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

News release

16 September 2021

Interim Results Announcement: 26 weeks to 3 July 2021

Co-op invests in its future and its people as it continues to support communities through Covid

'Co-operating for a Fairer World' highlights from H1

Fairer for members and communities

· More than £15m of value given to members through their cards, after buying selected products and services across the group, as well as personalised offers and rewards.

· £3.5m distributed in interim payments to the current round of 4,500 local causes from our Local Community Fund.

· More than £2.8m raised by colleagues, customers and members for our charity partners Mind, SAMH and Inspire, taking total to £5.5m by 3 July.

· Launch of Hubbub partnership with commitment to have a total of 250 community fridges in place by next year, feeding and empowering communities.

· Project launched with the Youth Endowment Fund and the #iwill Fund*, worth £5.2m - 'Peer Action Collective' - giving young people the chance to make their communities fairer, safer places to live.

Fairer for our colleagues

· Co-op Levy Share service launched to create fund for SMEs to take on apprentices they otherwise wouldn't usually have access to. Total reached £3.4m by the end of H1.

· Pregnancy loss policy implemented to support current and future colleagues across the business.

Fairer for our planet

· Ten-point climate plan launched, including commitment to match pricing of own brand plant-based ranges with meat-based equivalents, to support sustainable and more balanced consumption.

· Europe's most extensive in-store recycling scheme at 1,500 Co-op stores prepared in H1 for July rollout; scheme to be extended to 2,300 stores by November, allowing us to reach 100% own brand packaging recyclability.

Key H1 investments

· Capital expenditure of £161m, including 53 store refits and 33 new stores.

· Introduction of Real Living Wage for all colleagues, with an additional investment of £17m in first half of the year to support our colleague population.

· £26m invested in food price.

· £6m invested into reducing prices for funerals and funeral plans, and £600,000 on developing Funeralcare's digital presence.

· £3.2 million invested in developing ecommerce within our Food business.

· £22m invested in Biggleswade depot, a key part of our Food infrastructure, due to open in 2022.

Financial H1 highlights

· Total group revenue up £0.2bn or 4.2% against pre-pandemic levels, with growth across our Food, Legal Services and newly launched Insurance business (H1 2021: £5.6bn, H1 2019: £5.4bn). Down 3.2% from last year (H1 2020: £5.8bn), after unprecedented purchasing behaviour during the start of the pandemic.

· Underlying operating loss before tax of £15m, down £71m (2020: £56m), but generally consistent with 2019 (underlying operating loss of £11m). This is due to planned investment in our colleagues and our business, as well as significant costs, impacts on sales and profit erosion related to product availability issues and the ongoing effects of Covid.

· Net debt up to £712m (2020 year end: £550m) excluding lease liability, reflecting increased investment.

Outlook

Moving forwards, we will continue to progress and evolve our business strategy, driving innovation and further efficiencies across the Group. This will ensure that the Co-op remains well placed to benefit from changing consumer habits and support our members' interests across our Food and Life Services areas.

The unplanned supply chain challenges and ongoing Covid costs will bring greater levels of uncertainty. This will in turn apply pressure on our prior expected level of profitability for year end.

We continue to be led by our Co-op values and vision of 'Co-operating for a Fairer World', for the benefit of our colleagues, communities and the planet. Our vision underpins every part of our business and our work in supporting people and communities has never been more important than it is now. The Co-op will continue to play an important role in helping the nation build back better and different, especially within areas which tackle inequality and unfairness.

Operational H1 highlights

Food

· Food sales exc fuel saw significant 6.5% increase on pre-pandemic levels (H1 2021: £3.6bn**, H1 2019: £3.4bn.) Down 2.8% on H1 2020: an unprecedented year in purchasing behaviour (H1 2020: £3.7bn).

· Online services made available in 1,000 more Food stores in 350 locations, reaching 52% of population.

· By the end of 2021, 1,600 Food stores to have an online offer with 80% of the UK population covered by click and collect and 60% covered by home delivery.

· H1 2021 total online food sales were approximately five times more than those in H1 2020.

· Market share in line with pre-pandemic levels (H1 2019: 6.24%; H1 2021: 6.3%), but down from 6.85% last year, following an unprecedented year last year.

· Wholesale revenue down 14% to £688m as contract with McColl's Retail Group concludes, but Nisa saw an increase of more than 11% on sales, on a two year like-for-like basis.

· Retailer recruitment has seen 316 new stores being serviced by Nisa.

· Honest Value range grown to double the number of products compared to initial 2020 launch.

· Reduced pricing on Gro products to align with meat-based equivalents are part of our new ten point climate plan.

Funeralcare

· Funeralcare business remains strong and market leader in both the at-need and funeral planning space.

· Funeralcare sales down 7% to £142m (H1 2020: £152m) due to a 17% decrease in the number of funerals, as death rate drops below the five year average (excluding 2020) after March.

· Funeral planning business sees an increase in clients considering and purchasing a plan. 24,521 plans sold in the period, a 24% increase on H1 2020.

· New direct cremation funeral plan launched in partnership with market-leading private crematoria operator, Memoria, providing more options for clients.

· Funeral Benefit Options now provided in partnership with the Post Office, offering direct payment to Co-op Funeralcare and discounts on final costs, as part of over 50's life cover policy. 

Insurance

· Insurance sales revenue for new business model at £18m, including £7m in underlying profit, following the sale of underwriting business and progress in growing business footprint.

· Pandemic continues to impact sales including Travel policies, with customer interest growing towards the end of the period in line with new Government guidelines.

· Life and Pet insurance both saw very strong performances with 26% and 45% more policies sold than in H1 2020.

Legal

· Total revenue for Legal Services at £20m (H1 2020: £19m).

· On an underlying basis, Legal Services saw a 12% increase in revenue to £19m across its continuing businesses (H1 2020: £16.9m), after exiting the small claims personal injury insurance market as a result of the sale of CISGIL to Markerstudy in December 2020.

· Legal Services total sales up 5% at £20m (H1 2020: £19m).

· Probate case volumes increased 17% year-on-year increasing market share and solidifying UK market-leading position. Wills cases increased 0.4% year-on-year.

· Family law practice continued to perform well seeing a 9% increase in revenue compared to H1 2020. Employment law practice remains stable, with revenue in line with last year.

· Legal Services to focus on making new partners and develop digital services to support growth in H2. Expecting a rise in employment law cases as the furlough scheme ends.

Power

· To continue to grow Co-op Power, as the biggest energy-buying co-operative in the UK. Welcomed Strait Capital Investment Group and McCarthy Stone to the group in H1, as other businesses seeking green, low-cost energy sourced sustainably and ethically.

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

"As we continue to experience the effects of the Covid-19 crisis, it is clear that things will never be the same again. As a business and as a society, it is crucial that we learn from the last 18 months, particularly as we turn to the momentous task of rebuilding Britain and face into the continuing disruption to our business and our supply chains. I'd like to thank our 62,000 colleagues for everything they've done during this time.

"Despite the challenges that the pandemic has presented to us, we have adapted to become more efficient and agile, which has allowed us to continue to feed and care for the nation throughout the crisis. Whilst our commercial performance has been impacted by Covid-19 and Brexit headwinds, we have responded magnificently to support our colleagues, members, customers and communities throughout.

"Covid has reinforced the fact that our vision, 'Co-operating for a Fairer World,' has never been more relevant, as well as showing us the areas in which we need to move quicker. As we look ahead, we will continue to advocate the power of co-operation so that as we emerge from this crisis, we are able to empower and lift people up with us."

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

"Everyone at the Co-op has worked incredibly hard since the outset of the pandemic to overcome the significant challenges that we've faced - it has been no small feat to continue to keep our stores and funeral homes running during this period. On top of that, we have still made a difference, supporting our communities and our colleagues.

"This experience has strengthened the business in many ways and has driven home the power of co-operation. Whilst there are undoubtedly challenges ahead, the business is well positioned to continue to grow and play its part in helping the nation build back better."

Ends

* #iwill Fund is a joint investment between The National Lottery Community Fund and the Department for Digital, Culture, Media and Sport

** Group performance figures include fuel sales

Media Enquiries:

The Co-op

Russ Brady Tel: 07880 784442

Headland Consultancy

Susanna Voyle

Tel: 07980 894557

Chloe Franklin

Tel: 078 3497 4624

About the Co-op:

The Co-op is one of the world's largest consumer co-operatives with interests across food, funerals, insurance and legal services. Owned by millions of UK consumers, the Co-op operates 2,500 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 62,000 people, the Co-op has an annual turnover of £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.

