The Co-operative Group is reporting profit improvements in each of its three core business sectors despite absorbing heavy losses and costs following its successful merger last year with CRS.
The Group (formerly CWS but renamed in January this year to mark the integration of CRS) wiped out CRS losses of £80 million and covered one-off merger costs of £23.2 million before reporting a creditable £130.7 million profit before share interest and dividend* for the year ended 13 January, 2001.
Said Group Chief Executive, Graham Melmoth: “The combined businesses of the Group completed the year with a trading profit, before exceptional costs, virtually unchanged from ’99 – this means the haemorrhage suffered by CRS has been stopped.”
Total sales for the enlarged Group grew by 29 per cent to £5.1 billion with the main benefits of the merger being felt in food retailing and funerals. The Group is now Europe’s largest co-operative food retailer and the UK’s largest funeral business carrying out 85,000 funerals annually.
In Food Retailing, which carried the integration costs of IT systems, buying and distribution, operating profits rose by 5 per cent to £27.2 million after returning £21 million in cash Dividend to customers. Sales were up 59 per cent to £2.2 billion, mainly due to the merger.
Retail Controller, Malcolm Hepworth, reported that despite intense competition and severe pressure on margins, the Group’s move away from superstores to convenience stores and market town supermarkets was proving to be the right strategy.
Like for like sales in Co-op Welcome stores were up 5 per cent whilst its new breed of supermarkets, currently being rolled out across the UK, were exceeding sales targets by more than 20 per cent.
During the year the Group sold five superstores to competitors and closed four while reinvesting £149 million in new store acquisitions and refurbishment, It also trialled ‘Co-op 2U’ home delivery and home shopping – on-line and through catalogue.
And this week Mr Hepworth announced the signing of a £2.7 million deal with NCR to help the Group collect and analyse data from 1,100 stores to improve customer service levels.
Sales in the Group’s Specialist Retailing businesses, the biggest of which are Funeralcare and Travelcare, rose by 16 per cent during the year to £788.5 million mainly as a result of the merger.
Operating profits in specialist retailing, which also includes a small non-food business, Eyecare Opticians, and the Priory Motor Group, more than doubled to £26.3 million. This was mainly due to a turnaround in the fortunes of Priory Motor Group together with the introduction, for the first time, of the profits from the Group’s 75 per cent share holdings in National Co-operative Chemists and Shoefayre.
Once again the star performer in the sector was Travelcare. Its profits rose 29 per cent to £3.6 million, consolidating Travelcare’s position as the largest independent travel retailer in the UK with 330 branches and a growing direct business, both e-commerce and call centre based.
In Financial Services, the Group’s third core business sector, The Co-operative Bank and its Internet bank smile reported record pre-tax profits for the seventh successive year, 9 per cent up at £96.8 million.
Retail customer lending and deposit balances showed increases of 7 per cent and 13 per cent respectively. During the year the Bank installed 350 cash machines in
Co-op stores and developed a new range of savings and investment products for Co-op supermarket and convenience store customers.
The results of the Co-operative Insurance Society (CIS) which are not consolidated in the Group’s accounts, last year saw total premium and contribution income from insurance and unit trust activities increase by 20 per cent to £2.5 billion
Although the majority of the Co-operative Group’s activities are ‘customer facing’ it also has extensive interests in Production and Trading businesses, particularly farming through Farmcare and manufacturing and distribution through Associated Co-operative Creameries (ACC).
While overall sales from these businesses rose by 39 per cent to £1.3 billion, profits fell 15 per cent to £24.4 million mainly as a result of the continuing impact of the crisis in agriculture which resulted in a loss for Farmcare of £4 million.
Across its family of businesses the Co-operative Group invested a record £259 million, including the £94 million acquisition of 11 Somerfield stores, while borrowings rose slightly to £273 million (£204 million) resulting in a gearing ratio down to 20 per cent.
Corporate members (the retail Co-operative societies which together with individual members jointly own the Co-operative Group) received dividends of £12.7 million while £85 million was transferred to reserves, bringing members’ funds to £1.4 billion.
Concluded Mr Melmoth: “The year will go down in co-operative history as a watershed: the year when The Co-operative Commission started the process of charting a new future for the Movement. And, equally importantly, the year when CWS successfully absorbed the ailing CRS, whilst maintaining profitability. We must now take full advantage of the opportunities that have opened up.
“For our part the focus for the Co-operative Group couldn’t be clearer. We look forward to a step-change in our profitability as the benefits of the merger begin to be felt in 2001 and beyond. And, as the sheet anchor of the UK co-operative Movement, we need to work with and encourage others in the wider co-operative sector to embrace the necessary changes that will result in successful co-operative businesses for future generations.”
Notes to Editors:
* Profit before share interest and dividends is the equivalent to the pre tax profit of a plc
On 14 January 2001 the Co-operative Wholesale Society became known as
“Co-operative Group (CWS) Ltd” – the Co-operative Group for short. The name change reflects better its wide range of business interests – from food retailing to financial services, farms and funerals. The name change does not affect the continuing use of the co-operative logo or any of the brand names under which the Co-op trades.