Co-op Annual Report 2016 Co-op Annual Report 2016 Our business performance 1 Overall contents Strategic report Top 10 places to look in 5 Headlines our annual report if you 6 Our business model only have 15 minutes 7 Report from Group Chair – Allan Leighton 9 Report from Group Chief ExeCutive – Steve Murrells 1. The heaDlines 11 Report from President of the National Members’ Council – NiCk Crofts page 5 13 Our business performanCe 2. What we are about 16 – Food page 6 18 – Funerals 3. The Chief Executive’s 19 – InsuranCe report 21 – Legal ServiCes page 9 22 – Digital 4. What the businesses 24 Our fnances got up to 29 Inspiring colleagues page 13 32 Getting baCk to the Co-op Way 5. Our colleagues 35 Key performanCe indiCators page 29 36 PrinCipal risks and unCertainties 6. Your leaDers page 42 and 45 7. Executive pay at a glance Governance report page 70 8. Assurance of a clean 42 Board biographies auDit report 45 ExeCutive biographies page 184 47 GovernanCe review 9. A jargon buster to 57 Report of the Risk and Audit Committee help you understand 66 Report of the Remuneration Committee our accounts 84 Report of the Nominations Committee page 193 87 DireCtors’ report 10. T he last fve years 91 Your CounCil’s annual statement page 198 94 Report of the SCrutiny Committee Financial statements 98 Consolidated inCome statement 99 Consolidated statement of comprehensive inCome 100 Consolidated balanCe sheet 101 Consolidated statement of changes in equity 102 Consolidated statement of cash fows 103 General aCCounting poliCies 108 Notes to the fnancial statements 184 Independent auditor’s report to the members of Co-operative Group Limited 193 Jargon buster 198 Five year summary Co-op Annual Report 2016 Contents 2 Strategic report Co-op Annual Report 2016 Strategic report 3 Contents Strategic report 5 Headlines 6 Our business model 7 Report from Group Chair – Allan Leighton 9 Report from Group Chief ExeCutive – Steve Murrells 11 Report from President of the National Members’ CounCil – NiCk Crofts 13 Our business performanCe 16 – Food 18 – Funerals 19 – InsuranCe 21 – Legal ServiCes 22 – Digital 24 Our fnances 29 Inspiring colleagues 32 Getting baCk to the Co-op Way 35 Key performanCe indiCators 36 PrinCipal risks and unCertainties Co-op Annual Report 2016 Strategic report – Contents 4 Headlines Group revenue bn (2015: £9.2bn) See page 13 £9.5Operating proft Loss before tax £148m £132m 2015: £112m See page 14 2015: £23m proft See page 25 Underlying proft before tax Net debt £59m £885m 2015: £81m See page 25 2015: £692m See page 26 Number of food stores Number of funeral homes 2,774 1,026 2015: 2,803 2015: 986 Colleague engagement score Number of colleagues 78% 69,320 2015: 74% See page 30 2015: 69,980 See page 29 Active members Amount raised for British Red Cross 4million to help tackle loneliness September 2016: 3.4million £4.5m in 2016 See page 35 See page 34 Co-op Annual Report 2016 Strategic report – Headlines 5 Our business model We are a member-owned organisation whiCh does business in a different way. The Co-op Difference • We live our purpose, championing a better way of doing business for you and your communities • Our Ways of Being Co-op – Do What Matters Most, Be Yourself Always, Show You Care and SuCCeed Together – are at the heart of everything we do • We’re founded on a set of values and prinCiples desCribing a different, fairer and ethiCal way of doing business • We have our own way of doing things – the Co-op Way • We are owned by the people who use our businesses • Our members have a direCt say in how we do business and how our business is governed • We exist to meet our members’ needs and stand up for the things they believe in • Members Can earn rewards for themselves and their Communities every time they buy Co-op branded produCts and serviCes, and can choose whiCh loCal causes in their communities beneft What we neeD to be successful • Engaged members, trading with us regularly • Motivated and engaged colleagues • Food stores, funeral homes and other opportunities to meet with members (and meet their needs) in the right loCations aCross the UK • ProduCts and serviCes whiCh are relevant to our members • A logistiCs network whiCh can support our current and future needs • Stable and resilient IT systems to support all our operations • Good quality data, used seCurely and transparently • The right level of fnancing to support our investment plans We generate revenue through businesses which our members value • We are a leading convenienCe food retailer, with an aim to be number one in the UK • We