CO-OPERATIVE GROUP LIMITED

Our Member-Owner 2023 Annual Report and Accounts

2023 in brief

A solid financial performance despite continued macro-economic volatility and inflationary

headwinds. We were able to invest significantly in member pricing, colleague support and

our communities, and still deliver a successful set of financial results.

* 2022 includes Group Revenue for the Petrol Forecourt business, which was strategically divested of in H2 2022, and both

2022 and 2023 include wholesale revenue transacted as part of the transition agreement.

** Statutory comparative figures for 2022 have been restated to reflect the new accounting treatment for funeral plans under

IFRS17. FY 2023 onwards is accounted for on this basis.

*** Group Profit Before Tax in FY 2022 and consequently the variance in 2023 includes £319m profit on disposal following the

strategic divestment of our Petrol Forecourt business in H2 2022.

**** Net debt now reported and re-stated for 2022 excluding accrued interest on bond debt.

See page 263 for Jargon Buster.

In 2023, we have:



Recruited over one million member-owners.

The most we’ve recruited in a single

year since 2017 and more than in 2021 and 2022 combined



Invested £90m

(annualised)

in reducing our food prices across 770 lines, including

exclusive member prices and promotions



Became the only Food retailer to offer

30% colleague discount on own-brand

products

for colleagues



Continued to

prioritise colleague safety

through our ‘Safer Colleagues, Safer

Communities’ campaign. We invested

£18m

on security measures and continued to

campaign with Government and work alongside local communities to help tackle the

root causes of crime



Pension scheme net assets of £0.4bn (2022 £1.6bn) reflecting the successful

pension “buy-in” agreed between the Trustee of the Co-operative “Pace” Pension

Scheme and Rothesay Life plc, covering future pension liabilities and providing

greater security to members of the scheme

Vision highlights

Our Co-op is the UK’s largest consumer co-operative, with over five million active member-

owners

and a presence in every postal area in the country.

We’re a major food retailer and wholesaler; we’re the largest funeral services provider in the

UK; a major provider of regulated consumer legal services, particularly probate and wills,

and provide a broad range of consumer insurance products.

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. A stronger Co-op means stronger

communities; we’re here to create value for our member-owners and the communities in

which we trade, and we can only do this by running a successful co-operative business.

How we run our business is important to us. We set ourselves high standards for responsible

retailing and service. And, we have a responsibility to be a campaigning business, speaking

out on the issues that matter to our member-owners. 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 for our Co-op member-owners and their communities.

By offering great products and services we grow our customer base, our membership and

the positive Co-op impact and value we can bring to wider society. When you spend at Co-

op it does good for you and your local community. Our commitment to ethical trading and

international development also means our impact is wide reaching and around the world.

Our Vision ‘

Co-operating for a Fairer World

’ has served us well for the last five years and it

has driven all of the achievements across 2023 including the highlights below.

Active member-owners are those who have traded with us in the past year in Co-op Food, Funeral and Life Planning,

Insurance and Legal Services

*4m Includes beneficiaries from our external partnerships with charities, our local community fund, our academies and through

our Member Pioneers

Our Co-op continues to stand apart from other operators in its markets, demonstrating the

power of co-operation. During 2023, our Co-op led the way across many areas:



Our pioneering work with organisations including the Net Zero Council, Government

and local police forces, ensured we represented our member-owners’ voices on the

issues that matter most to them.



We were the first

national retailer to become a champion of Sustainable Palm Oil

communities. We’ll be promoting sustainable palm oil practices and highlighting the

need for meaningful action across the retail industry.



We published a report - the first of its kind - to look at Social Mobility, Inclusion and

Belonging at our Co-op. It was driven by our member-owners and created by

listening to hundreds of our colleagues.



We launched a new market-leading, flexible compassionate leave policy for

colleagues. Colleagues can take up to 10 days paid leave when needed, at any time,

regardless of the relationship to the person who has died.



We announced plans to explore sustainable funeral choices by pioneering a new

option in the UK, Resomation®.



We became the first food retailer chain to sign up to the Mayor of London’s Women’s

Night Safety Charter which is dedicated to ensuring all women feel confident and

welcome at night in the capital.

For more information on our responsible business performance in 2023, please see our Co-

operate Report at

co-operative.coop

Our new Vision

The world has changed, and with it the needs of our member-owners and society.

The cost of living crisis is driving a focus on pricing and value for every day and life

essentials. We’re proud to have been able to support our member-owners, customers and

colleagues through this during 2023, whilst further strengthening our financial and

operational position. We are excited for a new co-operative era in which our businesses can

grow. While we developed our ambitious new strategy in 2023 to reflect this, we also knew it

was time to re-define our Vision and align it with our plans for growth.

Our new Vision supports our ambitions of returning to our heritage and co-operative Values

by continuing to place our member-owners firmly at the heart of all we do, every day.

‘Co-operating to build more value for our member-owners every day’.

We look forward to updating you on the progress we’ve made towards our new Vision in next

year’s report.

Chair’s introductions

Allan Leighton

As I hand over the Chair of our Co-op to Debbie White, I do so knowing that she will lead

and steer our Co-op with our co-operative Values and Principles and the very best interests

of our member-owners, colleagues and the communities we serve at the forefront of her

mind.

I also know that our Co-op is in the strongest position it has been in since I accepted the role

of Chair nine years ago. We have faced many challenges during that time, but with the

power of Co-operation and through the support of our amazing 56,000 colleagues, we have

weathered them all and grown stronger as a result.

2023 was, as we predicted, another challenging year as economic uncertainty, inflationary

pressures and heart-breaking global conflict placed increasing pressure on individuals and

businesses.

I am therefore very proud of what our Co-op delivered for our member-owners during the last

year and equally excited about what it can achieve in the future. A huge amount of credit

needs to go to Shirine and her leadership team for delivering a strong commercial

performance, which exceeded expectations, fulfilling our wider social commitments, and

developing a compelling future vision and strategy for our iconic business.

As we look to 2024, our Co-op is entering a new era of co-operation, one that continues to

place member-owners and the interests of their communities firmly at the heart of all that it

does.

We will be a Co-op that is true to its founding principles of existing to create and return value

to member-owners, and that gives those member-owners a say in how it creates this. A Co-

op that has the financial stability to power investments to support growth in the areas where

it can add the most value for members. And with the ability to innovate and to look to the

future. A Co-op that will proudly continue to support the UK, its communities locally and

around the world for many years to come.

Guided by its Co-op Difference and values I have every confidence that it will deliver on its

strategy, and in turn its Vision -

‘Co-operating to build more value for our member-owners

every day’.

Thank you to you all for your loyalty and support for our Co-op during the years, and for your

continued support in the future.

Allan Leighton

Chair, the Co-op Group until 1 January 2024

Debbie White

It is a pleasure to introduce our 2023 Annual Report in my first year as Chair.

Our co-operative Values and Principles align to my own and I am incredibly humbled and

proud to take on this role at such an exciting time, as we begin the journey to grow our

business.

Having led and been involved with businesses in many different sectors, including

Interserve; global healthcare and government at Sodexo; Spire Healthcare Group PLC;

Howden Joinery Group PLC and PAVmed Inc. I remain fascinated by and thrive within large

people-centric, values-led businesses with significant opportunities to make a difference. I

see that, and much more, within our Co-op and I am confident we can make significant

progress together in the years to come.

I would like to give my heartfelt thanks to Allan for his counsel and support as I have

developed my understanding of our Co-op. He has been a tremendous Chair and, on behalf

of everyone at our Co-op, I’d like to thank him for everything that has been delivered over his

nine year tenure. Thank you also to the Board, Shirine and her leadership team and

everyone I have met on my induction for the warm and inclusive welcome I have received.

I have been in position as Chair Designate and Chair for a combined eight months now and

can clearly see the impact of the last two years’ hard work by our 56,000 colleagues to

stabilise the business, establish a new Co-op Vision and strategy and ensure we have the

right ways of working in place to deliver our ambition and plans for significant growth. As you

will have read in Shirine’s update, we made significant progress in many areas in 2023 - our

work in communities, with young people and our improvements in sustainability are at the

heart of being a co-operative.

We thank Shirine and all our leaders – including Rachel Izzard our CFO, who we welcomed

in 2023 - for what our Co-op has achieved within this report.

Economic uncertainty, global conflict and the cost of living crisis continue to affect our Co-op,

member-owners and communities. Yet, our Co-op is secure and primed for growth in 2024.

Consistent determination and hard work at all levels throughout our organisation has meant

that our Co-op has not only endured but excelled during another challenging year. We have

grown our membership base and improved our financial stability; a successful co-operative

business must be commercial and focused on creating value for its member-owners – I

believe we are getting much better at both of these aspects. I am delighted to be joining at a

time when our Co-op is driving growth and performance in both these areas. Shirine covers

this further in her ‘Looking Ahead’ on page 40.

And, as Allan steps down, so too do a number of our Board members who have also each

delivered an impressive nine years of service to our Co-op. This year we sadly say goodbye

to Member Nominated Director Paul Chandler, and Stevie Spring, Independent Non-

Executive Director and Chair of our Remuneration Committee.

Sir Christopher Kelly, our Senior Independent Non-Executive Director, also served a full nine

years and stepped down last November. All three, along with Allan, have made incredible

and long-lasting contributions to our Co-op. I thank them for everything they have done, as

well as their recent guidance and support.

Joining our Board during 2024 we welcome Moni Mannings as Senior Independent Non-

Executive Director and Luke Jensen as Independent Non-Executive Director. I know they will

both add incredible value to our Co-op and we all look forward to working with them closely

in the years ahead.

I am excited about the future of our Co-op, it is my strong belief that it is only through

working collaboratively together that we can achieve our Vision

‘Co-operating to build more

value for our member-owners every day’.

Thank you for your continued support of, and engagement with, our Co-op.

Debbie White

Chair, the Co-op Group from 2 January 2024

Report from the President of the National Members’ Council

In 2023, our Co-op continued to focus on what matters most: our members and the value we

create for you. Although we’ve been up against challenges, it’s remained an exciting time for

us, which we’ve been building up to and working hard towards across our businesses for the

last 12 months. And at the heart of it is you.

As a Co-op member, you own an equal part of our Co-op and we exist to meet the needs of

our members and their communities, not a small group of shareholders. We’re different. It’s

fantastic that we’ve reached the milestone of five million members-owners, and that our

membership has been growing and diversifying alongside our businesses. Many of you have

been with us for a while now and I can’t thank you enough for your ongoing loyalty and

commitment to our Co-op. I’d also like to take this opportunity to welcome everyone who

became a member-owner in 2023, it’s great to have you with us.

Our priority for 2023 was Co-op membership and especially economic value. Many of our

member-owners and customers told us that you believed our prices were too expensive. As

your elected representatives, Council championed the importance of supporting our

members and their families during the ongoing cost of living crisis.

Throughout the year, we heard from the Board and the business about different proposals to

improve economic value for our members. We identified that there were better ways to

increase value to member-owners. By reducing our standard pricing and through the

introduction of Member Prices on a number of everyday essentials and own-brand

favourites, we’re now helping members to save almost three times more per week,

compared to what they previously received in reward.

Being a member-owner of a Co-op is special. It is not a loyalty scheme and as owners, you

should have access to products and services from Co-op at great prices. Your Council

championed the importance of being different and recommended that our Member Prices

scheme should focus on everyday essentials and those products our members buy most.

Since the Member Prices scheme was launched in August, we’ve seen members shopping

with us more often and more members join our Co-op. We have been listening to you, our

member-owners, as you have shared your thoughts about the changes to membership

rewards and replacing the previous scheme with member prices. We know that many of you

prefer member prices and will see greater benefits by instant access to permanently lower

prices on essential everyday items. However, we acknowledge that some of our members,

especially those who live in rural areas and do all of their shopping with Co-op, preferred to

be rewarded through balances for each time they bought an own-brand product.

Throughout these changes, we have challenged the Board and Co-op Leaders on key areas

such as the insight used about what our member-owners want and how they will benefit and

how we listen to and communicate our changes to them.

In 2024, your Council will continue to ask important questions and hold the Board to account

for the economic value we provide for members, including making sure that you have access

to member prices on products that you want to buy, and that these products are available

wherever you live across the UK.

We will also have a significant focus on how we ensure that Co-op membership is special

and that we give you even more value every day. With over five million member-owners, we

know that each of you have different reasons for being a member of our Co-op. Some of you

want to buy our products and services at the right price. Some of you are passionate about

our ethical and sustainable commitments and work to reach Net Zero. Some of you like

getting involved in the work we do locally with your community. Some of you resonate with

our unique ownership model, and you want to have your say in how we are run. In 2024, we

want to see this all come together in a single membership offer that everyone can make the

most of which demonstrates the value we can deliver when you choose us and what we can

achieve with your views and support.

An example of the power of Co-op member-owners, and what can be achieved when our

Co-op is used as a platform for change, has been our ‘Safer Colleagues, Safer

Communities’ campaign. Working in a safe environment free from harm is a fundamental

right. As Council Members, we alerted our Board and Operating Board of our concerns

about the reports of rising numbers of serious, organised theft in stores and violence against

our store colleagues. We know this has been a big worry for our members and colleagues

and Council has been at the forefront of keeping this issue high on our agenda. The Retail

Crime Action Plan is a direct result of our Co-op listening to our member-owners and

colleague member-owners. We have taken action together to lobby for changes to the law

and to address how retail crime is handled and prioritised by the criminal justice system.

Some other examples of where your voice has shaped Co-op has been through our AGM

Motions. ‘Creating a Fairer World for Young People’, ‘People Power and our Co-op

Difference’ and ‘Championing Member Value through our Ethical and Sustainable

Credentials’ were the themes in 2023. We also had a motion from member-owners which

asked our Co-op to consider options to strengthen our animal welfare policies and practices

in relation to chickens. It’s vital that our member-owners know what we’re doing with their

votes and why, and I’m really pleased that we’ve been able to achieve this through our

motion video updates on Join In.

Your Council had three priorities in 2023: Cost of Living, Business Performance, and

Member Participation and Community, which you can find out more about in our report on

page 139-144.

There is so much more to come this year. 2024 will see an even greater focus on

membership and how we can ensure the value that we create for you is measured and

shared. We’re also going to champion you getting the right information at the right time on

products and services, the social value members create together, and your rights as a

member-owner.

Your National Members’ Council is one of three parts of our Co-op’s governance system.

Both your Council and Board are elected and voted for by you, our member-owners. The

Board, led by our new Chair, Debbie White, sets the direction and strategy for our Co-op and

makes the big decisions. Our Operating Board, led by our CEO, Shirine Khoury-Haq, runs

our Co-op on a day-to-day basis. Our role as your Council is to work cooperatively with our

Board and Operating Board to hold them to account and influence and shape our future

direction. Through this unique way of doing business, we can achieve the best for you. Our

Council looks forward to continuing to work with our Board, our member-owners and our

colleagues. We will continue to provide support and challenge as we create a sustainable,

successful co-operative business together with you at its heart.

I’d like to thank our outgoing Chair, Allan Leighton, and Sir Christopher Kelly for their service

to our Co-op over the past nine years, in some of the most challenging times our Co-op has

ever faced. I look forward to working with Debbie, Shirine and their teams as we move our

Co-op into a position of growth.

All that’s left for me to do is say a huge thank you to you, our members, for choosing us. I’d

also like to thank Debbie Williams and Sam Webster, our Vice-Presidents, who do a brilliant

job at leading Council alongside me; our Senate, which makes sure we’re doing the right

thing as a Council and not missing important opportunities for our member-owners and Co-

op; every Council Member for their continued commitment to our shared cause; and for our

small but mighty Council Secretariat Team, who we couldn’t function without. I look forward

to working closely with all of you in 2024.

Denise Scott-McDonald

President of Co-op's National Members’ Council

Chief Executive’s overview

Shirine Khoury-Haq

Chief Executive Officer, Co-op Group

Despite external headwinds, further strengthening of our financial position allowed us

to do the right thing and invest in supporting our member-owners, colleagues and

communities during the cost of living crisis. It also gave us the ability to plan

strategically, so that our Co-op is set up to be commercially successful, sustainable

and fit for future growth.

Our Co-op in 2023

It fills me with great pride to introduce our annual report to you, our member-owners. This is

our main update to you on how the business you own has performed and it is also an

opportunity to celebrate all that we have achieved together.

I must, as always, start by thanking my amazing 56,000 colleagues. Without their care,

compassion and commitment, our Co-op wouldn’t be where it is today. I know my colleagues

are so proud to see their efforts reflected in the successes our Co-op has achieved across

all of our businesses and the wider social impact we have been able to make into

communities.

My thanks also go to Allan Leighton who, during the last nine years, has ably chaired our

Co-op through some important moments in its history, whilst remaining a true co-operator

and upholding our values. I am so grateful to Allan for his support and guidance as I took on

the CEO role. His expertise, humility and sense of humour made the last two tumultuous

years not only productive but also a great deal of fun. After nine years of service to our Co-

op, he has left this incredible organisation in a much stronger position than when he started,

and we all owe him a debt of gratitude.

My colleagues and I are also so honoured to welcome Debbie White as our new Chair and

to introduce her to you in her first annual report. Debbie’s experience and expertise speak

for themselves, but it was her true connection with, and appreciation for, our Co-op and the

values it embodies that made her stand out as an extraordinary Chair for this organisation.

She has already contributed so much to our progress, and we are all looking forward to

working with her as we continue to deliver more value to our member-owners every day.

This is my second annual report as CEO and sadly, as we all know, 2023 has been another

year of tragic worldwide unrest and economic turmoil, globally and in the UK. This has

brought challenging trading conditions, volatile markets and ongoing financial headwinds for

all businesses. The resulting cost of living crisis continued to affect our member-owners,

colleagues and customers.

Given these external influences, we have had to remain ruthlessly focused on maintaining

financial and operational discipline while delivering on our strategy and investing in our

growth. My thanks go to our operating board, leadership team and every single one of our

colleagues for keeping focused on our objectives.

In the UK, the cost of living crisis has persisted and our improved financial strength has

meant that we have been able to support our member-owners, colleagues, customers and

local communities during this critical time, as only we can.

Our Co-op exists to create and give value back to our member-owners and the communities

we serve. It has been at the heart of our co-operative Values and Principles since we were

founded in 1844 and it has been our core focus during 2023. This will not change as we

continue to move our Co-op into a position of growth, with our member-owners firmly at the

heart of all we do. We are able to do this due to the strengthening of our balance sheet and

operational performance, the clarity of our strategic ambition and the unique nature of our

Co-op Difference and Vision.

Rachel Izzard, our Chief Financial Officer, shares the full detail on our financial performance

in her update a little later in the report, along with updates from each of our businesses by

our Managing Directors Matt Hood, Gill Stewart, Peter Batt, Caoilionn Hurley and Charles

Offord.

Our business performance

I do, however, want to highlight the details of another 12 months of positive year-on-year

progress. Despite external factors and inflationary pressures, we ended 2023 in a much

stronger position than the previous year, and ahead of our initial year end predictions. We’ve

seen improvements in some of our key financial metrics, with cash generation up, underlying

operating profit up and net-debt significantly down. When the sale of our petrol forecourts

and the impact of the introduction of IFRS17 are removed, our Co-op has seen year-on-year

improvement across most of our key financial metrics. This is despite absorbing economic

headwinds related to pay awards, product inflation and increased energy prices of £200m.

It's important to note that our profits could and would have been higher, if we hadn’t chosen

to take some of the decisions we did to further support our member-owners, colleagues,

customers and communities. However, as a Co-op, we have a different way of doing

business. Our model isn’t based on making short-term profits for shareholders. Instead, we

took a different path in an ongoing cost of living crisis, which was exactly the right thing to

do. This included a £38.6m investment into supporting our commitments to ethical and

sustainable sourcing and investing £23.6m to support communities in the UK and around the

world.

We spent the first half of the year continuing to build on the momentum that our hard work

and discipline created during 2022, continuing our focus on our operating expenditure and

lowering the cost to run our Co-op, while keeping tight control on investments.

This discipline created the ability for us to invest £90m (annualised) in 2023 into growing our

active membership

base by lowering prices and creating specific deals for our member-

owners. We further invested £44m year on year to support our colleagues through the cost

of living crisis. This included all Customer Team members in stores receiving a pay increase

of 10.1% through our commitment to the Real Living Wage, a £30 end of year thank you

payment to those colleagues who don’t participate in the Group Bonus scheme, a £10 end of

year celebration payment and an indefinite extension of 30% discount on Co-op own brand

products for all our colleague member-owners. Our colleagues are critical to our success,

and in addition to extending colleague discount we have continued to offer a full package of

wellbeing support which includes physical, mental and financial support.

As Rachel will detail later, I am so proud that we ended 2023 in a stronger financial position

than 2022 while providing such significant support to our colleagues and member-owners,

which is critical as we set our Co-op up to deliver ambitious growth in 2024 and beyond.

Active member-owners are those who have traded with us in the past year in Co-op Food, Funeral and Life Planning,

Insurance and Legal Services

As Kenyatte Nelson, our Chief Membership and Customer Officer, will detail in his report, we

have continued our investment in membership during 2023 to set us up for further growth

during 2024. It has been a year of significant focus on attracting new member-owners,

investment into lowering prices for our customers and member-owners alike, providing

member-owner bespoke prices and promotions, and communicating about our businesses

and services.

We recruited over one million member-owners in 2023. We ended the year with over five

million active members (2022: 4.41m), a year-on-year increase of 14% even after the normal

level of turnover in membership that we experienced.

We can see this growth flowing through and contributing to our performance, particularly in

food as we continue to see increases in spend, frequency of visits and, most importantly, a

shift in the perception of the value that our Co-op offers.

This year’s positive performance would not have been possible without the early action we

took back in 2022, the tough decisions we made, and the hard work of everyone in our Co-

op during the last two years which has created greater efficiencies and improved ways of

working as well as much strengthened financial discipline. There is no doubt that this has

continued to positively contribute to our performance.

By the end of 2023, our work to increase our operational efficiency had generated £155m of

annualised cost reduction since the beginning of 2022, supporting our ability to absorb the

in-year cost headwinds.

We have significantly reduced our net debt from £909m at the beginning of 2022 to £82m at

the end of 2023 (a reduction of £827m over two years and £240m in 2023). While driving a

reduction in interest charges, the investment disciplines we have implemented, the right-

sizing of our businesses and the focus on operational and cost improvement have enabled

us to deliver value to our member-owners while building strong foundations for our future

growth.

The investments we have been making in our Food store estate are really paying off, and we

are seeing many stores that had been underperforming now consistently generating more

revenue for our Co-op.

Our life services businesses have all performed strongly in their markets driving increases in

revenue across the individual business units in Funeralcare, Insurance and Legal Services.

We are very proud of this year’s positive performance. It allows us to plan ahead for the

longer term and build an ambitious plan for our future, based on our Co-op Difference and

our new Vision and strategy, all of which place our member-owners firmly at the heart of all

we do, and with the growth of our Co-op as our strategic focus.

I’ll share more detail on these plans in my Looking Ahead update a little later in the report.

Progress against our Vision

We also have much to celebrate in our sustainability, community and campaigning work as

we continued to deliver our Vision during 2023.

It’s vital that we continue to be there for those who rely on our Co-op the most. Our Local

Community Fund helps thousands of local community causes that our member-owners care

about. Since it launched in 2016, members have raised £107m for more than 36,000 unique

community causes and in our latest pay out in 2023, these Local Community Fund causes

supported over one million people in our members’ communities across the UK. We’ve

evolved how we measure and report members’ participation in our Co-op and are now able

to measure a more comprehensive view across many areas including choosing a community

cause, voting in our elections and AGM and donating personal rewards to the Co-op

Foundation. In 2023, member-owners participated across these opportunities 2.5m times,

exceeding our original target of 2m. This represents an increase on last year of 30%. It’s

fantastic to see that our member-owners are becoming more engaged in helping us to bring

our Vision to life and create social value through participating with our Co-op.

Our member-owners called on us in our 2021 AGM to

‘Campaign and advocate for change,

to tackle the inequality we see today and to challenge Government to address the root

causes of these issues and to enable social mobility throughout our society’.

This year,

we’ve made progress on our commitments to social mobility as we commissioned Making

the Leap, a social mobility charity, to undertake ground-breaking research. Through this,

we’ve heard directly from colleagues who identify as coming from lower socio-economic

backgrounds about their experience of working at our Co-op and have found that, for many,

their socio-economic background may be acting as a brake on opportunity and progression.

The report has helped us to develop a new 9-point Social Mobility plan, supported by a

Social Mobility taskforce to deliver it. Through this, we’ve committed to supporting our

colleagues to become more financially resilient and to address the length of contracts and

the number of additional hours worked to give colleagues a more secure income.

We continued to develop our Diversity and Inclusion (D&I) commitments in 2023, focusing

on driving better diversity in representation while promoting an inclusive culture. We’ve

achieved our target to increase the representation of ethnic minority leaders, which is now at

8% (2022: 7%). We know there is still more to do and are working towards our 2025 target of

10%.

We’re also continuing to create opportunities by championing apprenticeships, delivering

hundreds of opportunities within our own business and supporting other employers to do the

same through the Co-op Levy share. Since its launch in April 2021 our levy share scheme

has brought together a fund of £23m from 84 employers and placed over 2,000

apprenticeships.

Our Co-op’s commitment to tackling the climate crisis has remained one of our top

priorities and in 2023, we were delighted to be recognised at the Fairtrade Global Awards,

winning the ‘Climate Leader’ award. This was after being awarded the Queen’s Award for

Enterprise for Sustainable Development in 2022.

Having reached our near-term carbon-reduction targets early, this year we have set new and

more ambitious science-based targets which have been validated by the Science Based

Targets initiative (SBTi) in line with the SBTi Net Zero Standard. Since mid-2022, we've

successfully implemented, measured, and verified over 22,000 new energy saving

measures, with over 16,000 of these measures implemented in 2023; this energy saving

initiative has contributed to an overall reduction of 56% in our scope 1 & 2 emissions in 2023

(vs 2016). Our Scope 3 emissions represent over 90% of our total carbon footprint - and the

vast proportion of these emissions are linked to producing the products we sell. This makes

reducing the carbon footprint of our supply chain and products our biggest climate change

priority. In 2023 we reduced our Scope 3 emissions by 21% since 2016.

Our Co-op Academies Trust, under Chris Tomlinson’s leadership, continues to focus on

school improvement, and during 2023 we were so proud to have received 7 Good Ofsted

outcomes, with almost two thirds of our Academies now rated ‘Good’ or ‘Outstanding’. Often

located in challenged communities, many of these schools were rated as ‘Inadequate’ or

‘Requires Improvement’ when they joined the Trust, so this is an important achievement.

As our 19,500 students also played a huge part in delivering these improvements, they

deserve our congratulations. I have been delighted to meet many of them over 2023 and I

am always so impressed with their intelligence, ambition and potential. We continue to

ensure that our Academies and our businesses, as well as our students and our colleagues,

work together to ensure the best possible futures for every single one of the young people

who attend our Academies.

Our charity, the Co-op Foundation, has continued to deliver its strategy ‘Building

communities of the Future Together’. In partnership with our Co-op, youth social action

charity #iwill, and supported by funding from Co-op Live, Co-op Foundation launched the

£4.5m Young Gamechangers Fund. Funding will put young people across the UK at the

heart of change to create communities that are prosperous, safe, diverse, equitable and

inclusive, healthy, and sustainable. The Foundation also awarded £1.4m from its Future

Communities Fund to support grassroots, youth-led organisations to develop diverse leaders

of the future. Funding allocation was decided by seven young people from the Foundation’s

Future Communities Collective along with two young trustees. And through its Carbon

Innovation Fund – another partnership with our Co-op to help reduce carbon emissions in

food and farming – the Co-op Foundation awarded £1.1m of grants in 2023 to organisations

helping to reduce the reliance on soy-containing animal feed and synthetic fertilisers.

The full details of how we have delivered against our Vision in 2023 can be found in our Co-

operate Report at

co-operative.coop

Campaigning and driving change

It's always an honour to represent our Co-op and the views of our members and colleagues

on the things that they tell us matter most. I’m especially proud of the campaign we led

during 2023 to raise awareness of the shocking increases in retail crime. This is something

that we and all other retailers are facing; however, convenience stores are most impacted

due to their size and ease of access. We recorded the highest ever levels of retail crime in

our Food stores – 336,270 incidents of shoplifting and anti-social behaviour, a 44% year-on-

year increase (2022: 233,266). Everyone has the right to feel safe at work and it’s so

important that we continue to work with police forces and Government to tackle this during

2024.

During 2023 I was delighted to take on the role of co-chair alongside the Rt Hon Graham

Stuart MP of the Government’s newly formed Net Zero Council. By co-operating together

with other industry leaders, we have a unique opportunity to work together to progress

towards the UK’s Net Zero carbon reduction targets and to set an example for other nations.

This complements the work we do with the British Retail Consortium’s Climate Action

Roadmap, which I continued to chair during 2023.

We have also worked to drive societal change as we partnered with the Royal Foundation

Business Taskforce on early Childhood. Chaired by HRH The Princess of Wales, the

taskforce brings together Chief Executives from a number of different industries to tackle the

challenges faced in early childhood and the impact this has on society. Our Co-op, with so

many community links supporting young children and their families, has an important role to

play in this effort.

Thank you

While 2023 was another year of challenging economic and market conditions, planned and

unplanned headwinds, and global turmoil, our results show our Co-op was well placed to not

only navigate this but to position ourselves to look forward with confidence. Our

performance, both commercially and in contributing to our member-owners’ communities, is

something of which we should all be proud. It sets us up well for 2024 and beyond.

My thanks go again to each and every one of my colleagues who work so hard every day in

service of our member-owners and our Co-op. I also thank my operating board, the very best

team I could ever hope for, as well as our hugely talented and collaborative leadership team.

They have shown such ambition, bravery, compassion, collaboration and leadership over

this incredibly difficult year and the one before – and they have achieved so much as a

result.

I also want to thank our Group Board and our wonderful National Members’ Council who are

so passionate about our Co-op, who support and challenge in equal measure, and who

always ensure we hear our member-owners’ voices and place their interests first. I am

grateful to each of you and I am looking forward so much to what we can achieve together

during 2024!

Thanks

Shirine

Financial overview

Rachel Izzard

Chief Financial Officer, Co-op Group

This is my first annual report as Chief Financial Officer for our Co-op and I am

honoured to have been given this unique opportunity.

I wanted to join an organisation with a meaningful purpose, a strong people culture,

and an energetic and passionate team. I feel fortunate to have found all of this in our

Co-op and to have joined at a time where we have strengthened our balance sheet

and have a clear refreshed Vision with member-owners firmly at the heart. We have

great opportunities to continue to improve and set ourselves up for the decades to

come.

Our headline performance

Looking back at 2023, it was another challenging and volatile year for UK retail and UK

consumers.

Despite this tough environment, we have delivered a solid financial performance for our

member-owners, building on the good work of 2022. We absorbed significant cost

headwinds, and made considered, tightly managed investment choices including price

investment for members at this critical cost of living time. We also generated improved

underlying profitability and strong cashflow to further strengthen our balance sheet. This

gives us a strong base, and emerging momentum, to return to profitable sustainable growth.

A key part of my role, and one that I value, is to ensure that all our stakeholders, including

our member-owners and colleagues, understand our financials in an accessible way whilst

still making sure we meet our regulatory reporting requirements.

To better understand this year’s results (both reported and underlying), I’ll start with

highlighting the below key areas that are outside of normal trading results:



Sale of petrol forecourts

– our 2022 results included ten months of trading

performance related to petrol forecourts (PFS) which we sold in October 2022, as

well as the one-off sales proceeds and disposal profit. Both 2022 and 2023 included

Federal sales related to the transition period. By removing these impacts we can

compare the performance of our more focused estate on a comparable basis during

2023, in particular for revenue trends and statutory profit.



53 weeks reporting period

– similar to other retailers, we report our financial

performance in weeks, with the need circa five years to report on 53 weeks versus

the usual 52. This extra 53

week gives us 1% higher sales in this fiscal year, a

slightly improved year end cash position (as the 53

week has sales inflow but a

low-cost outflow), and an immaterial net impact on profit and loss. The reported

revenue trend should be viewed in context of this extra 1%.



IFRS17 new accounting standard adoption

– this relates to pre-need funeral

plans which are treated for accounting purposes as if they are a long-term insurance

product. This adoption doesn’t change the cashflow or profit we recognise over the

life of a plan. However, it does change where it appears in the profit and loss and

balance sheet and when it is recognised. This means some of the numbers you see

in this document for 2022 do not match the numbers you will have seen last year as

both 2022 and 2023 have been transitioned to this new accounting to ensure a

comparable basis. This also means Funeralcare is our only business segment where

we believe Profit Before Tax (PBT) is a helpful measure of profitability compared to

all other segments where we use underlying operating profit.



Pension Buy-In –

in November 2023, the Trustee of the Co-operative Pensions

Scheme (“Pace”) completed a “buy-in” transaction for the Co-op Section with

Rothesay Life plc, purchasing a bulk annuity insurance policy. This covers all

liabilities required to meet future pensions and delivers greater security to members

of the Co-op Section of Pace. This was achieved without the need for Co-op to make

additional contributions, whilst leaving residual assets remaining in Pace. Technical

accounting means this reduces the reported balance sheet net pension asset

materially, but removes significant volatility in movements between our pension

funding obligations and our asset returns and moves to a more certain net number.

This is a successful outcome for our Co-op and the Pace members.

The following table walks through last year’s headline reported results, showing the

restatements and the comparison to our current year 2023 results.

Group Financial metrics

Revenues:

Group revenue of £11.3bn was 1.7% down on 2022 (£11.5bn). Outside of the

impact of the petrol forecourt sale, group revenue was 4.7% higher than last year. This was

in the context of the current year having 53 weeks. The underlying sales growth from each of

our business units was a solid result given the challenging economic environment. Sales in

our Food business were down by 6.4% (by £0.5bn). This was predominantly due to the sale

of petrol forecourts, outside of this impact, sales were up 4.3% (by £0.3bn). With the external

high inflationary environment, our volumes as well as those across the sector were reduced.

However, our improved financial strength enabled us to directly support our members and

colleagues through the ongoing cost of living crisis, absorbing elements of the inflationary

cost pressure ourselves, supporting our member-owners with £90m of annualised price

investment into key value lines as well as continuing our discount of 30% for colleagues. The

underlying Food sales growth was slightly behind the wider market, driven by the first half of

the year, with the second half showing stronger momentum.

This should be viewed in the

context of our disciplined approach to our property footprint which contracted marginally

year-on-year as we focused on improving profitability metrics before returning to investing in

net new space. Outside of our Food business, the standout sales growth in the year came

from Legal Services, up 48% to £68m (2022: £46m).

Profitability:

In 2023 we improved underlying operating profit versus the previous year

achieving £97m (2022: £83m). The improvement of £14m was inclusive of absorbing the

loss of the petrol forecourts profit, and achieved on the reduced group revenue, meaning our

underlying profit margin moved ahead. This was delivered through the hard work of the

teams to mitigate significant cost inflationary headwinds of over £200m. It was also achieved

whilst making room to invest heavily in our membership proposition with pricing.

The cost headwinds were driven by inflationary pressure. Energy costs stabilised but were

still £42m higher when compared to 2022 (2023: £180m; 2022: £138m). Salary inflation

including Real Living Wage increases drove circa £77m of additional costs compared to

2022 (2023 total salary costs: £1,383m). We also continued to significantly support our

colleagues through the cost of living crisis. We extended the colleague discount of 30% on

Co-op own-brand products and provided a one-off payment of £30 during December to

those colleagues who don’t participate in the Group Bonus scheme. A continuation of our

cost improvement programme delivered over £50m of further cost savings over and above

the £100m in 2022, which combined with operational efficiency and procurement

negotiations helped to mitigate inflationary pressures.

Profit from our Food business has increased year-on-year by 11% (2023: £154m; 2022:

£139m) despite the loss of the profit from petrol forecourt sales. Legal Services profit has

more than doubled to £20.6m from £8.0m in 2022. Profit growth in these areas helped to

support the wider group where Funeralcare and Wholesale profits have been more heavily

impacted by tough market and unit cost conditions.  

Statutory operating profit of £66m was a material improvement on the prior year loss of

£12m. This reflects the underlying operating profit improvement combined with a much-

reduced level of non-underlying charges. This includes a lower level of store asset

impairments as we started to see trading performance improve.

Underlying PBT showed a loss of £2m, improving by £46m versus the prior year loss of

£48m. The improvement combines the underlying operating profit improvement of £14m with

a significant reduction in interest costs as a result of the Group’s lower net debt position.

Whilst this was an underlying loss before tax, the gap has closed significantly.

Year-on-year PBT, outside of the prior year one-off gain on the petrol forecourt sale, has

improved, driven by lower interest payments, impairments and non-underlying costs.

Net debt:

Our net debt reduced by a significant £240m to £82m (2022: £322m), comprising

£595m of cash and short-term investments and £677m of borrowings. This was achieved

through stable underlying EBITDA year-on-year, a strong focus on working capital, a lower

level of one-off transactions, and a continued measured approach on capital investment.

With the improved cash generation, we took the opportunity to repay £100m of our

sustainability bond in the year given favourable debt market conditions and pricing. Over and

above core net debt our IFRS16 lease debt of £1,233m also reduced by £73m. With

conditions remaining volatile, a strengthened balance sheet is clearly beneficial. Our aim

looking ahead will be to progressively improve profitability whilst maintaining balance sheet

discipline.

Further detail on our Financial Performance can be found on page 43, as well as business

updates from our leaders over pages 27-39

I’d like to close with saying thank you to Mike Hazell, the interim CFO who handed over to

me mid-year, and to the team who have all worked so hard on these results.

Membership update

Kenyatte Nelson

Chief Membership and Customer Officer, Co-op Group

Over the last 12 months I have immersed myself in co-operation and can safely say

that I believe this is a model that works for business, for individuals and for

communities.

I am incredibly proud of what we have achieved over the last 12 months. We recruited

over one million member-owners - the most we’ve recruited in a single year since

2017 and more than in 2021 and 2022 combined. We invested £90m (annualised) in

reducing our food prices across 770 lines. We further supported our member-owners

by adding an extra discount on 178 of those lines and have reinvigorated what makes

us uniquely Co-op; ensuring our member-owners, and creating value for them, are at

the heart of our business.

Our Co-op is made up of a collection of innovative colleague member-owners, working

passionately to build a successful co-operative business, by creating value for all our

member-owners and their communities.

Over 2023, we have been working hard to lay the foundations for evolving our Co-op, the

way we do business and the way we create value for our member-owners.

This has included defining our Co-op Difference, which Shirine touches on in her ‘Looking

Ahead’ section later in the report, and creating our new Vision,

‘Co-operating to build more

value for our member-owners every day’.

Through this, we have firmly re-committed, across

the entire organisation, to create tangible value for our member-owners and their

communities.

This set up a perfect platform to evolve our member proposition across three key, equally

important, elements aiming to make membership irresistible and indispensable:

Economic value

– value delivered when buying our products and services.

Social value

– value delivered on the things our member-owners care about.

Ownership value

– value delivered by owning and having a say in how our

Co-op is run.

We’ve ensured that we are investing the money of our member-owners in the most effective

and efficient way, so that we continue to build a sustainable and successful commercial co-

operative, that creates value for its member-owners.

And this value is reflected across all of our organisation from member prices in our Food and

Life Services businesses, to our support of local community causes and national charity

partnerships and even to providing access to ‘money can’t buy’ experiences like Co-op Live

and Festivals.

Of course, as a commercial co-operative, it is important that we deliver this work in a way

that is profitable and sustainable, so we have been working hard to ensure that every pound

we invest for our member-owners, is creating and returning value.

And our membership offering is becoming increasingly attractive, with one million new

member-owners joining our Co-op in 2023. We ended 2023 with over five million active

member-owners (2022: 4.41m), a 14% increase even after the normal level of turnover in

membership that we experienced. Our marketing return on investment has also increased by

52% as a result of the focus on member prices in our advertising (2023 ROI: £3.06; 2022

ROI: £2.01).

Creating sustainable value for our member-owners continued to be key to our strategy in

2023, as did supporting members through the economic pressures that the cost of living

crisis brought. This was alongside our continued support of local causes through our Local

Community Fund and Community Partnership Fund, enabling us to bring our Vision to life for

the communities we serve.

As always, our Operating Board continued to work closely with our passionate National

Members' Council and Board, developing key initiatives, collaborating on how we best

engage our member-owners and demonstrating how our Co-op Difference can offer

meaningful support and value.

Economic value – when buying our products and services

More members, shopping more often and spending more with our Co-op

Over one million members joined us in 2023, which is more than we’ve recruited in a single

year since 2017.

Our active membership base has increased to over five million, a 14% increase year-on-year

(2022: 4.4m), with members shopping with us an average of 12.9 times every 12 weeks

(2022: 12.5) whilst member penetration – the proportion of purchases made by members in

Co-op Food stores - reached 37% (2022: 31%) which is the highest we’ve seen four years.

We supported all our member-owners through the cost of living crisis by making sure they

always save more than non-members across hundreds of everyday essentials, like bread,

milk and eggs. By buying member priced items in our Food stores over the year, our

member-owners have saved £38m.

And it’s been a record-breaking year for personalised offers. Members are using them more

than ever before, redeeming over 21m offers worth over £9m in savings last year. Reducing

our standard pricing and introducing Member Prices on everyday essentials and own-brand

favourites is helping members to save almost three times more per week, compared to what

they previously received in reward.

Member-owners save more

In April, we launched our Member Prices campaign

with

improved marketing and a refreshed

look and feel for our point of sale in stores and online. We

invested £90m (annualised) to

reduce food prices across 770 lines, and member-owners benefitted from an additional

discount on 178 of those lines.

Our members shop eight times more than non-members so we know that loyal members are

valuable to our Co-op. The more we can encourage our members to spend, the more value

we can create for them and their communities.

Through our Member Prices campaign, we began to target customers who were yet to be

members, encouraging them to sign up so they start shopping with our Co-op more

frequently. We also encouraged existing Co-op members by prompting them to shop with us

more regularly and increase their spend in store.

Our Member Prices advertising has proven highly successful. Our ‘Proper Donut’ campaign

achieved strong levels of cut-through, with our target audience of non-members who we are

looking to attract, telling us that it grabbed their attention (74% of respondents), made them

believe there were great deals and prices at Co-op (76%), made them feel they were

missing out (65%) and, most importantly, the advertising encouraged them to become a

member (58%). Furthermore, our media advertising drove 55% of total new member

acquisition in 2023 to date.

Evolving and electrifying our member proposition

Our focus on increasing the number of active member-owners remained throughout 2023.

Co-op Live

2023 saw the official launch of pre-sale tickets for our member-owners at our live event

venue in Manchester, Co-op Live.

Co-op Live will be a world-class, purpose-driven venue that will host international music,

sport, charity and business events. Co-op Live will embody our values and has a vision to be

the most sustainable arena in Europe. It will also donate at least £1m a year to the Co-op

Foundation to deliver on its new youth-led strategy to support future change makers across

the UK.

Almost 50,000 people joined Co-op membership in 2023 to get first-in-line access to pre-sale

tickets for events at Co-op Live – with top acts including Jonas Brothers, Olivia Rodrigo,

Take That and Liam Gallagher – ahead of the venue opening its doors in April 2024.

UK Festivals

This year our presence at music festivals across the UK continued to support our aims to

widen our membership demographic and increase active membership. In total we had stores

at nine festivals between June and August – Download, Isle of Wight Festival, Glastonbury

Festival, Latitude Festival, Belladrum Festival, Kendal Calling Festival, Reading Festival,

Leeds Festival and Creamfields Festival. 2023 delivered our most successful festival season

yet, with record sales and reaching over 700,000 people and over ten million people via our

partner’s channels. 12,500 new members used their membership card for the first time at a

festival. 69% of these were age 35 or under (vs 20% Co-op average), supporting our

strategic focus on younger members.

App offers

Over the last year we ran six games in our Co-op App to give our member-owners the

chance to win some exciting prizes, from money off their shopping and free products, to

tickets to the much sought-after and sold-out Glastonbury Festival. Members played our

games more than a million times and told us they found them to be fun, easy to play and

they appreciated a chance to save even more on their shopping with their prizes.

Social value - supporting the issues our members tell us they care about through our

work in communities, campaigning and sustainability.

Community

As a consumer co-operative, we are here to create value for our member-owners and, in

turn, to their communities.

Social Value is about understanding the things our members care about and where we can

enable them to make a difference; for themselves and their local community.

There are a number of ways in which our members can support our work in communities

including selecting a local cause to support. As members spend on Co-op products and

services, they also contribute to their chosen local cause. Members made 1.4m cause

selections in 2023 (2022: 1.1m), which is ahead of our target by 24.7%. In 2023 our

members supported 3,955 local community projects (2022: 4482), and the total amounted to

over £10.5m (2022: £12.4m). In total, one million people were supported by projects in our

latest Local Community Fund pay out in 2023.

We also worked in 2023 to offer members ways to support our three interconnecting

community missions –

access to food, access to mental wellbeing support and access to

opportunities for young people. Partnerships in place to support these missions included our

national charity partner Barnardo’s and localised partnerships including the

Community

Fridge Network, Your Local Pantry and Cruse Bereavement Care.

Our Co-operate Report

includes more detail around our Co-op’s work against these missions which can be found at

co-operative.coop

Plus, we supported the Big Help Out call to action across communities, which coincided with

the Coronation in May. Over 12,000 member-owners found out more about how they could

make a difference and volunteer their time and skills locally through our Co-operate online

community platform.

All of the achievements delivered throughout 2023 are testament to the hard work of our

Community team, led by Rebecca Birkbeck.

Gift of community spirit Christmas campaign

In 2023, our Christmas marketing campaign was focused on ‘Giving the gift of community

spirit’. We used this campaign as a way for members to make a difference to their Local

Community Fund by giving some or all of their membership reward wallet balance. Our

members, together with a donation from our Co-op, raised a total of £575k.

Other focus areas

Our Co-op has pioneered Fairtrade since the Fairtrade Mark launched in 1994 and Fairtrade

Fortnight was a big focus area in February and March. Our member-owners, have a long

tradition of support for the celebration and this year was no exception. We helped 26,000

members learn more about the wider positive impact of Fairtrade as well as highlighting the

hundreds of Fairtrade events being held locally by our fantastic team of Member Pioneers.

We also focused our attention on Co-op

Fortnight, a national campaign for all co-ops across

the UK facilitated by

Co-operatives UK

showcasing the difference that co-ops make in

society.

Co-op Fortnight

took place between

19 June – 2 July 2023

. In 2023, the campaign

showed how co-operatives offer an altogether different way to do business, to support

communities, and to support people.

June also saw us support Great Big Green Week, mobilising over 17,000 members to take

action online and join local events, also delivered by our local Member Pioneers.

Ownership value – the value from owning and having a say in how our Co-op is run

Our unique Co-operative

As always, we focused on helping our member-owners connect with our elections and AGM

in 2023. This year we introduced two successful online events to help members debate and

discuss motions before casting their vote. Alongside this, we delivered a range of blogs and

information to help member-owners, including colleague member-owners, understand their

role as owners of your Co-op.

At the

AGM

in May 2023, eligible member-owners

of our Co-op voted with an overwhelming

majority to grow our membership by engaging young people as a new generation of co-

operators (the ‘Creating a Fairer World for our Young People’ motion); to further celebrate

the ‘Co-op Difference’ in marketing – such as with our community spirit Christmas campaign

- and that we offer more opportunities to participate in the business (‘People Power and our

Co-op Difference’ motion).

Member participation and our three areas of member value

All three areas of member value are interlinked – economic, social and ownership with our

focus on growing member participation that embodies all three.

Our member-owners can participate with our Co-op in various ways, including choosing a

local community cause, participating in one of our Join In activities, becoming part of our

insight collective (

our formal insight panel where we invite members to join us for

discussions on a range of topics)

, or voting in our elections and AGM. Whichever way

members choose to participate with us, they are taking an action in support of our shared

Co-op Vision.

In 2023, member-owners participated by taking action 2.5m times against a target of 2m.

This represents an increase on last year of 30%. From local community cause selection, to

voting at our AGM, our member-owners are becoming more engaged in helping us to bring

our Vision to life.

We believe that the more our member-owners see the results and benefit from the value of

their participation, the more they will engage with the Co-op they own. Join In is a great

example of member-owner engagement, where members can participate in actions that help

shape their Co-op on everything from product and service development, shaping how we

work in communities and with our partners, join in with our campaigns and participate in our

unique democracy – this year was a significant milestone as we reached one million actions

through Join In alone.

We aim to increase the number of times member-owners participate in their Co-op and to

create maximum value for our members and their Co-op. Throughout 2023, our member-

owners participated in a variety of ways:

Co-creating products and services

Members supported the development of our Valentine’s, barbecue, and ready meal

strategies this year. We saw the launch of new wines where labels and tasting notes had

To be eligible to vote, you must be at least 16 years old and have spent a minimum of £250 at Co-op over a 12-month period.

See more details here

been designed by members. They also supported our work on labelling and provenance by

testing new QR codes on our tinned tomatoes and providing vital feedback.

Bringing members closer to the community programme they fund

This summer, we ran a campaign designed to showcase the breadth of community activity

that’s made possible thanks to our members. The campaign had 183,000 connections and

included members telling their stories of the work being undertaken across our programmes

including the Local Community Fund, Member Pioneers and our Co-op Academies.

Since 2022, we have also partnered with Mind, SAMH and Inspire and Rethink Mental

Illness on Time to Talk Day, the UK’s biggest mental health conversation. To date, we have

generated over five million more conversations. In 2023, 45,000 members joined in to

support Time to Talk Day. Members gained access to resource packs, helpful hints on how

to start conversations and, through our website Co-operate, were able to link to local groups

tackling the issue near them. This year, we generated three million conversations including

more conversations among young people and people from diverse backgrounds, which we

will continue in 2024.

Standing up for what we care about

We have continued to support members to understand the issues behind ethical decisions,

engaging them in campaigns and giving them the tools they need to make a difference.

Members engaged with conversations around animal welfare, peatland restoration and

sustainability, Fairtrade, World Water Day, sustainable seafood and eating healthily.

Towards the end of the year, members helped us to develop our Social Mobility campaign

and also supported when we reinvigorated our ‘Safer Colleagues, Safer Communities’

campaign, to address the serious issue of retail crime and shopworker safety through

signing petitions and writing to their local elected representatives.

Helping members understand our unique co-operative model

This year saw the introduction of our first online motion discussions; designed to help

members discuss and debate the motions to our AGM before they cast their vote. We also

introduced a series of blogs and participation opportunities to help members understand the

unique Co-op they own and the ways they can participate in key elements of our democracy.

Business Unit updates

Food

Matt Hood

Managing Director, Co-op Food

Our incredible colleagues have delivered a robust set of results for 2023. Together,

we’ve been delivering our Pure Convenience strategy that focused our efforts on

getting our value and range right for our target customers, reaching more of them in

capital-light ways, and rewarding their loyalty to us.

We’ve invested £90m (annualised) to lower our food prices, which we believe to be the

biggest price investment of any convenience retailer. Through this, our member-owners are

rewarded through exclusive prices and promotions.

Our growth plans continue through our routes to market as we expand our e-commerce

proposition at pace and open Co-op owned stores in a way that complements our plans to

expand our franchise operations. This demonstrates our ambition to lead the convenience

market.

We have become a more profitable, growth-focused business and, with that strength, we’re

able to give value back to our member-owners, which we’ll continue to do in 2024 and

beyond.

Our performance

The headwinds facing the grocery market in 2023 presented a challenging backdrop for all

retailers. Grocery inflation was in double digits for 10 of the 13 periods of 2023, ending the

year with inflation at +6.7%, and whilst this was its lowest level since April 2022, it was on

top of +14.4% in the same period last year.

Rainfall levels for almost every month of 2023 were far ahead of seasonal averages, and

temperatures were lower than average in key summer months. This particularly impacted

shopper footfall which made for difficult trading conditions for convenience retailers.

Despite this, with our focus on price, driving volume and frequency through our value and

reach as detailed below, we achieved full year revenue of £7.3bn (2022: £7.8bn).

The

decrease can be attributed to the sale of our petrol forecourt estate in 2022 with the

associated inorganic reduction in Food retail sales of £0.8bn. Excluding this impact, core

Food retail

sales

have grown 4.3% or £0.3bn.

In 2023, we continued to drive cost efficiencies across the business. Despite cost inflation

headwinds of £141m and the sale of our petrol forecourt estate, improvements in availability,

waste, stock-holding and overall lowering of our cost-to-serve through operational efforts and

optimising SAP (our new supply chain system), have all contributed to an underlying profit of

£154m (2022: £139m) up 11%.

In April, we chose to invest into aligning minimum hourly rates of pay to the Real Living

Wage as set by the Living Wage Foundation. This was a 10.1% pay rise for Customer Team

Members in Food stores, including younger colleagues and apprentices - unlike many other

organisations. We also provided a £30 end of year thank you payment to those colleagues

who don’t participate in the Group Bonus scheme, along with a £10 end of year celebration

payment.

We also indefinitely extended colleague discount of 30% on Co-op own-brand

products to support our colleagues through the cost of living crisis by helping to reduce their

household expenses. This was a total investment year-on-year of £44m.

Keeping colleagues safe is our number one priority

The ‘Safer Colleagues, Safer Communities’ campaign, which was successful in changing

legislation to better protect shopworkers in 2021/22, was reinstated in the first half of the

year based on a significant increase in incidents of retail crime.

In 2023, we recorded the highest ever levels of retail crime – 336,270 incidents of shoplifting

and anti-social behaviour, a 44% year-on-year increase (2022: 233,266 incidents).

We are pleased that the serious issue of retail crime, which impacts our communities so

dramatically, has been acknowledged through the Retail Crime Action Plan, and that police

chiefs have committed to ensure officers attend incidents where the offender is detained. It is

a welcome and reassuring move, which should complement the ongoing investment we’ve

made in colleague and store safety since 2019. This includes a continued roll out of personal

and product protection across all stores in 2023 as well as trials on secure kiosks, locked

doors on high value products, dummy packaging and automated CCTV.

As well as being committed ourselves to continuing to invest in colleague safety, we will

continue to lobby on this and ensure commitments made by the police to tackle retail crime

are delivered.

The biggest ever investment in convenience pricing

Thanks to the work done in 2022 to increase the financial health of the business, in 2023 we

were able to give back by investing £90m (annualised) in overall price. This included

investment for all customers in our most shopped products and additional investment into

member exclusive prices and promotions. This demonstrates how we’re giving value back to

our member-owners who now save an average 7.5% in comparison with other convenience

retailers on our member-priced products.

Our ‘Members Save More’ campaign launched in 2023 with a campaign in-store, which

included a full refresh of our point-of-sale and marketing. The total investment of £90m

(annualised) reduced the prices on 770 lines with member-owners benefitting from an

additional discount on 178 of those.

In the second half of the year, we also announced internally to our colleague member-

owners our intention to extend 30% colleague discount on our own-brand products

indefinitely. Giving our colleagues even more value back.

Thanks to this, membership is at an eight year high with over five million active member-

owners. More members are choosing to spend £1 to become an owner of our Co-op, and, as

a result, are choosing to shop more frequently given the benefit of lower prices. Over 2023,

1.4m members selected personalised offers via the app.

Growth through our routes to market

Essential to our current and future growth is building on our established routes to market

which include; Retail, Franchise, Online, Wholesale and servicing independent Co-ops

through Federal Retail Trading Services (FRTS – the central buying group for Co-op

Societies in the UK).

In our Retail and Franchise estate, we spent the first half of the year redefining our approach

to growth. For our owned stores, we’ve shifted our approach to disposals and created an

internal review forum to drive up the performance in our underperforming stores. We also

looked to drive down the cost of refitting stores, focusing investment on where it matters

most for our customers and colleagues. Both are creating more affordability to reinvest back

into our estate, with more refits and fewer disposals. This meant in the second half of 2023,

we were able to significantly ramp up our activity.

In the second half of the year, we launched three new-to-market franchise stores and trialled

a new on-the-go format in three petrol stations, which will also provide learnings for our first

stores located in NHS hospitals which will launch in 2024. We inducted several new partners

in 2023 and have a strong pipeline of launches for 2024 which will see significant growth in

the Franchise estate.

Following the introduction of SAP supply chain system, store performance is strong, and with

the introduction of Member Pricing we’re seeing similar improvements in member frequency,

recruitment, and price perception.

In Online, we continued to establish our position in quick convenience (rapid delivery from

store to door in under one hour) and in the second half of the year, as recognised by Neilsen

market share data, we became number one in the market. We’re leveraging our unique

position with a store in every postal area in the country and stabilising our existing fixed cost

base.

Growing the market share even further remains the priority, as we target 30% of the overall

quick convenience market share by 2030.

Total population coverage across all platforms has grown by 2% in 2023, up to 83%, driven

by our expansion in partnership with Just Eat that is now available in over 1,000 Food

stores. This growth contributed to overall online revenue of £311m in the full year (2022:

£222m).

Embedding this route to market into the broader Food operating model is a big part of our

growth plans. This includes embedding our membership proposition and Member Pricing

across all platforms and our ambitions to simplify the online delivery operation for our

colleagues.

Finally, in January 2023, approval was achieved for Central Co-op to join the Co-op

distribution network. This move brings the last of the UK’s larger independent societies into

our distribution network with shared productivity benefits across supply chains, while

supporting our ambition to be more strategically aligned and leveraging better buying scale

with the movement.

You can read more about our progress on wholesale in the following update from Peter Batt,

Managing Director of Nisa Wholesale.

A better way of doing business

We have continued to champion a better way of doing business in 2023, pushing our ethical

commitments on behalf of our member-owners, providing products at great value that don’t

compromise on values.

In 2023 we have:



Invested £38.6m into supporting our commitments to ethical and sustainable

sourcing including supporting our farmers following increased prices during

international conflict



Announced our intent to reduce stocking density on chickens to improve welfare and

carbon footprint as a result of our members asking us to keep improving animal

welfare. All fresh chicken varieties under ‘Space to Thrive’ are sourced from farms

that give the chickens 20% more space. The changes were implemented in early

2024 and has seen us become one of only a few retailers to meet the Better Chicken

Commitment stocking density requirements.



Removed ‘best before’ dates on most of our fresh produce to help our customers cut

food waste in the home and save money.



Supported suppliers to improve human rights across our supply chains through the

delivery of our global capacity building programme.



Supported 14 suppliers through our supplier incubator programme ‘the Apiary’ –

which supports diversity and inclusion within the store range, and offers mentoring

and advice on all aspects of the product journey.



In March 2023, we reached the milestone of raising over £22m supporting clean

water, hygiene, sanitation and water pollution projects with our partners The One

Foundation and Water Unite since 2007. Every bottle of water purchased at Co-op

helps to support water security projects and changes lives around the world.



Celebrated Fairtrade Fortnight over February and March, and 29 years of

commitment to supporting farmers, workers and communities as the UK’s largest

convenience seller of Fairtrade products.



Swapped our Christmas adverts to instead pledge to match member and customer

donations over the festive season, building on £23.6m raised for communities

through members choosing our Co-op.

More details on this and more can be found in our Co-operate Report at

co-operative.coop

Wholesale

Peter Batt

Managing Director, Nisa

Our Wholesale channel has continued to face a tough external environment and

inflationary pressures throughout 2023. I’m proud of all our colleagues who have

played a role in delivering this year’s performance against that backdrop. We’re proud

of the flexibility at Nisa and have more than 1,400 business-to-business (B2B)

partners, ranging from convenience stores and supermarkets, through to forecourts

and holiday parks, in addition to our wholesale customers, who have access to our

amazing own-brand products in more than 130 countries. This has allowed us to gain

significant reach through different routes to market, building the foundations for our

future strategic direction, so we can continue to leverage our Nisa difference and

drive success.

Our performance

Our 2023 revenue stood at £1.4bn

(2022: £1.4bn). Our end-of-year trading profit was

£13.2m (2022: £21.2m). This reduction in our operating profit was largely due to the

significant and conscious investment we made in our pricing to ensure we maintained a

strong and compelling proposition for our partners, so they in turn could continue to deliver

competitive value to their shoppers in these difficult economic times. This decision was

aligned with our strategic thinking and provides the basis for us to develop our wholesale

channel further, in line with our wider growth ambitions for our Co-op.

Investing in our proposition

As price continued to be a challenge across the industry, we made good progress to improve

our pricing strategy, meaning we are now more responsive to market dynamics and remain

highly competitive, tracking our prices against key competitor data.

We’ve invested heavily

in price and benchmark our wholesale selling pricing against key wholesale competitors to

ensure we offer great value consistently to our partners and retailers.

Following feedback from our retailers, we simplified our Fresh Rewards rebate scheme in

April, and moved to a more focused spend-based rebate scheme. This means that retailers

can achieve a rebate of up to 5% based on weekly order value and an additional bonus if

they have a Nisa or co-branded fascia.

Support for retailers

We continued with our ambitious recruitment drive and in 2023 we started supplying to 527

new Independent Retail and Wholesale locations, through Nisa (2022: 475).

This includes a

contract with MPK Garages to convert 28 forecourt sites; the transformation of a former pub

to a forecourt in Mirfield; a five year deal with Greens Retail to expand nationwide; a five

year contract extension with LA Foods Group, who have been working alongside Nisa for

over 20 years, and a father and son operation at Birmingham University. This was alongside

growth within our holiday parks portfolio and a number of successful store refits. Through our

partnership with Shell, we’ve also opened stores in 23 sites, following a successful pilot,

primarily led by a Co-op brand product range.

These figures are inclusive of Nisa only. Financial statements in the segmented reporting includes franchise so there may be

number variances

Co-op own-brand products continued to be attractive for Nisa’s independent retailers and

participation remained flat, with 91% of our partners having bought an own-brand item from

us in 2023. We also relaunched our Co-op Core Essentials range in November, highlighting

to retailers how they can grow basket size and increase the number of visits, by focusing on

key convenience missions where own-brand plays a significant role. Access to Co-op

products has been beneficial for our Nisa independent retailers, such as The Proudfoot

Group, which reported a 75% sales increase of flowers, following a switch to offer Co-op’s

flower range in-store (based on sales monitored before and after stocking Co-op between 21

May to 1 July).

With home delivery now forming part of many convenience businesses and making up a

core part of the consumer offer, we partnered with Just Eat in July to offer quick access to

convenience shopping. Thousands of household brand and Co-op own-brand products

became available for delivery to customers’ homes in as little as 30 minutes, picked from

local Nisa stores. By the end of 2023, 66 Nisa retailers had onboarded with Just Eat and

were provided with in-store marketing, to drive awareness with shoppers.

The plight of retail crime was prevalent in the news agenda across 2023, led brilliantly by our

Co-op and I’m proud of the work we’ve done to help shine a light on this issue on behalf of

the 33,500 independent retailers up and down the country. Our teams hear on a weekly

basis from retailers dealing with the ongoing challenge of shoplifting, and the impact that is

having both financially and on their own wellbeing. During the 2023 Respect for

Shopworkers Week, it was my priority to urge independent retailers, through our campaign

communications channels, to report crime, to give themselves the best chance of police

action.

We also hosted our Nisa Expo, an event which has been at the heart of our business for

more than 20 years, providing valuable insight to better support our retailers. The event had

many engagement opportunities for our retailers and prospects to strengthen their

proposition with both Nisa and many of our leading brands and saw 15 retailers and

suppliers recognised for their outstanding work at the Gala Dinner.

Community

In 2023, our Nisa Making a Difference Locally (MADL) charity celebrated its 15th

anniversary. Since its launch in 2008, MADL has donated over £16 million to more than

10,000 charities and good causes across the UK. To celebrate, MADL launched a new

initiative, ‘Club 15’, where 15 retailers will be selected in 2024 to participate in a year-long

partnership with MADL, including fundraising training, access to partner forums and more

direct support from the MADL team.

Award-winning retailers

I’m also incredibly proud of what our retailers have achieved this year with recognition

across the industry. Nisa and our retailers won more than 20 awards in 2023, including a

record year for Nisa retailer, Touts, who were successful at the Grocer Gold, Retail Industry

and Forecourt Trader awards, as well as Nisa retailer Julie-Ann Whyte receiving special

recognition at the Scottish Local Retailer awards, and Nisa retailer Kay Petel named

Businesswoman of the Year at the Asian Trader awards. I also couldn’t be prouder of

Kuldeep Dhillon and his wife Balbir Kaur, who have been Nisa retailers for over ten years

and received one of the King’s official Birthday Honours in June, in the form of the British

Empire Medal (BEM).

Funeralcare

Gill Stewart

Managing Director, Co-op Funeralcare

Co-op Funeralcare increased revenue and volumes with a maintained market share,

and sheltered clients from inflationary pressures, whilst enabling almost 100,000

families the opportunity to say their best goodbye.

Our performance in 2023

Our 2023 revenue stood at £281m (2022 restated: £275m) and our Profit Before Tax (PBT)

at £13m (2022: £11m).

