additional colleagues, many of them within a single week in late March/early April. We targeted our recruitment to the hospitality sector where we knew thousands were losing their jobs.

We also accelerated our online and home delivery plans to address the new needs and demand. Our online same-day delivery service is now available in over 100 towns and cities and, by the end of the year, our online on-demand convenience offer was serviced through 800 stores, through our own online shop - coop.co.uk/shop - the Deliveroo app and as a click and collect service. Orders are fulfilled through the Co-op online shop and through partnerships with Starship Technologies and Deliveroo in as little as under one hour and up to seven days in advance.

Our approach sees stores act as micro distribution hubs locally, with orders picked from local Co-op stores - so high street stores benefit from any increase in online demand.  We rolled-out our online offer at pace during 2020 through our own online shop - which first launched in 2019 - and our partners. Orders topped 3.25m during 2020.

Co-op's product offering was also adapted to meet the crisis and respond to the shift to at-home eating and the need to offer value. Honest Value was launched to provide shoppers with the ethical sourcing standards that they have come to expect from Co-op, along with keen prices. Co-op launched its new EverGround hot drinks offer with all tea, coffee, hot chocolate and sugar used in the range sourced to Fairtrade standards.

At the Co-op, we had to pause our programme of new store openings at the start of the crisis, but this got back on track in early July with the opening of a new store in Pilton, the home of the world-famous Glastonbury festival. Over the last five years, we've opened around 500 new shops across the country, which is more than any other UK retailer. Despite the pandemic, during 2020 we opened 56 new stores, refitted a further 105 and extended 13 stores.

Our colleagues have done a fantastic job in adapting throughout the crisis and have remained focused on our customers and members. It's through their commitment and dedication that we've received the highest ever satisfaction scores.

Playing our part in supporting families access food throughout the crisis has been a key focus for us. We amplified the support that we gave FareShare throughout 2020, donating all of our Easter marketing campaign's TV airtime to the charity, to raise awareness and leverage over £650k in funds to help their work. We also ran a summer campaign to highlight the challenge of food poverty among families - we launched a promotion for our 3 for 2 Picnic Food range, through which we donated 20p from each purchase to the National Emergencies Trust (NET). It had raised £1.5m by the end of the summer.

Our everyday ambition is that no good food goes to waste. Any surplus food at our depots is shared with those in need through our partnership with FareShare, and surplus food from our stores goes directly to local charities and community groups. Our support of food banks and other forms of emergency help continues.

We've seen significant sales growth for our Nisa partners, who've benefited from the broader range of products we're able to supply them, particularly within the fresh categories. Nisa trading has been strong with sales up 10.8% to £1.6 billion. During 2020, Nisa signed up 624 new stores, marking a 19.1% increase against budget and building on strong recruitment figures in 2019.

Franchising is a critical part of our strategy to extend the reach of our Co-op by entering new markets and communities. This year, we have been upgraded to an Associated Member of the British Franchise Association (BFA), reinforcing our partnership credentials. We were operating 14 franchise stores by the end of 2020 and around 25 more franchise stores are expected to open by the end of 2021.

Our strong relationships with our supply partners have been critical throughout the crisis and in many ways these relationships have strengthened. We worked closely to help suppliers during the early stages of the Covid crisis when manufacturers experienced issues in sourcing key ingredients and meeting the significant increased demand or loss of traditional markets, brought about by pub and restaurant closures. We temporarily changed product specifications and focused our range on a core customer offer while beer packs usually provided to pubs were sold through stores to aid small beer producers. For more information on how we work with our suppliers, please see our Co-operate Report.

Funeralcare response

In Funeralcare we moved quickly to follow new and radical Government restrictions and led the sector in terms of our response to making funerals safe for our clients and our colleagues. In response to the impact of UK lockdown, we adapted our funeral service options to help ensure that bereaved families could still say their best possible goodbye. Whilst there have been significant funeral restrictions in place, that doesn't mean that families haven't able to pay tribute to their loved ones.

In the early stages of the pandemic, the type of funerals we were able to offer were simpler and more pared back due to the severe restrictions. As the Government realised the importance of the grieving process in later lockdowns, more people were allowed to attend services.

We delivered much higher numbers of funerals during 2020, helping 100,920 families to say their very best goodbye to a loved one. At the same time we experienced much higher operational and internal costs, along with reductions in planned change and investments, affecting both revenue and profits.

As a consequence of higher funeral volumes in the first half of the year, we saw a marked reduction in our funeral plan sales as our colleagues focused on providing funeral services. As restrictions lifted, we saw plan performance recover and sales across the full year were 13.4% down on 2019.

Despite the challenges of 2020, we are proud to have also delivered a large amount of strategic change for our business:

· We refreshed our Funeralcare brand, to become more appealing, modern, diverse and inclusive.

· We delivered a new website and improved core journeys for our clients across both Funerals and Funeral Planning.

· We grew and consolidated our position as the market leaders in Direct Cremation. We launched new Funeral Service propositions in October, providing clients with greater personalisation options and better value for money.

In terms of regulation, we have welcomed confirmation that the Government has legislated to bring the pre-paid funeral planning market within the remit of the Financial Conduct Authority (FCA) and provide protection to consumers. We have been outspoken for many years in calling for greater direct regulation of this market. We've worked closely with HM Treasury to share our expertise as a reputable provider and outline why the best model for funeral plans is under the remit of the FCA.