provide market-leading funeral serviCes through the UK’s number one funeral direCtor • We are a trusted and responsible insurer, with an offer foCused on our members • We offer easy and straightforward aCCess to legal serviCes • We are a growing and pioneering digital business Co-op Annual Report 2016 Strategic report – Our business model 6 Report from Group Chair Allan Leighton “ Our aim is to attraCt a million new members to our Co-op” Allan Leighton Back to Being Co-op There’s no doubt that we had a momentous 2016. We went baCk to Being Co-op and we returned to the ideas that have made us speCial and different to generations of Co-op members. OnCe again we’re rewarding our members, supporting their communities and Campaigning on the issues that matter most to them. Last year was the seCond year of our Rebuild programme and with our commerCial reCovery well underway and our governanCe Changes working well, this was the moment to relaunCh our Co-op Membership. At our Annual General Meeting in May we announCed the biggest Changes to member rewards for deCades with our 5% for you when you buy Co-op branded produCts and serviCes, and 1% to loCal Community Causes. For the frst time we’re rewarding our members every time they choose Co-op. By 2018 we’re Committed to giving baCk £100m a year to our members and their Communities through our new Membership rewards. To draw maximum attention to the changes we’ve made to Membership and to mark our return to the values of ethiCal commerCe we’re best known for, we chose to change our brand. We’ve brought back our iconic Co-op cloverleaf, frst used in the late 1960s when the public had a far greater understanding of what the Co-op stood for. We want the cloverleaf to once again become a signifer of Co-op value and values. We’re well advanCed in the rebrand of our stores, funeral homes, paCkaging and point of sale material, with our online presenCe already in the new look. Co-op Annual Report 2016 Strategic report – Report from Group Chair 7 Five million new Co-op carDs Our colleagues began benefting from the new rewards in June so by the time we switChed them on for all of our members in late September we were familiar with explaining how they worked. We made it a priority to reconnect with our existing members, sending out fve million new Co-op Membership cards during September and OCtober. In 2017 we've begun a national conversation with the British public to re-introduCe our Co-op and explain what makes us different to a new generation of customers. Our aim this year is to attraCt a million new members, with half of them brand new to our Co-op. Our relationship with the Co-operative Bank SinCe the year end everyone will have seen that the Co-operative Bank (‘the Bank’), whiCh we have a 20% stake in, is now in a sale proCess. We are supportive of the process which the Bank is going through to fnd a secure home for our members who are also customers of the Bank. Our new Group Chief Executive Finally, let me take this opportunity to give our heartfelt thanks to RiChard PennyCook who stepped down as our Group Chief ExeCutive on 1 MarCh this year. RiChard has handed over to Steve Murrells, previously the CEO of our Food business. RiChard joined us in the summer of 2013 to help with the resCue of the Co-operative Bank and then guided us through our Constitutional and governanCe reforms. RiChard and his team then put in plaCe the Rebuild strategy we’ve been suCCessfully implementing sinCe 2015. RiChard was key in leading the team to save our Co-op in very diffcult times. RiChard’s deCision to step down this year enables Steve to take exeCutive leadership as we develop the next phase of our Co-op journey. Steve joined us in 2012 and has suCCessfully led the transformation of our Food business through the True North programme whiCh itself set the template for much of our broader Rebuild strategy. On behalf of the Board I wish Steve and his team every suCCess. Allan Leighton Group Chair Co-op Annual Report 2016 Strategic report – Report from Group Chair 8 Report from Group Chief Executive Steve Murrells “ We have the opportunity to show why Britain needs a strong Co-op” Steve Murrells Creating value for our members I’d like to thank Allan and the Board for the trust they’ve put in me as I take over as Co-op Group Chief ExeCutive. We’re baCk on our feet again and feeling proud of who we are and what we stand for. As a co-op we exist to create value for our members by running a suCCessful business that stays true to our ethiCs and our commitment to commerCial responsibility.