Our funeral volumes continued to show circa 2% year-on-year growth (2023: 95,924; 2022:

93,867) which was largely due to the rise in the number of deaths, as confirmed from the

Office of National Statistics, and our share of the market remaining stable at 14.6%. In the

first half of the year, we helped more families say their best goodbye (H1 2023: 51,621; H1

2022: 48,171) due to the increase in death rate. In the second half we held our share of the

market while the death rate was lower than the previous year.

We continued to see significant inflationary headwinds in 2023. We made an active choice to

shelter our clients from as many of these headwinds as possible through 2023, meaning we

have absorbed cost increases which has affected our profitability (inflationary pressures

resulted in some limited price increases towards the end of the year). We have also seen a

continuation of the trend where our clients choose more of our simpler, and unattended

funeral plans (2023: 24.3%; 2022: 22.6%).

Client satisfaction of our funeral services remained strong with a 97% client satisfaction

score (2022: 97%) and an 88 Net Promotor Score (2022: 88).

We increased our plan sales to 17,032 (2022: 16,774), as confidence began to return to the

market following the introduction of regulation in 2022 and introduced 4,088 third party plans

(2022: 5,348). Our partners sold 5,129 life assurance policies with a funeral benefit option,

which are likely to convert to funerals for the business (2022: 3,772).

We continued to be recognised as providing one of the best funeral plans in the market and

have been recognised for the sixth year running as Moneynet’s ‘Best Funeral Plan Provider’.

During 2023 we were also able to reduce our plan prices by around £250 across all Co-op

funeral plans as we helped clients with the current cost of living challenges.

In 2023, overall satisfaction for our Funer

al Plan clients was 92%, with the Net Promoter

Score coming in at 68.5

. We have seen

these scores remain consistent throughout the

year, with colleague interaction and helpfulness driving this satisfaction, particularly for

clients who purchased their plan from one of our funeral homes.

The above led to an increase in revenue to £281m (2022: £275m) largely due to the

increased volumes offset by more clients choosing our lower cost options.

A new accounting standard was adopted for funeral plans in 2023, meaning a significant

non-cash reshaping of our profit and loss account. This reduced operating profit but also

Comparable data points for 2022 are not available for Net Promoter Scores

reduced finance cost, to lead to an improvement in our PBT. For more detail, please see ‘our

Financial Performance’ on pages 43-51. Our financial performance section for more detail.

Due to the material changes to the shape of our P&L, we believe Profit Before Tax combined

with cashflow are the most appropriate way to monitor our funerals business.

Profit Before Tax was £13m

up £2m on 2022 (2022: £11m). We saw high inflationary costs

that were not fully recovered from our higher volumes as we sheltered our clients from the

cost of living crisis, mitigated by an increase in finance income. Finance income benefited

from a higher base rate offset by low returns from an atypical year of investments due to

volatility in financial markets across 2022 and 2023

We expect investment returns should

return to more typical levels and had the return delivered to our historical 10 year average (of

£51m), our Profit Before Tax would have been £47m. Despite these trading and market

challenges faced in 2023, the Funeralcare business generated net cash as well as

continuing to invest in its estate, fleet and new pre-need technology platform

Vision

We continue to drive change in society, by encouraging more people to have conversations

about their funeral wishes, and by challenging the stigma around grief and bereavement.

In the latter half of 2023 we launched our innovative new marketing campaign, which

focused on encouraging people of all ages and backgrounds to have a conversation about

their funeral wishes. We updated our website to host free information and advice on how to

have the conversation with your loved ones and also launched a second series of our Let’s

Talk (about Grief) podcast.

In a further move to help break down the stigma around talking about death, dying and

bereavement, in September we held a Press event in Potters Fields Park with our very own

Elephant in the Room. This was coupled with our PR campaign around our Biggest Ever

Survey into Death, Dying and Bereavement five years on. The survey was first carried out in

2018 and a lot has happened since then, so the survey, in partnership with Cruse

Bereavement Support, aimed to understand how the nation’s attitudes towards death, dying

and bereavement had changed. 31,815 people completed the survey and it was great to see

that 18,493 of those were Co-op member-owners.

Initial findings from the survey were shared in December and we wrote to the Prime Minister

and Leader of the Opposition asking them to include commitments to implement the UK

Bereavement Commission’s recommendations in their manifestos ahead of the next General

Election. Our full report of findings will be shared in 2024.

We announced plans to explore sustainable funeral choices by pioneering a new option in

the UK, Resomation®

2023 saw the introduction of the Consumer Duty by the Financial Conduct Authority, which

ensures all clients have good outcomes, and we have embedded these working practices

into the way we do business. We also completed our first annual renewal of accreditation for

our colleagues who sell and service Funeral Plans.

We’ve continued to invest in improving our technology platforms that support the sale,

servicing and redemption of our Funeral Plans. These improvements will ensure we deliver

on our regulatory requirements, as well as giving our clients and colleagues a better

experience. We anticipate that these improvements will be available early in the new year.

Sustainability

Through 2023 we continued to drive change in the way we do business.

In 2023 we continued to invest in our fleet. We invested £2m in a pool of electric cars and

ambulances, with further investment planned for 2024. Electric charging points were

installed as standard in new care centres and refits of existing locations. We also built in

additional charge points to help future-proof our estate, totalling a further £1m investment

made for these improvements.

Significant investment has been made in our estate throughout 2023. In addition to

completing refits and relocations, we’ve also been trialling a new approach to improving our

estate and installed more efficient heating systems within our branches. In 2023 we made

improvements to 90 locations (2022: 27) with more planned for 2024.

Colleagues

We’ve continued to invest in both our colleagues’ pay and their skills. We ran a focused

series of face-to-face inductions for new starters across our business, and delivered training

to our leaders on topics such as planning and organising, coaching, commercial decision

making, growth mindset and resilience.

Following the success of our All Colleague Code being introduced in Funeralcare in

September 2022, we went on to introduce a Client Code of Conduct in July 2023, which we

developed in collaboration with colleagues and through feedback from clients.

We’ve been pleased to see our colleague engagement scores increase year-on-year

through our annual colleague engagement survey. Engagement grew to 68% in 2023 (2022:

63%) with 83% of colleagues saying they enjoyed working at our Co-op (2022: 78%).

Insurance

Charles Offord

Managing Director, Co-op Insurance

I’m so proud of our insurance team and all they’ve achieved in 2023. The external

market and inflation have presented challenges for us. Despite this, our business has

seen profit growth, we have an expanding range of products which we are all very

proud of and, along with our improvements in customer service, we have received

industry wide recognition for the quality and value we offer.

Insurance performance in 2023

We were really pleased with a strong increase in revenue this year, growing from £24m in

2022 to £29m revenue in 2023. Our profit figures are also in good shape at £14.0m (2022:

£8.0m).

This growth has been supported by the stand-out performance of our travel and pet

insurance products in 2023. Our pet insurance grew 44% year-on-year (2023: 75,429; 2022:

52,284). Our member-owners helped to shape our Co-op difference, of offering a discount

for adopted pets. We value their input and we truly believe that this has set us up for

success with this product.

We’ve also faced external headwinds in our home and particularly our car insurance product

lines. High levels of claims cost inflation have significantly impacted the cost to service

claims in the last few years, which has pushed insurance prices up across the whole market.

We’ve also seen a drop in performance for Life insurance sales. This has mainly been due to

a contracting market, as customers make tough choices on their household budgets due to

the cost of living crisis. However, we’re confident our refreshed proposition will help us

improve our sales in 2024.

Products that meet member-owner and customer needs

We want to make sure that our range of insurance products offers the right cover, at the right

price. Our focus has been to offer more products, to cover the needs of more member-

owners, offering more choice and making it easier to buy Co-op Insurance products in the

places where our members and customers shop.

At the end of 2023 we launched a refreshed Life Insurance proposition which covers both

Term Life and Over 50 Life insurance, with our new partner Legal & General.

We upgraded

our policy, keeping the features like the payment holiday option that we know our member-

owners love, but adding new benefits like extra wellbeing support and easier ways to get a

quote and manage their policy.

Being recognised for our service and products

Our products and services were also recognised externally. In 2023,

we were announced as

the ‘Most Improved’ company for customer service across all retail sectors by the UK

Institute for Customer Service.

In the report, we were also rated in the top four of the 26 insurers surveyed for customer

satisfaction. We scored 81.7 out of 100 – an improvement of 6 points from last year’s report

(2022: 75.7). Our net promoter score was also above the average for other insurers at 30.0

(27.9 average) and we scored highly on customers’ intentions to recommend at 8.1 out of 10

(7.9 average.) We were proud to achieve the joint top score of 8.3 for customer trust – the

average score was 7.9.

We also achieved the accolade of the ‘UK Insurance Broker of the Year’ at the annual British

Insurance Awards, which is a hugely prestigious industry award. Having changed our

business model three years ago to exit insurance underwriting, we are so proud of this

recognition of our hard work, and the fantastic products we have developed with our

partners.

Legal Services

Caoilionn Hurley

Managing Director, Co-op Legal and Life Planning

This year has been another strong year for Co-op Legal Services (CLS.) Our strategy

continues to set us up for success and helps us to grow. The energy, empathy and

hard work of all colleagues remains essential in building the business.

Financial performance

In 2023 our revenue was £68m (2022: £46m), with an operating profit of £21.0m (2022:

£8.0m). This growth has mainly come through our largest practice areas of probate and

estate planning. We achieved this whilst continuing to support our clients and colleague

member-owners by holding our key pricing points and member-owner discounts.

Our largest practice area, probate, experienced positive growth again this year as we helped

9,357 new clients (2022: 7,617) with their loved ones’ estates, a 23% increase compared to

the year prior. In Estate planning we opened 26,539 new cases (2022: 19,052), a 39%

increase compared to the year prior.

Digital Law Firm

We’ve continued to focus on technology, both in terms of offering clients quick and easy

digital routes to their legal services needs and using technology to support streamlining our

internal processes. We’re making our systems easier to use and giving colleagues more

time to spend resolving client cases quickly and less time on administration. This year we’ve

averaged around two-three new technology releases per week, this is usually continuous

improvements of existing applications but has also included new internal and external

releases of technology to help colleagues or clients.

An example of this is our trial to improve how we verify client ID and carry out anti-money

laundering checks. We’ve used a new piece of technology to improve our anti-money

laundering pass rate to 89.9%, an increase from 70% when using our previous system, as

well as removing manual and time-consuming elements of the job for our colleagues.

Our digital client services have helped grow our business, with more and more clients

coming to us through these accessible channels. In 2023, 60% came to us through these

channels (2022: 50%) which is the first time we’ve seen the majority of clients use these

routes to access our services.

Strong partnerships

We also continue to attract new partners, with our ever-increasing digital client services and

partner hubs. We partner with a mixture of firms from leading financial services organisations

to charities.

In 2023, we partnered with over 10 new organisations, including the Co-operative Bank for

probate and estate planning, and Barnardo’s, our charity partner. We also became the first

legal firm to offer our services to millions of customers via Amazon’s platform.

Colleagues – recruitment and Diversity and Inclusion

Our success over the last few years wouldn’t have been possible without our colleagues. As

the business has grown and we’ve brought more clients on board, our teams have grown to

support this.

In 2023, we hired new colleagues into roles within CLS and overall, we had a 34% increase

in roles filled compared to the previous year (2023: 418; 2022: 313). Of these hires 30%

identify as ethnic minority (2022: 26%) and 14% as disabled (2022: 14%). These figures

have increased since 2021, where in January – October of that year, we hired 21% of

colleagues identifying as ethnic minority and just 5.4% identifying as disabled.

We wanted to grow our teams in a way that would increase the routes into the legal

profession and attract candidates from more diverse backgrounds. We continued with our

solicitor apprenticeship this year, after being originally launched in 2021. Our latest cohort

started in September. We continued to support colleagues who are following other routes to

qualification, such as the traditional training period, and we offer funding for some external

qualifications designed to develop specific skills and knowledge.

We also put a strong focus on training so our talented colleagues can grow their career at

Co-op Legal Services. Our two week training programme for new recruits in our largest

practice area, probate, has been successful this year, giving our new colleagues the best

start with us. We’ve expanded our training platform and insight from beyond our firm.

Client service

Our work over the last few years has not only had a positive impact on our financial

performance but also our client service.

In 2023, our overall trust pilot score was 4.7* (2022: 4.8*), which is rated as excellent. Our

Estate planning sales team maintained an incredible score of 4.9* (2022: 4.9*) throughout

the year.

Looking ahead

Shirine Khoury-Haq

Chief Executive Officer, The Co-op Group

Our member-owners define our Co-op and this distinguishes us from other kinds of

businesses. We exist to create value for you and your communities, rather than a

small group of investor shareholders. It has been this way since the Rochdale

Pioneers founded our co-operative movement in 1844 and it will remain this way as

we look to the future and to growing our Co-op in a sustainable manner.

As we look ahead to 2024, we do so with confidence and ambition, centred around our new

Vision and growth strategy.

The work we have completed during the last two years to better control our costs, reduce

debt, increase cash, maximise efficiency and strengthen our balance sheet, provides the

platform for our future growth.

In developing our strategy, we knew that remaining true to our heritage and co-operative

difference needed to be at the centre of all we do. So, in early 2023 we began this work with

defining our Co-op Difference statement:

‘

We’re owned by and run for our members, not a small group of shareholders. The

more our members choose us, the more value we create for our member-owners and

their communities’

At the same time, we began to work on a new vision statement that would align closely to

our Co-op Difference, and a Group strategy that would ensure we deliver on it, every day.

In January we launched our new Vision,

‘

Co-operating to build more value for our member-

owners every day’.

Our strategy and Vision have been co-created together with our colleagues, Members’

Council and member-owners, and my heartfelt thanks go to everyone who has contributed to

them.

Our new Group strategy, which we also launched in January of this year, is firmly focused on

growth by placing our member-owners and creating value for them at the heart of our Co-op.

Along with the associated business strategies and delivery plans, our strategy gives us

clarity on where to focus our efforts and prioritisation, and most importantly allows everyone

in our Co-op to get behind and play their part in delivering our Vision, whatever their role.

It is a bold, and ambitious strategy that together we will deliver between now and 2030:

Creating value for our member-owners

At the heart of our plans is creating and returning value to our member-owners, and we will

do this in three interlinked ways: creating economic value, social value and ownership value.

We will create better

economic value

through pricing of products and services and

member-owner specific propositions because this is the area that members tell us matters

most to them in these economically challenging times.

Through creating better economic value, we will grow our Co-op together, allowing us to

invest in

social value

. The work we do to support sustainability and communities who rely

on us ensures that our ethics and values are embedded in all of our products and services,

and that we are campaigning in those areas where we can make the most social impact.

And lastly, the area of value that is unique to us as a Co-operative is

ownership value

. As

member-owners we all own our Co-op. This allows us to have a say on the things that matter

most, how our business is run, the campaigns we need to deliver to amplify our collective

voice and, at times to get involved in developing products and services.

Growing our Co-op

A financially successful Co-op gives us the ability to deliver on our vision by creating and

returning value to our colleague and member-owners and their communities.

We have an ambitious plan to focus on our unique Co-op Difference to grow our businesses,

increase market share and significantly improve on our key financial metrics. We will

continue to grow our active member base, alongside growing our revenue and operating

profit, while improving bottom line growth.

Supporting our colleagues to deliver for today, tomorrow and the future

Having the right culture in our Co-op to allow us to deliver on our plans is as critical as the

work itself. Our 56,000 amazing colleagues work with us to develop and deliver our strategy,

and it is important that we support them in its delivery while listening to their feedback along

the way.

We will continue to ensure our colleagues are fully informed on where our Co-op is headed,

how we’ll get there, our shared plans and objectives, what this means for them and the

behaviours we will all demonstrate along the way. Everyone will understand how their role

contributes to delivering our Vision, so that we can get behind it in the way only our Co-op

can when we all pull together in the same direction.

Running our Co-op efficiently for the benefit of our member-owners

We will continue to seek every opportunity to work more efficiently, protect every penny of

our member-owners’ money by managing spending, and continue to reduce the cost to run

our businesses. This diligence will be critical in supporting our growth through continued

improvement of our balance sheet and key financial metrics, in turn allowing us to invest in

our Co-op and achieve our Vision of returning value to our colleagues and member-owners.

Our Co-op Difference, Vision and strategy clearly define our ambition for growth and how

we’ll achieve this together and we’re off to a strong start with much to celebrate and be

proud of already in 2024. We will continue to further develop our strategic plans, seizing and

generating opportunities for growth, while continuing to create value for our member-owners.

Whilst the economic and geopolitical environment continues to carry a degree of uncertainty,

with our ongoing focus on and careful management of how we run our Co-op, and with our

member-owners firmly at the heart of all we do, we are well placed to continue our growth

journey, while managing the challenges 2024 will surely present.

We are proud to be a Co-op and a different way of doing business. Now more than ever, the

UK needs a strong and differentiated Co-op movement, it needs more member-ownership

and it needs more businesses of genuine purpose.

Through the true power of collaboration and in partnership with the other UK Co-op Societies

and like-minded organisations, we will create a new era of Co-operation.

I’m so excited for our future and what we can achieve together, and I look forward to

updating you in more detail in September when we share our 2024 Interim results.

Our financial performance

Our headline performance

Earlier in this report, Rachel Izzard, our Chief Financial Officer gives an insightful overview of

the Group’s performance during the year and that can be found on pages 17-29. Rachel’s

commentary touches on the wider trading environment and challenges that our Co-op has

faced in 2023, the decisions we’ve taken to respond to those challenges and to support our

member-owners and the resulting trading performance and financial position of the Group.

In addition to Rachel’s financial overview, a summary of the Group’s financial performance is

set out in the tables below with accompanying commentary on our results. Further insight on

our individual businesses is also available in our business unit updates section, on pages

27-39. Within these, each managing director shares an overview on how each of our

businesses has performed during the year.

Throughout our financial statements, you will see reference to the fact that we have restated

comparative figures. This is because of new accounting rules around how we report on our

funeral plans. The new rules are referred to as IFRS 17 and replace the old approach under

IFRS 15, which we had been using previously.

IFRS 17 changes the value of the liability that we hold on our balance sheet for funeral plans

to be redeemed, as well as how we record sales and profit over time in relation to those

plans. We are required to apply the changes retrospectively to our previous year – so we’ve

had to recalculate (restate) the numbers we had already published, at that time.

This is purely an accounting change – there is no cash impact or operational change to the

way we run our funeral business. You can find extra disclosures in our Financial Statements

on pages 159-233, explaining the change and how it has impacted our balance sheet and

income statement.

To further help our members understand how the change has impacted our numbers, we

have also prepared a table to show how our performance in 2023 would have looked under

the old IFRS 15 accounting rules, against the original figures that were published for 2022.

The alternative unaudited old IFRS 15 (pre-IFRS 17) view can be seen on page 49.

Summary of financial performance – total Group

* The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to

31st December 2022.

** Our comparative figures have been restated to reflect a new accounting treatment for funeral plans. See Note 33 of our

financial statements on page 233 for further details and additional commentary at the end of this section.

(

£m

)

2023

2022**

Revenue

11,262

11,484

Operating profit / (loss)

(12)

Profit before tax (PBT)

268

Underlying operating profit

Underlying PBT

(2)

(48)

Underlying EBITDA

468

473

Net debt

(82)

(322)

Member & Community reward

Our Group financial metrics



Revenue:

total Group sales of £11.3bn are 1.7% lower than last year (2022:

£11.5bn). This is mainly driven by a reduction in sales in our Food business, which

are down by £0.5bn. This reflects the sale of our petrol forecourt sites at the end of

October 2022 (so our 2022 figures include 10 months of sales from the forecourt

sites but no equivalent in 2023, and both 2022 and 2023 include Federal sales as

part of the transition). We also saw lower volumes in our Food business for the

majority of the current year as our customers continued to adapt their behaviour and

shopping habits in light of the cost of living crisis. Offsetting these reductions will be

the slight increase in sales from the impact of the 53 week period in 2023 in

comparison to 52 weeks in 2022. Excluding the impact of the sale of the petrol

forecourts, Food sales are up 4.3% year-on-year.

Our Wholesale, Funeralcare, Legal Services, Insurance and Federal services

businesses have all performed well in their markets, with sales up in each area.

Further insight on our individual businesses is also available in our business unit

updates section on pages 27-39.



Underlying operating profit:

underlying operating profit is our main measure of

trading performance and at £97m is £14m higher than the prior year (2022: £83m).

Despite our sales being down, we have continued to reap the benefits of the cost

saving culture we have embedded throughout our Co-op to help us run and serve our

members more efficiently. Furthermore, the significant investment we have made

over the last couple of years in our core retail logistic and supply chain infrastructure

and IT systems is paying back and delivering better profitability through overall lower

costs to serve - with profit in our Food business up £15m to £154m despite the

reduction in sales.

Good profit growth has also been achieved in our Legal Services and Insurance

businesses although this is offset in Wholesale and Funeralcare which are down on

the prior year.



Operating profit:

at £66m our operating profit is £78m better than the comparative

period. As noted above our underlying profitability is up by £14m with the majority of

the improvement in Operating profit reflecting a reduction in non-underlying charges

of £64m. This arises as one-off charges are £27m lower this year following the

significant redundancy and winter cost of living charges last year. Loss on disposal

including impairment charges is also £18m lower in 2023 and there is a relative

favourable swing on the value of our investment properties of £19m.



PBT:

at £28m our PBT is significantly lower than last year as the comparative period

includes a £319m gain on the sale of our petrol forecourts. Excluding the £319m our

PBT in 2023 would be £79m higher in 2023 than 2022. As noted above our

Operating profit is £78m higher and this flows through to our PBT line with overall net

finance income and costs being broadly flat year-on-year. See the Financing section

below for further detail.



Underlying PBT

– at a loss of £2m our underlying PBT is favourable to last year by

£46m (2022: £48m loss). As noted above our underlying operating profit is up by

£14m and net underlying interest is also down by £32m.



Underlying EBITDA:

again, this is broadly in line with 2022 at £468m (2022: £473m)

and consistent with the comparable year-on-year underlying operating profit

performance. Underlying EBITDA reflects our underlying operating profit excluding

depreciation and amortisation charges (with underlying operating profit £14m

favourable offset by £19m more depreciation and amortisation in the prior year).



Net debt:

in closing the year at £82m of net debt, we continued the good progress

made over the last 18 months and further reduced our indebtedness from the 2022

year end position of £322m. This was achieved through strong cash generation

throughout the year and consistent cost control. The reduction in gross debt includes

the repayment of £100m of our borrowings in March 2023. We also closed out the

year with an enhanced cash and cash equivalent position at £595m (2022: £447m).

This improvement in net debt builds on the decisive action we took in the second half

of 2022 to reduce the Group’s overall debt and strengthen our balance sheet.



Member-owner and Community reward:

our profits are reported after deducting

the amount our member-owners have earned through the 2% community and

member-owner rewards, which totalled £45m in the year (2022: £38m). Co-op

colleague member-owners have also continued to receive the benefit of our 30%

colleague discount on own-brand products throughout 2023.

How our businesses have performed

* The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to

31st December 2022.

** As noted above; our comparative figures have been restated to reflect a new accounting treatment for funeral plans. See

Note 33 of our financial statements on page 233 for further details and additional commentary at the end of this section.

Further insight on the performance of each of our individual businesses is noted in the

business unit updates on pages 27-39, where each managing director shares an overview

on how each of our businesses has performed during the year.

£m

Revenue

Underlying

op profit

2023

2022**

2023

2022**

Food

7,262

7,805

154

139

Wholesale

1,480

1,439

Federal

2,142

1,895

Funeralcare*

281

275

(11)

(1)

Insurance

Legal Services

Support centre

(95)

(93)

Total Group

11,262

11,484

Other Group Items

Financing costs / income



Underlying interest:

at £99m,

our net underlying financing costs decreased

markedly in comparison to 2022. This is mainly because our improved cash position

meant that we earned more interest in 2023 in comparison to 2022. The amount of

interest we pay on leases also fell as our overall lease liabilities reduced after the

disposal of our petrol forecourt stores in the second half of 2022. We are also paying

less interest going forward, following the £100m buy-back of some of our borrowings

at the start of March 2023.



Non-underlying interest:

the net finance income recorded from non-underlying

items reduced by £31m. The significant movements are:



The fair value of the Group’s quoted debt increased in 2023 driving a finance

charge of £10m. In 2022, the fair value of our debt decreased by £28m following

the downgrade (in the prior year) of the Group’s credit rating and market

expectations on the interest rate outlook (generating a £28m gain to finance

income). The market value of the £105m bond that we hold at fair value has now

recovered back to par valuation from the low valuation in 2022. This has driven

the £10m charge in 2023 with the comparative adverse swing between 2023 and

2022 of £38m. The fair value of our £105m interest rate swaps improved in the

year driving a £4m gain in the year offsetting the charge noted above and being

£15m favourable to 2022.



The fair value of our foreign exchange contracts and commodity derivatives

(mainly diesel fuel contracts) moved adversely in the year, generating a £6m

finance charge. The equivalent movement in 2022 was favourable, at £20m

(generating a £20m gain in finance income). Relative market price movements

and a spike in fuel prices were the biggest drivers of the upside in 2022. The

comparative adverse swing between 2023 and 2022 is £26m.



The returns achieved on our funeral plan investments in 2023 were £17m which

is £11m lower than in 2022. The returns on the investments were driven by

market conditions and 2023 performance reflects a much lower return than we

would normally see with 2022 being higher but still below the longer-term

average. In fact, average annual returns over the last 10 years have been around

£50m per year. At £16m, the finance charge on funeral plan liabilities was £1m

higher than last year. The overall comparative adverse swing in net interest on

funeral plans between 2023 and 2022 is £12m.

£m

202

2022

Underlying bank / loan interest

(56)

(58)

Interest received

Net underlying lease interest

(68)

(76)

Total underlying interest

(net)

(99)

(131)

Net pension finance income

Net finance income (funeral plans)

Net finance expense (funeral plans)

(16)

(15)

Movement on foreign exchange contracts

(6)

Movement on quoted debt

(10)

Movement on Interest rate swaps

(11)

Other non-underlying interest (net)

(5)

(1)

Total non

underlying interest



The adverse variances noted above have been offset to some degree by a

relative favourable gain on net pension finance income of £34m in comparison

to 2022 and an adverse variance from other smaller items of £4m.

Non-underlying Items

*Positive items are gains and negative items are charges.

One-off items –

totaling a £12m charge (2022: £39m charge) one-off items includes £10m

of non-recurring net income recognised in relation to the transitional service agreement

following the sale of our petrol forecourt sites in the prior year, a net charge of £20m in relation

to legal cases and associated provisions, a further £4m of costs in relation to the discretionary

help given to support our colleagues through the winter cost of living crisis (through spend

added to colleagues membership cards) and a £2m gain from the release of property

provisions. In the prior period the £39m charge comprised £26m of redundancy costs

primarily within our Support Centre, £12m cost of winter cost of living crisis payments and

net £1m other.

Property disposals and closures –

we’ve sold fewer non-core properties this year in

comparison to 2022 which saw the disposal of a few high value sites.

Impairment of assets –

(£20m) of the £32m impairment charge relates to poor performing

Food stores where our latest forecasts of future trading cashflows doesn’t cover the asset

value of the sites. Less favourable forecasts and assumptions around the general economic

trading environment in the prior year resulted in a higher impairment charge of £60m in 2022.

We also impaired the value of the leased asset that we hold for our Angel Square central

support centre by £20m in the prior year reflecting the change in utilisation as we transitioned

to a more flexible and hybrid working model. We charged a further £7m against Angel Square

in 2023 along with a further £5m against other non-trading properties.

Change in value of investment properties –

driven by market conditions then the value of

our investment portfolio rose by £4m in 2023 following a larger reduction in value of £15m in

2022.

Net Debt and Cashflow

* Debt excludes any interest accruals. See APM section of our Jargon Buster on page 263 for details of how we calculate net

debt.

£m

202

2022

One-off items

(12)

(39)

Property disposals and closures

Impairments of assets

(32)

(105)

Change in value of investment properties

(15)

Total non-underlying items

(31)

(95)

£m

202

2022

Bank debt*

(677)

(769)

Lease debt

(1,233)

(1,306)

Total debt

(1,910)

(2,075)

Group cash and cash equivalents

595

447

Net debt (excluding leases)

(82)

(322)

Net debt (including leases)

(1,315)

(1,628)

We continued to reduce our overall indebtedness in 2023 and we closed out the year at £82m

of net debt. This continues the good progress made over the last 18 months seeing a reduction

in net debt of £240m from the 2022 year end position of £322m. This improvement further

builds on the decisive action we took in the second half of 2022 to reduce the Group’s overall

debt and strengthen our balance sheet.

During 2023, our Co-op generated strong net cashflows from operating activities of £602m

(2022: £455m) demonstrating a resilient trading performance across our business portfolio

aided by our continued focus on cost control and working capital management. Furthermore,

we increased the amount we are spending to invest and grow our Co-op through £205m in

capital expenditure during the year (2022: £147m). We also made payments of principal on

our lease liabilities of £123m (2022: £128m).

The reduction in bank debt includes the repayment of £100m of our borrowings in March 2023

and we also closed out the year with an enhanced cash and cash equivalent position including

short-term investment deposits at £595m (2022: £447m).

Tax

As has been the case in recent years, we won’t be paying corporation tax in respect of 2023

because we have brought forward tax losses and capital allowances which can be used to

offset any liability.

In 2023, we paid £193m (2022: £206m) to the Government in respect of VAT, business rates,

stamp duty land taxes and employers’ national insurance. The slight year-on-year decrease

reflects overall lower business rate charges following the sale of our petrol forecourts sites in

October 2022.

The total tax charge reported in the income statement for continuing operations of £26m is

made up of a £1m current tax credit and a £27m deferred tax charge. The current year deferred

tax charge mainly relates to the net usage of temporary differences on movements in our

pension assets and capital allowances. See Notes 8 and 15 in our consolidated financial

statements for more detail on Tax. We retained the Fair Tax Mark accreditation in 2023

showing that we put our Purpose, co-operative Values and Principles into action in the way

we do business. Our tax policy can be found here:

www.co-operative.coop/ethics/tax-policy

Our balance sheet

The total net assets of the Group decreased by £1.0bn from the start of the year. The main

movement driving this is the decrease in the net pension surplus of £1.2bn offset by a

corresponding reduction in deferred tax liabilities of £0.3bn. The decrease in the pension

surplus includes a reduction of £0.9bn from the impact of a transaction known as a ‘buy-in’.

In November, our main pension scheme Pace, completed a ‘buy-in’ transaction with

Rothesay Life Plc to insure scheme benefits through a bulk annuity insurance policy. In

conjunction with previous buy-ins this means the Group section of Pace and the Group as

sponsoring employer are insured against the primary investment and longevity risks it is

exposed to. The accounting for the buy-in saw the scheme assets decrease by £0.9bn.

In addition to the above, the actuarial surplus on our pensions scheme decreased by a

further £0.3bn as scheme liabilities increased as actual inflation was higher in the year than

had previously been assumed.

Our trade payables balances also increased by £0.1bn from year end 2022, as we continue

to carefully manage our cash and working capital position and our deferred tax liabilities

have fallen by £0.3bn following the reduction in the pension surplus noted above.

As noted, we have adopted the new accounting standard (IFRS 17 Insurance contracts) for

the first time this year, when accounting for our funeral plan liabilities. This required us to

restate our comparative numbers including the closing balance sheet position for 2021 which

saw a reduction in the Group’s net assets of £33m on transition to IFRS 17.

Summary of Group and Funeralcare segment financial performance on both an IFRS

17 basis and proxy (unaudited) IFRS 15 basis for funeral plans

For comparative purposes only, the tables below show the Group’s performance under the

new accounting methodology for funeral plans (on an IFRS 17 basis and as reported in our

financial statements) as well as under the previous accounting methodology (IFRS 15). As

we are no longer required to report the performance of our funeral plans under IFRS 15 the

full year 2023 numbers under IFRS 15 noted in the table below have been estimated using a

proxy adjustment based on previous years’ experience. These numbers are unaudited.

These figures have been provided to help our members further understand the impact of

IFRS 17 on the historic performance of the Group and the Funeralcare segment during the

year of transition:

* Profit / (loss) before tax is not reported on a segmental basis but is shown above for the Funerals segment for illustrative

purposes and is derived as operating profit less net finance costs / income.

Total Group (£m)

2023

IFRS 17

2023

IFRS 15

(

unaudited

)

Var

2022

IFRS 17

2022

IFRS 15

Var

Consolidated Income Statement

Revenue

11,262

11,259

11,484

11,480

Operating expenses

(11,205)

(11,184)

(21)

(11,505)

(11,484)

(21)

Operating profit / (loss)

(18)

(12)

(17)

Finance cost

(164)

(202)

(164)

(202)

Profit before tax

268

247

Other comprehensive (loss) / income

Insurance finance (expense) / income

on funeral plans

(37)

453

Funerals segment (£m)

2023

IFRS

2023

IFRS 15

(

unaudited

)

Var

2022

IFRS 17

2022

IFRS

Var

Consolidated Income

Statement

Revenue

281

278

275

271

Operating expenses

(292)

(313)

(21)

(281)

(255)

(21)

Operating profit / (loss)

(11)

(18)

(7)

(17)

Finance cost – funeral plans

(16)

(54)

(15)

(53)

Finance income – funeral plans

Net finance income – other

Profit / (loss) before tax*

(7)

(10)

Other comprehensive (loss) / income

Insurance finance (expense) / income

on funeral plans

(37)

453

Transition to IFRS 17

IFRS 17 is a very detailed and technical insurance-based accounting model and represents

a fundamentally different approach to the way that we previously accounted for our funeral

plans under IFRS 15. Insurance accounting requires wide-ranging assumptions to be made

(such as expectations of future rates of inflation, mortality and interest rates) as well as

extensive actuarial data modelling to be undertaken. This means the impact on transition to

the new standard is complicated to understand and difficult to explain in simple terms.

However, a few basic trends can be expected and can be seen in these numbers.

In general, we expect to see similar levels of profitability under IFRS 17 as we did under

IFRS 15 across our plans over time - but the phasing and recognition of those sales and

profits will be different. We also expect to see a reduction in operating profit under the new

standard in comparison to the old methodology, but this will be offset by a reduced finance

charge (which sits below Operating profit in our Income statement) - so where our profits are

shown in our accounts has changed.



Revenue –

to some degree, revenue recognition is accelerated under the new standard

as it is spread over the life of the funeral plan (the period of insurance coverage) rather

than only being recognised at the point of redemption of the plan, as was the case under

IFRS 15. However, the revenue recognition model is complicated and is based on three

items which, in combination, will ultimately determine how revenue is recognised over

time: (i) the actuarial expectation of claims in the period (ii) an element of the expected

profit margin of the plan and (iii) release of a risk adjustment for non-financial risk. This

spreading of revenue over the life of a funeral plan increases revenue during the

coverage period but reduces the amount of revenue that is recognised on redemption.

This is different to how revenue was recognised under IFRS 15 when all of the revenue

would have been recognised at once at the point of redemption – so the phasing of

revenue recognition is different between IFRS 17 and IFRS 15.

Furthermore, under IFRS 17, both the revenue and the cost of service expense are

calculated on a fulfilment cashflow basis and as such include the cost of the

disbursements associated with delivering the funeral (costs paid to 3

parties including

but not limited to cremation fees, burial fees, minister fees and Doctor fees). These were

previously netted off within Revenue under IFRS 15. This grossing up compared to

IFRS 15 largely offsets the reduction in revenue referenced above but increases the

cost of sale.



Operating profit

– this is likely to be lower under IFRS 17 than we saw under IFRS 15

partly because of the phasing of revenue being spread over the life of a funeral plan

rather than all at redemption and partly as the balance of where profit is recognised in

the Income statement shifts such that we see lower finance expense under IFRS 17 but

higher operating expenses.



Finance income –

this represents the investment returns on the funeral plan asset we

hold and is not impacted by IFRS 17. There is no change on transition to IFRS 17.



Finance costs

– under IFRS 15, this represented accrued interest on plan liabilities (as

if the customer had lent Co-op money when they took out the plan) and was calculated

using a borrowing rate. Under IFRS 17, finance costs represent the discount unwind on

the insurance contract liabilities and is calculated on a near risk-free rate using UK gilts

which will likely be significantly lower than under IFRS 15. This shows in the table as a

reduced finance cost under IFRS 17 versus IFRS 15.



Profit before tax

–

the transition to IFRS 17 sees an increase in PBT because the

reduction in finance costs under IFRS 17 is higher than the increase in Operating

expenses.



Other comprehensive income (OCI)

– to reduce potential volatility in our results, we

have elected under IFRS 17 to recognise the impact to the Income statement of

changes in the discount rate within OCI rather than in finance income or expense. As

noted in the tables above we recorded finance income of £453m in OCI in 2022 due to

the significant increase in the discount rate in the year which materially reduces the

insurance contract liability. The equivalent figure for 2023 is a £37m finance expense.

Key performance indicators

Financial KPIs

Why are these measures important?

Being a profitable business with financial stability is essential in helping our Co-op meet its

strategic objectives. It’s important to get the right balance between the returns to our

member-owners and colleagues and reinvesting in our Co-op for future growth.

More information on our financial performance can be found on page 43.

KPI

Description

2023*

2022**

Underlying loss

before tax

Underlying operating profit / (loss) less

underlying interest (which does not

include net interest on our funeral plans as

it is not considered by management in the

day-to-day running of the business)

(£2m)

(£48m)

Underlying operating

profit

A measure of underlying profit before one-

off items and gains or losses on disposals

of assets (see Note 1 for more details on

how it’s calculated)

£97m

£83m

Underlying EBITDA

A measure of performance which helps us

to understand the underlying profits our

business segments are generating before

capital investment and interest charges

£468m

£473m

Net debt

Bank loans and borrowings less the cash

we hold (including lease liabilities)

£1,315m

£1,628m

Net debt (excluding

leases)

Bank loans and borrowings less the cash

we hold (excluding lease liabilities)

£82m

£322m

Total revenue*

Net revenue as shown in the consolidated

income statement (page 159)

£11.3bn

£11.5bn

Operating profit

Operating profit as shown in the

consolidated income statement (page

159) Includes the underlying operating

profit of our businesses as well as one-off

items and gains or losses on disposals of

assets

£66m

(£12m)

Profit before tax

(PBT)

Total profit from continuing operations

before taxation

£28m

£268m***

* The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to

31st December 2022.

** The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 of the

financial statements for details of the restatement.

*** Profit before tax (PBT) in 2022 includes the gain on the disposal of our petrol forecourt stores of £319m.

Risk management

Our colleagues all share responsibility for identifying and responding to risk and making

decisions that fit with our co-operative Values and Principles. Managing our risks well means

we continue to create and protect value for our member-owners and their communities. Our

risk management framework gives colleagues a clear way to identify and manage risks while

keeping us within our risk appetite.

Our approach to risk

We use a four-step approach to help our leaders and colleagues recognise and manage risk

within the risk appetite set by our Board. This is supported by our risk management

processes and tools.

Identify



We identify and regularly review the key risks that could impact our business by using

our experience, judgement, and by considering

the environment we operate in.

Assess



We assess the likelihood and impact of the risks we identify relative to our risk appetite

and the controls we have in place. We consider the financial, reputational, strategic and

operational implications for our Co-op.

Manage and Control



Our Board, and senior leaders oversee and manage the risks to our business by

ensuring that appropriate response plans and resources are in place.

Monitor and Report



We regularly review risk and other management information, to understand if our

exposure to risk is changing and will act where needed.



Reports are regularly provided to our governance committees to help monitor our risks.

Our risk management framework

Governance



Our Board oversees our risk management framework through the Risk and Audit

Committee and regularly considers the status of our Co-op’s Risk Profile by reviewing

risk mitigation plans and responses to emerging risks.



We manage our principal risks and responses through our Operating Board with the

support of the Business Risk and Assurance Committee. The Operating Board is made

up from our senior leaders and decision makers, collaborating on decisions and actions

needed to run our business effectively.

Risk appetite



Our risk tolerance is determined for our Co-op as a whole and is reviewed by our

Board.



Senior leaders guide their planning and take decisions in line with our risk appetite.

Policies and Standards



We have policies and standards in place to manage risks across our businesses.

Procedures guide colleagues, setting out our risk appetite and the minimum

expectations for minimising the impact of key risks.



Risks are owned by individual senior leaders with the expertise to understand what’s

expected to mitigate the risk and report on progress.

Roles and responsibilities



Our Co-op uses a three-line model to manage risk.

First line

- frontline colleagues, managers and leaders manage risk as part of their day-to-

day activities and escalate where issues occur.

Second line

– our risk functions provide advice and oversight to help the frontline manage

risk within our risk appetite.

Third line

– our internal Audit team provides independent assurance and challenge.

Our risk governance

Our Board reviews our position against risk appetite, the principal risks to our business and

monitors management’s action plans. In 2023, the Risk and Audit Committee (RAC), our

Operating Board members and the Business Risk and Assurance Committee (BRAC) met

regularly to look at the risks affecting our Co-op and have scrutinised the principal risks and

the activity undertaken by management to mitigate these. The BRAC considers both our

principal risks and any emerging risks that may affect the achievement of our strategy. As

part of our annual planning exercise, we reflect any changes to our strategy in our risk

profile. This includes:



Regularly reviewing our position against our risk appetite by monitoring our risk profile

and taking appropriate actions where needed.



Assessing the impact and likelihood of each principal risk and management’s progress in

delivering agreed response plans.



Considering the impact of emerging risks and external events, and revising the principal

risks as required.



Evaluating our current risk position.



Monitoring corrective action when required.

Members of the senior management team are individually responsible for managing the

principal risks and mitigating those risks with the support of the appropriate senior leaders.

Nominated members of our Operating Board and senior leaders drawn from each business

unit and key support functions form the Business Risk and Assurance Committee (BRAC).

This Committee has responsibility for monitoring the delivery of plans, assessing emerging

risks and, when required, challenging action taken to keep us within risk appetite.

Our risk appetite

When setting our strategy and medium-term business goals, we consider the degree of risk

we are willing to accept to achieve those goals. We refer to this as our ‘risk appetite’. The

level of risk we’re willing to accept will vary depending on the type of risk.

Our risk appetite is set by the Board and reviewed periodically or when there are significant

changes affecting our business. Our last review was undertaken in November 2023.

The Operating Board and senior leaders put into practice monitoring processes to make

business decisions, ensuring that we operate within our risk appetite, taking corrective action

where needed. We regularly report to the Business Risk and Assurance and Risk and Audit

Committees on our position compared to our agreed risk appetite.

We make assessments against the following key areas of risk:

Strategic and membership

We are open to taking some risks to achieve our strategic objectives, provided we do so in

a responsible way that contributes to the growth and sustainability of our Co-op; and in a

way that will create value for our member-owners, communities, and colleagues.

Financial

and treasury

We adopt a prudent financial approach and avoid risks that would undermine our Co-op’s

financial viability.

Operational

Our processes, systems and ways of working must meet the needs of our stakeholders with

minimum disruption.

Regulation and compliance

We aim to always comply with the laws and regulations that govern our business.

Brand and reputation

Co-operative Values and Principles are at the centre of our approach to business and how

we engage with our stakeholders. We balance the level of risk we take in our business

decisions with our ethical values.

Read more about our principal risks and uncertainties on pages 57-63 and emerging risks on

page 64.

Principal risks

Our principal risks have been assessed using the methodology outlined on the previous

page. They have been reviewed by our Board and detail the risk exposures that pose the

greatest potential impact to our Co-op. Our principal risks are set out in the table below. In

addition to our principal risks, there may be risks that are not known to us or some we may

consider not to pose a material threat to our Co-op. We remain flexible and respond to the

risk landscape as it changes.

Regulatory Landscape

The various businesses within our Co-op are each affected in different ways by changes in

regulation. We continuously monitor planned changes to regulation and adapt to meet new

requirements.

The Financial Reporting Council (FRC) announced revisions to the UK Corporate

Governance Code to enhance transparency and accountability of businesses that subscribe

to the Code. We have a programme of work in place to prepare for these revisions and their

subsequent implementation, to ensure we comply with the requirements that are relevant to

our business as a co-operative.

Co-op Food and Nisa Retail Limited

The Windsor Framework sets out how businesses move goods between Great Britain and

Northern Ireland. Co-op and Nisa comply with the framework so we can send goods to our

stores and partners based in Northern Ireland. Through the UK Internal Market Scheme

(UKIMS) and Retail Movement Scheme (RMS) trusted trader schemes, we are authorised to

use the ‘green lane’ which has fewer checks on agrifood products.

Co-op Funeral Plans Limited and Co-op Insurance Services Limited

are authorised by

the Financial Conduct Authority. Our structures, processes and culture comply in all material

respects with the regulatory requirements for the industry.

Principal risks and uncertainties

V – Considered in our viability assessment, see page 124 for further details.

How our principal risks developed in 2023

Over the course of 2023 and into 2024, changes in the geopolitical environment have been

heightened by troubles in the Middle East. The attacks on shipping in the Red Sea have

seen increased pressure on the current cost of living impacts for consumers in the UK, as

shipping companies divert their cargo ships, adding additional time and costs to their

voyages.

Challenges in the macro-economic environment are still creating uncertainty for UK

consumers. The impacts of this span several of our principal risks. The principal risks most

impacted are:

Competitiveness and External Environment

Cost of living pressures continue to impact

the finances of our member-owners and customers, as they seek out value and adapt their

shopping habits.

Supply Chain and Operational Resilience:

Challenges remain within the supply chain in

terms of sourcing of products and materials for and from our suppliers.

Environment and Sustainability

The urgency to address climate change and sustainability

remains. The current geopolitical and economic circumstances have served to heighten the

challenges ahead and have the potential to impact our ability to meet our climate

commitments over the long-term.

Beyond this, the broad extent of our Principal Risks has remained the same. In our viability

statement on page 124 our directors have concluded that the business will have sufficient

funds for the period to 31 December 2025.

Change

Risk description:

We will make changes to the way we operate through our four year plan. If our plans are not delivered in an effective way, we will not

realise the benefits of our change programmes.

Reason for the risk

How we manage it

What has

changed

What we plan to do

Complexity of change

programmes

Available resources and capacity

for change

Complex dependencies between

change programmes

Cost of change

Ensure oversight of our change

portfolio activity has appropriate

governance and robust controls

Approach to change ensures

colleague impact is considered

and effectively managed, and that

changes are fully embedded

without disruption

Long-term planning assesses and

prioritises change choices and

investment decisions that align

with the delivery of our strategic

objectives

Improved management and

strengthened end-to-end

governance around our Co-op’s

change agenda, from concept to

implementation, including

capacity to deliver change

Effective prioritisation of

investment in change activity is

pivotal to ensure we continue to

focus on what has the most

material impact and benefit in

delivering our Vision and strategy

Embed a more tailored approach

to deliver change, to manage risk

and ensure the delivery of target

outcomes in a fast moving and

changeable macro-environment,

whilst adhering to our new end-to-

end change governance

procedures

Implement closer tracking of

business-as-usual (BAU) activity

that has interdependencies with

key change activity to ensure we

understand all potential impacts

Continue to improve alignment

between our governance

structures with our risk

management approach

Competitiveness and External Environment

Risk description:

The competitive and economic landscape in which we operate means that we need to monitor our growth targets, propositions, and

competitor behaviour to remain viable and innovative.

Reason for the risk

What we do

What has changed

What we plan to do

New entrants and market

competition

Innovation and market disruption

Ongoing pandemic implications

Cost pressures

Market factors, such as the rising

cost of living and inflation

Macro-economic and supply chain

issues relating to geopolitical

issues

Changes to regulation and

Government policy

Structural changes to the

economy post-exit from the single

market and customs union

transition

Social and political uncertainty

Strategic planning and financial

planning

Risk and opportunity

management, including financial

forecasting

Annual planning refresh with

regular reporting and analysis

Undertake market share,

customer behaviour and

competitor analysis

Sales monitoring and reporting

Horizon scanning process and

frequent assessment of external

conditions

Agile promotions and marketing

responses

Extensive due diligence for all

acquisition activity

Engagement with Government

and industry working groups

To continue to meet the needs of

our member-owners and

customers, we have launched our

new strategy, based on creating

economic value, ownership value,

social value

Economic conditions continue to

severely impact real income for

UK households, as well as

significantly increasing our costs,

leading many consumers to seek

out value

Changes in consumer behaviours

and expectations, with greater

participation in online and local

shopping

New revised target to reach

eight million member-owners

by 2030

Business growth ambitions in

2024 are to increase our share

of quick commerce to 30%,

more than double new

franchise stores, and open

400 new Nisa stores

We are extending member

prices on over 100 product

lines, taking the total price

investment to £100m

Growth to create a new era of

Co-operation with greater

value for member-owners and

wider society

Brand and Reputation

Risk description:

We set ourselves high standards in the way we operate our business. Our Co-op Difference means we are owned by and run for

our members. As a co-operative we reflect our Values and Principals and consider wider social and ethical impacts within our decision making, so that

we can be commercially successful and sustainable. If we don’t meet these standards there is a risk to our reputation.

Reason for the risk

What we do

What has changed

What we plan to do

Expectations of our member-

owners, communities and the

customers we serve to deliver

positive social impact

Running our businesses in

accordance with the principles set

out by the International Co-

operative Alliance (ICA)

Sustained use of third-party

partners to deliver Co-op branded

products and services

Create economic value for our

member-owners through the

products and services we provide

Create social value for the

communities we serve

Create ownership value by giving

our member-owners a say in how

we run our business

Report on our ethical priorities

and sustainability progress

through our Co-operate Report,

charting our responsible business

performance and progress

Report our progress to all

audiences twice yearly against

both commercial strategy and

delivery of our Vision in our

Interim and Annual reports

Apply our Ethical Decision-Making

Tool to inform key business

activities and help make better

decisions on behalf of our

member

owner

Progressed on protecting our

colleagues and communities by

drawing the attention of the

media and authorities to the

issues caused by retail crime

Developed partnerships such as

Community Fridges and raised

£1.2m for our charity partner

Barnardo’s in 2023 which will

help improve young people’s

wellbeing

Protect our brand and reputation

by focusing on the security and

commercial viability of our

business so that we can continue

to offer valuable support to our

members and communities into

the future

Continue to deliver our Co-op

Difference by supporting

member-owners, colleagues and

customers

Reach eight million member-

owners by 2030 and support

growth for our core businesses –

Food, Funerals, Legal and

Insurance

Deliver on commitments with

other charity partners in the

communities we serve

Funding and Liquidity

Risk description:

The Group relies on a combination of external funding and cashflow generation to run its businesses. Any deterioration in economic

conditions may require our Co-op to take mitigating action to ensure adequate funding and cashflows. Such mitigation could include reducing or delaying

capital expenditure, eliminating discretionary costs and/or disposal of n

core assets.

Reason for the risk

What we do

What has changed

What we plan to do

Changes in economic

environment and outlook

Movements in market prices

Changes in tax and tariff regimes

Board-approved Treasury policy

in place, which is actively

monitored through our Treasury

Committee

Regular reviews are conducted

by the Board covering debt

facilities and liquidity headroom

to ensure adequate capacity to

cover future funding

requirements

Strategic plans supported by

scenario planning

Hedging to minimise impacts of

interest rate and commodity

movements

Balance sheet health remains

strong after a significant

reduction in our net debt in 2022

and continued improvement

through 2023

Ongoing focus on reducing

unnecessary expenditure

Repay or re-finance our debt

facilities ahead of any debt

maturities to ensure we maintain

adequate liquidity headroom to

cover the future operations of the

business

Technology and Cyber Threats

Risk description:

We electronically store and process data on our member-owners, colleagues, customers and partners. We are reliant on technology

to deliver our business operations so theft of data or a cyber

attack could significantly disrupt our business.

Reason for the risk

What we do

What has

changed

What we plan to do

Custody of valuable data

Reliance on technology

Sophisticated and diverse cyber

threat landscape

Data privacy and data protection

regulations

Member-owner, colleague and

customer confidence

Increase in third party cyber

incidents

Protect information owned or

managed by our Co-op

Protection of services that our Co-

op delivers to our customers and

member-owners

Advances in technology including

artificial intelligence (AI) and

machine learning (ML)

Provide 24/7 security operation

capability with embedded

Information Security controls

24-hour threat and security event

monitoring and response

capability

Vulnerability management

Supplier security due diligence

and assurance, and regular

testing for security weaknesses

Share best practice and foster a

strong information security culture

Continually improve security

controls through an ongoing

security improvement programme

Obtain independent assessments

of our security posture to define

strategy

Engage with the business to

ensure security controls are

aligned to their risk appetite

Monitor legislation around new

technologies such as AI/ML to

ensure any investment in the

automation of our processes to

improve interactions with our

members and customers are

secure and ethical.

Improved protection from external

cyber threats including increased

boundary controls

Enhanced end user compute

protection capabilities

Further matured our Security

Scorecard technology to monitor

third and fourth parties’ security

postures

Enhanced our Public Key

Infrastructure (PKI) capability with

the latest technology

Further matured our Identity

solutions

Refreshed our Intruder Prevention

and enhanced our firewall

capabilities

Introduced a new cloud-based

firewall service

Introduced a phishing simulation

capability

Developed controls to ensure

AI/ML is responsibly and securely

used (including AI registers and

guardrails)

Continue to extend cloud security

with additional controls over cloud

application security

Continue to improve our Data

Loss Prevention controls through

an improved Information

Protection and Governance

programme of work

Continue to mature our Identity

and Access Management controls

Mature our email security tooling

and implement enhanced email

controls

Introduce controls that

demonstrate to our member-

owners and customers that

communication from our Co-op is

genuine, to reduce fraudulent

activity

Implement Security Orchestration

Automation Response capability

Continue to invest in technology

replenishment

Increase protection for end user

computer devices from threats of

ransomware

Continue to review and enhance

controls to ensure AI/ML is

developed responsibly and

securely

People

Risk description:

Our ability to attract and retain colleagues with relevant skills and experience while fostering a diverse and fairer workplace is

important to achieving a strong, competitive Co-op. If we do not continue to recruit talent and invest in our colleagues, then it may impact our operations

and our ability to deliver on our strategic plans.

Reason for the risk

What we do

What has changed

What we plan to do

Ineffective selection and

assessment processes

Talent attraction

Need for greater diversity

Increased demand for talent and

reduced supply

Pre-employment screening,

culture fit assessment and

induction for new hires

Ongoing inclusive leadership

behavioural training for all leaders

and managers

Colleague performance review,

engagement and recognition

Talent management review

Pay and reward packages are

reviewed regularly to ensure they

remain competitive and fair

Operate a hybrid working policy

which gives more choice over

how, when and where our

colleagues work best to balance

the businesses and colleagues’

needs

Introduced holistic colleague

conversations for all colleagues

that encompass performance,

development/career and

wellbeing

Rolled out inclusive hiring further

to hiring managers, with

improvements to create a more

inclusive hire process

Better understood our retention

challenges. A stabilised external

job market, reducing the high

risks we saw in part of 2023

Invested in leadership

development activity

Significantly more active talent

management and succession

planning to help retain and

develop, particular at senior

leadership level

Introduced talent programmes to

support women and ethnic

minority colleagues

Implement a robust knowledge,

skills and revised behaviour

framework that supports talent

development and reskilling as the

world of work changes

Make improvements to our

recruitment and selection

processes in volume and non-

volume hires

Mature our inclusive culture such

that our colleague base is

increasingly representative of our

society

Make improvements to the

colleague experience that

reinforce and strengthen Co-op

Culture

Further mature talent

management processes,

leveraging technology

Misuse and/or Loss of Personal Data

Risk description:

We hold personal information of our member-owners, colleagues and customers. We need to make sure we protect and manage this

responsibly.

Reason for the risk

What we do

What has changed

What we plan to do

Member-owner, colleague and

customer confidence

Data privacy and data protection

regulations

Information processed on our

behalf by third parties

Dedicated Data Protection, Data

Management and Information

Security teams provide challenge,

guidance and oversight

Role specific training and

awareness to manage data

protection risks and promote

ethical data usage

Data protection impact

assessments for new/changes to

existing systems, processes or

business activities

Strategic relationship with

Government bodies and third

parties

Increased accountability through

enriched records of data

processing activity

Further improvements to

streamline governance, reporting,

monitoring and oversight

Targeted assurance plan in place

Bespoke training for colleagues

managing rights requests

Further embed assurance activity

over key data protection controls

Evaluate materiality and practical

implications to our Co-op of key

proposed changes to data

protection related regulation and

standards

Enhance suite of reporting to

include trend analysis, risk

metrics and emerging risks

Drive increased ownership and

accountability for personal data to

ensure an appropriate level of

data protection risk and

compliance

Health

and

Safety and Security

Risk description:

We have a duty of care to protect our colleagues, customers and third parties. Failure to carry out this duty effectively may result in

adverse legal, financial and reputational impacts.

Reason for the risk

What we do

What has

changed

What we plan to do

Keeping colleagues, members,

customers and visitors to our

sites safe

UK health and safety legislation

Size and complexity of our

business

Co-op wide Health, Safety and

Security frameworks define how

we implement and report on

controls

We monitor and oversee issues

through committees of subject

matter experts

Our performance is published in

our annual Co-operate Report

A comprehensive set of

minimum standards outline the

controls required to mitigate

risks

We continue to manage risk at

Co-op, using the well-

established Three Lines of

Defence operating model

Across the UK, crime rates

within our food retail network

increased in 2023. Rising rates

of crime, such as violence and

abuse, have been reported

across the UK’s retail sector

The changing crime landscape has

prompted major retailers, including our

Co-op, to heighten awareness of the

impact of crime on colleagues with a

call for a stand-alone offence of

assault on a shopworker.

Conduct horizon scanning for future

changes in health and safety

legislation, sharing our findings with

specialist teams

Ongoing health and safety and crime

data enhancements to develop current

system intelligence

Continue the ‘Safer Colleagues, Safer

Communities’ programme of activity

encompassing security, wellbeing,

campaigning and social responsibility

Supply Chain and Operational Resilience

Risk description:

If we are unable to prevent, adapt or respond to a major failure or external event to a key part of our business or supply chain, it could

significantly affect the availability and quality of products and

services delivered to our member

owners, colleagues, customers and partners.

Reason for the risk

What we do

What has changed

What we plan to do

Unpredictable external events

like severe weather, pandemics,

and significant geopolitical

events, as well as food fraud

risks

Efficiency of logistics network

process, infrastructure and

resource capacity

Post-exit from the single market

and customs union, structural

changes to the economy, trade

deals and national infrastructure

Supplier capacity and

preparedness for cross border

processes

Variability in customer and

network demand leading to

supply pressures and service

instability

Established business disruption

planning and testing, including

incident management processes

Food Authenticity management

system, horizon scanning of

potential change in external

events and regulations, risk

mitigation and a robust product

testing programme

Regular disaster recovery

testing and review of IT service

levels to ensure resilience to

external sources of disruption

Regular review of pay rates for

our driver and warehouse

colleagues

Engagement with industry

working groups, Government

and information exchanges to

support joint responses with key

stakeholders

Post-exit from the single market

and customs union, manage

goods moving from Great Britain

to Northern Ireland through the

phased implementation of the

Windsor Framework, as well as

other planned legislative

changes

Regular strategic review of our

network to meet future demands

Worked closely with our

suppliers and partners to

mitigate shortages of certain raw

materials and disrupted energy

supplies as a result of conflicts

in Europe and the Middle East

Work closely with the National

Crime Agency, the Food

Standards Agency, the Food

Intelligence Information Network

and the British Retail

Consortium to underpin the

integrity of our products

Building on successful delivery

of our multi-year Retail Business

Transformation programme, with

rollout of SAP for finance

We continue to deliver

Funeralcare’s core system

transformation programme to

support greater resilience

We manage goods moving from

Great Britain to Northern Ireland

through the Windsor Framework

‘green lane’

Use artificial intelligence systems to

accelerate data analytics

Support innovation for the future of

British farming and industry

Focus on retention and attraction in

our supply chain and logistics

operations

Regulatory Compliance

Risk description:

Our Co-op is subject to laws and regulations across its businesses. Failure to respond to changes in regulations or stay compliant

could affect profitability, our reputation (through fines and sanctions from our regulators) and our licence to operate.

Reason for the risk

What we do

What

has changed

What we plan to do

New and updated laws and

regulations can impact our Co-op

Our businesses provide financial

and legal products and services

which are regulated by the

Financial Conduct Authority (FCA)

and the Solicitors Regulation

Authority (SRA)

There are codes and regulations

that apply to our Food business

including the Groceries Supply

Code of Practice (GSCOP)

Horizon scanning for emerging

changes on the regulatory

landscape, taking appropriate

action and feeding into

consultations where applicable

We have colleagues with relevant

expertise, robust processes, and

controls to ensure the products

and services we provide comply

with all relevant laws and

regulations

Processes and charter in place to

engage with suppliers and remain

compliant with GSCOP

Established Risk and Compliance

teams in our regulated

businesses

Mandatory regulatory/legislative

training for relevant colleagues

Regular compliance monitoring

and assurance reviews

Exports to Northern Ireland are

managed through the phased

implementation of the Windsor

framework

We are now reporting Task-Force

Climate Related Financial

Disclosures (TCFD). See pages

127-134.

Improved processes and controls

to ensure compliance with the

Controlled Land Order 2010

Enhance cross functional review

and monitoring of regulatory

landscape to track compliance

and delivery plans

Strengthen compliance

frameworks and horizon scanning

in response to increasing

regulatory requirements on our

businesses

Continue to monitor and prepare

for anticipated Corporate

Governance and Internal Control

Reform

Continue to embed rules on

Consumer Duty set out by the

Financial Conduct Authority for

open products and services

Pre

need Funeral Plan Obligations

Risk description:

The measurement of our pre-paid funeral plan obligations is sensitive to changes in several factors. Adverse movements could result in

lower

than

expected funds being available and the business receiving a lower amount for each funeral or result in individual contracts b

ecoming onerous.

Reason for the risk

What we do

What has changed

What we plan to do

Changes in the cost of providing a

funeral or expected inflation on

funeral costs

Underperformance of assets held

to meet funerals

Changes in long-term interest rates

Most funds are invested in whole

life insurance policies with

guaranteed minimum returns

Regular stress testing, actuarial

modelling and monitoring of risk

positions versus risk appetite

Annual assessment of key

assumptions and annual actuarial

valuation by external actuaries

Monitoring and oversight by a

senior committee of specialists,

business leaders and advisers

Monitoring of Financial Conduct

Authority (FCA) reporting

requirements (Core Capital,

Liquidity and General Solvency)

Throughout 2023, the return

expected on Government bonds

and therefore our wider asset

portfolio continued to increase due

to macro-economic changes. This

has resulted in higher asset return

expectations in the future

compared to our 2022 view

The introduction of a new

accounting standard (IFRS 17)

affected our Core Capital metric

and has significantly increased the

level of Core Capital headroom

within our regulated business

The investment return seen in

2023 has been low compared to

historical levels; however, based

on assumptions consistent with the

market benchmarks, the outlook

implies a long-term return higher

than that achieved in 2023

Regular review and improvement

of the methodology and

assumptions used in our

actuarial models

Ongoing monitoring of the

required levels of funding and

FCA metrics

Environment and Sustainability

Risk description:

The way we choose to run our business operations and the products and services we provide are affected by local and global social and

environmental events. Running our Co-op sustainably is essential to achieving our Co-op’s goals and meeting our ambition of becoming Net Zero for

Scope 1

and

2 emissions by 2035 and for Scope 3 emissions by 2040

Reason for the risk

What we do

What has

changed

What we plan to do

Physical and transition climate

related risks impacting food

sources and materials; supply

chains; livelihoods and economic

growth

Increasing UK and international

environmental policies and

regulations, including carbon

prices, tighter emissions limits

A competitive environment on

sustainability and changing

expectations and attitudes of our

members, customers, suppliers

and partners

Living up to our co-operative

Values and Principles

The technologies and/or

infrastructures required to achieve

Net Zero are still unavailable or

unaffordable

Increasing risk of human rights and

modern slavery issues in global

supply chains

We are on track to reduce

emissions created from running

our business (Scope 1 and 2) by

66% from 2016 to 2030, and

reducing our Scope 3 emissions by

48% from 2016 to 2030

Lead on climate action. Our CEO

chairs the Steering Group for the

BRC’s Climate Action Roadmap

and jointly chairs the Government

Net Zero Council

Play an active role in sector

groups, including the WWF

Retailers’ Commitment for Nature,

(a group of eight major retailers

working to reduce the

environmental impact of food and

drink production) and Food Data

Transparency Partnership

Have in place a robust human

rights due diligence programme to

support our suppliers in tackling

human rights issues

Installing natural refrigerants

across our estate to reduce our

carbon emission

Built climate change impacts into

our financial planning and

strengthened the governance of

our sustainability activity

Fulfilled our commitment to

disclose our comprehensive Task

Force on Climate-Related

Financial Disclosures in 2023

Validated our science-based GHG

reduction targets with the Science

Based Targets initiative (SBTi).

