Annual Report 2020 Co-operating through a pandemic Co-op Annual Report & Accounts for 2020 Co-op Annual Report 2020 2 Contents Strategic report 60 Governance review 74 Report of the Risk and Audit Committee 3 2020 in brief 85 Report of the Remuneration Committee 4 Co-operating for a Fairer World 103 Report of the Nominations Committee 5 Chair’s introduction – Allan Leighton 107 Directors’ report 7 Chief Executive’s overview - Steve Murrells 115 Statement of the Co-op Board 14 Report from the President of the National Members’ Council – Nick Crofts 117 Co-op’s National Members’ Council: annual statement for 2020 Co-operating for a Fairer World 122 Report of the Scrutiny Committee 18 How we responded to the pandemic - 123 Promoting the success of our Co-op our commercial response 25 Supporting our colleagues through Financial statements the pandemic 130 Consolidated income statement 27 How we responded to the pandemic – 131 Consolidated statement of our community response comprehensive incomes 31 How are we building back better and 132 Consolidated balance sheet different? 133 Consolidated statement of changes in equity 36 Our financial performance 134 Consolidated statement of cash flows 43 Key performance indicators 135 Notes to the financial statements 45 Risk management 198 General accounting policies Governance reports 205 Independent auditor’s report to the members of Co-operative Group Limited Board biographies 55 222 Jargon buster Executive biographies 58 234 Five-year summary Quick reads Here are the top ten places to look in our Annual Report if you only have 15 minutes: 3 2020 Highlights 4 Co-operating for a Fairer World 7 Chief Executive’s overview 18 How we responded to the pandemic - our commercial response 27 How we responded to the pandemic - our community response 31 How are we building back better and different? 43 Key performance indicators (KPIs) 55 Board biographies 60 Governance review 222 Jargon buster You can also jump back to this page by clicking this icon in the top of every page. Co-op Annual Report 2020: Strategic report 3 We’re creating value for our members 2020 in brief Group revenue bn up 5.6% on 2019 . £Group profit 11 before tax (continuing*) 5Group underlying profit before tax*** m m 2019: £24m (but £92m vs £67m (excluding the impact of the 2019: £35m £127change in accounting policy for funeral plans))** £100 *The profit on discontinued operations of £5m (2019: loss of £16m) relating to the sale of our insurance underwriting business is shown below profit before tax. **We’ve changed the way that we account for funeral plans in 2020 and restated our 2019 figures accordingly. Please see the 'Our financial performance' section on page 36 for further details. *** Refer to Note 1 of our financial statements for a definition of group underlying profit before tax. Further details on the group's alternative performance measures (APMs) is given in the jargon buster section on page 222. More than Real Living Wage Leading the way on commitment free school meals, launched in£84m extra costs organising a scheme of£12m support given to for frontline responding to to give eligible charities and community colleagues Covid-19 and Academy Trust causes as part of pupils a weekly Covid-19 response, rewarding as well as a further colleagues £20 Co-op £15m shared with Food 4,500 local causes voucher from our Local card Community Fund Published our Our recruitment Doubling the support commitments drive grew our our members give to to tackle racial Member Pioneers to communities through 1m relaunch of Co-op inequalities and downloads 1,000-strong across of the Co-op app. membership, which will mobilised our new the UK Reached a milestone of 2m contribute to at least £24m of funding for our Local Equality unique members Community Fund and selecting a local Inclusion and Community cause to support Partnerships Think with their Co-op Fund in 2021 Tank membership Co-op Annual Report 2020 4 Co-operating for a Fairer World We’re a consumer-owned co-operative running an ethically responsible business. Our Vision is ‘Co-operating for a Fairer World'. Every day we champion a better way of doing business for you and your community by offering a range of products and services which create value in its broadest sense for our Co-op members and their communities. When you spend at the Co-op it does good for you, your local community and communities across the country and around the world. It’s what we do. Our Co-op is the UK’s largest consumer How we run our business is important to us. We set co-operative, with 4.34 million active members ourselves high standards for responsible retailing and a presence in every postal area in the country. and service. We have a responsibility to be a campaigning business, speaking out on the issues We’re a major food retailer and wholesaler; we’re that matter to our members. the largest funerals provider in the UK; we are a major provider of regulated consumer legal services, By offering great products and services we grow particularly of probate and wills; and a major our customers, our membership and the positive provider of life planning and insurance products. In Co-op impact and value we can bring to wider society. 2020, we also announced plans to grow our business- to-business Co-op Power operation. Our businesses are all UK-based and our main support centre is in Manchester. Since 1844 the co-operative movement has promoted organisations with a clear social purpose and our Co-op continues that tradition. We’re here to create value for our members and the communities in which we trade and can only do this by running a successful business. For more information on responsible business performance in 2020, please see our Co-operate Report. Co-op Annual Report 2020: Strategic report 5 Chair’s introduction This report is our record of how we rose to the challenge of the pandemic through our business operations and through our support to local communities. In just just one short year, Covid-19 has changed and through our support to local communities. the world. Creating Co-op value for our members has always been at the heart of our endeavours and I believe Even though the national vaccination programme is that reached new heights during 2020. now well underway, we already know that life in the UK, and around the world, will never quite be the I doubt we could have achieved all we did same again. last year if it had not been for the extensive investment and modernisation we’ve undertaken, In some respects, that’s to be welcomed. As others led by Steve, over the last four years. Our have observed, the ‘old normal’ was not such a commerciality has radically improved and great place to live for many in Britain. Covid-19 so, too, has our approach to supporting local not only revealed the unfairness and inequalities communities. The changes we’d made meant we that stubbornly persist in our society, the virus were already a robust and resilient business as the also exacerbated it. Over the last 12 months, it’s pandemic arrived. And within local communities, become clearer than ever how divided our nation we already had meaningful relationships and is between the secure and the vulnerable. There’s established assets on which to draw upon at a no doubt that we need to ‘build back better’ and critical moment, as well as ways to connect with take the opportunity of national recovery to make our members to understand what mattered to fundamental changes to how we live and the them and how we could support. values we place at the core of society. To achieve that, 'build back better' will also need to mean As Steve sets out in his introduction, since last 'build back different'. As a nation, we need to summer we’ve been planning and implementing our encourage and promote economic activity that longer-term response to the social and economic puts people and communities first. As a consequences of the pandemic. How we support our co-operative business, that’s been our way of members and communities over the next few thinking and working since our earliest days. years will be just as critical as our response in the early months of the crisis. Our strategy to grow When we adopted our new Vision at the start of our business and expand the difference that 2020 – ‘Co-operating for a Fairer World’ – we had co-operative values can make remains in place. no idea how quickly that commitment would be put However, we’ve reset some of our priorities to make to the test. Covid-19 presented us with a national sure we can compete strongly across all our markets emergency and a unique set of business challenges during a time of recession. We’ve also looked and community needs, which would show if co- carefully at how we should focus our community operation was capable of making a difference during agenda and campaigning to make sure we’re an extraordinary time in the nation’s history. This directing our support in the most meaningful way in report is our record of how we rose to the challenge the post-pandemic climate. of the pandemic through our business operations Co-op Annual Report 2020: Strategic report 6 Throughout 2020 we maintained all aspects of Finally, I want to acknowledge the incredible our democratic governance, taking our regular commitment shown by Co-op colleagues across all Board and Council meetings online.