Co-operative Group Limited

Interim Report 2021

Co-operating for a Fairer World

Our Co-op has continued to support our members and their communities through the pandemic, whilst increasing investment into the business

Community and membership: Continuing to deliver for communities and the planet in the first six months of 2021

· More than £15m of value given to members through their cards, after buying selected products and services across the group, as well as personalised offers and rewards

· 200,000 new members joined our Co-op

· New Co-op Levy Share reached £3.4m and more than 140 apprenticeship opportunities confirmed for under-represented groups

· New ten-point climate plan launched, including a target to be the first food retailer producing carbon neutral own brand food and drink within five years

· Since May, more than 12,000 local community groups connected through our free online community centre, Co-operate

· More than £2.8m raised by colleagues, customers and members for our charity partners Mind, SAMH and Inspire, taking total to £5.5m by 3 July

· After doubling support for communities through Co-op membership last year, £4.9m raised by new Community Partnerships Fund

· More than 7,000 students, mostly from Co-op Academies, took part in 80 'Virtual Work Experience' opportunities

· New key community project announced with Hubbub and another with the Youth Endowment Fund and the #iwill Fund*- 'Peer Action Collective'

Commercial: Trading performance in line with expectations after Covid headwinds, as ongoing Covid costs and strategic investments impact short term profitability

o £5.6bn

Group revenue down 3.2% from £5.8bn in 2020, but 4% higher than in 2019 (£5.4bn.) 

o £44m 

Group profit before tax down 38% from £71m in 2020** (2019: £20m.***) 

o -£15m

Group underlying loss before tax difference (after furlough repayment) of £71m, from £56m profit in 2020. Consistent with £11m loss in 2019.

o Group net debt up from £550m to £712m

o Key business investments: 

o Introduction of Real Living Wage with additional investment of £17m in the first half of the year.

o £26m invested in food prices and promotions.

o £22m invested in Biggleswade depot, a key part of our Food infrastructure, due to open in 2022.

o £6m invested into reducing prices for funerals and funeral plans.

o £3.2 m invested in developing ecommerce within our Food business.

o Capital expenditure of £161m, including across store refits and new stores.

· Co-op Food sales (exc fuel) saw a significant 6.5% increase on pre-pandemic levels (H1 2021: £3.6bn**, H1 2019: £3.4bn.) Down 2.8% on H1 2020: an unprecedented year in purchasing behaviour (H1 2020: £3.7bn)

As well as investment in price, colleague pay and infrastructure, significant business development was made in key areas:

o H1 2021 total online food sales were approximately five times more than those in H1 2020.

o Online services were made available in 1,000 more Food stores across 350 locations, reaching 52% of population.

o 316 new stores serviced by Nisa.

o Honest Value range doubled since launch.

o 33 more stores opened, 53 refitted and eight extended. 14 more franchise stores were opened, including first ever service station store in Cornwall.

· Co-op Funeralcare saw a 7% decrease in revenues year on year (H1 2021: £142m; H1 2020: £152m), although an increase was seen in funeral planning sales, up 24% on same period last year:

o 98.4% of clients reported they were satisfied with their overall experience.

o Gradual return to full funeral services as Government restrictions eased.

o 'In Loving Memory' brand campaign achieved 'Best Topical Campaign' at the Newsworks Planning Awards and a Campaign Media Award.

· Co-op Insurance saw an income of £18m in H1 2021 as new distribution and marketing business evolves:

o Covid continued to impact business, including travel policy sales.

o Life insurance and Pet insurance sales were up 26% and 45% respectively on H1 2020, as pandemic influences customer priorities.

· Co-op Legal Services achieved a 12% increase in revenue across continuing business and a 3% rise in case volumes:

o Total revenue for Legal Services at £20m (H1 2020: £19m).

o New digital lasting power of attorney service and digital probate administration service launched.

o New partnerships established with Elder, the Openwork Partnership, Owl Financial and others.

· Co-op Power now at more than 70 members and providing energy to 20,000 sites

o Aiming to save business customers 1,000 tonnes of carbon a day with targeted growth of 30% for 2021 full year.

* #iwill Fund is a joint investment between The National Lottery Community Fund and the Department for Digital, Culture, Media

and Sport ** PBT figures includes £9m cost (2020: £40m income) of net finance costs / income on funeral plans following the change in accounting noted in our 2020 Annual Report. Includes one-off gain in 2021 of £99m following early settlement of Group Relief payable owed to Co-operative Bank PLC. ***2019 figure as reported in our 2020 interims being unadjusted for the change in way we account for funeral plans. 

Outlook: As we start to look forwards with more optimism, our Co-op is well positioned to play its role in helping the nation build back better and different. Whilst a number of uncertainties remain, our underlying business model is strong, but also our Vision and Purpose are both clear and distinctive. We will continue to remain vigilant and take action where needed to ensure we deliver clear value for our members, their communities and for the planet.  

CHAIR'S INTRODUCTION

It is now 18 months since Covid-19 changed our lives and those of billions of people across the planet.

Before reflecting on the past six months' performance, I want again to extend my sincerest thanks, and those of the Co-op Group Board, to our incredible 62,000 colleagues for their combined efforts during the pandemic and to all our customers for their loyalty. As one of the world's largest consumer co-ops, with business interests spanning across the food, funeral, insurance, legal and power sectors, we've uniquely supported millions of members and thousands of communities over the past 18 months, in a way that's been distinctly Co-op and indeed co-operative in nature.

With the vaccination programme in the UK and other developed countries continuing at pace, we are now in a position to look forward with a greater sense of confidence. It is vital, however, that the hand of co-operation extends further to support the developing nations on the planet in many different ways, so they can equally protect their populations and also enjoy the improved social and economic benefits, which in turn should follow. To that end, our continued and demonstrable support for Fairtrade producers, as part of our Global Wellbeing Charter, will take onboard extra importance in the months and years ahead. 

It is testimony to all those connected with our Co-op that we've been able to achieve and deliver so much, at a time of great national and, indeed, international need.

Our Co-op is a powerful force for good in our country, owned by those who buy from us and other co-operatives who share our values. We are capable of creating sustainable value for our members and the communities in which we operate, where it matters the most.

As Steve will outline in his introduction, we cannot and will not take our success for granted and must continue to compete and win in our chosen markets, albeit by winning in The Co-op Way. That means continuing to invest our members' funds wisely, whether that's in relation to our large physical estate or by growing our online digital capabilities further. It will mean continuing to keep a firm grip on our costs, so that we can continue to invest in price, proposition and innovation across our extensive product range. And it must mean that we hold dear the distinctive value of Co-op membership, as the true means of ensuring that our Co-op continues to thrive and not just survive in a post pandemic world.

We are fortunate in that we have a clear Vision - 'Co-operating for a Fairer World' - which was developed with our elected Members' Council prior to the pandemic. It feels even more relevant and powerful, given the world we are facing into. Visions, of course, need to be brought to life and I am very proud of the work we have done so far this year to make things fairer for our colleagues, our members and their communities and, of course, the planet. This matters because Covid has clearly exposed and heightened inequalities - if we genuinely want to build back better and different, then we must find ways to bridge these inequalities in a meaningful and co-operative way.

Our Co-op Purpose of 'championing a better way of doing business' also significantly influences our decision making process and throughout this year we've maintained all aspects of our democratic governance, taking our regular Board and Council meetings online.

For the second time in our history we regrettably had to ask our members not to attend our AGM, moving it to a largely online event. That didn't, however, prevent us from attracting excellent engagement, through both live and playback viewings, and it is clear that we must continue to use the technology at our disposal to reach and engage our members more and more in the years ahead. And not necessarily just through the AGM; we continue to look to create new channels for members and we routinely welcome feedback through our Member Pioneers and Join In opportunities, as just two examples.

I'd like to thank the Board, Council and members for their continued flexibility and adaptability as we've all trialled, learned and evolved during these unprecedented times - our Co-op is stronger, more agile and more fit for purpose as a result.

At this point, I'd like to welcome Kate Allum, our new Member Nominated Director who brings her passion for working with our members, diversity and sustainability to our Board. She's an amazing addition, with leadership experience across food supply chains and agriculture, and as former Chief Executive of First Milk: the British farmer-owner dairy co-operative. We also welcome the new President of our Members Council, Denise Scott-McDonald, who joins us after succeeding Nick Crofts this summer and has a long established focus on fairness, justice and the wider world. Denise is a councillor and deputy leader of Greenwich Council - a Co-operative Council, which really brought communities together during the pandemic and does amazing things. I'd like to say a final thank you and farewell to Matt Atkinson too, our Chief Customer and Membership Officer, who has made a tremendous contribution to our Co-op over the last four years.

And at Co-operatives UK, our movement's apex body, we're delighted to see Rose Marley in her new role as Chief Executive. Rose is clearly a strategic thinker with huge drive to create change for the better, through a strong focus on engaging younger people, technology and motivating a broader audience of co-operators to play their part. The time has never been riper for a modern and inclusive movement and we are very much looking forward to a new era for co-operation with our friends and partners from across the sector.

In looking forward, we remain confident that our Co-op can continue to succeed and deliver against our business objectives. We know this will not be easy by any means, given the markets in which we operate. We are, however, clear in terms of our Vision and Purpose and the strategy needed to bring this to life. With a hugely talented Executive team, 62,000 engaged colleagues and a truly distinctive co-operative approach, I believe we are set to succeed further during the rest of 2021 and beyond.

Allan Leighton

Chair, Co-op Group

CHIEF EXECUTIVE'S REPORT

As we start to emerge from one of the most traumatic periods in recent history, I can reflect with pride on the contribution made by our Co-op in supporting the nation and look forward to us helping the nation build back better and different.

