Co-op has posted robust first-half results after benefitting from recent moves to reduce costs after facing mounting debts and tough price competition.
Over the 26 weeks to 1 July, the society’s underlying operating profit came in at £43m, bouncing back from a loss of £1m in the previous year. This was driven by cost savings of £101m in 2022 and further savings during the half-year period. These have included job cuts at its head office and streamlining its operational processes after investments in its supply chain infrastructure and IT systems.
Co-op’s underlying loss before tax was still £9m, but this was £59m less than last year. Group revenue edged down £0.2bn to £5.4bn, impacted by the sell-off of its petrol forecourt business to Asda last year as part of wider plans to restructure its finances.
The sale meant total revenues in Co-op’s core Food Retail unit were down £0.3bn to £3.6bn. Excluding the forecourt outlets, sales were up 4% on a like-for-like basis in its convenience stores.
During the period, Co-op launched its member pricing initiative to compete with similar loyalty discounts used by Tesco and Sainsbury’s. As a result, it saw a 55% increase in new members, up 430,000 in the half compared to 278,000 last year. Almost 200 everyday essential lines will be covered by Co-op’s scheme during the second half of the year.
The retailer confirmed today that it had already invested £20m in cutting prices across its food stores, with plans for a further £70m investment.
The retailer has also been expanding its quick commerce offer, with sales of £133m in the first half. This included the growth of its partnership with Just Eat to 1,000 stores, with a further 300 stores on other partner delivery sites.
Meanwhile, in the group’s Wholesale division, revenues increased £40m to £719m. Co-op noted that it had benefitted from investment in lowering wholesale pricing, strengthening its own-label range, and adding 130 new stores.
Co-op stated that work to strengthen the balance sheet had proved successful, with a net debt reduced from £608m to just £123m over the last year.
Allan Leighton, who is stepping down from his role as Chairman, commented: “At a time when interest rates and borrowing costs have soared, we’ve managed, under [CEO] Shirine’s [Khoury-Haq] leadership, to reduce our net debt to a historically low level. While there is no room for complacency, there is room for confidence in our ability to plan ahead for growth in our Co-op and the impact we can have.”
The group noted that it expected the volatile external environment and turbulent economic headwinds, including inflationary pressures, to persist. “However, we have gone from a position of needing to improve on our financial performance, operational efficiency and internal ways of working, to running the business differently and setting the business up for success,” it said.
“We are stronger, more financially stable, more able to face into ongoing headwinds, more ready to invest and grow, and we are looking to the future with confidence and excitement.”
Khoury-Haq concluded: “The business momentum established in the second half of the last financial year has carried through into the first six months of 2023 and has allowed us to significantly strengthen our membership offer and proposition – we have put our member-owners at the heart of what we do. We have listened to what they need, and we have not hesitated in our response.”
NAM Implications:
- Successful debt reduction creates a major benefit in a world of high/rising interest rates.
- Co-op sees itself as ‘stronger, more financially stable, more able to face into ongoing headwinds, more ready to invest and grow…’
- Therefore supplier initiatives that echo these sentiments will appeal.
- Over to you…