The new targets are aligned

limiting global temperature rise to

1.5°C and published them in our

Co-operate Report

Forged a 15 year partnership with

Voltalia for green electricity to

cover up to 7.5% of our total

electricity needs per year.

Added new ESG metrics into our

main bank facility so that it

qualifies as a Sustainability Linked

Loan, supporting our transition to

Net Zero

Published our Modern Slavery

Statement, Supply Chain

Disclosure and Independent

Human Rights Impact Assessment

Committed to no deforestation

across our primary deforestation-

linked commodities by 31

December 2025.

Implement detailed carbon

reduction plans for our own

operations by developing a

logistics fleet decarbonisation

strategy and progressing our low

carbon heating strategy

Continue to evolve our plans to

meet our environment, human

rights and sustainability goals.

50% of our category 1 Scope 3

emissions will be covered by

suppliers with validated science-

based targets by the end of 2024

In 2024, we are planning to

broaden incentives in our

contractual terms and conditions

for suppliers to accelerate

decarbonisation and help meet

our Scope 3 carbon reduction

targets

Deliver our pan-Co-op

deforestation plan to meet our

sustainability commitments

Task Force on Climate-Related Financial Disclosures

As a large organisation, our Co-op is committed to complying with the UK Government’s

mandate to disclose Task Force on Climate-Related Financial Disclosures (TCFD) aligned

financial information. Details of this disclosure are set out on pages 127-134.

External emerging risks

We proactively monitor emerging risks and opportunities for our Co-op and across our

businesses and functions where the full extent and implications of a risk may not be

completely understood but needs to be tracked. We regularly evaluate changes to our risk

profile triggered by new or unexpected events and respond to them at a function, business

or group level with the support of our business continuity and Legal teams.

Political risks

The worsening geopolitical landscape could further complicate our supply chains and

operations, and our ability to create value for our member-owners.

We protect value by:

Working with suppliers and partners and having robust business continuity plans in place to

mitigate.

Economic risks

A volatile and complex world increases the possibility of future financial instability that may

impact our ability to protect value and support our member-owners and their communities.

We protect value by:

Our membership model means we can take a longer-term view than our competitors; we aim

to create a strategically, commercially viable and sustainable business.

Social risks

Changes in demographics and population structures in the UK may impact our business.

We protect value by:

Reviewing our propositions to meet our both our member-owners and colleagues’ needs

now and in the future.

Technological risks

Progression in technology accelerates, our existing ways of operating and working become

outmoded and impact the opportunities to create value offered by new technology.

We protect value by:

Adopting new technology to improve our operations, explore opportunities in new markets

and deliver value to our member-owners.

Regulatory risks

Differing regulation and legislation across the UK’s devolved nations and with the EU has the

potential to drive up costs and impact value creation activities.

We protect value by:

Engaging with Government, its agencies and industry bodies to ensure compliance is

achieved in an effective way.

Environmental risks

Climate change and an increase in severe weather events may impact our capacity to

protect and create sustainable value for our member-owners.

We protect value by:

Demonstrating best practice in transitioning to a clean economy and renewable energy

solutions.

Governance reports

Board biographies

Debbie White

Chair

Appointed as Chair in January 2024

(Independent Non-Executive Director and Chair Designate from August 2023).

Committee Membership

Nominations Committee (Committee Chair from January 2024)

Skills and experience

Debbie is an experienced Non-Executive Director. She is the Senior Independent Director of

Spire Healthcare Group plc. and was previously, until December 2023, a Non-Executive

Director of Howdens Joinery Group plc. Debbie is also Audit Committee Chair and Non-

Executive Director of PAVmed, Inc., a US medical technology company (listed on the

NASDAQ). Debbie is a special advisor to Angeles Equity Partners and sits on the Board of

Xanitos,Inc, a portfolio company.

Debbie’s executive career most recently included roles as Group Chief Executive of

Interserve Group and Global CEO for healthcare and government at Sodexo. Debbie started

her career as a Chartered Accountant with Arthur Andersen (UK), before joining

AstraZeneca where she held a range of financial roles. She later joined PwC Consulting

where she worked across a number of sectors in a global capacity.

Debbie is Honorary Treasurer and a trustee of Wellbeing of Women, a UK charity which funds

research into women's reproductive and gynaecological health.

Shirine Khoury-Haq

Chief Executive Officer

Appointed as CEO in August 2022

(Interim CEO from March 2022)

Skills and experience

Shirine is Group CEO at Co-op and has been a Director on the Co-op Board since joining in

2019. Shirine joined Co-op in August 2019 as Chief Financial Officer and later also became

Chief Executive Officer Life Services, leading Co-op Funeralcare, Insurance and Legal

Services.

Before joining Co-op, Shirine was Chief Operating Officer for the Lloyd’s insurance market,

which comprised of more than 50 leading insurance companies operating in over 200

countries. She also led the digital modernisation programme for the wider London insurance

industry.

In addition to holding senior positions at IBM, McDonalds and insurer, Catlin Group, Shirine

has worked in a number of regulated sectors in the UK and overseas including retail, IT,

pharmaceuticals and consumer goods.

Shirine is also a Non-Executive Director and Chair of the Audit and Risk Committee at

Persimmon Plc. Previously, Shirine was a Non-Executive Director at the Post Office.

Rachel Izzard

Chief Financial Officer

Appointed as CFO and Executive Director in June 2023

Skills and experience

Rachel joined Co-op Executive Board in June 2023, as Group CFO for Finance and

Procurement.

Rachel has extensive experience at Board level, holding a variety of senior executive and

Non-Executive leadership roles in the commercial sector, across a wide variety of countries.

Prior to this role, Rachel was CFO at N Brown PLC, the UK fashion digital retailer. Rachel

also has 25 years’ experience in Airlines and logistics including CFO and CIO of Aer Lingus,

during which time the company achieved a turnaround in both customer proposition and

financial results.

Rachel was also CFO at IAG Cargo, co-founding the business from the divisions of British

Airways and Iberia, and also held a range of roles overseas in Sydney, Hong Kong and New

York.

Moni Mannings OBE

Senior Independent Director

Appointed as Senior Independent Director in January 2024

Committee membership



Nominations Committee.



Remuneration Committee (appointed 23 January 2024).

Skills and experience

Moni is a qualified Solicitor.

Until March 2016 Moni was a senior partner in international law

firm Olswang LLP having enjoyed a career spanning over three decades in legal practice as

a Banking and Finance lawyer. Moni founded and led Olswang’s International Banking and

Finance Division and served on Olswang’s Board for 13 years.

Moni is currently Senior Independent Director Designate at Land Securities Group plc, Non-

Executive Director and Chair of the Remuneration Committee of Hargreaves Lansdown plc

and easyJet plc and a Member of The Takeover Panel.

Moni has previously served as a Non-Executive Director of Investec Bank plc,

Polypipe Group

plc, Dairy Crest Group plc, Breedon Group plc and Cazoo Group Ltd. She was also previously

the Deputy Chair of Barnardo’s.

Moni founded EPoC (Empowering People of Colour), a not-for-profit network that seeks to

increase the number of people of colour on boards. She is a member of the Parker Review

Committee and a Trustee on the Board of the St Marks Hospital Foundation charity.

Kate Allum

Member Nominated Director

Elected as a Member Nominated Director in May 2021

Committee membership



Nominations Committee.



Remuneration Committee (appointed 18 January 2023).

Skills and experience

Kate has extensive experience at Board level, holding a variety of senior executive and non-

executive leadership roles in the commercial sector, across a wide variety of

companies, cultures and countries.

Kate is currently the Chair of Court for the University of the West of Scotland and is a

director of Eurocell PLC, Billingtons Food Group, Ballater (RD) Limited and Thrive Ballater

Limited.

Prior to Kate’s election to our Co-op, Kate was Chief Executive of Cedo Limited and First

Milk Limited, the largest UK owned dairy co-operative.

Lord Victor Adebowale, CBE (Cross Bench)

Independent Non-Executive Director

Appointed as an Independent Non-Executive Director in April 2016

Committee membership



Risk and Audit Committee.



Nominations Committee (appointed 28 March 2023).

Skills and experience

Victor has been involved in a number of independent commissions advising governments on

mental health; learning disabilities; the role of the voluntary sector; youth crime prevention;

policing and stop and search; policing and mental health; housing policy; the future of public

services and employment/skills and race and equalities; social finance/investment.

He is currently Founding Chair of Collaborate CIC; Director Leadership in Mind Ltd; Chair of

the NHS Confederation; Chair of Social Enterprise UK; Co-founder and Chair of

Visionable.com; a visiting professor of social policy at University of Lincoln and Patron of the

Art House, Wakefield.

Victor has a Masters in Advanced Organisational Consulting from City University and The

Tavistock Institute.

Margaret Casely-Hayford, CBE

Member Nominated Director

Elected as a Member Nominated Director in May 2016

Committee membership



Remuneration Committee.



Nominations Committee.

Skills and experience

Margaret is a qualified lawyer of over 30 years standing, was the Director of Legal Services

for the John Lewis Partnership for nine years and on the Board of the British Retail

Consortium for four years to 2014. She is a member of the Institute of Directors’ Corporate

Governance Advisory Board.

Margaret is currently Chancellor of Coventry University; Chair of Shakespeare’s Globe

Theatre; is an adviser to a number of social enterprises including the Better Business

Initiative and is a champion of diversity, equity and inclusion.

Paul Chandler

Member Nominated Director

Elected as a Member Nominated Director in May 2015

Paul will reach the end of his term in May 2024

Committee membership



Risk and Audit Committee.

Skills and experience

Paul was the Chief Executive of Traidcraft from 2001 to 2013, President of the European Fair

Trade Association from 2005 to 2012, and a director of Shared Interest from 2013 to 2022.

Drawing on his Fairtrade experience and early career at Barclays Bank, he is now focusing

on promoting responsible practices in business, alongside a portfolio of charity and community

focused roles. Paul is a director of CBF Funds Trustee Limited, Senior Non-Executive Member

of Chapter at Durham Cathedral, and a Director of North-East Ambulance Service. He is also

the Vice Chair, Treasurer and a Fellow of St Chad’s College in Durham University, a Trustee

of the Bible Society and a director of the Fairtrade Advocacy Office in Brussels.

Sarah McCarthy-Fry

Member Nominated Director

Elected as a Member Nominated Director in May 2019

Committee membership



Risk and Audit Committee.

Skills and experience

As a committed co-operator for over 25 years, Sarah has previously served as a local

Councillor and as a Labour and Co-operative MP, representing Portsmouth North. As a

Government Minister in HM Treasury, Sarah was responsible for personal savings policy

and financial inclusion including Credit Unions. As Schools Minister, she led the

development of apprenticeships policy and partnerships with Business and Schools.

She is a former Finance Director at GKN Aerospace, a global engineering company and a

former Chair of the Employment and Skills Board for the Solent Local Enterprise

Partnership. Sarah is a Trustee and Treasurer of the Parliamentary Outreach Trust.

Rahul Powar

Independent Non-Executive Director

Appointed as Independent Non-Executive Director in July 2018

Committee membership



Remuneration Committee.



Risk and Audit Committee (appointed 23 January 2024).

Skills and experience

Rahul is the founder and Chief Executive of Redsift, an organisation that provides an open

platform delivering products that prevent cyber attacks. Prior to Redsift, he

founded Apsmart, which was acquired by Thomson Reuters Corporation in 2012. At

Thomson Reuters, he served as the Head of Advanced Products and Innovation. Previously,

he was part of the founding team and principal technical architect of Shazam. Before the

launch of the iTunes AppStore, he envisioned and created the first Shazam iPhone App.

Stevie Spring, CBE

Independent Non-Executive Director

Appointed as an Independent Non-Executive Director in June 2015

Stevie will reach the end of her term in June 2024.

Committee membership



Remuneration Committee (Chair)

Skills and experience

Stevie has broad executive and non-executive experience across the private, public and not-

for-profit sector. She was previously CEO of Clear Channel, the world’s largest out of home

company; and of Future PLC, an international media company, where she led its digital

transformation. She has chaired organisations as diverse as Children in Need for the BBC

and The British Council for the Government.

Stevie’s portfolio currently includes chairing PRS for Music; the global music rights

business; Mind; the mental health charity; advising tech scale ups Kino-mo and ITG; and

serving on the EDI Board of Pladis. Stevie was named in the Sunday Telegraph/Debrett’s list

of Britain’s 500 most influential people.

Adrian Marsh

Independent Non-Executive Director

Appointed as an Independent Non-Executive Director in May 2023

Committee membership



Risk and Audit Committee (Committee Chair from May 2023).



Remuneration Committee (appointed 23 January 2024).

Skills and experience

Adrian is an accomplished Group Finance Director and experienced Non-Executive Director

with multi-sector expertise. Most recently, Adrian was Group Finance Director of DS Smith

plc where he held the position for 10 years. Prior to this, Adrian held senior finance positions

at Tesco plc, AstraZeneca plc and Pilkington plc.

Adrian is currently a Non-Executive Director and Audit Chair of John Wood Group. Adrian’s

previous directorships include Greenergy International and WeConnectStudents.com.

Adrian is a Fellow of the Chartered Association of Certified Accountants and a Fellow of the

Association of Corporate Treasurers.

Luke Jensen

Independent Non-Executive Director

Appointed as an Independent Non-Executive Director on 19 February 2024

Committee membership

Risk and Audit Committee.

Skills and experience

Luke is an established retail leader with a wealth of experience in the global food retail

industry. Luke is currently Executive Chair at Hana Group SAS, a world leading provider of

fresh ‘on the go’ sushi and pan-Asian Cuisine.

Luke served previously as CEO of Ocado Solutions where he led the transformation of

Ocado from a UK retail company to a recognised global technology business. He was also

Group Development Director of J Sainsbury’s plc where he was responsible for online and

all customer facing digital activities.

Luke was previously a Non-Executive Director of Asos plc.

Executive biographies

Shirine Khoury-Haq

Chief Executive Officer

See Board biographies.

Rachel Izzard

Chief Financial Officer

See Board biographies.

Dominic Kendal-Ward

Group Secretary and General Counsel

Dom became Group Secretary and General Counsel in May 2022. He originally joined our Co-

op in 2017 as General Counsel of our insurance business. Dom qualified as a solicitor in 2006.

Prior to joining our Co-op, Dom spent 12 years at the international law firm Linklaters, working

for a wide variety of organisations on corporate advice and transactions. Dom is a Director of

Co-operatives UK.

Other Directors and Executive members who have served during the year:

Simon Burke served as an Independent Non-Executive Director and Chair of the Risk

and Audit Committee until 30 April 2023.

Mike Hazell served as Interim Chief Financial Officer until 30 June 2023.

Sir Christopher Kelly served as Senior Independent Director until 13 November 2023.

Allan Leighton served as Chair until 1 January 2024. He remained on the Board as

an Independent Non-Executive Director until 18 February 2024.

Biographical details for former members of our Executive can be found on our website:

www.co-operative.coop/investors/reports

Governance review

Chair’s overview

I am pleased to present our 2023 Governance Review which sets out detail on our unique

governance structure and the key areas considered by our Board and its Committees during

the year.

Our member-owners

As the UK’s largest consumer co-op, we exist to meet the needs and concerns of you, our

millions of member-owners and the communities that we serve. This has remained at the

forefront of the minds of our Board during 2023, whilst continuing to navigate external

challenges, delivering against our strategy and investing in our future growth. Our Board has

continued to pro-actively engage with our member-owners to gain their valuable thoughts

and ideas.

Our National Members’ Council (‘Council’), which is 100-strong, acts as our members’

representatives, holding our Board to account for how the business performs and our

commitment to co-operative Values and Principles.

Under Denise Scott-McDonald’s ongoing leadership as President of the Council, our Board

has continued to have a healthy balance of support and challenge from our Council, who

always show their passion for our Co-op, our member-owners and our colleagues. We value

the engagement and contributions made and thank the National Members’ Council for its

ongoing support and challenge.

Plans for our 2024 Annual General Meeting are already well underway, and we are excited

to host this at the brand-new Co-op Live Arena in Manchester. I look forward to meeting as

many of you as possible and will value the opportunity to listen to your input and feedback.

The meeting will take place on Saturday 18 May 2024 and we will keep members updated

via our website at

www.co-operative.coop/agm

. The AGM notice, which includes more detail,

will also be displayed on the website. If you are an eligible member

, keep an eye out for an

email or letter with more information.

Our Board and Executive

During 2023 our Board entered a period of transition with a number of Directors reaching the

end of their terms of office. I was delighted to join as INED and Chair Designate in August

2023, taking over as Chair in January this year.

As reported in last year’s Annual Report, Simon Burke stepped down as Risk and Audit

Committee Chair and we welcomed his successor, Adrian Marsh in May 2023. As a former

Group Finance Director, Adrian has extensive financial accounting experience and is well

equipped to lead our Risk and Audit Committee into the future.

In November 2023, Sir Christopher Kelly stepped down as our SID and we welcomed Moni

Mannings as our new SID in January this year.

Moni is a highly regarded NED, SID and

Committee Chair with a unique depth and breadth of board experience across a wide range

of ownership structures.

More recently we welcomed Luke Jensen as an Independent Non-Executive Director.

Luke

is an established retail leader, bringing a wealth of experience in the global food retail

industry.

To be eligible to vote, you must be at least 16 years old and have spent a minimum of £250 at Co-op over a 12-month period.

See more details here

Our Board also welcomed Rachel Izzard (CFO) as an Executive Director in June 2023 and

the Board was

pleased that Margaret Casely-Hayford was re-elected as an MND during the

year.

I would like to extend my thanks to Paul Chandler and Stevie Spring who will both reach the

end of their terms during 2024.

Our Board’s Effectiveness

In line with corporate governance best practice, an externally facilitated review of our Board

was conducted during the latter part of 2023, facilitated by Clare Chalmers. Whilst the timing

of the review may be a little unusual given all the changes taking place on the Board, the

outputs and recommendations are invaluable to me as I transition into my role as Chair, and

look to ensure our Board is operating to maximum effectiveness.

More details on the review process and outcomes can be found in the Nominations

Committee report on pages 115-120.

Looking ahead

As I embark on my Co-op journey as your new Chair, I am committed to maintaining the

highest standards of corporate governance. I will ensure our Board continues to be equipped

to carry out its duties and remains focused on enabling delivery of our new strategy,

ensuring co-operative Values and Principles remain at the heart of everything we do.

Debbie White

Chair, The Co-op Group

About us

Our Purpose is championing a better way of doing business for you and your communities.

Co-operative Values and Principles are the cornerstone of everything we do. These co-

operative Values and Principles are shared by many co-operatives around the world and are

included in the International Co-operative Alliance’s Statement on Co-operative Identity.

Our governance structure

Our governance structure is carefully constructed and is unique, based on ownership by our

members. It is defined in our Rules, which set out a number of formal ways in which our

Board, its committees and individual directors keep in touch with our Members’ Council, its

committees and members-owners.

Our Board leads our Co-op and takes decisions at the highest level, to ensure our Co-op is

successful in the long term. The decisions we take are what we believe to be in the best

interests of our member-owners.

Our Board is supported by three committees. They have specific tasks which they carry out

on behalf of the Board, set out in their written terms of reference:



Our Risk and Audit Committee watches over Co-op’s financial reporting and how well

we are managing risk. The report of our Risk and Audit Committee can be found on

page 86.



Our Remuneration Committee ensures our senior leaders are fairly and appropriately

rewarded, taking into account wider pay policy across our Co-op. The report of our

Remuneration Committee can be found on page 96.



Our Nominations Committee ensures we have the right Independent Non-Executive

Directors (INEDs) and Executive Directors in place and that the Board as a whole

works well. It plans for our future Board, leads on INED and Executive Director

appointments and submits proposals to the Non-Executive Directors’ Fees

Committee in respect of the remuneration of our Co-op Chair, INEDs and Member

Nominated Directors (MNDs). The report of our Nominations Committee can be

found on page 115.

Our National Members’ Council (Council) - a democratically elected body of 100 of our

members - acts as our member-owners’ representative, holding our Board to account for

how the business performs. It also acts as a guardian of our Purpose and co-operative

Values and Principles. Council highlights from 2023 can be found in your Council’s Annual

Statement on pages 139-144.

Outside of the formal Board governance, there are a number of ways we ensure our

members’ views and needs are considered when making decisions. This includes:



The President of the Council attending Board meetings twice per year as well as

being a member of the Nominations Committee to ensure that the views of the

Council are represented.



Co-op leaders attending Council meetings to provide business updates and respond

to questions.



The Group Secretary attending Senate meetings.



Holding of meetings between our Council leadership team and MNDs.



Board Directors attending the Council Values and Principles Committee.

Further detail can be found in our section on Stakeholder Engagement on page 149.

Our Board

At the date of this report, there are 13 directors on our Board – this will reduce to 12

directors when Stevie Spring reaches the end of her term in June 2024. We have three

categories of directors: Executive Directors, Independent Non-Executive Director (INEDs)

and Member Nominated Director (MNDs).



Debbie White is our

Chair

(appointed 2 January 2024 INED and Chair Designate

from 1 August 2023).



Moni Mannings is our Senior Independent Director

(SID)

(appointed 2 January 2024).



There are five other

INEDs

on our Board – Lord Victor Adebowale, Adrian Marsh,

Rahul Powar, Stevie Spring and Luke Jensen (appointed 19 February 2024).



There are four

MNDs

on our Board – Kate Allum, Margaret Casely-Hayford, Paul

Chandler and Sarah McCarthy-Fry.



Shirine Khoury-Haq (Chief Executive) and Rachel Izzard (Chief Financial Officer) are

our

Executive Directors

Dominic Kendal-Ward is our

Group Secretary

Director biographies can be found on pages 65-70. Members are able to see copies of the

Directors’ appointment letters by contacting the Group Secretary.

Role of our Directors

Debbie White, our

Chair

, is responsible for:



Leading our Board and making sure it operates well.



Making sure we have the right Board in place, with the right skills to run a business of

the size and complexity of our Co-op.



Making sure co-operative Values and Principles are at the heart of what we do, and

that business decisions are both ethical and sustainable.



Continuing to develop the relationship with Council.



Making sure that the Board is made aware of the views of our Council and other

stakeholders.



Setting the Board agenda and managing Board meetings.



Setting the tone from the top and making sure business culture is clear.



Making sure the Board effectively holds the Executive to account.

Shirine Khoury-Haq (Chief Executive) and Rachel Izzard (Chief Financial Officer), our

Executive Directors:



Have delegated responsibility for the day-to-day operation of our Co-op.



Are accountable to our Board for all elements of our Co-op’s operational and financial

performance.

Moni Mannings, our

SID



Uses her experience to advise, guide and provide feedback to the Chair.



Deals with any governance issues relating to the Board or the Chair’s performance,

and any matters which are not appropriate for the Chair to deal with.



Takes the lead role in the annual Board evaluation process.



Takes responsibility for leading the Chair’s annual performance review and acts as

the Board’s primary point of contact for stakeholder views.



Regularly liaises with our Council.

Our

INEDs

and

MNDs



Provide independent and constructive challenge and an external focus to Board

discussions using their professional industry knowledge.



Help set our strategy.



Oversee commercial and financial performance.



Ensure co-operative Values and Principles remain at the heart of our Co-op.



Meet with members and our Council to hear their views.

Dominic Kendal-Ward, our

Group Secretary



Advises the Board on legal, compliance and governance matters.



Makes sure there is the right level of information flowing between our Board and our

Council, and our Board and leadership.



Supports our Chair with Board procedures.



Is available to Directors for advice and assistance.

Division of responsibilities

The roles and responsibilities of the Chair and Chief Executive are clearly set out in their role

profiles, which are approved by the Board and are available on our website.

Appointments of our Board – Independent Non-Executive Directors (INEDs)

INED appointments are made by our Board following recommendation from the Nominations

Committee.

When we need to recruit an INED, the Nominations Committee will lead the process,

including:



Preparing a candidate brief – this sets out the skills and experience required, details

what makes our Co-op different, gives the particular requirements of our Rules and

Board Composition Charter and makes the importance of co-operative Values and

Principles clear.



Starting the recruitment process – assisted by an independent search firm, who are

given the brief, screen potential candidates and conduct initial interviews.



Conducting interviews - if a preferred candidate is identified, making a

recommendation to the Board.

During 2023 we made a number of Board appointments. Adrian Marsh joined as an INED on

1 May 2023 and Debbie White as an INED and Chair Designate on 1 August 2023, taking up

the role as Board Chair with effect from 2 January 2024. We also recruited Moni Mannings

as SID, effective 2 January 2024, and Luke Jensen as INED, effective 19 February 2024.

More details on the selection processes can be found in the Nominations Committee Report

on pages 115-120.

Following INED (and MND) appointments, the Council Scrutiny Committee considers a

report from the Board and scrutinises the adequacy and objectivity of the process followed.

The report of the Scrutiny Committee can be found on pages 145-148.

INEDs have to be elected by members at the first AGM following their appointment and are

subject to re-election by our members at our AGM every three years thereafter.

The UK Corporate Governance Code sets out that all Directors should be subject to annual

re-election. We choose not to comply with this in our Rules to avoid a situation where all the

Directors leave the Board at the same time. It ensures we maintain continuity and allows for

staggering and succession planning.

Adrian Marsh, Debbie White, Moni Mannings and Luke Jensen are due to stand for election

at the 2024 AGM.

Appointments of our Board - Executive Directors

The Nominations Committee is responsible for making recommendations to our Board in

respect of Executive Director appointments.

Rachel Izzard (CFO) was appointed as an Executive Director on 12 June 2023 and is due to

stand for election at the 2024 AGM.

Appointments of our Board - Member Nominated Directors (MNDs)

MNDs are voted for and elected directly by our members. The MND Joint Selection and

Approvals Committee (MNDJC), a joint Board and Council Committee, works with an

independent search firm to oversee the selection process and assess the eligibility, skills

and experience of MND candidates who are put forward to a member ballot. Members then

vote for who they would like to see on our Board. Following MND appointments, the Council

Scrutiny Committee checks that the right processes have been followed.

The MND election process takes place before the AGM and the results are announced at the

meeting:



In 2023, Margaret Casely-Hayford was re-elected as an MND following a contested

election. The MNDJC led on the 2023 MND election process supported by Warren

Partners, an executive search firm.



Kate Allum is due to stand for re-election as an MND in 2024.

Paul Chandler will reach the end of his nine year term as an MND in May 2024 and will step

down from the Board. This creates an MND vacancy which will be filled during the 2024

MND election process.

Terms of office

Our

INEDs

and

MNDs

have a maximum term of office of nine years.

Our

Executive Directors

are employed directly by our Co-op and don’t have a maximum

term of office.

Our Board’s skills and expertise

Our Nominations Committee reviews the skills and expertise we have on our Board to make

sure it continues to be well balanced, diverse, effective and suitable to deliver our Vision.

Our Board Composition Charter (BCC) sets out certain requirements for our Board’s

composition as a whole, levels of knowledge and expertise expected for individual directors

and additional requirements for key roles such as Chair and Senior Independent Director.

Our Rules and the BCC contain strict membership and eligibility criteria which all of our

Board Directors need to meet. This includes high standards of professional expertise needed

to run a business of the size and complexity of our Co-op as well as a strong commitment to

co-operative Values and Principles.

The Board considers that each Director brings relevant and complementary skills,

experience and background to the Board.

The Director biographies on pages 65-70 summarise their key skills and experience.

Board succession plans

The Board maintains a Board Succession Plan and is satisfied that the plan remains

sufficiently robust. Executive succession is a matter for the Chief Executive (with the support

of our Chief People and Inclusion Officer) in consultation with the Board.

Board effectiveness

It is good governance and a requirement set out in our Rules, that the Board regularly

reviews its own performance. The Nominations Committee oversees a Board effectiveness

review every year. Our Rules say this review should be done by an external firm every

second year unless the Nominations Committee and the Chair agree a good reason why that

shouldn’t happen. The Nominations Committee and Board Chair have agreed that external

reviews should be undertaken every three years, in line with corporate governance best

practice.

For 2023, Clare Chalmers was engaged to conduct an externally facilitated review. Clare

completed the previous external review in 2020 and it was felt that it would be advantageous

to use Clare’s existing knowledge to review progress over the last three years, as well as

identify further opportunities for improvement. Details of the review process and a brief

summary of the findings can be found in the Nominations Committee report on pages 115-

120.

How our Board operates

The Board and each of its committees have a scheduled forward plan of meetings to make

sure sufficient time is allocated to each key area and to make best use of the Board’s time.

The Board had eight scheduled meetings during the year held through a combination of in-

person and hybrid formats. During the year, our Board:



Focused on strategy, with a number of deep dives on particular topics presented

throughout the year.



Held closed sessions between all Directors and the Group Secretary, and the INEDs,

and MNDs alone without Executive Directors or the Group Secretary present.

Set out below are the highlights of the matters that the Board considered in 2023. Not all of

the matters the Board considered are listed, therefore this should not be considered an

exhaustive list of activities.

In addition to the matters shown, at each meeting the Board receives strategic, operational

and financial updates from the CEO and CFO in addition to business division updates via

Leader Reports prepared by our Operating Board members.

Key Board activity

Key: * = Deep Dives

January

Campaigns update

2022 Board evaluation, results and action plan

Health and Safety, risk and compliance*

Technology*

AGM planning

Appointment of Executive Director

March

National Members’ Council President update

Approval of the Annual Report and Accounts for the year ended 31 December 2022

Property and franchise*

Co-op membership and Co-op Difference*

AGM sign off

Re-appointment of Independent Non-Executive Director

May

4 year plan refresh

Post-investment appraisals (property and non-property) update

Procurement of renewable energy

Co-op People team*

June

Capital expenditure*

Vision*

Marketing and membership*

July

Board Chair appointment

Member ownership and democracy and AGM debrief

Food*

September

Co-ops UK update

Financials (interim results and 6+6 forecast)

Life Services*

Council President update

Co-op Academy presentation and tour

Regulations and Board policy review

October

Co-op Vision and strategy*

November

Member ownership and effective governance

Risk appetite refresh

Budget and KPIs

Strategy deployment

Appointment of Senior Independent Director

Appointment of Independent Non-Executive Director

The agendas for Board meetings are prepared by the Group Secretary in consultation with

the Chair with reference to the forward planner. There is flexibility within the planner to

ensure arising business matters can be addressed.

Report writers use a standard paper template and need to meet deadlines for submission.

Papers are reviewed by the Group Secretary and/or the Operating Board prior to circulation

and made accessible to Directors on a secure portal.

Board Committee minutes are made available to all Directors (unless there’s a conflict of

interest) and the committee chairs update the Board on any committee activity at Board

meetings. Board Committee papers are available to all Directors.

Our Board also regularly provides reports on their meetings to the Council and receives

reports from the Council on its activities.

Board attendance

Directors’ attendance at scheduled Board and committee meetings is set out in the table

below. This does not include any unscheduled meetings which were held during the year

and which were needed on relatively short notice or any cancelled meetings. It only captures

where Directors attended Committee meetings in their capacity as a Committee member.

The numbers in brackets show how many meetings each Director could have attended.

When we’re setting the Board meeting schedule, we always take Directors’ availability into

account but with a larger Board we cannot always find dates all can attend.

Director

Board

Risk and Audit

Committee

Nominations

Committee

Remuneration

Committee

Debbie

White

(Chair)

3(3)

Allan Leighton

7(8)

5(5)

Kate Allum

8(8)

5(5)

Margaret

Casely

Hayford

8(8)

5(5)

Paul Chandler

8(8)

5(5)

Rahul Power

8(8)

5(5)

Sarah

McCarthy

Fry

8(8)

4(5)

Shirine Khoury-

Haq

8(8)

Stevie Spring

8(8)

5(5)

Lord

Victor

Adebowale

8(8)

5(5)

3(3)

Sir Christopher

Kelly

7(7)

4(4)

Simon Burke

3(3)

2(2)

Rachel Izzard

5(5)

Adrian Marsh

5(5)

3(3)

Moni Mannings*

Denise

Scott-

McDonald**

5(5)

* appointed as a Director on 2

January 2024.

**not a Director but is a member of the Nominations Committee by virtue of role as Council President

Time commitment and conflicts of interest

Conflicts of interest are situations in which Directors have, may have, or at least give the

impression that they may have, divided loyalties on any issue. All Directors have a duty to

avoid conflicts of interests.

Prior to appointment, Directors are asked to disclose any other appointments they have, and

any potential conflicts of interest, and we also carry out a number of other background

checks. In addition, Directors are required to confirm they will have sufficient time to be able

to do the role. This obligation continues whilst Directors remain on the Board and is kept

under review. A year end disclosures exercise is carried out annually and, as part of this,

Directors disclose any changes or updates to their interests.

There are specific provisions in our Rules which cover any real or potential Director conflicts

of interest. There’s also a Board Conflicts Toolkit which gives guidance on what to do in

potential conflict of interest situations.

The Board remains satisfied that each Director is able to allocate sufficient time to perform

their responsibilities effectively.

Independence

It is important that we have Directors on our Board that have objective and independent

thinking. The UK Corporate Governance Code (UK Code) requires at least half the Board to

be considered as independent.

As a Co-op we have two different ways of looking at and assessing the independence of our

Directors, as defined within the UK Code and as defined within our Rules and BCC.

The Board considers all our INEDs and MNDs to be independent in character and

judgement as per the criteria set out in the UK Code.

Diversity and Inclusion

As a Co-op, the guiding values of self-help, self-responsibility, democracy, equality, equity

and solidarity translate through to the balance and diversity we seek for our Board.

Our Board is mindful that diversity of thought brings a richness of debate that is vital to its

effectiveness. Those values are within our Board Diversity and Inclusion Policy, which can

be found on our website. The policy was reviewed during the year by the Nominations

Committee. See page 119.

Our Board supports the recommendations from of the Parker Review and FTSE Women

Leaders Review, to increase representation of women and people from an ethnic minority on

Boards and is pleased to exceed the recommendations. Our Board is currently made up of

eight women (62%) and five men (38%). Five of our Directors are from ethnic minorities

(38%). Our Chair, SID, CEO and CFO are all female.

Decisions of our Board

Our Board takes decisions at the highest level to ensure the long-term success of our Co-op.

It focuses on the future goals for our Co-op and how those goals should be achieved in a

way which is in the best interests of our members as a whole and in line with our Purpose,

and co-operative Values and Principles. How those decisions are put into action is a matter

for the Chief Executive Officer, the Executive and the Operating Board - the Board then

monitors progress and holds leadership to account.

We do not have the same structure as limited companies, which often have large,

institutional investors. We are a co-op and we have been very clear that we want to do

business in a better way for the benefit of our member-owners and communities. We call this

‘our Co-op Difference’.

When considering future plans, our Board looks at short, medium and longer-term views to

try and make sure our Co-op, and the way it does business, is built on a solid platform for

generations to come. To achieve this, our Board takes decisions at the highest level,

consistent with our Purpose and co-operative Values and Principles, that are commercially

sensible and meet the needs of our member-owners.

Our Board looks at the interests, views and needs of our wider stakeholders when making

decisions of substance and our contact with them as detailed on page 75 and 149-157 helps

our Board understand these views.

Members’ views are at the heart of our Board’s decision-making process through the use of

an Ethical Decision-Making Tool. This helps our Directors focus on what members are likely

to think, whether the decision will create value and what the potential impact of the decision

will be on our members and our wider communities. Recommendations on material

decisions put forward to our Board must include a view on each of these elements.

Managing our risks

Our Board oversees our risk management framework through the Risk and Audit Committee.

It regularly reviews and agrees risk mitigation plans and responses. Our Board ensures that

policies and practices are consistent with our Purpose and co-operative Values and

Principles.

For more information on Risk Management at Co-op and our Principal Risks and

Uncertainties, please see pages 57-63.

Our commitments to the environment and tackling climate change are long-standing and we

continue to strengthen our governance processes in line with Taskforce on Climate-Related

Financial Disclosures (TCFD) climate disclose requirements. More detail is provided on

pages 127-134.

Delegated authorities framework and matters reserved for the Board

Our Board has the power to delegate certain decisions. This may, for example, be to

individual Directors or Board Committees. We have a Delegated Authorities Framework

which is reviewed regularly by the Risk and Audit Committee and approved by our Board.

This sets out defined levels of authority for colleagues.

In line with good governance, the Board has reserved a level of decision making to itself,

which covers areas including Strategy and Management, Group Structure, Capital and

Borrowing and Financial Reporting and Controls. These are recorded formally in a ‘Matters

Reserved for the Board’, approved by the Board.

Communicating with our stakeholders

For information on how our Board acted with regard to our key stakeholder groups

throughout the year, please see full details within our Section 172 Statement at pages 149-

157.

Additional governance information

Whistleblowing

Our Board remains comfortable that there are sufficient processes in place which enable

colleagues to raise any issues which they feel uncomfortable about, or which are not in line

with co-operative Values and Principles. See page 94 for further detail.

Board Code of Conduct

Our Board Code of Conduct sets out the standards of behaviour expected from our

Directors. All Directors are required to abide by the code during their term in office.

Directors’ and Officers’ liability insurance

We have Directors’ and Officers’ liability insurance in place which covers Directors against

any legal action taken against them for doing Co-op business. They also receive an

indemnity from our Co-op for specified liabilities which could possibly arise from them

performing their role.

Independent professional advice and Board support

Our Board can seek the advice or assistance of the Group Secretary, Secretariat and the

wider Leadership Team. We also have procedures in place so that if any of the Directors feel

they need independent professional advice to enable them to perform their duties properly,

they can ask for that advice and, subject to certain limits, our Co-op will pay for that advice.

Our subsidiaries

Our subsidiaries operate within the strategy and direction set by our Board. There are a

number of rules, policies and procedures (particularly relating to governance and authority

levels) which apply across the whole of our Co-op.

There are three subsidiaries which are treated slightly differently - Co-op Insurance Services

Limited (CISL), Co-op Funeral Plans Limited (CFPL) and Co-operative Legal Services

Limited (CLSL). Each are regulated (CISL and CFPL by the Financial Conduct Authority

(FCA), and CLSL by the Solicitors Regulation Authority (SRA)). This means they have

particular areas of responsibility for which they are accountable to their Regulator. Our Co-

op retains general oversight of these businesses but, in order to satisfy their regulatory

obligations, they need to keep a higher level of independence for their conduct and everyday

operational decisions.

Our compliance with the UK Corporate Governance Code

The UK Corporate Governance Code (UK Code) applies to large companies with traded

shares.

As we are a co-op, we are not required to comply with the UK Code, however, we remain of

the view that the general principles of governance set out in the UK Code are key to running

a good business. We’ve therefore taken the view that it’s the right thing for our Co-op to

continue to voluntarily comply with the UK Code where it can be applied directly to our

democratic model and it makes sense for us to do so.

In the following section, we have signposted you to various sections within the Annual

Report to help demonstrate our compliance, either directly or in the spirit of the UK Code.

Board leadership and purpose

A successful business is led by an effective and entrepreneurial Board who should promote

long-term sustainable success, general value for member-owners and contribute to the wider

society. See pages 75-80.

The Board should establish purpose, values and strategy and make sure these align with our

culture. See page 82.

The Board should make sure sufficient resource is available to meet and measure

performance against its goals and that risks can be properly assessed and managed through

effective controls. See pages 53-56.

The Board should ensure effective engagement with all stakeholders. See pages 149-157.

The Board should make sure policies and practices across the business are consistent with

our values and support long-term sustainable success. Colleagues should be able to raise

any concerns. See page 83.

Division of responsibilities

The Chair should lead the Board, demonstrate objective judgement, set the tone for the

culture, encourage constructive Director debate and ensure Directors receive accurate,

timely and clear information. See pages 72-76.

There should be an appropriate mix of Executive Directors and Independent Non-Executive

Directors (INEDs) and a clear division between the roles of the Executive team and Board.

See pages 75-76.

INEDs should give sufficient time to their role and hold the Executive team to account. See

pages 72-76 and 80-81.

The Board should have sufficient policies, processes, information, time and resource to

function effectively and efficiently. See pages 76-81.

Composition, Succession and Evaluation

Appointments to the Board should be subject to a formal, rigorous, and transparent

procedure and an effective succession plan should be maintained for the Board and

Executive. Appointments and succession plans should be based on merit and objective

criteria, and promote diversity of general, social and ethnic backgrounds, as well as cognitive

and personal strengths. See pages 115-120.

The Board and its committees should have a combination of skills, experience and

knowledge. Consideration should be given to the length of services of the Board as a whole

and membership regularly refreshed. See pages 76-81 and 115-120.

An annual evaluation of the Board should consider composition, diversity and how effectively

members work together. Individual evaluation should demonstrate whether each Director

continues to contribute effectively. See page 79 and 118.

Audit, risk and internal control

The Board needs to put in place formal and transparent policies and procedures to make

sure that external auditors and our internal audit function are independent and effective, with

the result that our published accounts give a fair reflection of our Co-op’s financial position.

See pages 86-96.

The Board needs to satisfy itself that our Co-op’s position and prospects are presented in a

fair, balanced and understandable way. See pages 87-88 and 137-138.

The Board needs to identify an acceptable level of risk and make sure that financial controls

across the business are appropriate, so that financial decisions are taken in line with that

identified level of risk. See pages 86-95.

Remuneration

Our pay policies should link to and support our stated purpose and promote long-term

sustainable success. See pages 100-101.

No Director should be involved in setting their own pay, and procedures for developing the

policy relating to Executive Director pay should be transparent. See pages 113-114.

Directors should apply independent judgement by looking at our Co-op’s business

performance, Directors’ performance and any other relevant circumstances when authorising

Executive pay. See pages 100-101.

Our compliance with the Co-operative Corporate Governance Code

We have reviewed our compliance with the Co-operative Governance Code, originally

published in 2019 by Co-operatives UK, and are comfortable that our practices remain

consistent with it, are appropriate and offer the necessary protection to our member-owners.

The report of the Risk and Audit Committee

Introduction from your Committee Chair

This is my first report to you as Chair of your Risk and Audit Committee. I’m grateful for the

welcome and introduction to our Co-op given to me by directors and colleagues. I’d

especially like to thank those who attend and support the Committee to discharge its

responsibilities.

The Committee plays an important role in ensuring the integrity of the financial reporting, the

internal control environment and risk management processes. In order to do this, the

Committee has considered many relevant things during the year that this report highlights,

these included:



The changes in Corporate Governance and the introduction of new standards that

impact the presentation of our results. A particular focus has been IFRS17 because

of the changes it makes to how funeral plans are accounted for and presented in our

annual results.



The programmes of work to improve our technology systems and process that are

needed to deliver improved services to our members but also to reduce risk and

remediate internal controls.



The work of our auditors both external and internal and ensuring that their

recommendations are accepted by management and where appropriate sustained.

Finally, I would also like to thank my Committee colleague, Paul Chandler, who in 2024 will

have served his full term and will be stepping down from the Committee and Board. His

professionalism and focus has enabled the Committee to discharge its responsibilities

effectively and he has made a huge contribution to our Co-op over his time with us.

Adrian Marsh

Chair, Risk and Audit Committee

Risk and Audit Committee membership and attendance

Our Board has a Risk and Audit Committee (‘Committee’) which oversees Co-op’s financial

reporting and risk management process.

The UK Corporate Governance Code (‘the UK Code’) recommends that there are at least

three independent directors on the Risk and Audit Committee, and we met this

recommendation during 2023. All Committee members are considered by our Board to be

independent under the UK Code, providing objectivity and independent scrutiny. Paul

Chandler and Sarah McCarthy-Fry are Member Nominated Directors, and our two

Independent Non-Executive Directors are Lord Victor Adebowale and Adrian Marsh, who

replaced Simon Burke in 2023 as Chair. Our Board is satisfied that Adrian Marsh’s relevant

and recent financial experience means he is qualified to be Chair of the Committee

Details of attendance by Committee members at meetings held during 2023 are on pages

80-81.

We recently appointed two additional Independent Non-Executive Directors as members of

the Committee. Rahul Power joined in January 2024 and Luke Jensen in February 2024.

During 2023 several colleagues regularly attended meetings including the Chief Executive

Officer, Chief Financial Officer, Group Secretary and General Counsel, Assistant Secretary,

Director of Risk and Internal Audit and the Director of Financial Control. Other colleagues

also attended when asked to do so by the Committee, and the external auditors attended

each session. The Committee also met the Director of Risk and Internal Audit and the

external auditors in private sessions.

What the Risk and Audit Committee does

The main areas the Committee looks after include the following:



Financial and regulatory reporting

The Committee checks that our Co-op’s Annual Report and Accounts, along with other

information on its financial performance, is professionally prepared, and that the report itself

is fair, balanced and understandable. It also reviews our financial statements, ensuring

management has followed appropriate accounting standards and made appropriate

estimates or judgements. It also assesses compliance with financial and regulatory

requirements, including monitoring compliance with the Groceries Supply Code of Practice

(GSCOP).



Internal controls

The Committee reviews our Co-op’s internal financial control framework and internal control

systems, and monitors any weaknesses identified and how management are remediating

them.



Risk and Internal Audit

The Committee monitors the performance of our Risk and Internal Audit function, and

reviews the performance of, and helps to set the objectives of, the Director of Risk and

Internal Audit. It reviews the Enterprise-wide Risk Management Framework, checks how

effective our Co-op is at managing and controlling risks by overseeing the main and

emerging risks our Co-op faces. The Committee also considers and approves the remit of

the Internal Audit team. This includes setting Internal Audit’s assurance priorities and

monitoring the implementation of management’s responses to findings from Internal Audit

reports.



External audit

The Committee reviews the effectiveness and independence of our external auditors,

approve their fees, ensure their independence and check their effectiveness. It also reviews

the findings of the audit including management’s response to any recommendations.



Climate Related Financial Disclosures and Sustainability reporting

The Committee reviews and recommends to our Board the approval of our Co-operate

Report and relevant climate-related financial disclosures within it, and ensures the Co-

operate Report is independently verified.



Other

The Committee also monitors our Co-op’s procedures around whistleblowing, compliance

with the Modern Slavery Act and General Data Protection Regulation (GDPR).

The Committee’s terms of reference give more detail on what it does and can be found on

our website:

www.co-operative.coop/investors/rules

. During the year we undertook a review

of these terms of reference to ensure they remain in line with best practice and the UK Code.

2023 key activities

In 2023, the Committee’s main activities included reviewing:



That the financial information we provide to our members is prepared professionally

and that the Annual and Interim Reports are fair, balanced and understandable and

the key judgements and assumptions are reasonable.



How well the risk and control systems are designed and working to identify risks,

quantify them and the steps being taken by each of the business areas for managing

them.



Internal Audit’s workplan and reports, including the completion of actions by

managers on a timely basis.



The approach we take to key judgements and significant matters when producing our

financial information including in relation to IFRS17.



How our Co-op uses and protects personal information, including how we continue to

comply with the General Data Protection Regulation.



Financial control across our Co-op, including reviewing updates on the monthly

Financial Control Review process, Financial control focus areas in Food and

Funeralcare, including the Funeralcare remediation plan, and monitoring progress

made in addressing points raised by EY in its Management Letters.



Progress updates on in-flight transformation programmes including SAP Finance

Transformation programme, Funeralcare Core Systems Transformation and Data

Centre Transformation/Exit.



An update on the governance arrangements following regulation of our Funeralcare

business, Co-op Funeral Plans Limited (CFPL).



Sustainability at our Co-op, particularly in relation to the requirements of the Task

Force on Climate-Related Financial Disclosures (TCFD) reporting and the approach

adopted in our Co-operate Report 2023.



How we work with suppliers, and compliance with GSCOP and the Groceries Code

Adjudicator (GCA).



Plans to ensure compliance with the proposed UK Corporate Governance reforms.



How we continue to comply with the UK Corporate Governance Code.



Our external auditors’ non-audit fees.



Reports on our whistleblowing arrangements and activity.



The annual review of our Co-op’s pension schemes and Tax Strategy.

Significant issues relating to the financial statements

When the Committee looked at the 2023 financial statements, it considered all the key areas

of judgement. In all cases, it discussed them with management and the external auditors.

There was specific focus in year on the following:

Areas of Focus

Going concern

Management continues to monitor our borrowings, facilities and banking covenants to

ensure that we have enough financial headroom to continue to run our business as a

going concern. The Committee reviewed management’s assumptions in financial

projections and considered the current trading performance and market conditions. It was

agreed that the going concern horizon in the year end statement would be extended to 31

December 2025. The Committee agreed that our Co-op is a going concern.

Goodwill and property, plant and equipment impairment

Our Co-op’s balance sheet includes significant goodwill, intangible assets and property,

plant and equipment balances. The most significant of these are in the Food business, the

Funeralcare business and at a group corporate level. Accounting standards require us to

perform an impairment review of indefinite life intangible assets such as goodwill annually,

and other assets where there is an indicator of impairment. As a result of impairment

reviews of Food stores, funeral homes and property, a non-underlying impairment charge

of £32m has been recognised within the full year results, comprising Food stores £20m, 1

Angel Square £7m, and £5m against other non-trading properties. The Committee

reviewed reports prepared by management detailing outcomes of impairment reviews and

challenged the key assumptions such as long-term growth and discount rates for Food

stores and rental income for other properties including 1 Angel Square, to satisfy itself of

the impact on our financial statements.

Property, regulatory and legal and self-insurance provisions

Our Co-op makes provisions for likely future liabilities. Management must apply judgement

to determine whether, and how much, we should account for a provision, notably in

relation to onerous contracts associated with leases and dilapidation provisions on trading

and non-trading properties which require significant judgement, as well as in relation to

regulation, litigation and self-insurance. The Committee reviewed the trading, non-trading

and onerous lease provisions of £29m, regulatory and legal provision of £43m and self-

insurance provision of £38m and management’s judgements, satisfying itself that

assumptions used, including around future cashflows and discount rates were appropriate.

IFRS17 and other amendments

IFRS17 is a comprehensive new accounting standard covering recognition, measurement,

presentation and disclosure of insurance contracts and replaces the IFRS 4 and

supersedes IFRS 15, the accounting standard utilised by Co-op in relation to recording

revenue on pre-paid funeral plans in our Funeralcare business. In Funeralcare we have

implemented this standard for our pre-planned funeral products. Throughout 2023 the

Committee reviewed the impact of the standard on our financial statements to understand

the timing of profit recognition, where this is recognised in the income statement and how

we restated our prior year comparatives.

Revenue recognition in relation to Petrol Forecourt Estate

In October 2022 we disposed of our entire petrol forecourt estate, and operational transfer

of these stores to Asda has continued throughout 2023. The Committee reviewed the

appropriateness of the accounting treatment of the income, £14m, and directly attributable

costs, (£4m), associated with this run-off and agreed that it was appropriate to recognise

these values as non-underlying as they are not expected to re-occur.

One-off items

We have recognised three material categories of one-off charges in our 2023 results,

comprising of £10m of non-recurring net income in relation to the transitional service

agreement following the sale of our petrol forecourt sites in the prior year, a net charge

of£20m in relation to legal cases and associated provisions, and a further £4m of costs in

relation to the discretionary help given to support our colleagues through the winter cost of

living crisis (through spend added to colleagues membership cards) The Committee

reviewed and agreed with management’s treatment of these items.

Pension scheme IAS19 valuation

Our Co-op has a number of defined benefit pension schemes, of which the PACE scheme

is the largest. Management must make assumptions (about things like the future growth

rate of investments and the death rate of members of the scheme), which can materially

affect the valuation of the pension schemes. The Committee assessed the key

assumptions that underpinned the pension calculations to satisfy itself that they were

appropriate.

Pension buy-in

In November 2023, the Trustee of the Co-operative Pensions Scheme (“Pace”) completed

a “buy in” transaction for the Co-op sections with Rothesay Life plc, purchasing a bulk

annuity insurance policy; this covers all liabilities required to meet future pensions and

delivers greater security to members of the Co-op Section of Pace. The Committee

reviewed the accounting impact of this transaction and agreed with its treatment.

Retail stock leakage and stock profit provisions

Our Co-op makes a 'stock leakage' provision for shortfalls between expected and actual

levels of food stock. Management reviewed the provisioning methodology in 2023 due to a

significant increase in leakage in some areas. The Committee reviewed this provision and

management’s judgements and satisfied itself that the methodology used was appropriate.

The Committee also reviewed the appropriateness of management’s year end

assumptions and approach to provisioning for stock profit following control improvements

in this area during the year.

Membership accounting

Following a strategic review of our membership proposition including a review of

membership and community balances earned to date, the redemption of benefits earned

and accrual of future balances, the Committee was updated on the re-assessment of the

methodology and appropriateness for the remaining membership reward liability provision

of £2m.

Review of the Committee’s effectiveness

The Committee has reviewed the relevant outputs from the Board Effectiveness review. The

main areas considered were the composition, management and operation of the Committee.

External audit activities

The Committee’s responsibility

The Committee makes recommendations to the Board about the appointment,

reappointment, and removal of the external auditors (and is responsible for any tender

process when required). It also approves the renumeration and terms of engagement of the

external auditors and assesses the effectiveness of the external audit process. The

members have the opportunity to vote on the appointment of the auditors at the AGM in line

with the UK Code. During the year, the Committee approved the reappointment of EY as our

Co-op’s auditors and approved their fees. EY provide the Committee with relevant reports,

reviews, information and advice throughout the year. All these activities are set out in the

engagement letter.

Independence, objectivity and fees

Our external auditors must be judged to be independent for the audit to be objective. So we

have an External Auditor Independence Policy. We also have a policy about appointing

colleagues who used to work for the external auditors and an approach to be taken when

using the external auditors for non-audit work.

The Committee pre-approves all non-audit spend with EY. This spend is capped at 70% of

the average audit fee over the previous three years.

In line with our External Auditor Independence Policy, the external auditors are prohibited

from performing certain tasks including (but not limited to) the following:



Bookkeeping or preparing accounting records or financial statements.



Designing and implementing financial information systems.



Valuation services.



Internal audit services.



Management functions or some human resource services.

The Committee approved the nature and cost of all non-audit work done by EY for our Co-op

and is satisfied that EY’s non-audit work didn’t affect objectivity in carrying out the audit.

Details of the amounts paid to the external auditors during the year for audit and other

services are set out in Note 3 to the financial statements.

Effectiveness of auditors

The Committee discussed the effectiveness of EY throughout the year. It reviewed the

outputs of an effectiveness review undertaken by Internal Audit which comprised a survey of

Co-op Finance leaders, Committee members and other key stakeholders on EY’s

performance in relation to the 2022 audit. Responses suggested that EY continued to

provide a professional, independent and objective service.

Risk and Internal Audit

Internal Audit is an independent function authorised by our Board through our Committee. Its

main role is to provide professional, objective assurance while providing insight to improve

the way our Co-op is managed and controlled.

Internal audit continued to adopt a flexible, dynamic approach to planning in 2023 and

regularly re-assessed Co-op’s assurance priorities. The Committee reviewed and approved

these priorities during the year.

At each meeting, the Committee received a report from the Director of Risk and Internal

Audit on:



The work of Internal Audit and the progress it had made against its assurance

priorities.



The impact on the systems of risk and control from internal audit findings.

The remediation of any issues arising from internal audit reports.

During the year, the Committee reviewed Internal Audit reports covering key processes,

systems and controls, and projects and programmes. The reports have covered a range of

different areas and businesses at our Co-op including: Climate Change Commitments; Food

Stock Leakage; Food Authenticity; Data Security; Balance Sheet reconciliations; Capital

Expenditure Controls and Funeral Directors Draft Code of Practice.

We also received

assurance reports on the SAP Finance Transformation programme, Funeralcare Core

Systems Transformation programme and on the commercial transformation programme.

During the year, the Committee reviewed the Internal Audit charter, which reaffirmed the

purpose of Internal Audit, and outputs from Internal Audit’s internal quality review.

Internal control

Our Board has overall responsibility to make sure controls are in place to enable our Co-op

to operate in compliance with policies. The effectiveness of our controls is assessed using

the COSO model, a globally recognised framework for risk management and internal control.

Each Operating Board member was asked to review how well the controls were working for

their area of responsibility and to self-certify the results of their review. This included

consideration of the key elements of internal control in operation, and the key improvement

initiatives. The review of the Operating Board members’ self-assessments forms an

important part of the annual review of the systems of risk and control. Good progress has

been made fixing issues that arose post go live in our Food business following our SAP

implementation and in remediating core systems in our Funeralcare business. However,

much work remains to upgrade our IT systems and general controls so as to provide a

platform to drive process improvements.

The Committee also received regular management reports on financial control across our

Co-op, including reviewing updates on the monthly Financial Control Review process and

Financial Controls focus areas in Food and Funeralcare

Some of the main parts of the internal control framework are set out below:

Culture

Our control environment is designed to create a culture where colleagues take acceptable

business risks but within clearly defined limits. The control environment includes:



Having the right colleagues in place with everyone knowing what job they have to do,

what they can authorise and how they should report, while being supported by a

system that helps colleagues perform to the best of their abilities and meet our

business objectives.



Co-ordinating the way colleagues do things across our Co-op through regular

management meetings and other forums, as well as setting policies for how we

spend our money and making sure that the right approvals are in place.



A Code of Business Conduct, which sets out how colleagues should act in line with

co-operative Values and Principles with members, customers, other colleagues,

suppliers, the community and competitors. This code tells colleagues how they can

report any serious wrongdoing confidentially and an anti-fraud and theft policy also

supports this code.

Internal Audit reports provide us with cultural observations based on their assessment of

how Co-op colleagues engaged during each audit.

Planning

Our Board and senior leaders are responsible for identifying and evaluating our Co-op’s

main business risks. We aim to have systems that manage the risk in an efficient and

effective manner. We look at what could go wrong and how we can stop this happening, to

protect our members’ interests and our reputation, and to make sure we comply with

regulatory standards and achieve our business objectives. This is achieved through:



Management maintaining risk registers that identify the likelihood and impact of risks

and what they are doing to manage them. The Risk team supports risk management

across our Co-op and reports on risk to the Committee.



The Committee receiving updates on our Group Key Risks (previously Co-op’s

priority risks), which in 2023 included cyber attacks, benefits realisation of

transformation programmes and legal and regulatory compliance.



Updates on emerging risks, performance against risk appetite and work underway to

further improve risk sharing and monitoring across the business.

Doing

Our Co-op’s control procedures are designed to ensure that risks are appropriately

managed. This includes risks around the completeness and accuracy of accounting for

financial transactions, as well as for reducing the potential cost from loss of assets or fraud.

Risks and controls are regularly reviewed.

Management receives relevant information on our Co-op’s accounting and other policies,

procedures, and our colleagues.

Informing

We engage with our stakeholders in several ways. Colleagues receive and provide

information on strategy and objectives through their reporting lines and a formal performance

measurement process. Colleagues also receive regular business updates from our Co-op

leaders through various channels. We also have an external facing colleague website:

www.coop.co.uk/colleagues

Reviewing

We adopt the ‘three lines’ approach to trying to make sure our Co-op does what it says it will

do. The first line is the system of internal control, which is the responsibility of line

management. The second line comes from various functions, including Risk, which monitor

and check compliance. Internal Audit provides independent assurance, as the third line.

Whistleblowing procedure

To ensure our Co-op follows best practice and co-operative Values and Principles, a

whistleblowing procedure has again been in place during the year to allow colleagues to

pass on information about suspected wrongdoing. We use an external independent party to

manage our ‘Speak Up’ service, which allows colleagues to raise concerns confidentially

should they not wish to talk to someone within our Co-op. This procedure also allows

suppliers to report on any suspected wrongdoing. In addition to Speak Up, reports can be

made direct to colleagues at our Co-op.

We have a procedure for recording and investigating whistleblowing reports and the

Committee reviewed a summary of whistleblowing cases reported throughout the year. The

Committee considers the whistleblowing procedures to be appropriate for our size and scale.

The whistleblowing policy is included in the Code of Business Conduct and is available on

the colleague intranet and our website.

Corporate Governance Reforms

In January 2024, the Financial Reporting Council announced revisions to the UK Code,

including a new requirement to make a declaration of the effectiveness of material controls.

The Board declaration is required for financial years beginning on or after 1st January 2026,

i.e. for Co-op 2026 financial year. The Committee is receiving management plans to ensure

compliance with this requirement.

Other activities

Groceries Supply Code of Practice (GSCOP)

During 2023, our Co-op engaged and worked collaboratively with Mark White, the Groceries

Code Adjudicator (GCA), and we continue to demonstrate our compliance with the Code.

The GCA Annual Survey 2023 ranked Co-op 5

out of 14 retailers for overall Code

compliance, with 96% of direct suppliers responding positively (compared to 94% and a

ranking of 6

out of 13 in 2022). We value the supplier feedback given in the GCA Survey

and management uses the outputs to shape its supplier engagement action plan.

The Committee has kept compliance under review through regular updates from the Code

Compliance Officer. The Committee approved the Annual Compliance Report for submission

to the Competition and Markets Authority, as required by the Groceries (Supply Chain

Practices) Market Investigation Order 2009. A summary of progress in the year is on page

135-136.

Co-operate Report and climate change

The Committee has responsibility for reviewing our Co-op’s approach to sustainability

reporting and social impact accounting. We review and recommend the approval of the Co-

operate Report to our Board, giving the Co-operate Report the same importance and focus

as the Annual Report and Financial Statements. The Co-operate Report is independently

assured.

The Committee received updates this year on our Co-op’s progress against our 10-Point

Climate Plan, our overall sustainability strategy and management’s approach to disclosures

in accordance with TCFD.

GDPR, technology and cyber security

The Committee receives regular updates to ensure that our Co-op continues to meet its

obligations under General Data Protection Regulation (GDPR). Through Internal Audit

reports and reviews of Group Key Risks, the Committee has also considered technology and

cyber security and the risks associated with legacy systems.

Report of the Remuneration Committee

Introduction from the Committee Chairman

This is my ninth and final remuneration report as Chairman of the Remuneration Committee.

It covers another challenging, but successful, year for our Co-op. So again, we've worked hard

to ensure an outcome that rewards our colleagues appropriately for the contribution they

made.

Our members have given the Committee the role of deciding what we pay, but we always

listen to their views and regularly engage with representatives from Co-op’s National

Members’ Council and listen closely to the wider membership, not least at our AGMs. The

consistent message we get is that we should continue to reward our leaders competitively

while we do our very best to increase rewards for our lower paid colleagues.

The report contains a lot of information, but we try to simplify it - within the guidelines of best

practice reporting.

The introduction has all the key highlights; and there are two further sections:

Part I – Executive Pay Policy

. We’ve included a summary of the pay policy which

83.38% of members approved at our 2022 AGM.

ii.

Part II – Annual Report on Remuneration

. Then we've shown how the policy has

been applied

We’ve also included a ‘Pay at a glance’ section on pages 100-101, so you can see all the

key information on our Executive team in a simple format.

Our approach

We’re co-operators. We believe in being open with our members. So, we go beyond public

company best practice and look at wider pay and reward principles for our entire colleague

cohort, Operating Board and Executive.

Our performance

Over the last 18 months, under Shirine’s leadership, we’ve made decisions that have stabilised

our business, so we enter 2024 with a much more robust balance sheet and primed for growth.

But 2023 was another challenging year, economic uncertainty, global conflict, consumer

inflation, all affecting our member-owners, our customers and our communities. Fortunately,

hard work and innovation at all levels throughout our organisation has meant that we ended

2023 in a much stronger position than we did in 2022, and ahead of our initial year end

predictions.

We exceeded most of the targets we set ourselves: cash generation up, underlying operating

profit up and net-debt significantly down; and we’ve significantly grown our membership base.

So, despite those external headwinds, our stronger financial position has allowed us to do the

right thing and invest in supporting our member-owners, colleagues and communities during

the ongoing cost of living crisis.

The full details of how our Co-op performed is given in ‘Our financial performance’ section on

pages 43-51.

Our colleagues

Once again, significant additional investment was made in frontline colleague pay, to

recognise their vital role.

In April 2023, we aligned our minimum hourly rates to the Real Living Wage as set by the

Living Wage Foundation

(www.livingwage.org.uk)

and we will again from April 2024. For

Customer Team Members (CTMs) in our Food stores, this resulted in a 10.1% pay rise. We

also maintained the pay rate differential between CTM and Team Leader roles. And unlike

many organisations, our hourly pay rates will still apply to all colleagues, including younger

colleagues and apprentices.

Wellbeing continues to be a key priority and we’ve made progress again on how we support

both health and financial wellbeing. We have refreshed our Wellbeing strategy, with a focus

on identifying and meeting changing colleague needs, creating clear pathways to services

and measuring the return on our investment.

We’ve continued our regular communication about the wellbeing issues that we’re told

matter most. In the year we have:



Announced that the colleague discount of 30% on own-brand products has been

extended indefinitely. This is a major investment in helping to reduce their household

expenses.



Offered all colleagues not eligible for our bonus schemes a one-off winter recognition

payment of £30 loaded onto colleague membership cards.



Contributed £10 per colleague to fund end of year celebrations



By the end of 2023, more than 15,000 colleagues had signed up to our Wagestream

app and more than 5,000 have chosen to build a rainy-day fund with Wagestream as

part of our research project with Nest Insight and Wagestream.