During the first half of 2021, with the country having to contend with ongoing lockdown restrictions, we continued to help feed and care for our members and their communities in true Co-op fashion. Throughout the pandemic, our large physical presence has provided so much more for our members than delivering on the basics. In being able to keep open over 3,400 community based Food stores and funeral homes, we have been able to provide a smile, a conversation and a familiar face to millions of our members and customers, whose physical and mental wellbeing have been so severely tested over the past 18 months. Our 62,000 colleagues have been and continue to be local heroes and I am immensely proud and grateful for their contributions. Also, we continue to applaud the teams who have kept our Co-op Academies running throughout the pandemic so valiantly, finding ways to safeguard students' education and wellbeing.

Running alongside everything we've done to provide key services during these unprecedented times, our Co-op has continued to find ways to support the futures of young people and their communities, and we remain on our way to achieving greater diversity and inclusion, and tackling social injustice. We are determined to play our part and have done this successfully throughout the first half of 2021. We continue to find new ways to work with others - whether that's individuals, grassroots groups or national organisations - on what we can do across our business or with our members to support those who may be overlooked and discriminated against; to be truly anti-racist and drive opportunities for young people.

Underpinning all of our efforts over the last six months has been our 'Co-operating for a Fairer World' Vision, which drives forwards and connects all our priorities. In focusing on creating a fairer world for our colleagues, communities and the planet we have been able, as this report will highlight, to make good progress across all of these areas.

At the same time, and with the vaccine and easing of Government restrictions starting to provide more ground for optimism, we have continued to invest more into our business, to ensure that our Co-op is both fit for the future and capable of meeting the changing needs of millions of Co-op customers and members.

This planned investment has seen us sharpening prices and promotions across all our business areas, whilst investing £43m into Food store refits and a further £31m into new store openings. With a determination to develop our retail, wholesale and ecommerce operations, we've also focused on our logistics infrastructure, making a £22 million investment in our Food business' new Biggleswade depot, which opens next year and has contributed to a reduced cash position as planned, and consequent increase in net debt from year end of £162m.

This, combined with the significant investment being made within our Life Services businesses (those being our Funeralcare, Legal Services and Insurance businesses) will ensure that we are well placed to maintain our momentum going forwards, despite the many challenges facing the retail sector.

Fundamental to our ongoing success as the UK's largest co-op, will be the role played by our 62,000 colleagues. The additional £17m investment we have made this year to align pay for 33,000 frontline colleagues to the Real Living Wage, as colleagues where pay wasn't already at that level, is a clear acknowledgment of this. This takes our total investment in colleague pay to £68m in just the past two years alone.

Financial overview

Overall, our Co-op's revenue was down 3.2% to £5.6 billion, a decrease of £0.2 billion on the same time last year.This is mostly driven by the impact of the pandemic on our customers' shopping habits during the first half of 2020, amid peak lockdown restrictions. It makes a meaningful year on year comparison quite difficult, so comparing our most recent results to those from the first half of 2019 can help here. On that basis, total Group revenue is up by £0.2bn or 4.2% with growth across our Food, Legal Services and our newly launched Insurance business. The two year comparative growth of our Food business, at 6.5%(exc fuel sales) and wholesale at 11% are strong.

We made a group underlying loss before tax of £15m (which includes £16m of furlough repayments) and represents a decrease of £71 million against last year, which was impacted by Covid-19. This is consistent with the loss of £11m that we made in the first half of 2019. Also, our underlying profitability is generally back end loaded to the second half of the year, in our main retail businesses.

Planned investment in our Food business in the first half of 2021 has impacted underlying profitability. This has been offset by increases in profitability, when compared to 2019, in Wholesale, Funeralcare and our new Insurance business, along with cost savings achieved in our central supporting functions.

Our profit before tax of £44 million is down £27 million from £71 million last half year, but up from 2019 (£20m). A tax charge of £7 million meant we recorded an overall profit of £37m from continuing operations in 2021 (2020: £20m and 2019: £47m).

There are some other significant items within our figures this year that also make a simple year on year comparison more complicated, including a one-off gain of £99m on the early settlement of a liability agreed at £48m against a historic liability of £147m, owed to Co-operative Bank PLC. Further details on this and more insight on our financial performance can be found in the 'Our Financial Performance' section of this RNS. 

Co-operating for a Fairer World

Co-operation is part of our DNA, and our Vision - 'Co-operating for a Fairer World' - ensures we bring it to everything we do. We have to walk the talk as a co-operative and come together with others and within our business, as members, to address the inequalities and unfairness that existed long before the pandemic, but have really come to the fore over the last 18 months.

It drives us to take action, whether that's finding new routes to skills & employment for young people; creating better diversity and inclusion within our business; continuing to support mental wellbeing or in ensuring access to food for all.

Our Vision is based on three key pillars: 'Fairer for our members and communities'; 'Fairer for our colleagues' and 'Fairer for our planet.'

· Fairer for our members and communities

Membership is at the heart of our Co-op, it's what makes us different and allows us to bring our Vision to life in the heart of communities right across the UK.

Following the membership re-launch in September 2020, our members now earn 2p for every pound they spend on selected Co-op branded products and services, with the same amount going to local communities via the Local Community Fund and the Community Partnerships Fund.

Already this year our new Community Partnerships Fund is making a difference, and we've announced a number of projects with like-minded organisations to help make things a little fairer for local communities.

The Peer Action Collective is a £5.2 million programme, which aims to give young people the chance to make their communities safer, fairer places to live. It is funded by the Youth Endowment Fund, the #iwill Fund (a joint investment between The National Lottery Community Fund and the Department for Digital, Culture, Media and Sport) and our Co-op through the Community Partnerships Fund.

This will build a ground breaking network of peer researchers aged 16-25, who'll find out about young people's experiences, take what they learn and turn it into action. From campaigning to improving local mental health services, setting up a youth centre or supporting young people into employment - together, we'll create more opportunities for young people to make change. 

And in May this year we announced another important new partnership, this time with environmental charity Hubbub, to fast track the expansion of its community fridge network across the UK. Community fridges are spaces where everyone can share surplus food, including donations from local food business, producers, households and gardens. Hubbub co-ordinates the world's largest community fridge network, with more than 150 operating in the UK - we have pledged to help them grow this to more than 250 fridges by next year. This will enable people in communities to help themselves and not rely on foodbanks.

And of course we continue our charity partnerships with Mind, SAMH and Inspire. Thanks to our members choosing Co-op, we've donated £1.5m to our partnership with Mind, SAMH and Inspire through our Community Partnerships Fund. And our astounding colleagues, in collaboration with customers, members and communities, have now raised over £5.5 million for these amazing organisations. The funds raised by our members also mean that we can keep supporting local causes and, through our Local Community Fund, we distributed £3.5m in interim payments to the current round of 4,500 local causes in April, with final payments to follow in November. It's part of our 'Co-operating for a Fairer World' Vision, helping local communities create stronger, more resilient and adaptable communities, by offering access to food, mental wellbeing support and education & employment for young people.

For the first time, when causes applied to the Local Community Fund this year, they also benefited from Co-operate: our free online community centre. Over 12,000 groups are now connecting with people across the UK; it's helping to empower more people to 'Co-operate for a Fairer World' and make good things happen where they live. This is an exciting development which shows the power of co-operation beyond funding. Everyone can get involved at coop.co.uk/co-operate.

And the Community Wellbeing Index, our data insight tool championed by our Members' Council, helps us understand what communities need and the areas where we can have the greatest impact.

To continue this momentum, we need people across the UK to join us as members and be part of our Co-op. We know that during the last 12-18 months, a large proportion of our members haven't used us for their lunch or 'meal for tonight' as they normally would. Their shopping habits have had to change due to Covid lockdowns and different ways of living and working.

While we think we'll see some of them again, we are also seeking to actively recruit new members again this year, and we have a range of member recruitment activities planned throughout the year. This includes a focus on encouraging new young members to join our Co-op.

By joining our Co-op, members not only help us to do great things in communities. They also unlock greater value for themselves with exclusive member deals and personalised offers for the things they buy most in our Food stores, as well as discounts across our family of businesses.

So far, in the first half of 2021, we've had over 200,000 new members join us. We ran a recruitment campaign across May and June, where we also thanked our existing members by doubling the member discount on our personalised digital offers for two weeks at the same time. We saw a record breaking 539,064 offers selected in the second week of the promotion.

Being a Co-op member isn't just about communities and discounts, though. Our members are at the heart of our business and can also get involved and have their say on the products and services we sell, the way we're run, the issues we champion, the causes we highlight, the injustices we tackle and where we use our voice to help make a difference. 

In the first half of 2021 we have seen a significant increase in the number of members participating in their Co-op, including their involvement in a series of opportunities to bring new member-inspired food products to our stores. The new initiative will see us launch a range of new member-designed products across stores over the rest of the year and into 2022.

Our June 'Join In' email to members generated a record breaking 100,000 engagements in a little over 24 hours, with the development of a new flavour to add to our range of Co-op ice cream tubs becoming our most successful engagement opportunity to date.  

