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

Co-operative Group Limited

17 September 2020

Interim Results Announcement: 26 weeks to 4 July 2020

Co-op delivers for stakeholders during Covid-19 crisis

- Revenue up 7.6%, driven by exceptional Food and Wholesale performances

- £15m given to community causes in Covid-19 response

- Significant increase in costs from Covid-19; challenging second half ahead with uncertain economic backdrop and need for further investment

- Major initiatives to improve colleague pay and benefits, boost diversity commitments and relaunch membership with increased community focus

The Co-op Difference and Covid-19 Response

· Co-op supported nation through Covid-19 crisis with outstanding contribution from Co-op colleagues on the frontline:

o 7,000 temporary posts filled to manage increased demand

o £13m paid to colleagues, recognising crucial frontline work

· Co-operate launched - new and innovative online platform, linking volunteers and those in need - visited more than 103,500 times in H1

· Member Pioneers supported more than 20,000 vulnerable people a month in communities; sourced volunteers, secured funding for urgent projects and established support groups

Financial Highlights

· Total revenues up 7.6% to £5.8bn (2019: £5.4bn), driven by exceptional performances from Food and Wholesale:

o Revenue in Food rose 5.2% to £3.9bn (2019: £3.7bn, an increase of 9.9% LFL in Q2) as customers shopped closer to home and ate out less frequently during lockdown. Like-for-like sales up 8.8% (excluding fuel) representing 7th year of like-for-like growth; market share increased 0.5 percentage points to 7.1% peaking in the 12 weeks prior to 14 June

o Nisa wholesale revenues increased 13.9% to £801m (2019: £703m), benefitting from local shopping in lockdown and range improvements under Co-op ownership

o Funeralcare revenue increased 3.5% to £148m (2019: £143m); 22% increase in volume offset by reduced average revenue per funeral due to Covid-19 restrictions

o Legal services revenue flat year-on-year at £19m (2019: £19m), with increased demand for will and divorce services

· The cost of Covid-19:

o Covid-19 costs of £54m, including additional recruitment and PPE purchase; expected costs of £97m for the full year

o Co-op received £33m government support in first half in business rates relief and furlough payments for limited number of colleagues

o Co-op will not take government furlough job retention bonus

· Group underlying operating profit doubled to £121m (2019: £59m), driven by strong performance from Food:

§ Food underlying operating profit of £175m (2019: £120m)

§ Funeralcare underlying operating profit of £17m (2019: £10m) reflecting increased volumes and strong cost control

§ Legal services underlying profitability of £2m (2019: £3m)

· Group Profit Before Tax up 35% at £27m (2019: £20m); £40m negative impact from property revaluations, disposals and one-off items (2019: £14m)

· Tax charge of £43m (2019: £27m credit) relating to deferred tax. Group loss after tax and discontinued items of £26m (2019: profit £41m)

· Capital expenditure of £157m, predominantly in Food; down 28% year-on-year (2019: £219m) reflecting pause of store openings during Covid-19

· Net debt reduced to £555m (2019 year-end: £695m) excluding lease liability, reflecting strong trading cashflows, lower capital expenditure and good working capital management

Community Response

· £15m of funds given to charities and community causes as part of Covid-19 response:

o £1.5m worth of goods donated to food banks supported by food charity FareShare; £650k raised for FareShare via text donation campaign

o £3.4m worth of advertising spend donated to FareShare, encouraging audiences to support food banks

o £400,000 raised by Co-op Members for Covid-19 fund, shared across community-based causes, FareShare and a funeral hardship fund

o £1m raised in charity partnership with Mind, Scottish Association for Mental Health and Inspire

o £2.6m free school meal vouchers provided for 6,000 Co-op Academy pupils

o £950,000 fund created for global communities, channelled to Fairtrade suppliers and One Water sustainable water projects

o £4.5m from membership programme donated to 4,000 local causes

Business & Operational highlights

Food

· Food sales up 5.2% to £3.9bn - an increase of 9.9% LFL in Q2; underlying profit rose 46% to £175m

· Market share up at 7.1%, peaking in the 12 weeks prior to 14 June (H1 2019: 6.6%), highest share for almost 20 years

· Customers in lockdown shopping closer to home driving sales in convenience stores; 1.7m new households shopped at Co-op; average basket size doubled as customers reduced visits

· Robust safety measures introduced to protect customers and colleagues, including Perspex screens and priority shopping times for key workers

· Store opening programme paused in lockdown

· Pressure maintained on Government to act under Safer Colleagues, Safer Communities campaign, in aid of protecting shopworkers from violence and abuse

· Covid-19 fuelled rapid increase in delivery and digital offer:

o Online orders increased fourfold

o In a move followed by many of our competitors, Deliveroo partnership expanded, to increase local delivery for customers

· Strong performance from Nisa wholesale business, successfully delivering against strategy to get more Co-op products to more customers in more communities:

o Trading sales at Nisa up 14% to £801m

o 304 new stores signed up

Funeralcare

· Funeralcare revenues rose 3.5% to £148m; underlying profit rose to £17m

· Funeral numbers rose 22% to 59,000; volume increase offset by government funeral restrictions, which led to 20,000 simpler services for bereaved

· Extra PPE sourced and mortuary space secured

· Hardship fund launched to help bereaved families of key workers

· Innovative new propositions and services introduced for bereaved during pandemic:

o Cortege service developed with option to pause outside family homes

o Funeral services streamed for those not able to attend

o Delayed celebration-of-life events developed

Insurance

· Sale of underwriting business for £185m, unlocking 13-year distribution agreement for Co-op Insurance Services Limited, expected to complete during Q4; business treated as discontinued ahead of completion

· Sales of motor, travel and home insurance fell sharply in lockdown

· Rapid response for customers:

o Home and car insurance amended to cover those working from home

o Travel insurance suspended for 20 weeks; reinstated with cover for Covid-19

· New strategy focused on developing and distributing more products, including life insurance cover for over 50s

Legal

· Legal Services revenue flat year-on-year at £19m (2019: £19m)

· Further investment in new technology and solutions, with introduction of Bereavement Notification and Advice Service

· Expansion in digital legal services covering probate, personal injury, employment, and family law

· Will writing services up 69%; divorce-related enquiries up 300%

Health

· Co-op Health app registrations up 400%, reflecting shift in customer behaviour during lockdown

· By end of July app delivering more than 20,000 prescription items a month with 4.8/5 customer service rating

Co-operating for a Fairer World in the second half

The Co-op vision of Co-operating for a Fairer World is focused on the need to address inequality and injustice. Against the backdrop of Covid-19, the Co-op is announcing four major initiatives to make a real difference for colleagues, members, and communities:

· Significant improvements to colleague pay and benefits 

o Working with trade union partner, USDAW, The Co-op will create a plan to align our hourly pay rate with the Real Living Wage, significantly boosting take home pay for 33,000 colleagues

o The move follows considerable pay increases over past five years

o We are also introducing new and improved colleague member benefits:

- Doubling of colleague member discount on own-brand products to 20% all year round and increasing discount across the full product range for 13 special payday events each year

- The above is in addition to existing benefits across Insurance, Health, Legal Services and Funeralcare, including up to £700 off funerals for immediate family of colleagues

· Radical new Diversity and Inclusion Commitments 

o During 2020, The Co-op has continued to focus on strengthening diversity and inclusion

o Plan for series of new commitments for Black, Asian and minority ethnic colleagues, members, and communities:

- Pledge to increase percentage of leaders from Black, Asian, or ethnic minority background from 3% to 6% by 2022 and 10% by 2025

- Requirement for diverse shortlists for leadership roles

- Working with Co-op Academies Trust to develop curriculum on anti-racism; plan to lobby government for national roll out

- Annual publication of ethnicity pay gap from 2021; call on government to make mandatory for all businesses

- Maximising use of apprenticeship levy; seeking partnerships and opportunities focused on benefitting Black, Asian and ethnic minority candidates

- Increasing to 25% the number of local causes supported that include Black, Asian, and ethnic minority beneficiaries

- Increasing involvement of Black, Asian, and ethnic minority communities through membership