Fulfilling the needs and interests of our clients will always be our priority, so we have proactively called for increased transparency, enhanced financial protection and a ban on aggressive sales. 

In December, the Competition and Markets Authority (CMA) published its final report into the at-need funeral and crematoria industries.

Our funerals business cares deeply about providing the very best service and care for clients and families, and has been leading the way in improving standards, quality and transparency across the market for a number of years and will continue to do so.

We have been working through the full detail of the CMA's final report, having engaged fully with them throughout the investigation. We are encouraged by many of the measures put forward by the watchdog as they are a step forward in improving quality of care and price transparency, both of which are in the best interest of bereaved families and are measures we have always advocated for. We'll continue working with the CMA as the remedies which they have outlined are developed.

Insurance response

As the pandemic took hold in the UK we took measures to reflect in our insurance policies the restrictions which were introduced by the Government as well as the efforts people were making to support their local communities. For anyone who needed to work from home or were self-isolating, their home insurance cover was not affected as we automatically relaxed our policy terms without the need for customers to contact us. And this remains the case today. If our customers had to drive to work instead of getting public transport because of the impact of Covid-19, increasing their mileage, their car insurance policies also remained valid. And if customers were using their car for voluntary purposes in any capacity to support others who are impacted by Covid-19, their cover was not affected. Additionally, key workers needing to use their own car to drive to different places of work because of the impact of Covid-19 were not affected. We have kept all these changes in place for the time being.

During the lockdown we saw a sharp drop in sales of car, travel and new home insurance reflecting the Government restrictions on work and movement. However, there were also far fewer claims being made as people remained at home. Sales picked up in the second half as the economy opened up again, with motor claims increasing by 35% in the weeks following travel restrictions being lifted.

In September we also led a campaign to raise awareness of the pressures facing new young drivers from other motorists and launched a T-plate to indicate those using telematics technology.

· Decline in neighbourliness  

Our Co-op works with its members to act in the best interests of their communities, the ones we serve. In December, Co-op Insurance, as a home insurance provider, commissioned new research along with Neighbourhood Watch as part of our joint annual Neighbour of the Year Awards. It showed that the surge in neighbourliness seen in the spring had not been sustained as pandemic fatigue set in across the UK.

During the peak of the first national lockdown in April, our research showed a spike in neighbourliness, with almost three quarters (72%) of UK adults saying they knew which of their neighbours were classed as high risk. However, after seven months of pandemic restrictions, the figure saw a dramatic fall, with only a quarter (26%) of a sample of 2,000 UK adults revealing they know which of their neighbours are at risk.

During the first national lockdown, 31% of UK adults said they had checked in with a neighbour who lived alone as a way to help combat loneliness. Months later, this figure declined by a third, with only one in five saying they have done the same. 

Legal response

When the pandemic arrived, our Legal Services business was ready thanks to the ongoing investment in digital technology we've been making over the last few years to make services more convenient. The transition to remote working was fast and effective.

Having developed digital legal advice technologies for estate planning, which makes sorting out wills easier and more effective, we developed a suite of digital legal advice services in 2020 that covers probate, personal injury, employment and family law. These tools put us in a good position to build new partnerships and reach more customers. In 2020 we partnered with over ten new organisations and we saw case volumes rise by 9%. Our customers are making the most of the free legal advice and guidance offered by our new range of services. At the start of the lockdown we saw an increase in demand for will writing services, while after the first lockdown was lifted we saw a 250% increase in divorce related enquiries, reflecting the tremendous stress many relationships have suffered during this time.

Online consultations with our legal advisors were already growing before the pandemic, but the experience and effects of the pandemic itself increased that trend. As Covid death rates began to soar, we introduced a Bereavement Notification and Advice Service to help people deal with a late loved one's affairs. The new service gives bereaved families help informing financial institutions, stopping junk mail and closing social media accounts. Typically, bereaved families are left to deal with an average of twelve organisations, ranging from the Government's 'Tell Us Once' service to pension providers, insurers and utility providers and corresponding with the Coroner. This new service enables us to help bereaved families by providing a single point of contact.

Supporting our colleagues through the pandemic

Our colleagues right across the business have been outstanding in how they've responded to the challenges of 2020. As the scale of the emergency became clear, and new patterns of working were put in place, we implemented a new approach to colleague communications making sure that all of colleagues had the latest health guidance and operational information they need each day.

Throughout the first lockdown and beyond, we issued a regular 'Co-op Care' email to all colleagues focused specifically on mental and physical wellbeing. We covered many issues we knew were highly relevant at this time, including: coping with fear and anxiety; bereavement; personal resilience and staying fit and motivated when working from home.

We knew it was important for there to be more frequent communications to our colleagues and for our most senior leadership to be visible. Our CEO, Steve Murrells, recorded short, weekly video updates messages from the end of March through to the end of July reinforcing our daily messaging, highlighting significant changes and thanking colleagues for their work. To monitor and track how our colleagues were doing, we carried out two special Talkback surveys which measured individual wellbeing including levels of personal anxiety and concern for family members.

We also developed new ways to recognise and thank the efforts of our colleagues. For colleagues working from home we introduced digital 'You're Incredible' and 'Not all heroes wear capes' thank you cards to celebrate their achievements. We added a new way to recognise exceptional colleague work during the pandemic by giving our Co-op members and colleagues the opportunity to nominate an individual for a 'local hero' award. More than 1,000 nominations were received. We shared stories about the work of our colleagues on our external social media platforms during May, June and July to publicly celebrate their work. Our Covid related acts of thanks and recognition were in addition to our annual Being Co-op awards, which received more than a thousand nominations across thirteen categories.