Also, with our members, when it comes to making donations to causes, through our Local Community Fund, Community Partnerships Fund and charity partners, we have a solid foundation to build from. However, we know this isn't enough when it comes to making the difference they need. So we continue to actively partner with other organisations, our academies, and our own Member Pioneers, to create longer term, sustainable impact.

Our Co-op Young Members Group has continued delivering projects with its network of young people, most recently working with the Communities team to explore the needs of young people in communities and how members and our Co-op can work together to support them. 

Also, working with Mind, SAMH and Inspire through our Community Partnerships Fund, is seeing great things happen. It is helping to fund pilot services like 'No Gimmicks, Straight Lyrics' with Lambeth and Southwark Mind, which uses lyric writing to help young black men express themselves and develop greater mental wellbeing.

And during a time when some have stopped offering opportunities for young people to learn and develop new skills, we continued to commit to creating apprenticeship opportunities in our businesses. We recruited our first cohort of Co-op Legal Services Solicitor Apprentices, creating fairer access to a career in law by allowing five young people to become qualified solicitors without the cost of university education.

We launched the Co-op Young Business Leaders programme, a first of its kind, which gives 20 BTEC Business Studies students from Co-op Connell College the opportunity of paid work experience at our Manchester support centre during their final year of college. It's providing young people with valuable income and increased employability through building their skills and confidence in a real working environment.

We've offered a number of roles to Co-op Academy students too, ready to start in September this year, including a Connell student from the Co-op Young Business Leaders programme into our CBS Sales & Service Apprenticeship, and a Head Girl of Co-op Academy Manchester into an apprenticeship in Co-op Property.  

Plus, we've been offering Co-op Academy students the chance to participate in virtual work experience. Our Virtual Work Experience programme engaged more than 7,000 students, including those from Co-op Academies, during a five week period. 80 live sessions were available from 18 different sectors of the Co-op, as well as 11 supplier sessions led by Kellogg's, Microsoft, ITV, Marsh, and Mitie.

All of these are fantastic examples of our commitment to providing opportunities for young people who we know have been one of the hardest hit groups in our communities during the Covid pandemic.

· Fairer for our colleagues

As we moved into 2021, our colleagues continued to work through the extraordinary circumstances of the pandemic, and we maintained the support, care and information they needed.

Safer Colleagues, Safer CommunitiesWe've continued to run our 'Safer Colleagues, Safer Communities' programme in 2021 to tackle violence against shopworkers. Since its inception in 2018, we've invested in stores with intelligent CCTV, body cameras, product security, training for all colleagues and much more. We've also been working with MPs, unions and other retailers to get new legislation that increases the penalty given for violence towards a retail worker.

In January, the Scottish Parliament voted in favour of the Protection for Workers (Retail and Age-restricted Goods and Services) Bill which creates a new statutory offence of assaulting, threatening or abusing a retail worker and offers further protection when the worker is carrying out their statutory duties, such as age-restricted sales.

We want the same protection in place for all of our retail colleagues and have been continuing our campaign in the first half of 2021. In June, colleagues, members, customers and suppliers sent over 25,000 letters and emails asking the Government to support a similar amendment to the Police, Crime, Sentencing and Courts Bill.

Colleague wellbeing

The scale and longevity of the pandemic has meant that supporting the wellbeing of our colleagues has been more important than ever. We've continued to share our 'Co-op Care' newsletter, introduced at the start of the pandemic, to give colleagues the information they need to help them cope with the physical, mental and financial issues we know many of them will have been facing. We even organised 'Uplift Festival': a virtual festival of wellbeing for all colleagues.

Our businesses innovated too. Our Funeralcare team, for example, introduced additional support through a dedicated colleague wellbeing programme, including mental health first aiders and colleague wellbeing packs and hampers, in recognition of the unprecedented demands the pandemic has placed on our frontline colleagues.

Through 2021 so far, our approach to developing new colleague wellbeing initiatives has continued to be based on insight and data directly from our colleagues. New initiatives this year include: Headsmart - mental health awareness training for managers; Smart Health - providing all colleagues and their families with access to a virtual GP and support in areas such as mental health, complex medical cases, nutrition and fitness; and the introduction of a pay advance product, Wagestream.

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

This year we're also focusing on updating our policies, so they're completely in line with who we are and what we stand for as a business. Our new pregnancy loss policy is an example of this. Developed in collaboration with The Miscarriage Association, the policy practically supports parents who experience pregnancy loss at any stage of pregnancy, including but not limited to miscarriage, stillbirth, embryo transfer loss, molar pregnancy and termination of pregnancy (for any reason). This policy - as part of our drive to create a truly inclusive workplace - supports both parents who have been affected, whether it happens directly to them, their partner or their baby's surrogate mother, regardless of the nature of their loss, stage of the pregnancy and whatever their length of service or contracted hours.

Diversity and inclusion

Our diversity and inclusion strategy has seen increased focus this year as we've begun to deliver on the commitments to racial inequality we launched in September 2020. These are a holistic set of commitments across colleagues, customers, membership and communities, which go beyond our focus on colleagues to put inclusion at the heart of everything we do. We've made good progress on these commitments and we'll be reporting on them at the end of the annual report in October.

Our colleague-focused diversity and inclusion strategy remains focused on creating an inclusive culture where everyone has a sense of belonging and has a fair and equal chance to fulfil their potential. We've made significant progress in a number of areas including inclusive leadership; attracting, retaining and advancing diverse talent and improving our diversity data and measures. We've also identified four enablers that we'll focus on to consciously create a diverse, and inclusive organisation:

1. Creating an equitable colleague experience by designing processes that help us to eliminate or reduce barriers in our People process to enable colleagues to fulfil their potential, no matter their identity.

2. Actively ensuring our recruitment and talent pipeline is more diverse to represent the communities we serve.

3. Building capability and awareness to enable our leaders to lead diverse teams and create the environment for diversity to thrive.

4. Consciously creating an inclusive culture, where we actively understand and celebrate difference as well as tackle non-inclusive behaviours such as bullying, harassment and discrimination. 

Additionally, we have a full calendar of inclusion events in place that recognises and celebrates events with our colleagues and are actively led by our colleague networks. So far this year we've celebrated International Women's Day; LGBTQ+ Pride; Ramadan and Eid; Zero Discrimination Day and Chinese New Year among others.

This year we've launched our network for colleagues with disabilities, Represent. This new network joins our existing networks of: Aspire (women), Respect (LGBTQ+), Strive (young colleagues aged 18-30) and Rise (ethnic diversity), who represent our diverse colleague base and help us to champion best practice.

Fair pay and meaningful work

As part of our commitment to providing our colleagues with fair pay, and in recognition of the vital role played by our frontline store colleagues, we aligned our minimum hourly rates of pay to the Real Living Wage with effect from 1 April. This significant investment - a 5.6% increase - has received positive feedback from our Customer Team Members. The essential role our Team Leaders play in running our stores has also been reflected in their 7.1% pay increase.

The introduction of Work Levels as part of our Grading Evolution activity is enabling us to create simpler and flatter structures, where empowered colleagues are trusted to get on and get things done, and where our leaders have the space to lead and inspire.

We're also continuing to expand our reach into new communities to create opportunities through the apprenticeship levy share and our own apprenticeship programmes, and will focus on developing new partnership relationships to tackle youth unemployment.

In May we launched a levy share service to promote apprenticeship opportunities for individuals from under-represented groups. We pledged to share £500,000 from our apprenticeship levy that would otherwise expire and be returned to the Treasury.

We have called on other employers through our networks and supply chain to step in, visit www.cooplevyshare.co.uk and bring together funding of £15 million - the fund had reached £3.4m as the first half of the year ended. This will create thousands of new opportunities for those who may be overlooked or experience prejudice, within external organisations that need support to offer apprenticeships.

This is in addition to the commitment we made last year to support 150 young people from the Department of Work and Pension's Kickstart scheme. We have since looked to create opportunities where they're really needed - sourcing locations based on data from our innovative Community Wellbeing Index - to ensure they're offered to those communities where they will make the biggest possible impact. In May we began recruitment of our first cohort into Logistics and Funeralcare.

Transforming our Leadership

To help us deliver our Vision of 'Co-operating for a Fairer World,' we need leaders who:

· Are motivated by our Purpose, connected to our Vision and really understand what co-operation means.

· Lead with humility and vulnerability, creating safety and trust for those they lead.

· Are committed to their personal growth.

· Are courageous to ask for help, co-create and innovate to positively disrupt.

We're supporting our leaders through our Leadershift leadership development journey, which provides timely and relevant development opportunities to all leaders, putting our leadership behaviours at the heart of all we do.

We know Covid-19 has challenged our leaders in new ways so it has been very encouraging that our insight is telling us that 'adaptability' is a top five theme, where leaders and colleagues thought the Co-op was 'doing well'. And in a poll of 216 leaders, 96% agreed that content on Leading Well for Everyone was relevant right now to their leadership and 98% of leaders had a positive experience to date of the learning events and interventions.