- Pledge to invest more money with supply chain partners with a strong focus on inclusion

- Offer more diverse funeral services and upskill our Funeralcare colleagues to support the different needs of customers

- All targets built on Co-operative movement commitments to democracy, equality, equity, and solidarity 

· New routes to work 

o Plan to offer 150 of government Kickstart work placements to candidates in communities where opportunities are most needed; commitment that at least 50% of placements will become permanent

o Commitment to top up national minimum wage allowance, to ensure candidate income is in line with colleagues pay

This is in addition to 1,200 apprentices currently active across The Co-op Group

· Planned re-launch of membership with significant increase in money going to local causes and charities 

o Membership programme to be relaunched for 4.5m members this autumn

o Plan to significantly increase money going to community causes and charities

o Increased data capabilities to be leveraged to increase personalisation of rewards and benefits for members

Outlook

· The Co-op continues to operate in highly competitive markets and against the backdrop of a worsening consumer economy. In addition, the business is planning for and dealing with further local lockdowns as the Covid-19 pandemic continues. Over the second half:

o In Food, the competition is set to intensify but we remain well positioned. We have already resumed our store opening programme and have made a commitment to invest £130m in opening 50 stores, giving 15 stores significant extensions, and giving 100 further outlets major makeovers, creating 1,000 jobs before the end of the year

o In Funeralcare, the exceptional impact and challenges created by Covid-19 will continue into the second half of the year. Since the end of the first half, the Competition and Markets Authority (CMA) published its provisional findings into the market. The Co-op will continue to work closely with the CMA through the remainder of process

o The insurance market will remain highly unpredictable, with travel restrictions changing regularly and government regulation around housing causing market spikes. However, we expect to strengthen our insurance presence from Q4, following completion of sale of underwriting business and increased focus and investment into product and distribution business

· Net debt at year end expected to be between £600m and £650m

As a co-operative, our approach remains the same. We will continue to work hard to support and deliver for our members, colleagues, communities, and other stakeholders, and that will remain our focus as we enter into a challenging second half

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

"We are living in unprecedented times, but the response of our Co-op has been exceptional and I'm immensely proud of my 60,000 colleagues who've helped to feed and care for the nation during this difficult period. We've shown how our co-operative approach to doing business provides enhanced value for our customer-members and the communities in which they live. At a time of crisis, our country needs a strong and progressive Co-op and these results evidence that we are ready to deliver even more for our key stakeholders.

"Our vision of co-operating for a fairer world has taken on even greater resonance during this exceptional time, with the pandemic bringing to light inequalities and injustices which no longer feel remotely tolerable. Actions, however, clearly need to marry with the words, which is why we have announced four important initiatives - improvements to colleague pay and benefits; our new diversity and inclusion commitments; the creation of new routes to work and our relaunch of membership. Being a Co-op has never felt more meaningful and right. The role of business in society is changing and we are proud to lead the way. Everything we are doing points to a Co-op in tune with the communities in which it operates, one which is determined to innovate and drive change for the benefit of our members and the places where they live and work.

"The coming months and years remain uncertain, and we know our own Co-op will not be immune to the pressures the recession brings to family budgets and to local and national economies. We will continue to invest within our core businesses to ensure that our Co-op value resonates within Co-op households and local communities."

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

"Our nation is experiencing a year like no other and I think it's safe to say that things will never be quite the same again. The pandemic has led to a health and economic crisis, but it has also highlighted deep seated unfairness and inequalities across the world and surfaced a growing public intolerance for injustice. How we 'build back better' to create a fairer and kinder world has become central to public debate. As the UK's biggest co-operatively owned business, we intend to be central to that conversation, showing how commerce and community wellbeing must develop in harmony for the good of us all.

"During the first half of 2020 we have shown that commerciality and co-operability can thrive and feed off one another, when both are given the same level of focus and importance. The Co-op is a different kind of business, but one whose enduring value can best be evidenced during times of need and hardship. In the difficult times ahead, we will ensure that our Co-op continues to make the world a fairer place to live in."

Ends

Media Enquiries:

The Co-op

Russ Brady Tel: 07880 784442

Headland Consultancy

Susanna Voyle

Tel: 07980 894557

About the Co-op:

The Co-op is one of the world's largest consumer co-operatives with interests across food, funerals, insurance, legal services and health. It has a clear purpose of championing a better way of doing business for you and your communities. Owned by millions of UK consumers, the Co-op operates 2,600 food stores, over 1,000 funeral homes and it provides products to over 5,100 other stores, including those run by independent co-operative societies and through its wholesale business, Nisa Retail Limited. It has more than 65,000 colleagues and an annual revenue of over £10 billion.

Co-operative Group Limited

Interim Report 2020

'Co-operating for a fairer world'

Co-op delivers strong commercial growth and innovative community support during lockdown

Commercial: Co-op feeds the nation and supports the bereaved during the Covid emergency

· Group revenue £5.8bn up 7.6%

· Group profit before tax up 35% to £27m

· Group underlying profit before tax £52m up £63m from 2019

· Group loss after tax and discontinued items of £26m driven by tax charge of £43m

· Food sales up 5.2% as nation went into lockdown

· Funerals taken increased by 22% directly related to the pandemic

· Debt down £140m to £555m

· Completion of the sale of our insurance underwriting business expected during Q4

· £13m awarded as Covid-19 'thank you' to front-line colleagues

· 7,000 temporary posts filled which ensured we could feed the nation and properly care for the bereaved during the national crisis

Community: £15m given to support the most vulnerable at home and abroad during the crisis

· £1.5m worth of goods donated to food banks supported by food charity FareShare; £650k raised for FareShare via text donation campaign

· £3.4m worth of advertising spend donated to FareShare, encouraging audiences to support food banks

· £400,000 raised by Co-op Members for Covid-19 fund, shared across community-based causes, FareShare and a funeral hardship fund

· £1m raised in charity partnership with Mind, Scottish Association for Mental Health and Inspire

· £2.6m free school meal vouchers provided for 6,000 Co-op Academy pupils

· £950,000 fund created for global communities, channelled to Fairtrade suppliers and One Water sustainable water projects

· £4.5m from membership scheme donated to 4,000 local causes

Outlook 

Second half expected to be impacted by the recession and on-going additional costs related to Covid-19.  

CHAIR'S INTRODUCTION

Our nation is experiencing a year like no other. I think it's safe to say that things will never be quite the same again. The pandemic has led to a health and economic crisis, but it's also highlighted deep seated unfairness and inequalities across the world and surfaced a growing public intolerance for injustice. How we 'build back better' to create a fairer and kinder world has become central to public debate. As the UK's biggest co-operatively owned business we intend to be central to that conversation, showing how commerce and community wellbeing must develop in harmony for the good of us all.

As a business providing essential services, we stepped up to meet extraordinary challenges during the first half of this year and we'll continue to do everything needed to support our members, colleagues and customers through the pandemic. The coming months remain uncertain, with the possibility of further localised lockdowns and the ongoing disruption to previous patterns of business and commerce. We're already seeing job losses hitting key sectors of the economy and we expect the economic downturn to last well into 2021. We know our own Co-op will not be immune to pressures on family budgets and we plan to do all we can to make things easier for our members and their communities.

Like many others, we've been learning to do things differently this year and have found new ways to maintain accountability to our members and respond to their concerns and priorities. Our AGM was held in early June, a few weeks later than originally planned. We used technology to create a socially distanced, interactive event which saw more than 800 members joining us via a live broadcast, more than we would normally have had at our traditional physical venue. Many thousands watched a recording of the meeting during the following days.

Our members passed a number of AGM motions, including calling for a renewed commitment to ethical retailing with an emphasis on the climate impact of our food products, the importance of animal welfare and healthy eating. In response, we'll take the necessary actions to reduce or eliminate our greenhouse gas (GHG) emissions to achieve net-zero and bring forward our 2050 target as soon as practically possible. We also remain dedicated to building and sustaining a wider co-operative movement. Our ambition is to work with others to energise the movement in a way which builds on the successes of previous generations of co-operators who established such firm foundations, whilst also learning from more recent movements whose impact and relevance, especially amongst the young, provides lessons for us all.