21,000 colleagues had downloaded the YuLife app



We updated our Wellbeing Hub to make it easier to access services.



We have carried out a pilot in Funeralcare to identify mental health ‘presenteeism’ in

colleagues and to provide proactive targeted support to avoid absence and ill health.



We are working with Food stores to improve wellbeing support for any colleagues at

high-risk of increased violence.

At the end of 2023, more than 39,000 colleagues were members of our pension scheme.

Our pension offer compares favourably to competitors’ schemes and is available to all. We

also take the social responsibility and sustainability footprint of our pension investments

seriously. See our Co-operate Report for more information on the progress we’ve made at

co-operative.coop

Our pay outcomes

Bonus

Good financial stewardship - particularly managing our debt level - is the underpin

performance measure within our annual Bonus Plan (BP). The Plan rules have a ‘gateway’

that requires our net debt/ EBITDA ratio to be within 10% of our budget throughout the year in

order for any bonuses to be paid. In 2023, that net debt/ EBITDA gateway was comfortably

met.

Our Co-op performed well against the targets the board set and as a result, awards under

the 2023 BP for our Executive were between 85% and 90% of their maximum opportunity,

with 50% of this award to the Executive (and senior leaders) paid now, with the remainder

deferred for a further two years.

More information on the balanced scorecard measures can be found on page 107.



Deferred bonus payments

The second half of the 2021 BP award would have been due to colleagues still employed by

our Co-op and not under notice at the time of payment. The Committee made the difficult

decision to determine that the financial gateway test had not been met for the 2021 Bonus

Plan, consequently, no payments were payable under the 2021 Bonus Plan for colleagues

who were members of our Executive at the end of 2021.

Further details of those amounts that were paid and deferred can be found from page 108.

Changes to the Executive

We were pleased to welcome Rachel Izzard as Chief Financial Officer in June.

Our Interim Chief Financial Officer - Mike Hazell left during the year. Information on the pay

he received can be found on page 106.

Our Executive team now consists of our Group CEO - Shirine Khoury-Haq, our Chief

Financial Officer - Rachel Izzard, and our Company Secretary & General Counsel -

Dominic

Kendal-Ward.

Our Executive team are part of a wider senior ‘Operating Board’ which Shirine put in place to

focus on our cross-Co-op strategic priorities. The Operating Board brings together up to 20

of our most senior leaders and decision makers, working collaboratively on what we need to

do to run our businesses effectively and at pace. We haven’t reported on an individual basis

for this enlarged group as part of this Annual Report, however we have provided details of

total pay for the agreed roles that the Committee have oversight for on pay, which we can

track over time. This cohort of leaders is specifically selected to focus on short and mid-term

outcomes and, as a result, membership will vary in line with changing priorities.

Gender pay gap reporting

We continue to promote and recruit to narrow our gender role gap - increasing the number of

senior female colleagues – but, because over 80% of colleagues are on fixed hourly pay

rates regardless of gender, our gender pay gap moves only marginally. The full report can

be found here:

www.co-operative.coop/ethics/gender-pay-gap-report

The Committee

The Committee has worked hard this year. We’ve had to have a lot of extra meetings and

discussions beyond the formal calendar, and every member has made a valuable contribution.

My heartfelt thanks to all of them, and also to the members of the Council Remuneration

Working Group. Their insight and challenge throughout the year made sure our members’

voice was always in the room.

AGM

It remains important to us that our members make their views heard, so we would ask that

you use your vote prior to the 2024 AGM, including upon the motion to approve the Annual

Report on Remuneration. Please watch out for your voting email or letter.

I say every year that getting the reward balance right is never easy. I hope you will

understand and endorse the decisions we’ve made on your behalf, and I’d like to offer my

thanks in advance for your vote to approve my report and vote in favour of the motions.

Stevie Spring

Chairman, the Remuneration Committee

100

Pay at a glance

This section provides an overview of our Executive Pay Policy and summarises the

framework that will apply for our Executives in 2024. Further details are set out on pages

102-104.

Executive Pay Policy

The key elements of pay for our Executive are:

Total Pay



Salary and benefits are fixed



Bonus Plan is variable and depends on performance

Salary



Our Executive receives a salary which reflects their core role



We benchmark the total pay of our Executive using market data from

similar businesses to ours, including a selection of retail PLCs, mutuals

and co

operatives, as determined by the Committee

Benefits



The benefits provided are in line with the offering across Co-op and could

include a car or car allowance, fuel in certain cases, relocation

assistance in certain cases, healthcare and life cover

Pension



Opportunity to participate in our Co-op’s pension plan or receive a cash

allowance instead, in line with the wider workforce

Bonus Plan



Payments are based on a combination of business and individual

performance



50% of the award is deferred for two years

The table below sets out the annual base salary and maximum amount each Executive

member can receive under the Bonus Plan.

Executive member

2023

’

000

2024

’

000

Maximum BP

opportunity as a %

of bonusable pay

Shirine Khoury-Haq

750

250%

Rachel Izzard

450

180%

Dominic Kendal-

Ward

310

350

150%

Notes to table

On appointment as our Chief Financial Officer, Rachel Izzard’s salary was set at £450k with a maximum bonus

opportunity of 180%.

On appointment as our Co-op Secretary & General Counsel, Dominic Kendal-Ward’s salary increased to £275k, and

his maximum bonus opportunity increased to 150%. After a six-month review period his salary was increased to

£310k and following a further six month review, his salary was increased to £350k.

How our approach links to our strategy

Our bonus elements are linked to doing what matters most for our Co-op. We are committed

to a clear link between how we pay our Executive and how our Co-op performs, while

keeping a strong connection with our colleagues and supporting our Co-op Values and

Purpose.

Operating

profi

It’s important we make profit to reinvest and support our future strategy

and Purpose.

101

Debt

Maintaining responsible debt levels is an important part of that financial

strategy.

Membership

We exist to create value for our member-owners and the communities in

which we trade.

Community

Supporting local communities where our member-owners live, and where

we trade, creates much of the shared value that makes our Co-op a better

way of doing business.

Colleagues

Colleagues play a significant role in ensuring we continue to deliver to our

member

owner

communities and

customers.

2023 pay outcomes

The chart below shows the pay which our Executives received in 2023 and full details can be

found in the Annual Report on Remuneration which starts on page 105.

Notes to chart

Mike Hazell stepped down from the Executive on 30

June 2023. Due to Mike Hazell joining us on a fixed term

contract basis, a separate bonus arrangement was put in place linked to specific deliverables during his

contract. Salary information in the chart for Mike Hazell also includes £5k of payments paid as a

commuting/travel allowance.

The salary and benefits information shown for Rachel Izzard relates to the period since she joined our Executive

on 12

June 2023.

£764

£260

£342

£303

£81

£15

£48

£40

£844

£179

£236

£280

£1,689

£454

£626

£623

£0

£200

£400

£600

£800

£1,000

£1,200

£1,400

£1,600

Shirine Khoury-

Haq

Rachel Izzard

Dominic Kendal-

Ward

Mike Hazell

2023 total pay £000's

Salary

Benefits

Bonuses

000s

102

Executive Pay Policy

How we look at Executive pay

We are committed to the following approach to pay:



We want to pay our Executive at a level which reflects the job they do, but do not

want to overpay. We look at what other similar organisations pay and take this into

account.



We want to reward our Executive for achieving stretching goals as well as for their

commitment to our co-operative Values and Purpose.



We want a benefits package that reflects our co-operative Values and Purpose.

Summary of Executive Pay Policy

Our current Executive Pay Policy is summarised below.

Base salary

Purpose and link to

strategy

To set a level of pay for performing the core role that allows us to

attract and retain talented leaders.

Summary and

operation

We want to pay our Executive at a level that reflects the job they do,

but do not want to overpay. We look at what other similar

organisations pay and take this into account when setting our

Executive’s pay.

Maximum

opportunity

There is no maximum salary. Typically, salaries are reviewed

annually. When reviewing salaries, the Committee will take account of:



Experience



Personal and business performance



What other similar businesses pay their Executive



Increases being granted to other colleagues throughout the

business

Benefits

Purpose and link to

strategy

To offer a benefits proposition to attract and retain talented leaders.

Summary and

operation

The benefits provided to our Executive will be in line with normal

market practice and could include a car or car allowance, fuel in

certain cases, relocation assistance, healthcare cover and life cover.

Executives are also able to take advantage of benefits offered to all

colleagues, for example: the cycle to work scheme, discounts on

certain products and services, the Employee Assistance Programme.

Maximum

Opportunity

There is no formal cap on the level of benefits that can be provided.

However, this will represent a small proportion of the total pay.

Pension

Purpose and link to

strategy

To provide the same percentage level of pension benefits to all

colleagues across our Co

op, that provides an income in retirement.

Summary and

operation

Our Executive are able to join our Co-op Defined Contribution pension

plan or receive a cash allowance in lieu of pension provision.

Maximum

opportunity

The following options are available:



Defined Contribution employer pension contributions of up to 10%

of salary

103



Cash alternative of up to 10% of salary if the lifetime limit has been

exceeded

Bonus Plan

Purpose and link to

strategy

To motivate and reward achievement of key business performance

measures

which

support the delivery of our

Purpose and Values.

Summary and

operation

Our Executive will be eligible for a payment under a Bonus Plan (BP)

agreed by the Committee.

The performance measures and targets for each annual BP cycle will

be set at the start of each year. Payments will be based on a

combination of business and individual performance.

50% of any award is subject to a two-year deferral period – not all of

the award will be paid in one go – 50% will be paid two years later.

Payments made under the BP are subject to malus and clawback

provisions.

Maximum

opportunity

The maximum possible bonus opportunity under the BP is 250% of

salary for the Chief Executive and between 150% and 180% for the

remaining members of our Executive.

The maximum amount payable under the BP varies by Executive

member and is set at an appropriate level in accordance with our

reward philosophy. Target performance bonus is 50% of maximum.

Clawback provisions apply to the BP and enable the Committee to claim back part or all of a

payment under these arrangements if our Co-op’s results were materially misstated, should

have been assessed materially differently or where an individual ceases to be employed by

our Co-op as a result of misconduct. Malus provisions allow, under specific circumstances,

that the Committee can decide that an award which has not yet paid out should lapse.

To ensure payments are affordable, the BP has a financial underpin which must be achieved

for any payments to be made. The Committee will look at performance at the end of the

period and assess the BP outcomes. It can provide a BP payment between nil and the

maximum opportunity for each executive depending on performance. The Committee has

discretion to adjust targets, performance results or payments (up to the maximum or down to

zero) for exceptional events, which they were not aware of at the time of granting the award.

Policy for Executive recruitment

The pay package for any new executive will be set using the same policies that apply to

current executives, benchmarked externally by role. This means that the Committee would

set a total pay package that is aligned to what other similar businesses pay for similar roles,

while ensuring that it pays no more than is necessary to secure the individual.

The following additional items of pay may be considered when recruiting an executive:



Relocation

The Committee will consider contributing towards relocation costs for an

executive who needs to move home to be closer to their place of work or stay close to

their place of work during the working week. When applicable, this is provided under a

relocation policy that seeks to provide appropriate financial assistance based on the

nature of the move and individual circumstances, without encouraging people to spend

long periods away from family.

104



Giving up of outstanding incentive awards.

Under absolutely exceptional

circumstances, the Committee may consider compensating a new executive for

incentive awards lost as a direct result of leaving their previous employer to join Co-op.

The exact type and amount of compensation will vary depending on the incentive plans

operated by the previous employer. Any payments agreed under this policy will be no

more generous than the arrangements lost, will mirror the original terms as far as

possible and will typically be subject to relevant performance criteria.

Policy for Executive leavers

In the event of termination, the Committee will review and approve all payments due to an

executive with the aim of minimising the costs to our Co-op. Payments will be based on

contractual and statutory obligations, including legal fees. Where negotiated, a contribution

towards career support may be made.

The notice period in newly recruited executives’ service contracts will not exceed six months.

Current executives’ contracts can be terminated by a maximum of six months’ notice. Where

it is better for our Co-op for an individual to remain under a contract of employment but not to

work their notice, they are placed on garden leave and only contractual payments are made.

Where an individual is not required to work their notice and receives a payment in lieu, our

Co-op is only obliged to pay base salary. The payment in lieu would not include any benefits

or bonuses.

The Committee can agree that the salary in lieu of the whole or part of the notice period can

be paid in instalments. The Committee has the right to reduce the payments of salary in lieu

of notice by the amount of income from a new role.

The Committee has discretion to determine whether, and to what extent, any part of the

deferred BP payment should be made in respect of the period they have been employed. In

exercising its discretion, the Committee will take account of the reasons for leaving,

performance and contractual commitments.

Comparison

For base salary, benefits and pension, the same market-aligned principles are applied to all

colleagues.

Fees for Non-Executive Directors

Fees for non-executive Board directors are determined by the Non-Executive Fees

Committee of Council. Fees are described in the section Annual Report on Remuneration on

pages 105-114.

105

Annual Report on Remuneration

What did our Executives earn in total during the year?

The table below shows the pay received by our Executives during the 2023 financial year.

Table 1a – 2023 pay for our Executives in post at 7 January 2024

Shirine Khoury-Haq

Dominic Kendal-

Ward

Rachel Izzard

’

000

’

000

’

000

202

2022

202

2022

202

2022

Fixed Pay

Basic Salary

764

727

342

158

260

Taxable

Benefits (1)

Pension

Benefits (2)

Performance-

related pay

Bonus Plan (3)

844

372

226

179

Deferred

Bonus Plan (4)

394

Other

Other (5)

Total

1,689

1,571

626

291

454

£0

Notes to Table 1a

The 2023 financial year ran from 1 January 2023 to 6 January 2024, which is a week longer than the 2022 financial year.

Taxable benefits include car, fuel, car cash allowance and healthcare (where applicable).

Pension includes Co-op Defined Contribution pension plan or cash allowance in lieu of pension provision.

Bonus Plan amounts shown represent 50% of the 2023 BP earned award which is payable May 2024. The other 50% is

deferred for two years and paid subject to still being employed by our Co-op and not under notice and the rules of the

Bonus Plan.

Deferred bonus awards relate to the 2021 BP, no award was made to our Executive under this Plan. Dominic Kendal

Award did receive an award under the 2021 BP which was awarded for his prior role before joining our Executive.

The salary and benefits information shown for Rachel Izzard relates to the period since she joined our Executive on 12

June 2023.

106

Table 1b – 2023 total pay for the 9 agreed Operating Board roles which Committee

have pay oversight for in post at 7 January 2024

Total Pay

’

000

202

Fixed Pay

Basic Salary (1)

2,807

Taxable Benefits (2)

Pension Benefits (3)

238

Performance-related pay

Bonus Plan (4)

1,063

Deferred Bonus Plan

Other

Other (5)

Total

4,253

Notes to Table 1b

The 2023 financial year ran from 1 January 2023 to 6 January 2024, which is a week longer than the 2022 financial year.

Taxable benefits include car, fuel, car cash allowance and healthcare (where applicable).

Pension includes Co-op Defined Contribution pension plan or cash allowance in lieu of pension provision.

Bonus Plan amounts shown represent 50% of the 2023 BP earned award which is payable May 2024. The other 50% is

deferred for two years and paid subject to still being employed by our Co-op and not under notice and the rules of the

Bonus Plan.

Other payments include a travel/commuting allowance

Table 1c – 2023 pay for executives who left our Executive during the 2023 financial

year

Mike Hazell

£’000

2023

202

Fixed Pay

Basic Salary (1)

303

325

Taxable Benefits (2)

Pension Benefits (3)

Performance-related pay

Bonus Plan (4)

280

Deferred

Bonus Plan

Other

Other (5)

Total

£623

366

Notes to Table 1c

Mike Hazell stepped down from the Executive on 30

June 2023. Basic salary includes a payment on leaving for unused

holiday entitlement.

Taxable benefits include car cash allowance and healthcare.

Pension includes Co-op Defined Contribution pension plan

Due to Mike Hazell joining us on a fixed term contract basis, a separate bonus arrangement was put in place linked to specific

deliverables during his contract.

Other payments include a travel/commuting allowance

107

2023 BP outturn

The following table shows our performance for each section of the 2023 balanced scorecard.

2023 Balanced

scorecard measures

Weighting

Performance

Measures

% of

maximum

weighting

Outturn

Summary

Win as Co

Co-op Operating Profit

50%

Stretch



Despite the external factors,

we ended 2023 in a much

stronger position than we

did in 2022, significantly

ahead of the plan set for

2023.

Fairer for our Members and Communities

Member – measures

focused on creating and

sharing value; driving

member engagement,

creating value with our

members and sharing it

with their communities

20%

Target +



We acquired more than 1m

new members in 2023, which

was a positive response to our

continued investment in

member pricing



Along with the increase in

members we also experienced

a significant increase in the

frequency of members

shopping with us



Member Participation grew

significantly during 2023 with

25% increase in the number of

times members contributed to

our vision

Fairer for our Colleagues

Colleague – measures

focused on building and

maintaining colleague

engagement

10%

Stretch



Significant increase in our

engagement score linked to

positive response to key

actions taken during 2023

which include:-

The Listen, Act, Fix activity

in stores

Our high-profile

campaigning on colleague

safety

Personal performance

Assessment of how each

member of the Executive

performs across the year

20%



Determined in reference to

individual performance.

Measures include specific

objectives such as overall

financial performance, cultural

achievements such as inclusion

and leadership, transformation

programme delivery and

sustainability targets

108

In determining the final outturn, the Committee reviewed each of the measures as set very

robustly and tried to balance the ambition to recognise an exemplary job in another

challenging year whilst taking into account relevant headwinds and tailwinds.

Our Co-op performed well in 2023 performed well against the targets set as a result, awards

under the 2023 BP for our Executive were between [85%] and [90%] of their maximum

opportunity, with 50% of this award to the Executive (and senior leaders) paid now, with the

remainder deferred for a further two years.

What deferred BP awards do our Executives hold?

Awards are made annually under the BP and any payments due are made in cash, with 50%

of all awards paid in two years’ time. The table below shows the value of the deferred award

held by executives in post at 7 January 2024.

Table 2a – deferred BP awards held by our Executives in post at 7 January 2024

Name of

xecutive

Bonus

Plan award

ear

Value of Bonus

Plan award

deferred

Bonus Plan

deferred award

due in year

(Note 1)

£’000

Shirine Khoury-Haq

2023

844

2022

372

2021

Rachel Izzard

2023

179

2022

2021

Dominic Kendal-Ward

2023

226

2022

2021

Notes to Table 2a

The Bonus Plan rules apply in respect of payments being made.

Table 2b – deferred BP awards for executives who have left our Executive

Name of executive

Bonus Plan

award year

Value of Bonus Plan

award deferred

(Note 1)

£’000

Mike Hazell

2023

2022

2021

Notes to Table 2b

Due to Mike Hazell joining us on a fixed term contract basis, a separate bonus arrangement was put in place linked to

specific deliverables during his contract. No deferred bonus payments are due.

109

What pension benefits are our Executives entitled to?

The table below shows the pension entitlements for our Executive. The figures shown reflect

the period that the individuals were appointed to our Executive.

Table 3a – Pension entitlements for executives in post at 7 January 2024

Name of

xecutive

Date

appointed

Executive

Years

group

service

Period

Employer

contributions to

Defined

Contribution

pension

cheme

Payment in

lieu of

pension

benefit

Total

pensions

benefit

£’000

Shirine

Khoury-Haq

5 Aug

2019

202

Dominic

Kendal-Ward

13 Jun

2022

202

2022

Rachel

Izzard

12 Jun

2023

202

2022

Notes to Table 3a

All pension scheme members have the option of paying additional voluntary contributions to their respective pension

scheme. Neither any contributions paid nor any benefits arising from them are shown in the above table.

Defined benefit accrual ceased in October 2015 for all colleagues.

Table 3b – Pension entitlements for executives who left our Executive during the 2023

financial year

Name of

xecutive

Date

stepped

down

from

Executive

Years

group

service

Period

Employer

contributions

to Defined

Contribution

pension

cheme

Payment in

lieu of

pension

benefit

Total

pensions

benefit

£’000

Mike Hazell

30 June

2023

202

Notes to Table 3b

All pension scheme members have the option of paying additional voluntary contributions to their respective pension

scheme. Neither any contributions paid nor any benefits arising from them are shown in the above table.

What arrangements have been agreed for former executives?

Mike Hazell stepped down from our Executive on 30 June 2023. His earnings whilst he was

a member of our Executive team up to 30 June 2023 are shown in Table 1c.

Due to Mike

Hazell joining us on a fixed term contract basis, a separate bonus arrangement was put in

place linked to specific deliverables during his contract.

110

Pay ratio

Large public companies are required to report the ratio of pay between a firm’s chief

executive compared to the 25

, median and 75

percentiles of full-time employees.

To calculate each percentile, we’ve sorted all our colleagues in order of their total pay from

high to low. We then split them into four equal groups to work out the percentiles i.e. if there

are 101 colleagues, the 25

highest paid colleague is used for the 75

percentile, the 51

highest paid colleague for the median and the 75

highest paid colleague for the 25

percentile.

The pay ratios, calculated in line with the Corporate Governance Code guidance, are set out

below.

Year

Method

percentile ratio

Median pay ratio

percentile

ratio

2023

Option C

74:1

72:1

65:1

2022

Option C

2021

Option C

76:1

71:1

64:1

2020

Option C

122:1

117:1

102:1

2019

Option C

83:1

76:1

62:1

Under the options provided in the guidance to calculate the pay ratio, we’ve opted to use

option C. This allows us to select comparator colleagues for the 25

, 50

and 75

percentiles. All three options would give us a very similar result, and option C is the most

practical and appropriate for Co-op given the size and complexity of our payroll systems.

A large proportion of our colleagues work in frontline roles in our stores, and both the 25

percentile and the median comparators are CTMs in our Food stores.

The Government pay ratio calculation is based on actual pay received. It therefore can

change a lot, as bonus payments are likely to vary each year given that they are linked to

both business and personal performance.

In addition, for the last six years, we’ve shared our pay ratio based on target earnings rather

than actual, as this approach makes sense to us and we believe it will make it easier for

members to compare progress over time. We’ll continue to provide the ratio on this basis,

and the ratio between our highest paid executive and lowest paid colleague for 2018 to 2024

on base pay and for base pay plus target bonuses is set out below.

Year

Base pay only

Base pay plus on target bonuses

1 April 202

32:1

72:1

1 April 2023

35:1

79:1

1 April

2022

39:1

87:1

1 April 2021

40:1

91:1

1 April 2020

43:1

96:1

1 April 2019

44:1

99:1

1 April 2018

48:1

96:1

On appointment as our Chief Executive, Shirine Khoury-Haq’s salary was increased to

£750k, and her maximum bonus opportunity increased to 250%, which is the same

remuneration package as our previous CEO. The reason for the reduction in the pay ratio is

that our CEO pay and on-target earnings has remained static whereas we’ve increased the

111

pay of the comparator role, which is a Customer Team Member (CTM) in our Food stores,

by 10.1% from 1 April 2024.

Non-Executive Directors’ remuneration

This section of the report includes details of the payments made to the Non-Executive

Directors (NEDs) in office during 2023.

What are the fees for the NEDs for 2024?

NED Role

Fees

Chair



The basic fee for the Chair role is £250,000 per annum.

Independent Non-

Executive

Directors (INEDs)



The basic fee for an INED is £60,000 per annum



The following additional fees apply:

Senior Independent Director £15,000

Chair of Risk and Audit Committee £15,000

Chair of Remuneration Committee £15,000



There is no additional fee for the Chair of Nominations Committee

or for being a member of any committee

Member

Nominated

Directors (MNDs)



The basic fee for an MND is £60,000 per annum



The same additional fees for the INEDs apply to MNDs who are

Chairs of a committee. There is no additional fee for being a

member of any committee

There has been no change in annual fee between 2015 and 2023. No additional fees are

paid and no other benefits are provided for the Chair or any other NED member of our

Board.

All NEDs are entitled to reimbursement of all reasonable and properly documented travel,

hotel and other expenses incurred in performing their duties, in accordance with the terms of

our Co-op’s expenses policy.

None of the NEDs, by virtue of their Board position, participated in any of our Co-op’s

incentive plans or pension schemes, nor did they receive performance-related payments

during the period.

The NEDs’ letters of appointment are available for inspection on request.

How long are directors appointed to our Board for?

Appointments to our Board are for the following periods:



The INEDs (including the Chair) were initially appointed for two-year terms subject to

election and re-election in accordance with the Rules. We amended our Rules in 2018

so that all INEDs and Executive Directors have to retire from office at each third AGM

following their election/re-election. Our Board and the Council have the right to agree

otherwise in order to avoid a situation where more than half of the other Directors

(excluding the Member Nominated Directors) would be retiring from office at the same

AGM.



On this basis, any new appointments or re-appointments for INEDs are generally for

three-year terms, subject to INEDs being able to serve a maximum of nine years.

112

Executive Directors do not have a maximum term of office.



MNDs were initially appointed for two-year terms and could serve a maximum of three

terms, subject to the Member Nominated Director Election Regulations. Following the

2018 Rule amendments, MNDs are generally appointed for three-year terms and can

serve a maximum of nine years.

What did the NEDs earn during the year?

The table below shows the fees paid to our NEDs during the 2023 financial year.

Table 4a – Non-executive members of our Board at 7 January 2024

Notes

Co-op

Board

Risk and

Audit

Committee

Chair

Remuneration

Committee

Chair

Senior

Independent

Director

2023 total

(Note 7)

2022

total

£’000

Debbie White

(Chair)

1,3

Stevie Spring

Lord Victor

Adebowale

Margaret

Casely

Hayford

Paul Chandler

Sarah

McCarthy

Fry

Rahul Powar

Kate Allum

Adrian Marsh

2,4

Moni Mannings

Allan Leighton

See

Note

See Note

See

Note 5

Notes to Table 4a

Debbie White was appointed on 1 August 2023 and became Chair on 2 January 2024.

The Risk and Audit Committee Chair, the Remuneration Committee Chair and the Senior Independent Director each

receive an additional fee of £15,000 per annum.

No additional fee is paid to the Chair of the Nominations Committee.

Adrian Marsh was appointed on 1 May 2023 and is the Chair of the Risk and Audit Committee.

Allan Leighton stepped down as Chair on 1 January 2024 but will remain as a non-executive Director until 18 February

2024. Since his appointment Allan Leighton has waived his fee, instead this is paid directly by our Co-op to charity. In

2023 it was paid to The Co-operative Community Investment Foundation. In 2023 the donation was £255,000.

Moni Mannings was appointed as Senior Independent Director on 1 January 2024.

The 2023 financial year ran from 1 January 2023 to 6 January 2024, which is a week longer than the 2022 financial year.

113

Table 4b – Former Non-Executive members of our Board who left during the 2023

financial year

Notes

Co-op

Board

Risk and

Audit

Committee

Chair

Remuneration

Committee

Chair

Senior

Independent

Director

2023 total

2022

total

£’000

Simon Burke

Sir

Christopher

Kelly

2,3

Notes to Table 4b

Simon Burke stepped down on 30 April 2023.

Sir Christopher Kelly stepped down on 13 November 2023.

The Risk and Audit Committee Chair, the Remuneration Committee Chair and the Senior Independent Director each

receive an additional fee of £15,000 per annum.

For details of fees paid to Independent Non-Executive Directors on the boards of subsidiary

businesses, please see the relevant accounts, which are available on request from the

Secretary.

Role of the Committee

The Committee is responsible for determining and overseeing the Executive Pay Policy for

our Co-op to ensure a consistent approach across our Co-op and its subsidiaries.

Terms of reference

The terms of reference of the Committee are available on our website:

www.co-

operative.coop/investors/rules

Members of the Committee

Details of the Committee members and their attendance at meetings during 2023 are

provided on pages 80-81.

The Chief Executive, the Group Secretary and General Counsel, the Chief People and

Inclusion Officer and members of the Reward team are also invited to attend the meetings of

the Committee, but are not present when their own remuneration or terms and conditions are

being considered. Other individuals are invited to attend for specific agenda items when

necessary.

The Committee members are all non-Executive. They have no personal financial interests in

the Committee’s decisions and they have no involvement in the day-to-day management of

our Co-op. Our Board believes that all members of the Committee are independent for the

purpose of reviewing remuneration matters.

Independent advice

In carrying out its responsibilities, the Committee has access to independent advice as

required. During 2023, the Committee retained Deloitte as its independent remuneration

adviser. The fees paid to Deloitte during this period totalled £38,615 excluding VAT.

114

Deloitte are a signatory of the Remuneration Consultants’ Code of Conduct, which requires

their advice to be objective and impartial.

The Committee takes legal advice from our Co-op’s internal Legal team and also from

external legal advisers.

115

Report of the Nominations Committee

Introduction from the Committee Chair

I am pleased to present this year’s report from the Nominations Committee, my first as

Committee Chair. I became Committee Chair in January this year, at the point I took over

from Allan Leighton as Board Chair. Prior to this, and following my appointment as INED and

Chair Designate, I attended all meetings at the invitation of the Committee and have been

closely involved in the recent Board recruitment activity leading to the appointments of our

new SID and INED.

There is no doubt that 2023 has been an extremely busy year for the Committee.

referenced already in the report, we have seen a number of changes on our Board, as a

result of Directors reaching the end of their terms, and succession activity has therefore

been a key area of focus. It has been vital to ensure our Board maintains an appropriate

balance of skills, experience and diversity given the number of changes taking place.

Firstly, there was the process leading to the appointment of Adrian Marsh as Risk and Audit

Committee Chair in May 2023, then the appointment of myself as INED and Chair Designate

in August 2023 and subsequently the appointments of Moni Mannings (SID), and Luke

Jensen (INED) who joined our Board earlier in 2024.

As we look ahead, Stevie Spring (INED and Remuneration Committee Chair) and Paul

Chandler (MND) will both achieve nine years of Board tenure during 2024, and, in

accordance with our Rules, will be required to step down from the Board. Luke Jensen has

already joined the Board as an INED in anticipation of Stevie’s departure and the MND

election process concludes in May. During the year, the Committee was also responsible for:

Overseeing an external Board evaluation facilitated by Clare Chalmers.

Recommending the appointment of Rachel Izzard (CFO) as an Executive Director.

Reviewing the composition of our Board Committees.

Reviewing the Committee Terms of Reference.

Reviewing the Board Diversity and Inclusion Policy.

The Committee continued to deal with all of its routine matters, which included assessing

whether Directors have met the required eligibility and membership criteria, recommending

the re-appointment of Independent Non-Executive Directors and recommending the

appointment of Board representatives to Associated Bodies.

This report sets out in more detail the role and composition of the Committee and the

activities undertaken during 2023.

I would like to close by thanking both past and present Committee members for their hard

work and commitment, particularly during the last 12 months. I look forward to chairing the

Committee as it continues to play an important role in supporting our Board.

Debbie White

Chair, the Nominations Committee

116

What does our Nominations Committee do?

Our Nominations Committee:



Leads the appointment process for Independent Non-Executive Directors (INEDs)

having regard to (amongst other things): our Rules, our Board Composition Charter,

our Board Diversity Policy, our Membership Regulations, our Board Election

Regulations and co-operative Values and Principles.



Checks and approves the qualification and commercial experience requirements of

INEDs and Executive Directors.



Under the direction of the Chair, keeps the diversity and effectiveness of our Board

under review and ensures the Board has the appropriate balance of skills and

experience to provide effective leadership and oversight.



Evaluates Director performance individually and collectively.



Reviews and recommends succession plans for our Board.



Submits proposals to the Non-Executive Directors’ Fees Committee in respect of the

remuneration of our Co-op Chair, INEDs and Member Nominated Directors (MNDs).

The Member Nominated Directors Joint Selection and Approval Committee (MNDJC)

oversees the election process for MNDs and therefore who is put forward for direct election

by members.

The Committee’s Terms of Reference were reviewed during the year. They are available on

our website:

www.co-operative.coop/investors/rules

Membership and Attendance

The current membership of the Committee comprises Debbie White (Board Chair), Moni

Mannings (SID), Victor Adebowale (INED), Kate Allum (MND), Margaret Casely-Hayford

(MND) and Denise Scott-McDonald (Council President). Where appropriate, the CEO is

invited to attend meetings. Biographical details of the Committee members can be found on

pages 65-70.

The Committee met formally five times during the year with meeting attendance available on

pages 80-81. The Committee also held several unscheduled meetings to focus on activity

around Board appointments.

Directors who also served on the Committee during 2023 were Allan Leighton and Sir

Christopher Kelly.

2023 focus areas – Board Succession

A significant focus of the Committee’s time has been spent on Board recruitment, given that

a number of directors reached the end of their terms of office during the year. This included

leading the formal, rigorous, and transparent processes leading to the appoints of Adrian

Marsh (INED and Risk and Audit Committee Chair), Debbie White (INED and Chair

Designate), Moni Mannings (SID) and Luke Jensen (INED).

Adrian Marsh – INED / Risk and Audit Committee Chair

We reported on the search process leading to the appointment of Adrian Marsh as an INED

and Chair of the Risk and Audit Committee, in our 2022 Annual Report and Accounts.

Adrian’s appointment is subject to election at the 2024 AGM.

Debbie White – INED and Chair Designate

117

The process was led by Sir Christopher Kelly, Senior Independent Director.

The Committee engaged external executive search consultants Odgers Berndtson to

conduct the search.

Odgers met with various stakeholders, including Committee members, to understand the

context and requirements for the role and candidate specification. As part of this process, and

given the importance of the Chair role, Council input was sought by engaging with a Council

sub-group.

Odgers created a candidate brief which was subsequently agreed by the Committee with a

diverse longlist being a key requirement. As well as the necessary skillset, experience and

qualification for the role, including those set out in our Rules and Regulations, candidates

also needed to be able to demonstrate a strong personal commitment to co-operative Values

and Principles.

A shortlist of candidates was agreed and interviewed by a sub-group of the Nominations

Committee (which included the Council President) and the CEO. The Committee was

unanimous in recommending to the Board the appointment of Debbie White. As part of its

considerations, the Committee considered Debbie’s external roles and was comfortable

there were no conflicts and that Debbie would have sufficient time to fulfil her responsibilities

to the Society.

Debbie joined as an INED and Chair Designate in August 2023 and became Chair on 2

January 2024. Debbie’s appointment is subject to election at the 2024 AGM.

Moni Mannings (Senior Independent Director) and Luke Jensen (Independent Non-

Executive Director)

The Committee engaged independent executive search consultants Russell Reynolds to

conduct the searches.

Russell Reynolds met with various stakeholders, including Committee members, to

understand the context and requirements for the roles and candidate specifications. A

candidate brief covering both roles was subsequently agreed by the Committee with a diverse

longlist being a key requirement. As well as the necessary skillset, experience and qualification

for the role, including those set out in our Rules and Regulations, candidates also needed to

be able to demonstrate a strong personal commitment to co-operative Values and Principles.

A shortlist of candidates was agreed and interviewed by a sub-group of Committee

members, Debbie White as Chair Designate, and our CEO, Shirine Khoury-Haq. Following

these interviews, the Committee was unanimous in recommending to the Board the

appointments of Moni Mannings and Luke Jensen.

As part of its considerations, the Committee had gained comfort that Moni and Luke had no

conflicts of interest and had sufficient time to fulfil their responsibilities to the Society.

Moni joined as SID on 2 January 2024 and Luke joined as an INED on 19 February 2024.

Both Moni and Luke’s appoints are subject to election at the 2024 AGM.

To assist with Board forward planning and to avoid multiple directors reaching the end of

their term simultaneously, Moni and Luke have been appointed on the expectation that they

will serve no longer than six and seven years of their maximum nine year terms respectively,

unless the Board conclude otherwise as part of succession planning.

The only connection the search firms we used (Russell Reynolds and Odgers) have with our

Co-op is as recruitment consultants and there are no relevant connections with individual

Directors. Both firms are signatories to the Enhanced Code of Conduct for Executive Search

Firms.

118

Induction Training and Development

All new Directors complete a comprehensive induction programme, tailored to their individual

needs. This includes meeting all members of the Board and Operating Board, meeting other

key stakeholders, including the President of the National Members’ Council, and undertaking

visits to our Co-op’s operations. Directors learn about our Co-op’s history and heritage which

typically involves a visit to Toad Lane in Rochdale, the birthplace of the Rochdale Pioneers.

In addition, Directors are provided with the opportunity to meet stakeholders from the wider

co-operative movement.

2023 focus areas – Board effectiveness

The Board effectiveness review provides our Board with an opportunity to reflect on

effectiveness and performance.

2023 saw an external Board effectiveness review process undertaken by Clare Chalmers.

Clare has no connections with our Co-op or individual directors of the Society.

The review aimed to assess the strengths of the Board and raise challenges and

opportunities for improvement.

Clare initially met with the SID and Group Secretary to discuss the scope of the review which

was subsequently agreed by the Committee. The process involved Clare observing Board

and Committee meetings during September 2023. Clare also reviewed Board and

Committee papers and interviewed the Board, Executive, the Members’ Council President,

and other Senior Leaders.

The key areas of focus included: the effectiveness, role and priorities of the Board and its

Committees; the Board’s composition, skills, diversity, culture and succession planning; the

leadership of the Board and the business; decision-making and risk management;

stakeholder engagement; interaction in strategy; and purpose, strategy and values.

Clare discussed her initial findings with Debbie White (Chair), Allan Leighton (as outgoing

Chair and, at the time, still an INED on the Board) and the Group Secretary. Clare then

presented a final written report to the Board in January 2024 where key actions were

discussed. Areas of focus include:



Steps to further engage our Board with colleagues, including through the National

Colleague Voice Forum.



Enhancements to the Director Induction Programme.



Ensuring our Board has full visibility of Senior Leader Succession Plans.



Further consideration of the approach to discussions on Strategy, including tracking

against key strategic milestones.

The report and outputs were also shared with the Senate governance sub-Committee.

2023 focus areas – Re-appointment of Directors

During the year, the Committee considered and recommended to the Board the re-

appointment of Lord Victor Adebowale (INED).

The Member Nominated Director Joint Selection and Approvals Committee (MNDJC) was

responsible for the MND election process, which saw Margaret Casely-Hayford being re-

elected for an additional term during 2023.

119

2023 focus areas – Diversity and Inclusion

A diverse and inclusive workplace that is representative of our membership remains a

priority for the Board and Nominations Committee and underpins discussion at every level.

Whilst we believe diversity goes beyond gender and ethnicity, we know this has rightly been

a key area of focus over recent years.

We are proud that our Board benefits from gender and ethnic diversity, currently comprised

of:



Men: (5) (38%).



Women: (8) (62%).



Ethnic Minority: (5) (38%).

Diversity and Inclusion remained a key area of focus for the Committee during the recent

Board recruitment activity. As noted above, and in accordance with our Board Diversity and

Inclusion Policy, both search firms appointed by the Committee were signatories to the

Enhanced Code of Conduct for Executive Search Firms and both firms were given clear

direction to create a diverse longlist.

2023 focus areas – Board Committee composition

During the year, the Committee reviewed the composition and balance of skills on our Board

Committees. To ensure continuity with composition, given the number of changes taking

place on our Board, Kate Allum was appointed as a member of the Remuneration

Committee in January 2023 and Victor Adebowale was appointed as a member of the

Nominations Committee in March 2023.

The membership of each Board Committee is set out in the respective Committee reports.

A further detailed review of committee composition was undertaken at the start of 2024

following the various Board changes. Adrian Marsh and Moni Mannings were appointed as

members of the Remuneration Committee and Luke Jensen and Rahul Powar were

appointed as members of the Risk & Audit Committee. It was also agreed that Kate Allum

will take over as Chair of the Remuneration Committee when Stevie Spring reaches the end

of her term in June 2024.

2023 focus areas – Review of Directors qualification and commercial experience,

independence and ongoing commitment to co-operative Values and Principles

Having reviewed the qualifying and commercial experience for INEDs and Executive

Directors throughout the year (including the Membership Criteria and Eligibility Criteria) the

Committee can confirm that our INEDs and Executive Directors have all met the relevant

requirements and shown continued commitment to co-operative Values and Principles.

During the year the Committee reviewed the independence of the INEDs against the

guidance set out in the UK Corporate Governance Code. The Committee concluded that

each of the INEDs contributed effectively to the operation of the Board and that they should

all be considered as independent and objective.

120

Focus areas for 2024

For 2024, the focus areas for the Committee will include:



Progressing actions arising from the 2023 Board effectiveness review.



Conducting an internal Board effectiveness review which will be led by our new SID.



Progressing succession plans for Victor Adebowale, who is due to reach the end of

his term in April 2025.

121

Directors’ report

The Directors present their report, together with the audited financial statements for the

period ended 6 January 2024.

Results and Distributions

The profit before taxation from continuing operations was £28m (2022: £268m*). No interim

dividend has been paid for 2023 and our member-owners are not being asked to approve

any distribution of profits for the year.

* The 2022 comparative figure has been restated following the adoption of IFRS 17 (see Note 33 of our financial

statements for further details) and includes a profit of £319m from the sale of our petrol forecourt stores.

Going Concern

The financial statements are prepared on a going concern basis as the directors have a

reasonable expectation that the Group has sufficient liquidity to continue in business for the

foreseeable future.

Our Co-op operates with net current liabilities as our working capital cycle means cash

receipts from revenues arise in advance of the payments to suppliers for the cost of goods

sold. We also borrow money from banks and others, and as part of this process we have

checked that we can comply with the terms of those agreements - for example, banking

covenants and facility levels. Accounting standards require that the foreseeable future

covers a period of at least 12 months from the date of approval of the financial statements.

The assessment of going concern relies heavily on the ability to forecast future cashflows

over the going concern assessment period, to 31 December 2025. Although our Co-op has a

robust planning process, the continuing economic uncertainty means that additional

sensitivities and analysis have been applied to test the going concern basis under a range of

downside scenarios. The following steps have been undertaken to allow the directors to

conclude on the appropriateness of the going concern assumption:

Understand what could cause our Co-op not to be a going concern in relation to

facility headroom and covenant compliance.

Review and challenge of the base case forecast produced by management, including

key investment choices.

Consider downside sensitivities across the base case forecast as part of going

concern.

Examine what controllable mitigating actions would be taken in the event of these

scenarios.

Perform a reverse stress test to assess under what circumstances liquidity and

covenant headroom would become a risk, assess the likelihood of whether they

could occur and any further mitigating actions.

Conclude upon the going concern assumption.

1.Understand what could cause our Co-op not to be a going concern in relation to

facility headroom and covenant compliance.

In making their assessment, the directors have considered a wide range of information

relating to present and future conditions, including future forecasts of profitability; cashflow

122

and covenant compliance; and available capital resources. The potential scenarios which

could lead to our Co-op not being a going concern are:

a. Not having enough cash to meet our debt liabilities as they fall due; and/or

b. A breach of the financial covenants implicit in our bank facility agreement.

We note at the year end date, of the total £1,107m of facilities available to us, we were

£664m draw-down. Note 27 to the Financial Statements sets out more information on the

Group’s objectives, policies and processes for managing its capital, its financial risk

management objectives, details of its financial instruments and hedging activities, and its

exposures to credit and liquidity risk.

2. Board review and challenge the base case forecast

We have conducted a detailed forward planning exercise as part of our strategic plan. Co-

op’s base case forecast includes prudence following the uncertainty in the market due to

geo-political factors, inflation and volatile energy costs. The Board has reviewed and

approved these plans.

The key assumptions in the plan are:

Sales growth is driven by volume recovery following significant membership price

investment and wider strategic scaling activity.

This growth is tempered with impact of cost headwinds (wage through Real Living

Wage and continuing cost inflation) increasing the cost of goods.

Whilst capital investment remains tightly controlled, growth plans and an improved

balance sheet will allow room for higher investment into future growth.

The sustainability bond due to mature in 2024 and the notes due to mature in 2025

will be repaid in full out of existing cash balances. The 2026 bond maturity is

expected to be refinanced.

3. Consider downside sensitivities across the base case forecast

In undertaking our going concern assessment, we have included assumptions related to the

uncertain economic environment, and modelled further severe but plausible downside

sensitivities of internal and external factors on the financial projections including (but not

limited to):



A reduction in the sales in our Food retail business, with a 1% reduction to sales

volume in FY24 and 1% thereafter.



A reduction in the demand of our Funeralcare business, with a 1% reduction in

volume of funerals delivered, a reduction in average sales price and a move to

customer preferences towards lower cost funerals.



An increase in energy costs of £10m in 2024 rising to £26m by end of 2025, which

covers unhedged energy prices and significant escalation in the Middle East.

Although we'd expect this risk to decrease overtime and don't foresee a long-term

increase of this extent, we have assumed the same levels of risk across the outer

years of the plan, increasing the risk to £51m by 2027.

Assuming a slower salary

123

inflation reversion to normal levels in FY25, representing £30m cost each year (the

base plan assumes that salary inflation normalises over the life of the plan).



Assuming a loss of a full third-party contract from Q2 2024, resulting an ongoing

impact of circa £13m per annum.

The sensitivities identified above do not risk the validity of our Co-op as a going concern

even before applying the mitigating actions set out below. Also, we have considered a

plausible combination of the sensitivities happening concurrently where the validity remains

protected. Even in the implausible scenario of all the sensitivities happening simultaneously

we still have liquidity and covenant headroom.

Examine what mitigating actions would be taken in the event of these scenarios

Whilst out of line with our strategic ambition, there are several options within the business'

control we could exercise, if the above risks materialised. Options include our Co-op’s ability

to:



Control the level and timing of its capital expenditure programme, saving a minimum

of 10% of the total capital outlay.



Apply cost control measures across both variable and overhead budgets of at least

£25m, as well as flexibility to the level of pass-through of energy and cost inflation to

the end customer.

Perform a reverse stress test and assess any further mitigating actions

Whilst our initial going concern approach assesses likely risks to our base case forecasts

through severe but plausible downside scenarios and options to mitigate them, the reverse

stress test represents a scenario at which point the model breaks. Whilst unlikely, to

demonstrate the above, we have modelled that a negative cash impacting event of £585m

could occur before we would be at risk of breaching our covenant and/or liquidity headroom.

We note that whilst all remain undesirable strategically, we could mitigate the reverse stress

test scenario through a further reduction or delay in capital expenditure and a change in the

timing of our investment into operational improvements. There is also the option to apply

further cost control measures and flexibility to pass a higher level of energy and cost inflation

onto the end customer.

Conclude upon the going concern assumption

For the purposes of going concern, we assume that no new facilities are required or needed.

We do not anticipate any change in this assumption, but this will be kept under review.

Beyond the Going Concern assessment period the Group’s £350m 7.5% Bond matures in

July 2026; our current forecast assumes that we will be able to refinance a broadly

equivalent level of debt prior to its maturity. Based on Co-op’s past experience of

successfully issuing bonds / raising debt, our credit rating and our expectations of the debt

markets, the Directors are comfortable that this will be achievable as planned.

Based on all of the above considerations, the Directors have not identified any material

uncertainties and have a reasonable expectation that the Society and the Group have

access to adequate resources to enable them to continue in operational existence for the

foreseeable future. For this reason, they continue to adopt the going concern basis in

preparing the Group’s financial statements.

Further information relevant to the directors’ assessment is provided within the General

Accounting Policies section of the financial statements (page 239).

124

Longer Term Viability

The directors have assessed whether we will have enough money to continue in business

and whether covenants are expected to be complied with over the longer term. In making

that assessment, the directors have considered our Co-op’s current position and the

potential impact of our principal risks as set out on pages 57-63. We believe that a three-

year period to 31 December 2026 is an appropriate period over which to provide this longer-

term viability statement. Retail is our largest business and the directors have therefore

determined the three-year assessment period given the dynamic nature of the retail sector.

This is consistent with other major food retailers and forms part of the detailed forecasts

reviewed by the Group board as part of the strategic planning process.

We have assumed that our borrowing facilities maturing in 2024 and 2025 are repaid as they

fall due, and that the 2026 bond is refinanced prior to maturity. In March 2023 we extended

our Revolving Credit Facility (RCF) maturity date from September 2024 to March 2026. The

RCF increased in size to £442.5m until September 2024, after which it falls to £360m if one

of the Banks chooses not to extend further (as assumed in this model). Our RCF will then be

a committed £360m for the period October 2024 to March 2026. We have the option of

inviting new banks to participate, although we have sufficient headroom irrespective of this.

As part of the strategy planning process, the directors make a number of assumptions and

judgements about business performance. We then flex the main financial assumptions to

check that we still comply with the terms of our facilities, even if some of our principal risks

happen. The viability statement is a continuation of the going concern assessment into future

years and is part of the strategic plan that the Co-op Annual Report & Accounts for 2023 Co-

op Board has challenged and approved. The nature of the key assumptions are consistent

with those in FY24 but have been flexed to reflect our expectations of trends beyond the

going concern period of assessment. The scenarios we have selected are severe but

plausible and include considering risks in combination. We have ensured that the

sensitivities modelled are representative of our principal risks as set out in the below table:

Principal risk

Sensitivity applied

Competitiveness and External

Environment

Food sales reduce by

% in FY24 and 1% thereafter

Funeralcare volumes reduced by 1%

Funeralcare average sales price reduced to reflect

lower average price and

sales mix

Wage and other cost inflation

Electricity, gas and fuel price increases

When applying these viability sensitivities, there is no breach to our Co-op’s financial

covenants and there remains sufficient liquidity through to the end of 2026.

Following their review, the directors have therefore concluded that they have a reasonable

expectation that the Group will have enough money and covenant headroom to continue in

business over the period to 31 December 2026.

125

Greenhouse Gas Emissions

In 2023 the Scope 1 and 2 greenhouse gas (GHG) emissions from running our business

have continued to reduce by a further 8% compared to 2022. This means that we have now

reduced emissions from running our business by 59% since 2016.

We have made significant improvements in energy efficiency and reduced electricity

consumption by 9% and gas consumption by 9% in 2023 compared to 2022. We also made

improvements in transport route planning, vehicle fill, and fridge plug-in compliance when

vehicles are parked in depot. These improvements helped us to achieve these reductions in

GHG emissions. Our delivered volume was also marginally down year-on-year supporting a

reduction in the distance travelled by our fleet.

We have set a new science-based target for Scope 1 & 2 GHG emissions –

The Co-

operative Group commits to reduce absolute Scope 1 and 2 emissions by 66% by

2030 from a 2016 base year.

This new target is aligned to limiting the global temperature

rise to no more than 1.5°C and has been validated against the most ambitious designation

available through the SBTi process.

In line with GHG Protocol guidance, we present our Scope 1 and 2 GHG emissions figures

in two ways. We show GHG emissions if our electricity was counted at UK grid average

(known as location-based reporting). We also account for the emissions associated with our

electricity supply contracts (known as market-based reporting).

Scope 1 and 2 GHG emissions since 2016 – location-based

2016 ktCO2e

2017 ktCO2e

2018 ktCO2e

2019 ktCO2e

2020 ktCO2e

2021 ktCO2e

2022 ktCO2e

2023 ktCO2e

649

543

439

393

347

318

288

263

*Business travel is now reported in our Scope 3 emissions rather than our Scope 1 emissions. We have restated previous

years’ emissions in line with this.

Scope 1 and 2 GHG emissions since 2016 – market-based

2016 ktCO2e

2017 ktCO2e

2018 ktCO2e

2019 ktCO2e

2020 ktCO2e

2021 ktCO2e

2022 ktCO2e

2023 ktCO2e

338

298

250

229

204

197

181

348

*Business travel is now reported in our Scope 3 emissions rather than our Scope 1 emissions. We have restated previous

years’ emissions in line with this.

Scope 1 and 2 GHG emissions by source – location-based

Source

2022 ktCO2e

2023 ktCO2e

Scope 1 – Refrigeration

Scope 1 – Fuel

Scope 1 – Gas

Scope 2 – Electricity

107

105

Scope 1 and 2 – Total (location-based)

288

263

126

Scope 1 and 2 GHG emissions by source – market-based

Source

2022 ktCO2e

2023 ktCO2e

Scope 1 – Refrigeration

Scope 1 – Transport

Scope 1 – Heating/ Generation

Scope 2 – Electricity

190

Scope 1 and 2 – Total (market-based)*

181

348

* Throughout 2023, we have been working to the strategy we set out in 2022. We aim to reduce our overall energy

consumption, increase the proportion of our energy procured via corporate Power Purchase Agreements and investigate

opportunities for self-generation. See our ‘Greening the grid’ section on page 21 in our Co-operate report at

co-operative.coop

Annual energy consumption (GWh)

Source

2022 GWh

2023 GWh

Electricity (location-based)

555

507

Gas

105

Fuel

400*

391

*Fuel has been restated from 370. This is a result of updated calculation methodology in line with Streamlined Energy & Carbon

Reporting guidance

Carbon intensity

2016

2017

2018

2019

2020

2021

2022

2023

Tonnes CO2-equivalent (location-based)

GHG emissions per £m revenue

8.3

7.2

3.0

6.1

0.2

8.4

5.0

23.3**

*Business travel is now reported in our Scope 3 emissions rather than our Scope 1 emissions. We have restated previous

years’ emissions in line with this.

**2023 carbon intensity figure is based on a figure of 263 ktCO2e (263,298 tCO2e) for Total direct emissions from running our

business location-based accounting: Scope 1 and 2 GHG emissions (ktCO2e) & 2023 £11.3bn revenue

127

Task Force on Climate-related Financial Disclosure (TCFD)

As a large organisation, our Co-op is committed to complying with the UK Government's

mandate to disclose Task Force on Climate-Related Financial Disclosures (TCFD) aligned

financial information. As an ethically responsible business, we are committed to playing our

part in addressing the climate emergency.

This report is to demonstrate that we have met the requirements of “Mandatory climate-

related financial disclosures by publicly quoted companies, large private companies and

LLPs” published by the Department for Business, Energy & Industrial Strategy in February

2022. Our response addresses all four thematic pillars of the TCFD framework: Governance,

Strategy, Risk Management, and Metrics and Targets. As the external landscape in which

Co-op operates changes, we will evolve our reporting to meet need.

Headlines



We have made significant progress since 2016 in reducing Scope 1, 2 and 3

emissions. This year’s performance demonstrates our continued commitment to

reduce greenhouse gas emissions:

Emission

Type

Classification

2016

Baseline

2023

Actual

2023 Actual (%

reduction vs

2016 baseline)

Our

operations

Scope 1*

and 2

649

ktCO2e

263

ktCO2e

59%

Our Value

Chain

Scope 3**

4,886

ktCO2e

3,849

ktCO2e

21%

*For more detail on our Scope 1 and 2 emissions please see page 125.

**This covers Scope 3 emissions categories included in near-term science-based targets. For more detail on our Scope 3

emissions please see page 125.



After achieving our approved science-based greenhouse gas (GHG) emissions

reduction targets for 2025, we have committed to new and more ambitious targets

across all scopes in line with the Science Based Targets Initiative (SBTi) Net-Zero

standard, aligned to a global temperature rise of no more than 1.5°C.



We are proud to share that these new targets

have been validated by SBTi against

the most ambitious designation available through the SBTi process.

Our new targets

can be found within our Metrics & Targets respo

nse later within this report. See

page 132.



Co-op’s Vision is

‘Co-operating to build more value for our member-owners every day’

and our strategy and decision-making processes centre around this. This year, Co-

op has enhanced its investment governance processes to ensure clearer

consideration of climate change and wider sustainability impacts, alongside the other

priorities and interests of our member-owners.

128

Governance

Co-op has established a structure that allows for the appropriate governance around

climate-related risks and opportunities. Our governance framework evolved in 2023 to align

with the evolution of our sustainability strategy and to ensure we have the right oversight and

assurance in place to meet our Net Zero commitments.

This structure (see diagram) ensures our senior leadership, businesses, and enabling

functions have visibility of our climate-related risks, develop effective mitigation plans, and

coordinate our efforts against our wider sustainability ambitions.

Group Board (‘Board') has ultimate responsibility for risk management in our Co-op. This

includes oversight of climate-related risks and opportunities. The Board reviews our position

against risk appetite, including potential commercial opportunities, oversees the principal

risks to our business (including our overarching Sustainability risk and associated climate-

related risks) and monitors management’s progress. (For more information on Co-op’s

principal risks see pages 57-63.

In 2023, we established our Sustainability Steering Committee to provide oversight to the

delivery and management of our climate-related and wider sustainability priorities across our

Co-op, and to act as a point of escalation. The Sustainability Steering Committee comprises

leaders, department heads, subject matter experts from our Risk team, and representatives

from across our businesses. The group meets fortnightly and delivers a regular Sustainability

Programme update, including mitigation plans for our climate-related risks, and strategy for

opportunities, into our Operating Board comprising the members of our Executive and other

senior leaders from across our Co-op. During Q4 of 2023, our Sustainability Steering

Committee reviewed and approved our climate-related risks and delivered an update to our

Business Risk and Assurance Committee (BRAC).

Strategy

Sustainability Strategy

Our Co-op is committed to becoming a Net Zero member-owned cooperative. The progress

we have made towards our sustainability commitments (including working towards achieving

Net Zero) has been significant, with our performance being attributed to:

having committed teams who understand our social responsibilities

having set out clear near-term targets

meeting our existing Co-op commitments and regulatory duty

progressing our plans to decarbonise our own operations

129

supporting and enabling the decarbonisation of our supply chain

campaigning to call for strong political leadership, urgent business action and to

promote more sustainable member and customer behaviour

building our underlying sustainability capability through education, leadership, and

governance

For further information on our Sustainability Strategy, our guiding principles to help us

achieve our Net Zero goal, please see our 2023 Co-operate Report at

co-operative.coop

and

Climate Plan at

coop.co.uk/climate

Climate scenario modelling & analysis

With support from DNV (and Resilience, part of the Centre for Risk Studies at the University

of Cambridge), we completed a quantitative and financial climate risk assessment and

scenario analysis of our climate-related risks and opportunities across different time horizons.

The exercise predominately focused on our Food business which represents our most material

business unit, with expansion in scope to cover the whole Co-op Group planned for 2024.

We considered five climate scenarios aligned to the main international agreements and

social, political, and economic events shaping climate action. Through this exercise we

identified the physical and transitional inherent risks that could impact the financial position

of our Co-op over the short (<1 years), mid (>5 years), and long-term (>10 years) horizon.

(Note: for the purposes of this disclosure, we are sharing the material impacts associated

with a 3°C Current Policy and 1.5°C Paris Ambition scenario pathway).

Our DNV modelling exercise looked at the unmitigated impact of our 8 climate-related risks:

Physical risks

(i.e., risks associated with climate

events (acute/chronic)

- Raw material availability

- Access to key facilities (depots & data centres)

Transitional risks

(i.e., risks that arise from transitioning

away from fossil fuels and other

greenhouse gas (GHG) emitting

activities

- Reputational (public sentiment)

- Policy & Legal (carbon taxation)

- Policy & Legal (liabilities)

- Market (investor sentiment)

- Market (consumer sentiment)

Technology (asset impairment)

The modelling findings were mapped against Co-op’s established risk assessment matrix to

generate an inherent risk score. Finance considered the modelling scope, assumptions,

constraints, caveats, and outputs of the exercise alongside the investment and activity in

flight supporting our sustainability targets and risk mitigations to generate residual risks

scores. Based on these considerations, and insight and taking account of materiality, we

have elected to disclose on our two most material risks:

Technology

and

Market

(consumer sentiment).

Our transitional and physical risks remain important and as part of

our ongoing risk management framework we will continue to monitor, discuss, and report on

each risk in the right communication channel.

Technology

In the context of climate change, our Technology risk considers that some of our existing fossil-

fuel dependent assets become unusable over the next 5-10 years due to technological

disruption to enable reduced emissions or obsolescence.

130

The scenario analysis sets out the impairment risk of writing-down these assets before the

end of their useful lives, under varying potential climate pathways. The table below shows the

unmitigated risk of inaction:

Climate Pathway

Unmitigated impact of risk

across a 5-year horizon

(Aggregate earnings impact

across the stated time horizon

)

Unmitigated impact of risk across

a 10-year horizon

(Aggregate earnings impact

across the stated time horizon

)

3°C

Current Policy

(Moderate)

circa £30m - £40m*

*circa £6m - £8m per annum

circa £80m - £160m*

*circa £8m - £16m per annum

1.5°C

Paris Ambition

(Low)

circa £165 - £175m*

*circa £33m - £35m per annum

circa £320 - £400m*

*circa £32m - £40m per annum

Development and use of emerging technologies that support a low carbon economy must be

undertaken in a proportionate way and we would expect that with new innovations it would

support progressive affordability. We must balance economic and environmental pressures

over the short and long terms, so that our Co-op always remains competitive.

Whilst current regulation does not prevent our Co-op from continuing to use of our fossil fuel

dependent assets, we do know that their continued use will not aid us in meeting our Net

Zero target, and that we will need to phase out most of them to hit Net Zero by 2035.

To help address the impact of this Technology risk we are already making changes that will

reduce our carbon footprint:



A programme is in place to phase in low carbon refrigeration. By the end of 2023 we already

had over 400 Food stores with low carbon refrigeration.



Funeralcare has an ambition to replace the entire fleet of vehicles with electric alternatives

as each vehicle comes to the end of its useful life but within the 2035 time horizon.



Work on our strategy to transition to a decarbonised Food logistics fleet continues. Whilst

technology is still evolving in this space and there is insufficient national infrastructure in

place to support adopting a decarbonised fleet, we are investigating alternative options for

the short term whilst we await clearer guidance on infrastructure in the mid-long term.

Market (consumer sentiment)

In the context of Climate Change, it is likely that consumer demand for products and services

will change over time due to increased customer awareness of the environmental impacts they

have – resulting in consumers moving towards more sustainable purchasing and away from

products that contribute negatively to climate change.

This risk models the impact that a change in market consumer demand will have on sales

depending on their publicly perceived environmental effects. The figures below represent the

unmitigated impact of the market consumer risk to revenue across a 5-year & 10-year horizon:

131

Climate Pathway

Unmitigated impact of risk

across a 5-year horizon

(Aggregate Revenue impact

across the stated time horizon

)

Unmitigated impact of risk across

a 10-year horizon

(Aggregate Revenue impact

across the stated time horizon

)

3°C

Current Policy

(Moderate)

circa £0 - £5m*

*circa £0 - £1m per annum

circa £0 - £80m*

*circa £0 - £8m per annum

1.5°C

Paris Ambition

(Low)

circa £160m - £170m*

*circa £32m - £34m per annum

circa £320 - £400m*

*circa £32m – 40m per annum

The outputs of this modelling indicate that the revenue risk could be around £32m-£40m per

annum, in a scenario where volumes reduced to this scale Co-op would be able to mitigate

much of this impact through cost savings and so the residual earnings impact is considered

immaterial

The modelling findings align with our knowledge of consumer sentiment risks:



There is increased global demand in climate resilient/sustainable products such as

Fairtrade goods and recyclable packaging, however there may be insufficient supply to

meet demand.



Consumer behaviour is divergent – some NGOs are advocating for animal rights and

sustainability whereas others promote affordability; meeting all expectations is

challenging.



High carbon intensive products such as meat and dairy are the biggest risk to revenue if

we experience a decrease in sales due to changes in consumer behaviour.

To help address the impact of this Consumer Sentiment risk, we have initiated activities that

will reduce our carbon footprint.

We recognise that longer term risks require meaningful near-

term action and so we continue to prioritise rapidly reducing the carbon from our operations

and products. Our Co-op is developing an evolving healthy and sustainable diet strategy as

part of a plan to encourage consumers to make healthier choices.

Opportunities

Co-op recognises that by delivering on our sustainability strategy and climate plan it will benefit

the Group, alongside our member-owners, customers, communities, and planet. The

examples below signal how Co-op could benefit from becoming a low carbon emitting

organisation:

by acting early ahead of potential compliance deadlines we create opportunities to build

change into other activities and reduce cost exposure – a great example is building F-gas

phase out and lighting replacement into our property refit programme.

by reducing energy and fuel consumption through efficiency measures we will save on

operating costs - we are on a continuous improvement journey to improve energy and fuel

efficiency through targeted initiatives including investments in energy efficiency, training,

and transport planning.

Resilience conclusion

Based on the quantitative and financial climate risk assessment and scenario analysis climate

scenario modelling exercise that has been carried out, we have a clear understanding of our

132

climate-related risks and their material impact if left unmitigated

We assess that our Co-op is

resilient to these risks across various climate pathways, including one where warming is

limited to 1.5°C based on our risk mitigations.

Financial planning

Our sustainability targets have played a much greater role in our financial planning this year,

including our short and mid-term financial planning. We have focused on providing greater

visibility of compliance costs alongside additional incremental climate-related investments that

support us meeting our sustainability targets. The following principal areas have seen

investment:



Funeralcare

- refrigerants and vehicle replacement programmes.



Supply partners

- support initiatives with suppliers such as the decarbonisation of dairy

and protein (largely beef and lamb), packaging decarbonisation and waste reduction.



Property -

energy efficiency investments and phasing in low carbon refrigeration.



Ecommerce –

vehicle replacement programme (purchase circa 75 electric vehicles).



Logistics

- increasing the use of electricity to power refrigerated trailers at our depots to

reduce diesel use.