· Fairer for our planet

The world has been on pause during the Covid-19 crisis and as the global economy starts to reopen, it's down to us all to reset in the right way and with our future world in mind.

2021 is a hugely significant year for climate change and the world will be watching as the UK Government hosts the largest climate change conference ever: COP-26.

Tackling climate change has long been one of our priorities but now, more than ever, new ways of thinking and unprecedented co-operation will be needed. That's why I announced earlier this year that I'll be chairing the British Retail Consortium (BRC) Climate Action Roadmap steering group. Alongside other retail executives, we will support the industry and supply chains reach net zero carbon emissions by 2040 and play a part in making things fairer for our planet.

Aligned to the BRC Roadmap, in May we launched our ten-point climate change plan which follows three key principles; follow the science, leave no one behind and bring about systematic change through partnering. We have laid out how we will get to net zero by 2040 across all our business areas, by:

· Offsetting the greenhouse gas emissions of our Co-op's products and services, including food and drink, to achieve carbon neutral status by 2025.

· An industry first move: price matching Co-op branded plant-based foods to meat-based equivalents.

· Offsetting the greenhouse gas emissions from running our Co-op's operations (stores, buildings and logistics) - a feat achieved in the first half of 2021.

· Investing millions of pounds of proceeds from the carrier bag levy to support UK natural restoration projects and creating an innovation fund for carbon reduction research and development initiatives.

· Expanding our Co-op Power wind and solar energy buying group to offer services to Co-op's suppliers and more UK businesses and organisations.

· Calling on the Government to take some immediate steps including mandating all businesses report on greenhouse gas emissions, reaffirm its target of 0.7% of national income to international aid and greater transparency and penalties to prevent further deforestation.

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

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

We also put operations in place to launch a new soft plastics recycling scheme at the very beginning of H2, available in at least one store in every community in the UK initially before a wider roll out to more stores. Our work on soft plastics recycling allows us to reach 100% own brand packaging recyclability; makes it as easy as possible for customers to recycle all packaging and demonstrates to Government that film recycling is possible and can be made financially viable.

Behind every ingredient in Co-op products lie essential ecosystems and trade that supports people, livelihoods, families and communities. Unfairly, our global producers who provide us with our essential food and drink are some of the most vulnerable to the shocks of extreme weather and disease outbreaks, and are without the capital or resource to protect themselves and their livelihoods. For example, it's expected that the total area of land suitable for coffee growing alone will have halved by 2050. We already have leading Fairtrade commitments and we'll grow our support with them even further as well as setting targets around deforestation, soy in our supply chains and palm oil.

Our Life Services businesses also remain focused on what they can do for our environment. Co-op Insurance celebrated 15 years since it brought the first UK car insurance policy with carbon offsetting to the market in H1. Every customer who purchases vehicle cover directly through Co-op Insurance sees ten percent of their motor carbon emissions offset through carbon mitigation schemes across the world for the first year of their policy, at no extra cost. This includes rainforest protection projects in Sierra Leone, provision of safe drinking water in Kenya and stoves that use less fuel in India, Ghana and Kenya.

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

Our focus for the second half

We're determined to maintain our focus on how we can continue to best feed the nation and grow our Food business, overcoming some of the challenges that continue to be presented by Brexit and the pandemic as only our Co-op can. This will include continuing on our Retail Business Transformation journey - something I'm very proud of.

All our businesses will continue to develop their online offerings, building on the great strides they've made recently, to provide true convenience and ease for our members, and drawing upon the new digital skills many developed during lockdowns.

Maintaining the real momentum we've achieved so far, with our member engagement, is key. It's vital to us that they have opportunities to feedback and shape what we do and who we are. We'll also look to make good on some of the exciting new partnerships we've developed, as part of our drive to support our communities through this pandemic and beyond. 

Steve Murrells

CEO, Co-op Group

COMMERCIAL UPDATES

Food

During the first half of 2021, our Food business continued to work with the challenges brought by Covid-19. Our colleagues across our store estate, throughout our logistics network, and at our support centre in Manchester continued to play a vital role in feeding the nation.

We traded strongly against our forecast across our three routes to market; retail, wholesale and online. In the same period last year, we were experiencing the peak trading from the first lockdown in March where members and customers flowed to convenience before the market shifted slightly to online in the autumn, meaning our total sales are £4.55bn this half year, where they were at £4.72bn in H1 2020, across our Food and Wholesale segments. However, our two-year growth remains strong and we continue to see growth each month in a challenging market. We have also continued to invest significantly in colleague pay, value and our infrastructure to enable our future growth.

It's been well reported that the UK supply chain is dealing with many challenges including driver shortages, sourcing raw materials for production, new ways of working post Brexit and the long tail of Covid as we all work to return to normality. Our trading position has been strengthened by the hard work we've put in with our suppliers. We are striving to be the best customer to our suppliers and were recognised in this year's Grocery Code Adjudicator report as being the second best in the industry and the most improved a second year in a row.

In the first half of the year, we have continued to invest in our infrastructure to support future growth through a stronger supply chain. We continued to roll out our new SAP software solutions to all ambient product categories to improve ranging, stock holding, availability and forecasting over our IT systems. Despite delivering our biggest transformation programme ever whilst working remotely, we're adapting to new ways of working well and are now focused on delivering our remaining fresh categories in the remainder of the year. We also remain on track to open our newest depot in Biggleswade. By January 2022 we'll have transformed the 660,000 sqft space into our largest regional distribution centre, handling over two million cases of frozen, ambient and fresh products a week. This supports our existing logistics network as well as unlocking the potential for further growth in London, the South and South East.

That's meant we've enjoyed a fantastic start to the summer, maximising the opportunities that came with a calendar full of sporting events and many customers enjoying staycations instead of travelling abroad.

In April, we aligned pay for 33,000 frontline colleagues with the Real Living Wage, where it wasn't already, and in July we moved our stores to a three-tier management structure as part of our Fit for Future programme. These changes have freed up our store colleagues to give our customers great service from efficient and well-run shops. We have created new roles to retain talent, given colleagues protected terms and were able to offer alternative positions to all colleagues affected.

Our focus in the first half remained on strengthening our routes to market and expanding our reach.

In retail, we opened up 33 more stores, refitted 53 and extended eight. We also opened 14 franchise stores including our first ever service station store in Cornwall, getting into more local communities where we don't currently have a presence and improving the shopping experience where we do.

Trading in Co-op Wholesale has been strong and in line with our Retail business. In the first half of 2021 retailer recruitment has seen 316 new stores being serviced by Nisa. This is off the back of great trade and new account wins during 2020. Like-for-like sales for the first half of 2020 versus the first six months of 2021 reflect the end of a supply agreement with McColl's Retail Group (MRG) and new Brexit regulations adversely impacted sales to retailers in the Republic of Ireland.

In our online business, we've continued to expand at pace and we're investing to match the capabilities of our competitors. Whilst volumes may dip as restrictions ease, our national coverage and focus on quick deliveries and range means we're brilliantly placed to leverage new opportunities in a uniquely Co-op way. We now have more than 4,000 products available, delivered to door or collected within an hour plus our usual membership benefits, Co-op prices and promotions. Online services made available in 1,000 more Food stores across 350 locations in the first half of the year, reaching 52% of UK population.

Continuing to innovate for our customers is critical to our growth. Over H1, we introduced a series of new products to our everyday low price 'Honest Value' range. It now has around twice as many products as it did when we launched in 2020.

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

As part of the launch of our ten-point climate plan we announced that we'll be the world's first food retailer to produce carbon neutral own brand food and drink within five years and the first to match our plant-based GRO range against equivalent meat products.

We also took action to reduce our contribution to plastic pollution. We were the first retailer to launch certified compostable carrier bags almost 15 years ago, and this spring they were rolled out to all of our stores and bags for life removed.

We also established operations before the end of the half year for our new soft plastics recycling scheme, to be available in every community in the UK in H2. This is part of our efforts to reach 100% own brand packaging recyclability and create a recycling process that is easy and accessible for our customers.

Funeralcare

Whilst the UK experienced a further peak of Covid in Q1 2021, overall the first half of this year has seen notably fewer deaths than the first half of 2020, with the death rate beyond March consistently below the five-year average (excluding 2020). This reflects the pattern of the pandemic and the success of the vaccination programme.

Unsurprisingly, our Funeralcare business also saw a decrease in the number of funerals arranged, carrying out 48,988 funerals, which is 9,916 fewer funerals than the first half of 2020 - a decrease of 16.8%. 

The efforts of our Funeralcare colleagues have continued to be truly exceptional throughout this time, as they cared for the nation's bereaved and deceased. This is reflected in our customer satisfaction scores: 98.4% of clients reported that they were satisfied with their overall experience.

With the majority of funeral restrictions having been lifted by the Government over the last three months, we have seen a gradual return to full service funerals, where we have been able to offer more unique personalisation, enabling our clients to fully celebrate the life of a deceased loved one.

We are also proud of our direct cremation offering, and making this key, simple and affordable service widely available to clients and members during the pandemic, when Government restrictions put real limits on how loved ones could say goodbye. Overall, the proportion of our clients opting for a direct cremation funeral in H1 2021 has remained broadly flat, and on average just under 8% of our clients chose a direct cremation.