Our National Members Council has also moved its work online, continuing its vital role in our democracy. Regular meetings have been maintained, with members of our Executive team able to update Council as we've responded to this exceptional year and Council being able to question and hold the Board to account.

As we indicated in April when we announced our full year results for 2019, we are reviewing our plans for this year and beyond, to reflect changed priorities because of Covid-19. This has meant speeding up the implementation of some work while slowing down other areas.

While Covid-19 is continuing to dominate our business thinking, we also know that the arrangements for Brexit are still unclear, which is regrettable. However, we are, once again, prepared for all scenarios.

Let me finish by thanking our incredible colleagues for their immense hard work during the first half of the year. I've been continually moved by their resilience and commitment.

Allan Leighton

Group Chair

CHIEF EXECUTIVE'S REPORT

In the last few months we've seen how our co-operative approach to business and our co-operative support for local communities have come together in our response to Covid-19. In my opinion, businesses will be judged by how they reacted to the pandemic and how well they focussed on doing the right things for their colleagues and the communities they serve. It's in that context that our work in the first half of the year should be seen.

The vision we adopted at the end of last year, 'Co-operating for a fairer world' has taken on even greater resonance during this exceptional time, with the pandemic surfacing many existing inequalities and injustices. We're a Co-op with a social purpose at our heart, owned by our millions of members, working for their interests and accountable to them. In this extraordinary year, we've shown what it is to be a better way of doing business.

As a food retailer, we played our part in keeping the nation fed through the lockdown. Through our Nisa wholesale business, we supported thousands more independent retailers to meet the needs of the public. As a funeral provider, we supported tens of thousands of families in circumstances which made their grief far harder to bear. As a provider of insurance, health and legal services, we've made it easier to access this support in a time of lockdown and social distancing. For the communities we serve, we increased our support to help the most vulnerable and directed financial help to food banks and local causes dealing directly with the consequences of the emergency.

In late April this year, when we published our annual results for 2019, we summarised how we were responding to the pandemic across our business operations and our community work. Here, I want to give our members a further update on that work and report on the progress of the wide-ranging initiatives we began in those early weeks of the crisis.

Financial overview

Overall, our Co-op's revenue was up 7.6% to £5.8 billion, an increase of £0.4 billion on the same time last year. Our underlying profit before tax, which excludes the impact of non-trading items, was up to £52 million an increase of £63 million. Our profit before tax of £27 million was up £7 million from £20 million last half year. A tax charge of £43 million, meant we recorded a loss of £26 million after tax and discontinued items. The tax charge was particularly high in the context of our profits and is explained in our financial performance section.

The increases in revenue and underlying profit were driven overwhelmingly by the surge in sales for our Food business. We saw safety concerns leading consumers to shop closer to home, welcoming the ease and convenience of our Co-op stores and their extensive range. Our online offer has also expanded significantly during the first half of the year, with more than 500 Co-op stores now providing food to homes via our delivery partners and other low carbon methods.

The Co-op's food retail market share was 7.2% by July - the highest it's been for almost two decades, although this is now dropping back as shopping behaviour changes once again with the easing of lockdown conditions. The independent retailers supplied by our Nisa wholesale business also grew ahead of the market.

Our Funerals business saw a dramatic increase in the funerals we arranged, with an increase of 22%, sadly reflecting the deaths caused by Covid-19, and a related rise in non-Covid-19 deaths. However, Government restrictions on how funerals could be conducted meant that for many families only the most basic of arrangements were possible or appropriate. Underlying profit before tax in Funerals was up 70% to £17 million, an increase of £7 million.

Our new online Health business, which launched in May 2019 with a focus on repeat prescriptions, benefited from increased demand for home delivered medicines during lockdown. We saw an increase of more than 400% in new registrations for the service between mid-March and July. However, our Insurance business saw much reduced sales during the spring and early summer, particularly for motor and travel policies, in line with the rest of the sector. Our Legal services business experienced an early increase in Will writing work at the start of the pandemic, and then above average inquiries about divorce as the strains on family relationships created by lockdown began to show themselves.

Although our Food business has performed exceptionally well through the crisis, our costs across all parts of the Co-op Group have also increased. The additional costs during the first six months of the year, directly related to Covid-19, have been around £54 million. These costs included additional recruitment, the purchasing of personal protective equipment (PPE), and increased colleague sickness and absence linked to the virus. In contrast, our support from the Government's emergency economic measures to sustain the economy during the pandemic amounted to £33 million during the first half - covering the business rates 'holiday' for our Food stores and Funeral homes (which was universally applied to all Highstreet businesses by the Chancellor) and furlough payments to our colleagues. We estimate that the full year direct costs of Covid-19 will be £97 million.

Wherever possible, when colleagues could no longer carry out their work because of lockdown conditions, we moved them into other roles to help those teams where the workload had dramatically increased. However, there was around 5% of our workforce where that wasn't possible, and we made use of the Government's furlough scheme. In almost all cases, we 'topped up' the Government's 80% support to 100% of their salaries. When we bring our colleagues back from furlough, we will not be applying for the bonus payments to businesses offered by the Chancellor for retaining their employees.

As we look to the rest of this year and in to 2021, we expect there to be on-going costs related to Covid-19 but on a lesser scale than in the first half. Meanwhile, we'll be investing some of the extra income from the start of the year into food price reductions in the second half as our members and customers start to feel the impact of the recession.

Emergency support for communities

The generosity of our members during this time has been outstanding. Through a variety of channels our members and customers donated £900,000 to FareShare which distributes to food banks across the UK. This money was in addition to the £1.5 million worth of food we donated to the charity in March.

We also gave our members the opportunity to donate their unspent 5% Co-op member rewards to a new Co-op Members Fund, which included support for FareShare. By the end of June, FareShare had been able to distribute five million meals thanks to the Co-op's support. Our Co-op fund has also enabled us to give emergency donations of £500 each to 150 local causes who've been addressing immediate need in their communities created by the pandemic, as well as families struggling to afford funeral costs.

In July we launched a new multi-million-pound fund to support food charities across the UK, as part of a campaign to highlight the plight of the three million children in poverty and the estimated eight million adults experiencing food insecurity since the coronavirus lockdown.

The campaign draws attention to the growing number of UK families where having a meal in the evening is not a given and children and adults alike go hungry. It raised £2 million for the National Emergency Trust (NET) helping to fund local food charities up and down the UK.

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

To help our most in need pupils attending our Co-op Academy schools, we provided £2.6 million worth of Co-op food vouchers.

We are acutely mindful of the ongoing and longer-term needs of our communities as the health and economic consequences of the virus continue to play themselves out. We're reviewing our community and campaigning priorities to make sure our work is aligned to the changes we're seeing and to emerging needs. There are further details of our community support later in this report.

International response

During the Covid-19 crisis, our immediate priority was to support our colleagues, members and customers in the UK. However, we're a business which is globally connected through our world-wide supply chain and our responsibilities do not stop at our borders.

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

We're building on solid foundations, like our leadership and commitment to Fairtrade, our robust Ethical Trade programme, our campaigning against modern slavery and our on-going investment in clean water projects around the world. 

We're repurposing £310,000 to support Fairtrade producers through the coronavirus emergency. We're also increasing the visibility of Fairtrade products in our stores to promote stronger sales. The more sales, the more Fairtrade premium can be invested by our Fairtrade farming communities in social projects which they choose and manage. Fairtrade also guarantees a fair and reliable income for the produce they grow.

With our partners at The One Foundation, we're directing the £647,000 generated from Co-op water sales in the first half of the year to clean water and sanitation projects, which will help to tackle the spread of Covid-19 through better access to good hygiene.

The Covid crisis has presented new concerns around the welfare of workers across our international supply chain. Due to travel restrictions, there's been a halt of essential audits and inspections. So, we're working collaboratively to provide support to our suppliers in understanding and addressing the impact of Covid-19. We've taken a leadership role in building a coalition of supermarkets to deliver supplier-facing webinars providing support and guidance to protect workers during this period of unprecedented change.