In addition, to recognise their commitment during the first lockdown period, 56,000 frontline colleagues received a 'Thank You' package which included a £100 cash payment, a £50 Co-op gift card and an extra day's holiday. 

We also increased our colleague discount to 20% on own brand goods at all times and 20% on branded goods at 13 pay day events a year, to further improve what was already a valued colleague benefit and to provide a meaningful 'everyday' financial uplift.

And before Christmas we ran a '12 days of Togetherness' campaign with a different initiative launched each day. All colleagues were connected to this with themes of saying thank you, providing support and demonstrating kindness. This included colleagues receiving £50 on their membership card and an exclusive discount day of 50% off all Co-op branded goods.

How we responded to the pandemic - our community response

Our ability during the pandemic to support the local communities in which we trade was helped enormously by the fact that we already had established relationships, good understanding of local needs and a network of colleagues dedicated to creating stronger communities.

Co-operate and Member Pioneers

We've long been committed to expanding local, grassroots, co-operative action to meet local needs - we've worked closely with a committed group of individuals from our Members' Council on this area. As the lockdown began, we increased our efforts.

Last year we began testing a new online platform called 'Co-operate' which can link local projects to local resources. Our trials in Greater Manchester and parts of Leeds were already proving successful and in April we scaled up the platform to make it available across the country.

Between March and December 2020, more than 183,000 visits have been made to the Co-operate platform to access services including:

· A matching service that connected volunteers to help the vulnerable with their shopping or signposted them to organisations that need help.

· Sharing online events to help bring people together in virtual communities, during a time of physical isolation.

· 'How to' guides and digital content to support people in connecting with one another through lockdown.

So far - 4,000 community groups have registered with the Co-operate platform, which complements the physical network of our Member Pioneers. By September, we had 1,000 Member Pioneers in place, which means we now have a Member Pioneer covering all parts of the United Kingdom. They are a key way in which we connect members and their communities at a local level. During the lockdown our Pioneer colleagues concentrated their efforts on supporting vulnerable people, keeping people connected, finding volunteers and securing funding for urgent projects. They played a key role in community response to the pandemic by either establishing local support groups themselves, signposting others to existing groups or individually supporting food and medicine deliveries and face-mask production. Through these efforts Member Pioneers engaged with an estimated 30,000 people per month in communities.

Financial help

We recognised that local fundraising would become very difficult during social distancing restrictions, so we chose to bring forward the distribution of funds for 4,500 local causes currently being supported by our Co-op members. This would normally have taken place in November, but we released £4.5 million during the spring to help make sure immediate needs were met. In November we then distributed further funds, making a total of £15m shared from our Local Community Fund in 2020.

The themes we had identified in 2019, through local research and the national data we consolidate to create our Community Wellbeing Index, led us to focus our community support on three interconnected areas: public spaces, mental wellbeing and skills. We have seen how these have taken on even greater relevance during 2020. How we use public spaces - indoors, outdoors, and online - is interwoven through all of these areas, and how that relates to our individual and collective wellbeing has become much better appreciated during lockdown; mental health for many people has been damaged through an intense period of isolation and restricted movement; and the hit to the economy will make skills and training, especially for a younger generation, a matter of urgency. We have also played a key role in the growing campaign against food poverty led by Marcus Rashford.

Free school meals for Co-op Academy pupils

In March, as schools began to close because of the virus, we knew that the 6,000 students who have free school meals across our 26 Co-op Academy schools would need our help. The Co-op Academies Trust has chosen to work in areas of high deprivation in the north of England which means the number of children eligible for free meals is on average around 32% in our schools, compared to the national average of 13%. In one of our Co-op Academy schools it reaches 67% of students. Before the Government had responded to this issue, we organised a scheme to give eligible Academy Trust pupils a weekly £20 Co-op Food voucher card - £5 higher than the normal value of free school meals. We also extended this to children identified as being from financially vulnerable families and to refugee children who were not yet eligible for Government support.

Several hundred other schools chose to make use of our Co-op voucher cards to support their own pupils rather than use the Government provider. We committed to providing our Co-op support during term time and school holidays, including through the summer months. We also provided support to children forced to self isolate during the autumn term.

To help with home study during the lockdown, the Academies Trust provided 1,000 laptops to students who needed them.

Co-op Foundation

At the outset of the pandemic, our Co-op charity, the Co-op Foundation, signed a statement co-ordinated by London Funders in which it committed to being flexible with its funding during Covid-19. It also agreed repayment breaks for 16 community spaces partners in England, Wales and Scotland supported through its interest-free loans programme.

The Foundation adapted its 'Space to Connect' follow-on funding plans so all 'Explore' partners supported with £10k grants in 2019 could apply for a further £10k to build on their work in 2020. Funding was uncompleted so all suitable proposals were awarded funds. By mid-January 2021, the team had awarded £430k of follow-on grants to 44 organisations. Space to Connect supports organisations to improve spaces where people can connect and co-operate.

Co-op Foundation agreed a three-month extension offer to partners funded to tackle youth loneliness through its Building Connections Fund youth strand. In addition, social enterprises supported via its Luminate programme were invited to apply for emergency grants to address short-term impacts on their organisation caused by lockdown. The Foundation gave out £45k of grants to 18 organisations.

