Co-op Annual Report 2017 Overall contents Strategic report Top ten places to look in 5 Headlines our annual report if you 6 Our business only have 15 minutes 7 Chair’s introduction – Allan Leighton 9 Chief Executive’s introduction – Steve Murrells 1. The headlines 12 Report from the President of the Members’ Council – Nick Crofts page 5 Our business performance 2. What we’re about 14 – Food page 6 17 – Funeral and Life Planning 3. Chief Executive’s 20 – Insurance introduction 22 Our finances page 9 26 Our colleagues 4. How our businesses did 29 Community, campaigns and sustainability during the year 32 Key performance indicators page 14 33 Principal risks and uncertainties 5. Our colleagues page 26 6. Our business leaders Governance report page 39 and page 42 7. Executive pay at a 39 Board biographies glance 42 Executive biographies page 67 43 Governance review 8. A clean audit report 53 Report of the Risk and Audit Committee page 170 61 Report of the Remuneration Committee 9. A jargon buster to help 80 Report of the Nominations Committee you understand our 84 Directors’ report accounts 89 Your Council’s annual statement page 178 93 Report of the Scrutiny Committee 10. The last five years page 185 Financial statements 96 Consolidated income statement 97 Consolidated statement of comprehensive income 98 Consolidated balance sheet 99 Consolidated statement of changes in equity 100 Consolidated statement of cash flows 101 Notes to the financial statements 163 General accounting policies 170 Independent auditor’s report to the members of Co-operative Group Limited 178 Jargon buster 185 Five year summary Co-op Annual Report 2017 Overall contents 2 Studio Note – Layout in progress Strategic report Folio requires updating Contents Strategic report 5 Headlines 6 Our business 7 Chair’s introduction – Allan Leighton 9 Chief Executive’s introduction – Steve Murrells 12 Report from the President of the Members’ Council – Nick Crofts Our business performance 14 – Food 17 – Funeral and Life Planning 20 – Insurance 22 Our finances 26 Our colleagues 29 Community, campaigns and sustainability 32 Key performance indicators 33 Principal risks and uncertainties Co-op Annual Report 2017 Strategic report – Contents 4 Headlines Profit before tax m 2016: £132m Loss See page 22 £72Operating profit Underlying profit before tax £126m £65m 2016: £148m See page 22 2016: £52m See page 22 Revenue Net debt £9.5bn £775m 2016: £9.5bn See page 22 2016: £885m See page 24 Number of food stores Number of funeral homes 2,532 1,079 2016: 2,774 2016: 1,026 Colleague engagement score Active members 75% 4.6 million 2016: 78% See page 26 2016: 4 million See page 32 Amount earned by members through Amount earned by members for local causes “5% for you” reward through “1% for your community” reward £61m £13m 2016: £16m 2016: £3m Co-op Annual Report 2017 Strategic report – Headlines 5 Our business The Co-op virtuous circle is a very modern and futuristic idea, never more relevant than today, and it continues to shape our strategic thinking. The better we run our business, the more people will trade with us. And the more trade we do the more good we can do for our members and their communities. Or to put it simply, a stronger Co-op creates stronger communities. Since 1844 our Co-op has always been a business with a clear social commitment. We exist to create value for our members and the communities in which we trade and can only achieve this by running a successful Co-op. How we run our business is important to us. We set ourselves high standards for responsible retailing and service. We have a responsibility to be a campaigning business, speaking out on the issues that matter to our members. The main markets in which we operate — food retail, insurance, funeral services, legal services and life planning — mean there are lots of ways we can meet our members’ needs. By offering great products and services we grow our customers and our membership. For the virtuous circle to work well, all businesses in our Co-op need to be strong. Our products and services must be competitive and the Co-op difference we make to our members and their communities must be clear to see, relevant for today and easy to understand. We’ve set ourselves seven goals that will shape activity over the next few years and help us to deliver on our purpose, championing a better way of business for you and your communities. 1 Competitive businesses with a Co-op difference that attract more customers and members 2 New business opportunities that build trust, extend reach and create value 3 A Co-op which is agile, leaner, safer and connected 4 A revitalised membership offer that creates more value for our members and communities 5 Greater impact from our community work 6 A joined-up story that shows what the Co-op difference is all about 7 Colleagues who are proud to work here Co-op Annual Report 2017 Strategic report – Our business 6 Chair’s introduction Allan Leighton Creating shared value Our businesses performed well in 2017, and you can find out more about how they did on page 14. But business performance is only one measure of the value we’re creating as the UK’s biggest consumer-owned co-op. There were many more as you can see below: • We gave £61m to our members • We reached £6.5m in our fundraising through the 5% member reward. to tackle loneliness and, through our partnership with British Red Cross, • We put £13m, earned by our a network of Community Connectors members through the 1% member was created to help young and old reward, into the Local Community return to community life. Fund to support local causes. • We stepped up our campaigning on • We raised the pay of Food store modern slavery following a vote by colleagues by 6.1% keeping us ahead our members. of the government’s living wage target. • We renewed our commitment to Fairtrade, and all the cocoa used in our • We recruited 742 apprentices own brand products is now Fairtrade. receiving quality training, permanent contracts and good wages in line with • We gave £1.8m from the sale of other colleagues. bottled water to fund clean water projects in some of the poorest parts • We sponsored 11 successful Co-op of the world. Academy schools, many in some of the most disadvantaged communities • We supported British farming with in the country, bringing Co-op a commitment to spend £2.5bn values into the classroom to improve sourcing own brand British meat, children’s long-term opportunities. produce and dairy products between 2017 and 2019. • We recruited 200 dedicated Member Pioneers to work in their local • We held our prices to tackle funeral communities and make great things affordability. happen. They’ll be working across each of our 1,500 communities • We extended free children’s funerals by 2020. to include 16 and 17 year olds. These are just some of the highlights of how we’ve created shared value for our members and their communities in 2017. You can find out more about our ethics and sustainability performance in our Co-op Way Report which is published alongside this report. Why are we different to other businesses? The answer is found in our Values and Principles, the way of working for all co-ops agreed by the international co-operative movement. They provide us with an ethical code that informs all we do. So we run our Co-op, not to make profit for a few shareholders, but to create value in lots of ways for our 4.6 million members who shop with us each week and collectively own the business. We sum it up as ‘Championing a better way of doing business for you and your communities’. That ‘better way of doing business’ includes giving our members a central role in how we’re governed and a say in the major decisions we take. All our directors are members and actively trade with us. They are all subject to election by our members with our four Member Nominated Directors (MNDs) directly chosen through contested elections. Co-op Annual Report 2017 Strategic report – Chair’s introduction 7 Our Board ensures the interests and concerns of members are represented in our boardroom, with the MNDs having a particular member focus. Through our elected Members’ Council, our Board is held to account. Our directors and Council have a strong focus in making sure our Values and Principles are upheld. How do we create shared value? We create shared value by running commercially successful businesses that meet the needs of our members in an unmistakably Co-op way. We’ve been working in our main markets – Food, Insurance and Funerals – for more than 150 years. We’ve built up enormous expertise and we’ve always had to learn and adapt to make sure we continue to be modern and relevant. In recent years we’ve added more products and services like life planning and legal where we’ve seen an opportunity to enter new markets where we can make a Co-op difference. As our Chief Executive, Steve Murrells, sets out in his introduction, now we’re ready to do more. At a time when big businesses and national government have lost the confidence of many people in the UK, we believe our Co-op is uniquely placed to rebuild trust and restore confidence in the strength of communities and businesses. We want to grow our businesses so we can return more to our members and their communities and continue to look at new markets which can benefit our members.