It's vital that as we repair and rebuild our economies we take the opportunity to tackle climate change. The producers we've supported are now feeling crisis upon a crisis with the pandemic layering new uncertainty to livelihoods which are already directly affected by climate related disruption. In 2019, we were the first UK retailer to sign up to the United Nations' 'Our Only Future' campaign, committing to play our part in capping global temperature increases to 1.5°C above pre-industrial levels. We've also joined the United Nations' 'Recover Better' campaign to support the call for Governments across the world to prioritise a recovery from Covid-19 that's consistent with a sustainable world for future generations. We've set science-based targets to rapidly decarbonise our business and the products we sell, and we've pledged to further reduce our direct greenhouse gas emissions by 50% by 2025 as well as to reduce the emissions from our products and services by 11% by 2025. 

A further commitment to tackling climate change comes with our re-launch of Co-op Power, a business to business venture, which enables organisations to join a collective buying group for green energy. Our Property team has also developed a way to convert our food waste from our distribution centres into biogas energy which can be used in high efficiency CHP engines.

Addressing racism

In the days following the horrific killing of George Floyd in the United States, I felt compelled to speak out about the issue of racial injustice which must also be central to the fairer and more co-operative world we want to build as we recover from this global pandemic.

I know that we have Co-op colleagues and members who experience judgement and discrimination every single day because of the colour of their skin. We can't go on like this.

As part of the global co-operative movement, we have a long heritage of solidarity with the most disadvantaged and a commitment to building equity and equality within and across communities. Addressing institutional and cultural racism must be central to that work.

As a business, we set out to value the talent, energy, passion and commitment of all our colleagues regardless of their upbringing, skin colour, sexuality or religion. In September we announced new targets and commitments to address institutional barriers to the recruitment of more Black, Asian and ethnic minority colleagues to all parts of the business, with the goal of increasing the number of senior managers from ethnic minority groups from 3% to 6% by the end of 2022 and to 10% by 2025. In addition, our leaders across the business will attend a new inclusive leadership training programme. Through the lens of racial discrimination, we're reviewing our products and services, our work in local communities and schools, and our network of suppliers and partners. It's also vital for us to look at how we represent the diversity of our wider Co-op membership within our democratic structures.

I want to thank again our colleagues for their work during this extraordinary time. At the beginning of the lockdown our colleagues had to implement rapid changes in our operations. In April we gave a 'thank you' to our front-line colleagues working in Food and Funerals in recognition of their extra effort and immense commitment during this time. Colleagues were given £100 cash, £50 worth of Co-op Food, plus an additional day's annual leave, totalling more than £13 million.

Meanwhile, thousands of colleagues in our other businesses, and in our support centre functions, have had to work from home for months, many managing childcare and schooling responsibilities too.

I thank all our colleagues in every part of the business for their adaptability, resilience and continued hard work. They have done their Co-op proud.

A very different second half

We know the commercial environment in the second half of the year is going to be very different to the first half. We're not expecting anything approaching the sales peaks in Food we saw during the spring and early summer, unless a second national lockdown is required. The situation for our Funerals business remains unpredictable until control of the virus and further advances in hospital treatment are achieved. We expect competition across all our markets to become increasingly tough as price becomes the dominant consumer consideration in response to a deep recession.

When it comes to Brexit, it's no secret that many businesses, particularly those in food retail, have called for a close ongoing relationship with the EU to allow our well-established supply chains to continue to operate smoothly come the end of the Transition Period. That's not just for our commercial benefit - today, our members and customers across the UK benefit from an unprecedented choice of high-quality food thanks to our suppliers across the globe.

The Government has set out its clear intent to secure a deal and we hope both sides will work quickly and co-operatively so that we have the clarity we need to prepare for the start of January 2021. However, we are a dynamic business and will be prepared for all possible scenarios so that we can continue to serve our members and customers well into the future, come what may.

Steve Murrells

Chief Executive

Commercial update

Co-op Food

At the start of January our food business was set up for another successful year. We were continuing to implement our 'Closer' strategy: closer to our members and customers, physically and virtually; closer to addressing their product needs; and closer in responding to their ethical and environmental priorities.

At the beginning of the year we launched our new GRO range of plant-based food recognising the need to help the public adopt more sustainable diets to address climate change. In January and February, we were trading well across all categories and expanding our online ordering services and our new routes to home delivery. Then Covid-19 struck and we had to respond, at rapid speed, to a set of unprecedented trading conditions. Our colleagues stepped up to the new challenges across our store estate, throughout our logistics network, and at our support centre in Manchester.

Overnight we adopted new ways of working as we implemented Government guidance. For our stores we set out new cleaning regimes, one-way systems, social distancing, priority shopping times, staffing at entrances to regulate customer numbers, and new store layouts. We also temporarily adjusted our trading hours, so we could replenish shelves and carry out additional cleaning. To help our customers understand the changes, we put in place strong and clear point of sale messaging and used in-store radio to guide people and thank them for their co-operation. Importantly, we empowered our store managers to make the right decisions locally to keep their colleagues and our customers and members safe.

In the early days of the emergency we lobbied the Government for our store colleagues to be given 'key worker' status along with funeral colleagues. Throughout this time, the safety of our colleagues was our top priority and our procurement teams rose to the challenge of securing sufficient PPE. We swiftly put in place plastic screens at our tills and between self-service check-outs. We continue to innovate to keep customers safe by trialling a traffic light queuing system at a number of stores to make it easier for customers to observe social distancing when shopping.

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

We also accelerated our online and home delivery plans to address the new needs and demand. Our online same-day delivery service is now available across almost 100 towns and cities. The rollout includes services from our own dedicated online shop, known as shop.coop.co.uk, which uses low emissions transport including eco-friendly bikes. It also includes our Deliveroo service which now covers more than 1,000 store catchments.

We also teamed up with Buymie, a new mobile app, to offer same-day home grocery deliveries to over 200,000 households across Bristol. The move is the first partnership in the UK for Ireland-based Buymie whose mobile app allows customers to book personalised online home grocery deliveries.

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

We've seen significant sales growth for our Nisa partners, who've benefited from the broader range of products we're able to supply them, particularly within the fresh categories. Nisa trading has been strong with sales up 14% to £801 million.

In the first six months of the year, Nisa signed up 304 new stores including forecourt retailer Ascona Group. This builds on record 2019 figures, marking a 40% like-for-like leap in store number recruitment. Nisa continues to support its partners with advice on social distancing, provision of PPE and ensuring continuation of stock deliveries.

We had to pause our programme of new store openings at the start of the crisis, but this got back on track in early July with the opening of a new store in Pilton, the home of the world-famous Glastonbury festival. Michael Eavis, the festival's founder, was a huge champion of us coming to the village and helped us to celebrate the store's opening. Over the last five years, we've opened around 500 new shops across the country, more than any other UK retailer. During the rest of the year, we'll be opening more new stores and refitting others.

With economic hardships created by the recession, it's important that our support for food banks and other forms of emergency help for communities continues. Our ambition is that no good food goes to waste, so when we have extra food at one of our depots, we'll share it with those in need through our partnership with FareShare. But, for food at our stores, we'll partner directly with local food charities and community groups to share good food that would otherwise have gone to waste.

In support of our campaign to highlight food poverty among families, we launched a promotion for our 3 for 2 summer picnic food range through which we donated 20p from each purchase to the National Emergencies Trust (NET) to help those in need because of Covid-19. By the end of the summer we'd raised £2 million.

As we began the second half of the year, we saw the exceptional growth levels start to slow but remain well ahead of the market. Shoppers are now venturing further from their homes and workers are returning to offices. In the coming months we expect to see our online sales continue to grow, reflecting the market as a whole.

Co-op Funeralcare

At the start of the year we were focused on the implementation of our turnaround strategy with its priorities of achieving high standards of care; introducing innovative ways of keeping in touch with our clients at every stage of the journey; increasing choice and personalisation of funeral services; and addressing funeral affordability. We were making strong progress in each of these areas when the pandemic took hold, requiring us to re-prioritise our plans and divert our full efforts to deal with the emergency.

By the end of June, we had carried out 59,000 funerals in 2020. That's a 22% increase on the same period last year.