In response to its own research, that revealed a rise in youth loneliness during the March - July 2020 lockdown, Co-op Foundation launched the second phase of its 'Lonely Not Alone' campaign in October to tackle the stigma of youth loneliness. In total, 57 young people helped to develop the campaign, which asked everyone to wear yellow socks and share their Outfit of the Day to show young people they're not alone.

Campaigning through the pandemic

Campaigning on issues which matter most to our members is a key part of being a co-operative. In mid-March as the scale of the coming emergency began to emerge, we pressed Government for 'key worker' status to be given to our Food and Funeralcare colleagues. We also provided guidance to Government on safety measures for caring for the deceased and on the social distancing measures for funeral services. Where we saw inconsistencies of practice over burial arrangements, we also lobbied local authorities.

In early July the Government finally published its response to its call for evidence from shop workers who've been the victims of verbal and physical abuse in the workplace. We welcomed the response and there are positive measures in it, but overall, we believe more should be done to protect our colleagues and reset expectations of what is acceptable in society - we do not believe it should be part of the job to be abused and attacked, and that only new legislation across the UK will provide this protection.

Last September, Jo Whitfield brought together the CEOs of 22 other major retailers and industry bodies to write to UK Prime Minister Boris Johnson asking him to give staff greater protection in the workplace and back Alex Norris MP's Private Members Bill to achieve that. Following the evidence the Co-op provided to the Scottish Parliament's Committee in March 2020, the Co-op's managing director for Scotland, Derek Furnival, wrote to members of the Scottish Parliament in January to ask for their support of a new bill which will provide greater protection for shopworkers in the face of ever increasing levels of abuse and violence.

Also, the impact of the launch of the Nation in Mourning report led to it being tabled at a Cabinet meeting in July with the All-Party Group in Westminster and the Cross-Party Group in the Welsh Assembly are exploring a session on bereavement as a result. It has continued to be used in conversations to help ensure restrictions on funerals during Covid remain proportionate and provide families with the opportunity to say their best goodbye.

How are we building back better and different?

The events of the past 12 months have clearly evidenced that our Vision of 'Co-operating for a Fairer World' is the most compelling way in which we can deliver our Co-op Purpose of 'championing a better way of doing business for our members and their communities.' In a nation ravaged by the social and economic scars of the pandemic, we take extremely seriously the role the world's oldest Co-op can play in helping Britain build back better and different.

We have a clear plan to deliver our Vision and strategy over the coming years and many of our planned initiatives were accelerated during 2020 in a direct response to the challenge presented by the pandemic. Despite the uncertainties and challenges which lie ahead, our Co-op remains well placed to deliver value and values for all our stakeholders. Our forward looking strategy is underpinned by six strategic pillars and characterised by a number of key areas of focus and development:

Succeeding as a Co-op

- We continue to invest heavily into our price and service propositions in Food and Funeralcare. In Food, our Honest Value range and major £50m price investment programme cut the cost of everyday food at our stores. More than 600 products dropped in price, helping our customers save almost £120 a year on their food bills.

- In December, we sold our insurance underwriting business, which will enable us to deliver a broader range of products and meet more of our members' insurance needs more of the time. We're already in talks with potential new partners on new products and are working to be even more competitive. We are investing in our online capability, to make things easier for customers.

- In Funeralcare we trialled new ways to help clients say their best goodbye in six locations, before using these learnings to roll out our new funeral service options nationally in October.

- We continue to build further partnership arrangements within Legal Services.

Being convenient

- In Food, we're rolling out new stores where appropriate, and at the same time significantly increasing our online and digital capabilities. In 2021, 85 new stores, 20 extensions and 122 refits will be unveiled as part of a £183m investment. Online services will expand to more than 1,000 stores.

- We are accelerating the digital transformation and capabilities of our Funeralcare, Legal Services and Insurance business areas. Funeralcare launched a new website with a market leading customer journey, showcasing all the services we offer and making it easier for clients to find the information they need and locate their nearest branch.

- We are working with Co-op members and customers to expand our offer, developing new Insurance products based on their needs.

Encouraging co-operation

- As a conscientious business and co-operative, sustainability means many different things and is part of everything we do. Whether in the context of climate change or the resilience of our communities, 2021 requires co-operation and collaboration with our members and business partners as we seek to weather Covid and continue in our mission for a greener future.

- Co-op Power launched its first ever proactive recruitment drive in the winter to encourage others to join its buying group and do the right thing, as the pandemic continues and green targets remain. It also worked to draw attention to those businesses obliged to pay premiums for unused energy at premises that were closed or not consuming as usual during the pandemic; an injustice Co-op Power fought hard to negotiate out of its own framework agreement and replace with a disruptive 'No Take No Pay' policy which protected its members from £1 million additional cost.

- In September we led a campaign to raise awareness of the pressures facing new young drivers from other motorists and launched a T-plate to indicate those using telematics technology. Our aim is to create safer drivers, safer roads and safer communities and this will continue in 2021.

- Co-operate, our online community centre, allows members to engage with each other and lists ways users can connect and support their community through joining online activities and groups; volunteering and donating equipment. Users can also start their own group or run an activity post lockdown that brings the community together.