Our funeral planning business remains strong and, as the pandemic has slowed, we have seen an increase in the number of clients considering and purchasing a plan, with 24,521 sales in the first half of the year. This is an increase of 4,814 compared to the same period last year. In the last six months, we have successfully launched a new direct cremation funeral plan in partnership with Memoria, a market-leading private crematoria operator, as well as providing Funeral Benefit Options in partnership with the Post Office. Also, our 'In Loving Memory' brand campaign achieved 'Best Topical Campaign' at the Newsworks Planning Awards and a Campaign Media Award.

We continue to make good progress in our strategic transformation programme, and have created positive shifts in our client experience across all channels, developing a more modern and diverse brand and improving our proposition to offer greater personalisation for clients at more affordable prices.

These changes included:

· New options and services for our clients to provide even greater personalisation; including a new floral range, new colour options across our coffin range, new hearse options and even more choice of memorial and remembrance options. We have also focused on adding more options to our eco and natural ranges. All client literature and website collateral has been improved to help guide clients through the choices available.

· Products and services that better represent the communities we support, with the development of personalisation choices reflecting African-Caribbean heritage in key locations across London and the South East.

· More online services, including the launch of a funeral planning tool on our website. These services enable clients to see our full range of products and services, with full price transparency; start to plan a funeral online; participate in a live chat and pay their final invoice online.

· The introduction of a standardised arrangement framework - 'Best Arrangement' -across all our funeral homes, to give clients a consistently excellent and caring experience wherever they need our support.

· Updating the technology our colleagues use in our funeral homes to help make their lives easier and enable them to provide more seamless service and care to our clients. We have also introduced new time and attendance technology across the operation.

We engaged fully with the Competition and Markets Authority (CMA) as they developed sector-wide remedies across 2021. We are proud to have made a series of reductions to the price of our funeral services since 2019. We are also proud to have increased transparency and choice, and importantly, led the way with our high standards of service and care of the bereaved and the deceased who rest with us. We are fully committed and on track to meet all requirements set out by the CMA in their order by September.

Separately, the Financial Conduct Authority (FCA) has recently released its final rules on how they intend to regulate the pre-paid funeral planning sector. As the leading provider of funeral plans in the UK, we are proud to help thousands of clients every year plan ahead with full confidence in our Co-op brand and values. We are confident that regulation will raise standards across the sector and improve consumer confidence when purchasing a funeral plan. We continue to work closely with the FCA through this next phase and any further consultations, to ensure that our business is prepared and ready for the introduction of regulation in July 2022. 

Insurance

We have over 150 years of experience in developing and providing high quality insurance products for members, and our new go-forward model with Markerstudy Group will allow us to continue this in a more capital light, customer focused and effective manner.

During the first six months of 2021, we have started to see the exciting opportunities our motor and home partnership with Markerstudy can provide. The sheer size and complexity of the transition cannot be underestimated - we appreciated our customers' patience as it took time and effort to develop new processes and train colleagues in new ways of working. We look forward now, with optimism, to growing our market presence in the years ahead, although understand there may still be some challenges to navigate. Together with the other partnerships we have in place for Life, Travel, Pet and Business, we have the means to drive more commercial value, whilst bringing better quality Co-op Insurance products to the attention of our members more quickly.

Our new distribution agreement with Markerstudy and our determination to grow the business' footprint have been the driving force behind £18m in sales this half year.

Covid-19 has continued to have an impact on the mix of business generated, with travel policy sales in the early part of the year being very quiet, although changes to Government guidance towards the end of June have stimulated some recent interest in the product. All our Travel products were given a 'Superior' Covid-19 rating by Which? towards the end of the half year.

Contrary to this, Life insurance and Pet insurance sales have had an excellent H1, with 26% and 45% more policies sold than in the same period last year respectively. We see that Covid is clearly influencing people's thinking in terms of ensuring that they have the right levels of cover and protection in place to support those closest to them.

Legal Services

Overall, Legal Services has had a strong start to the year, with an increase in revenue of 12% to £19m across our continuing business (H1 2020: £16.9m). Case volumes have also risen on this basis by 3%.

As part of the sale of our insurance underwriting business last year, we have exited the small claims personal injury insurance market, and this is now a discontinued area of the business.

As the UK's market leader in probate, we have continued to gain market share and have seen an increase in case volumes of 17% versus the prior year. We won 'Best Estate Administration & Probate Services Provider' at the CFI.co awards and 'Best Probate Law Firm: South England' in The UK Probate Research Awards.

Due to the impact of the pandemic furlough scheme, we have also seen a short term trend towards clients opting for DIY probate due in part to an increase in people with additional time available to them.

We have also continued to see growth in our wills business, with new wills cases up by 0.4% in H1 2021, compared to H1 2020. This is against a backdrop of a smaller overall market this year, due to the pandemic accelerating demand in the prior year.

Our family law practice has continued to perform well in the first half of 2021, with an increase in revenue of 9% year on year. Our employment law practice is stable, with revenue largely in line with H1 2020.

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

Plus, we've increased the number of new business relationships we have in place and have added over ten new partnerships across charities and commercial businesses in the first half of 2021. These include:

· A new partnership with Elder, a leading provider of live-in care services, which enables customers to take charge of their later life finances and care arrangements through a virtual hub, to provide legal guidance on a range of estate planning issues such as wills, lasting power of attorney and inheritance tax along with support on live-in care options.

· A new partnership with The Openwork Partnership, one of the UK's largest and longest established financial advice and investment networks, which will enable The Openwork Partnership to offer a range of legal support services, including wills, probate, family law and employment law to advisers and their clients. 

· A new partnership with financial advisers Owl Financial and 2plan Wealth Management, offering their diverse client bases access to legal services and information. 

We have continued to build relationships within the charity sector, supporting charities through free will offers to their supporters as part of their drive for legacy donations. So far in 2021, we have developed five new partnerships with RNLI, Alzheimer's Research, The Royal Marsden, Amnesty International and Dementia UK.

We're also finding new ways to work with existing partners. We have two new agreements with Legal & General, to provide services to the customers of L&G Financial Advisers and L&G Care.

Power

Co-op Power is the biggest energy buying co-operative in the UK. We use collective buying power to save members money and source purely green, low-cost energy in an ethical and sustainable way.

In H1, we welcomed McCarthy Stone - the UK's leading developer and manager of retirement communities - and Strait Capital Investment Group to our group, putting us at over 70 members and providing energy to 20,000 sites, saving an estimated 303,000 tonnes of carbon each year on average across all Co-op Power's members.

Carbon emissions from our operations is where we have the greatest responsibility and can make the greatest difference. We surveyed our Co-op Food supply chain to understand how businesses feel towards their own climate commitments. We found that 60% did not feel like they have the resources to hit their net zero targets and 35% told us they don't have trust in the energy market.

Co-operation is in our DNA and we are keen to share our expertise with others and to work with our supply chain partners and other businesses to reduce their costs and carbon emissions.

We're looking to:

· Expand the amount of green energy services provided to a rapidly growing number of UK businesses, including suppliers as part of Co-op's ten-point climate plan to achieve net zero carbon emission by 2040; ten years ahead of the Government's own ambition.

· Double the amount of Power Purchase Agreement's (PPA's) to help boost renewable capacity and reduce carbon intensity of electricity. PPA's are long-term commitments to take a supply of energy from a particular renewable generator or source. This will not only guarantee a source of green energy but also guarantee providence of power, whilst helping to fund future green projects.

· Develop a co-operative PPA proposition where multiple customers join together with Co-op Power to commit to a PPA difference, helping those who might not be the size or have the capabilities to do this in house.

By working together, we can help each other to save money, save on emissions and save the planet.

LOOKING AHEAD

Being Responsive For Our Members

The pandemic has accelerated trends we were already witnessing in terms of buying habits and behaviours. We must continue to ensure, therefore, that the products and services provided across our Food and Life Services businesses reflect the omni-channel society we live in. The choices we continue to make in support of our 'bricks and clicks' business model, based on physical sites and ecommerce, will always be in support of our Vision and Purpose, but must also ensure we create sustainable member value for the medium and longer term.

Adapting and innovating in Food

Our Food business is seeing continued challenges to its performance from external forces that will follow into H2, including the HGV driver shortage, inflation, rising Covid-19 cases and the ongoing aftermath of Brexit. Convenience is still key to us feeding the nation; creating ease for our members aligns with extending our reach through wholesale and growing online.

We will continue to draw upon our 'Closer' strategy of getting closer to where customers are, what they need and what they care about, focusing on expanding reach through our three routes to market of retail, wholesale and online.

We will roll out our new SAP stock and ordering system to the remaining product categories as part of our Retail Business Transformation programme, and will open our biggest depot yet in Biggleswade next year.

We will also launch new sustainable diet commitments, re-launch our water commitments and launch new Fairtrade commitments whilst continuing to deliver on our ten-point climate plan. Our soft plastics recycling scheme will have a place in every community in the UK with a fuller roll out well underway before the year is out.

