The Co-op has reported robust annual results, driven by its core food retail business. However, in a similar message issued by Tesco a couple of weeks ago, the society warned that it was facing a significant increase in costs due to measures introduced in response to the coronavirus outbreak.
Over the year to 4 January 2020, the Co-op’s total revenues grew 7% to £10.9bn, following robust performance from its Food unit and the full inclusion of the Nisa business it acquired in May 2018. Underlying group pre-tax profit, excluding IFRS 16 impact, surged up 50% to £50m.
Revenue in the society’s 2,600-strong convenience chain rose 3% to £7.5bn with like-for-like sales up 1.9%. The unit’s underlying profit rose from £204m £283m. However, on a like-for-like basis profit was up 15% to £235m, reflecting the good sales performance and cost controls.
The Co-op opened 79 new stores during the year and refitted 152. The group highlighted the success of its new home delivery operation and improvements made to its offer. It launched 554 new products and improved more than 1,000 existing lines during the period, and rolled out its new GRO vegan range.
Wholesale like-for-like revenues increased by 1.1% to £1.4bn, after Nisa attracted 94 new retailers to the business. Losses were reduced from £21m to £10m as integration costs eased.
With the continued coronavirus crisis and other factors, the Co-op stated that the outlook is uncertain. However, it stressed it was “clear on strategy to deliver sustainable growth”.
The society expects additional costs associated with the outbreak to be in excess of £200m. This includes significant increases in payroll, logistics, and store expenses, as well as investment in staff safety and social distancing measures.
However, the Co-op said these costs will be partly offset by higher food sales during the pandemic, while it will also benefit from the Chancellor’s business rates holiday.
Steve Murrells, Chief Executive of the Co-op, said: “The Co-op made further financial progress through 2019, showing that co-operation is working. While we didn’t know it at the time, that performance set us up well to withstand the impact of the COVID-19 crisis and to enable us to support the communities we operate in.
“No part of our business has been unaffected by the outbreak of the virus and we have played a critical role in communities throughout the UK. Our Food business has helped to feed the nation and our Funeral colleagues have been there for families at their time of greatest need. All of this work will continue and I could not be more proud of our people who have delivered – day in, day out.”
NAM Implications:
- IFRS 16 is an International Financial Reporting Standard (IFRS) promulgated by the International Accounting Standards Board (IASB) providing guidance on accounting for leases.
- Best to keep in mind that the Co-op is one of the retailers benefiting from lockdown demand…
- …albeit with attendant cost issues.
- That said, it has to be a significant part of your un-lockdown trade strategies.