- Membership, through the Co-op app and online, means that Co-op members can choose which local cause they want to support every time they buy Co-op branded products, find personalised weekly offers for money off the things they buy in our Food stores and donate part of their personal reward to help us tackle the big issues facing communities.

- Members can also help shape the products and services we sell, the work we do and how we're run by getting involved in regular 'Join In' activities; by putting themselves forward for our Members' Council and by voting at our AGM and in our elections.

- In November, we partnered with the 'Make My Money Matter' initiative and committed to further align our pension investment with the values of the Co-op and its members, and to engage with colleagues on where their pension is invested.

Improving our operational effectiveness

- During 2020 we brought together our Funeralcare, Insurance and Legal Services businesses into one Life Services function, under the single, executive leadership of Shirine Khoury-Haq. Our ambition is two-fold. Having three individually successful, profitable, competitive businesses that operate in distinct but complementary markets; and deliver outstanding value to our customers.

- Collectively, this brings natural opportunity to create more efficient ways of working. Our strategic focus will be on commercial, product and digital opportunities where we can join up our products and services to serve our customers and members in a way that is uniquely Co-op. 

- Our Food and emerging Power businesses further strengthen this.

- We will continue to reduce central costs and improve frontline service support.

- We will improve our Funeralcare operation by focusing on three main areas:

o Transforming our core systems; replacing our legacy and outdated systems to create a sustainable platform for us to expand our digital capabilities and create the omni channel experience and access to services that we know our clients want.

o We'll be reviewing our end-to-end operational processes, removing duplication and inefficiency and creating processes that are fit for 2021 and beyond.

o We'll improve our ability to plan and resource our teams, and in turn increase efficiency and client experience in homes and care centres by introducing MyTime, a time and attendance management and scheduling system for our frontline teams.

- We will improve Retail Food operations through our Retail Business Transformation programme (RBT), the biggest transformation programme we've ever undertaken. This will accelerate in 2021 to improve ranging, stock holding, availability and more accurate forecasting information.

- We will improve Wholesale through a radical overhaul of partner terms and conditions, expansion of the wholesale offer and range and recruitment of more independent stores and greater Co-op franchise opportunities.

- To build on its record number of new stores recruited last year, Nisa is overhauling its partner terms to make them simpler and more rewarding of loyalty.

- Nisa will continue to add value to our partners through the newly launched brand proposition, Fresh Thinking, which will provide its partners with the insight, tools, support and product innovation needed to grow their businesses.

- Co-op has enhanced its position as a credible franchise partner in the UK having been upgraded to an Associated Member of the British Franchise Association. We will continue to reach new locations through our successful franchise model, generating mutual value with like-minded partners.

- Franchising is a critical part of our convenience strategy to extend the reach of our brand and reach new markets. We were operating 14 franchise stores in cities, university campuses and communities all across the UK by the end of 2020; we are attracting new partners, customers and members every day and will double the estate this year.

Evolving our Co-op culture

- 2020 opened our eyes to the gross inequalities that still exist around us. We've set ourselves a bold Vision to 'Co-operate for a Fairer World', which requires all of our colleagues and leaders to bring their diverse talents and expertise to the table to make change happen.

- Creating an inclusive culture, where all our colleagues can come to work to be their best selves is key to helping deliver this vision. Our strategy remained focused on designing and developing the foundations that enable us to create, sustain and embed an inclusive culture as we set out in 2018.

- The wellbeing of our colleagues has long been a top priority for us, and this last year more so than ever. At the start of the pandemic, we established a Wellbeing Steering Committee representing all areas of the business which allowed us to understand in real time where our colleagues needed our support, enabling us to swiftly evolve our plans. 

- We know our colleagues have different needs at different times, and so we continue to look at wellbeing holistically and across a number of areas including physical, financial and mental health. We look to provide a host of services that our colleagues need, that they can get involved in co-creating and can access when and where helps them.

- As a result, we launched 'Co-op Care': a regular communication to all colleagues covering guidance and advice on how to cope with the impact of Covid-19 on their health and financial wellbeing.

- We also provided free flu jabs to all our colleagues, which were taken up by over 10,000 colleagues.

- Underpinning this, we continued to extend the range of initiatives to support colleagues, including the rollout of mental health training to all our managers, creating a wellbeing hub for leaders to access content and the introduction of 'Better Together': a colleague recognition programme focused on wellbeing.

- This work is closely connected to our partnership with Mind, SamH and Inspire, enabling colleagues to fundraise and support others in their wellbeing as well as gain personal benefit from the charities' knowledge and expertise. More on how we're supporting the wellbeing of colleagues can be found in our Co-operate Report.

- Our focus on fair pay and reward continues. Fair reward includes pay, wider benefits (holiday, pension, paid breaks and flexibility) and our colleague wellbeing support. Our commitment to and focus on aligning to the Real Living Wage for our frontline colleagues is important, and sits alongside maintaining appropriate differentials between role grades. 

- We became a member of the Ban The Box collective in September, as an employer that doesn't require any candidate to disclose any criminal records until after interview, during the pre-employment screening stage and only for certain roles.

Growing our Co-op

- Our Co-op will continue to grow through our finding innovative and compelling ways to engage the millions of new customers who came to us during the crisis and whose needs we can serve going forwards.