Risk Management

Risk Management framework

As stated on page 54, we use a consistent Risk Management framework across Co-op,

including for climate-related risk. The framework is comprised of four steps: Identify, Assess

and Measure, Manage and Control, Monitor and Report. This approach enables our Co-op

to integrate climate-risk assessments into our financial and operational planning.

Since 2022 our Sustainability Programme has led an annual climate-focused workshop with

subject matter experts from across our businesses, supported by an independent assurance

and risk management services consultant, DNV Business Assurance Services UK Ltd.

Metrics & Targets

Our new science-based targets

In 2019 we followed best practice in climate target-setting, steered by the Science Based

Targets initiative (SBTi). At this time, we set targets to reduce our Scope 1, 2 and 3 emissions

by 2025 along different pathways. We have met these initial targets early - but also know that

best practice has changed.

Our new targets are aligned to limiting global temperature rise to

no more than 1.5°C and have been validated against the most ambitious designation available

through the SBTi process.

Our new targets are:

Scope 1 & 2:

Near-Term Target:

The Co-operative Group commits to reduce absolute Scope 1 and 2 emissions by 66%

by 2030 from a 2016 base year.

Net Zero Target:

The Co-operative Group commits to reach Net Zero by 2035 for our own operations. In

practice this means a 90% reduction in absolute Scope 1 and 2 emissions by 2035.

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Scope 3:

Near-Term Targets:

Energy and industrial:

The Co-operative Group commits to reduce absolute Scope 3

GHG emissions in the listed categories by 58.8% by 2030 from a 2016 base year.

Forests, Land and Agriculture (FLAG): The Co-operative Group commits to reduce

absolute Scope 3 FLAG emissions by 42.4% by 2030 from a 2016 base year.

Long-Term Targets:

Energy and industrial:

The Co-operative Group commits to reduce absolute Scope 3

GHG emissions in the listed categories by 90% by 2040 from a 2016 base year.

Forests, Land and Agriculture (FLAG): The Co-operative Group commits to reduce

absolute Scope 3 FLAG emissions by 72% by 2040 from a 2016 base year.

Overall Net Zero Target:

The Co-operative Group commits to reach Net Zero GHG emissions across the value

chain by 2040.

Emissions from Co-op operations

Our operational emissions (our Scope 1 & Scope 2) come from our property portfolio and our

logistics activities. Our SBTi approved target to reduce Scope 1 & Scope 2 emissions by

50% by 2025 (from a 2016 baseline) was achieved in 2021 as a result of investment to make

our properties more energy efficient, using less impactful refrigerant gases, and more

renewable energy from the UK grid.

In 2023, the carbon emissions from running our business have continued to reduce by a

further 8% compared to 2022. This means that we have now reduced emissions from

running our business by 59% since 2016. For further details on how we’ve achieved these

reductions, please see our 2023 Co-operate Report at

co-operative.coop

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Emissions from our value chain

Scope 3 emissions equate to more than 90% of our total carbon footprint – and the vast

proportion of these emissions are linked to producing products we sell. This makes reducing

the carbon footprint of our supply chain and products our biggest climate change priority.

We have significantly increased our work in this space. This year we have worked closely with

key suppliers and other partners to agree shared targets, milestones, and investments to

reach ambitious carbon reduction targets and limit global warming. There are three main

actions we’ve taken in 2023: developing new supplier plans and guidance, reducing the

carbon intensity in key categories such as meat and dairy, and building climate change into

our financial planning. Further detail on the actions we have taken are included in our annual

Co-operate Report at

co-operative.coop

1. This equates to 58.8% by 2030 for energy & industrial emissions and 42.4% by 2030 for FLAG emissions. See full target

detail on page 92 of the 2023 Co-operate report at

co-operative.coop

2. This equates to a 90% reduction in a scope 1, 2 and 3 energy & industrial emissions and a 72% reduction in FLAG

emissions. See full target detail on page 93 of the 2023 Co-operate report at

co-operative.coop

135

Political Donations

Like many other businesses of a comparable size, our Co-op engages with a wide range of

political opinion formers and decision makers, designed to protect, promote and enhance our

corporate reputation and to deliver our campaigning ambitions. On issues of relevance to our

business, we are also an active participant in the work of business trade associations.

Separate to this corporate activity, our Co-op is a subscribing member of The Co-operative

Party, which was founded by the co-operative movement in 1917 to promote its Values and

Principles.

The Co-operative Party works to raise awareness of the benefits of co-operative and mutual

models. We made donations totalling £598,000 (2022: £598,000) to The Co-operative Party,

which is our financial subscription to the Party for 2023, in line with our members’ approval at

the Annual General Meeting in 2022. The Co-operative Party reports donations to the

Electoral Commission in accordance with its reporting obligations as a registered political

party under the Political Parties, Elections and Referendums Act 2000.

No political donations are made through the Local Community Fund (‘the Fund’) and its

terms and conditions are explicit that the Fund cannot be used for party political purposes.

A motion was passed by our members at the 2023 Annual General Meeting regarding our

political expenditure, including donations and/or subscriptions to political parties, not

exceeding £750,000 in total for the year commencing 1 January 2024

Groceries Supply Code of Practice (GSCOP)

The Groceries (Supply Chain Practices) Market Investigation Order 2009 (the “Order”) and

the Groceries Supply Code of Practice impose obligations on our Co-op and other

designated retailers relating to our relationships with grocery suppliers.

The Risk and Audit Committee has kept compliance under review through regular updates

from the Code Compliance Officer and senior leaders in our Food business. The Committee

also approved the Annual Compliance Report on 14 February 2024 for submission to the

Competition and Markets Authority as required by the Order. See page 94 for more details.

Working with the GCA

During 2023, our Co-op engaged and worked collaboratively with Mark White, the Groceries

Code Adjudicator (“GCA”) who met with the Chair of the Risk and Audit Committee, the

Code Compliance Officer and other managers at various times throughout the year. Our Co-

op improved its position in the GCA Annual Survey 2023 where we were placed 5

out of the

14 designated retailers for our overall compliance rating per suppliers (2022: 6

). We value

the supplier feedback given in the GCA Survey and use the outputs to shape our Supplier

Engagement action plan.

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Training

We provide GSCOP training to all colleagues who deal with suppliers, not just the Buying

teams. As per our duties with the Order, all relevant colleagues receive a copy of the Code.

In 2023, we trained 1,406 colleagues. For our suppliers, we have also provided new online

training alongside ‘how to’ guides to help them keep their data accurate and to minimize

errors.

Other actions to enhance compliance

We have an established whole business approach to monitoring compliance with the Code,

with regular reporting and review at various governance forums. We continually look to

improve ways of working with suppliers and enhancing Code compliance. Some of the ways

we did this are:



Improved our SAP system and processes to increase the number of error free

transactions.



Simplified our range in collaboration with suppliers, giving them ample time to manage

their supply chains.

Disputes

During 2023, we had no formal disputes under the Code. We recorded 94 potential supplier

issues (2022: 129). Of these, 53 were raised directly with the CCO and 41 were raised to the

CCO internally by Co-op colleagues.

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Statement of Co-op Board responsibilities in respect of the Annual Report and

financial statements

The Directors are responsible for preparing the Annual Report in accordance with applicable

law and regulations.

The Group accounts have been prepared in accordance with UK adopted international

accounting standards for the 53-week period ended 6 January 2024 and in conformity with

the requirements of the Co-operative and Community Benefit Societies Act 2014.

The Group financial statements are required by law to give a true and fair view of the state of

affairs of the Group and the profit or loss of the Group for that period.

In preparing the Group financial statements, the Directors are required to:



Select suitable accounting policies and then apply them consistently.



Make judgements and estimates that are reasonable and prudent.



State whether UK adopted international accounting standards, in conformity with the

requirements of the Co-operative and Community Benefit Societies Act 2014, have

been followed.



Prepare the financial statements on the going concern basis, unless it is

inappropriate to presume that the Group will continue in business.

The Directors are responsible for keeping proper books of account that disclose with

reasonable accuracy at any time the financial position of the Group and enable them to

ensure that its financial statements comply with the Co-operative and Community Benefit

Societies Act 2014. They have general responsibility for taking such steps as are reasonably

open to them to safeguard the assets of the Group and to prevent and detect fraud and

other irregularities.

The Directors are responsible for the maintenance and integrity of the corporate and

financial information included on the Group’s website. Legislation in the UK governing the

preparation and dissemination of financial statements may differ from legislation in other

jurisdictions.

The Directors consider that the Annual Report and financial statements, taken as a whole,

are fair, balanced and understandable and provide the information necessary for members

to assess the Group’s position and performance, business model and strategy.

Each of the Directors listed on pages 65-70 confirm that, to the best of their knowledge:



The Group financial statements, which have been prepared in accordance with

international accounting standards – UK adopted international accounting standards,

in conformity with the requirements of the Co-operative and Community Benefit

Societies Act 2014 – give a true and fair view of the assets, liabilities, financial

position and profit of the Group.



The Strategic Report and Governance Report, contained in the Annual Report and

financial statements, include a fair review of the development and performance of the

business and the position of the Group, together with a description of the principal

risks and uncertainties that it faces.

In this context, ‘the Group’ means Co-operative Group Limited, and all the companies and

societies it owns.

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Financial statements

So far as the Directors are aware, there is no relevant information that has not been

disclosed to our auditor. The Directors believe that all steps that ought to have been taken

have been taken, to make them aware of any relevant audit information and to establish that

our auditor has been made aware of that information.

Auditors

A resolution to re-appoint EY LLP as auditors of the Group and to determine their

remuneration for the forthcoming year was proposed at the 2023 Annual General Meeting

and approved.

By Order of the Board

Dominic Kendal-Ward

Group Secretary and General Counsel

139

Co-op National Members’ Council; annual statement for 2023

Our Co-op is owned by you, our members. Your National Members’ Council is elected to

represent and champion members’ interests and to ensure our Co-op delivers value for you,

our member-owners. We make your voice heard, influence plans and strategies and hold the

Board to account and ensure our co-operative Values and Principles are at the heart of what

we do.

In 2023, we have:



Listened to our member-owners on pricing

and ensured that decision-makers

recognise the importance of getting genuine economic value when member-owners

shop with us.



Recommended that Member Prices are on the

everyday essentials that our

members buy most

to ensure that they are supported with the cost of living.



Influenced and ensured that membership and member-ownership are

at the heart of

the future strategic direction of our Co-op.



Challenged our Board and leaders to raise the profile our ‘Safer Colleagues, Safer

Communities’ campaign,

leading to the creation of the first National Police

Chiefs Council Retail Crime Action Plan.



Put the needs of our five million member-owners back at the heart of our

business and the decisions that Co-op makes

by securing a commitment to

modernise and expand the ways that members shape and influence plans.



Strengthened and increased our influence and hold to account roles

with more

time to co-design and challenge our Board and Operating Board on behalf of our

members.

Working for you

Council is made up of 100 Co-op member-owners from around the UK, including colleagues

and people from other independent co-operatives. We ensure your voices are heard by

meeting regularly with, and providing support and robust challenge to, our Board and Co-op

leaders to put your needs at the heart of the decisions we make and ensure our Co-op is

successful.

Our governance is unique because we are a co-operative business. Council and the

relationships we have with our Board and Executive, play an important role in representing

our member-owners and meeting their needs. In 2023, we established a new way of working

and have spent more focused time with our Board and Operating Board in committees,

where we represent our members on the issues you care about, shape our future plans, ask

questions and hold to account on your behalf.

Your Council has been focusing on what matters most to you, our member-owners, in 2023:

‘Co-operating for a Fairer World’

and the cost of living

Member Value, Business Performance and Effective Governance

Member Participation and Community

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‘Co-operating for a Fairer World’

and the cost of living

What have we focused on and achieved?

Cost of living

Responsible retailing

A new era of co-operation

Meeting the needs of our

members and colleagues

through Member Prices on

everyday essentials

Ensuring that our ethical

and sustainable credentials,

including Fairtrade and

animal welfare, remain

central to how we do

business

Championing our better way

of doing business and

working with other co-

operatives to incorporate

our history into our future

As a co-operative business, we were founded on the Values and Principles of making things

fairer for people and responding to the issues people were facing.

From the start of 2023, our focus was on making sure that economic value for our members

was at the top of the agenda, influencing how our Co-op supports members and customers

to take pressure off the rising prices of food. We were pleased to see our Co-op reduced our

standard pricing and introduced Member Prices on a number of everyday essentials and

own-brand favourites. This is helping members to save almost three times more per week,

compared to what they previously received in reward. In our Funeralcare and Insurance

businesses, we were pleased to hear that we had introduced simple funeral plans and

exclusive member pricing on a range of insurance policies. We hope that this will provide a

greater, more direct reward for everyone, from members who use our businesses when

needed, to those who visit one of our stores daily. Council Members were also keen to see

our fantastic colleagues supported too, so we supported increasing discounts on own-brand

products and were delighted when this was extended indefinitely at the end of 2023.

Responsible retailing

A crucial part of making things fairer is being a responsible retailer, and our Co-op has

always stood for quality products that do right by people and planet. This is core to what

makes us different, and Council will always champion doing more in this space, and shouting

about it, with our Board. In 2023, we continued to oversee the development of our

Sustainability Strategy.

We know that many members choose to shop with us because we care about social value

and reducing our impacts on the environment as much as they do, so it was great to see the

Co-operate Report, which we input on, voted on and approved by member-owners for the

first time at our 2023 Annual General Meeting (AGM).

A big focus for Council has continued to be animal welfare, which we know is an important

issue for our members. Following on from the motion at our 2023 AGM, Council was pleased

to hear that we were moving quickly on reducing stocking density for the chickens that we

raise for meat, improving the space they have by 20% by early 2024. Our Sustainable

Ethical Leadership Committee will ask to receive updates on how we’re meeting the

reporting requirements for the ‘Better Chicken Commitment’ so it can continue to monitor our

progress and ways we can improve in future. One of our Senate Members joined leaders

and one of our Member Nominated Directors for a visit to our supplier’s site and Council has

met throughout 2023 to discuss the business’ response to this motion. We feel reassured

that our Board understand that our members take animal welfare seriously and that our Food

business is doing all it can to improve our already high standards whilst balancing cost and

environmental impacts and prices for members and customers.

141

In 2024, we’ll be celebrating 30 years of responsible retailing. To mark this, as well as 30

years of Fairtrade, we’ll be increasing our support for Fairtrade Fortnight and highlighting our

difference by showcasing more own-brand heroes than ever in stores. Council has long

called for this and was disappointed that we didn’t invest enough into our 2023 plans, as

we’ve always led on and supported Fairtrade and we want more members to choose it by

shopping with us. This is a move in the right direction as we look to reintroduce our Co-op

with what makes us unique at the heart.

A new era of co-operation

Working with the co-operative movement is crucial if we want to succeed and thrive. Council

will prioritise this as we support Co-op in delivering a new era of co-operation and renewing

collaboration with other co-operatives to communicate our difference together. In 2023,

Council Members represented our member-owners' views and our Co-op's priorities and

plans at a range of events that aim to address and tackle big issues collectively.

Council met with Co-operatives UK and Co-operative Party Chair, Jim McMahon, to discuss

plans for doubling the size of the co-operative sector. To do this successfully, we must

appeal to a whole new generation, and Council is passionate about creating opportunities for

young people and their futures. In 2023, we co-opted a member of our Co-op Young

Members’ Group onto each of our Council Committees to help create a fairer world for our

young people and deliver our 2023 motion on this topic.

Member Value, Business Performance and Effective Governance

What have we focused on and achieved?

Member value

A successful, sustainable

co-operative business

A business run by our

member-owners, for our

member-owners

Shaping our future Vision

and our purpose to create

value for our member-

owners everyday

Scrutinising our annual and

interim results and

performance and plans to

grow our Co-op

Putting your rights as

member-owners, to

influence the decisions we

make, at the heart of our

future strategy

You own our Co-op, so our role is to ensure that we’re providing genuine, honest value that

you can trust, which is central to being a co-operative business. This is something that

Council spends a lot of time influencing and challenging to keep it at the forefront of plans,

especially when we’ve been shaping our future Vision and strategy.

A successful, sustainable co-operative business

In October, Council met with Co-op’s new Chief Financial Officer to discuss Co-op’s 2023

Interim Results. On behalf of member-owners, we reviewed and scrutinised our performance

and with a significant reduction in net debt, we have welcomed our Co-op's ambitions for

growth and our £90m (annualised) investment in lowering our food prices, including

exclusive member pricing.

We have also continued to monitor trading conditions, headwinds, the development of Co-op

Live, and the impacts of the sale of our petrol forecourts - making sure that the proceeds

142

have gone on to benefit and secure our businesses and be reinvested into areas that our

members care about.

We have a dedicated Committee to review our Co-op’s financial performance and it holds

the Board to account all year round about how we create, sustain and develop member

value in everything we do, so that our members are rewarded for choosing our Co-op and

can see the difference in the way we do things.

We sought to support Co-op with the areas of our strategy outside of membership, such as

growth and efficiency. To support us with this, we have called for the chance to co-create a

performance framework, which will measure the changes we’re making and the delivery of

them to ensure we’re maximising value for our members and our business every day. We

also met with our Property Director to understand what’s happening around our estate and

discuss plans to determine where, if anywhere, we may be affected by

reinforced autoclaved

aerated concrete

(RAAC) in our stores.

A business run by our member-owners

Council Members are your representatives and we made sure that we took the time to listen

to your views on the changes to how our members are rewarded for trading with us. We

raised your concerns in discussions with Board and Co-op leaders and were reassured by

the focus on delivering value to member-owners in real time. This will add up to an average

of hundreds of pounds in savings over a year, and we know this is important at a time when

the cost of living is high. This isn’t all we’re doing to improve and innovate on the rewards

and benefits we give to members. In addition to Member Prices on a range of own-brand

products, Co-op Funeralcare is leading the way on environmentally friendly options like

Resomation® and in Co-op Insurance, we’ve been offering younger generations affordable

car and travel policies, even in these inflationary times. As your Council, we want to continue

to represent your views and want our Board and business to understand more about what

you want as Co-op member-owners and empower you to be involved in shaping the future of

our Co-op in 2024.

Member Participation and Community

Colleague safety

Member-ownership

Community

Supporting Co-op member-

owners to campaign to

change how the criminal

justice system responds to

retail crime

Putting our Co-op Difference

– that ‘we are owned by and

run for our members' and

exist to create value for

them – at the heart of our

Co-op and supporting you to

have your voice heard

through Join In

Representing you in how

you want to support and be

part of your community in

future

Being a member of our Co-op is unique and special and, as a member-owner, you have the

right to take part in, and find out more about, your Co-op and influence what we do.

Colleague safety

Having first raised the issue in 2020, which lead to our ‘Safer Colleagues, Safer

Communities’ campaign

we highlighted to our Board and Operating Board our concerns

around retail crime and violence increasing in our stores around the UK in 2023. Everyone

has the right to feel safe at work and we knew that this issue was, and continues to be, a

143

worry for our members and colleagues. We encouraged our leaders to reinvigorate our

campaigning and lobbying. Thousands of you signed the petition in collaboration with the

Co-op Party and other co-operatives. The National Police Chiefs Council Retail Crime Action

Plan that has since been created is a direct result of our Co-op listening to member-owners

and colleague member-owners. We would like to thank you for your support, and we are

proud that our strong campaigning history remains a fantastic example of the power of

collective action and our members using our Co-op as a platform for change.

Member-ownership

In 2023, we reached the milestone of one million member-owner actions and grew

participation through 80 Join In Opportunities. This included co-creating products and

services, shaping our community work, and campaigning on big issues. Council has

continued to champion members finding out more about what makes us different, and we’re

pleased that over 25,000 members contributed to our milestone achievement in this way.

Having this difference embedded in everything we do is a priority for us in 2024, alongside

bespoke learning for colleagues, leaders, Council and our members on what it means to be

a co-operative business, and how to play your role as an owner. It’s more important than

ever that we get this right, as our membership is growing and diversifying, and it’s brilliant

that we now have the power of over five million member-owners with us and behind us, but

they need to understand what they’re part of so they can choose how to get the most from it.

In November, we led a series of online and in-person Join in Live events, welcoming over

500 member-owners and colleagues from around the UK. The events focused on updating

members on our financial and business performance, six months after our Annual General

Meeting (AGM). They also provided opportunities for member-owners to shape how they are

rewarded for shopping with us and participating in our Co-op. This helped develop our new

strategy and refreshed membership proposition. At our events, our Board updated attendees

about ongoing work to improve animal welfare standards for the chickens. This is an

example of the great improvements we’ve made for providing regular touchpoints for

member-owners to get involved and stay updated on how their voice has made a difference.

We have continued motion updates throughout 2023 and into 2024 and will keep building on

this as part of our wider ownership work as we approach our 2024 AGM. For the first time in

2023, we held online motions events for member-owners to discuss and debate big issues

before voting on them. We look forward to hosting these again in 2024 and hope to see as

many of you there as possible.

Community

To stay connected to our members throughout the year, we worked with our Member

Pioneer and Communities team to take our Join In Live events to a local level. In 2023,

hundreds of events were delivered in stores and community spaces, focusing on themes like

Fairtrade Fortnight and sustainability. Council Members attend as many events as possible,

which has played a vital role in raising awareness of our unique democratic structure and

how we gain member-owners views. For the first time in summer, we visited stores to run a

Member Hour for local shoppers, where we promoted Member Prices and talked about the

benefits of being a Co-op member-owner.

The year ahead

We will continue to champion the issues that matter most to you in 2024, including:

Member value at the heart of our Co-op

144

Meaningful membership and education, training and information

Being Co-op: communicating with, listening to and engaging our member-owners

All of these priorities have separate objectives but ultimately, they come together to put you,

our member-owners, at the heart of our Co-op. We will continue to work closely with our

Board and Operating Board to ensure we are focused on what’s important to you and to

ensure that we can embed membership and our co-operative Values and Principles in

everything we do - from the rewards you get to how we make decisions.

How you can get involved

We represent you, so we therefore want to hear from you and work together with

you. Council members have long called for more ways to meet with member-owners in

person and in our communities, and we’re really pleased that progress has been made to

trial local forums as ways to regularly connect, update and shape. We will keep you updated

with more information on these events.

If you prefer to get involved online, sign up to Join In (

https://joinin.coop.co.uk/opportunities

)

where you will have the opportunity to understand more about what makes our Co-op

different and help to influence the Co-op that you own.

You can get in touch with a local Council member anytime using: www.co-

operative.coop/members-council-your-representatives. There’s an opportunity to become a

Council member yourself every January too.

The latest editions of our Council newsletters can be found on our website: (

https://www.co-

operative.coop/get-involved/members-council-news

)

145

Report of the Scrutiny Committee

Our review of Board appointments and elections

We have seen a number of changes to the membership of our Co-op Group Board as a

number of our Directors reach the end of their maximum term of office of nine years. Over the

past year, our new Independent Non-Executive Directors were appointed, including a new

Board Chair, Senior Independent Director and two Independent Non-Executive Directors,

including the Chair of our Risk and Audit Committee.

After our Directors are appointed or elected, our Co-op has an extra level of checking so

member-owners can have confidence that processes have been administered fairly and

openly in line with our co-operative Values and Principles.

This checking is done by the Scrutiny Committee of the National Members’ Council and we’re

pleased to present our report to member-owners for 2023.

How directors are appointed

There are two types of directors who don’t work day-to-day as Executives for our Co-op:

Independent Non-Executive Directors and Member Nominated Directors. Together with

Executive Directors, they make up our Co-op Group Board.

The process for appointing and electing Directors is different for Independent Non- Executive

Directors and Member Nominated Directors. More information about these processes are set

out on pages 76-77 and of this report

All our Directors need to show their commitment to co-operative Values and Principles.

Board Chair, Senior Independent Director and Independent Non-Executive Directors

The Chair of the Board, Senior Independent Director (SID) and Independent Non-Executive

Directors (INEDs) are those chosen specifically for their skills and experience, and to add

diversity and balance to the Board.

During 2023, processes were run leading to the appointments of Debbie White, Co-op Group

Chair, Moni Mannings (SID), Adrian Marsh, Chair of the Risk and Audit Committee and INED

and Luke Jensen (INED). Further information regarding these appointments is set out below.

Stevie Spring and Victor Adebowale were re-elected as Independent Non-Executive Directors

by Members at the 2023 AGM. The re-election of Shirine Khoury-Haq as Executive Director

was also approved by Members at our 2023 AGM.

Appointment of Board Chair, Senior Independent Director and Independent Non-

Executive Directors

For these appointments, the Scrutiny Committee reviews the adequacy of background checks

and information from standard recruitment searches carried out on potential candidates. We

also check the decision made by the Nominations Committee to ensure that all the criteria

146

which must apply to the candidate have been met (such as skills and experience, and

commitment to co-operative Values and Principles).

It is important that any appointment is fair, transparent and objective so we look into this on

behalf of our members to give that extra level of assurance.

Debbie White – Chair, Co-op Group Board

The Chair of the Co-op Board has an important and unique role in our Co-op. Our Chair

provides strategic leadership to our Board and ensures it is run effectively in how it makes

decisions and holds our Operating Board to account for how our Co-op performs. Like our

other Directors, our Board Chair also works with our National Members’ Council as

representatives of our member-owners.

We considered all information regarding the appointment of Debbie White and interviewed a

member of the Nominations Committee and Group Secretary. We received assurances from

the Nominations Committee that Debbie White met the criteria of eligibility both in terms of her

affinity with co-operative Values and Principles and her relevant skills and experience for the

role of Board Chair. We were satisfied that appropriate due diligence was conducted was

conducted by reference to the Board Composition Charter and necessary background checks

completed.

Moni Mannings – Senior Independent Director

The Senior Independent Director has specific roles and responsibilities set out in our rules

relating to how our Co-op is run, including our overall governance and assurance, and works

closely with the Chair of the Board.

We considered all information on the appointment of Moni Mannings and interviewed a

member of the Nominations Committee and Group Secretary about the process. We received

assurances from the Nominations Committee that she met the criteria of eligibility both in terms

of her affinity with co-operative Values and Principles and her relevant skills and experience

for the role of Senior Independent Director. We were satisfied that appropriate due diligence

was conducted was conducted by reference to the Board Composition Charter and necessary

background checks completed.

Adrian Marsh – Independent Non-Executive Director and Chair of the Risk and Audit

Committee

The Chair of the Risk and Audit Committee has specific roles and responsibilities set out in

our rules relating to Risk and Audit.

We considered all information on the appointment of Adrian Marsh and interviewed a member

of the Nominations Committee and Group Secretary about the process. We received

assurances from the Nominations Committee that he met the criteria of eligibility both in terms

of her affinity with co-operative Values and Principles and his relevant skills and experience

for the role of Chair of the Risk and Audit Committee and Independent Non-Executive Director.

We were satisfied that appropriate due diligence was conducted was conducted by reference

to the Board Composition Charter and necessary background checks completed.

147

Luke Jensen – Independent Non-Executive Director

We considered all information on the appointment of Luke Jensen and interviewed a member

of the Nominations Committee and Group Secretary about the process. We received

assurances from the Nominations Committee that he met the criteria of eligibility both in terms

of his affinity with co-operative Values and Principles and his relevant skills and experience

for the role of Independent Non-Executive Director. We were satisfied that appropriate due

diligence was conducted by reference to the Board Composition Charter and necessary

background checks completed.

Member Nominated Directors

Our Co-op also has Directors elected directly by members. As well as being able to show very

clearly their commitment to bringing members’ voices to the boardroom, before being put to a

ballot of eligible members, these individuals also need to demonstrate that they have the

necessary skills and experience of a substantial organisation and awareness of the strategic

and operational challenges of a business of the size and complexity of our Co-op.

The Scrutiny Committee checks:

• the selection process for the ballot is fair, transparent and objective

• the background information gathered on the candidates is satisfactory

In 2023, one Member Nominated Director was elected by Co-op members.

Our findings

The Member Nominated Director Joint Selection and Approval Committee has the primary

responsibility for the selection process of Member Nominated Director candidates, and is

made up of both members of the National Members’ Council and Board.

As well as receiving a detailed report from Co-op's search partner on the search and selection

process, we interviewed the Chair of the Committee and posed questions on themes including

the search methodology across the Co-op sector and how the Committee had satisfied itself

that candidates would have the time commitment required to interact fully with the Council and

its members.

As a result, the Committee can confirm that the selection process leading to the shortlisting of

Margaret Casely-Hayford, John Dalley, Christine Tacon and Ben Reid to a ballot of members

was fair, transparent and objective and that all proper background checks were made.

Margaret Casely-Hayford was subsequently re-elected by Co-op members to the role of

Member Nominated Director.

We welcomed the fact that all four candidates demonstrated co-operative backgrounds and

commitment to co-operative Values and Principles.

Whilst we are satisfied that there was a contested election of Member Nominated Directors,

we hope that our Co-op continues to attract high-calibre candidates with 1,000 or more

membership points with the required skills and experience in future years.

148

Finally, it was confirmed that all Directors met our Co-op’s trading requirement of 1,000 points.

We have also received assurances from the Group Secretary that all Independent Non-

Executive Directors and Member Nominated Directors are ‘independent’ for the purposes of

our Rules.

Committee Membership

The Committee Membership for the 2023/4 Council year includes:

David Paterson (Chair)

June Morrison

Aimee Higgins

Ewen MacLeod (substitute Janson Woodall)

The Committee would like to thank previous Chair of the Committee Marlene Corbey and

Committee Member Rebecca Hamilton for their work in 2022/3.

149

Promoting the success of our Co-op

Section 172(1) Statement and Stakeholder Engagement

Reporting requirement

Our Co-op prepares its Annual Report and Accounts substantially as though it were a

company registered under the Companies Act 2006 (‘the Act’). Whilst it is not a requirement

for our Strategic Report to contain a Section 172(1) Statement, we are including one in line

with best practice.

The Board has, in good faith, acted in a way that it considers would be most likely to

promote the success of our Co-op for the benefit of members as a whole and, in doing so,

has recognised the importance of considering all stakeholders and other matters (as set out

in Section 172(1) (a) to (f) of the Act) when making decisions.

The following pages comprise our Section 172(1) Statement, setting out how our Directors

have, in performing their duties over the course of the year, had regard to the matters set out

in Section 172(1) (a) to (f) of the Act.

Our approach

Corporate governance best practice underpins how we conduct ourselves as a Board; our

culture, values, behaviours and how we do business. We are conscious of the impacts that

our business and decisions have on our direct stakeholders as well as our wider societal

impact. We also understand the importance of developing strong and meaningful

relationships. We know that we can’t fix everything by ourselves, and that working with

others is key. To help us develop the strategies and capabilities to achieve our Vision, we

know we need to continue to build and nurture strong, reciprocal relationships with our

stakeholders.

For any key and principal decisions approved by the Board, a discussion takes place around

the impact on our key stakeholders, including our member-owners, our colleagues and our

customers. The relevance of each stakeholder group may vary by reference to the issue in

question, so the Board seeks to understand the needs of each stakeholder group and any

potential conflicts as part of its decision making.

We have provided below examples of our key stakeholder interests, their concerns and the

ways in which the Board acted with regard to these groups when taking its key strategic

decisions during the year.

Our members

Our Co-op is the UK’s largest consumer co-operative owned by over five million active

member-owners who have a say on how we’re run. Our member-owners are at the heart of

everything we do, which is why our Board uses an Ethical Decision Making Tool which

considers the impact on, and impact of, members (and their communities) in relation to the

material decisions it makes. Our members elect representatives to the National Members’

Council which has a voice at the highest level of our Co-op (see more in the below section).

Across the year we work together with our member-owners to take action to support our

shared Vision. This includes opportunities to learn more about our Co-op, choose how we

150

support local communities, stand together on campaigns, help develop our products and

services and shape our national partnerships.

2023 saw a significant milestone with Co-op members taking over one million actions

through 86 Join In opportunities across product and service design, shaping our community

plan, our campaigns and our unique Co-op ownership model. Participating through Join In is

just one of the ways member-owners engage across this, together with cause selection,

donating, voting and our insight panel, members have taken over 2.5m actions this year

against a target of 2m. This represents an increase on last year of 30%.

We encourage our member-owners to get involved in our AGM and elections, by voting on

motions and on who gets to sit on our Board and Council, as well as attending the AGM in

person or joining digitally. Our AGM is the forum through which our eligible member-owners

can hear more about our performance, put questions to our Board and vote on AGM

motions, which have been put forward by our members, our Members’ Council and our

Board. Our 2023 AGM offered members the chance to attend our AGM in person, as well as

being able to join the meeting online, where they could listen to the meeting and put their

questions to the Board in real time. This year, for the first time, we also ran two Join In Live

events for members ahead of our AGM where members could discuss motions, ask

questions and obtain further detail from Directors and Senior Leaders. In total, 179 member-

owners attended the sessions allowing them to be better informed on the motions before

they cast their vote.

All motions are voted for on a ‘one member, one vote’ basis, except for Independent Society

Members, whose votes are weighted based on the amount of trade they do with our Co-op.

For the first time, our members also helped raise funds for our Co-op charity partner,

Barnardo’s, the UK’s largest children’s charity. For each member’s vote, £1 was donated to

our charity partnership to support 75,000 young people across the UK.

We will keep members updated on our plans for our 2024 AGM via our website at

www.co-

operative.coop/agm

Each year we publish a ‘You Said, We Did’ report that outlines the actions our Board and

leadership have taken in response to motions passed at our AGM. This is also available on

our website.

Our Member Pioneers have made great things happen with our members in local

communities. They worked together with Co-op member-owners, colleagues and local

causes to make a difference. Our 900 Member Pioneers engaged with 62,000 people every

month and as well as encouraging member activity and engagement, they brought our Co-

op Vision to life, investing 121,000 hours in our communities. They connected key contacts

in their communities and brought people together to increase co-operation through local

forums.

During 2023, Member Pioneers delivered more than 300 Live Local events across the UK

with members, colleagues, customers and causes, engaging over 200,000 people. Themes

included Fairtrade, Member Participation and Sustainability. Member Pioneers also buddy

with our National Members’ Council as part of our wider activity to encourage greater

member participation.

As we move forward with our strategy, we will continue to ask our members what matters

most to them in our social value delivery, including leading up to our Annual General

To be eligible to vote, you must be at least 16 years old and have spent a minimum of £250 at Co-op over a 12-month period.

See more details here

151

Meeting, and we will ensure that we are focused on delivering on what they tell us in the

most effective way.

We continue to interact with members through social media channels, including Facebook,

Instagram, TikTok and X (formerly Twitter).

Our National Members’ Council

Our National Members’ Council (Council) is made up of 100 Co-op members from around

the UK, including colleagues. They met regularly during 2023, providing the opportunity for

our Council to ask questions and provide input on decisions, to make sure things were being

done in a way that benefited our member-owners and communities.

In addition to formal routes, there are many informal ways our Board, Chair and individual

Directors interact with Council, its committees, working groups and members.

During 2023 this included:



Attendance at Council sessions to update on developments on our Co-op.



Directors’ Forums, where Board members answer questions from the Members’

Council.



Board members attending regular Council Values and Principles Committee

Meetings in addition to Join In Live events.



Regular discussions between the Group Secretary and Council Secretary to make

sure there is a good flow of information between the Board and the Council.



Regular meetings between the Council Leadership and MNDs.



Board and Council report to each other on meetings and activity.

During 2022, our Council identified a number of issues that they wished to focus on during

2023 to enable Council to have the greatest impact on those issues which are of greatest

importance to Council and to Members. These priorities were ‘Cost of Living and Co-

operating for a Fairer World in Difficult Times’, ‘Business Performance and Governance

including Council Effectiveness’ and ‘Member Participation and Community’.

Our customers

Whilst we are committed to ensuring our Co-op is run for the benefit of our member-owners,

who form a significant proportion of our customer base, our relationship with both member

and non-member customers is extremely important and is a priority of the Board.

All of our businesses proactively monitor and manage customer opinion and have a

customer focused culture to ensure positive outcomes for all. Through understanding our

customers’ needs, we are able to offer products and services to fit their circumstances and

by providing a positive customer experience, we aim to build relationships so they will

continue to do business with us in the future.

In 2023, our Analytics and Insight teams conducted numerous projects to help us better

understand our customers and members. These included:



Finalising a full segmentation of our food customers by combining qualitative

research, third party market data, and analysis of our member base.



A segmentation of the pre-need market in Funeralcare to inform decision making,

which was delivered by bringing together quantitative research with Experian

MOSAIC data.

152



A detailed study of customer experiences in our stores to help us set priorities for the

service we provide both in our stores and e-commerce businesses.



A deep dive into customer perceptions of our own-brand offer, and own-brand in

convenience, to support the development of our own-brand strategy.



A programme of research to underpin the evolution of our membership proposition –

this includes feedback from members on in-app gamification trials, what we offer to

members in Funeralcare, a regular pulse survey to understand members’

experiences and perceptions, and strategic qualitative research to inform how we

communicate our Co-op Difference in 2024.



Behavioural economics research to enable us to effectively build our strategy for

pricing and promotions.



A check in on cost of living pressures and how these are impacting our customers

and member-owners.



Several quantitative studies to inform our insurance business ahead of new

consumer duty changes.



Numerous smaller studies to support decision making across our life services and

food business – examples include understanding usage and attitudes towards bakery

in convenience, pack testing for food, research to input into major events like

Christmas, Easter, etc. for our food business, testing communications for

Funeralcare and exploring perceptions of our memorials offer in Funeralcare.



In customer experience, we are now able to email customers who have swiped their

membership card in store with a link to our regular pulse survey. We are also trialling

a digital survey for customers buying a funeral from us at need.

Our colleagues

Our Board recognises the importance of engaging our 56,000 colleagues. Our Directors

believe that they are all individually and collectively responsible for hearing what our

colleagues have to say and making sure these views are considered when making

decisions. We have currently not adopted the methods set out in the UK Corporate

Governance Code (a colleague appointed director, a workforce advisory panel or a

designated non-executive director), however, there are many formal and informal ways that

this happens, including through communicating with our colleague members. In 2023, at

least two of our Directors attended each of our Colleague Voice listening sessions and this

will continue throughout 2024. A Member Nominated Director attends our Member Council’s

People and Communities Committee. The members of our Remuneration Committee have

oversight of all colleague reward and benefits and passionately champion colleague

wellbeing. All Directors continue to visit stores, funeral homes, depots and sites relevant to

our community mission.

Having engaged colleagues who are connected to our Co-op and feel valued for their

contribution, has never been more important. It is fundamental to our Co-op’s ongoing and

future success. In 2023, we saw a significant improvement in colleague engagement (as

measured in our annual Talkback colleague survey). Our colleague engagement activities

which contributed to this year included:



Measuring colleague engagement and experience through our core listening

tools – Talkback and Colleague Voice (delivered at both a local and national

level). These tools highlight where we need to focus to improve the everyday

experience of our colleagues. In 2023, despite another turbulent year, our overall

153

colleague engagement score improved from 68% to 72% (+4 percentage points

on 2022).



In 2023, our Colleague Voice activity (refreshed in 2022) added significant value,

providing honest and direct feedback, with excellent commitment from our Board

to drive action in response.



Our Colleague Insight team continued to run listening sessions, discussion

groups, one-to-one interviews and surveys, taking onboard colleague

suggestions and representing the voice of colleagues across our support centre,

Food stores and Funeralcare operations. In 2023 they continued to improve the

insight received from colleagues at various points in the colleague journey (for

example at onboarding and offboarding) and introduced a trial of a new

Colleague Panel mechanism.



In 2022, we introduced a programme of hackathon events for resolving colleague

irritants. The hackathons (delivered through a cross-functional team, including

store colleagues) were designed to implement change at pace, with colleagues

resolving issues collaboratively at every level of our Co-op. The programme

continued in 2023, and the latest hackathon looked at the hugely impactful and

important topic of colleague safety.



Our Members’ Council has a keen interest in our colleagues, and we have a

number of colleague members on the Council. Council regularly holds the Board

to account on colleague issues and a Council Remuneration Group meets

quarterly with the Chair of the Remuneration Committee and senior members of

the People team. In 2023, a new People and Communities Committee was

established to focus on our Community Strategy, our Colleague Co-op Members

and Fairer for Colleagues and all people aspects of our Co-operate Report.



Regular Board updates on culture, colleague engagement, wellbeing and

diversity and inclusion were provided by our Operating Board team.



Colleagues received regular wellbeing communications, focusing on all areas of

wellbeing – health, mental wellbeing and financial wellbeing, with a particular

focus on the latter. To support our colleagues during the cost of living crisis, we

increased our colleague discount on own-brand products to 30% during winter

22-23. This was hugely appreciated by colleagues in all parts of our Co-op and

we have since been able to extend this increase indefinitely.



Our annual Being Co-op awards event took place in Angel Square in early

October. The awards celebrate the amazing work our colleagues do, making a

real co-operative difference for our communities, member-owners and

customers. It was great to shine a light on some of our fantastic colleagues.

There was a colleague choice and CEO choice winner in each of the 8

categories.



In 2023, we again made significant investment to align our minimum hourly rate

for frontline colleagues to the Real Living Wage, meaning an inflation busting

10.1% increase for around 50,000 colleagues. This helped ensure our

colleagues felt valued for their contribution.

Yet again, our frontline colleagues have continued to do an amazing job despite the external

backdrop of rising living costs, inflation and energy prices. To thank our colleagues for all

their hard work in 2023, we made an additional payment onto colleagues’ membership cards

in December and also reintroduced the £10 contribution towards an end of year celebration.

Our suppliers

A strong, trusted and transparent supply chain is integral to our success. Our co-operative

Values and Principles underpin all of our supplier relationships as we continue to balance

commerciality with shared value and communities.

154

Our Co-op has a range of suppliers, who provide goods and services to support our

businesses and operations. The terms of those suppliers and the day-to-day relationships

are negotiated and managed by our Procurement team. The Board ensures we work with

our suppliers so that everyone involved in producing our products is treated fairly. It monitors

our relationship with our suppliers in a number of ways, including via the Risk and Audit

Committee on areas such as our compliance with the Groceries Supply Code of Practice

and our approach to sustainability issues.

We continue to work with our suppliers directly and as part of collaborative initiatives to build

our understanding of issues and develop solutions and action plans in response to the many

social and environmental challenges facing our supply chain, from human rights issues to

climate change. Our participation in collaborative initiatives is a key part of our approach as

we recognise that we will have a greater impact working together than on our own.

We have continued to focus on providing support for our suppliers, working collaboratively to

protect those that are most vulnerable, protect workers and continue to champion resilient

livelihoods for everyone in our supply chain. You can read more about our approach to

responsible sourcing within our Co-operate Report. The way we approach modern slavery is

detailed in our Modern Slavery Statement. Both reports are available on our website:

www.co-operative.coop

Fairtrade partners

In 2024 we are incredibly proud to be celebrating 30 years of Fairtrade; three decades of

standing with farmers and workers for fairer terms of trade, supporting them to improve their

livelihoods and invest in their communities.

Our ambition is to be the UK’s biggest supporter of Fairtrade and our commitment to

Fairtrade began when we first stocked CaféDirect in 1992, predating the launch of the

Fairtrade mark by two years. In 1998, we became the first food retailer in the UK to start

selling Fairtrade products in our Food stores. Since then, our relationship with Fairtrade has

continued to grow and in 2015 we became the largest seller of Fairtrade wine in the world

which continues to this day. Since 2017, all the cocoa used as an ingredient in Co-op

products is Fairtrade and 100% of our tea, coffee, chocolate, bananas, African roses and

bagged sugar is Fairtrade. More recently in 2022, Co-op made an industry-first commitment

to source 100% South African wine as Fairtrade, including both own label and branded.

Despite another volatile year for global supply chains, in 2023 we maintained steady

volumes of Fairtrade ingredients sold and continued to be a Fairtrade leader in the UK. We

are committed to continue growing our contribution to Fairtrade producers and workers

around the world.

You can read more about our food sustainability plans in our Co-operate Report at

co-

operative.coop

You can also read more about how we work with

our suppliers

and the impact we have in

Fairtrade communities

on our website.

Community

At our Co-op, our Purpose is to champion a better way of doing business for you and your

community. The Board recognises the role of our Co-op in working with and supporting our

communities, and this has never been more relevant than during the last few years. Our

community plan is a critical part of delivering our Vision and the communities we serve need

support more than ever due to the inequalities intensified by the cost of living crisis. By

155

partnering with community organisations, local causes, charities and our Co-op Academies,

our plan has helped to create social value for members and their communities. Support from

our member-owners has provided access to food; supported mental wellbeing; created

opportunities for young people; and empowered communities to take the initiative and tackle

climate change and protect nature.

Our work in communities is powered by our members and, in 2023, when our members

chose Co-op own-brand products they helped raise funds to support their local communities

through:



the Local Community Fund – helping thousands of local community causes that our

member-owners care about across the UK.



the Community Partnerships Fund – supports strategic partnerships with like-minded

organisations targeting communities where support can have the greatest impact.

Co-op membership also means members can get involved in opportunities such as

supporting our community activities, campaigning on issues or helping to develop Co-op

products.

Examples of how we have engaged with and supported our members’ communities during

the year include:



Since the Local Community Fund launched in 2016, members have raised £107m for more

than 36,000 unique community projects. In 2023, our members supported 3,955 local

community projects (2022: 4,482), and the total amounted to over £10.5m (2022: £12.4m)

One million people were supported by projects in our latest Local Community Fund pay

out in 2023.



In 2023, the Community Partnership Fund distributed £4.2m to support our community

partnerships and committed a further £3.5m to support activity in 2024.



Our partnership with Hubbub continues to grow, providing access to food, leading to the

world's largest Community Fridge Network, with over 600 fridges across the UK. In 2023,

the Community Fridge network was visited over 1.3m times. We also continue to work with

Your Local Pantry in communities in the UK. The network supports people to save an

average of £21 on every shop.



Our partnership with Mind, SAMH and Inspire came to an end in 2023, although its legacy

lives on with more than 60 new mental wellbeing services being set up across the UK,

supporting over 30,000 people. Over 81% of those supported feel their wellbeing improved

and 77% feel more closely connected to community. Our partnership also signposted more

than 3.5m people to information, activity and support for mental wellbeing from 2020-23.

In 2023, for the second year, we also partnered with Mind, SAMH, Inspire and Rethink

Mental Illness on the UK’s biggest mental health conversation, Time to Talk Day. To

date, we have generated over five million more conversations (over three million in 2023)

including more conversations among young people and people from diverse

backgrounds which we will continue in 2024.



Over 15,000 people have accessed our new bereavement resources with Cruse

Bereavement Support and our pilot activity engaged 2,800 people with 86% reporting

improved mental wellbeing.

156



In March 2023 we concluded the first cohort of the Peer Action Collective (PAC),

reaching 6,861 young people. PAC provides 10-25 year olds impacted by violence with a

voice and the opportunity to make their own communities safer and fairer places to live.

We have extended our partnership with the Youth Endowment Fund to reach 11,000

more young people through PAC with a £2.5million Community Partnerships Fund

investment matched by other funders

to a total £7.5million.



We launched our partnership with Barnardo’s in 2023 to bring communities together to

support young people. Together, we’ll raise £5m to help 750,000 young people access

basic needs, improve their mental wellbeing and create opportunities for their future. In

2023, our colleagues, members and customers went big for Barnardo’s and raised

£1.2m.



In November 2023 we launched the Young Gamechangers Fund together with the Co-op

Foundation and the #iwill Fund. The £4.5million Fund will support young activists,

campaigners, disrupters, co-operators, and social entrepreneurs to lead youth-led social

action across the UK.

The Foundation also awarded £1.4m from its Future Communities

Fund to fund grassroots, youth-led organisations to help develop diverse leaders of the

future.



In the winter of 2023, our Warm Spaces Funding boost, provided local community

groups with vital support during the coldest months, supporting 588 projects with a £1m

donation and generating £1.4m match funding via our partnership with Crowdfunder,

benefiting an estimated 61,235 people.



The Co-op Academies Trust (CAT) is one of the largest multi-academy trusts serving the

North of England, with 32 primary, secondary, special, and post-16 academies. The

Trust provides an education based on co-operative Values and Principles for 19,500

young people.



Our Member Pioneers are an important way of connecting all of our activities within and

across our communities, and of engaging directly with our members and their

communities. In 2023, our 900 Member Pioneers engaged with 62,000 people every

month. As well as encouraging member activity and engagement, they brought our Co-

op Vision to life, investing 121,000 hours in our communities.

Other co-ops

We recognise the benefits of working closely with other co-operatives.

We are the major shareholder in Federal Retail and Trading Services Limited (FRTS), which

is collectively owned by our Co-op and Independent Society Members (ISMs), which are all

retail co-operatives. Through FRTS, our Co-op collaborates with ISMs on the management

and operation of its centralised buying function, while observing competition law

requirements. Six formal FRTS Board meetings were held during the year.

ISMs are members of our Co-op and are also represented on our Members’ Council.

We are passionate about proactively growing the co-operative economy by promoting,

developing and uniting co-operatives and, throughout 2023, have continued to share our

thoughts, experiences and learnings with other co-operatives. In 2023, we delivered a

session at the Co-ops UK 2023 Practitioners Forum. The session discussed what modern

6 funders including #iwill and Youth Endowment Fund

157

democratic engagement could look like beyond the AGM and was hosted by Kate Brown,

our Council President and members of the team. Our CEO Shirine Khoury-Haq delivered a

plenary at Co-op Congress 2023 and our INED Lord Victor Adebowale and Paul Gerrard,

our Director of Campaigns, Public Affairs and Board Secretariat, participated in a panel

discussion on Social Care alongside Andy Burnham, Mayor of Greater Manchester, and

discussed whether a co-operative pilot across Greater Manchester could be a scalable

solution to tackle some of the challenges faced in the area.

We provide funding to a number of organisations which support the co-operative movement.

Co-op Academies Trust

Education is really important to us and we have continued to support the work of the Co-op

Academies Trust (CAT). Our Co-op Academies remain a key part of our Vision.

During 2023, individual Board directors and senior leaders across all parts of our Co-op have

visited Co-op Academies and supported CAT's Annual Governors Conference with a

session on diversity and inclusion led by a Co-op Board member. In September, we held our

Board meeting at the newly built Co-op Academy Belle Vue in Manchester where our Board

members met students and staff.

In 2024, we are planning visits and presentations by CAT students and colleagues with our

Members’ Council.

For more information on the CAT, please see our Co-operate Report at

co-operative.coop

Environment

Our approach to sustainability is critical in our current and future plans and is embedded in

our wider Vision. We are delighted our Co-op Sustainability Strategy has received board

approval and we will continue to drive forward our sustainability agenda and our ambitious

approach to climate action, ensuring that we keep focused on protecting people and the

planet.

We can’t deliver our commitments alone, so we work with our member-owners,

communities, customers, colleagues and suppliers continued to be vital. You can read more

about our Climate Plan and progress across sustainability at

www.coop.co.uk

and in our Co-

operate Report at

co-operative.coop

158

Our Financial Statements

Co-op Annual Report & Accounts for 2023:

Financial Statements

159

Consolidated income statement

for the 53 week period ended 6 January 2024

What does this show?

Our income statement shows our income for the year less our costs. The result is the profit or loss

that we've made.

2023*

2022

Continuing Operations

(restated**)

Notes

£m

Revenue (excluding funeral plans)

11,176

11,397

Insurance revenue (funeral plans)

2, 21

Total Revenue

11,262

11,484

Operating expenses (excluding insurance service expenses on funeral plans)

(11,125)

(11,424)

Insurance service expenses (funeral plans)

(80)

(81)

Other income

Operating profit / (loss)

(12)

Profit on sale of petrol forecourt stores

319

Finance income

126

125

Finance costs (excluding insurance finance expenses on funeral plans)

(148)

(149)

Insurance finance expenses (funeral plans)

7, 21

(16)

(15)

Profit before tax

268

Taxation

(27)

(10)

Profit from continuing operations

258

Discontinued operation

Profit on discontinued operation (after tax)

Profit for the period (all attributable to members of the Society)

325

* The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to 31st December 2022.

** The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for further details.

The accompanying notes on pages 164 - 233 form an integral part of these financial statements.

Non-GAAP measure: underlying loss before tax**

What does this show?

The table below adjusts the operating profit / (loss) figure shown in the consolidated income

statement above by taking out items that are not generated by our day-to-day trading. This makes it easier to see how our

business is performing. We also take off the underlying interest we pay (being the day-to-day interest on our bank borrowings

and lease liabilities) to show the underlying profit or loss that we've made.

2023

2022

Continuing Operations

(restated*)

Notes

£m

Operating profit / (loss) - as above

(12)

Add back / (deduct):

One-off items

Property disposals and closures

(9)

(64)

Impairment of non-current assets

105

Change in value of investment properties

(4)

Underlying operating profit

Less underlying net interest on loans and deposits

6, 7

(31)

(55)

Less underlying net interest expense on leases

6, 7

(68)

(76)

Underlying loss before tax

(2)

(48)

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

** Refer to Note 1 for a definition of Underlying operating profit and Underlying loss before tax. Further detail on the Group's alternative performance

measures (APMs) is given in the Jargon Buster section on page 263.

Co-op Annual Report & Accounts for 2023:

Financial Statements

160

Consolidated statement of comprehensive (loss) / income

for the 53 week period ended 6 January 2024

What does this show?

Our statement of comprehensive (loss) / income includes other income and costs that are not

included in the consolidated income statement on the previous page. These generally relate to revaluations of our pension

schemes and insurance finance income or expense on funeral plans.

2023

2022

(restated*)

Notes

£m

Profit for the period

325

Items that will never be reclassified to the income statement:

Remeasurement losses on employee pension schemes**

(1,310)

(732)

Related tax on items above

328

183

(982)

(549)

Items that are or may be reclassified to the income statement:

Revaluation gain on properties prior to transfer to Investment properties

Insurance finance (expense) / income on funeral plans ***

(37)

453

Tax on funeral plan liabilities (insurance contracts)

(113)

(25)

340

Other comprehensive losses for the period net of tax

(1,007)

(209)

Total comprehensive (loss) / profit for the period (all attributable to members of the Society)

(1,004)

116

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for further details.

** The material remeasurement loss recognised in the year on our pension schemes includes the accounting impact of the buy-in transaction

undertaken by the pension scheme trustee with Rothesay Life Plc, a specialist UK Insurer, to insure scheme benefits through a bulk annuity

insurance policy helping to insure the Group against the primary investment and longevity risks it is exposed to. Further detail of the transaction and

impact is given in Note 25 (Pensions). The impact of the buy-in is that the assets transferred to the insurer are replaced on the balance sheet with an

estimate of the IAS19 reserve for insured members (so the asset equals the liability). This has reduced the scheme assets by circa £1.0bn and

drives the majority of the remeasurement loss noted above. In addition to the impact of the buy-in transaction; a further £0.3bn remeasurement

charge has been recorded reflecting an increase in scheme liabilities primarily due to forecast inflation being higher than assumed previously.

*** Under IFRS 17 the Group has elected to disaggregate that element of finance income / expense that arise due to changes in the discount rate

and record the impact of those changes in other comprehensive income (OCI) rather than in the Income statement. The large gain noted above in

2022 primarily arises due to movements in the discount rate in 2022.

**** The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to 31st December

2022.

The accompanying notes on pages 164 - 233 form an integral part of these financial statements.

Co-op Annual Report & Accounts for 2023:

Financial Statements

161

Consolidated balance sheet

as at 6 January 2024

What does this show?

Our balance sheet is a snapshot of our financial position as at 6 January 2024. It shows the assets we

have and the amounts we owe.

2023

2022

(restated*)

Notes

£m

Non-current assets

Property, plant and equipment

1,543

1,631

Right-of-use assets

827

882

Goodwill and intangible assets

917

934

Investment properties

Investments in associates and joint ventures

Funeral plan investments

1,346

1,369

Derivatives

Pension assets (net pension assets for schemes in surplus)

359

1,584

Trade and other receivables

Finance lease receivables

Contract assets

Deferred tax assets

Total non-current assets

5,117

6,492

Current Assets

Inventories

440

433

Trade and other receivables

594

605

Finance lease receivables

Contract assets

Derivatives

Short-term investments

200

Cash and cash equivalents

395

447

Total current assets

1,638

1,502

Total assets

6,755

7,994

Non-current liabilities

Interest-bearing loans and borrowings

470

763

Lease liabilities

1,054

1,124

Trade and other payables

Insurance contract liabilities (funeral plans)

1,010

987

Re-insurance contract liabilities (funeral plans)

Derivatives

Provisions

Pension liabilities (net pension liabilities for schemes in deficit)

Deferred tax liabilities

258

Total non-current liabilities

2,627

3,246

Current liabilities

Interest-bearing loans and borrowings

218

Lease liabilities

179

182

Trade and other payables

1,564

1,403

Insurance contract liabilities (funeral plans)

Re-insurance contract liabilities (funeral plans)

Derivatives

Provisions

Total current liabilities

2,108

1,725

Total liabilities

4,735

4,971

Equity

Members’ share capital

Retained earnings

1,935

2,942

Other reserves

Total equity

2,020

3,023

Total equity and liabilities

6,755

7,994

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

As the restatement applies to all previous years including the closing 2021 balance sheet (as at 1 January 2022) then for comparative purposes we

have also included an adjusted opening 2022 balance sheet (as at 2 January 2022) in Note 33 on page 233. The accompanying notes on pages 164 -

233 form an integral part of these financial statements.

Board’s certification

The financial statements on pages 164 - 233 are hereby signed on behalf of the Board pursuant to Section 80 (1) (a) of the Co-operative and

Community Benefit Societies Act.

Debbie White -

Chair

Rachel Izzard -

Chief Financial Officer

Dominic Kendal-Ward -

Group Secretary

3 April 2024

Co-op Annual Report & Accounts for 2023:

Financial Statements

162

Consolidated statement of changes in equity

for the 53 period ended 6 January 2024

What does this show?

Our statement of changes in equity shows how our reserves have changed during the period.

Members'

Retained

Other

Total

For the 53 weeks ended 6 January 2024

share capital

earnings

reserves

equity

Notes

£m

Balance at 31 December 2022

(as previously reported)

2,637

2,718

Impact of retrospective adoption of IFRS 17

305

Balance at 31 December 2022

(*restated for IFRS 17)

2,942

3,023

Profit for the period

Other comprehensive income / (loss):

Remeasurement losses on employee pension schemes

(1,310)

Tax on remeasurement losses (pension schemes)

328

Insurance finance income (funeral plans)

(37)

Tax on funeral plan liabilities (insurance contracts)

Revaluation gain on properties prior to transfer to Investment properties

Total other comprehensive loss

(1,010)

(1,007)

Items taken directly to retained earnings:

Shares issued less shares withdrawn

Total of items taken directly to retained earnings

Balance at 6 January 2024

1,935

2,020

* The brought forward figures have been restated following the adoption of IFRS 17 (Insurance Contracts). See details of the restatement in the

table below.

Members' share

Retained

Other

Total

For the 52 weeks ended 31 December 2022 (restated*)

capital

earnings

reserves

equity

Notes

£m

Balance at 1 January 2022

(as originally reported)

2,859

2,939

Impact of adoption of IFRS 17

(33)

Balance at 2 January 2022

(restated for IFRS 17)

2,826

2,906

Profit for the period (restated for IFRS 17)

325

Other comprehensive income / (loss):

Remeasurement gain on employee pension schemes

(732)

Tax on items taken directly to other comprehensive income

183

Insurance finance income (funeral plans)

453

Tax on funeral plan liabilities (insurance contracts)

(113)

Total other comprehensive loss

(209)

Items taken directly to retained earnings

Shares issued less shares withdrawn

Total of items taken directly to retained earnings

Balance at 31 December 2022 (restated for IFRS 17)

2,942

3,023

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the

restatement.

The accompanying notes on pages 164 - 233 form an integral part of these financial statements.

Co-op Annual Report & Accounts for 2023:

Financial Statements

163

Consolidated statement of cash flows

for the 53 week period ended 6 January 2024

What does this show?

Our statement of cash flow shows the cash coming in and out during the year. It splits the cash by

type of activity - showing how we've generated our cash then how we've spent it.

2023

2022

Notes

£m

Net cash from operating activities

602

455

Cash flows from investing activities

Purchase of property, plant and equipment

(182)

(132)

Proceeds from sale of property, plant and equipment

Purchase of intangible assets

(23)

(15)

Acquisition of businesses, net of cash acquired

(4)

Disposal of businesses

Disposal of petrol forecourts

408

Purchase of investments for pre-paid funeral plan sales

(73)

(76)

Receipts from funds for pre-paid funeral plans performed or cancelled

113

108

Short-term investments

(200)

Interest received on deposits*

Net cash (used) / generated in investing activities

(310)

348

Cash flows from financing activities

Interest paid on borrowings

(57)

(59)

Interest paid on lease liabilities

(70)

(78)

Interest received on subleases

Repayment of corporate investor shares

(1)

Repayment of borrowings (net)

(101)

(1)

Increase in other borrowings

RCF (revolving credit facility) repayment

(163)

Payment of lease liabilities

(123)

(128)

Derivative settlements

Individual member share capital

Net cash used in financing activities

(344)

(412)

Net (decrease) / increase in cash and cash equivalents

(52)

391

Cash and cash equivalents at beginning of period

447

Cash and cash equivalents at end of period (per balance sheet)

395

447

* Interest received on deposits has been classified in investing activities in the tables above in line with IAS 7 in both 2023 and 2022 (previously in

2022 it was included as a separate line item within financing activities and the balance was not material for reclassification).

The balances above include cashflows from Discontinued operations of £3m (2022: £72m). The Group also holds £200m (2022: £nil) of short-term

investments. These are excluded from the cash and cash equivalents figure noted above but are included with our net debt metric calculation (see

table below). The accompanying notes on pages 164 - 233 form an integral part of these financial statements.

Group net debt

2023

2022

Notes

£m

Interest-bearing loans and borrowings:

- current

(218)

(17)

- non-current

(470)

(763)

Total Interest-bearing loans and borrowings

(688)

(780)

Lease liabilities:

- current

(179)

(182)

- non-current

(1,054)

(1,124)

Total Lease liabilities

(1,233)

(1,306)

Total debt

(1,921)

(2,086)

- Group cash

395

447

- Short-term investments

200

Group net debt

(1,326)

(1,639)

Add back: accrued interest on amortised debt

Group net debt (excluding accrued interest on amortised debt)*

(1,315)

(1,628)

Group net debt (excluding lease liabilities)*

(93)

(333)

Add back: accrued interest on amortised debt

Group net debt (excluding lease liabilities and accrued interest on amortised debt)*

(82)

(322)

*Details of the Group's alternative performance measures (APMs) including our net debt metric are explained further in the Jargon Buster (page 263).

Co-op Annual Report & Accounts for 2023:

Financial Statements

164

Notes to the financial statements

Section A - where do our profits or losses come from?

Operating segments

What does this show?

This note shows how our different businesses have performed. This is how we report and monitor our

performance internally. These are the numbers that our Board reviews during the year.

Food

Wholesale

Federal

Funeral*

Insurance

Legal

Costs from

Total

2023

(i)

(f)

(h)

supporting

(53 weeks to 6 January 2024)

functions

£m

Revenue from external customers

7,262

1,480

2,142

281

11,262

Underlying operating profit / (loss)

(a)

154

(11)

(95)

One-off items (a) (i)

(21)

(12)

Property, business disposals and closures (a) (ii)

(1)

Impairments (a) (ii)

(20)

(1)

(11)

(32)

Change in value of investment properties

Operating profit / (loss)

(b)

152

(11)

(122)

Profit before tax

(Funerals only)

(h)

Depreciation and amortisation

314

371

EBITDA

(g)

466

(101)

437

Underlying EBITDA

(g)

468

(74)

468

Additions to non current assets (d, e)

151

205

* Funeral segment revenue comprises £86m (2022: £87m) in relation to our pre-need funeral plan business recorded under the newly adopted accounting

standard IFRS 17 (Insurance Contracts) and £195m (2022: £188m) for at-need funerals recorded under IFRS 15.

**A reclassification adjustment has been processed in the first half of 2023 in Federal Sales and Federal operating expenses with net nil impact to profit. This

adjustment restates the 2023 Co-op Interim Report reported Federal revenue, increasing from £957m to £1,049m and a corresponding increase in Federal

operating expenses. This flows through to Group operating expenses, increasing from £5,432m to £5,524m. Group Revenue at 2023 Interim would thus

increase to £5,522m. The reclassification has no impact on reported profit at 2023 Interim.