The scale of the pandemic, the clinical guidance introduced for the care of the deceased, the colleague safety measures and the restrictions on funeral services, have together had a profound effect on how we have been running our business.

Every part of our operation pulled together to meet the challenges and ensure we could continue to support families at this critical time. Our procurement team sourced extra PPE from around the world; our property team secured additional mortuary space; our coffin factory in Glasgow worked six days a week; our HR resourcing team led a massive recruitment programme delivered at rapid speed; and we introduced a suite of additional health and safety measures to ensure we could continue to support our clients whilst protecting our colleagues.

Throughout these months we advised Government at a national and local level and lobbied for consistent practice across all local authorities across the UK.

As the restrictions became clear, we quickly introduced new propositions and services to support bereaved families, such as arranging a cortege to pass and pause outside a family's home and arranging live streaming of services.

During the pandemic, many families lost their loved ones suddenly which has resulted in unexpected financial pressure at a time where many were experiencing reduced wages or financial uncertainty. Thanks to the generosity of our Co-op members, we set up a new hardship fund to help families pay for funerals of key workers. We've now widened this to anyone in hardship because of Covid-19.

We've also been concerned about the longer-term emotional impact that the pandemic has created. A report we published over the summer showed that in the weeks following the start of the UK's lockdown, 47% of bereaved adults in the UK had been denied their final farewell to a loved one because of Government and local authority restrictions. This has led to longer term issues of grieving and emotional recovery. We've presented the key findings of the report to the Government and are working with them, bereavement charities, and other key organisations, to help support families through their grief. We've also introduced a new proposition to help families to have a 'delayed celebration of life' for their loved one as restrictions begin to lift.

Overall, during the first half of the year, the type of funerals we were able to offer were simpler and pared back and we therefore experienced a significantly lower average selling price, whilst at the same time our operational costs were higher. So, despite the much higher numbers of funerals we've not seen the uplift in profits we would normally see on the back of the increased volumes. We expect to see the demand for simpler funerals to continue into the second half, as a result of the economic downturn. Funeral volumes are now impossible to predict and will be dependent on the success of controlling Covid infections and of reducing the mortality rates. We expect our operational costs to remain higher due to ongoing restrictions and safety measures.

Whilst volumes for at need funerals were very high in the first half of the year, we did see a marked reduction in funeral plan sales which were down 33% versus the same period last year. This was a consequence of our in-branch colleagues focusing on at need funerals and being open for appointments only. As restrictions lifted, we saw performance recover and we expect sales to return to expected levels in the second half of the year.

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

Over the summer, the Competition and Markets Authority (CMA) published its provisional decision report into the funeral industry, something we've been working on closely with them for the last couple of years. We have, from the outset, welcomed the Government's work on behalf of consumers and fully support a statutory regulator for the funerals sector covering quality and transparency with inspection and enforcement powers.

In its provisional decisions, the CMA has outlined some steps that, if implemented in their final report, (due March 2021) will need to be taken by funeral directors and crematoria to make sure that bereaved families are given the best possible support at a difficult time in their lives. We've sent our detailed written response to the provisional decisions and will continue to engage with the inquiry.

We're proud of the work we've done to support families over the last few months and the CMA has acknowledged Covid-19 has had a significant impact on our market and, in our view, will be likely to change the way funeral businesses operate in the future.

We've been leading the way in price transparency, as we know that bereaved families are looking for clarity on what's included in their funeral arrangements. We've also worked hard over the last few years to bring prices down and offer value for money in what is, for many, one of the biggest purchases they will make in their lifetime, ensuring there are more affordable options. We know that every funeral is truly unique and personal to the family or individual - this isn't a 'one size fits all' service so the cost of a funeral can vary from family to family, depending on their choices. It's important to note that the CMA report has been backward looking in its assessment of pricing and the market has changed considerably in recent years. Our Co-op has led the way in expanding the affordable options we offer to families.

We aim to be the best in the market when it comes to offering our clients full choice and we must continue to do this on every occasion. Our new proposition trials are taking this to the next level, offering a truly bespoke service at competitive prices, with our existing high levels of quality maintained.

We'll continue to work closely with the CMA to support their work and the implementation of the findings.

In the second half of the year we expect to see continued demand for our simpler funeral offerings as the recession impacts family budgets and financial concerns. Meanwhile, we'll continue to deliver our turnaround plans for the business. We've learnt much about our ability to introduce rapid change during the last few months and some of the initiatives we introduced to respond to situation will become part of our standard offering.

Co-op Insurance

As the pandemic took hold in the UK we took measures to reflect in our insurance policies the restrictions which were introduced by the Government as well as the efforts people were making to support their local communities.

For anyone that needed to work from home or were self-isolating, their home insurance cover was not affected and there was no need to contact us. And this remains the case today. If our customers had to drive to work instead of getting public transport because of the impact of Covid-19, their car insurance policies also remained valid. And if customers were using their car for voluntary purposes in any capacity to support others who are impacted by Covid-19, their cover was not affected. Additionally, key workers needing to use their own car to drive to different places of work because of the impact of Covid-19 were not affected. We have kept all of these changes in place for the time being.  

During the lockdown we saw a sharp drop in sales of car, travel and new home insurance reflecting the Government restrictions on work and movement. There were also far fewer claims being made. Sales are now picking up as the economy opens up again, and motor claims went up by 35% in the weeks following travel restrictions being lifted.

In February we launched our new life insurance cover for over 50s, the latest in our growing portfolio of insurance products. We recognised a gap in the market, so we worked with our members across the Co-op to create a product which is flexible and realistic for customers. In partnership with Royal London, the new life insurance plan enables people to leave their loved ones a lump sum of up to £10,000 when they pass away, even when faced with periods of financial difficulty. The product offers several unique features including allowing policyholders to take a payment holiday from their monthly payments for up to six months, twice throughout the lifetime of the policy, if they need to.

In September we began a campaign to raise awareness of the pressures facing young drivers from other motorists. We insure 24,000 young drivers (aged 17-25) who use our telematics technology to reduce their premiums by encouraging responsible driving behaviour. Our research shows that 53% of our young drivers have felt pressured by another motorist and 24% have felt physically unsafe while driving because of harassment from other road users. We've launched a T-plate sticker which young drivers can affix to their vehicles to indicate they're using telematics technology and are therefore obeying speed restrictions. Our aim is to create safer drivers, safer roads and safer communities.

Before the end of the year we're expecting to complete the deal to sell our insurance underwriting business for £185 million. From the outset we've been clear of our intention to significantly grow our insurance footprint and the completion of this deal will unlock a 13-year distribution agreement for Co-operative Insurance Services Limited (CISL) with Markerstudy Group, enabling us to deliver upon our ambitious expansion plans.

Co-op Legal Services

Continuing its good progress in 2019, our Legal business has been innovating with technology to make access to legal help more convenient. Having developed digital legal advice technologies for estate planning which makes sorting out your Will easier and more effective, in 2020 we've been developing a suite of digital legal advice services that cover probate, personal injury, employment and family law. Our customers are making the most of the free legal advice and guidance offered by our new range of services.

At the start of the lockdown we saw an increase in demand for Will writing services, while since lockdown has lifted we've seen a 300% increase in divorce related enquiries reflecting the tremendous stress many relationships have suffered during this time. Online consultations with our legal advisors were already growing before Covid-19 but the experience of the pandemic is likely to increase that trend.

As Covid death rates began to soar, we introduced a Bereavement Notification and Advice Service to help people deal with a late loved one's affairs. The new service gives bereaved families help informing financial institutions, stopping junk mail and closing social media accounts. Typically, bereaved families are left to deal with an average of twelve organisations, ranging from the Government's Tell us Once service, to pension providers, insurers and utility providers and corresponding with the Coroner. This new service enables us to help bereaved families by providing a single point of contact.

Co-op Health

The newest part of the Co-op, Co-op Health marked its first birthday in May. It's entirely built on a digital platform and is designed to offer a modern, convenient, solution to health needs.