- Our wider social Co-op influence and impact will also continue to grow via our compelling community and campaigns agenda which will focus on a number of key priorities and programmes:

o During 2020, we worked closely with the British Retail Consortium (BRC) to agree a roadmap not just for ourselves to achieve stretching new carbon commitments, but for the whole retail sector to co-operate to do so. There are now 62 retailers who have joined the Roadmap to reach net zero GHG emissions by 2040, across their business operations as well as their products and services, 10 years ahead of international agreements. This is a global first for the UK retail sector.

o At the Co-op, our members are at the heart of our business and the decisions we make. And that's more than just joining in on developing our products and services, although these are obviously important. It's also about the issues we champion, the causes we highlight, the injustices we tackle - the things our members want us to use our voice to help make a difference with. We want to build stronger, more resilient and adaptable communities by offering fair access to food; fair access to mental wellbeing services and fair access to education & employment for young people. 

Our financial performance

We have made two key changes to the way that we show our financial results this year and these changes have required that we change (or 'restate') the results which we showed last year. A brief overview of the changes is noted below with full details given in our accounting policies and within note 19.

Funeral plans - revenue recognition

The Group adopted the new accounting standard for revenue recognition (IFRS 15) in 2018 and at that time we applied a judgement that the revenue to be recognised for a funeral plan was variable and so changed over time. When a customer takes out a plan, the monies are invested in whole of life insurance policies whose value changes over time until redemption. The key judgement we took was that on redemption of a policy, the monies received from the policy was 'consideration' receivable for the funeral. Therefore, investment gains from the policy were deferred on the balance sheet and only recognised as revenue at the point the funeral is performed. Our external auditors disagreed with this accounting treatment in our 2019 accounts which led to a qualified audit opinion.

During the second half of 2020 we have continued to review our revenue recognition accounting policy in respect of funeral plans and we have also had discussions with the Financial Reporting Council (FRC) regarding the merits of our accounting policy. As a result of this review, we have changed this judgement in 2020 and now the amount we receive when a plan is initially taken out is judged to be 'consideration' for the funeral, being the monies received from the customer rather than the return of the redemption of the policy. This adds two complexities to the accounting and how we report our numbers for our Funeralcare business.

Firstly, there is often a significant time difference between the date we receive monies from a customer and the date of delivering the funeral; under the accounting standards this is seen as a financing transaction whereby the customer is seen to be financing the Group. The accounting for this means that we recognise an effective interest charge on the monies received from a customer in each year until the plan is redeemed at which point the revenue recognised is the total of the monies received from the customer and the effective interest charged. The second complexity relates to our funeral plan investments, the majority of which are invested in whole of life policies. The gains or losses on these investments are now recognised within our finance income or finance costs each year. These investments are revalued each year based on their fair values, being their market value, and are impacted by external factors in the economy. This brings significant volatility to our income statement each year, despite our investments being held for the longer term and not accessible until the point each funeral is performed. As a reminder, under the previous accounting policy investment gains or losses were deferred on the balance sheet until a plan matured.

This change in judgement requires us to update our 2019 numbers to reflect the new treatment as if it had always been the case. The changes impact the Group's 2019 consolidated income statement, 2019 consolidated balance sheet, 2019 consolidated cashflow and 2019 statement of changes in equity. Consequently, the audit report qualification has been removed in 2020.

Reclaim Fund

In the past, our Co-op has included the assets and liabilities of the Reclaim Fund in our consolidated balance sheet. This was based on a judgement that we controlled the Reclaim Fund.

We have reassessed the facts and changed our judgement such that we no longer think we meet the accounting definition of control which requires us to include the results of the Reclaim Fund on our balance sheet. This is because we have no rights to any returns from the Reclaim Fund, be they positive or negative, with the Reclaim Fund only being permitted to distribute monies to good causes. This judgement has also been discussed with the FRC during the year.

Following this change in view, we no longer include the assets and liabilities of the Reclaim Fund on our balance sheet. This results in a reduction in our net assets of £74m and an equal reduction in other reserves. This is regarded as a prior year error and so we have updated our 2019 numbers to reflect the new treatment as if it had always been the case. There is no impact on our Income statement of this restatement.

Summary of financial performance

Our headline performance

Revenue rose by £0.6 billion to £11.5 billion, a 5.6% increase compared to 2019. This growth reflects a strong trading performance in our Food business with revenue up £0.3 billion or 3.5% driven by 6.9% like-for-like sales growth that once again exceeded the market as measured by IGD. A strong performance was also seen in our Wholesale business with revenue up by £0.2 billion with like-for-likes of 16%.

Profit before tax (PBT) was £127 million compared to £24 million in 2019. The main driver for this is an increase in underlying performance of £62m and an increase of £75m on net income and interest on funeral plans. These increases and a further £3m reduction in underlying interest are offset by a net increase of £37 million from the impact of non-trading items such as disposals, impairments, one-off items and market valuation changes on our swaps and debt. These are discussed in more detail below.

Our underlying profit before tax comprises core trading profits less underlying interest expense (essentially interest on borrowings). This was up by £65 million with strong profit growth in our Food and Wholesale businesses partly offset by an increase in support function costs following some favourable gains in 2019. Our support from the Government's emergency economic measures to sustain the economy during the pandemic amounted to £82m - covering the business rates 'holiday' for our Food stores and funeral homes and furlough payments to our colleagues. Trading performance is discussed in more detail below.

We show how we adjust profit before tax to get to our underlying profit before tax in note 1 of our financial statements. Our jargon buster also explains the accounting terms we have to use.

