Co-op Group 2007 Annual Report

As I mentioned in a recent post, the Co-op Group 2007 Annual Report is now available from the website. The impact of the merger makes things quite difficult to untangle - I'm currently trying to get my hands on a copy of the 2006 United Co-ops results to help with previous years' comparisons - if anyone can email them to me, let me know via the comments box.

Anyway, the general picture painted by the annual report appears rosy enough. Total revenue (before the cost of re-insuring some of our long-term insurance business) is up 13.4% to £8,290m, which results in a total operating profit of £250m (down 30.9%). However, the beancounters at the Co-op reckon that if you strip out the "one-off" or significant items (mostly to do with either the costs of the merger with United Co-ops, or with the restructuring that went on in CFS - Co-operative Financial Services, that incorporates the Co-op Bank and CIS), then the underlying operating profit has gone up 8.7% from last year to £432m. Note that the increase in even the profit before significant items is a lot less than than the increase in turnover - i.e. in total and as a fraction of turnover our Society has become less profitable over the year. However, when we break down the results by business, we find that this loss of profitability is primarily due to CFS, which along with every other financial institution in the country is suffering slightly from a hostile climate at the minute.

Our Food Retail business has had a fantastic year, and we certainly saw our own share of that in the area accounts that the area committee receives each month. Overall in the country, a merger-assisted increase in turnover of 21% to £3677m resulted in a significant 50.5% increase in trading profit. Our like-for-like sales increase - i.e. ignoring those merger effects and other acquistions or disposals of stores - was 4.6%, which is apparantly higher than the average market value. Key to the success of the year has been the rebranding exercise - I'm sure that you all agree that the new, bright, open - and most of all, green - stores are a big improvement on the older style of shop. You certainly see an improvement in the sales figures when a store gets re-branded. Of course, these store improvements can only come about through capital investment, and we are invested £86m in our food stores in 2007, with lots more planned for 2008.

The Co-op pharmacies - now relabelled as the "Healthcare" division, has had a steady, good, year, with profit up 9.6% to £30.8m. As with all the other businesses that increased their size with the merger, it is difficult to accurately gauge the size of this success, but the words of the annual report speak of like-for-like growth....

Same story really for the Co-operative Funeralcare - which saw profits rise to £31.5m from 19m in 2006.

Travel agency remains a tough market to be in, squeezed due to ever-increasing direct selling of fights and hotels via the internet, and direct selling of package holidays from the tour operators. Sales increased by 44% - a lot of that is presumably due to the merger - but we still made a loss of £4.7m - albeit a smaller loss than in 2006 when it was over £6m.

The Co-operative Legal Services have continued to make a good start to their existence, posting a profit of £1.7m - up from a small loss in 2006. I've made clear my admiration for our move into this sector previously - I'm glad that we are making it work.

Our Property division is now relabelled "The Co-operative Estates", and - obviously - found life a little more difficult than in recent past due to the less bouyant property market. Trading profit of £52.9m was combined with a profit on disposals of £49.8m but a capital loss of £18.3m on the investment portfolio.

I was raving about the Co-operative Farms recently. They had a difficult year in 2006 because of the wet weather. Profits were down 21% to £2.4m. 50% of the turnover is now with our Food Retail business - showing implementation of our new "Grown By Us" strategy.

E-Store (which runs co-opelectricalshop.co.uk and co-opbedshop.co.uk) had a good year. Apparently we run the distribution in-house - and having bought from the electrical website a number of times, I can testify that it is very refreshing to have your purchase arrive when they say it will! Profits were up 70% to £0.9m.

Our other businesses in the Trading Group include "The Co-operative Clothing" (formally "Mandate", Sunwin Services and Sunwin Motor Group. The first two are profitable - the third is not, and considering that it was only relatively recently that the Group sold off its Priory motor dealerships, I would imagine that it will not be long before the Co-op once again exit the car sale sector.

The Co-operative Bank, although suffering to some extent from the credit crunch, those dodgy structured investment vehicles and related problems, are doing much better than most high street banks in the present climate. This is because the Bank gets the money that it needs mostly from deposits made by business and personal customers - it doesn't raise much money on the international money markets like Northern Rock - and to a lesser extent most banks - did. This being the case, we suffer rather less when the money markets dry up. That said however, we did suffer inverstment write-down losses of around £32m which meant that profit fell from £76.3m to £50.4m before significant items, or £12.4m after significant items (mainly restructuring costs, I think). A good CIS result helps to save the day for CFS, resulting in a total profit of £151.5m before significant items - £84m after them (up from £134.7m and £121.2m respectively).

After talking about profit for so long, I feel the need to justify myself. Contrary to the opinion that you might have gained of me for the last thousand words or so, I am not a money-obsessed sort of person. If I was, I'd be worrying about the results of a listed company instead to try and make myself some money! The reason why the financial bottom-line of the Co-op is important is, firstly, to ensure that we continue to survive, and further - to help us expand both as a collection of businesses and as a Society. Its only by having strong financial fundamentals that we can serve our members as both retailer and community organisation. As I said in a similar desperate justification after the 2007 interim results, "The Co-operative Commonwealth will be built on retained profit..."