The initial focus of the business has been to provide online ordering of repeat prescriptions. These are delivered either direct to the customer's home or to their local Co-op at no extra cost to the customer, or the NHS. The fulfilment and distribution operation is based in Lea Green in Warrington alongside one of our Food distribution depots. Our Co-op Health App, which can be downloaded to a phone or tablet, is integrated with NHS and GP data which makes it safe and stops inappropriate ordering. Central to our Health offering is that we're the only online prescription provider to have links into all GP systems.

New customer registrations grew by over 400% during the spring and early summer reflecting the lockdown and shielding instructions to vulnerable individuals. By the end of July, we were delivering more than 20,000 prescription items each month with our customers rating the service 4.8/5.

We've been listening to our customers and have now enhanced our service to allow them to manage prescriptions on behalf of someone else and we've introduced a way to place orders online via our website in addition to the App, designed for those who don't have smartphones. Whichever route they choose to register, they'll be connected securely to one of over 10,000 GP surgeries in England to view and select their medication in real time, with prescriptions continuing to be fulfilled by our pharmacy in Lea Green.

Colleagues

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

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

We knew it was important for there to be more frequent communications to our colleagues during this time, and for our most senior leadership to be visible. Our CEO, Steve Murrells, recorded short, weekly video updates messages from the end of March through to the end of July reinforcing our daily messaging, highlighting significant changes and thanking colleagues for their work.

To monitor and track how our colleagues were doing throughout this time, we carried out two special Talkback surveys which measured individual wellbeing including levels of personal anxiety and concern for family members.

Colleague recognition

During this time, we also developed new ways to recognise and thank the efforts of our colleagues. For colleagues working from home we introduced digital thank you cards 'You're Incredible' and 'Not all Heroes wear Capes' to celebrate their achievements. We added a new way to recognise exceptional colleague work during the pandemic by giving our Co-op members and colleagues the opportunity to nominate an individual for a Local Hero award. More than 1,000 nominations have been received so far and winners will be announced in the second half of the year. We shared stories about the work of our colleagues on our external social media platforms during May, June and July to publicly celebrate their work.

Our Covid related acts of thanks and recognition were in addition to our annual Being Co-op awards which received a thousand nominations across thirteen categories.

In April we launched our new career celebration scheme to mark and reward colleague milestones on their first anniversary of employment with us and then at five-year intervals. The new scheme means we'll be celebrating 9,000 colleagues a year, ten times more than our previous career recognition scheme.

Diversity and Inclusion

During 2020 we've continued our focus on strengthening our diversity and inclusion across all parts of the business.

For International Women's Day in March, we ran an event at our Manchester support centre led by our Chief Financial Officer, Shirine Khoury-Haq and our Group Secretary & General Counsel, Helen Grantham who discussed their careers.

To mark Ramadan in April/May, we ran several virtual sessions on understanding the importance of the festival and ran a sponsored fast in which our CEO Steve Murrells, and our Chief People Officer, Helen Webb, took part in along with other business leaders.

During June, July and August we once again showed our commitment to the LGBT plus community through Pride events both internally and externally. This year, with social distancing restrictions, we did this through virtual educational sessions, social media campaigns, and Pride flags in store. We've also recently changed the Pride flag to use the progress chevron flag.

During our annual season of in-house training and development Leadfest, we incorporated sessions such as 'what is systemic racism?' 'what is white privilege?' and 'how to talk about race'.

In September we launched new commitments, targets and ways of working to address racial inequalities within our workplace and with our other key stakeholder relationships, including our wider membership, the communities we support, our suppliers and other partnerships.

Among the changes we're making, we're going to:

· Double the representation of Black, Asian, and minority ethnic leaders and managers by the end of 2022, moving from 3% to 6%, and then to 10% by 2025.

· Require diverse shortlists for all leadership roles.

· Publish annually our ethnicity pay gap from 2021 and call on the government to make this mandatory for all businesses.

· Maximise the use of our apprenticeship levy and seek partnerships and opportunities which focus on benefitting Black, Asian and ethnic minority candidates.

· Work with our Co-op Academies Trust to develop a new curriculum on anti-racism so that the next generation knows what it means to be anti-racist. We'll then lobby the government to roll this out as part of the national school curriculum across the UK.

· Ensure stronger representation of Black, Asian and ethnic groups across all our marketing platforms.

· Increase the number of local causes whose projects include Black, Asian, and ethnic minority beneficiaries to 25% through the Local Community Fund.

Community

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

Co-operate platform and Member Pioneers

We've long been committed to expanding local, grassroots, co-operative action to meet local needs and as the lockdown began we increased our efforts. Last year we began testing a new online platform called 'Co-operate' which can link local projects to local resources.

Our trials around Greater Manchester and parts of London were already proving successful and in April we scaled up the platform to make it available across the country. It's enabled volunteering to help the vulnerable with their shopping and also connected people, so they could share interests and new learning together during a time of physical isolation.

In the first half of the year, more than 103,500 visits have been made to the Co-operate platform to access services including:

· a matching service connecting volunteers with people or organisations that need help

· signposting to online events to help bring people together in virtual communities

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

So far - 2,400 community groups have registered with the Co-operate platform and 5,300 people have registered to offer volunteer support.

The online Co-operate platform complements our physical network of Member Pioneers. By September this year, we had 1,000 Member Pioneers in place. During the lockdown our Pioneer colleagues concentrated their efforts on supporting vulnerable people, keeping people connected, finding volunteers and securing funding for urgent projects. They played a key role in community response to the pandemic by either establishing local support groups themselves, signposting others to existing groups or individually supporting food and medicine deliveries and face-mask production. Through these efforts Member Pioneers supported an estimated 20,200 vulnerable people per month through lockdown.

We're recruiting additional Pioneer colleagues with the aim of reaching 1,100 by the end of 2020, which will mean we have a Member Pioneer covering all parts of the United Kingdom.

Financial help

Recognising that local fundraising would become very difficult during social distancing restrictions, we chose to bring forward the distribution of funds for the more than 4,000 local causes currently being supported by our Co-op members. This would normally have taken place in November, but we released £4.5 million during the spring to help make sure immediate needs were met.

The themes we had identified in 2019, through local research and the national data we consolidate to create our Community Wellbeing Index, led us to focus our community support on three interconnected areas: public spaces, mental wellbeing and skills. We've seen how these have taken on even greater relevance over the past few months.

How we use public spaces - indoors, outdoors, and online - and how that relates to our individual and collective wellbeing has become much better appreciated during lockdown; mental health for many people has been damaged through an intense period of isolation and restricted movement; and the hit to the economy will make skills training, especially for a younger generation, a matter of urgency.

Free school meals for Co-op Academy pupils

In March, as schools began to close because of the virus, we knew that the 6,000 students who have free school meals across our 25 Co-op Academy Schools would need our help. The Co-op Academy Trust has chosen to work in areas of high deprivation in the north of England which means the number of children eligible for free meals is on average around 32% in our schools, compared to the national average of 13%. In one of Co-op Academy schools it reaches 67% of students.

Before the Government had responded to this issue, we organised a scheme to give eligible Academy Trust pupils a weekly £20 Co-op food voucher card - £5 higher than the normal value of free school meals. We also extended this to children identified as being from financially vulnerable families and to refugee children who were not yet eligible for Government support. When the Government commissioned its own national scheme to cover free meals during lockdown, we chose to keep to our own more generous arrangements, knowing that there was no guarantee of Government reimbursement at a cost of over £900,000. Several hundred other schools chose to make use of our Co-op voucher cards to support their own pupils rather than use the Government provider.

We committed to providing our Co-op support during term time and school holidays, including through the summer months, before the Government made its U-turn on this following Marcus Rashford's campaigning, which we'd supported.

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

The cost to the business of supporting our Academy children with free school meals through to the end of the summer holidays was £2.6 million. The Government's policy means that only a small proportion of this can be recovered which limits our ability to invest further in tackling food poverty in our Co-op Academy schools.

Campaigning

Throughout the emergency, we've worked closely with relevant Government departments and with our national trade bodies giving advice on those areas of the economy where we have specialist knowledge and understanding. As the scale of the emergency began to emerge, we lobbied for 'key worker' status to be given to our Food and Funeral colleagues. We also offered guidance on safety measures for caring for the deceased and on the social distancing measures for funeral services. Where we saw inconsistencies of practice over burial arrangements, we also lobbied local authorities.