Our profits are reported after deducting the amount our members have earned through the 2% community and member rewards which totalled £58 million in the year (2019: £70 million; prior to October 2020 rewards were earned at 1% (community) and 5% (members)).

The sale of our insurance underwriting business (CIS General Insurance Limited ('CISGIL')) completed in early December. The results of that business and the loss on disposal have been reported as a discontinued operation in our consolidated income statement (this is consistent with last year). Co-op will continue to market and distribute insurance products through a long term arrangement with Markerstudy.

How our businesses have performed

Food sales of £7.8 billion were up 3.5% on 2019, with like-for-like sales up 6.9% beating the market as measured by IGD by 0.5% main market and 2.6% convenience market. This sales performance has clearly been impacted by the pandemic and the associated impact on our customers' shopping habits, but the continued market-beating like-for-like sales growth reflects also the investments we have made in our estate, in our product ranges and accelerating our online and home delivery services.

Underlying profit in Food was £350 million in 2020 compared to £283 million in 2019. The increase reflects the strong sales performance but also our continued transformation of our cost base and significant change programme.

Our Wholesale business achieved sales of £1.6 billion in the year compared to £1.4 billion in 2019. The business recorded a profit of £6 million in 2020 against a £10 million loss in 2019. Whilst this significant growth has been driven by the pandemic, it also reflects the competitiveness of our broader range of products, supported by our own brand proposition. This has helped to deliver strong recruitment in the year.

Revenue in our Funeralcare business was flat year on year at £272 million. The tragic increase in funeral volumes as a result of the pandemic has been largely offset by reduced sales price and margins following restrictions on customer choice and growing demand for lower cost funeral options such as cremation without ceremony. We conducted 100,920 funerals in 2020 compared to 90,630 in 2019, an increase of 11%.

These challenges saw underlying profit (excluding the impact from the change in accounting treatment for funeral plans) consistent with last year at £9m (2019: £8m). Revenue in our Legal Services business has also been adversely impacted by the Coronavirus pandemic with revenue down £2m on the prior year to £37m with profits down £2m to £4m (2019: £6m).

Supporting functions costs were £130 million an increase of £20 million. This reflects some favourable gains in 2019 but we also invested more in 2020 in membership initiatives, increasing our share of voice to raise awareness of Our Co-op Values and Purpose; IT systems and more flexible cloud based solutions. This additional investment was partially funded by our ongoing organisational design work as we continue to ensure colleague structures across Co-op are set up to deliver our Purpose.

As noted above, CISGIL is classified as a 'discontinued operation' which means its results are included at the foot of the income statement, below profit before tax. The profit on discontinued operations this year of £5 million largely relates to the finalisation of the estimate of the costs associated with selling the business.

Property revaluations, disposals and one-off items 

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

We have a significant property estate including Food stores, funeral homes, investment properties and vacant former trading properties. This can lead to significant property related items such as disposal profits and losses, closure costs and vacant property holding costs, impairment of carrying values of assets and revaluation gains on investment properties. We also have some one-off gains this year relating to largely non-recurring items. These are discussed in more detail below.

The £1 million increase in the value of our investment properties relates to gains from obtaining planning permission and market value uplifts across our investment property estate. The prior year figure included a gain of £21 million on one site.

One-off items includes a £15 million gain following a legal ruling which has seen the repayment of business rates we had previously paid over many years on external facing ATMs. This is offset by a £3m charge in relation to changes to historic pension liabilities.

Property and business disposals

The write-down of assets of £36 million in 2020 relates to goodwill, right of use assets and fixtures and fittings on stores, branches and other properties that are not generating enough cash to support the value of those assets. These often relate to loss making sites.

The loss on sale of property mainly relates to the sale of a tranche of non-profitable funeral homes as well as several Food stores.

Financing

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

* As noted above our 2019 numbers have been restated as we have changed the way we recognise revenue on funeral plans.

The underlying interest on our borrowings and lease liabilities is in line with the prior year.

Pensions finance income is based on the pension scheme surplus on an accounting basis at the start of each year and the £20 million decrease mainly reflects a 1% fall in the discount rate that is used to calculate the net interest charge.

Following the change in accounting treatment for revenue then we now see a net interest income or charge on funeral plans on the face of our income statement. In 2020 the gains on funeral plan investments outweighed the interest we accrued so we show net finance income of £28 million. Equivalent returns in 2019 were £70m lower and were outweighed by the interest we accrued such that we showed a net finance cost on funeral plans of £47m.

Our total net debt at the year-end was £2.2 billion including the IFRS 16 lease liability of £1.4 billion. Excluding the lease liability, net debt was £550 million, a reduction of £145 million from the £695 million at 2019 year-end (details of what is included in net debt are provided in note 14).

In line with our plans and as part of our ongoing Treasury management processes we repaid £176m of the principal balance of the 6.875% 2020 Eurobond in July 2020 and we remain comfortably within the ratios of debt and interest agreed with our banks and our funding position is strong.

We invested £313 million of capital expenditure in 2020 principally on refits and new stores in Food and refurbishing funeral branches as well £60m in technology to upgrade IT systems to improve supply chain and service to Food stores. We also made deferred payments of £31 million relating to the acquisition of Nisa where consideration is payable over several years. This capital spend was partly funded by £35 million of cash from disposals, mainly property sales and net proceeds on disposal of CISGIL of £56m.