Investing in technology

We will continue to invest in technology, to remain competitive but also in acknowledgement of the increasing number of members choosing to shop online, as a result of the pandemic.

By the end of 2021, 1,600 of our Food stores will have an online offer with 80% of the UK covered by click and collect and 60% covered by home delivery. We're expecting sales to be around £200m by the end of the year, up from £70m in 2020. We'll be concentrating on range, experience and service; creating convenient product bundles as well as picking, packing and dispatching accurately and on time.

As well as focusing on meeting the requirements set out by the CMA and FCA, Funeralcare will also seek to offer its clients greater ease and flexibility online and over the phone, providing even greater transparency as part of their journey. It will remain focused on providing exceptional client service and care and developing its proposition to become more affordable and even more personalised.

It is clear that the prior investment we made into our bespoke customer relationship management system for our insurance business is improving our ability to reach both existing and prospective new customers with tailored communications, delivered through the right channels. This will be the cornerstone upon which we will strengthen our existing relationships but also create new ones into H2, with partners who want to support our distinctive Insurance business.

Our Legal Services business will also continue to invest and develop its digital capabilities and offering, as a client focused digital first business, to maintain its position as a leader in the probate market but also accommodate growth into other practice areas. In particular, with the anticipated end of the furlough scheme, we are expecting a rise in employment cases in the second half of the year. 

Safer Colleagues, Safer Communities

In July, the House of Commons voted against the amendment to the Police, Crime, Sentencing and Courts Bill, but committed to reviewing the legislation at the next stage of the Bill in the House of Lords - taking us one step closer to getting protection for all our retail workers.

We'll continue to follow the latest developments and do everything we can to ensure the safety of our colleagues.

Engaging our members

We're excited to build on the momentum we've established in H1, in terms of member participation and engagement in our Co-op. 

As well as holding the Board to account on its strategy and commercial performance, our Members' Council plays an important role in representing the views of our members. Our colleagues and Executive have regular informal dialogue with different groups of Council members to ensure that there is member input into our approach to ethics, sustainability and community. Council has recently elected Denise Scott-McDonald as its new President and we look forward to working closely with Denise and her Council colleagues during the second half of 2021.

We were pleased to see an increase in the number of members voting in our AGM and National Members' Council and Member Nominated Director elections, and we continue to work with Council to explore how we can use new technology to evolve democratic participation and our AGM to reach a wider audience.

We know members want to get involved with our Co-op in lots of different ways, so we'll continue to drive further engagement with our members through our 'Join In' programme of activity. These informal, online opportunities enable members to shape our approach across different areas of our Co-op including policy and product development, campaigning and our community strategy. We've recently begun to learn more about the diversity of members who participate in these opportunities and in H2 we'll continue to work with a group of members who will help to deliver our commitments to anti-racism and better representation.

In September, a new member incentive programme will go ahead, with a view to helping us recruit additional new active members by the end of 2021.

Also, we're planning to launch a range of new member-designed products during the second half of the year and through 2022; a testament to the fundamental role our members play in what we do, as a co-operative.

PRINCIPAL RISKS AND UNCERTAINTIES

Our Board and Risk and Audit Committee regularly review the principal risks to our business, our position against our risk appetite, and monitor progress to manage risks within that risk appetite. Consideration is given to emerging risks and to any changes in the internal or external environment that could impact our strategy and how we operate. We regularly update our risks and responses where required. The Board and Risk and Audit Committee have reviewed the principal risks and uncertainties faced by our Co-op.

The risks set out in the 2020 Annual Report and Financial Statements remain relevant for the first half of 2021.

The pandemic and managing its impact

The pandemic and the management of its impacts on our colleagues, communities and customers remain a priority. During the first half of the year we continued to see impacts across our strategic plans, operations, colleagues and communities. It is clear we will need to adjust to the situation as it evolves across the UK, as well as globally, to ensure we operate safely and effectively.

Trading relationship with the European Union and Northern Ireland

The signing of the EU-UK Trade and Co-operation Agreement in December 2020 has, to some extent, clarified our trading relationship with the European Union. Shortages of products did not materialise as much as initially feared, with disruption at borders mainly confined to the effects of the pandemic restrictions on drivers. There has been some impact on wholesale sales to retailers in the Republic of Ireland. We continue to focus on reducing the impact of the significant challenges related to the movement of products between Great Britain and Northern Ireland, in line with new regulatory requirements, some of which have not yet been implemented or even clearly defined.

We are yet to fully understand the broader economic impact on the UK, and our businesses, of leaving the European Union.

Principal Risks

The principal risks summarised below have the potential to impact the delivery of our business strategy and our commitment to creating value for our members and communities.

Emerging risks

As is expected in a business of our size and diversity, we need to respond to changes in regulations that affect our businesses. We welcome such changes and the benefits they provide, although the required changes are uncertain as yet. We're monitoring and preparing for changes related to:

· The Government's Health Strategy: we have actively reduced the fat, sugar and salt content in our own brand products, and we are monitoring the proposals on legislation in relation to the pricing of products categorised as having a high fat, sugar and salt content.

· Climate-related financial disclosures: The outcome of the Government's consultation to mandate Taskforce on Climate Related Disclosures aligned climate-related disclosure for large organisations by 2022, requiring them to provide better information to measure and manage climate financial risk.

· The Financial Reporting Council's response is based on recommendations coming out of independent reviews by Sir Donald Brydon, the Competition and Markets Authority and into audit sector reform. This may bring regulation seeking to strengthen the UK's corporate governance framework for major companies and the way they are audited and this may have consequences for our Co-op.

More information on how we manage risk can be found on pages 45-53 of the 2020 Annual Report.

OUR FINANCIAL PERFORMANCE

* When we announced our full year 2020 results in April of this year we explained that we had restated our full year 2019 comparative figures following a change to the way that we account for funeral plans and the Reclaim Fund. In line with this approach then we have also restated the half year comparative figures in these Interim financial statements (as they were published before we revised our accounting policies) to ensure that all our numbers are now shown on the same basis under the new accounting treatment. Throughout these financial statements we refer to the comparative period (being the 26 weeks to 4 July 2020) as being "restated" and you can find further details on the restatement in Note 14 (Prior period restatement) in the full Interim Report 2021.

** The one-off gain of £99m relates to the settlement of the Group Relief Creditor owed to the Co-operative Bank PLC when a settlement of £48m was agreed in February 2021 against a liability of £147m. This was disclosed as a post balance sheet event in Note 34 of the 2020 Annual Report and Accounts.

Our headline performance

Our half year results are significantly impacted by the global Covid-19 pandemic. This means it is hard to make meaningful comparisons between the results for this half year and those for last half year, given the varying stages of lockdown restrictions that were in place between the two periods. The contrast is most significant in our Food business and because of this we have included some additional financial measures in the business performance commentary below that compares our most recent results in Food to those in the equivalent period in 2019, which was not impacted by the pandemic. We've done this to try to provide our members with extra information that gets beyond the complicated comparative picture and assesses the underlying performance of their Co-op against more appropriate comparatives, designed to supplement rather than replace our standard statutory reporting.

In the first half of last year, we saw unprecedented levels of sales in our Food and Wholesale businesses as customers looked to shop closer to home at their local convenience store. Fuel sales were significantly down on the previous half year as we were all encouraged to stay at home and so didn't use our vehicles. In the first half of this year, grocery sales have since fallen back from the unusual levels that were seen when the first national lockdown came into force. Fuel sales on the other hand are up significantly in comparison following the easing of travel restrictions. Funeral sales have also reduced in the first half of 2021 in comparison to those experienced at the height of the pandemic, although there are now fewer restrictions on the type of service we can offer, whereas last year our offering had to be limited.

Total Group revenue fell by £0.2 billion (3.2%) compared to the same period last year. We anticipated a reduction in both Food and Wholesale sales, as we annualised the unusual customer behaviour at the start of the pandemic, with the year-on-year change in line with these expectations. Sales (excluding fuel) in our Food business are down by 2.8% and those in Wholesale down by 14.2%. This decrease in revenue flowed through to our underlying operating profit which is down £74 million to £51 million. This is mainly driven by the annualisation of pandemic customer behaviour, after an unprecedented year last year, and our strategic investments in our Food business. It is in part offset by the new income stream from our recently launched Insurance (marketing and distribution) business and reduced costs from support functions. After charging underlying interest on our bank borrowings and leases we made an underlying loss of £15 million compared to a profit of £56 million in the first half of 2020.

Our Operating Profit of £8 million is down £77 million on the prior period figure of £85m and reflects the comparative decrease in underlying profitability driven by the impact of Covid-19 in the first half of 2020 and comparatively higher investment in H1 2021.

Profit before tax (PBT) of £44 million is £27 million lower than last year and includes a £49 million relative adverse net interest charge on funeral plans (the charge in the current period is £9 million, whereas it was a gain of £40 million in the comparative period). The comparative swing reflects lower investment returns on funeral plan investments and follows the significant change in how we account for funeral plans that we adopted in 2020. Our PBT also includes a significant benefit of £82 million of net gains from one-off items which we explain in more detail below (comprising a £17 million charge within Operating profit and a £99 million gain in Finance income). One-off items do not form part of our underlying profit but are included in our profit before tax figures. We show how we adjust profit before tax to get to our underlying profit before tax in Note 1 of our interim financial statements.