Food

Wholesale

Federal

Funeral

Insurance

Legal

Costs from

Total

2022 (restated*)

(i)

(f)

(h)

supporting

(52 weeks to 31 December 2022)

functions

£m

Revenue from external customers

7,805

1,439

1,895

275

11,484

Underlying operating profit / (loss)

(a)

139

(1)

(93)

One-off items (a) (i)

(21)

(2)

(14)

(39)

Property, business disposals and closures (a) (ii)

(1)

Impairments (a) (ii)

(71)

(3)

(31)

(105)

Change in value of investment properties

(15)

Operating profit / (loss)

(b)

(7)

(94)

(12)

Profit before tax

(Funerals only)

(h)

Depreciation and amortisation

331

390

EBITDA

(g)

385

(71)

378

Underlying EBITDA

(g)

470

(70)

473

Additions to non current assets (d, e)

115

151

*The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

** The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to 31st December 2022.

165

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Operating segments

continued

a) Underlying operating profit / (loss) is a non-GAAP measure of segment operating profit before the impact of property and business disposals (including

impairment of non-current assets within our businesses), the change in the value of investment properties, and one-off items. This is the non-GAAP

measure of segmental profitability that is monitored by the Group Board (which is the Chief Operating Decision Maker (CODM)). Further detail on the

Group's alternative performance measures (APMs) is given in the Jargon Buster section on page 263.

(i) One-off items totalling a £12m charge (2022: £39m charge) includes £10m of non-recurring net income in relation to the transitional service agreement

following the sale of our petrol forecourt sites in the prior year, a net charge of £20m in relation to legal cases and associated provisions, a further £4m of

costs in relation to the discretionary help given to support our colleagues through the Winter cost-of-living crisis (through spend added to colleagues

membership cards) and a £2m gain from the release of property provisions. In the prior period the £39m charge comprised £26m of redundancy costs

primarily within our Support Centre, £12m in relation to the Winter cost-of-living support for colleagues and net £1m other.

(ii) Gains from property and business disposals of £9m (2022: net £64m) comprise a £9m gain on food stores, £1m gain in Wholesale and a £1m loss on

non-trading properties sold during the year.

(iii) Impairment charges of £32m (2022: £105m) are split: Food £20m (2022: £71m), Wholesale £1m (2022: £nil), Funerals £nil (2022: £3m) and Costs

from supporting functions of £11m (2022: £31m) and relates to £11m (2022: £30m) of Property, plant and equipment, £21m (2022: £60m) of Right-of-use

assets and £nil (2022: £15m) of Intangible assets.

b) Each segment earns its revenue and profits from the sale of goods and provision of services, mainly from retail activities. Transactions between

operating segments excluded in the analysis are £272m (2022: £284m) of sales of goods by Food to Wholesale net of supplier income and £149m (2022:

£145m) of pass through recharges (e.g. payroll and transport costs) made by Food to Wholesale.

c) The Group identifies its operating segments based on its divisions, which are organised according to the different products and services it offers its

customers. The operating segments (and the captions) reported above are based on the periodic results reported into the Chief Operating Decision Maker

which is the Board and whether the respective division's results meet the minimum reporting thresholds set out in IFRS 8 (Operating Segments). Our other

holding and support companies are included within costs from supporting functions.

d) Additions to non-current assets are shown on a cash flow basis.

e) The Group's external revenue and non-current assets arise primarily within the United Kingdom. The Group does not have a major customer who

accounts for 10% or more of revenue. In-line with how information is presented to the Board then underlying segment operating profit includes an

appropriate allocation of central support centre costs which are re-charged to the operating segments.

f) Federal relates to the activities of a joint buying group that is operated by the Group for itself and other independent co-operative societies. The Group

acts as a wholesaler to the other independent co-operatives and generates sales from this. This is run on a cost recovery basis and therefore no profit is

derived from its activities. In the current period revenue in the Federal segment includes £207m (2022: £40m) of sales at nil margin for goods supplied to

AFS (Arthur Foodstores Limited - the entity that was sold to Asda as part of the disposal of our petrol forecourt estate in October 2022).

g) EBITDA (earnings before interest, tax, depreciation and amortisation) and underlying EBITDA are non-GAAP measures of performance which help us to

understand the profits our business segments are generating before capital investment and interest charges. EBITDA is calculated by adding back

depreciation and amortisation charges to Operating profit (which is calculated before interest charges). Underlying EBITDA is calculated in a similar way

but starting from underlying operating profit. Further details on the Group's alternative performance measures (APMs) is given on page 263.

(h) The Funeral segment includes the results of our pre-need funeral plan business recorded under the newly adopted accounting standard IFRS 17

(Insurance Contracts) which were previously recorded under IFRS 15. Overall profitability recorded under IFRS 17 and IFRS 15 is broadly comparable

however under IFRS 17 our operating profit (as noted in the Operating segment tables) is lower. This is partly because of the phasing of revenue being

spread over the life of a funeral plan rather than all at redemption and partly because the balance of where profit is recognised in the Income statement

shifts such that we see lower finance expense under IFRS 17 but higher operating expenses. This reduction to Operating profit is offset by a reduction in

net finance charge (which is recorded below operating profit and does not feature in the Operating segment tables). Underlying operating profit remains our

primary alternative performance measure and basis of our segmental reporting, however for the Funeral segment we do not consider it to be the most

helpful metric to understand the performance of the business as a result of the impact of IFRS 17. As such we have included a profit before tax figure as

an additional metric in the segmental tables for the Funeral business to aid a reader's understanding of the performance of that business.

Funerals segment (£m)	2023	2022
Operating loss	(11)	(7)
Finance income (funeral plans)	17	28
Finance cost (funeral plans)	(16)	(15)
Finance income (other)	25	7
Finance costs (other)	(2)	(2)
Profit before tax	13	11

(i) The comparative figures in our Food business also include the revenue and profit from petrol forecourt stores sold in October 2022. The 2023 figures

represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks to 31st December 2022.

166

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Operating segments

continued

j) A reconciliation between Underlying operating profit, Underlying loss before tax and Profit before tax (Continuing operations) is provided below:

		2023	2022
Continuing Operations			(restated*)
	Notes	£m	£m
Underlying operating profit*		97	83
Underlying net interest on loans and deposits	6, 7	(31)	(55)
Underlying net interest expense on leases	6, 7	(68)	(76)
Underlying loss before tax		(2)	(48)
One-off items	1	(12)	(39)
Gain on property, business disposals and closures (see table below)	1	9	64
Impairment of non-current assets (see table below)	1	(32)	(105)
Profit on disposal of petrol forecourt stores	1	-	319
Change in value of investment properties	24	4	(15)
Finance income (net pension income)	6	77	43
Fair value movement on foreign exchange contracts and commodity derivatives (net)	6, 7	(6)	20
Fair value movement on interest rate swaps	6, 7	4	(11)
Fair value movement on quoted Group debt	6, 7	(10)	28
Finance income (funeral plans)	6	17	28
Finance costs (funeral plans)*	7	(16)	(15)
Net other non-cash finance costs	7	(5)	(1)
Profit before tax (from continuing operations)		28	268

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Losses from property and business disposals and closures and	2023		2022
impairment of non-current assets
	£m	£m	£m	£m
Disposals, closures and onerous contracts:
- proceeds	23		47
- less net book value written off	(14)		(15)
- provisions released	-		32
		9		64
Impairment of non-current assets		(32)		(105)
Total		(23)		(41)

See previous page (a) (iii) for details of the impairments.

167

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Revenue

What does this show?

This note shows our revenue (which excludes VAT) across our different businesses.


	2023*	2022
		(restated**)
	£m	£m
Retail sales	7,284	7,822
Member reward earned on sale of goods	(22)	(17)
Provision of services**	295	261
Insurance revenue (funeral plans)**	86	87
Member reward earned on provision of services	(3)	(3)
Wholesale sales	1,480	1,439
Federal sales	2,142	1,895
Revenue (as shown in the Consolidated income statement)	11,262	11,484

* The 2023 figures represent the 53 week period ended 6th January 2024 with the 2022 comparatives representing 52 weeks.

** The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Accounting policies

Unless stated otherwise, Revenue is recognised in line with IFRS 15 (Revenue from Contracts with Customers). IFRS 15 defines performance

obligations as a 'promise to provide a distinct good or service or a series of distinct goods or services'. Revenue is recognised when a performance

obligation has been delivered which reflects the point when control over a product or service transfers to a customer. Revenue is measured based on

the consideration set out in the contract with the customer and excludes amounts collected on behalf of third parties. As noted below; Revenue on

funeral plans (our pre-need business) is recognised in line with IFRS 17 (Insurance Contracts).

Sale of goods

The Group recognises revenue when it transfers control over a product to a customer. For the sale of goods, revenue is recognised at the point of

sale. Any rebates, VAT and other sales tax or duty items are deducted from revenue.

Provision of services

Provision of services relates to activities in our Funerals (at-need business only), Legal services and Insurance businesses. Revenue is recognised

when separate performance obligations are delivered to the customer. Revenue is recognised as distinct performance obligations are delivered to the

customer.

Insurance revenue (funeral plans)

The Group has adopted IFRS 17 (Insurance Contracts) from 1 January 2023 which specifically applies to the Group's pre-need funeral plans (including

the re-insurance of the payment waiver risk where Group waives the remaining payments if a customer dies during the payment term subject to

conditions). Under IFRS 17 the Group recognises revenue over the contract coverage period (being the duration of the funeral plan). Further detail as

to the accounting policies used to record revenue, recognise profit and value the insurance contract liability are given in Note 33.

Member rewards

During the year, the member rewards earned as part of our membership offer were recognised as a reduction in sales at the point they were earned

with a corresponding liability being held on the balance sheet. The liability is reduced when the rewards are redeemed. During the year, member

rewards were earned at 2% of eligible spend value. The Community reward on member's spend is recognised as an operating expense in the income

statement when it is earned. Community rewards are also earned at 2% of eligible spend value during the year.

Federal sales - principal versus agent presentation

The Group operates a joint buying group for itself and other independent co-operative societies. The Group acts as a wholesaler to the other

independent co-operatives and generates sales from this. This is run on a cost recovery basis and therefore no profit is derived from its activities. In

accordance with IFRS 15 and based on the nature of the sales made to the other independent co-operatives and the level of control the Group has

over the goods sold to those co-operatives the Group is acting as the principal in these transactions as opposed to an agent and records revenue on

that basis.

168

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Operating expenses

What does this show?

This note shows the costs we have incurred during the period. It splits costs into key categories such

as trading activities and employee benefits.

Operating profit is stated after (charging) / crediting the following:


	2023	2022
		(restated*)
	£m	£m
Cost of goods and services recognised as an expense*	(7,880)	(8,077)
Employee benefits expense (see below)	(1,456)	(1,444)
Distribution costs	(474)	(501)
Gain on property, business disposals and closures (before impairments)	9	64
Impairment of plant, property and equipment and goodwill	(11)	(45)
Impairment of right-of-use assets	(21)	(60)
Net gain on other plant and equipment disposals	1	2
Change in value of investment properties	4	(15)
Depreciation of plant, property and equipment	(225)	(244)
Depreciation of right-of-use assets	(106)	(119)
Amortisation of intangible assets	(40)	(27)
Charge on allowance for expected credit losses on trade receivables	(10)	(12)
Credit on allowance for expected credit losses on trade receivables	9	11
Subscriptions and donations	(7)	(6)
Community reward earned	(20)	(18)

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Employee benefits expense


	2023	2022
	£m	£m
Wages and salaries	(1,310)	(1,293)
Social security costs	(87)	(90)
Pension costs - defined benefit schemes	(6)	(6)
Pension costs - defined contribution schemes	(53)	(55)
Total employee benefits expense	(1,456)	(1,444)

Employee benefits expense includes executive directors.

The average number of people employed by the Group in the UK during the 53 week period ended 6th January 2024 (including executive directors) was:


	2023	2022
	Number	Number
Full-time	17,899	18,627
Part-time	39,205	40,463
Total	57,104	59,090

As at the balance sheet date (6th January 2024) there were 56,465 employees; 17,804 (full-time) and 38,661 (part-time).

Remuneration of key management

We regard the Board and Executive as our key management personnel and details of their remuneration can be found on pages 96 - 114.

169

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Operating expenses

continued

	2023	2022
Auditor remuneration and expenses
	£m	£m
Audit of these financial statements	3.8	2.6
Amounts receivable by the Society's auditor in respect of:
- Audit of financial statements of subsidiaries in respect of the Society	0.8	0.4
Services relating to:
- Audit-related assurance services	-	-
- Non-audit services	0.1	0.1
Total	4.7	3.1

Accounting policies

Operating expenses

Operating expenses are analysed by nature, as defined by IAS 1 (Presentation of Financial Statements). Payments to our members in their capacity as

customers or colleagues (rather than as members), or membership payments to non-members such as charitable organisations, are treated as charges

in the income statement.

Supplier income

What does this show?

Our suppliers give us money back based on the amount of their products we buy and sell. This note

shows the different types of income we've earned from our suppliers based on the contracts we have in place with them. This

income is taken off operating expenses in the income statement.

	2023	2022
Supplier income
	£m	£m
Food - Long-term agreements	162	156
Food - Bonus income	74	66
Food - Promotional income	260	281
Total Food supplier income	496	503
Wholesale - Long-term agreements	32	27
Wholesale - Bonus income	12	15
Wholesale - Promotional income	72	81
Wholesale supplier income	116	123
Total supplier income	612	626

	%	%
Percentage of Cost of Sales before deducting Supplier income
Food - Long-term agreements	3.0%	2.6%
Food - Bonus income	1.4%	1.1%
Food - Promotional income	4.8%	4.7%
Total Food supplier income percentage	9.2%	8.4%
Wholesale - Long-term agreements	2.4%	2.0%
Wholesale - Bonus income	0.9%	1.1%
Wholesale - Promotional income	5.3%	6.1%
Total Wholesale supplier income percentage	8.6%	9.2%

All figures exclude any income or purchases made as part of the Federal joint buying group.

170

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Supplier Income

continued

Accounting policies

Supplier income

Supplier income is recognised as a deduction from cost of sales on an accruals basis, based on the expected entitlement that has been earned up to the

balance sheet date for each relevant supplier contract. The accrued incentives, rebates and discounts receivable at year end are included within trade

and other receivables (Note 17). Where amounts received are in the expectation of future business, these are recognised in the income statement in line

with that future business. There are three main types of income:

1. Long-term agreements: These relate largely to volumetric rebates based on agreements with suppliers. They include overriders, advertising

allowances and targeted income. The income accrued is based on the joint buying group's latest forecast volumes and the latest contract agreed with the

supplier. Income is not recognised until confirmation of the agreement has been received from the supplier.

2. Bonus income: These are typically unique payments made by the supplier and are not based on volume. They include payments for marketing support,

range promotion and product development. These amounts are recognised when the income is earned and confirmed by suppliers. An element of the

income is deferred if it relates to a future period.

3. Promotional income: Volumetric rebates relating to promotional activity agreed with the supplier. These are retrospective rebates based on sales

volumes or purchased volumes.

Other income

What does this show?

This note shows what we have earned during the period from activities that are outside our normal

trading activities. This is mainly from rental income we earn on properties that we own or sublet.

	2023	2022
	£m	£m
Rental income from non-investment properties	6	6
Rental income from investment properties	3	3
Total other income	9	9

Accounting policies

Rental income from investment and non-investment properties

Rental income arising from operating leases on both investment and non-investment properties is accounted for on a straight-line basis over the lease

term. For accounting policies relating to investment properties, refer to Note 24.

171

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Finance income

What does this show?

Finance income arises from the interest earned on our pension scheme, interest earned on the cash

and short-term investments that we hold and interest from finance lease receivables which have been discounted. If they are

gains then we also include the movement in the fair value of some elements of our debt, our interest rate swap positions,

foreign exchange contracts and commodity derivatives (which are used to manage risks from interest rate, foreign exchange

and commodity price movements). If they are losses, they are included in Finance costs (see Note 7). If they are gains, we

also show the fair value movement on our funeral plan investments.


	2023	2022
	£m	£m
Underlying finance income:
Interest income from finance lease receivables	2	2
Interest receivable on deposits	25	3
Total underlying finance income	27	5
Non-underlying finance income:
Net pension finance income	77	43
Fair value movement on foreign exchange contracts and commodity derivatives	-	20
Fair value movement on interest rate swaps (Note 27)	4	-
Fair value movement on quoted Group debt (Note 19)	-	28
Unrealised fair value movement on funeral plan investments (Note 14)	17	28
Other non-underlying finance income	1	1
Total non-underlying finance income	99	120
Total finance income	126	125

Finance costs

What does this show?

Our main finance costs are the interest that we've paid during the year on our bank borrowings (that

help fund the business) and the interest payments we incur on our lease liabilities. If they are losses then we also include the

movement in the fair value of some elements of our debt and our interest rate swap positions, foreign exchange contracts and

commodity derivatives (which are used to manage risks from interest rate and foreign exchange movements). If they are

gains, they are included in Finance income (see note 6). We also include the insurance finance interest expense (from the

unwind of the discounting applied to our funeral plan liabilities).


	2023	2022
		(restated*)
	£m	£m
Underlying finance costs:
Loans repayable within five years	(56)	(58)
Loans repayable wholly or in part after five years	-	-
Total underlying loan interest payable	(56)	(58)
Underlying interest expense on lease liabilities	(70)	(78)
Total underlying finance cost	(126)	(136)
Non-underlying finance costs:
Fair value movement on interest rate swaps (Note 27)	-	(11)
Fair value movement on foreign exchange contracts and commodity derivatives	(6)	-
Fair value movement on quoted Group debt	(10)	-
Other non-underlying finance interest	(6)	(2)
Insurance finance expenses (funeral plans)*	(16)	(15)
Total non-underlying finance cost	(38)	(28)
Total finance costs	(164)	(164)

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Total interest expense on financial liabilities (including lease liabilities) that are not at fair value through the income statement was £117m (2022:

£125m).

172

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Taxation

What does this show?

Our tax charge is made up of current and deferred tax. This note explains how those items arise.

Additional explanatory footnotes are included to explain the key items. We were re-accredited with the Fair Tax Mark

during 2023.

		2023	2022
			(restated*)
	Footnote	£m	£m
Current tax credit - current period	(i)	1	11
Current tax credit - adjustment in respect of prior periods		-	2
Net current tax credit - in respect of continuing operations		1	13
Net current tax charge - in respect of discontinued operations		(1)	(14)
Total current tax charge		-	(1)
Deferred tax charge - current period	(ii)	(29)	(16)
Deferred tax credit - adjustments in respect of prior periods	(iii)	3	(2)
Deferred tax charge - impact of rate change (see note below)	(ii)	(2)	(5)
Net deferred tax charge - in respect of continuing operations		(28)	(23)
Total deferred tax charge		(28)	(23)
Total tax charge reported in the income statement		(27)	(10)
Total tax charge attributable to a discontinued operation		(1)	(14)
Total tax charge		(28)	(24)

The tax on the Group’s net profit before tax differs from the theoretical amount that would arise using the standard applicable rate of corporation

tax of 23.5% (2022:19%) as follows:

		2023	2022
			(restated*)
	Footnote	£m	£m
Profit before tax from continuing operations		28	268
Profit before tax from discontinued operation		3	81
Total profit before tax		31	349
Tax charge at 23.5% (2022: 19%)		(7)	(66)
Current tax reconciliation:
Expenses not deductible for tax (including one-off costs)	(iv)	(9)	(2)
Depreciation and amortisation on non-qualifying assets	(v)	(10)	(10)
Non-taxable profits arising on business disposals	(vi)	-	61
Capital gains arising on property disposals	(vii)	(1)	(1)
Adjustments in respect of prior periods	(iii)	-	2
Impact on current tax for movement in temporary tax differences (see below)		27	15
Total current tax charge		-	(1)
Deferred tax reconciliation:
(Utilisation) / increase of temporary tax differences - see Note 15 footnote (vii):
Utilisation of capital allowances in excess of depreciation on qualifying assets		(10)	(2)
Utilisation of brought forward tax losses		(1)	(1)
Pension timing differences		(20)	(10)
Unwind of restatement adjustment on adoption of IFRS 16		(4)	(3)
IFRS 17 Funeral plan liabilities		5	(4)
Unrealised gains on investment properties, rolled-over gains and historic business combinations		1	10
Other timing differences		-	(5)
Subtotal of deferred tax reconciling items		(29)	(15)
Other deferred tax items:
Adjustment in respect of previous periods		3	(2)
Impact of restatement of deferred tax to enacted rate	(viii)	(2)	(6)
Total deferred tax charge		(28)	(23)
Total tax charge		(28)	(24)

173

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Taxation

continued

Tax expense on items taken directly to consolidated statement of comprehensive income or consolidated statement of changes in equity

	2023	2022
		(*restated)
	£m	£m
Actuarial gains and losses on employee pension scheme	328	183
IFRS 17 Funeral plan liabilities	9	(113)
Tax on items taken directly to consolidated statement of comprehensive income	337	70

Of the £328m tax taken directly to the consolidated statement of comprehensive income, £308m credit (2022: £70m credit restated) arises on the actuarial

movement on employee pension schemes. There is also a £20m credit (2022: £40m charge) being the impact of the 25% rate on the deferred tax related to

the employee pension schemes as noted below. The restated 2022 credit of £70m is made up of a £183m credit relating to the employee pension schemes

less a deferred tax charge of £113m on an IFRS 17 credit in other comprehensive income in 2022. There was no movement this year directly to the

consolidated statement of comprehensive income in respect of investment properties revaluations.

Based on legislation previously passed, the Chancellor increased the enacted corporation tax rate of 19% to 25% with effect from 1 April 2023. To the

extent the above deferred tax assets and liabilities are expected to crystalise after this date they should be valued using 25% rather the current corporation

tax rate of 19%. The bulk of the deferred tax assets and liabilities, as shown in Note 15, are expected to crystalise over a much longer time frame, being

mainly the retirement benefit obligations, capital allowances on fixed assets and unrealised gains on investment properties, rolled-over gains and historic

business combinations.

As the rate of corporation tax will be 25% for all periods after the period end, it is appropriate to recognise deferred tax at that rate.

Tax policy

We publish our tax policy on our website (https://www.co-operative.coop/ethics/tax-policy) and have complied with the commitments set out in that policy.

Footnotes to taxation note 8:

i) The Group is not tax-paying in the UK in respect of 2023 due to the fact it has a number of brought forward capital allowances (£60m gross claimed in

2023) and tax losses (£5m gross utilised in 2023) that offset its taxable profits for the period. These allowances and losses are explained in more detail in

Note 15.

The current tax charge nets to £nil.

Outside of the UK, our Isle of Man resident subsidiary, Manx Co-operative Society, a convenience retailing business in the Isle of Man showed a small profit

in 2023, giving rise to a small current tax liability of £0.1m (2022: £0.1m). This is the Group's only non-UK resident entity for tax purposes, which employs

161 part-time and 132 full-time colleagues out of our total Group headcount figure. All other income in the consolidated income statement is generated by

UK activities and all other colleagues are employed in the UK.

The 2023 revenue of Manx Co-operative Society is £43m and all other revenue reflected in the consolidated income statement is generated by UK trading

activities. The net assets of Manx Co-operative Society at 6 January 2024 were £16m, compared to net assets of the consolidated Group of £2,020m. The

Manx assets represent the only overseas trading assets within the Group. A full copy of the most recent accounts is available here https://www.co-

operative.coop/investors/rules. The presence of this Isle of Man resident subsidiary has not resulted in any additional tax charge in 2023 over and above

that payable to the Isle of Man authorities stated above. If these activities had been carried out in the UK, these profits would have been included within the

Group's taxable profit prior to the availability of capital allowances and tax losses.

174

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Taxation

continued

ii) Deferred tax is an accounting concept that reflects how some income and expenses can affect the tax charge in different periods to when they are

reflected for accounting purposes. These differences are a result of tax legislation which require us to make these adjustments in our annual tax returns.

The £28m deferred tax charge mainly relates to the net use of temporary differences in respect of the movements on pension assets and capital allowances

not yet claimed.

Note 15 gives further detail on how each deferred tax balance has moved in the year.

iii) The deferred tax adjustments in respect of prior years is a common adjustment. It reflects the difference between what is known at the time and reflected

in the notes to these accounts and when the final tax returns are submitted to HMRC. On some occasions, this might require us to adjust the tax charge for

the period.

iv) Some expenses incurred by the Group may be entirely appropriate charges for inclusion in its financial statements but are not allowed as a deduction

against taxable income when calculating the Group's tax liability. Examples of this include some repairs, entertaining costs and certain legal costs.

v) The accounting treatment of depreciation differs from the tax treatment. For accounting purposes an annual rate of depreciation is applied to capital

assets. For tax purposes the Group is entitled to claim capital allowances, a relief provided by law. Some assets do not qualify for capital allowances and no

relief is available for tax purposes on these assets. This value represents depreciation arising on such assets (primarily Land and Buildings).

vi) In 2022 the Group disposed of its shares in Arthur Food Stores Limited (the entity that was sold to Asda as part of the disposal of our petrol forecourt

estate). The disposal falls within the substantial shareholder exemptions (SSE) which means any gain or losses arising on the disposal are not brought into

tax.

vii) During the year a number of properties were sold, where the net taxable profit was less than the accounting profit.

viii) It is a requirement to measure deferred tax balances at the substantively enacted corporation tax rate at which they are expected to unwind. As noted

above the impact of recognising deferred tax at 25% has been to increase the tax charge by £2m this year.

Accounting policies

Income tax on the profit or loss for the period is made up of current and deferred tax. Income tax is recognised in the income statement except to the extent

that it relates to items recognised directly in reserves, in which case it is recognised in other comprehensive income. Current tax is the expected tax

payable on the taxable income for the period, using tax rates enacted or substantively enacted at the balance sheet date, and any adjustment to tax

payable in respect of previous years.

175

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Profit on discontinued operation (net of tax)

What does this show?

We classify any of our business segments as discontinued operations if they have been

disposed of during the year (or if they have been disposed of in previous years) or if they are held for sale at the balance

sheet date (which means they are most likely to be sold within a year). This note shows the operating result for these

segments as well as the profit or loss on disposal.

Discontinued operation - disposal of Insurance (underwriting) business CISGIL

The sale of our insurance underwriting business (CISGIL) completed on 3 December 2020. The results of that business have been classified as

a discontinued operation from 2018 and shown in a separate line at the bottom of the consolidated income statement under Discontinued

Operations. Operating expenses in 2022 reflects the release of any remaining provisions associated with the disposal. Other income includes

£3m (2023) and £72m (2022) of income following payments received in respect of a legal claim.


Results of discontinued operation - Insurance (underwriting business)	2023	2022
	£m	£m
Operating expenses (net)	-	3
Other income	3	78
Profit before tax	3	81
Tax	(1)	(14)
Profit for the period from discontinued operation	2	67


Segmental analysis - Insurance (underwriting	Revenue from	Underlying	Profit	Additions to	Depreciation
business)	external	segment	before	non-current	and
	customers	operating profit	tax	assets	amortisation
	£m	£m	£m	£m	£m
53 weeks ended 6 January 2024	-	-	3	-	-
52 weeks ended 31 December 2022	-	-	81	-	-

The table below shows a summary of the cash flows of discontinued operations:


Cash flows used in discontinued operations:	2023	2022
	£m	£m
Net cash from discontinued operations	3	72

Cash flows from financing and investing activities were not material in any period.

176

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Profit on discontinued operation, net of tax -

continued

Accounting policies

The Group classifies non-current assets and disposal groups as held for sale if their carrying amounts will be recovered principally through a sale

transaction rather than through continuing use. Non-current assets and disposal groups classified as held for sale are measured at the lower of their

carrying amount and fair value less costs to sell. Costs to sell are the incremental costs directly attributable to the disposal of an asset (disposal group),

excluding finance costs and income tax expense. The criteria for held for sale classification is regarded as met only when the sale is highly probable

and the asset or disposal group is available for immediate sale in its present condition. Actions required to complete the sale should indicate that it is

unlikely that material changes to the sale will be made or that the decision to sell will be withdrawn. Management must be committed to the plan to sell

the asset and the sale expected to be completed within one year from the date of the classification.

Discontinued operations are those operations that can be clearly distinguished from the rest of the Group, both operationally and for financial reporting

purposes, that have either been disposed of or classified as held for sale and which represent a separate major line of business. Property, plant and

equipment and intangible assets are not depreciated or amortised once classified as held for sale. Assets and liabilities classified as held for sale are

presented separately as current items in the balance sheet. Discontinued operations are excluded from the results of continuing operations and are

presented as a single amount as profit or loss after tax from discontinued operations in the income statement.

A disposal group qualifies as a discontinued operation if it is a component of an entity that either has been disposed of, or is classified as held for sale,

and:

• Represents a separate major line of business or geographical area of operations; or

• Is part of a single co-ordinated plan to dispose of a separate major line of business or geographical area of operations.

Reconciliation of operating profit / (loss) to net cash flow from operating activities

What does this show?

This note shows how we reconcile from our operating profit / (loss), as reported in the income

statement, to get to the net cash from operating activities which is the starting position in the cash flow statement. Non-cash

items are added back to or subtracted from the operating profit figure to show how much cash is generated from our operating

activities.

	2023	2022
		(restated*)
	£m	£m
Operating profit / (loss)	66	(12)
Depreciation and amortisation charges	371	390
Non-current asset impairments	32	105
Profit on closure and disposal of businesses and non-current assets	(10)	(66)
Change in value of investment properties	(4)	15
Retirement benefit obligations	(9)	(12)
(Increase) / decrease in inventories	(7)	36
Decrease / (increase) in receivables	14	(121)
Increase in insurance contract liabilities (funeral plans)	(28)	(34)
Increase in payables and provisions	174	80
Tax received	-	2
Net cash flow from operating activities before net cash operating inflow from discontinued operations	599	383
Net cash flow from operating activities relating to discontinued operations	3	72
Net cash flow from operating activities	602	455

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Accounting policies

Refer to note 18 for details of the accounting policy for Cash and cash equivalents.

177

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Section B - what are our major assets?

This section of the accounts (notes 11 - 18) outlines the key assets that we hold at the balance sheet date.

Property, plant and equipment

What does this show?

Property, plant and equipment is the physical assets we use in our business such as our buildings,

equipment and vehicles. This note shows how the amount we include on our balance sheet for these assets has changed over

the period.


	Property	Plant and	Total
For the period ended 6 January 2024		equipment
	£m	£m	£m
Cost or valuation:
At 31 December 2022	1,359	2,619	3,978
Additions	19	143	162
Disposals	(11)	(43)	(54)
Transfer to Investment properties (Note 24)	(5)	-	(5)
At 6 January 2024	1,362	2,719	4,081
Depreciation:
At 31 December 2022	609	1,738	2,347
Charge for the period	26	199	225
Impairment	5	6	11
Disposals	(6)	(39)	(45)
At 6 January 2024	634	1,904	2,538
Net book value:
At 6 January 2024	728	815	1,543
At 31 December 2022	750	881	1,631
Capital work in progress included above	-	26	26

The impairment charge of £11m (2022: £30m) primarily relates to poor performing food stores (see also Critical accounting estimates and judgements

section of this note for further detail on impairment).

178

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to

the financial statements

continued

Property, plant and equipment

continued

	Property	Plant and	Total
For the period ended 31 December 2022		equipment
	£m	£m	£m
Cost or valuation:
At 1 January 2022	1,442	2,731	4,173
Additions	8	96	104
Disposal of petrol forecourt stores	(60)	(121)	(181)
Disposals	(31)	(87)	(118)
At 31 December 2022	1,359	2,619	3,978
Depreciation:
At 1 January 2022	610	1,651	2,261
Charge for the period	27	217	244
Impairment	2	28	30
Disposal of petrol forecourt stores	(16)	(76)	(92)
Disposals	(14)	(82)	(96)
At 31 December 2022	609	1,738	2,347
Net book value:
At 31 December 2022	750	881	1,631
At 1 January 2022	832	1,080	1,912
Capital work in progress included above	1	14	15

179

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Property, plant and equipment

continued

Critical accounting estimates and judgements

Impairment

In the context of considering potential impairment of plant, property and equipment; the recoverable amount for Food and Funeral cash generating units

(CGUs) is the greater of the fair value of the CGU (less costs to sell) and the value in use (VIU) of the CGU. For freehold stores the fair value of the CGUs

(less costs to sell) is estimated using internal valuations based on rateable values or recent market values where known. Where the VIU estimates are

higher than the fair value estimates the VIU estimates have been used in the impairment assessments. The VIU for Food and Funeral CGUs has been

determined using discounted cash flow calculations. The key assumptions in the value in use calculations are as follows:

Assumption	Food Segment	Funeral Segment
Structure of a	Each individual food store is deemed to be an individual CGU.	A CGU is deemed to be a local network of interdependent branches,
CGU		known as a Funeralcare Hub.
	Future cash flows for FY24 and FY25 derived from Board approved	Future cash flows for FY24 and FY25 derived from Board approved
	four-year plan cash flow assumptions.	four-year plan cash flow projections.
	These forecasts are based on the four-year plan for FY24 - FY25	These forecasts are based on budget for FY24, four-year plan for
	and then subject to a long term growth rate of 0% for the remainder	FY25 and then subject to a long term growth rate of 1.9% (2022:
	of the lease period and then 1.9% (2022: 1.9%) into perpetuity after	1.9%) into perpetuity reflecting the UK's long-term post war growth
	the lease period reflecting the UK's long-term post war growth rate	rate which is in-line with industry norms for the period of the lease.
	which is in-line with industry norms for the period of the lease.	Where we have known lease exit dates then the remaining lease
	Where we have known lease exit dates then the remaining lease	terms have been used. Perpetuities are included in cash flows with
	terms have been used. Perpetuities are included in cash flows with	1.9% growth (2022: 1.9%) where the Hub is expected to be
	1.9% growth (2022: 1.9%) where stores are expected to be	operational beyond its current lease terms (adjusted for rent
	operated beyond their current lease term (adjusted for rent expense expense given the impact of IFRS 16 leases).
Cash flow years	given the impact of IFRS 16 leases).	Cash flows include an appropriate estimate of periodic capital
/ assumptions	Cash flows include estimated periodic store capital maintenance	maintenance costs.
	costs based on the square footage of the store.
		The Group is currently working to identify the physical risk to our
	The Group is currently working to identify the physical risk to our	business and supply chains from the changing climate, along with
	business and supply chains from the changing climate, along with	the potential impact of policy, technology and market changes as we
	the potential impact of policy, technology and market changes as	transition to a lower carbon future. This is a developing area with
	we transition to a lower carbon future. This is a developing area with inherent uncertainty which is constantly evolving. The work being
	inherent uncertainty which is constantly evolving. The work being	undertaken will help inform our overall response to the risks and
	undertaken will help inform our overall response to the risks and	opportunities that are identified. Our assessment of the impact of
	opportunities that are identified. Our assessment of the impact of	climate-related risk and related expenditure is reflected in the
	climate-related risk and related expenditure is reflected in the	financial models and plans and will continue to be monitored in
	financial models and plans and will continue to be monitored in	future periods.
	future periods.
	A post tax discount rate has been calculated for impairment	A post tax discount rate has been calculate for impairment
	purposes, with the Food segment's weighted average cost of capital purposes, with the Funeralcare segment's weighted average cost of
	(WACC) deemed to be an appropriate rate, subsequently grossed	capital (WACC) deemed to be an appropriate rate, subsequently
	up to a pre-tax rate of 9.6% (2022: 10.1%).	grossed up to a pre-tax rate of 11.6% (2022: 10.9%).
	The post tax discount rate has been calculated using the capital	The post tax discount rate has been calculated using the capital
	asset pricing model.	asset pricing model.
	Certain inputs into the capital asset pricing model are not readily	Certain inputs into the capital asset pricing model are not readily
	available for non-listed entities. As such, certain inputs have been	available for non-listed entities. As such, certain inputs have been
	obtained from industry benchmarks which carries a measure of	obtained from industry benchmarks which carries a measure of
Discount rate	estimation uncertainty. However, as discussed in the sensitivity	estimation uncertainty. However, as discussed in the sensitivity
and Sensitivity	section below, this estimation uncertainty level is not deemed to be	section below, this estimation uncertainty level is not deemed to be
analysis	material.	material.
	In each of the current and comparative years, sensitivity analysis	In each of the current and comparative years, sensitivity analysis
	has been performed in relation to our store impairment testing,	has been performed in relation to our Funeralcare Hub impairment
	testing for a 2% increase in discount rate and a decrease in growth	testing, testing for a 2% increase in discount rate and a decrease in
	to minus 2%; within both these sensitivities no additional material	growth to minus 2%; within both these sensitivities no additional
	impairment was calculated. The sensitivity analysis performed	material impairment was calculated. The sensitivity analysis
	considers reasonably possible changes in the discount rate and	performed considers reasonably possible changes in the discount
	growth rate assumptions.	rate and growth rate assumptions.
	Sensitivity analysis has also been performed on our goodwill	Sensitivity analysis has also been performed on our goodwill
	impairment testing, see note 13.	impairment testing, see note 13.

180

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Property, plant and equipment

continued

Accounting policies

Where parts of an item of property, plant and equipment have materially different useful economic lives, they are accounted for as separate items of

property, plant and equipment. Cost includes purchase price plus any costs directly attributable to bringing the assets to the location and condition

necessary for it to be capable of operating in the manner intended by management. Depreciation is provided on the cost or valuation less estimated

residual value (excluding freehold land) on a straight-line basis over the anticipated working lives of the assets. The estimated useful lives are as follows

and where appropriate would also include our assessment of the expected impact on asset lives of our plan to move to net zero by 2040:

Property

Freehold buildings - 50 years

All properties are measured at cost less accumulated depreciation and impairment losses.

Land is not depreciated

Plant & equipment

Plant and machinery - 3 to 13 years

Vehicles - 3 to 9 years

We no longer include property, plant and equipment in our balance sheet when the Group loses the right to the future economic benefits associated with

the asset. For property, this usually happens when we have exchanged contracts on an unconditional basis to sell it.

Impairment

For the Food segment, the Group treats each store as a separate cash-generating unit for impairment testing of property, plant and equipment and right-

of-use assets. The Group allocates goodwill to groups of cash-generating units. Whilst the individual food stores represent the cash generating units,

the lowest level at which internal management monitor the performance of the business is at a total Food segment level. To meet the requirements of

IAS 36 CGUs are grouped together for impairment testing which considers the carrying value of the Food business’ goodwill asset, and all its other

assets within the scope of impairment, against the recoverable amount of the entire Food business.

For the Funerals segment, the Group treats a local network of interdependent branches, known as a Funeralcare Hub, as a separate cash-generating

unit for impairment testing of property, plant and equipment, right-of-use assets and goodwill.

At each reporting date, the Group reviews the carrying amounts of its property, plant and equipment to determine whether there is any indication that

those assets have suffered an impairment loss. If any such indication exists, the recoverable amount of the asset, being the higher of its fair value less

costs to dispose and its value in use, is estimated in order to determine the extent of the impairment loss. Impairment losses are recognised in the

income statement.

Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-

generating unit (CGU) to which the asset belongs. For Food stores, the CGU is deemed to be each trading store. For Funeralcare, the CGU is deemed

to be a local network of interdependent branches. Where an individual branch within a local network is to be closed, the individual branch is defined as

the CGU, rather than being included with the network of interdependent branches. This is because the branch is no longer expected to contribute to the

business through cash generated through its operating activities but instead through any proceeds on disposal.

An impairment loss is reversed if there has been a change in the estimate used to determine the recoverable amount. An impairment loss is reversed

only to the extent that the asset’s carrying amount is returned to what it would have been, net of depreciation or amortisation, if no impairment loss had

been recognised.

181

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Leases

What does this show?

This note shows the value of our leased assets and the corresponding value of our lease liabilities.

The tables show how these balances have moved in the period from additions, disposals, payments, interest charges and

impairments.

A. As a lessee


	Property	Plant and	Total
Right-of-use assets
		equipment
	£m	£m	£m
Balance at 1st January 2023	821	61	882
Depreciation charge for the year	(93)	(13)	(106)
Additions	79	5	84
Disposals	(12)	-	(12)
Impairment	(21)	-	(21)
Balance at 6th January 2024	774	53	827
Balance at 1st January 2022	1,014	72	1,086
Depreciation charge for the year	(102)	(17)	(119)
Additions	116	7	123
Disposals	(16)	(1)	(17)
Disposal of petrol forecourt stores	(131)	-	(131)
Impairment	(60)	-	(60)
Balance at 31st December 2022	821	61	882

The Group leases many assets, principally it leases properties for its food retail stores and funeral branches as well as some vehicles and other

equipment. The leases of retail stores are typically between 1 and 20 years in length (2022: 1 and 20 years), and leases of funeral branches are

typically between 1 and 10 years in length (2022: 1 and 10 years). Vehicle and equipment leases are typically between 1 and 4 years in length

(2022: 1 and 4 years) and in some cases the Group has options to purchase the assets at the end of the contract term. Additions to right-of-use

assets may vary to the lease liability additions figure noted in the table below due to the accounting treatment of lease incentives and dilapidation

provisions under IFRS 16.

In the context of potential impairment, the critical accounting estimates and judgments set out in Note 11 (Property, plant and equipment) are also

applicable for right-of-use assets. Impairment of £21m (2022: £60m) comprises £11m (2022: £33m) against food stores where future cashflow

forecasts do not support the carrying value of the right-of-use assets we hold, £nil (2022: £nil) against funeral branches and a £10m charge in our

Corporate centre primarily against the value of the right-of-use asset held for our Support Centre at Angel Square. The comparative period included

a £27m charge in the Corporate centre which included a £20m reduction in the value of the right-of-use asset that we hold against our central

Support Centre at Angel Square as our utilisation has changed following the transition to hybrid working.


	2023	2022
Lease liabilities
	£m	£m
Current	(179)	(182)
Non-current	(1,054)	(1,124)
Lease liabilities included in the Consolidated balance sheet	(1,233)	(1,306)


	2023	2022
Lease liabilities
	£m	£m
At the start of the period	(1,306)	(1,516)
Additions	(80)	(120)
Disposals	30	31
Disposal of petrol forecourt stores	-	171
Interest expense	(70)	(78)
Payments	193	206
Total lease liabilities	(1,233)	(1,306)

The Group recognised rent expense from short-term leases of £2m (2022: £2m).

182

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Leases

continued

Extension and termination options

Some leases of retail stores contain extension or termination options exercisable by the Group up to one year before the end of the non-cancellable

contract period. Where practicable, the Group seeks to include extension and termination options in new leases to provide operational flexibility. The

extension and termination options held are typically exercisable only by the Group and not by the lessors.

The Group assesses at lease commencement whether it is reasonably certain to exercise the extension or termination options. The Group

reassesses whether it is reasonably certain to exercise the options if there is a material event or material change in circumstances within its control.

As at 6 January 2024, potential discounted future cash outflows of £165m (2022: £141m) have not been included in the lease liability because it is not

reasonably certain that the Group will exercise the extension option. Included within the lease liability are discounted future cash outflows of £96m

(2022: £99m) where the group holds termination options but it is not reasonably certain to execute those termination options.

Sale and leaseback

During the year the Group completed sale and leaseback transactions on some of its freehold buildings used within food retail and our funerals

business. Aggregate consideration of £1m (2022: £6m) was received, a net lease liability of £nil (2022: £1m) was recognised and net book value of

£1m (2022: £5m) disposed creating a profit on disposal of £nil (2022: £nil).

B. As a lessor

Lease income from lease contracts in which the Group acts as a lessor is as below:

	2023	2022
	£m	£m
Operating lease (i)
Lease income	9	9
Finance lease (ii)
Finance income on the net investment in the lease	2	2

i. Operating lease

The Group leases out its investment properties. The Group classifies these leases as operating leases, because they do not transfer substantially all

of the risks and rewards incidental to the ownership of the assets. The following table sets out a maturity analysis of lease payments, showing the

undiscounted lease payments to be received after the reporting date.

	2023	2022
	£m	£m
Less than one year	5	5
One to two years	4	4
Two to three years	4	4
Three to four years	3	3
Four to five years	2	3
More than five years	31	31
Total undiscounted lease payments receivable	49	50

ii. Finance lease

The Group also subleases some of its non-occupied leased properties. The Group classifies the sublease as a finance lease, where the period of the

sublease is for substantially the remaining term of the head lease. The following table sets out a maturity analysis of lease receivables, showing the

undiscounted lease payments to be received after the reporting date.

	2023	2022
	£m	£m
Less than one year	8	11
One to two years	8	10
Two to three years	7	9
Three to four years	6	8
Four to five years	5	7
More than five years	22	24
Total undiscounted lease payments receivable	56	69
Less: Unearned finance income	(14)	(17)
Present value of minimum lease payments receivable	42	52
Impairment loss allowance	(13)	(9)
Finance lease receivable (net of impairment allowance)	29	43

183

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Leases

continued

B. As a lessor

- continued

ii. Finance lease

- continued

	2023	2022
	£m	£m
Current	8	9
Non-current	21	34
Finance lease receivable as per Consolidated balance sheet	29	43

The average term of finance leases entered into is 9 years (2022: 13 years).

Impairment of finance lease receivables

The Group estimates the loss allowance on finance lease receivables at an amount equal to lifetime expected credit losses. The lifetime expected credit

losses are estimated based upon historical defaults on subleases, the credit quality of current tenants and forward-looking factors.

Accounting policies

Right-of-use assets

The Group recognises right-of-use assets at the commencement date of the lease (i.e. the date the underlying asset is available for use). Right-of-use

assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The

cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the

commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain ownership of the leased asset at the end of

the lease term, the recognised right-of-use assets are depreciated on a straight-line basis over the shorter of its estimated useful life and the lease term.

Right-of-use assets are subject to impairment.

Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the

lease term. The lease payments include fixed payments (including in-substance fixed payments) less any lease incentives receivable, variable lease

payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the

exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for terminating a lease, if the lease term

reflects the Group exercising the option to terminate. The variable lease payments that do not depend on an index or a rate are recognised as expense

in the period on which the event or condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental borrowing rate at the lease commencement date if the interest rate

implicit in the lease is not readily determinable. After the commencement date, the amount of lease liabilities is increased to reflect the accretion of

interest and reduced for the lease payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a change

in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to purchase the underlying asset.

Short-term leases and leases of low-value assets

The Group applies the short-term lease recognition exemption to its short-term leases of machinery and equipment (i.e., those leases that have a lease

term of 12 months or less from the commencement date and do not contain a purchase option). It also applies the lease of low-value assets recognition

exemption to leases that are considered of low value (i.e. below £5,000). Lease payments on short-term leases and leases of low-value assets are

recognised as expense on a straight-line basis over the lease term.

184

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Goodwill and intangible assets

What does this show?

Intangible assets have long-term value but no physical presence, such as software or customer

relationships. This note shows how the amount we include on our balance sheet for these assets has changed over the

period.


			Acquired customer
For period ended 6 January 2024	Goodwill	Computer software	relationships and	Total
			other intangibles
	£m	£m	£m	£m
Cost:
At 31 December 2022	1,131	361	43	1,535
Additions	-	26	-	26
Disposals	(5)	-	-	(5)
At 6 January 2024	1,126	387	43	1,556
Accumulated amortisation and impairment:
At 31 December 2022	387	176	38	601
Charge for the period	-	39	1	40
Disposals	(2)	-	-	(2)
At 6 January 2024	385	215	39	639
Net book value:
At 6 January 2024	741	172	4	917

The impairment charge is £nil (2022: £15m). In the comparative period it primarily related to software licenses in our Food business that we no longer

intend to use. Computer software includes £18m (2022: £15m) of intangible work in progress.


			Acquired customer
For period ended 31 December 2022	Goodwill	Computer software	relationships and	Total
			other intangibles
	£m	£m	£m	£m
Cost:
At 1 January 2022	1,245	346	43	1,634
Additions	-	15	-	15
Disposal of petrol forecourts	(107)	-	-	(107)
Disposals	(7)	-	-	(7)
At 31 December 2022	1,131	361	43	1,535
Accumulated amortisation and impairment:
At 1 January 2022	383	138	38	559
Charge for the period	-	27	-	27
Impairment	4	11	-	15
At 31 December 2022	387	176	38	601
Net book value:
At 31 December 2022	744	185	5	934

185

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Goodwill and intangible assets

continued

Goodwill

The components of goodwill are as follows:

	2023	2022
	£m	£m
Food	721	723
Other businesses	20	21
	741	744

The goodwill within other businesses principally relates to the goodwill recognised in the Funeral and Legal Services businesses.

Critical accounting estimates and judgements

Goodwill impairment - sensitivity testing

For the Food goodwill impairment review, the Food segment's future cash flow projections have been taken from the board approved four-year plan,

taken into perpetuity and discounted to present value at a pre-tax rate of 9.6% (2022: 10.1%). A long-term growth rate of 1.9% has been applied

beyond the four-year plan period FY24 - FY27 (2022: 1.9%). In each of the current and comparative years, sensitivity analysis has been performed

on this assumption, testing for a 2% increase in discount rate and a decrease in revenue growth / cashflow to minus 2%; within both these

sensitivities the cash flows remain well in excess of the current carrying value.

The Group is currently working to identify the physical risk to our business and supply chains from the changing climate, along with the potential

impact of policy, technology and market changes as we transition to a lower carbon future. This is a developing area with inherent uncertainty which

is constantly evolving. The work being undertaken will help inform our overall response to the risks and opportunities that are identified which will

then be reflected in our financial models and plans as appropriate and in line with the Group’s integrated approach to a changing climate. Further

detail is provided on pages 127 - 134 covering Task force on Climate-Related Financial Disclosures (TCFD) for further details.

For the Funerals goodwill impairment review, average selling price increases, wage and cost inflation have been applied in line with the assumptions

in the four-year plan. Although inherently uncertain this also includes our best estimate of future death rates. Cash flows have been projected based

on the four-year plan and into perpetuity from year four and discounted back to present value using a pre-tax discount rate of 11.6% (2022: 10.9%).

A long term growth rate of 1.9% has been applied beyond the four-year plan period (2022: 1.9%). Sensitivity analysis has been performed with the

discount rate increased by 2% and a decrease in revenue growth / cashflow to minus 2%, and under these sensitivities no further material amounts

of impairment are calculated.

186

Co-op Annual Report & Accounts for 2022:

Financial Statements

Notes to the financial statements

continued

Goodwill and intangible assets

continued

Accounting policies

Goodwill

Goodwill represents the difference between the cost of the acquisition and the fair value of the identifiable assets, liabilities and contingent liabilities

acquired.

Assets and liabilities accepted under a transfer of engagements are restated at fair value, including any adjustments necessary to comply with the

accounting policies of the Group.

Goodwill is stated at cost less any accumulated impairment losses. Goodwill is allocated to cash-generating units and is not amortised but is tested

annually for impairment. In respect of associates, the carrying value of goodwill is included in the carrying amount of the investment in the associate.

Where impairment is required the amount is recognised in the income statement and cannot be written back.

Negative goodwill arising on an acquisition is recognised directly in the income statement.

Acquisition costs are expensed to the income statement when incurred.

Computer software

Computer software is stated at cost less accumulated amortisation and impairment. Costs directly attributable to the development of computer software

for internal use are capitalised and classified as intangible assets where they are not an integral part of the related hardware and amortised over their

useful life up to a maximum of seven years. We have considered the impact of guidance issued in March 2021 by the IFRS Interpretations Committee,

which clarified IAS 38 guidance around what costs should and should not be capitalised specifically in relation to Software as a Service (‘SaaS’)

contracts, and concluded that our policy continues to be compliant with the standard.

Subsequent expenditure

Subsequent expenditure on capitalised intangible assets is capitalised only when it increases the future economic benefits embodied in the specific

asset to which it relates. All other expenditure is charged to the income statement as incurred.

Amortisation

Amortisation is charged to the income statement on a straight-line basis over the estimated useful lives of intangible assets. Goodwill with an indefinite

useful life is tested for impairment at each balance sheet date. Other intangible assets are amortised from the date they are available for use. The

estimated useful lives are as follows:

• Software development costs: 3 – 7 years

• Other intangible assets: 1 - 10 years

Impairment

Goodwill is reviewed for impairment at least annually by assessing the recoverable amount of each cash-generating unit (CGU), or group of cash-

generating units, to which the goodwill relates.

Food:

In the Food business, the CGUs to which goodwill has been allocated and the level at which it is monitored is deemed to be the Food segment as a

whole as goodwill arising on acquisitions reflects synergies (principally buying benefits) that benefit the whole business. Accordingly, impairment testing

for all store goodwill balances is carried out using all the food stores as the group of CGUs.

Other businesses:

The majority of goodwill within other businesses is allocated to the Funerals business.

In the Funerals business, a CGU to which goodwill has been allocated is determined as a local network of interdependent branches, known as a

Funeralcare Hub.

Where an individual branch within a local network is to be closed, the CGU attributable to that branch is redefined as being solely that individual branch

on the basis that the branch is no longer expected to contribute to the business through cash generated through its operating activities but instead

through any proceeds on disposal.

187

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Funeral plan investments

What does this show?

Our Funerals business holds some investments in relation to funeral plans. This note provides

information on these investments and how they are accounted for.


Funeral plan investments as per the balance sheet:	2023	2022
	£m	£m
Current	-	-
Non-current	1,346	1,369
Funeral plan investments	1,346	1,369


Funeral plan investments held by the Group are as follows:	2023	2022
	£m	£m
Fair value through the income statement:
Funeral plan investments (see below)	1,346	1,369
Total Funeral plan investments	1,346	1,369


Funeral plan investments:	2023	2022
	£m	£m
At start of period	1,369	1,372
Net plan investments (including ongoing instalments)	73	76
Plans redeemed	(95)	(90)
Plans cancelled	(18)	(17)
Unrealised fair value movement on funeral plan investments (Note 6)	17	28
At end of period	1,346	1,369

The funeral plan investments are financial assets which are recorded at fair value each period using valuations provided to Co-op by the policy

provider. The plan values reflect the amount the policy provider would pay out on redemption of the policy at the valuation date with the main driver

being underlying investment performance. The investment strategy is targeted to deliver appropriate returns on the plan investments over the medium

term to match expected inflationary increases in the cost to deliver a funeral. Assets include UK and overseas equities, gilts, corporate bonds,

property and cash. The majority of these investments are held in whole of life insurance policies issued by The Royal London Mutual Insurance

Society Limited. Whilst the main driver of their value is underlying investment performance, some policies also feature security of initial investment

value at death and reduced investment volatility.

See Note 27 for further detail on the accounting policy for funeral plans.

188

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Deferred taxation

What does this show?

Our tax charge is made up of current and deferred tax as explained in note 8. We show a net asset

or net liability in the balance sheet to reflect our deferred tax. This note shows how those items are calculated and how they

affect the income statement. Additional explanatory footnotes are included to explain the key items.

Deferred income taxes are calculated on all temporary differences under the liability method using an effective tax rate of 25.0% (2022: 25.0%).

Temporary differences arise because sometimes accounting and tax requirements mean that transactions are treated as happening at a different

time for accounting purposes than they are for tax purposes.


		2023	2022
Net deferred tax in the balance sheet comprises:			(*restated)
		£m	£m
Deferred tax asset - continuing operations		395	400
Deferred tax liability - continuing operations		(343)	(658)
Net deferred tax asset / (liability)		52	(258)
Comprised of:	Footnote:
Other temporary differences	(i)	(5)	(6)
Retirement benefit obligations	(ii)	(89)	(395)
Capital allowances on fixed assets	(iii)	315	314
Unrealised gains on investment properties, rolled-over gains and historic business combinations	(iv)	(145)	(138)
Tax losses	(v)	21	22
IFRS 16 adjustment	(vi)	43	47
IFRS 17 Funeral plan liabilities	(vii)	(88)	(102)
		52	(258)


		2023	2022
The movements in the net deferred tax asset / (liability) during the period are set out below:			(*restated)
		£m	£m
At beginning of the period as originally reported		(156)	(314)
Adjustment to opening reserves		(102)	11
Restated balance brought forward		(258)	(303)
Income statement charge (see Note 8)	(vii)	(28)	(23)
Additions / disposals		1	(2)
Reported in other comprehensive income:
Retirement benefit obligations (see Note 8)	(ii)	328	183
IFRS 17 Funeral plan liabilities	(viii)	9	(113)
At end of the period (continuing operations)		52	(258)

Finance Act 2021 enacted an increase in the main rate of corporation tax to 25% to take affect from 1 April 2023. As the temporary differences

which would give rise to a corporation tax charge at the point they unwind, will fall after 2023, the appropriate rate at which to charge deferred tax, is

also 25%. Due to the reduction of the pension surplus in the year, this has led to the Group's deferred tax assets being higher than the

corresponding deferred tax liabilities. Set against this is an increase in the deferred tax liability of £88m which relates to the adoption of IFRS 17

and the tax which needs to be applied to movements going through other comprehensive income and the profit and loss account. At the period

end, there is an excess of £52m of deferred tax assets over liabilities. Due to the forecasts prepared by the Group for the next 4 years, we can see

that the deferred tax asset will be steadily unwound. We therefore consider it appropriate to recognise the deferred tax asset.

189

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Deferred taxation -

continued

Footnotes:

i) This amount includes deferred tax liabilities that arose on the acquisition of Nisa Retail Limited in 2018 and the adoption of IFRS 9, also in 2018.

These are partially offset by a deferred tax asset in respect of provisions. Expenses that have not yet been incurred are able to be recorded in the

accounts as provisions. However, of these certain expenses don't receive tax relief until they have been paid for and so the related tax relief is

delayed to a future period. During 2023 the amount of expense provisions deferred for tax purposes reduced meaning a larger net liability is shown.

ii) During the period, the Group's pension scheme surplus decreased by c£1.2bn resulting in a decrease in the corresponding deferred tax liability of

£328m. This amount represents the theoretical future tax cost to the Group in respect of the current pension scheme surplus.

iii) A deferred tax asset arises on capital allowances where the tax value of assets is higher than the accounts value of the same fixed assets. The

reason the Group has a higher tax value for these fixed assets is due to the fact the Group has not made a claim to its maximum entitlement to

capital allowances since 2013 due to reduced levels of trading profits in the intervening years. However, impairment, disposals and depreciation

have continued to reduce the accounts value for our assets. The Group expects to use these allowances to reduce future trading profits.

iv) This amount represents the theoretical amount of tax that would be payable by the Group on (a) the sale of all investment properties, (b) the sale

of properties that have been restated at their fair value on historic mergers and transfers of engagements and (c) the sale of any property that has

had an historic capital gain 'rolled into' its base cost (which is an election available by statute designed to encourage businesses to reinvest proceeds

from the sale of trading properties into new trading properties and ventures). The £7m increase in the liability over the year is mainly due to disposal

of properties under class (c) above.

v) The Group has incurred trading losses and interest losses that were in excess of taxable profits in the past. These losses can be used to reduce

future trading profits and capital gains which are included in future tax forecasts for the Group. The restriction on the amount of losses that can be

used in any one year post 1 April 2017, being £5m plus 50% of any surplus taxable profits above this amount, is not expected to limit the use of

these losses other than extend the time over which they will be claimed.

The decrease in asset of £1m is in respect of amounts offset against taxable profits this year.

vi) Deferred tax that arose on the adoption of IFRS 16 in 2019 will unwind over a number of years and reduce taxable profits in those future years.

The decrease in asset of £4m is mainly in respect of the unwind during the year.

vii) This movement is made up of a net £28m current year utilisation of temporary differences, see Note 8 for more detail.

(viii) These movements relate to the adoption of IFRS 17 which required us to restate the 2022 position leading to a £102m adjustment to brought

forward reserves. Movements going through the consolidated income statement and other comprehensive income have been treated as taxable

which has led to a reduction in the deferred tax asset for the Group.

Accounting policies

Deferred tax is provided for, with no discounting, using the balance sheet liability method, providing for temporary differences between the carrying

amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences

are not provided for: the initial recognition of assets or liabilities that affect neither accounting nor taxable profits, and differences relating to

investments in subsidiaries to the extent that they will probably not reverse in the foreseeable future. The amount of deferred tax provided is based

on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted

at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available to use

the asset against. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

190

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Inventories

What does this show?

This note shows the stock we hold at the period end. This is mainly the goods we're planning to

sell, held either at Food stores or distribution centres. We also hold stocks of store consumables (such as plastic bags) as

well as work in progress relating to funeral caskets.


	2023	2022
Inventories include the following:
	£m	£m
Raw materials, consumables and work in progress	4	4
Finished goods and goods for resale	436	429
	440	433

The period end inventory provision is £27m (2022: £44m) and a net credit of £17m (2022: net charge of £15m) has been made within operating

expenses in the income statement. Inventory held at fair value less cost to sell is not material in either period. There was no inventory pledged as

security for liabilities in the current or prior period.

Accounting policies

Inventories are stated at the lower of cost, including attributable overheads, and net realisable value. Balance excludes any supplier income value

on goods not sold at year-end.

Trade and other receivables

What does this show?

This note shows amounts we are owed and amounts we have paid in advance for services which

will be received over a period of time. It also shows a reduction to reflect amounts we think may not be repaid. They are

split between current items (which will be settled within one year) and non-current items (which will be settled after more

than one year).


	2023	2022
		(restated*)
	£m	£m
Non-current	1	5
Current	594	605
	595	610


	2023	2022
		(restated*)
	£m	£m
Trade receivables	351	371
Prepayments	43	28
Accrued income	118	132
Other receivables	95	90
	607	621
Allowance for expected credit losses	(12)	(11)
	595	610

*The comparative figures have been restated following the adoption of IFRS 17 (Insurance contracts). See Note 33 for further details on the

restatement.

Trade receivables are non-interest bearing and the Group's standard payment terms are between 7 and 60 days.

Non-current debt includes £nil (2022: £4m) of deferred consideration receivable in respect of the agreement with Markerstudy Insurance Services

Ltd to provide marketing and distribution services for motor and insurance products with an additional £5m (2022: £10m) included in current. These

balances are all included within Other receivables.

Within trade receivables is £84m (2022: £60m) of supplier income that is due from Food and Wholesale suppliers. Accrued income includes £96m

(2022: £116m) in relation to supplier income that has been recognised but not yet billed. As at 2nd March 2024 (reflecting the close of Period 2 for

the Group), £77m (2022: £45m) of the trade receivables balance had been invoiced and settled and £87m (2022: £102m) of the accrued income

balance has been invoiced and settled.

191

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Trade and other receivables

- continued

The table below shows the movement in the allowance for expected credit losses for trade and other receivables:

	2023	2022
	£m	£m
Opening allowance for expected credit losses	11	10
Charge to the income statement	10	12
Credit to the income statement	(9)	(11)
Closing allowance for expected credit losses	12	11

The Group has applied the expected losses model as defined under IFRS 9 (Financial Instruments) which focuses on the risk that a trade receivable

will default rather than whether a loss has been incurred. The Group has applied a simplified approach as allowed under IFRS 9 to use a provision

matrix for calculating expected losses for trade receivables. More information on credit risk and the use of a provision matrix is provided in Note 27

which outlines our approach to financial risk management.

Accounting policies

Refer to Note 27 Financial Instruments for the accounting policies relating to trade receivables and allowances for expected credit losses.

192

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Cash and cash equivalents and short-term investments

What does this show?

The tables below show a breakdown of the cash and cash equivalent balances that the Group holds at

the balance sheet date and the accounting policies explains what is and what isn't classified as cash and cash equivalents.

	2023	2022
Cash and cash equivalents
	£m	£m
Cash in hand	53	63
Cash at banks	342	384
Cash and cash equivalents	395	447

The Group has a right of set-off across our bank accounts as part of a pooling arrangement with our principal bank. The Cash at banks figures include

amounts receivable from customers or banks for debit or credit card payment transactions made by customers of £37m (2022: £39m) in the two days

before year-end which don't clear the bank (and show on our bank statement) until the first working day of the new year.

	2023	2022
Short-term investments
	£m	£m
Cash deposits with banks (> 3 months)	200	-
Short-term investments	200	-

Accounting policies

Cash and cash equivalents;

in the consolidated balance sheet comprise cash in hand, cash in transit and cash at bank and short-term deposits with

banks with a maturity of three months or less, which are subject to an immaterial risk of changes in value. Cash and cash equivalents includes debit

and credit card payments made by customers which are receivable from banks and clear the bank within three days of the transaction date.

In the statement of consolidated cash flows, cash and cash equivalents includes bank overdrafts as they are repayable on demand and deemed to

form an integral part of the Group's cash management.

Amounts held in trustee-administered bank accounts of the Group of £26m (2022: £25m), which can only be utilised to meet liabilities in respect of

funeral plans, are classed as Funeral plan investments (see Note 14) and not Cash and cash equivalents.

Short-term investments;

these balances represent cash deposits placed with banks where the term is > 3 months. Deposits are on a fixed term basis

and mature in May 2024 in-line with the maturity of the 2024 Bonds. Balances are held at amortised cost and are included within our net debt

calculation as short term investments.

193

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Section C - what are our major liabilities?

This section of the accounts (notes 19 - 22) outlines the key liabilities that we have at the balance sheet date.

Interest-bearing loans and borrowings

What does this show?

This note provides information about the terms of our interest-bearing loans. This includes

information about their value, interest rate and repayment terms and timings. Details are also given about other

borrowings and funding arrangements such as corporate investor shares and leases. All items are split between those

that are due to be repaid within one year (current) and those which won't fall due until after more than one year (non-

current).