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

As part of our Safer Colleagues, Safer Communities campaign, in Summer 2019 we'd encouraged our colleagues in making 600 submissions to the call for evidence. We also sent the Government our own 70-page report with ten recommendations for action. Meanwhile, we've been backing Alex Norris MP's private member's bill which puts forward stronger legislation to tackle crime against store workers. In January we asked colleagues to write to their MPs asking for the Government to respond to the submissions we'd made. Within a few weeks, 5,000 letters had been posted. We continue to believe that a new offence should be created to protect shopworkers and we were disappointed that Government did not propose new legislation. We will continue to work with other retailers to back Alex Norris' Private Members Bill to afford shopworkers the additional protection they need and deserve.

Looking ahead

We're now deep into recession and need to do all we can to support our members and customers through some difficult months ahead. Until a vaccine for Covid-19 is found and a global immunisation programme is underway, we will not be free of the health and social consequences of the virus. The economic consequences could last even longer.

As we began the second half of the year we could see the market environment for food retail changing rapidly with shopping patterns altering again and competition becoming intense. The spike in convenience food store shopping peaked in April and May and the exceptional sales increases seen during those months have returned to more normal levels. We've made a commitment to invest £130 million in opening 50 stores, giving 15 stores significant extensions, and giving 100 further outlets major makeovers, creating 1,000 jobs. We'll also extend the reach of our home delivery channels at greater speed.

Meanwhile, funeral volumes remain unpredictable but will clearly be linked to the nation's success in controlling further waves of Covid-19 infections. However, the recession is likely to continue to increase demand for simpler funerals which will reduce the profitability of the business in the second half. In line with our turnaround plans for Funeralcare, we'll focus on improved online communications for our clients throughout the bereavement journey.

The insurance market will remain highly unpredictable, with travel restrictions changing regularly and government regulation around housing causing market spikes. However, we expect to strengthen our insurance presence from Q4, following completion of the sale of our underwriting business and increased focus and investment into our product and distribution business.

Across our Co-op we'll continue improving our operational effectiveness and reducing our running costs, so we can invest further in our price and service offerings and deliver additional exclusive value and benefits for our members and customers.

Net debt at year end is expected to be between £600 million and £650 million.

As a response to the hardships created by Covid-19 and the many inequalities in society exposed by the pandemic, in the autumn we'll be relaunching our Co-op membership scheme, doubling the amount given to support the wellbeing of the nation through local and national initiatives. In addition, improvements to our Co-op app, launched in September 2019, will enable us to tailor more offers to our members, giving them financial benefits where it matters most in their week to week shop. The improved app will also create an easier route to becoming a member and provide more ways to join in and get involved with Co-op activities from designing new products and services to volunteering. The new membership proposition will also double (from 10% to 20%) the everyday discount given to our colleague members on our own brand food products. Alongside this, we're investing a further £1million to our colleague wellbeing projects.

We've always valued the work of our colleagues on the frontline and Covid-19 has demonstrated just how important their role is in feeding the nation, caring for the deceased and bereaved, and delivering our vision to create a fairer world. Pay levels for our front-line colleagues have increased considerably over the last five years, but now we want to go further. So, we're going to work with our trade union partners, USDAW, to create a plan to improve our hourly pay rates in the coming year so that they align to the Real Living Wage.

In the community we'll give a further pay-out to more than 4,000 causes in November and begin our next round of nominations for 2021. We'll continue our support for food banks while at the same campaigning to address the root causes of food poverty.

Our expansion plans for our Co-op Academies Trust will continue with a further two schools expected to join the trust by the end of the year.

Principal risks and uncertainties

The Directors have reviewed the principal risks and uncertainties faced by Co-op and the risks set out in the 2019 Annual Report and Financial Statements remain relevant for the second half of 2020.

The Directors use our Co-op enterprise risk management framework to continuously monitor and re-assess our actions in relation to a changing business environment. Consideration is given to emerging risks and to any change in internal and external influences that could impact our business model and how we operate.

Coronavirus Pandemic

The Coronavirus pandemic and the management of its impacts on our colleagues, communities, customers and suppliers remains a priority for 2020. We continue to operate in a period of uncertainty and failure to effectively manage our response may lead to a sustained reduction in performance across our businesses. Our primary focus is to ensure we adopt social distancing, sanitisation and Personal Protective Equipment measures in our stores, branches, depots and support centres. These measures are essential to comply with government guidelines (that we continue to follow) and to keep our customers and colleagues safe. Most of our support centre colleagues continue to work from home, where it is possible for them to do so. We also considered if any new mitigations are required, should there be a second wave of the virus in the coming months. Our conclusion is that most measures are already in place and our businesses are well-positioned to manage a resurgence of the virus.

As the pandemic has evolved our Incident Management responses have been adjusted to ensure appropriate action is taken to revise our operations and mitigate the ongoing risks to our business. In addition to our Incident Management processes we continue to monitor and manage changes to our risk profile by considering the impacts on our high-level risk categories and established principal risks.

Brexit and transition from the European Union

The 2019 General Election results, and the sizeable majority achieved by the UK Government have changed the Brexit outlook for 2020. Following our exit from the EU on 31 January, negotiations continue, but at present it does not seem likely that a post-transition period agreement will be achieved between the EU and UK. A 'No Deal Brexit' remains a distinct possibility, given the Government's commitment to leave the Customs Union and Single Market on 31 December 2020. Our planning and preparation work has continued throughout the transition period to ensure we are best positioned to adapt once the roadmap and precise regulatory requirements are defined, but always on the assumption that no agreement will be reached before the deadline of 31 December 2020.

The principal risks below have the potential to impact the delivery of our business strategy and our commitment to create value for our members and communities. These are summarised as follows:

Emerging Risks

The main emerging risks being monitored relate to changing regulations:

· Funeral Market Regulation: The outcome of the Competition Market Authority's review into the funeral industry and HM Treasury's proposals for the regulation of funeral plans is expected to lead to changes in the funeral and funeral plan markets. The funeral plans market will fall under the Financial Conduct Authority's regulation. Secondary legislation is expected to go through parliament this year. Accompanying this will be an 18-month transition period to ready our business prior to direct regulation.

· Pensions Regulation: The UK government is considering increasing the scope and powers held by the UK Pensions Regulator. Such changes may limit our freedom to implement aspects of corporate activity without obtaining the consent of the pension trustees and/or the Pensions Regulator.

More information on the principal risks and how Co-op mitigates those risks can be found on pages 55-62 of the 2019 Annual Report.

Our financial performance

Our half year results, as for most businesses worldwide are dominated by the impact of Covid. In the early stages of lockdown our Food business saw unprecedented demand that our logistics network responded to exceptionally. Similarly, our funerals business had to respond to operational challenges with increased funeral numbers but also rearranging funerals in light of the Covid restrictions. We incurred significant additional costs in ensuring our customers and colleagues could operate safely and in rewarding and supporting colleagues for their exceptional commitment in extremely challenging circumstances.

Our revenue and profits increased strongly largely driven by the exceptional demand in our food stores particularly in the early stages of lockdown. Whilst our first half results are strong we see difficult trading conditions ahead as we respond to the needs of customers and members facing recession and employment uncertainty. Additionally, we continue to experience cost pressures as we prioritise safety across our estate whilst the exceptional sales growth in the middle of the first half starts to slow down.

Revenue grew by 7.6% to £5.8 billion largely driven by Food and Wholesale and this translated into an increase of £63 million in underlying profit before tax to £52 million from a loss of £11 million as shown below. Reported profit before tax increased by 35% to £27 million. Our profits are shown after deducting the amount our members have earned through the 5% and 1% member rewards which totalled £33 million in the first half of the year (2019: £35 million), the reduction reflecting reluctance to present membership cards during Covid.