Profit after tax from continuing operations is up by £17 million at £37 million driven by a particularly high relative tax charge in the comparative period.

Our profits are shown after deducting the amount our members have earned for themselves and their communities which totalled £21 million in the first half of the year (2020: £33 million) and our Operating profit also includes £20 million of Government assistance (H1 2020: £33 million) which we benefitted from in the first three months of the year through business rates relief.

As noted in our 2020 Annual Report, our Board agreed to repay the £16m of furlough payments that we received in 2020. These repayments have been made in 2021 and charged to Operating profit in the current period results and we have not received any further furlough support in 2021.

How our businesses have performed

Overall Food sales totalled £3.9 billion reflecting a fall of £60 million in comparison to 2020. Sales of fuel within that total increased by 18% (an increase of £33 million). As noted above these figures compare against the particularly strong food sales in the period from April to June last year at the start of the pandemic as our customers shopped more and closer to home in their local Co-op Food store and fuel sales fell away as we all stayed at home. The first half of 2021 saw food sales adjust following the unprecedented circumstances throughout 2020, whilst fuel sales have also begun to climb. Throughout the first half we have traded favourably to our forecasts - our like-for-like sales are 3.1% down on the comparative period, but our two year like-for-like sales growth is 5.2%. This compares the first half of 2021 against the first half of 2019 on a like-for-like basis.

We have continued to invest significantly in our business as planned, and this has contributed to a 62% reduction in underlying profits down to £68 million from £175 million. This includes continued investment in price, customer proposition and range, as well as considerable expenditure on our business processes and infrastructure to ensure our operations are optimised for the future. We have also invested in our colleagues through our commitments on the Real Living Wage and we have continued to incur ongoing costs to keep our customers and colleagues safe throughout the pandemic. As noted above, our first half results also include the repayment of the £16 million of furlough assistance we received in 2020.

Our Wholesale business generated sales of £0.7 billion, a 14% decrease on 2020. As with our Food business in the prior year, we saw customers move to local Nisa stores and transfer trade from pubs and restaurants with like-for-like sales growth of 18%. The decrease in the first half of this year follows the unprecedented circumstances of last year and our like-for-like sales versus the first half of 2020 are down 7%. However, this still reflects a solid performance in light of some considerable headwinds, including the loss of MRG as a customer as well as the impact of Brexit on our customer base in the Republic of Ireland. Recruitment of new members remains strong. Nisa saw an increase of more than 11% on sales on a two year like-for-like basis. We recorded a profit in the first half of 2021 of £2 million which is £9 million better than 2019 and £4 million better than 2020. This is driven by the underlying sales growth and new partner recruitment and we continue to drive efficiency in our model through the wider Co-op Group buying benefits and other means.

Our Funeralcare business experienced a 17% decrease in volumes in comparison to last year following notably fewer deaths in the first half of 2021. However, the number of funerals conducted is up by 1% on 2019 levels. Underlying profits decreased by 19% to £17 million from £21 million in 2020 with strong cost control reducing the impact of lower sales. Sales of funeral plans remained strong in the first half increasing by 24% on the comparative period.

Our Legal Services business continues to perform well with sales up by £1 million to £20 million and profits consistent at £2 million. Our newly launched Insurance business (marketing and distribution) also performed strongly with income of £18 million and profit of £7 million following the completion of the sale of our insurance underwriting business in December 2020.

Costs for our Central Supporting functions decreased by £23 million to £44 million. This mainly reflects the relative savings generated by our target operating model programme and the associated costs to achieve that transition in the comparative period.

The final run-off of costs and income from the sale of our insurance underwriting business (which completed in December 2020) are shown in Discontinued Operations and as part of the sale agreement our Co-op has continued to supply the insurance underwriting business with certain agreed services in the first half of 2021 under a service agreement. The recorded profit of £10 million in Discontinued Operations mainly reflects payments received in respect of a legal claim.

Disposals, property valuation gains and one-off items

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

The loss on disposal of £26 million in the current period mainly relates to the disposal or closure of individual Food stores and non-trading properties and includes £14 million of impairment charges (2020: £21 million). The comparative figure included a loss of £16 million relating to the sale of 100 funerals branches and associated write down of assets and closure provisions.

At the half year, we have reviewed our trading sites in Food and Funeralcare for potential impairment and booked £4 million (2020: £11 million) of asset impairment write downs on loss making or partially profitable sites where forecast trading is not expected to support the asset values. Careful judgement has been applied in relation to the future trading expectations of those stores that have been particularly affected by the impact of Covid-19 on our customers' shopping habits (particularly city centre locations) and we'll keep these under close review as lockdown restrictions continue to ease. We have also reviewed the 2021 investment property portfolio and are confident their value is supported which remains in line with the prior year.

We've recorded a significant one-off charge of £17 million reflecting the costs of some organisational changes we are making to colleague structures in our Food stores (under the Fit for Future programme) to ensure we are set up in the best way to efficiently serve our customers.

Financing and debt

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

Our financing costs from our borrowings and lease commitments were broadly consistent with the prior period with lower underlying interest reflecting lower debt across the period as we repaid the remaining £176 million balance of the 6.875% 2020 Eurobonds on 8 July 2020. Net pension income at £14 million is down from £19 million due to the comparative reduction in the discount rate at the start of the year.

Following the change in accounting treatment for revenue, we now see a net interest income or charge on funeral plans on the face of our income statement. In the first half of 2021 the returns on funeral plan investments were outweighed by the interest we accrued, so we show a net finance expense of £9 million. In the prior period first half, investment gains outweighed the interest we accrued so we showed a gain in finance income.

We've also recorded a significant one-off gain of £99 million following the settlement of the Group Relief Creditor owed to the Co-operative Bank PLC when a settlement of £48 million was agreed in February 2021 against a liability of £147 million. This was disclosed as a post balance sheet event in Note 34 of our 2020 Annual Report and Accounts and is shown as a finance income in our Income statement.

Our total net debt of £2.2 billion at the end of the period, including the IFRS 16 lease liability of £1.5 billion, was up £199 million from the start of the year. Excluding the lease liability, net debt was £712 million, an increase of £162 million from year end. This is primarily driven by a reduced cash position (down from £269 million to £130 million). This reflects the trading results for the first half, ongoing investment in our businesses and includes the £48 million settlement of the Group Relief Creditor and repayment of £16 million furlough assistance received in 2020 but repaid in 2021.

Our loans and borrowings are consistent with the year-end position and overall indebtedness remains below the ceiling we set ourselves.

Tax

The half year tax charge of £7 million represents an effective tax rate of 16% on a profit before tax of £44m. The tax charge for the half year reflects the expected effective tax rate based on our full year forecast and includes the impact of the change in the corporation tax rate (from 19% to 25%) that was announced in the budget in March. The rate change has a significant impact on our deferred tax assets and liabilities with a £35 million increase to deferred tax liabilities on our pension fund surplus being reflected in other comprehensive income.

We do not have a current year corporation tax charge or liability because of available tax reliefs and losses that offset taxable profits.

The £51 million tax charge in the prior period was largely due to specific deferred tax items including a £16 million impact due to the change in corporation tax rate from 17% to 19% introduced in the March 2020 Budget.

Our balance sheet

Net assets have decreased by £0.2 billion from the start of the year. The main movements include a reduction in the net pension surplus of £0.1 billion, a reduced cash position as noted above, offset by the reduction in non-current payables following the early settlement of the Group Relief Creditor due to the Co-operative Bank PLC. As outlined above our net deferred tax liability has also increased significantly following the Chancellor's announcement to change the tax rate.

The actuarial surplus on our largest pensions scheme, PACE, decreased by £0.1 billion with asset values falling by £0.5 billion whilst liabilities decreased by only £0.4 billion. Asset values have fallen as investment returns have underperformed against the discount rate which has been partially offset by an increase in the discount rate which reduces the present value of the scheme obligations.

Following the completion of the sale of our Insurance underwriting business in December 2020, the assets and liabilities of that business are no longer shown on our balance sheet (previously they were included within Held for Sale items). Furthermore, we no longer consolidate the Reclaim Fund Limited ('RFL') following a change in accounting treatment (as outlined in Note 14) and the sale of RFL to HM Treasury on 30 March 2021.

Looking ahead

The financial results for the first half of 2021 represent a complicated picture when compared to the first half of 2020, due to the unprecedented circumstances that have played out through both periods from the impact of the global Covid-19 pandemic.

However, it is clear that our customer offering and investments are more relevant than ever and our dedicated colleagues have helped us deliver a solid set of results despite the very challenging operational and economic conditions we faced.

The fact that we have been able to cope with such large scale challenges demonstrates that we have both a robust strategy and resilient business model and as the world continues to adapt to the new normal, we are confident we can continue to succeed and deliver against our business objectives and face into any economic and market uncertainties.