Non-current liabilities:	2023	2022
	£m	£m
£300m 5.125% Sustainability Bond due 2024 (amortised cost)*	-	299
£109m 11% Final repayment subordinated notes due 2025	109	109
£20m 11% Instalment repayment notes (final payment 2025)	3	5
£105m 7.5% Bond Notes due 2026 (fair value)	105	95
£245m 7.5% Bond Notes due 2026 (amortised cost)	253	255
Total (excluding lease liabilities)	470	763
Lease liabilities	1,054	1,124
Total Group interest-bearing loans and borrowings	1,524	1,887


Current liabilities:	2023	2022
	£m	£m
£300m 5.125% Sustainability Bond due 2024 (amortised cost) * / **	202	2
£20m 11% Instalment repayment notes (final payment 2025)***	2	2
£245m 7.5% Bond Notes due 2026 (amortised cost) **	9	9
Other borrowings	2	1
Corporate investor shares	3	3
Total (excluding lease liabilities)	218	17
Lease liabilities	179	182
Total Group interest-bearing loans and borrowings	397	199

* As noted in our 2022 Annual report and Accounts on the 1st March 2023 the Group repurchased £100m of the £300m 5.125% Sustainability

Bond (due May 2024) from bond holders following an over-subscribed tender exercise. The bonds were bought back at 99% of par value. The

remaining £200m principal on the Sustainability Bond matures in May 2024 and as such is classified as a current liability in the current reporting

period in the tables above.

** The amortised cost balances in current liabilities includes £11m (£9m on the 2026 bonds and £2m on the 2024 bonds) of accruals for interest

payments that will be made within 1 year of the balance sheet date. These balances are excluded from our net debt metric as defined in the

Jargon Buster on page 263.

*** Interest on the £109m (11% Final repayment subordinated notes 2025) is settled annually in December such that any interest accrual as at the

balance sheet date (6 January) is not material for disclosure in the table above. The £2m balance noted represents the repayment of capital

instalment due < 1 year.

See Note 27 for more information about the Group’s exposure to interest rate and foreign currency risk, and a breakdown of the Group's

borrowings by the three-level fair value hierarchy (which reflects different valuation techniques) as defined within IFRS 13 (Fair Value

Measurement).

194

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Interest-bearing loans and borrowings -

continued

Reconciliation of movement in net debt

Net debt is a measure that shows the amount we owe to banks and other external financial institutions less the cash that we have, any short-term

deposits and any short-term investments that we hold. Some of our bond borrowings are held as financial liabilities at fair value through the income

statement. The fair value movement on these liabilities is shown under non-cash movements in the tables below.

For period ended 6 January 2024	Start of	Non cash movements		Cash flow	End of
	period	New leases	Other		period
	£m	£m	£m	£m	£m
Interest-bearing loans and borrowings:
- current	(17)	-	(203)	2	(218)
- non-current	(763)	-	194	99	(470)
Lease liabilities
- current	(182)	(12)	(178)	193	(179)
- non-current	(1,124)	(68)	138	-	(1,054)
Total debt	(2,086)	(80)	(49)	294	(1,921)
Group cash and short term investments:
- cash	447	-	-	(52)	395
- short-term investments	-	-	-	200	200
Group net debt	(1,639)	(80)	(49)	442	(1,326)
Less: interest accrued on amortised debt	11	-	30	(30)	11
Group net debt (excluding accrued interest on amortised debt)	(1,628)	(80)	(19)	412	(1,315)

*See the Jargon Buster on page 263 for further details of the Group's net debt APM metric. The £11m of interest accruals will be paid within 1 year

(and are shown in the Current liabilities table on the previous page).

For period ended 31 December 2022	Start of	Non cash movements		Cash flow	End of
	period	New leases	Other		period
	£m	£m	£m	£m	£m
Interest-bearing loans and borrowings:
- current	(180)	-	-	163	(17)
- non-current	(796)	-	31	2	(763)
Lease liabilities
- current	(210)	(17)	(161)	206	(182)
- non-current	(1,306)	(103)	285	-	(1,124)
Total debt	(2,492)	(120)	155	371	(2,086)
Group cash:
- cash & overdrafts	56	-	-	391	447
Group net debt	(2,436)	(120)	155	762	(1,639)
Less: interest accrued on amortised debt	11	-	34	(34)	11
Group net debt (excluding accrued interest on amortised debt)	(2,425)	(120)	189	728	(1,628)

Details of the Group's bank facilities are shown in Note 27.

195

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Interest-bearing loans and borrowings -

continued

Terms and repayment schedule

The Group has two bonds in issue, firstly a £300m Sustainability Bond was issued in May 2019 with an interest rate of 5.125%. On 1st March 2023,

the Group repurchased £100m of this bond leaving £200m repayable in May 2024. The bond proceeds were fully allocated against the cost of

purchasing Fairtrade products for resale by the end of 2020. Secondly, a £350m Bond issued in May 2011, repayable in May 2026. This bond

currently has an interest rate of 7.5%.

The Group also has two subordinated debt instruments in issue: £109m 11% final repayments notes due December 2025 and £20m 11% instalment

repayment notes, with final repayment in December 2025. The value of the remaining instalments outstanding on the £20m 11% instalment

repayment notes was £5m as at 6 January 2024.

On the 20th of March 2023, the Group concluded an amendment and extension exercise on its £400m Revolving Credit Facility. The facility increased

in size to £442.5m until September 2024 when it will fall to £360m. The £360m facility will mature in March 2026. The facility was undrawn as at 6

January 2024.

Further details of the Group's remaining banking facilities are given in Note 26.

Corporate investor shares

Corporate investor shares represent borrowings the Group has with other co-operative societies. The borrowings are split into Variable Corporate

Investor Shares (VCIS) and Fixed Corporate Investor Shares (FCIS). The VCIS are repayable on demand and the FCIS are fixed term borrowings. As

at 6 January 2024, Corporate Investor Shares borrowings were £3m (2022: £3m).

Accounting policies

The Group measures its interest-bearing loans and borrowings in two main ways:

1) Fair value through the income statement. Debt is restated as its fair value each period with the fair value movement going through the income

statement. The hedged portion of the quoted Bond debt is accounted for in this way. This is because the Group has used interest rate swaps to hedge

the impact of movements in the interest rate and the movement in the fair value of the quoted debt is partially offset by the fair value movement in the

interest rate swaps (notes 6, 7 and 27). The unhedged portion of the quoted Bond debt is accounted for at amortised cost in accordance with IFRS 9.

This approach applies to those borrowings taken out prior to the adoption of IFRS 9 in 2018. Any subsequent borrowings are measured at amortised

cost as noted below.

2) Amortised cost. Borrowings are recognised initially at fair value, which equates to issue proceeds net of transaction costs incurred. Borrowings are

subsequently stated at amortised cost. Any difference between proceeds net of transaction costs and the redemption value is recognised in the

income statement over the period of the borrowings using the effective interest rate method. The effective interest rate is calculated when borrowings

are first taken out and is the rate that exactly discounts the estimated future cash payments associated with the borrowings to the value when they are

initially recognised.

For more general information on accounting policies on financial instruments, refer to Note 27.

196

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Trade and other payables

What does this show?

This note shows how much we owe, and includes amounts we owe to suppliers for goods and

services we've bought, as well as taxes we owe and other sundry liabilities.


	2023	2022
	£m	£m
Current	1,564	1,403
Non-current	18	31
	1,582	1,434


	2023	2022
	£m	£m
Trade payables	1,050	967
Value Added Tax, PAYE and social security	33	14
Accruals	360	300
Deferred income	36	53
Other payables	103	100
	1,582	1,434

Further details on the maturity profile of trade and other payables can be found in Note 26.

Deferred income includes £27m (2022: £39m) in relation to the marketing and distribution arrangement entered into with Markerstudy Insurance

Services Ltd (remaining term of 3 years and 4 months) following the sale of our Insurance underwriting business (CISGIL). Accruals includes capital

expenditure accruals of £36m (2022: £25m), payroll accruals of £142m (2022: £103m) as well as standard cost accruals of £182m (2022: £172m).

Other payables also includes £38m (2022: £32m) of rewards earned through our membership offer that have either not been redeemed by members

or have not yet been paid out to local causes. During the year £4m (2022: £1m) of member reward earned that had previously been written back has

been charged to the income statement. This follows a re-assessment of expected redemption rates.

The Group operates a supplier financing arrangement with Prime Revenue, under which suppliers can obtain accelerated settlement on invoices from

the finance providers signed up to the programme. The Group settles these amounts in accordance with each supplier's agreed payment terms. The

Group’s trade creditors balance includes £12m (2022: £40m) relating to payments due to Co-op suppliers under these arrangements. During the year

ended 6 January 2024, the maximum facility was £108m (2022: £110m).

Accounting policies

Refer to Note 27 Financial instruments for the accounting policies relating to trade payables.

197

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

What does this show?

The disclosures in this note cover the insurance and re-insurance contracts that the Group holds

(where they are material for Group reporting). These exclusively relate to the liabilities that we have on funeral plans. The

extensive disclosures that are given are required under the new accounting standard for Insurance contracts (IFRS 17). The

various tables show how the balance sheet liability has moved during the period as well as showing the movements in the

Income statement and in other comprehensive income (OCI). We also give details of the key accounting estimates that we

make in relation to the accounting for insurance contracts, how sensitive our numbers are to some of those assumptions and

estimates as well as outlining the key accounting policy choices we have made.


	Liabilities for remaining coverage			Total
Insurance contract liabilities (by nature)			Liabilities for
	Excluding loss	Loss	claims incurred
2023	component	component
	£m	£m	£m	£m
Insurance contract liability as at 1 January 2023	1,073	-	-	1,073
Insurance revenue	(86)			(86)
Insurance service expenses:
- Incurred claims and other expenses	-	-	77	77
- Amortisation of insurance acquisition cashflows	2	-	-	2
- Loss on onerous contracts and reversals of those losses	-	1	-	1
Insurance service result	(84)	1	77	(6)
Insurance finance expenses - Income statement	16	-		16
Insurance finance expense - other comprehensive income	36			36
Total changes in Statement of comprehensive income	(32)	1	77	46
Cashflows:
- Premiums received less premiums refunded	63	-	-	63
- Claims and other expenses paid (including investment components)	-	-	(77)	(77)
- Insurance acquisition flows	(7)	-	-	(7)
Total cashflows	56	-	(77)	(21)
Insurance contract liability as at 6 January 2024	1,097	1	-	1,098


				Total
	Liabilities for remaining coverage
Insurance contract liabilities (by nature)			Liabilities for
	Excluding loss	Loss	claims incurred
2022	component	component
	£m	£m	£m	£m
Insurance contract liability as at 2 January 2022	1,537	-	-	1,537
Insurance revenue	(87)	-	-	(87)
Insurance service expenses:
- Incurred claims and other expenses	-	-	79	79
- Amortisation of insurance acquisition cashflows	2	-	-	2
- Losses on onerous contracts and reversals of those losses	-	-	-	-
Insurance service result	(85)	-	79	(6)
Insurance finance expenses - Income statement	15	-	-	15
Insurance finance income - other comprehensive income	(451)	-	-	(451)
Total changes in Statement of comprehensive income	(521)	-	79	(442)
Cashflows:
- Premiums received less premiums refunded	63	-	-	63
- Claims and other expenses paid (including investment components)	-	-	(79)	(79)
- Insurance acquisition flows	(6)	-	-	(6)
Total cashflows	57	-	(79)	(22)
Insurance contract liability as at 31 December 2022	1,073	-	-	1,073

198

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

	Estimates of	Risk	Contractual	Total
Insurance contract liabilities (by component)	present value of	adjustment	service margin
2023	future cashflows
	£m	£m	£m	£m
Insurance contract liability as at 1 January 2023	896	55	122	1,073
Changes that relate to current services:
- Contractual service margin recognised for service provided	-	-	(6)	(6)
- Risk adjustment for the risk expired	-	(4)	-	(4)
- Experience adjustments	3	-	-	3
Changes that relate to future services:
- Contracts initially recognised in the period	(12)	1	11	-
- Changes in estimates that adjust the contractual service margin	21	(1)	(20)	-
- Changes in estimates that do not adjust the contractual service margin	1	-	-	1
Insurance service result	13	(4)	(15)	(6)
Insurance finance expenses - Income statement	13	1	2	16
Insurance finance expenses - other comprehensive income	33	3	-	36
Total changes in Statement of comprehensive income	59	-	(13)	46
Cashflows:
- Premiums received less premiums refunded	63	-	-	63
- Claims and other expenses paid (including investment components)	(77)	-	-	(77)
- Insurance acquisition flows	(7)	-	-	(7)
Total cashflows	(21)	-	-	(21)
Insurance contract liability as at 6 January 2024	934	55	109	1,098

	Estimates of	Risk	Contractual	Total
Insurance contract liabilities (by component)	present value of	adjustment	service margin
(2022)	future cashflows
	£m	£m	£m	£m
Insurance contract liability as at 2 January 2022	1,401	102	33	1,536
Changes that relate to current services:
- Contractual service margin recognised for service provided	-	-	(6)	(6)
- Risk adjustment for the risk expired	-	(5)	-	(5)
- Experience adjustments	6	-	-	6
Changes that relate to future services:
- Contracts initially recognised in the period	(3)	-	2	(1)
- Changes in estimates that adjust the contractual service margin	(70)	(22)	93	1
- Changes in estimates that do not adjust the contractual service margin	-	-	-	-
Insurance service result	(67)	(27)	89	(5)
Insurance finance expenses - Income statement	14	1	-	15
Insurance finance income - other comprehensive income	(430)	(21)	-	(451)
Total changes in Statement of comprehensive income	(483)	(47)	89	(441)
Cashflows:
- Premiums received less premiums refunded	63	-	-	63
- Claims and other expenses paid (including investment components)	(79)	-	-	(79)
- Insurance acquisition flows	(6)	-	-	(6)
Total cashflows	(22)	-	-	(22)
Insurance contract liability as at 31 December 2022	896	55	122	1,073

199

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

What does this show?

The disclosures on the following two pages relate to re-insurance contracts (in relation to the payment

waiver liabilities we have on low cost instalment plans (LCIPs*). The tables show how the balance sheet liability has moved during

the period as well as showing the movements in the Income statement and other comprehensive income (OCI).

	Assets for remaining coverage
			Amounts
Re-insurance contract liabilities (by nature)	Excluding loss		recoverable on	Total
	recovery	Loss recovery	insured claims
2023	component	component
	£m	£m	£m	£m
Net re-insurance contract liability as at 1 January 2023	8	-	-	8
An allocation of re-insurance premium	1	-	-	1
Amounts recoverable from re-insurers for incurred claims:
- Amounts recoverable for incurred claims and other expenses	-	-	(1)	(1)
- Loss recovery on onerous underlying contracts and adjustments	-	-	-	-
Net income from re-insurance contract held	1	-	(1)	-
Re-insurance finance income - Income statement	-	-	-	-
Re-insurance finance expense - other comprehensive income	1	-	-	1
Total changes in Statement of comprehensive income	2	-	(1)	1
Cashflows:
- Premiums paid (net of commission)	(2)	-	-	(2)
- Amounts received	-	-	1	1
Total cashflows	(2)	-	1	(1)
Net re-insurance contract liability as at 6 January 2024	8	-	-	8

*LCIPs can be paid for by instalments over between 2 and 25 years or they can be paid off in full at any time during this period without any penalties. If the

plan holder dies before the instalments have been made in full (and provided that the plan has been in place for at least 12 months or the cause of death

was as a result of an accident) then the funeral will still be provided by the Group and the customer will not have to settle the outstanding balance on any

instalments and the balance of any monies owed will be waived. Any outstanding amounts owed to the Group (the difference between the full value of the

plan and the amount paid up to death by the customer) are covered by an assured benefit from a third party insurer. The assured benefit is between the

Group and the third party insurer and has nothing to do with the customer. The Society continues to apply instalment monies received against customers'

individual funeral plans until such time as a plan is redeemed and or cancelled. The assured benefit between the Group and the 3rd party is judged to

represent an insurance contract and as such falls under the scope of IFRS 17 (Insurance Contracts).

	Liabilities for remaining coverage
	Excluding loss		Amounts
Re-insurance contract liabilities (by nature)	recovery	Loss recovery	recoverable on	Total
2022	component	component	insured claims
	£m	£m	£m	£m
Net re-insurance contract liability as at 2 January 2022	12	-	-	12
An allocation of re-insurance premium	1	-	-	1
Amounts recoverable from re-insurers for incurred claims:				-
- Amounts recoverable for incurred claims and other expenses	-	-	(1)	(1)
- Loss recovery on onerous underlying contracts and adjustments	-	-	-	-
Net income from re-insurance contract held	1	-	(1)	-
Re-insurance finance income - Income statement	-	-	-	-
Re-insurance finance income - other comprehensive income	(2)	-	-	(2)
Total changes in Statement of comprehensive income	(1)	-	(1)	(2)
Cashflows:
- Premiums paid (net of commission)	(3)	-	-	(3)
- Amounts received		-	1	1
Total cashflows	(3)	-	1	(2)
Net re-insurance contract liability as at 31 December 2022	8	-	-	8

200

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

	Estimates of	Risk	Contractual
	present value of	adjustment	service margin	Total
Re-insurance contract liabilities (by component)	future cashflows
2023	£m	£m	£m	£m
Net re-insurance contract liability as at 1 January 2023	8	-	-	8
Changes that relate to current services:
- Contractual service margin recognised for service provided	-	-	-	-
- Risk adjustment for the risk expired	-	-	-	-
- Experience adjustments	-	-	-	-
Changes that relate to future services:
- Contracts initially recognised in the period	-	-	-	-
- Changes in estimates that adjust the contractual service margin	(1)	-	1	-
- Changes in the contractual service margin due to recognition of a loss
recovery component from onerous underlying contracts			-	-
Re-insurance service result	(1)	-	1	-
Re-insurance finance income - Income statement	-	-	-	-
Re-insurance finance income - other comprehensive income	1	-	-	1
Total changes in Statement of comprehensive Income	-	-	1	1
Cashflows:
- Premiums and similar expenses paid	(2)	-	-	(2)
- Amounts received	1	-	-	1
Total cashflows	(1)	-	-	(1)
Net re-insurance contract liability: 6 January 2024	7	-	1	8

	Estimates of	Risk	Contractual
Re-insurance contract liabilities (by component)	present value of	adjustment	service margin	Total
2022	future cashflows
	£m	£m	£m	£m
Net re-insurance contract liability as at 2 January 2022	11	1	-	12
Changes that relate to current services:
- Contractual service margin recognised for service provided	-	-	-	-
- Risk adjustment for the risk expired	-	-	-	-
- Experience adjustments	-	-	-	-
Changes that relate to future services:
- Contracts initially recognised in the period	1	(1)	(1)	(1)
- Changes in estimates that adjust the contractual service margin	(1)	-	1	-
Re-insurance service result	-	(1)	-	(1)
Re-insurance finance income - Income statement	-	-	-	-
Re-insurance finance income - other comprehensive income	(2)	-	-	(2)
Total changes in Statement of comprehensive Income	(2)	(1)	-	(3)
Cashflows:
- Premiums and similar expenses paid	(2)	-	-	(2)
- Amounts received	1	-	-	1
Total cashflows	(1)	-	-	(1)
Net re-insurance contract liability: 31 December 2022	8	-	-	8

201

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

Contractual service margin	Contracts using	All other	Total
(2023)	the fair value	contracts
	approach
	£m	£m	£m
Contractual service margin as at 1 January 2023	105	17	122
Changes that relate to current services:
- Contractual service margin recognised for service provided	(5)	(1)	(6)
Changes that relate to future services:
- Contracts initially recognised in the period	-	11	11
- Changes in estimates that adjust the contractual service margin	(16)	(4)	(20)
Sub-total	(21)	6	(15)
Insurance finance expenses	1	1	2
Contractual service margin as at 6 January 2024	85	24	109

Historical plans sold prior to 2020 were fair valued at transition.

Contractual service margin	Contracts using	All other	Total
(2022)	the fair value	contracts
	approach
	£m	£m	£m
Contractual service margin as at 2 January 2022	33	-	33
Changes that relate to current services:
- Contractual service margin recognised for service provided	(5)	(1)	(6)
Changes that relate to future services:
- Contracts initially recognised in the period	-	2	2
- Changes in estimates that adjust the contractual service margin	77	16	93
Sub-total	72	17	89
Insurance finance expenses	-	-	-
Contractual service margin as at 31 December 2022	105	17	122

New business	Profitable	Onerous	Total
(2023)	contracts issued	contracts issued
	£m	£m	£m
Insurance contracts:
- Estimate of present value of future cashflows, excluding insurance acquisition costs	39	-	39
- Estimate of insurance acquisition cashflows	6	-	6
Estimate of present value of future cash outflows	45	-	45
Estimate of present value of future cash inflows	(56)	-	(56)
- Risk adjustment	1	-	1
- Contractual service margin	11	-	11
Profit on contracts at initial recognition	1	-	1

202

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

New business	Profitable	Onerous	Total
(2022)	contracts issued	contracts issued
	£m	£m	£m
Insurance contracts:
- Estimate of present value of future cashflows, excluding insurance acquisition costs	47	-	47
- Estimate of insurance acquisition cashflows	6	-	6
Estimate of present value of future cash outflows	53	-	53
Estimate of present value of future cash inflows	(55)	-	(55)
- Risk adjustment	-	-	-
- Contractual service margin	2	-	2
Loss on onerous contracts at initial recognition	-	-	-

Insurance revenue	2023	2022
	£m	£m
Amounts relating to changes in liabilities for remaining coverage:
- Contractual service margin recognised for services provided	6	6
- Change in risk adjustment for non financial risk for risk expired	4	5
- Expected incurred claims and other insurance service	73	74
- Other amounts including experience adjustments for premium receipts	-	-
- Recovery of insurance acquisition cash flows	3	2
Total insurance revenue	86	87

Insurance revenue	2023	2022
	£m	£m
Contracts using the fair value approach	74	78
All other contracts	12	9
Total insurance revenue	86	87

Historical plans sold prior to 2020 were fair valued at transition.

Contractual service margin maturity	2023	2022
	£m	£m
- Less than 1 year	6	6
- 1 to 2 years	5	6
- 2 to 3 years	5	5
- 3 to 4 years	5	5
- More than 4 years	88	100
Total	109	122

Fulfilment cashflows	2023	2022
	£m	£m
- Less than 1 year	59	65
- 1 to 2 years	61	56
- 2 to 3 years	62	56
- 3 to 4 years	62	56
- 4 to 5 years	61	55
- > 5 years	1,402	1,381
Total	1,707	1,669

The figures in the table above are undiscounted and exclude cashflows relating to re-insurance as these are not material.

203

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

Critical accounting estimates

Under IFRS 17 (Insurance Contracts) the Group's funeral plan liabilities reflect the current estimate of the present value of the future cashflows

to provide the funeral. These are calculated using actuarial advice and are based on a range of assumptions and estimates. The assumptions

used are management's best estimates chosen from a range of possible actuarial assumptions which may not necessarily be borne out in

practice.

The main actuarial assumptions include estimates in relation to discount rates, future costs to deliver a funeral including inflation and expense

assumptions, mortality rates, risk adjustments and plan cancellation rates. The insurance contract liability calculation is most sensitive to

changes in the discount rate and inflation assumptions and further detail on these items is noted below.

Discount rates

- the Group applies a bottom-up approach to derive the discount rate such that our insurance contract liabilities (funeral plans)

are calculated by discounting expected future cash flows at a risk free rate, plus an illiquidity premium (credit spread). The risk free rate has

been derived by reference to market yields on sterling-denominated high quality corporate bonds of appropriate duration consistent with the

funeral plans at that date (UK Gilt curve at the valuation date converted from continuous to annual rates). The illiquidity premium is determined

by reference to observable market rates (assessed as 20% of the average credit spread on 10-15 year A rated and 10-15 year AA rated bonds

at the valuation date (allowing for the part of the credit spread that relates to default risk and that the liabilities are not perfectly illiquid).

Inflation

- the rate of inflation is set based on the Bank of England Forward Inflation Curve at the valuation date converted from continuous to

annual. From 2022 onwards a reduction of 25 basis points has been applied to allow for high levels of demand for inflation linked gilts increasing

inflation expectations. Years 2023 to 2026 have been adjusted to reflect managements' view based on experience of funeral cost inflation.

				2021
Financial assumptions		2023	2022	(On transition)
	Year 1	3.55%	3.87%	0.83%
	Year 2	3.02%	3.69%	0.84%
	Year 3	2.99%	3.64%	0.83%
Risk free rate - UK Gilt curve	Year 4	3.10%	3.64%	0.86%
Discount rate
	Year 5	3.29%	3.67%	0.93%
	Year 10	4.76%	4.36%	1.45%
	Year 15	5.04%	4.66%	1.50%
Illiquidity premium (credit spread)		0.16%	0.24%	0.16%
	Year 1	3.22%	4.75%	5.18%
	Year 2	3.33%	3.50%	4.09%
	Year 3	3.30%	2.00%	3.81%
Bank of England curve less 25 bps plus	Year 4	3.18%	2.25%	3.71%
Inflation rate	Year 5	3.09%	3.26%	3.68%
management view	Year 10	3.25%	3.52%	3.87%
	Year 15	3.20%	3.64%	3.64%

Further details of the Group's approach to financial risk management are noted in Note 27 (Financial risk management) covering: credit risk,

interest rate risk, foreign currency risk and liquidity risk.

204

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities)

continued

Sensitivities

The following sensitivity analysis shows the impact on insurance contract liabilities and profit before tax for reasonably possible movements in the

key financial assumptions noted on the previous page with all other assumptions held constant.

The combination of assumptions will have a material effect in determining the ultimate impacts, but to demonstrate the impact due to changes in

each assumption, assumptions have been changed on an individual basis. It should be noted that movements in these assumptions are non-linear.

The discount rate sensitivity noted below covers the risk free rate plus the illiquidity premium (see discount rate derivation noted overleaf).

Change in Insurance contract liability - £m	2023	2022
Discount rate - decrease of 1.0%	126	128
Inflation rate - increase of 1.0%	130	134
Mortality stress +20%	16	12

Inflation

- the increase in inflation as modelled under the sensitivity scenario is covered by the contractual service margin in 2023 and consequently

Change in Profit before tax - £m	2023	2022
Discount rate - decrease of 1.0%	-	-
Inflation rate - increase of 1.0%	(6)	(7)
Mortality stress +20%	(1)	(1)

Discount rate

- the impact of a change in discount rate flows through other comprehensive income (OCI) rather than the Income statement and so

doesn't impact Profit before tax (PBT) in either 2023 or 2022.

Inflation

- changes to our inflation assumptions are deemed to be non-financial, as the ultimate inflationary cost risk does not relate to a financial

market indices, and to the extent that they can be covered are first charged to the contractual service margin (CSM) buffer rather than direct to the

Income statement. As the CSM would be reduced by the modelled sensitivities, the impact to PBT noted in the table above, reflects 1 year's impact

across the 20 year CSM period.

Mortality

- to the extent that they can be covered are first charged to the contractual service margin (CSM) buffer rather than direct to the Income

statement. As the CSM would be reduced by the modelled sensitivities, the impact to PBT noted in the table above, reflects 1 year's impact across

the 20 year CSM period.

205

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities) continued

Accounting Policies

Summary of material accounting policies:

In applying the new insurance standard and the requirements of IFRS 17 the Group has adopted a variety of new accounting policies in relation to

the accounting for funeral plans and the waiver insurance on instalment plans. The Group has elected to use the General Measurement Model

(GMM) under IFRS 17 to measure the liability for remaining coverage. A summary of the material accounting policies is noted below:

Initial recognition

- an insurance contract is defined as a contract under which the Group accepts significant insurance risk from another party by

agreeing to compensate that party if it is adversely affected by a specified uncertain future event. The new standard applies to all of the Group’s

funeral plans and also covers the re-insurance of the payment waiver risk on instalment plans.

Level of aggregation and onerous contracts

- the aggregation of insurance contracts determines the ‘unit of account’ to be used when applying

IFRS 17 which affects the allocation of the contractual service margin (CSM) to insurance revenue and the level at which onerous contracts are

identified. IFRS 17 specifically requires that portfolios of re-insurance contracts are separately held from portfolios of insurance contracts issued.

The aggregation requirements of IFRS 17 arrange insurance and re-insurance contract cash flows into buckets based on two stages or levels:

Portfolio level:

(1) by primary risk type and (2) whether contracts are managed together.

Group level:

(1) by time of issuance (one-year issuing period); and (2) by degree of expected profitability at initial recognition.

Application by Co-op:

Portfolio level:

The following IFRS 17 portfolios were identified for the Group's consolidated financial statements:

Pre-need funeral plans - (insurance contracts issued)

Premium waiver on underlying Instalment plans – (re-insurance contracts held)

Group level:

Time of issuance - Cohort year. IFRS 17 requires a portfolio of contracts to be divided into annual ‘cohorts’ or shorter time buckets. A

group of contracts may not include contracts issued more than one year apart. Co-op allocates cohorts by annual periods based on the financial

year of issue.

Group level:

Degree of profitability at initial recognition. IFRS 17 requires portfolios of contracts issued in a given cohort year to be assessed by

‘sets’ for the purpose of determining whether contracts are onerous or have no significant possibility of becoming onerous. The Group determines

the sets based on assessed similarities in pricing and margin and expected sensitivity to future changes in financial and non-financial assumptions

over the coverage period. Losses on onerous contracts are taken to the Income statement as incurred.

Fulfilment Cashflows:

IFRS 17 requires insurance liabilities to be measured at a current fulfilment value. Fulfilment cashflows cover:

(A)

best estimates of future cashflows;

(B)

an adjustment for the time value of money (i.e. discounting) and financial risks associated with the future cash flows; and

(C)

a risk adjustment for non-financial risk.

(A) Best estimate of future cashflows - IFRS 17 requires an explicit, unbiased and probability weighted estimate (i.e. expected value) of the present

value of

the future cash outflows less the present value of the future cash inflows that will arise as the entity

fulfils insurance contracts, including a

risk adjustment for non-financial risk.

For the Group these cashflows mainly comprise; premiums received from customers for pre-paid plans and LCIPs, premiums paid or repayable to re-

insurers, internal and external direct fulfilment costs of delivering funerals on behalf of the policy holder, amounts recoverable from re-insurers and

insurance acquisition cash flows attributable to the portfolio of contracts.

(B) An adjustment for the time value of money (i.e. discounting) and financial risks associated with the future cash flows; - a key component of IFRS

17 is the need to reflect the time value of money when estimating insurance cash flows, and the financial risks related to those cash flows. The

Group applies a bottom-up approach to derive the discount rate based on a risk free rate plus an illiquidity premium. Risk free rates are determined

by reference to the yields of highly liquid AAA-rated sovereign securities (UK Gilts). The illiquidity premium is determined by reference to observable

market rates. The discount rate used to determine the finance costs relating to funeral plans, uses the discount rate at initial recognition of the

funeral plan cohort.

(C)

A risk adjustment (RA) for non-financial risk - this reflects the compensation Co-op requires for bearing the uncertainty about the amount and

timing of the cash flows that arise from non-financial risk as the Group fulfils insurance contracts. The risk adjustment reflects an amount that Co-op

would rationally pay to remove the uncertainty that future cash flows will exceed the expected value amount. IFRS 17 does not prescribe any

methodologies for calculating the RA but instead outlines principles that the technique used to quantify the RA will need to adhere to. The RA is

important because it is a component of the fulfilment cash flows and therefore impacts the profitability classification of funeral plans. The release of

the RA over time is a key component of revenue, along with the contractual service margin. Co-op estimate the RA using a confidence level

(probability of sufficiency) approach at 70%.

206

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities) continued

Accounting Policies -

continued

Insurance acquisition cashflows

- IFRS 17 requires expenses that are “directly attributable” to issuing and fulfilling insurance contracts to be included

in the measurement of insurance contracts. This includes insurance acquisition cash flows, which are defined as cash flows arising from the costs of

selling, underwriting, and starting a group of insurance contracts (issued or expected to be issued) that are directly attributable to the portfolio of

insurance contracts to which the group belongs. The classification and reporting of expenses under IFRS 17 involves the following 3 steps:

1) Classification of all expenses into one of the following categories:

Directly attributable acquisition (direct costs of acquiring new funeral plans such as internal salaries or external commission paid);

Directly attributable maintenance (direct costs of servicing already acquired funeral plans such as costs of handling claims or policy changes);

Non-directly attributable expenses.

2) Allocation of directly attributable expenses into IFRS 17 Portfolios and then to current and future cohort groups of contracts.

3) Amortisation of each group of directly attributable acquisition costs in a manner consistent with the revenue earning pattern of the related contracts in

the group. Directly attributable maintenance and non-directly attributable expenses are fully expensed when incurred.

When estimating fulfilment cash flows, the Group allocates fixed and variable overheads directly attributable to the fulfilment of insurance contracts. This

requires management judgement and is undertaken in-line with our normal internal processes for allocating central overheads to cost centres. We also

make an assessment as to the amount of maintenance costs such as claims handling, policy administration and associated overheads.

Contractual Service Margin (CSM) and Coverage units

- the CSM for a group of insurance contracts at the end of each reporting period represents

the unearned profit relating to future service to be provided under the contracts in the group and is calculated using a roll-forward approach. The five

items that are included in the CSM roll forward are:

the effect of new contracts added to the group;

interest accretion on the carrying amount of the CSM;

the change in fulfilment cash flows relating to future service (limited by the amount of CSM);

the effect of any currency exchange differences on the CSM; and

the amounts recognized as insurance revenue because of the transfer of services in the period (“amortization of CSM”).

The concept of "coverage units" was introduced in IFRS 17 as a means of reflecting the pattern of services provided under a group of contracts and

recognizing revenue from CSM (effectively "amortization" of CSM) according to that pattern. The number of coverage units in a group is based on the

quantity of service provided by the contracts in the group. For each group of contracts, we are required to consider the quantity of service and its

expected coverage period.

Co-op have determined that it is appropriate to measure coverage units based on the maximum expected funeral benefit per period of all the contracts in

the IFRS 17 group. The maximum expected pay-out represents the total funeral benefit per period of all contracts expected to be in force in the group for

that period. For portfolios of Premium waiver reinsurance contracts, the coverage units will be based on the maximum expected recoverable per period.

Experience adjustments:

Experience variances represents the expected expenses, claims and amortisation of acquisition cash flows which are reported as part of the insurance

service revenue. This is offset with the actual expenses and claims incurred in the period and recovery of acquisition cash flows.

Low Cost Investment Plans (LCIPs):

'LCIPs can be paid for by instalments over between 2 and 25 years or they can be paid off in full at any time during this period without any penalties. If

the plan holder dies before the instalments have been made in full (and provided that the plan has been in place for at least 12 months or the cause of

death was as a result of an accident) then the funeral will still be provided by the Group and the customer will not have to settle the outstanding balance

on any instalments and the balance of any monies owed will be waived. Any outstanding amounts owed to the Group (the difference between the full

value of the plan and the amount paid up to death by the customer) are covered by an assured benefit from a third party insurer. The assured benefit is

between the Group and the third party insurer and has nothing to do with the customer. The Society continues to apply instalment monies received

against customers' individual funeral plans until such time as a plan is redeemed and or cancelled.

The assured benefit between the Group and the 3rd party is judged to represent an insurance contract and as such falls under the scope of IFRS 17

(Insurance Contracts).

207

Co-op Interim Report 2023:

Financial Statements

Notes to the financial statements

continued

Insurance and re-insurance contracts (funeral plan liabilities) continued

Accounting Policies -

continued

Presentation and Disclosures:

The Group has elected to apply certain disclosure policies as permitted under IFRS 17:

1) The change in the risk adjustment (RA) for non-financial risk is disaggregated between insurance service result and insurance finance expense

in the Income statement;

2) Income and expenses from a group of reinsurance contracts is presented as a single amount;

3) The Group has elected to disaggregate that element of finance income / expense that arise due to changes in the discount rate and record the

impact of those changes in other comprehensive income (OCI) rather than in the Income statement. The large gain recorded in OCI in 2022

primarily arises due to movements in the discount rate in 2022. The discount rate used to determine the finance costs relating to funeral plans,

uses the discount rate at initial recognition of the funeral plan cohort.

4) Changes to our inflation assumptions are deemed to be non-financial, as the ultimate inflationary cost risk does not relate to a financial market

indices, and to the extent that they can be covered are first charged to the CSM buffer rather than direct to the Income statement.

The table below summarises where the financial impact of a change in the assumptions used in the actuarial calculations would be reflected in our

financial statements:

Assumption	Financial Statement Impact
Discount rate	Consolidated statement of comprehensive (loss) / income
Fulfilment costs	Consolidated income statement
Inflation rate	Consolidated income statement
Risk adjustment	Consolidated income statement
Maintenance costs	Consolidated income statement
Mortality rates	Consolidated income statement
Cancellation rates	Consolidated income statement

Presentation and Disclosures:

208

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Provisions

What does this show?

We recognise a provision when a liability has been incurred but there is some uncertainty about when

the liability will be settled or how much it may cost us. This note provides an analysis of our provisions by type, and shows how

the value of each provision has changed during the period.


	2023	2022
	£m	£m
Non-current	55	59
Current	55	34
	110	93


	Uninsured	Property Restructuring &		Regulatory &	Total
2023	claims	provisions	integration	Legal
	£m	£m	£m	£m	£m
At beginning of the period	38	41	-	14	93
Credit to income statement	(1)	(6)	-	(1)	(8)
Charge to income statement	18	4	-	33	55
Payments	(17)	(10)	-	(3)	(30)
At end of the period	38	29	-	43	110


	Uninsured	Property Restructuring &		Regulatory &	Total
2022	claims	provisions	integration	Legal
	£m	£m	£m	£m	£m
At beginning of the period	37	72	3	14	126
Credit to income statement	(1)	(37)	(3)	(1)	(42)
Charge to income statement	19	8	-	3	30
Payments	(17)	(2)	-	(2)	(21)
At end of the period	38	41	-	14	93

Critical accounting estimates and judgements

Uninsured claims

This provision relates to potential liabilities arising from past events which are not covered by insurance. It includes a wide variety of known claims and

potential claims from accidents in our depots and stores. The provision includes an assessment, based on historical experience, of claims incurred but

not reported at the period end. The claims are expected to be settled substantially over the next three years.

Property provisions

Property provisions are held for onerous contractual obligations for leasehold properties that are vacant or not planned to be used for ongoing

operations. The provisions represent the least net cost of exiting from the contracts. Provisions include an assessment of dilapidation and return of

lease obligations, and other service costs that are explicitly excluded from the measurement of lease liabilities in accordance with IFRS 16. The Group

considers that where it has entitlement to possession of a property, even if vacant, it retains a statutory obligation to pay the related business rates that

have been determined to be levies as defined in IFRIC 21. Accordingly, the estimate of the least net costs of exiting from the contracts excludes future

business rates which instead under IFRIC 21 are recognised when the event that triggers the payment of the levy arises (as a periodic cost). Property

provisions are expected to be utilised over the remaining periods of the leases which range from 1 to 97 years. In each of the current and comparative

years, sensitivity analysis has been performed in relation to the provision, testing for a 2% increase in inflation related to costs expected to be incurred;

this sensitivity does not lead to a material additional provision being calculated. The sensitivity analysis performed considers reasonably possible

changes in the inflation assumption.

Regulatory & Legal

These provisions relate to costs from a number of past events that are expected to be incurred within the next one to five years. Typically, these cover

potential or on-going legal or regulatory claims and represent management's best estimate of expected future cashflows. The likely outcome in any legal

or regulatory claim may be uncertain and difficult to predict based on the evidence and circumstances involved. This means there is considerable

inherent uncertainty with any assessment as to whether a provision exists at the balance sheet date. It also means that it is not always possible to give

a reliable estimate of any contingent liabilities from such claims. No separate disclosure is made of the detail of such claims, the assumptions used to

calculate the amount provided or the uncertainties relating to the range of possible outcomes considered, because in management's view, to do so

could seriously prejudice our position.

Accounting policies

A provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of a past event, and it is probable that

an outflow of economic benefits will be required to settle the obligation. If the effect is material, provisions are determined by discounting the expected

future cash flows at a discount rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the

liability.

209

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Section D - other notes to the accounts

This section of the accounts (notes 23 - 33) contains additional notes to the accounts.

Members' share capital and reserves

What does this show?

This note shows the amounts our members have paid to become member-owners of the business and

provides information on their rights as shareholders. It also shows our reserves which, together with our share capital, form the

total capital resources of the business.


	2023	2022
		(*restated)
	£m	£m
Individual shares of £1 each	67	66
Corporate shares of £5 each	9	9
Share capital	76	75
Other reserves	9	6
Retained earnings	1,935	2,942
Total Retained earnings and Other reserves	1,944	2,948
Total Capital resources	2,020	3,023

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Members’ share capital (Issued and paid-up value)

Members’ share capital is made up of corporate and individual shares. The rights attached to shares are set out in the Society’s rules. Shares held by

Independent Society Members (corporate shares) are not withdrawable and are transferable only between Independent Society Members with the

consent of the Society’s Board. Shares held by individual members (individual shares) are withdrawable on such period of notice as the Society’s Board

may from time to time specify. IFRIC 2 (Members' Shares in Co-operative Entities and Similar Instruments) determines the features that allow shares to

be classified as equity capital. As the Board has an unconditional right to refuse redemption of both classes of shares, both corporate and individual

shares are treated as equity shares.

Both classes of share maintain a fixed nominal value with corporate shares attracting a limited rate of interest. Under the Society's current rules, voting

for Independent Society Members is in proportion to trade with the Society, with Independent Society Members totalling 21.9% (2022: 21.9%) of the vote

at the Annual General Meeting. Each individual member has one vote with individual members totalling 78.1% (2022: 78.1%) of the vote at the Annual

General Meeting.

For individual shares, new members are required to contribute a minimum of £1 when they join the Society. Each member has 1 individual share

although contributions of up to £100,000 per member are allowed. No interest is earned on member capital. Members can withdraw money from their

share account upon request (to a minimum of £1) or they can withdraw their £1 when they leave the Society. Share capital increased by £1.0m in the

period being the net of new member contributions of £1.1m and withdrawals of £0.1m. We have 5.0m (2022: 4.4m) active members (see also Note 31

Membership and community reward).

210

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Members' share capital and reserves -

continued

	Revaluation	Total
Other reserves (2023)	Reserve
	£m	£m
Balance at 31 December 2022	6	6
Balance at 6 January 2024	9	9

Revaluation reserve - property, plant and equipment

This reserve relates to the surplus created following the revaluation of certain assets in previous periods. Any surplus relating to a revalued asset

is transferred to retained earnings at the point the asset is disposed of.

Distribution of reserves in the event of a winding-up

The Society’s rules state that any surplus in the event of a winding-up shall be transferred to one or more societies registered under the Co-

operative and Communities Benefit Act 2014. Such societies must be a member of Co-operatives UK Limited and have the same or similar rule

provisions in relation to surplus distribution on a dissolution or winding-up as we have. If not transferred to another society in this way, the surplus

shall be paid or transferred to Co-operatives UK Limited to be used and applied in accordance with co-operative principles.

Capital management

The Group defines capital as its share capital and reserves. The Group's policy is to maintain a strong base and to be more prudent than industry

'normal' levels as it is not able to raise equity externally. The Group still recognises the need to maintain a balance between the potential higher

returns that might be achieved with greater borrowing levels and the advantages and security coming from a sound capital position.

The Group manages capital to make sure we have the right balance between investing in the future growth of the Group and making member and

community payments. Following the launch of the membership offer in 2016, the Group has made payments to members and communities of

£45m in 2023 (2022: £38m). See Note 31 for more details. It has also invested in future growth through cash capital expenditure additions of

£205m (2022: £147m) and still kept within its net debt limits. Total member funds decreased during the period by £1,003m (2022: increased £117m

(restated for IFRS 17)). The decrease in the year primarily relates to the accounting impact of the buy-in transaction undertaken by the pension

Trustee with Rothesay Life Plc, a specialist UK Insurer, to insure scheme benefits through a bulk annuity insurance policy helping to insure the

Group against the primary investment and longevity risks it is exposed to (see Note 25 Pensions for further details).

211

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Investment properties

What does this show?

We own properties that we don't occupy or trade from and which we rent out to generate income or

hold for capital growth. These properties are revalued at each period end and this note shows how that valuation has changed

during the year as well as showing other changes in our investment property holdings.


	2023	2022
	£m	£m
Valuation at beginning of period	40	55
Disposals	(12)	-
Transfer from Property, plant and equipment (Note 11)	5	-
Revaluation gain recognised in the Consolidated income statement	4	(15)
Revaluation gain recognised in the Consolidated statement of other comprehensive Income*	3	-
Valuation at end of period	40	40

* Following a re-assessment of how we have previously categorised certain properties, we reclassified £5m of assets from Property, plant and

equipment to Investment properties during the year. Prior to the transfer a £3m uplift to fair value was recorded through the Consolidated statement of

comprehensive income.

Accounting policies

Properties held for long-term rental yields that are not occupied by the Group or properties held for capital growth are classified as investment

properties. Investment properties are freehold land and buildings and right-of-use assets. These are carried at fair value which is determined by either

independent valuers or internally each year on a three-year cyclical basis in accordance with the RICS Appraisal and Valuation Manual. Fair value is

based on current prices in an active market for similar properties in the same location and condition. Any gain or loss arising from a change in fair

value is recognised in the income statement.

If we start to occupy or trade from one of our investment properties, it is reclassified as property, plant and equipment, and its fair value at the date of

reclassification becomes its cost for subsequent accounting purposes. Other disclosures required by IAS 40 (Investment Properties) are not

considered to be material.

212

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Pensions

What does this show?

This note provides information about our pension schemes. It explains the types of pension scheme

we have, the assets and liabilities they hold, the assumptions used in valuing the pension schemes and the key risks faced in

connection with the schemes.


	2023	2022
	£m	£m
Pension schemes in surplus	359	1,584
Pension schemes in deficit	(3)	(3)
Closing net retirement benefit surplus	356	1,581

Defined benefit (DB) plans

The Group operates three funded DB pension schemes all of which are closed to future accrual. This means that colleagues can no longer join or earn

future benefits from these schemes. The assets of these schemes are held in separate trustee-administered funds to meet future benefit payments.

The Group's largest pension scheme is the Co-operative Group Pension Scheme (‘Pace’) which accounts for approximately 81% of the Group's

pension assets. The DB section of Pace ('Pace Complete') closed to future service accrual on 28 October 2015. As of November 2023, the vast

majority of PACE's liabilities are covered by insurance policies. Further information is provided below.

Defined contribution (DC) plans

Since the closure of the DB schemes, the Group provides all colleagues with DC pension benefits through the DC section of Pace. Colleagues are

able to select the level of contributions that they wish to pay. The contribution paid by the Group varies between 1% and 10% of pensionable salary

depending on the contribution tier that the scheme member has selected. Contributions are based on the scheme member’s basic pay plus any

earnings in respect of overtime, commission and shift allowance.

The Pace DC section provides benefits based on the value of the individual colleague’s fund built up through contributions and investment returns.

The Group has no legal or constructive obligation to pay contributions beyond those set out above. There is therefore no balance sheet items for DC

pension benefits except for any accrued contributions.

Balance sheet position for DB plans

The table below summarises the net surplus in the balance sheet by scheme. The main feature over the year has been an insurance "buy-in"

transaction in Pace and further details are set out separately below. This has resulted in a reduced balance sheet surplus, but the vast majority of

Pace's liabilities are now covered by insurance policies.

Events arising during the year - Pace Insurance "Buy-in"

In November 2023, the Pace Trustee completed a “buy-in” transaction with Rothesay Life Plc, a specialist UK insurer, to insure scheme benefits

through a bulk annuity insurance policy. Through this transaction, and in conjunction with pre-existing partial “buy-ins” with Aviva (completed in

January 2020 and May 2020), and Pension Insurance Corporation (PIC, completed in February 2020), this means that the Group Section of Pace, and

by extension the Group as Principal Employer, is insured against the primary investment and longevity risks it is exposed to. As a result of these four

separate insurance transactions, the Pace scheme will receive regular payments from Rothesay, Aviva and PIC to fund all future pension payments.

The methodology used to value the latest transaction with Rothesay will result in an accounting decrease in the value of the surplus in the Pace

scheme. However, as the insurance contracts are assets of the Pace scheme, and the Pace scheme has retained all responsibility to meet future

pension payments to pensioners, this will not be recognised as a settlement and consequently the decrease in value will be recognised through other

comprehensive income (OCI) in the year to 6 January 2024. The salary increase link that remains, as applied to pre 2006 benefits since April 2022, is

excluded from the Insurance transactions, as are some costs related to GMP equalisation. This ongoing exposure means that the buy-ins don’t cover

all the Pace liabilities, but the Group’s remaining exposure is very small and, at the year-end, there is a surplus remaining in Pace of £283m. The size

of the ongoing liability exposure from the salary link and the uninsured GMP equalisation costs is small relative to this surplus.


	Net	Net
	2023	2022
	£m	£m
Schemes in surplus
The Co-operative Group Pension Scheme (Pace)	283	1,524
Somerfield Pension Scheme	68	32
United Norwest Co-operatives Employees' Pension Fund	8	28
Total schemes in surplus	359	1,584
Schemes in deficit
Other unfunded obligations	(3)	(3)
Total schemes in deficit	(3)	(3)
Total schemes	356	1,581

213

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Pensions

continued

Non-Pace schemes

The United and Somerfield schemes use segregated liability driven investment (LDI) mandates which hold government and corporate bonds, along

with derivatives. These investments increase (decrease) in value when yields on government bonds fall (rise), and are designed to have similar

interest rate and inflation sensitivities to the schemes’ liabilities so that the funding position is protected against movements in interest rate and

inflation expectations. The schemes’ liabilities are in aggregate broadly fully hedged against movements in yields on government bonds. Against a

backdrop of market uncertainty, AA corporate bonds, used to discount the liabilities remained relatively stable over the year, whilst inflation

expectations fell.

Recognition of accounting surplus

Any net pension asset disclosed represents the maximum economic benefit available to the Group in respect of its pension obligations. The Group

has carried out a review of the provisions for the recovery of surplus in its pension schemes. This review concluded that the Group can recoup the

benefits of the surplus via a right to refunds and this is reflected in the balance sheet position.

Pace - nature of scheme

As Pace represents around 81% of the Group's pension assets, further information has been included on Pace below. Benefits accrued in Pace

between 6 April 2006 and 28 October 2015 are calculated based on an individual’s average career salary. Benefits accrued prior to 6 April 2006 are

linked to final salary until scheme members end their pensionable service. The Somerfield and United schemes are exposed to additional risks from

Pace, predominantly investment, inflation and longevity. More detail is set out below.

Pace - multi-employer provisions following sectionalisation

Pace is a multi-employer scheme but following sectionalisation of the scheme in 2018, the Group accounts only for the Co-op section of Pace.

CFSMS, a subsidiary of the Group, participates in the Group's section with a material share of accrued DB obligations. There are other participating

employers in the Group section which include Group subsidiaries, non-associated and associated entities, but these do not have a material share.

Non-associated entities account for pension contributions in respect of the scheme on a DC basis.

The Groups ‘last man standing’ obligation to the Co-operative Bank section ("Bank") was removed in 2023. That is the obligation on the Group to

support the pension liabilities of the Bank section, if the Bank were to not meet its own section's pension liabilities, was removed completely.

Legislative framework for DB schemes - pension scheme governance

As required by UK legislation, the Group's three DB schemes are run by Trustee boards which operate independently from the Group. The Trustees

are responsible for the development and implementation of appropriate policies for the investment of the scheme assets and for negotiating scheme

funding with the Group. The Trustees consult with the Group in developing investment strategy and delegates the responsibility for implementing

and monitoring the strategy to Investment Committees.

Each Trustee board has at least one professional Trustee and there is also a requirement for the boards to have some member representation. The

Pace Trustee Board is made up of three professional independent Trustee Directors appointed by the Group and a further professional Independent

Trustee Director appointed by the Bank. Other Trustee Boards are made up of professional independent Trustee Directors, Group appointed

Trustee Directors and Member Nominated Directors elected by scheme members. The Chair is appointed by the Trustee Directors.

Legislative framework for DB schemes - scheme funding regime

Under the scheme specific funding regime established by the Pensions Act 2004, trustees of DB pension schemes have to undertake a full actuarial

valuation at least every three years. The purpose of the valuation is to determine if the scheme has sufficient assets to pay the benefits when these

fall due. The valuation targets full funding (scheme assets equal to the value of pension liabilities) against a basis that prudently reflects the

scheme’s risk exposure. The basis on which DB pension liabilities are valued for funding purposes differs to the basis required under IAS19. The

Group may therefore be required to pay contributions to eliminate a funding shortfall even when a surplus is reported in the IAS19 disclosure.

Any shortfall in the assets directly held by the Group’s DB schemes, relative to their funding target, is financed over a period that ensures the

contributions are reasonably affordable to the Group.

Deficit contributions over the 2023 financial year totalled £15m (2022: £17m). Deficit contributions to all schemes have now ceased due to the fact

that recent actuarial funding valuations showed all the schemes were in surplus at the relevant valuation date. All scheme funding valuations target

a more prudent level of funding than the target stipulated under IAS19 which is included in these financial statements. Therefore the funding levels

are not comparable and it is possible to have a surplus under IAS19 and yet still be required to pay deficit contributions. We also cannot use a

surplus in one scheme to offset the requirement to pay cash contributions to fund a deficit in another scheme under a different trust. The

contribution risk has also fallen following the buy-in transaction.

214

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Pensions

continued

Legislative framework for DB schemes - scheme funding regime

continued

The average duration of the liabilities at 6 Jan 2024 on an IAS19 basis is approximately 14 years. The benefits expected to be paid from the schemes

take the form of a cash lump sum paid at retirement followed by a stream of pension payments.

The effective date of the last full valuations of the schemes are shown below:
The Co-operative Pension Scheme (‘Pace’)	5 April 2022
Somerfield Pension Scheme (‘Somerfield Scheme’)	31 March 2022
United Norwest Co-operatives Employees’ Pension Fund (‘United Fund’)	31 January 2023

On 16 June 2023 the High Court issued a ruling in respect of Virgin Media v NTL Pension Trustees II Limited. Whilst this case could have application

to other schemes, based on our current understanding the decision reached was based on specific assumptions and related to an amendment which

was worsening benefits and so it is unclear as to its wider application and there is a Court of Appeal hearing due in the Summer of 2024 which may

clarify this. Our pension scheme Trustee Boards & the Co-op have always had in place comprehensive procedures and practices to ensure full

compliance with all legal and regulatory requirements, including taking appropriate external advice whenever any changes have been made. We have

no reason to consider that this case will have a material impact on defined benefit values or the financial statements of the Group. Future

developments will be kept under review.

Risks associated with DB pension schemes

The liability associated with the pension schemes is material to the Group. Following the buy-in transaction the cash funding risk is now considered to

be relatively low. The Group and Trustees work together to address the associated pension risk - in particular, steps have been taken to materially

reduce the investment risk in the schemes. The Group has removed its exposure to these risk in the Pace Scheme via the four separate insurance buy-

in contracts.

The key risks in relation to the DB schemes are set out below, alongside a summary of the steps taken to mitigate the risk:

Risk description	Mitigation
Risk of changes in contribution requirements - When	The closure of the DB schemes has reduced the exposure of the Group to changes in
setting the contributions that are paid to a scheme, the	future contributions, as did the subsequent Pace Insurance buy-in contracts. In addition,
Group and Trustee are required to consider the funding level	the Group and Trustee have taken steps to reduce the volatility of the funding level (as
at a specified valuation date. The funding level at future	set out below). The Group monitors the funding level of the schemes in order to
valuation dates is uncertain and this leads to uncertainty in	understand the likely outcome of valuations and the Trustee is required to obtain
future cash requirements for the Group.	agreement from the Group to funding assumptions and deficit recovery contributions.
Interest rate risk - Pension liabilities are measured with	Through its insurance buy-in contracts Pace has minimal further exposure. The
reference to yields on bonds, with lower yields increasing the	Somerfield and United schemes invest in liability-driven investment (LDI) products which
liabilities. The schemes are therefore exposed to the risk of	increase (decrease) in value when yields on government bonds fall (rise), providing
falls in interest rates.	protection against interest rate risk. Across all schemes, approximately 98% of the
	liability is currently protected from movements in yields on government bonds. LDI
	involves investing in assets which are expected to generate cashflows that broadly
	mirror expected benefit payments from the scheme.
Risk associated with volatility in asset value - The market Through its insurance buy-in contracts Pace has minimal further exposure. For the
value of the assets held by the pension schemes, particularly Somerfield and United schemes this risk has been mitigated by reducing the exposure of
the assets held in return-seeking assets such as equity, can	the pension schemes to those asset classes which have the most volatile market values.
be volatile (and, for example, may be affected by	In particular, the schemes have limited allocation to return-seeking assets such as
environmental, social or corporate governance (“ESG”)	equity. In addition, the Trustees of the Co-op’s pension schemes have responsible
failures at investee companies and/or sovereign states -	investment policies in place, and aligned with those policies exclude specific
including the physical and transition risks of climate change). investments (where appropriate and viable). Management of ESG risks is considered
This creates a risk of short-term fluctuations in funding level.	when appointing investment managers and in their ongoing monitoring, and the
	schemes’ equity assets are explicitly managed with a consideration of such risks,
	including climate change.
Inflation risk - Many of the benefits paid by the schemes are Through its insurance buy-in contracts Pace has minimal further exposure. The
linked to inflation. Therefore, the pension liabilities reflect	Somerfield and United schemes invest in liability driven investment products which
expectations of future inflation with higher inflation leading to	increase (decrease) in value when expectations of future inflation rates increase (fall),
higher liabilities.	thus providing protection against inflation risk. Across all schemes, approximately 97%
	of the liability is currently protected from movements in inflation.
Risk associated with changes in life expectancy -	Through its insurance buy-in contracts Pace no longer has no further exposure here.
Pensions paid by the schemes are guaranteed for life, and	The Somerfield and United schemes' funding targets incorporate a margin for prudence
therefore if members are expected to live longer, the	to reflect uncertainty in future life expectancy.

liabilities increase.

215

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Pensions

continued

Critical accounting estimates

For IAS 19 disclosure purposes, DB obligations are determined following actuarial advice and are calculated using the projected unit method. The

assumptions used are the best estimates chosen from a range of possible actuarial assumptions which may not necessarily be borne out in practice.

For the insurance buy-ins under Pace, we apply the assumptions to derive the liability and then set the asset value to match this liability, with separate

calculations to derive the salary link and GMP equalisation liabilities.

Financial assumptions	2023	2022
Discount rate	4.76%	4.76%
RPI inflation rate	3.32%	3.50%
Pension increases in payment (RPI capped at 5% p.a.)	3.12%	3.25%
Future salary increases	3.57%	3.75%

The discount rate has been derived by reference to market yields on sterling-denominated high quality corporate bonds of appropriate duration

consistent with the schemes at that date.

Demographic assumptions

The Group has used best estimate base mortality tables which reflect the membership of each scheme. Allowance has been made for future

improvements in line with the Continuous Mortality Investigation (CMI) 2022 projections and a long-term future improvement rate of 1.25% p.a. (2022:

CMI 1.25% p.a.).

For illustration, the average life expectancy (in years) for mortality tables used to determine scheme liabilities for Pace is as follows. These are broadly

similar to the life expectancies used for other schemes.

Life expectancy from age 65	2023	2022
Male currently aged 65 years	20.7	21.1
Female currently aged 65 years	22.5	23.1
Male currently aged 45 years	21.8	22.2
Female currently aged 45 years	23.8	24.2

Sensitivities

The measurement of the Group’s DB liability is particularly sensitive to changes in certain key assumptions, which are described below. The methods

used to carry out the sensitivity analysis presented below for the material assumptions are the same as those the Group has used previously. The

calculations alter the relevant assumption by the amount specified, whilst assuming that all other variables remained the same. This approach is not

necessarily realistic, since some assumptions are related: for example, if the scenario is to show the effect if inflation is higher than expected, it might

be reasonable to expect that nominal yields on corporate bonds will also increase. However, it enables the reader to isolate one effect from another. It

should also be noted that because of the interest rate and inflation hedges, changes in the liability arising from a change in the discount rate or price

inflation would be expected to be largely mitigated by a change in assets. It’s impossible to predict future discount rates or inflation with any real

certainty and so the sensitivities shown are for illustration purposes only and in reality more material movements could be experienced.

Sensitivities	2023	2022
Sensitivities	£m	£m
Change in liability from a 0.5% decrease in discount rate	428	474
Change in liability from a 0.5% increase in RPI inflation	264	329
Change in liability from a 0.25% increase in long-term rate of longevity improvements	42	44

Changes in the present value of the defined benefit obligation (DBO)	2023	2022
	£m	£m
Opening defined benefit obligation	5,543	9,194
Interest expense on DBO	261	171
Remeasurements:
a. Effect of changes in demographic assumptions	(95)	(51)
b. Effect of changes in financial assumptions	(51)	(3,870)
c. Effect of experience adjustments	491	450
Benefit payments from plan	(292)	(351)
Closing defined benefit obligation	5,857	5,543

216

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Pensions

continued

Changes in the fair value of the plan assets	2023	2022
	£m	£m
Opening fair value of plan assets	7,124	11,452
Interest income	338	214
Return on plan assets (excluding interest income)	(966)	(4,203)
Administrative expenses paid from plan assets	(6)	(6)
Employer contributions	15	18
Benefit payments from plan	(292)	(351)
Closing fair value of plan assets	6,213	7,124

The fair value of the plan assets at the period end were as follows.

The assets have been split to show those which have a quoted market price in an

active market and those which are unquoted.

Fair value of plan assets	2023	2023	2023	2022	2022	2022
	Quoted	Unquoted	Total	Quoted	Unquoted	Total
	£m	£m	£m	£m	£m	£m
Equity instruments	40	-	40	35	-	35
Liability driven investments	434	-	434	2,418	-	2,418
Investment grade credit	329	-	329	1,735	-	1,735
Illiquid / other credit	-	95	95	-	944	944
Alternative investments*	-	-	-	-	360	360
Cash and cash equivalents	310	-	310	53	3	56
Insurance buy-in contracts	-	5,005	5,005	-	1,576	1,576
Fair value of plan assets	1,113	5,100	6,213	4,241	2,883	7,124

*In the prior year; the alternative investments consisted of private equity, private debt and inflation-linked property.

Amounts recognised in the balance sheet	2023	2022
	£m	£m
Present value of funded obligations	(5,854)	(5,540)
Present value of unfunded liabilities	(3)	(3)
Fair value of plan assets	6,213	7,124
Net retirement benefit asset	356	1,581

Amounts recognised in the income statement and other comprehensive income	2023	2022
	£m	£m
Interest expense on defined benefit obligations	(261)	(171)
Interest income on plan assets	338	214
Administrative expenses and taxes	(6)	(6)
Total recognised in the income statement	71	37
Remeasurement losses on employee pension schemes	(1,310)	(732)
Total recognised in other comprehensive income	(1,310)	(732)
Total	(1,239)	(695)

217

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Pensions

continued

Accounting policies

The Group operates various defined contribution and defined benefit pension schemes for its colleagues as stated above. A defined contribution

scheme is a pension plan under which the Group pays pre-specified contributions into a separate entity and has no legal or constructive obligation to

pay any further contributions. A defined benefit scheme is a pension plan that defines an amount of pension benefit that a colleague will receive on

retirement. In respect of the defined benefit pension scheme, the pension scheme surplus or deficit recognised in the balance sheet represents the

difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date. The calculation of

the defined benefit obligations is performed annually by qualified actuaries (and half-yearly for Pace) using the projected unit credit method. Plan

assets are recorded at fair value. When the calculation results in a potential asset for the Group, the recognised asset reflects the present value of the

economic benefits that will arise from the surplus in the form of any future refunds from the plan or reductions in future contributions to the plan.

Obligations for contributions to defined contribution plans are expensed as the related service is provided. Prepaid contributions are recognised as an

asset to the extent that a cash refund or a reduction in future payments is available.

Remeasurements of the surplus / liability of each scheme (which comprise actuarial gains and losses and asset returns excluding interest income) are

included within other comprehensive income. Net interest expense and other items of expense relating to the defined benefit plans are recognised in

the income statement. Administrative costs of the plans are recognised in operating profit. Net interest expense is determined by applying the discount

rate used to measure the defined benefit obligation at the beginning of the year to the net defined asset / liability at that point in time taking into account

contributions within the period.

The Insurance transactions entered into by the Co-op, in respect of its pension arrangements, are assets of the Co-op pension schemes and the

schemes have retained all responsibility to meet future pension payments to pensioners. Insurance annuities are recorded at the same value as the

liabilities to which they relate and movements in liabilities will be offset by an equivalent movement in the insurance annuity asset. These movements

are recorded through items in other comprehensive income.

The premium cost of the Rothesay transaction was greater than the value of the liabilities secured. As with previous insurance contracts entered into,

this is a buy-in transaction where the scheme has retained the responsibility for paying pensions and therefore the loss has been recorded through

other comprehensive income.

218

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial risk management

What does this show?