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

How our businesses have performed

Food sales rose by £0.2 billion to £3.9 billion from 2019, with shop sales up £0.3 billion reflecting a like for like sales increase of 8.8%. Fuel sales, impacted by the pandemic, were down 40% (£0.1 billion). Shop sales were particularly strong in the period from April to June as our customers shopped more and closer to home in their local Co-op convenience store. We saw trade diverted from restaurants and pubs as customers enjoyed our extensive range. Co-op's food retail market share was 7.2% by July - the highest it's been for almost two decades, although this is now dropping back as lockdown eases. 

This strong sales growth saw underlying profit in our Food business increase by 46% to £175 million. We incurred significant additional costs in excess of £40 million as a result of Covid-19 including protective equipment, colleague reward and absence as well as making our stores safe for customer and colleagues through many measures such as implementing one-way systems, additional cleaning, protective screens and hand sanitising. Margin rate was impacted by a customer shift leading to higher mix of lower margin items such as beers, wines and spirits and a reduction in higher margin food to go. Despite these pressures, strong cost control and increased productivity in stores and logistics meant the sales growth converted into strong profitability.

Our Funerals business experienced a 22% increase in volumes, tragically as a result of Covid-19 deaths and a related rise in non-Covid-19 deaths. However, the funerals we could offer our customers were restricted by Government Covid-19 measures leading to only the most basic funerals being possible. Overall revenue in funerals was £148 million, up 3.5%. Underlying profits increased 70% to £17 million from £10 million in 2019 with strong cost control adding to the benefit of higher revenue, despite incurring an additional £6 million of Covid-19 related costs to support and protect colleagues and customers.

Our Wholesale business generated sales of £0.8 billion, a 14% increase on 2019. As with our Food business we have seen customers move to local Nisa stores and transfer trade from pubs and restaurants. Nisa stores also benefited from the wider range Co-op has been able to provide, especially fresh. Nisa recorded a small loss in the first half but £5m better than last year. We continue to see profit improvement and anticipate a profit for the business in the full year.

Our Legal business performed well despite the impacts of lockdown reducing property sales, personal injury claims and bringing operational challenges such as arranging probate by telephone rather than face to face. The business has responded well and mitigated many of these impacts such that profits were only marginally lower at £2 million.

Supporting functions costs increased by £6 million largely reflecting a number of one-off benefits in 2019 from provision releases such as litigation and self-insurance. Costs excluding these are broadly flat with savings initiatives offsetting inflation.

Before the end of the year we're expecting to complete the deal to sell our insurance underwriting business, CISGIL, for £185 million. We treat the results of this business as discontinued and so it is carried in our accounts at the price agreed in the deal less costs to sell. The £10 million loss in discontinued operations shown above therefore largely represents deal costs and a small charge to reduce CISGIL's net assets down to the value of the business in the agreed deal.

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):

Property and business disposals include a loss of £16 million relating to the planned sale of 106 of our funerals branches and includes the write down of assets and closure provisions.

Disposals also includes a charge of £19 million relating to the increase in our onerous lease provision. We are seeing the economic impact of Covid-19 on certain parts of our property portfolio, most notably where we have sublets on non-trading properties included within our onerous lease portfolio. We have changed our view on our ability to sublet a small number of retail sites and this has increased our onerous lease provision by almost £15 million. Additionally, we have changed the discount rate on our onerous lease provision to reflect lower gilt rates and this has increased the provision by a further £4 million.

We have reviewed our trading sites in Food and funerals for potential impairment and booked £9 million of write downs on loss making or partially profitable sites where forecast trading is not expected to support the asset values. As part of this exercise we considered a number of city centre locations, particularly in central London, which were profitable but where trade has been impacted by lower footfall as a result of Covid-19. We have taken the decision not to impair those sites as we expect the impact to be temporary. We give more detail on this in the financial statements.

The losses on funeral closures, impairment and onerous lease totalling £44 million are partially offset by profits on the sale of a small number of food stores and lease surrenders.

The £11 million gain on our investment property portfolio in 2019 principally relates to planning permission gains on one particular site. We have reviewed the 2020 investment portfolio and are confident their value is supported. This includes sites where values remain strong and not impacted by Covid-19.

One-off items in 2019 included a £7 million credit relating to a reduction in the amounts we are required to pay for the acquisition of Nisa which is payable over a number of years depending on the trade passing through Nisa from its partners. This year the required payments have risen by £1 million reflecting the increase in trading volumes experienced this year.

Financing and debt

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

Financing costs were flat overall year on year with lower underlying interest reflecting lower debt across the period. Net pension income fell as a result of a significant drop in the discount rate that is applied to the net pension surplus.

Our total net debt of £2 billion at the end of the period, including the IFRS 16 lease liability of £1.4 billion, was down £175 million from the start of the year. Excluding the lease liability, net debt was £0.6 billion, a reduction of £140 million from year end and £266 million lower than the half year 2019. This principally reflects strong trading cashflows backed up by good management of working capital. Capital expenditure was also lower as Covid-19 restricted our ability to carry out refit activity.

Shortly after the half year end, on 8 July 2020 we fully repaid the remaining £176 million balance of the 6.875% 2020 Eurobond. This will reduce our cost of debt going forward.

Tax

The half year tax charge of £43 million all relates to deferred tax and represents an effective tax rate of 163% on profit before tax compared to an expected charge of £5 million were the 19% prevailing corporation tax rate applied to pre-tax profits. The tax charge causes us to record a loss after tax and discontinued items. Our tax rate is higher principally because of deferred tax on two items. A £15 million impact due to the high proportion of depreciation in our income statement that does not qualify for tax relief and a £16 million impact due to the change in the corporation tax rate from 17% to 19% introduced in the March 2020 Budget that increases our deferred tax liability.

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

The prior period £27 million tax credit was largely due to a one-off credit caused by a change to our method of calculating the deferred tax arising on fixed assets additions.

Our balance sheet

Net assets increased by £70 million from the start of the year largely representing a £175 million increase in the net surplus across our pension schemes. This was offset by an increase in deferred tax liabilities of £70 million representing deferred tax on the pension surplus increase and other deferred tax increases noted above.

The actuarial surplus on our largest pensions scheme, PACE, increased by £0.2 billion with assets increasing by £0.4 billion whilst liabilities increased by £0.2 billion. The increase in assets may seem surprising in the current environment but PACE holds very little in equities and has significant gilts and credit assets that increased in value. Falling AA corporate bond yields increased the value of the liabilities.

The assets and liabilities of CISGIL are classified as held for sale because of the planned sale of the business to Markerstudy. We continue to consolidate the Reclaim Fund Limited ('RFL') as it is a 100% owned subsidiary of the Group. However, RFL is a not-for-profit organisation whose surplus is held entirely for the benefit of Big Lottery Fund and as a result the Group gains no financial benefit from RFL. If the Group were to cease consolidating RFL, this would result in a one-off charge to the income statement of £74 million.

In our 2019 annual report we noted that management had identified a number of balance sheet items which contained historical errors within Nisa largely as a result of an ineffective balance sheet reconciliation process and poor controls. Because the errors had a material impact on the prior period figures, we have restated some prior period balances relating to Nisa as detailed in our accounting policies note. We set out a detailed remediation plan to address the control environment within Nisa and have already made good progress in strengthening the finance team and integrating the finance team and processes into our centralised financial control structure. 

Our accounting policies note also sets out a key judgement we have made in relation to how the Group accounts for funeral plans with reference to IFRS 15 (Revenue from contracts with customers) noting the report of the auditors in the 2019 annual report was qualified in relation to this accounting treatment. The note includes details of the impact on the current half year results had we adopted the alternative treatment requested by our auditors.

Looking ahead

The results for first half of 2020 represented a particularly strong performance in very challenging operational and economic circumstances. Revenue and profits grew strongly and our debt reduced on the back of strong cashflow. This puts us in a good position to cope with what we expect to be difficult times ahead. With many in the UK impacted by unemployment, job uncertainty and recession we see increasing pressure on price in Food retail whilst the continued presence of Covid-19 brings particular uncertainty to our funerals business. Covid-19 will also continue to bring increased costs as we keep colleagues and customers safe. Additionally, Brexit causes us to face further uncertainty.

However, we have demonstrated more than ever this year that we are an adaptable and agile business able to cope with such challenges and we remain confident about the future.