Tax

We won't be paying corporation tax in respect of the year because we've brought forward tax losses and capital allowances. In 2020 we paid £150 million (2019: £207 million) to the government in respect of VAT, business rates, Stamp Duty Land Taxes and Employers' National Insurance.

The total tax charge of £55m is made up of a £16m current tax charge and a £39m deferred tax charge. The £16m reflects the impact from the change in tax rate from 17% to 19% on the liability we hold in relation to tax losses previously surrendered to the Group by The Co-operative Bank. The current year deferred tax charge relates to deferred tax arising on movements on our pension assets and fixed assets.

See note 6 for more detail on Tax.

We retained the Fair Tax Mark accreditation in 2020 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

Following the disposal of CISGIL, our insurance underwriting business, in early December, our balance sheet no longer includes the £1bn assets and £1bn liabilities of that business which were separately shown in 2019 within held for sale.

As noted above we also no longer include the assets and liabilities of the Reclaim Fund in our consolidated balance sheet with a net asset reduction of £74m applied through the prior year restatement.

Property, plant and equipment has decreased by £46m which mainly reflects the net impact of £263 million of additions, disposals of £29 million, depreciation of £250 million, impairment of £21m and £9m moved to held for sale.

The net retirement benefit surplus on Co-op pension schemes remains significant and in line with last year at £1.9bn. Whilst the overall surplus was largely unchanged, there were some significant movements that netted off with a £0.5 billion increase in liabilities offset by a corresponding £0.5 billion increase in assets.

The liability increase largely reflected a change in the interest rate used to value pension liabilities which decreased from 1.97% to 1.47%. The accounting under IAS 19 is largely prescriptive and the interest rate we select is based on advice from our actuaries and is driven by corporate bond rates at year-end. The increase in assets reflects that the scheme mainly invests in gilts and credit assets which increased in value (c. £1bn) which was offset by a reduction of £400m resulting from the Pace pensioner buy-in transaction during the year (the buyout liability was greater than the liability on an accounting basis).

Non-current Trade and other receivables have increased by £92m reflecting new instalment plan debtors of £67m and £25m of deferred consideration due following the sale of CISGIL.

The value of the funeral plan investments that the Group holds has increased by £60m. This reflects net movements from an increase of £86m for new plans, a reduction of £107m from redeemed plans and favourable market returns in relation to the value of those investments held. Contract liabilities relating to funeral plans have increased by £95m in the year reflecting £96m of new plans sold in the year with amounts recognised as revenue during the year (which reduces the liability) broadly offset by an increase in deferred revenue (which increases the liability) from the interest we accrue on plan liabilities.

Loans and borrowings (due within one year) have decreased by £184m which is mainly driven by the repayment of the final tranche (£176m) of the 2020 Eurobond debt in July.

Post balance sheet events

· Sale of Co-op Health

On 12 March 2021 Co-op announced the sale of its Health business for an undisclosed sum and the sale was completed on 6 April 2021. Both the consideration from the transaction and the net assets disposed were immaterial to the Group - the sale is treated as a post balance sheet event. As the sale was assessed as highly probable at the balance sheet date then the assets of our Health businesses were classified as held for sale (see note 19 to the financial statements).

· Group Relief Creditor owed to The Co-operative Bank

At the year-end date the Co-op held a liability on its balance sheet of £147m due to The Co-operative Bank (the 'Bank'). This balance arose in 2015 when we agreed with the Bank that they would surrender their tax losses as group relief to Co-op. In order to claim these tax losses from the Bank, Co-op deferred the reliefs and capital allowances available to it. It was agreed that Co-op would pay the Bank for its losses surrendered when these previously deferred reliefs and capital allowances were used in future tax periods. An equivalent deferred tax asset of £147m is held at the balance sheet date representing the future benefit of those losses and capital allowances which were previously disclaimed.

In February 2021 the Bank agreed a full and final settlement of £48m as payment for the losses it had group relieved to Co-op Group. The settlement of the liability is a non-adjusting post balance sheet event (as it does not represent conditions at the balance sheet date) and as such does not impact our 2020 results. Instead the gain of £99m that arises on extinguishing a liability of £147m for £48m will be shown in our 2021 results. Due to its size and nature then the gain will be treated as a one-off item in 2021 (and so won't be included within our underlying trading results). Co-op retains the full value of the deferred tax assets.

· The Reclaim Fund

On 30 March 2021, the entire issued share capital of Reclaim Fund Limited was sold to HM Treasury for nominal consideration. The sale has no material impact on the Group's financial statements since the Reclaim Fund Limited is no longer consolidated within the Group (see Note 35 for further information on the de-consolidation of Reclaim Fund Limited).

· Litigation

On 19 February 2021, the Technology and Construction Court handed down judgment in a claim brought by CISGIL against IBM United Kingdom Limited, relating to a failed programme to implement an IT platform. CISGIL was awarded damages of approximately £13m subject to any applicable VAT deduction and excluding interest, with the final amount of damages plus interest and costs to be determined. During 2019, CISGIL assigned in equity the proceeds of the litigation with IBM to Co-operative Group Limited for £14.1m. Following the sale of CISGIL (since renamed Soteria Insurance Limited) in 2020, any income relating to the claim will be reported through discontinued operations within the income statement in 2021.

· Government support

Subsequent to the year end, the Board of our Co-op has decided to repay £15.5m of the money it received in Government support during the Covid-19 pandemic; this equates to the amount it claimed in furlough payments.