This note explains the main financial risks we face and how we manage them. These include: credit

risk, interest rate risk, foreign currency risk and liquidity risk.

Financial risk management

The main financial risks facing the Group are set out below. Overall Group risks and the strategy used to manage these risks are discussed in the

Principal Risks and Uncertainties section on pages 57 - 64.

Credit risk

Credit risk arises from the possibility of customers and counterparties failing to meet their obligations. Management has a credit policy in place and the

exposure to credit risk is monitored on an ongoing basis. Credit evaluations are performed for all customers requiring credit over a certain amount. The

Group does not require security in respect of financial assets. The majority of businesses in the Group have cash-based rather than credit-based sales

and so customer credit risk is relatively small.

The Group will ensure that it earns an appropriate return on its invested cash, whilst ensuring that there is minimal risk over the security of that cash.

Investments are only allowed with the Group's syndicate banks or counterparties that have a credit rating of Investment Grade. Transactions involving

derivative financial instruments are with counterparties with whom the Group has signed an ISDA agreement (a standard contract used to govern all

over-the-counter derivatives transactions). Management has no current reason to expect that any counterparty the Group has invested with will fail to

meet its obligations.

Funeral Plan funds are invested in whole-of-life insurance policies which pay out a lump sum when the insured person dies. Any provider of these

policies to the Group must be authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential

Regulation Authority. There are also some funds relating to plans taken out prior to 2002 that are held in interest-bearing trustee-administered bank

accounts which can only be utilised to meet liabilities in respect of funeral plans.

At the balance sheet date there were no material concentrations of credit risk. Information regarding the age profile of trade receivables is shown in

Note 17. The carrying value of all balances that attract a credit risk, which represents the maximum exposure, is set out below:

	Carrying	Carrying
	amount	amount
		2022
	2023	*(restated)
	£m	£m
Trade and other receivables (excluding prepayments and accrued income)*	434	450
Interest rate swaps	(9)	(13)
Foreign exchange contracts and commodity swaps (net)	(4)	5
Funeral plan investments	1,346	1,369
Finance lease receivables	29	43
Cash	395	447
Short-term investments	200	-

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

Interest rate risk and hedging

Interest rate risk arises from movements in interest rates that impact the fair value of assets and liabilities and related finance flows. The Group adopts

a policy of ensuring that 50-90% of its exposure to changes in interest rates on borrowings is on a fixed rate basis. The fixed proportion as at 6 January

2024 was 84% (at 31 December 2022: 86%). Interest rate swaps, denominated exclusively in Sterling, have been entered into to achieve an

appropriate mix of fixed and floating rate exposure within the Group’s policy. At 6 January 2024, the Group had interest rate swaps with a notional

contract amount of £105m (at 31 December 2022: £105m).

The Group does not designate interest rate swaps, forward foreign exchange contracts, and commodity swaps as hedging instruments. Derivative

financial instruments that are not hedging instruments are classified as held for trading by default and so fall into the category of financial assets at fair

value through the income statement. Derivatives are subsequently stated at fair value, with any gains and losses being recognised in the income

statement. See Note 27.

The net fair value of swaps at 6 January 2024 was a net liability of £9m (2022: net liability of £13m) comprising assets of £nil (2022: £nil) and liabilities

of £9m (2022: £13m). These amounts are recognised as fair value derivatives on the face of the Consolidated balance sheet.

219

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial risk management

continued

Foreign currency risk

The Group is exposed to foreign currency risk on purchases that are denominated in a currency other than sterling. The key currencies giving rise to this

risk are Euros and US Dollars.

The Group manages the impact of market fluctuations on its currency exposures and future cash flows by undertaking rolling foreign exchange hedges.

These are executed on a monthly basis in a layered approach based on forecast requirements.

At 6 January 2024, the Group had forward currency transactions in Euros and US Dollars with a notional contract amount of £64m (2022: £88m).

Liquidity risk

This is the risk that the Group will not have sufficient monies to fund its future operations and meet its borrowing obligations. The Group has diverse sources

of financing through its cash, short-term investments, credit facilities and bonds. These are managed to ensure appropriate flexibility and headroom over the

short, medium and long term.

As at 6 January 2024, the Group had available cash and cash equivalents and short-term investments of £595m (2022: £447m) together with committed

borrowing facilities totalling £1,107m (2022: £1,166m). These are detailed below:

	2023			2022
Bank facilities as at 31 December 2022	Expiry	Facility	Undrawn	Expiry	Facility	Undrawn
		£m	£m		£m	£m
Cash and cash equivalents			395			447
Short-term investments			200			-
Cash and cash equivalents and short-term investments			595			447
Revolving Credit Facility*	Mar 2026	443	443	Sept 2024	400	400
£300m 5.125% Sustainability Bond due 2024 (amortised cost)	May 2024	200	-	May 2024	300
£109m 11% Final repayment subordinated notes due 2025	December 2025	109	-	December 2025	109
£20m Instalment repayment notes (final payment 2025)	December 2025	5	-	December 2025	7
£350m 7.5% Bond notes due 2026	July 2026	350	-	July 2026	350
Total debt facilities		1,107	443		1,166	400
Total cash and cash equivalents,
			1,038			847

short-term investments and debt liquidity

*On the 20th of March 2023, Co-op concluded an amendment and extension exercise on its £400m Revolving Credit Facility. The facility increased in size to

£442.5m until September 2024 when it will fall to £360m. The £360m facility will mature in March 2026. The facility was undrawn as at 6 January 2024.

220

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial risk management

continued

The following are the maturities of financial liabilities as at 6 January 2024. The contractual cashflows noted include payments of interest and

principal:

	Carrying	Contractual	<1 year	1 - 2	2 - 5	More than
	amount	cash flows		years	years	5 years
	£m	£m	£m	£m	£m	£m
Non-derivative financial liabilities
£300m Sustainability Bond 2024 (amortised cost)*	(202)	(205)	(205)	-	-	-
£109m 11% Final repayment subordinated notes 2025	(109)	(133)	(12)	(121)	-	-
£20m Instalment repayment notes (final payment 2025)	(5)	(6)	(3)	(3)	-	-
£105m 7.5% Bond 2026 (fair value)	(105)	(129)	(8)	(8)	(113)	-
£245m 7.5% Bond 2026 (amortised cost)	(262)	(299)	(18)	(18)	(263)	-
Lease liabilities	(1,233)	(1,666)	(192)	(180)	(437)	(857)
Trade and other payables	(1,582)	(1,582)	(1,544)	(20)	(14)	(4)

* On the 1st March 2023 the Group repurchased £100m of the £300m 5.125% Sustainability Bond (due May 2024) from bond holders following an

over-subscribed tender exercise. The bonds were bought back at 99% of par value.

The following are the maturities of financial liabilities as at 31 December 2022. The contractual cashflows noted include payments of interest and

principal:

	Carrying	Contractual				More than 5
	amount	cash flows	< 1 year	1 - 2 years	2 - 5 years	years
	£m	£m	£m	£m	£m	£m
Non-derivative financial liabilities
£300m Sustainability Bond 2024 (amortised cost)	(301)	(323)	(15)	(308)	-	-
£109m 11% Final repayment subordinated notes 2025	(109)	(145)	(12)	(12)	(121)	-
£20m Instalment repayment notes (final payment 2025)	(7)	(9)	(3)	(3)	(3)	-
£105m 7.5% Bond 2026 (fair value)	(95)	(137)	(8)	(8)	(121)	-
£245m 7.5% Bond 2026 (amortised cost)	(264)	(317)	(18)	(18)	(281)	-
Lease liabilities	(1,306)	(1,763)	(194)	(183)	(475)	(911)
Trade and other payables	(1,434)	(1,434)	(1,385)	(16)	(19)	(14)

Sensitivity analysis

Interest rate risk

The valuations of the Group’s quoted debt and interest rate swaps have been determined by discounting expected future cash flows associated with

these instruments at the market interest rate yields as at the Group’s year end. This is then adjusted by a +1% increase to the interest rate yield

curve and a 1% reduction in the interest rate yield curve to show the impact of changes in interest rates on the value of our debt and swaps. At 6

January 2024 and 31st December 2022, if Sterling (GBP) market interest rates had been 1% higher / lower with all other variables held constant,

there would have been no material impact to post-tax profit. Profit is generally less sensitive to movements in GBP interest rates due to the level of

borrowings held at fixed rates as described in the Interest rate risk and hedging section.

Foreign exchange risk

At 6 January 2024 and 31 December 2022, if both the Euro and US dollar had strengthened or weakened by 10% against sterling (GBP) with all

variables held constant, there would have been no material impact to post-tax profit.

Guarantees

In the course of conducting its operations, the Group is required to issue bank guarantees and bonds in favour of various counterparties. These

facilities are provided by the Group’s banking syndicate and as at 6 January 2024 the total amount of guarantees / bonds outstanding was £17m

(2022: £17m).

221

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial instruments, derivatives and valuation of financial assets and liabilities

What does this show?

This note shows how our financial assets and liabilities are valued, including our interest rate swaps.

Derivatives

Derivatives held for non-trading purposes for which hedge accounting has not been applied are as follows:


	2023			2022
	Contractual/			Contractual/
	notional	Fair value	Fair value	notional	Fair value	Fair value
	amount	assets	liabilities	amount	assets	liabilities
	£m	£m	£m	£m	£m	£m
Interest rate swaps	105	-	(9)	105	-	(13)
Foreign exchange contracts	64	-	(2)	88	3	-
Commodity swaps (diesel)	20	-	(2)	22	5	(3)
Total recognised derivative assets / (liabilities)	189	-	(13)	215	8	(16)

The interest rate swaps mature in 2026 and as such are held in non-current liabilities. The majority of the foreign exchange contracts and diesel swaps

mature within 1 year so are shown in current liabilities and current assets respectively.

The following summarises the major methods and assumptions used in estimating the value of financial instruments reflected in the annual report and

accounts:

a) Financial instruments at fair value through the income statement

Investments in funeral plans

Where there is no active market or the investments are unlisted, the fair values are based on commonly used valuation techniques (refer to accounting

policy (section iv) of this note for further details.

Derivatives

Forward exchange contracts, such as the Group's interest rate swaps have been determined by discounting expected future cash flows associated with

these instruments at the market interest rate yields as at the Group’s year end. The Group's derivatives are not formally designated as hedging

instruments but under IFRS 9 (Financial Instruments) they are used to match against a proportion of the 2026 Bond liabilities carried at fair value

through the income statement, showing as a gain of £4m in 2023 (2022: £11m cost) see Notes 6 and 7.

The Group enters into forward contracts for the purchase of energy from third party suppliers for use by the Group. Energy contracts for own use are

not required to be accounted for as derivatives. We adopt a layered hedging procurement policy for energy contracts over a period of 3 years to a

maximum of 80% of Group forecast demand. At the 2023 year end we had 68% electricity (2022: 78%) and 54% gas (2022:76%) coverage of our

forecast demand for 2024.

Fixed rate sterling bonds

The fixed rate sterling bond values are determined in whole by using quoted market prices.

b) Interest-bearing loans and borrowings - amortised cost

These are shown at amortised cost which presently equate to fair value or are determined in whole by using quoted market prices. Fair value

measurement is calculated on a discounted cash flow basis using prevailing market interest rates.

c) Receivables and payables

For receivables and payables with a remaining life of less than one year, the nominal amount is deemed to reflect the fair value, where the effect of

discounting is immaterial. For further details see the Accounting Policy section at the end of this note.

222

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial instruments, derivatives and valuation of financial assets and liabilities

continued

The table below shows a comparison of the carrying value and fair values of financial instruments for those liabilities not carried at fair value.

	Carrying value	Fair value	Carrying value	Fair value
Financial liabilities	2023	2023	2022	2022
	£m	£m	£m	£m
Interest-bearing loans and borrowings (held at amortised cost)	583	581	685	645

The table below analyses financial instruments by measurement basis:

	Fair value	Amortised cost	Total
	through income
2023	statement
	£m	£m	£m
Assets
Other investments (funeral plans)	1,346	-	1,346
Trade and other receivables	-	434	434
Derivative financial instruments	-	-	-
Cash and cash equivalents	-	395	395
Short-term investments	-	200	200
Total financial assets	1,346	1,029	2,375
Liabilities
Interest-bearing loans and borrowings	105	583	688
Derivative financial instruments	13	-	13
Trade and other payables	-	1,186	1,186
Total financial liabilities	118	1,769	1,887

	Fair value	Amortised cost	Total
2022	through income
	statement
	£m	£m	£m
Assets
Other investments (funeral plans)	1,369	-	1,369
Trade and other receivables*	-	452	452
Derivative financial instruments	8	-	8
Cash and cash equivalents	-	447	447
Total financial assets	1,377	899	2,276
Liabilities
Interest-bearing loans and borrowings	95	685	780
Derivative financial instruments	16	-	16
Trade and other payables	-	1,081	1,081
Total financial liabilities	111	1,766	1,877

* The comparative figures have been restated following the adoption of IFRS 17 (Insurance Contracts). Refer to Note 33 for details of the restatement.

The following table provides an analysis of financial assets and liabilities that are valued or disclosed at fair value, by the three-level fair value

hierarchy as defined within IFRS 13 (Fair Value Measurement):

• Level 1

Fair value measurements are those derived from quoted prices (unadjusted) in active

markets for identical assets or liabilities.

• Level 2

Fair value measurements are those derived from inputs other than quoted prices included

within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or

indirectly (i.e. derived from prices).

• Level 3

Fair value measurements are those derived from valuation techniques that include inputs for

the asset or liability that are not based on observable market data (unobservable inputs).

As pricing providers cannot guarantee that the prices they provide are based on actual trades in the market then all of the corporate bonds are

classified as Level 2.

223

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial instruments, derivatives and valuation of financial assets and liabilities

continued

Valuation of financial instruments

2023	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m
Assets
Financial assets at fair value through the income statement
- Funeral plan investments	-	-	1,346	1,346
- Derivative financial instruments	-	-	-	-
Total financial assets at fair value	-	-	1,346	1,346
Liabilities
Financial liabilities at fair value through the income statement
- Fixed rate sterling 2026 bond	-	105	-	105
- Derivative financial instruments	-	13	-	13
Total financial liabilities at fair value	-	118	-	118

Funeral plan investments are classified as level 3 under the IFRS 13 hierarchy. Level 3 fair value measurements are those derived from valuation

techniques that include inputs that are not based on observable market data (unobservable inputs). The vast majority of our funeral plan investments

are held in Whole of Life (WoL) insurance policies. The plan investments are financial assets which are recorded at fair value each period using

valuations provided to Co-op by the policy provider. The plan values reflect the amount the policy provider would pay out on redemption of the policy at

the valuation date with the main driver being underlying market and investment performance.

The value of the 2026 bonds carried at amortised cost is disclosed in Note 19. The equivalent fair value for the unhedged proportion of the 2026 bonds

that are now carried at amortised cost would be £243m (2022: £222m).

There were no transfers between Levels 1 and 2 during the period and no transfers into and out of Level 3 fair value measurements. For other financial

assets and liabilities of the Group including cash, trade and other receivables / payables then the notional amount is deemed to reflect the fair value.

2022	Level 1	Level 2	Level 3	Total
	£m	£m	£m	£m
Assets
Financial assets at fair value through the income statement
- Funeral plan investments	-	-	1,369	1,369
- Derivative financial instruments	-	8	-	8
Total financial assets at fair value	-	8	1,369	1,377
Liabilities
Financial liabilities at fair value through the income statement
- Fixed rate sterling 2026 bond	-	95	-	95
- Derivative financial instruments	-	16	-	16
Total financial liabilities at fair value	-	111	-	111

Interest rates used for determining fair value

Third-party valuations are used to fair value the Group’s bond and interest rate derivatives. The valuation techniques use inputs such as interest rate

yield curves with an adequate credit spread adjustment.

224

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial instruments, derivatives and valuation of financial assets and liabilities

continued

Accounting policies

The Group classifies its financial assets as either:

• fair value through the income statement; or

• loans and receivables at amortised cost.

i) Recognition of financial assets

Financial assets are recognised on the trade date which is the date it commits to purchase the instruments. Loans are recognised when the funds are

advanced. All other financial instruments are recognised on the date that they are originated. The classification of financial assets at initial recognition

depends on the financial asset’s contractual cash flow characteristics and the Group’s business model for managing them. The Group initially measures a

financial asset at its fair value, with the exception of trade receivables that don’t contain a material financing component or where the customer will pay for

the related goods or services within one year of receiving them. For financial assets which are not held at fair value through the income statement,

transaction costs are also added to the initial fair value. Trade receivables that don’t contain a material financing component or where the customer will

pay for the related goods or services within one year of receiving them are measured at the transaction price determined under IFRS 15 (Revenue from

Contracts with Customers). See accounting policies for revenue and IFRS 15 in Note 2.

ii) Derecognition of financial assets and financial liabilities

Financial assets are derecognised (removed from the balance sheet) when:

• the rights to receive cash flows from the assets have ceased; or

• the Group has transferred substantially all the risks and rewards of ownership of the assets.

A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires. When an existing liability is replaced by the

same counterparty on substantially different terms or the terms of an existing liability are substantially modified, the original liability is derecognised and a

new liability is recognised, with any difference in carrying amounts recognised in the income statement.

iii) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market which we do not

intend to sell immediately or in the near term. These are initially measured at fair value plus transaction costs that are directly attributable to the financial

asset. Subsequently these are measured at amortised cost. The amortised cost is the initial amount at recognition less principal repayments, plus or minus

the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, less impairment

provisions for incurred losses.

iv) Financial investments and instruments at fair value through the income statement

Funeral plans

When a customer takes out a funeral plan the initial plan value is recognised as an investment asset in the balance sheet. The investments are held in

insurance policies or cash-based trusts and attract interest and bonus payments throughout the year dependent upon market conditions. The plan

investment is a financial asset, which is recorded at fair value each period through the income statement using valuations provided by the insurance policy

provider or reflecting the trust cash balances.

The obligation to deliver the funeral is treated as an insurance contract liability under the new accounting standard IFRS 17 (Insurance Contracts) and held

separately on our balance sheet. The new standard applies to all of the Group’s funeral plans (including the re-insurance of the payment waiver on

instalment plans) and is effective from 1 January 2023. IFRS 17 is applied retrospectively and requires restatement of comparative figures. See Note 33

for details of the restatements and approach on transition and Note 21 for details of the Group's Insurance contract and Re-insurance contract liabilities

and associated accounting policies.

Funeral benefit options (FBOs)

FBOs are attached to Guaranteed Over 50’s life insurance plans (GOFs) sold by the Group’s third party insurance partners. An FBO is the assignment of

the sum-assured proceeds of a GOF policy to Funeralcare for the purposes of undertaking their funeral. In exchange the GOF customer is awarded a

discount on the price of the funeral.

No revenue is recognised by the Group at the point of assignment and instead an element of the costs that have been incurred in obtaining the FBO are

deferred onto the balance sheet. These are then expensed at the point of redemption when the revenue is recognised. Any plans that are cancelled are

written off at the point at which Funeralcare are made aware of the cancellation. A separate provision is also made to cover the expected cancellations of

FBOs. No investment or liability is recognised for FBOs as the option does not guarantee a funeral and the liability for which remains with the insurance

partner. Any difference between the funeral price and the sum assured at the point of redemption is the liability of the deceased estate or whoever takes

responsibility for arranging the funeral.

225

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial instruments, derivatives and valuation of financial assets and liabilities

continued

Low Cost Instalment Funeral Plans (LCIPs)

LCIPs can be paid for by instalments over between 2 and 25 years or they can be paid off in full at any time during this period without any penalties. If

the plan holder dies before the instalments have been made in full (and provided that the plan has been in place for at least 12 months or the cause of

death was as a result of an accident) then the funeral will still be provided by Funeralcare and the customer will not have to settle the outstanding

balance on any instalments and the balance of any monies owed will be waived. Any outstanding amounts owed to Funeralcare (the difference between

the full value of the plan and the amount paid up to death by the customer) are covered by an assured benefit from a third party insurer. The assured

benefit is between Funeralcare and the 3rd party insurer and has nothing to do with the customer. Funeralcare continue to apply instalment monies

received against customers' individual funeral plans until such time as a plan is redeemed and/or cancelled.

As noted overleaf; the obligation to deliver the funeral is treated as an insurance contract liability under the new accounting standard IFRS 17 (Insurance

contracts) and held separately on our balance sheet. The new standard applies to all of the Group’s funeral plans (including the re-insurance of the

payment waiver on instalment plans) and is effective from 1 January 2023. IFRS 17 is applied retrospectively and requires restatement of comparative

figures. See Note 33 for details of the restatements and approach on transition and Note 21 for details of the Group's Insurance contract and Re-

insurance contract liabilities and associated accounting policies.

Interest rate swaps

The Group uses derivative financial instruments to provide an economic hedge to its exposure to interest rate risks arising from operational, financing

and investment activities. In accordance with its Treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes.

Derivatives entered into include interest rate swaps, foreign exchange contracts, commodity (diesel) swaps and energy contracts. Derivative financial

instruments are measured at fair value and any gains or losses are included in the income statement. Fair values are based on quoted prices and where

these are not available, valuation techniques such as discounted cash flow models are used.

Interest payments or receipts arising from interest rate swaps are recognised within finance income or finance costs in the period in which the interest is

incurred or earned.

v) Credit risk, liquidity risk and Impairment of financial assets

Credit risk

Credit risk is the risk that a counterparty will not meet its obligations under a financial instrument or customer contract, leading to a financial loss. The

Group is exposed to credit risk from its operating activities (primarily trade receivables) and from its financing activities, including deposits with banks

and financial institutions, foreign exchange transactions and other financial instruments.

Credit risk from balances with banks and financial institutions is managed by the Group’s Treasury department in accordance with the Group’s policy.

Investments of surplus funds are made only with approved counterparties and within credit limits assigned to each counterparty. Counterparty credit

limits are monitored regularly based on Board approved Treasury Policy, with changes to the credit limits being reported monthly to the Treasury

Committee. The limits are set to minimise the concentration of credit risk. Financial assets held at fair value through the income statement are primarily

held in low-risk investments.

Liquidity risk

The Group’s objective is to maintain a balance between continuity of funding and flexibility through the use of bank overdrafts, bank loans, bonds and

leases.

226

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Financial instruments, derivatives and fair values of financial assets and liabilities

continued

Trade receivables

An impairment analysis is performed at each reporting date using a provision matrix to measure expected credit losses. The provision rates

are based on days past due for groupings of various customer segments with similar loss patterns (for example, by business division,

customer, coverage by letters of credit or other forms of credit insurance).

The calculation reflects the probability-weighted outcome, the time value of money and reasonable and supportable information that is

available at the reporting date about past events, current conditions and forecasts of future economic conditions. Generally, trade receivables

are written-off if past due for more than one year and are not insured or subject to enforcement activity. The maximum exposure to credit risk

at the reporting date is the carrying value of each class of financial assets disclosed in trade and other receivables (Note 17).

Impairment of financial assets carried at amortised cost

The amount of the impairment loss on assets carried at amortised cost is recognised immediately through the income statement and a

corresponding reduction in the value of the financial asset is recognised through the use of an allowance account.

A write-off is made when all or part of an asset is deemed uncollectable or forgiven after all the possible collection procedures have been

completed and the amount of loss has been determined. Write-offs are charged against previously established provisions for impairment or

directly to the income statement.

Any additional recoveries from borrowers, counterparties or other third parties made in future periods are offset against the write-off charge in

the income statement once they are received.

Provisions are released at the point when it is deemed that following a subsequent event the risk of loss has reduced to the extent that a

provision is no longer required.

227

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Commitments and contingencies

What does this show?

This note shows the value of capital expenditure that we're committed to spending in the future as at

the end of the period. If appropriate then it also shows potential liabilities which aren't included in our balance sheet as it's

only possible, rather than probable, that we'll have to pay them.

Commitments:

a) Capital expenditure that the Group is committed to but which has not been accrued for at the period end was £22m (2022: £12m).

Contingent liabilities:

b) i) In common with other retailers, the Group has received Employment Tribunal claims from current and former food store colleagues alleging their

work is of equal value to that of distribution centre colleagues and differences in pay and other terms are not objectively justifiable. The claimants are

seeking the differential in pay (and other terms) together with equalisation going forward. There are currently circa 4,700 claims (2022: circa 4,000

claims) and it is anticipated that this number will rise, though it is not possible to predict the point to which this may increase or the rate of increase.

These equal pay claims are initiated in the Employment Tribunal and claimants will need to succeed in three stages to succeed. The first stage

concerns whether the roles of store colleagues can be compared with those of warehouse colleagues. In light of European and Supreme Court

decisions, Co-op Group has conceded that it will not contest this point. The second and third stages are concerned with an equal value assessment

between comparator roles and if this is shown to be the case, a subsequent consideration of Co-op Group’s material factor defences (which are the

non-discriminatory reasons for any pay differential). It is expected this litigation will take a number of years to final resolution.

The claims are still at an early stage; the number of claims, merit, outcome and impact are all highly uncertain. No provision has been made as it is

not possible to assess the likelihood nor quantum of any outcome. There are substantial factual and legal defences to the claims and the Group

intends to defend them robustly.

b) ii) In early February 2023 a claim was issued against Co-operative Group Limited and certain of its subsidiaries (Co-operative Group Food Limited,

Co-operative Foodstores Limited and Rochpion Properties (4) LLP) by the liquidators of The Food Retailer Operations Limited in connection with

transactions which took place in 2015 and 2016 relating to the Somerfield supermarket business acquired by Co-op in 2009.

The amount claimed is approximately £450m plus further unquantified amounts of interest and costs. Co-op strongly disputes both liability and the

quantum of the claim.

Related party transactions and balances

What does this show?

Related parties are companies or people which are closely linked to the Co-op, such as members of

our Board or Executive (or their families), or our associates and joint ventures. This note explains the nature of the

relationship with any related parties and provides information about any material transactions and balances with them.

		2023	2022
	Relationship	£m	£m
Subscription to Co-operatives UK Limited	(i)	0.7	0.7

i) The Group is a member of Co-operatives UK Limited.

The Group’s Independent Society Members (ISMs) include consumer co-operative societies which, in aggregate, own the majority of the corporate

shares with rights attaching as described in Note 23. The Co-operative Group has a 76% shareholding in Federal Retail and Trading Services

Limited which is operated as a joint buying group by the Group for itself and other independent co-operative societies. The Group acts as a

wholesaler to the other independent co-operatives and generates sales from this and the arrangement is run on a cost recovery basis and therefore

no profit is derived from its activities. Sales to ISMs, on normal trading terms, were £2,142m (2022: £1,895m) and the amount due from ISMs in

respect of such sales was £142m at 6 January 2024 (2022: £144m). No distributions have been made to ISMs based on their trade with the Group in

either the current or prior periods.

Transactions with directors and key management personnel

A number of small transactions (such as the purchase of funeral services) are entered into with key management in the normal course of business

and are at arm's length. Key management are considered to be members of the Executive and directors of the Group. Key management personnel

transactions noted in the year are £1,000 (2022: £29,000). Other than the compensation set out in the Remuneration Report, there were no other

transactions greater than £1,000 with the Group's entities (2022: £nil). Total compensation paid to key management personnel is shown below.

	2023	2022
Key management personnel compensation	£m	£m
Short-term employee benefits	3.6	3.1
Post-employment benefits	0.1	0.1
Other long-term benefits	0.3	1.1
Termination benefits	-	1.6
Total	4.0	5.9

228

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Principal subsidiary undertakings

What does this show?

This note shows the main companies and societies we own, what percentage we own and the type

of business they are involved in.

All of the principal subsidiary undertakings as at the period end are registered in England and Wales and their principal place of business is the UK.

See general accounting policies section on page 234 for a Group structure diagram.


	Society holding %	Nature of business
Co-operative Group Holdings (2011) Ltd	100	Property management
Co-operative Group Food Ltd	100	Food retailing
Co-operative Foodstores Ltd	100	Food retailing
Nisa Retail Ltd	100	Food wholesaling
Co-op Insurance Services Limited	100	Insurance (marketing)
Funeral Services Ltd	100	Funeral directors
Co-op Funeral Plans Ltd	100	Funeral plan services
Co-operative Legal Services Ltd	100	Legal services
Rochpion Properties (4) LLP	100	Holds property

All of the above have been fully consolidated into the Group's accounts. There are no non-controlling interests in any of these entities.

Notes

i) All of the principal subsidiaries are audited by EY LLP.

ii) All transactions between entities are in the usual course of business.

229

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the financial statements

continued

Membership and community reward

What does this show?

This note shows the number of active members that we have at the end of the period as well as the

benefits earned by those members for themselves and their communities during the period. Active members are defined as

those members that have traded with one or more of our businesses within the last 12 months.


	2023	2022
Members	(unaudited)	(unaudited)
	m	m
Active members	5.0	4.4


Membership and community rewards (within the income statement)	£m	£m
Member reward earned	25	20
Community reward earned	20	18
Total reward	45	38

Member and community rewards were both earned at 2% (4% in total) of eligible spend during the year.

Full details of our overall investment in our communities can be found in our Co-operate Report.

32 Events after the reporting period

What does this show?

This note gives details of any material events that have happened after the balance sheet date but

before the date that the accounts are approved. These are things that are of such significance that it is appropriate to give a

reader of the accounts further detail as to the impact of such events on the financial statements or any expected likely impact

in future periods.

There are no material post balance sheet events noted for disclosure in the 2023 Annual Report and Accounts for the 53 week period ended 6 January

2024.

230

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the interim financial statements

continued

Prior year restatement (adoption of IFRS 17)

What does this show?

Occasionally we need to revise or restate the numbers that we have previously recorded in our

published accounts. This may arise due to the introduction of a new accounting standard which may require us to treat certain

balances differently than we have previously done. If the new standard requires us to apply the new approach retrospectively

then we will change the numbers we have published previously. In such circumstances then this note explains what the change

in accounting practice is and how it has affected our numbers in previous years.

IFRS 17 Insurance Contracts

In May 2017, the International Accounting Standards Board (IASB) issued IFRS 17 (Insurance Contracts). IFRS 17 is a comprehensive new accounting

standard for insurance contracts covering recognition, measurement, presentation and disclosure, replacing Insurance Contracts (IFRS 4) that was

issued in 2005. IFRS 17 applies to all types of insurance contracts (such as life, non-life, direct insurance and re-insurance), regardless of the type of

entities that issue them. The overall objective of IFRS 17 is to provide an accounting model for insurance contracts that is more useful and consistent

for insurers. IFRS 17 provides a comprehensive model for insurance contracts, covering all relevant accounting aspects and requires insurance

liabilities to be measured at a current fulfilment value and provides a more uniform measurement and presentation approach for all insurance contracts.

The new standard is applicable to all of the Group’s pre-need funeral plans including the re-insurance of the payment waiver risk (where the Group

waives the remaining payments if a customer dies during the payment term subject to conditions) and is effective from 1 January 2023.

The Group has transitioned to IFRS 17 from 1 January 2023 but we are required to restate our results from 2 January 2022, adjusting opening reserves

as at that date. Consequently we are required to restate the numbers that we presented previously in our financial statements to reflect the adoption of

the new standard.

Key Accounting Changes:

The adoption of IFRS 17 in 2023 represents a fundamental change to the way that we currently account for all of our funeral plans and waiver insurance

policies under IFRS 15 (Revenue from Contracts with Customers). The main accounting policies the Group has applied under IFRS 17 are shown at the

end of this note. The main areas of change include:

•

Revenue recognition

– under IFRS 15 revenue from funeral plans was only recognised at the point the funeral was arranged (at redemption of the

plan). IFRS 17 requires revenue to be recognised over the contract coverage period (being the duration of the funeral plan).

•

Liability measurement

- the Group uses the General Measurement Model (GMM) under IFRS 17 to measure the liability for remaining coverage.

IFRS 17 requires actuarial modelling of the liability, updated each reporting period for current estimates of expected cash flows. IFRS 15 did not

remeasure the liability to reflect a current estimate of the future cash flows to provide the funeral.

•

Re-insurance

- under IFRS 15 the waiver insurance costs were expensed as incurred. IFRS 17 requires the cash flows to be modelled and the

expense to be recognised over the contract coverage period.

•

Opening equity

- at 2 January 2022 opening reserves have been restated consistently with IFRS 17.

•

Level of aggregation

- under IFRS 17 we now separate our insurance contracts into portfolios consisting of contracts that are subject to similar risks

and that are managed together. Portfolios are further sub-categorised into groups and cohorts. This disaggregation is a new concept to Group and

important for determining if a set of contracts is onerous, how contracts are presented and how profit or loss is recognised. If contracts are onerous we'll

need to recognise a loss component.

Key Presentational changes:

Under IFRS 17 we are required to present certain items differently or to have new line items entirely for certain balances in comparison to IFRS 15.

These requirements see changes to our primary statements and notes to the accounts:

Consolidated income statement:

•

Revenue

The result of our insurance activities in relation to funeral plans will be shown within the Funerals operating segment. IFRS 17 is based upon a fulfilment

cashflow model and as such revenue and expenses includes the cost of funeral disbursements gross (whereas previously they were shown net under

IFRS 15). The disclosure notes will be required to separately show:

- Insurance revenue

- Insurance service expenses

- Insurance service result

•

Insurance finance expense

Finance expense will include:

- Net finance expense from insurance contracts and net finance income from re-insurance contracts

231

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the interim financial statements

continued

Prior year restatement (adoption of IFRS 17)

continued

Comprehensive Statement of Income:

Under IFRS 17 the Group has elected to disaggregate certain elements of finance income / expense that arise due to changes in assumptions (such

as the discount rate) and record the impact of those changes in other comprehensive income (OCI) rather than in the Income statement. The large

gain recorded in OCI in 2022 primarily arises due to movements in the discount rate.

Consolidated Balance Sheet:

• Assets

- Contract assets, which includes fulfilment costs (acquisition costs) of funeral plans, will be included in the measurement of insurance

contract liabilities and no longer recognised as an asset (as was the case under IFRS 15). A new line item called Re-insurance Contract Assets will be

included in our balance sheet if material. Instalment plan debtors are also netted off the insurance contract liability under IFRS 17.

• Liabilities - Contract liabilities in the balance sheet (as held under IFRS 15) will be replaced with insurance contract liabilities.

Approach on transition:

The Group has transitioned to IFRS 17 from 1 January 2023 but we are required to restate our results from 2 January 2022, adjusting opening

reserves as at that date. Under IFRS 17, a fully retrospective approach should be taken to applying the standard on transition (as if all plans had been

accounted for under IFRS 17 since inception) unless this approach is impractical. The alternative approach is to fair value the plan liabilities as at the

date of transition. IFRS 17 does not define ‘impractical’ however, we have concluded that it would not be practical to fully apply the standard

retrospectively over the full back book. As such, the Group has applied the fair value approach on transition to plans up to 2020, after which we have

applied the fully retrospective approach as it is deemed practical to do so.

Using the fair value approach, the CSM is determined as the difference between the fair value of the group of insurance contracts (i.e. what Co-op

would have to pay a third party to take on the liability) and its fulfilment cash flows at the transition date. The fair value of the insurance contracts has

been measured by applying IFRS 13 Fair Value Measurement and we have taken the following steps to calculate the fair value:

• Measured the undiscounted IFRS 17 fulfilment cashflows at 1st January 2022;

• Discounted the above cash flows based on the expected market return less tax and expenses (at a rate consistent with the wider IFRS 17

calculation);

• Applied a margin for a required profit, which was assessed at 10%.

A summary of the adjustments that are required to restate our prior full year figures (2022) to reflect the new basis of accounting are shown on the

following pages. The restatements impact the consolidated income statement, the consolidated statement of comprehensive income and the

consolidated balance sheet. There is no impact or change to the consolidated cashflow statement.

Consolidated income statement for the 52 week	As previously	IFRS 17	As restated
period ended 31 December 2022	reported
	£m	£m	£m
Revenue (excluding funeral plans)	11,480	(83)	11,397
Insurance revenue (funeral plans)	-	87	87
Total revenue	11,480	4	11,484
Operating expenses (excluding insurance service expenses on funeral plans)	(11,484)	60	(11,424)
Insurance service expenses (funeral plans)	-	(81)	(81)
Other income	9	-	9
Operating profit / (loss)	5	(17)	(12)
Profit on sale of petrol forecourt stores	319	-	319
Finance income	125	-	125
Finance costs (excluding insurance finance expenses on funeral plans)	(202)	53	(149)
Insurance finance expenses (funeral plans)	-	(15)	(15)
Profit before tax	247	21	268
Taxation	(4)	(6)	(10)
Profit from continuing operations	243	15	258
Profit on discontinued operation (after of tax)	67	-	67
Profit for the period	310	15	325
Non-GAAP measure
Underlying operating profit	100	(17)	83
Underlying loss before tax	(31)	(17)	(48)

232

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the interim financial statements

continued

Prior year restatement (adoption of IFRS 17)

continued

Consolidated statement of comprehensive income	As previously	IFRS 17	As restated
(for the 52 week period ended 31 December 2022)	reported
	£m	£m	£m
Profit for the period	310	15	325
Items that will never be classified to the income statement
Remeasurement losses on employee pension schemes	(732)	-	(732)
Related tax on items above	183	-	183
Insurance finance income (funeral plans) *	-	453	453
Tax on funeral plan liabilities (insurance contracts)	-	(113)	(113)
Other comprehensive (loss) / income for the period net of tax	(549)	340	(209)
Total comprehensive (loss) / income for the period	(239)	355	116

* Under IFRS 17 the Group has elected to disaggregate that element of finance income / expense that arises due to changes in the discount rate and

record the impact of those changes in other comprehensive income (OCI) rather than in the Income statement. The large gain noted above on

restatement primarily arises due to movements in the discount rate in 2022.

Funeral - segmental reporting	As previously	IFRS 17	As restated
(for the 52 week period ended 31 December 2022)	reported
	£m	£m	£m
Revenue (excluding funeral plans)	271	(83)	188
Insurance revenue (funeral plans)	-	87	87
Total revenue	271	4	275
Underlying operating profit / (loss)	16	(17)	(1)
Operating profit / (loss)	10	(17)	(7)
Underlying EBITDA	43	(17)	26
EBITDA	37	(17)	20
Underlying Profit before tax	(4)	21	17
Profit before tax	(10)	21	11

The Funeral segment includes the results of our pre-need funeral plan business recorded under the newly adopted accounting standard IFRS 17

(Insurance Contracts) which were previously recorded under IFRS 15. Overall profitability recorded under IFRS 17 and IFRS 15 is broadly comparable

however under IFRS 17 our operating profit (as noted in the table above) is lower primarily because of the phasing of revenue being spread over the life

of a funeral plan rather than all at redemption. This reduction to Operating profit is offset by a reduction in net finance charge (which is recorded below

operating profit and does not feature in the tables above). Underlying operating profit remains our primary alternative performance measure and basis of

our segmental reporting, however for the Funeral segment we do not consider it the most useful metric to understand the performance of the business

as a result of the impact of IFRS 17. As such we have included a profit before tax figure as an additional metric in the segmental tables for the Funeral

business to aid a reader's understanding of the performance of that business.

Funerals segment (£m)	2023	2022
Operating loss	(11)	(7)
Finance income (funeral plans)	17	28
Finance cost (funeral plans)	(16)	(15)
Finance income (other)	25	7
Finance costs (other)	(2)	(2)
Profit before tax	13	11

233

Co-op Annual Report & Accounts for 2023:

Financial Statements

Notes to the interim financial statements

continued

Prior year restatement (adoption of IFRS 17)

continued

Consolidated balance sheet	As previously reported	IFRS 17	As restated
(as at 31 December 2022)	£m	£m	£m
Non-current assets
Funeral plan investments	1,369	-	1,369
Contract assets (funeral plans)	33	(33)	-
Funeral plan debtors	167	(167)	-
Other non-current assets	5,122	-	5,122
Total non-current assets	6,691	(200)	6,491
Current assets
Contract assets (funeral plans)	4	(4)	-
Funeral plan debtors	31	(31)	-
Other current assets	1,503		1,503
Total current assets	1,538	(35)	1,503
Non-current liabilities
Contract liabilities (funeral plans)	1,540	(1,540)	-
Deferred tax liabilities	156	102	258
Other non-current liabilities	1,994	-	1,994
Insurance contract liabilities (funeral plans)	-	987	987
Re-insurance contract liabilities (funeral plans)	-	7	7
Total non-current liabilities	3,690	(444)	3,246
Current liabilities
Contract liabilities (funeral plans)	183	(183)	-
Other current liabilities	1,638	-	1,638
Insurance contract liabilities (funeral plans)	-	86	86
Re-insurance contract liabilities (funeral plans)	-	1	1
Total current liabilities	1,821	(96)	1,725
Equity
Share Capital and Other Reserves	81	-	81
Retained earnings	2,637	305	2,942
Total equity	2,718	305	3,023

As the restatement for IFRS 17 applies to all previous years including the closing 2021 balance sheet (as at 1 January 2022) then for comparative

purposes we have also included below an adjusted opening 2022 balance sheet (as at 2 January 2022).

Consolidated balance sheet	Closing position as	IFRS 17	Opening position
(as at 1 January 2022)	previously reported		restated
	(1 January 2022)		(2 January 2022)
	£m	£m	£m
Non-current assets
Funeral plan investments	1,372	-	1,372
Contract assets (funeral plans)	36	(36)	-
Funeral plan debtors	199	(199)	-
Other non-current assets	6,446		6,446
Total non-current assets	8,053	(235)	7,818
Current assets
Contract assets (funeral plans)	4	(4)	-
Funeral plan debtors	34	(34)	-
Other current assets	1,089		1,089
Total current assets	1,127	(38)	1,089
Non-current liabilities
Contract liabilities (funeral plans)	1,614	(1,614)	-
Deferred tax liabilities	314	(11)	303
Other non-current liabilities	2,226	-	2,226
Insurance contract liabilities (funeral plans)	-	1,414	1,414
Re-insurance contract liabilities (funeral plans)	-	11	11
Total non-current liabilities	4,154	(200)	3,954
Current liabilities
Contract liabilities (funeral plans)	164	(164)	-
Other current liabilities	1,923	-	1,923
Insurance contract liabilities (funeral plans)	-	123	123
Re-insurance contract liabilities (funeral plans)	-	1	1
Total current liabilities	2,087	(40)	2,047
Equity
Share Capital and Other Reserves	80	-	80
Retained earnings	2,859	(33)	2,826
Total equity	2,939	(33)	2,906

234

Co-op Annual Report & Accounts for 2023:

Accounting policies and basis of preparation

What does this show?

This section outlines the general accounting policies that relate to the financial statements as a

whole. Details of other accounting policies are included within the notes to the financial statements to which they relate. This

allows readers easy access to the relevant policy. This section also gives details of the impact of any new accounting

standards that we've applied for the first time and the expected impact of upcoming standards that will be adopted in future

years where that impact is likely to be material.

General information

Co-operative Group Limited ('the Group’) is a registered co-operative society domiciled in England and Wales. The address of the Group’s

registered office is 1 Angel Square, Manchester, M60 0AG, and the trading locations of all stores and branches can be located on our website

https://www.coop.co.uk/store-finder.

Basis of preparation

The Group accounts have been prepared in accordance with UK adopted international accounting standards for the 53 week period ended 6

January 2024 and in conformity with the requirements of the Co-operative and Community Benefit Societies Act 2014. As permitted by

statute, a separate set of financial statements for the Society are not included.

The accounts are presented in pounds sterling and are principally prepared on the basis of historical cost. Areas where other bases are

applied are explained in the relevant accounting policy in the notes. Amounts have been rounded to the nearest million. The accounting

policies set out in the notes have been applied consistently to all periods presented in these financial statements, except where stated

otherwise. The accounts are prepared on a going concern basis. See later section on ‘

Going Concern’.

Climate Change Considerations

In preparing the Groups’ Consolidated Financial statements management has considered the impact of climate change covering both the

financial statements and the disclosures included in the Strategic report. This included an assessment of the potential impact of, and

associated responses to, climate change, and how that could impact the non-current assets that we hold as well as our expectations of future

trading conditions. This assessment did not identify any requirement to shorten asset lives of the Group’s asset base and neither did it identify

any material impact on the valuation of the Group’s assets or liabilities. Where material the Group has included the impact of climate change

within its forecasts, impairment reviews and assessments of going concern and viability. Further detail is given later in this section under

'Material accounting judgements, estimates and assumptions in relation to climate change.' The Group will keep this assessment under

review and continue to monitor developments in the future.

Basis of consolidation

The financial statements consolidate Co-operative Group Limited, which is the ultimate parent society, and its subsidiary undertakings. The

Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect

those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements

from the date that control commences until the date that control ceases.

The diagram below shows the composition of the Group and its principal subsidiaries. Further details can be found in Note 30 (Principal

subsidiary undertakings). A full list of subsidiaries that make up the Group for the purposes of these financial statements can be found at:

http://www.co-operative.coop/investors/rules

Co-operative Group Ltd

Co-operative Group Holdings (2011) Ltd

Rochpion Properties (4) LLP

Co-operative Group Food Ltd

Funeral Services Ltd

Nisa Retail Ltd

Co-operative Foodstores Ltd

Co-op Funeral Plans Ltd *

Co-op Insurance Services Ltd

Co-operative Legal Services Ltd

Direct holding

Indirect holding

All shareholdings are 100% owned unless otherwise stated.

* Co-op Funeral Plans Ltd is owned 33% by Co-operative Group Ltd and 67% by Co-operative Group Holdings Ltd.

235

Co-op Annual Report & Accounts for 2023:

Accounting policies and basis of preparation

Accounting dates

The Group and its main trading subsidiaries prepare their accounts to the first Saturday of January unless 31 December is a Saturday. These

financial statements are therefore prepared for the 53 weeks ended 6 January 2024. Comparative information is presented for the 52 weeks

ended 31 December 2022. Since the financial periods are virtually in line with calendar years, the current period figures are headed 2023 and

the comparative figures are headed 2022. The comparative amounts are not entirely comparable with the results of 2023, which are based

on a longer period.

Co-operative Insurances Services Limited and certain small holding companies have prepared accounts for the period ended 31 December

2023. This differs from the Group and the other subsidiaries. For the period ending 6 January 2024, there are no material transactions or

events which need to be adjusted for to reflect the difference in reporting dates.

One-off items and non-GAAP (Generally Accepted Accounting Procedures) measures

One-off items include costs relating to activities such as large restructuring programmes and costs or income which would not normally be

seen as costs or income relating to the underlying principal activities of the Group.

To help the reader make a more informed judgement on the underlying profitability of the Group, a non-GAAP measure: underlying profit

before tax, has been presented. This is shown at the bottom of the income statement and we show the adjustments between this measure

and operating profit. In calculating this non-GAAP measure, property and business disposals (including individual store impairments), the

change in value of investment properties and one-off items are adjusted for.

Offsetting

Financial assets and financial liabilities are offset and the net amount reported in the balance sheet when there is a legally enforceable right

to do so and there is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Material accounting judgements, estimates and assumptions

The preparation of financial statements that comply with IFRS requires management to make judgements, estimates and assumptions that

affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated

assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the

results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from

other sources. Actual results may differ from these estimates.

In assessing the Group’s judgements and sources of estimation uncertainty, consideration has also been given to the impact of climate

change risk. Details are shown at the end of this section.

Key judgements:

In the process of applying the Group’s accounting policies, management has made the following key judgements which have the most

material impact on the consolidated financial statements:

•

Determining the lease term of contracts with extension and termination options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered by an option to extend the

lease if it is reasonably certain to be exercised, or any periods covered by an option to terminate the lease, if it is reasonably certain not to be

exercised.

The Group has the option, under some of its leases to lease the assets for additional terms of 5 to 10 years. The Group applies judgement in

evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all relevant factors that create an economic

incentive for it to exercise the renewal. After the commencement date, the Group reassesses the lease term if there is a material event or

change in circumstances that is within its control and affects its ability to exercise (or not to exercise) the option to renew.

Key accounting estimates and assumptions:

• Insurance contract liabilities (Note 21)

Under IFRS 17 (Insurance Contracts) the Group's funeral plan liabilities reflect the current estimate of the present value of the future

cashflows to provide the funeral. These are calculated using actuarial advice and are based on a range of assumptions and estimates. The

assumptions used are management's best estimates chosen from a range of possible actuarial assumptions which may not necessarily be

borne out in practice.

The main actuarial assumptions include estimates in relation to discount rates, future costs to deliver a funeral including inflation and

expense assumptions, mortality rates, risk adjustments and plan cancellation rates. The insurance contract liability calculation is most

sensitive to changes in the discount rate and inflation assumptions and further detail on these items is noted below.

236

Co-op Annual Report & Accounts for 2023:

Accounting policies and basis of preparation

Key accounting estimates and assumptions

- continued:

• Insurance contract liabilities (Note 21)

-continued

Discount rate

- the Group applies a bottom-up approach to derive the discount rate such that our insurance contract liabilities (funeral

plans) are calculated by discounting expected future cash flows at a risk free rate, plus an illiquidity premium (credit spread). The risk free

rate has been derived by reference to market yields on sterling-denominated high quality corporate bonds of appropriate duration consistent

with the funeral plans at that date (UK Gilt curve at the valuation date converted from continuous to annual rates). The illiquidity premium is

determined by reference to observable market rates (assessed as the average credit spread on 10-15 A rated and 10-15 year AA rated

bonds at the valuation date).

Inflation

- the rate of inflation is set based on the Bank of England Forward Inflation Curve at the valuation date converted from continuous

to annual. From 2022 onwards a reduction of 25 basis points has been applied to allow for high levels of demand for inflation linked gilts

increasing inflation expectations. Years 2023 to 2026 have been adjusted to reflect managements' view based on experience of funeral cost

inflation.

•

Pensions (Note 25)

– the Group’s defined benefit pension obligations are determined following actuarial advice and are calculated using

the projected unit method. The assumptions used are the best estimates chosen from a range of possible actuarial assumptions which may

not necessarily be borne out in practice. The most material assumptions relate to the determination of the discount rate, future salary

increases, mortality rates and future pension increases. Due to the complexities involved in the valuation and its long-term nature, the

Group’s defined benefit obligation is highly sensitive to changes in these assumptions. Further details of the financial and demographic

assumptions that have been used are shown in Note 25 along with associated sensitivities to those assumptions.

•

Impairment of non-financial assets (Notes 11, 12 & 13)

- the carrying amount of non-financial assets (such as property, plant and

equipment, right-of-use assets, goodwill and intangibles) are reviewed at each balance sheet date and if there is any indication of

impairment, the asset's recoverable amount is estimated.

The recoverable amount is the greater of the fair value of the asset (less costs to sell) and the value in use of the asset. An impairment loss

is recognised whenever the carrying amount of an asset or its cash-generating unit (CGU) exceeds its estimated recoverable amount. For

property assets the fair value less costs to sell are measured using internal valuations based on the rental yield of the property.

This review is performed annually or in the event where indicators of impairment are present. At 6 January 2024, the Group has considered

whether general uncertainty in the wider macro-economic environment including the cost-of-living crisis, rising inflation, energy price

increases, and the on-going conflicts in Ukraine and the Middle East has the potential to represent a significant impairment indicator.

Despite the difficult trading conditions and associated additional costs of serving our customers the Group’s main business areas have

proven resilient and the performance of the Group’s cash-generating units has remained strong. Therefore, management concluded that

the impact of the factors noted on the longer term outlook for these cash generating units did not constitute an indicator of material

impairment and hence a full impairment test across all CGUs was not required. This judgement is unchanged from 31 December 2022.

The Group estimates the value in use of an asset by projecting future cash flows into perpetuity and discounting the cash flows (DCF)

associated with that asset at a pre-tax rate of between 9-12% (2022: 10-11%) dependent on the business. The key assumptions used to

determine the recoverable amount for the different CGUs, and the sensitivity analysis that is undertaken, are disclosed and further

explained in Notes 11 and 13.

•

Provisions (Note 22)

– a provision is recognised in the balance sheet when the Group has a legal or constructive obligation as a result of

a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. If the effect is material,

provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the

time value of money and, where appropriate, the risks specific to the liability. The most material provision for the Group relates to regulatory

and legal provisions typically in relation to on-going legal or regulatory claims and material assumptions and estimates are made in relation

to the estimation of future cash flows and the discount rate applied. See Note 22 for further details.

Material accounting judgements, estimates and assumptions in relation to climate change

In assessing the Group’s judgements and sources of estimation uncertainty, consideration has been given to the impact of climate change

risk. Aside from areas noted below climate change risks do not have any impacts on the Group’s other judgements or sources of estimation

uncertainty.

Impairment of property, plant and equipment resulting from climate change

IAS 36 takes differing approaches dependant on the nature of the assets where an impairment review is required:

•F

or goodwill and all intangible assets with an indefinite useful life, an annual impairment test is required;

•F

or all other assets, IAS 36 requires an impairment test to be carried out where the indicators of impairment are present.

In the context of climate change impacts, the Group's approach is as follows:

237

Co-op Annual Report & Accounts for 2023:

Accounting policies and basis of preparation

Material accounting judgements, estimates and assumptions in relation to climate change

- continued

•

nnual impairment reviews

- the Group undertakes an annual impairment review of goodwill as required by IAS 36. This review is based on

our Board approved budget and 4 year plan including terminal growth assumptions. The review in respect of the 2023 year end has been based

on: 1) the 2024 forecast, which specifically identifies climate change-related costs; and 2) the 4 year plan which does not specifically include the

financial impact of climate risks that could crystallise within the time frame of the plan. However, where necessary, the plan has been overlaid with

the possible near-term impacts of climate change actions which include but are not limited to: (i) Incremental costs of fleet de-carbonisation; (ii)

Replacement of HFC refrigeration; (iii) Supply chain impacts on operations; and (iv) Consumer behavioural impacts on operations.

•

A review of the indicators of impairment

- to assess whether any of those indicators could be present, having been triggered by climate

change events or risks, and therefore might require an impairment test to be carried out on other assets, principally dealing with but not limited to:

(i) Tangible fixed assets in stores, distribution centres and Funeralcare branches; and (ii) Right of use assets. Examples of indicators of potential

impairment include:

External sources

•A

decline in an asset’s value during the period that is materially more than would be expected from the passage of time or normal use

•M

aterial adverse changes that have taken place during the period, or will take place in the near future, in the technological, market, economic or

legal environment in which the entity operates or in the market to which the asset is dedicated

•A

n increase in the period in market interest rates or other market rates of return on investments if these increases are likely to affect the discount

rate used in calculating an asset’s value in use and decrease the asset’s recoverable amount materially

•T

he carrying amount of the net assets of the entity exceeds its market capitalisation.

Internal sources

•E

vidence of obsolescence or physical damage of an asset

•M

aterial changes in the extent to which, or manner in which, an asset is used or is expected to be used, that have taken place in the period or

soon thereafter and that will have an adverse effect on it. These changes include the asset becoming idle, plans to dispose of an asset sooner

than expected, reassessing its useful life as finite rather than indefinite or plans to restructure the operation to which the asset belongs.

•I

nternal reports that indicate that the economic performance of an asset is, or will be, worse than expected.

As part of its stated target of Net Zero by 2035, the Group is committed to decarbonisation of its vehicle fleet and refrigeration. Achievement of the

target is heavily dependent on these activities.

•

efrigeration

– our retail store re-fit programme, which aims to re-fit every Food store over an 8 - 12 year cycle, includes the replacement of

HFC refrigeration with HFC-free refrigeration. Until a store is re-fit, it will continue trading using existing refrigeration. At the point of re-fit, existing

refrigeration will have a nil net book value. It is recognised that the cost of HFC-free refrigeration is higher than HFC refrigeration by approximately

£40k, which has been included in our capital expenditure forecasts. Similarly, but on a smaller scale, our funeral branches and care centres with

refrigeration will require replacement.

•

uneralcare fleet

– as each vehicle comes to the end of its useful life, it will be replaced by an electric vehicle. There are c1,300 vehicles in the

fleet. This replacement started in 2023.

•

Food logistics fleet

– this fleet is made up of c2,000 vehicles. We do not yet have a detailed plan of how we will de-carbonise the fleet but will

not replace any vehicle until it has come to the end of its useful life.

There is a risk that Coop assets could be materially affected by extreme weather events such as flood. No such event has actually occurred.

No individual store or funeral branch, if affected by an extreme weather event, could have a material impact on the Group's overall results.

However, the Food Distribution Centres can more reasonably be regarded as key facilities. Impairment should only be considered if there is

evidence that a future event is highly probable (>81%) in a short timescale (<4 years). In conjunction with DNV and Resilience, an assessment of

the physical risk to the distribution network of extreme weather events was carried out and indicated that the risk was negligible (see TCFD

disclosures on pages 127 - 134).

Impairment of other non-financial assets

The Group’s scenario analysis performed as part of the Task Force on Climate-Related Financial Disclosures (TCFD) report did not identify any

material impairment risk to other non-financial assets. See TCFD section on pages 127 - 134.

Provisions

The Group takes into account the potential impact of climate change on its legal and constructive obligations, such as potential changes in

regulations related to carbon emissions, environmental liabilities and natural disasters. The Group also considers the potential impact of climate

change on the costs of complying with environmental regulations and the costs of natural disasters. The Group has reviewed its provisions and

concluded that no adjustments need to be made for climate change risks, nor that any new provisions need to be recognised for climate-related

matters.

238

Co-op Annual Report & Accounts for 2023:

Accounting policies and basis of preparation

Material accounting judgements, estimates and assumptions in relation to climate change

- continued

Pension assets

Risk associated with volatility in asset value - the market value of the assets held by the pension schemes, particularly the assets held in return-

seeking assets such as equity, can be volatile (and, for example, may be affected by environmental, social or corporate governance (“ESG”)

failures at investee companies and/or sovereign states - including the physical and transition risks of climate change). This creates a risk of

short-term fluctuations in funding level. Through its insurance buy-in contracts Pace has minimal further exposure. For the Somerfield and

United schemes this risk has been mitigated by reducing the exposure of the pension schemes to those asset classes which have the most

volatile market values. In particular, the schemes have limited allocation to return-seeking assets such as equity. In addition, the Trustees of

the Co-op’s pension schemes have responsible investment policies in place, and aligned with those policies exclude specific investments

(where appropriate and viable). Management of ESG risks is considered when appointing investment managers and in their ongoing

monitoring, and the schemes’ equity assets are explicitly managed with a consideration of such risks, including climate change.

New and amended standards adopted by the Group:

IFRS 17 (Insurance Contracts)

- the Group has adopted the new insurance standard from 1 January 2023 which has a material impact on

how the Group accounts for its funeral plan liabilities. The adoption of IFRS 17 is retrospective and has required the restatement of our prior

period numbers. Further detail of the approach on transition, the application of the new standard and the impact of the restatement is given in

Note 33.

The Group has considered the following standards and amendments that are effective for the Group for the period commencing 1 January

2023 and concluded that they are either not relevant to the Group or do not have a material impact on the financial statements:

•

Amendments to IAS 8 - Definition of Accounting Estimates

•

Amendments to IAS 1 and IFRS Practice Statement 2 - Disclosure of Accounting Policies

•

Amendments to IFRS 17 - Initial application of IFRS 17 & IFRS 9 Comparative Information

•

Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities arising from a Single Transaction

•

Amendments to IAS 12 - International Tax Reform Pillar Two Model Rules*

* Pillar 2 is being introduced into the UK to support the international actions promoted by the OECD to impose a minimum tax rate of 15%. The

Co-op have considered the impact of the new rules and concluded that it has no application for the current year and is very unlikely to apply in

2024. This is because our prevailing Effective Tax Rate is above 15%.

Standards, amendments and interpretations issued but not yet effective

Certain new accounting standards and interpretations have been published that are not mandatory for 1 January 2023 reporting periods and

the Group has not early adopted the following standards and statements. The adoption of these standards is not expected to have a material

impact on the Group’s accounts:

•

Amendments to IAS 1 - Classification of Liabilities as Current or Non-current *

•

Amendments to IAS 1 - Non-current Liabilities with Covenants *

•

Amendments to IAS 16 - Lease Liability in Sale and Leaseback *

•

Amendments to IAS 7 - Supplier Finance Arrangements *

•

Amendments to IFRS 10 and IAS 8 - Sale or Contribution of Assets between an Investor and its Associate or Joint venture **

* Effective for annual periods beginning on or after 1 January 2024. ** In December 2015, the IASB decided to defer the application date of

this amendment until such time as the IASB has finalised its research project on the equity method.

239

Co-op Annual Report & Accounts for 2023:

Accounting policies and basis of preparation

Going concern basis of preparation

The Directors have considered the Group’s business activities, together with the factors likely to affect its future development, performance

and position. The Directors have also assessed the financial risks facing the Group, its liquidity position and available borrowing facilities.

These are principally described in Note 19 to the accounts.

In addition, notes 19 and 26 also include details of the Group’s objectives, policies and processes for managing its capital, its financial risk

management objectives and its financial instruments and hedging activities. The ongoing impact of the conflicts in Ukraine and the Middle

East and the stagnant UK economy have been taken into account, as explained in more detail in the Directors’ Report.

In making their assessment the Directors have noted that the consolidated Group accounts show a net current liability position. This is not

uncommon for a retail business and represents the usual balance sheet position for the Group and consequently the Directors do not believe

that the net liability position impacts their overall assessment of Going Concern as outlined hereafter. The Group meets its working capital

requirements through a number of separate funding arrangements, as set out in detail in Note 26, certain of which are provided subject to

continued compliance with certain covenants (Debt Covenants). Profitability and cash flow forecasts for the Group, prepared for the period to

December 2025 (the forecast period), and adjusted for sensitivities considered by the Board to be severe but plausible in relation to both

trading performance and cash flow requirements, indicate that the Group will have sufficient resources available within its current funding

arrangements to meet its working capital needs, and to meet its obligations as they fall due. Sensitivities have been applied to the market

conditions of each of our trading businesses, as well as applying sensitivities to our key strategic activities and in respect to the ongoing

energy cost increases, inflation and supply constraints. The Group’s £350m 7.5% Bond matures in July 2026; our current forecast assumes

that we will be able to refinance a broadly equivalent level of debt prior to its maturity. Based on Co-op’s past experience of successfully

issuing bonds / raising debt, our credit rating and our expectations of the debt markets, the Directors are comfortable that this will be

achievable as planned.

Further details of the Director’s assessment can be found in the Going concern and Longer Term Viability sections of the Directors’ report on

pages 121 – 124.

After making all appropriate enquiries, the Directors have not identified any material uncertainties and have a reasonable expectation that the

Society and the Group have access to adequate resources to enable them to continue in operational existence for the foreseeable future. For

this reason, they continue to adopt the going concern basis in preparing the Group’s financial statements.

240

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF CO-OPERATIVE GROUP LIMITED

Opinion

In our opinion:



Co-operative Group Limited’s Group financial statements (the “financial statements”) give a true

and fair view of the state of the Group’s affairs as at 6 January 2024 and of the Group’s income

and expenditure for the 53-week period then ended;



the group financial statements have been properly prepared in accordance with UK adopted

international accounting standards in conformity with the requirements of the Co-operative and

Community Benefit Societies Act 2014.

We have audited the financial statements of Co-operative Group Limited for the 53-week period ended

6 January 2024 which comprise:

Group

Consolidated balance sheet as at 6 January 2024

Consolidated income statement for the 53-week period ended 6 January 2024

Consolidated statement of comprehensive income for the 53-week period ended 6 January 2024

Consolidated statement of changes in equity for the 53-week period ended 6 January 2024

Consolidated statement of cash flows for the 53-week period ended 6 January 2024

Related notes 1 to 33 to the financial statements, including

material accounting policy information

The financial reporting framework that has been applied in their preparation is applicable law and UK

adopted international accounting standards in conformity with the requirements of the Co-operative

and Community Benefit Societies Act 2014.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and

applicable law. Our responsibilities under those standards are further described in the Auditor’s

responsibilities for the audit of the financial statements section of our report. We are independent of

the Group in accordance with the ethical requirements that are relevant to our audit of the financial

statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities,

and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis

for our opinion

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern

basis of accounting in the preparation of the financial statements is appropriate. Our evaluation of the

directors’ assessment of the Group’s ability to continue to adopt the going concern basis of accounting

included:

241



We confirmed our understanding of the Group’s going concern assessment process including

the review process over the going concern model and management’s related Board

memorandum.



We assessed the adequacy of the going concern assessment period, and considered whether

any events or conditions foreseeable after the period indicated a longer review period was

required.



As set out in the section 'Accounting policies and basis of preparation', the Group needs to

refinance a £350m bond which matures shortly after the Going Concern assessment period.

We utilised our Debt Advisory specialists to assess the likelihood of the Group refinancing the

bond.



We checked the arithmetical accuracy of the cash flow forecasts, including the base case and

downside scenarios, covering the going concern assessment period prepared by management

and used by the Board in its assessment.



We obtained copies of all facility agreements and understood the terms and conditions

including those related to covenant test ratio requirements. We re-performed the calculation of

headroom in respect of the financial covenant test ratios under the base case and by applying

sensitivity analysis to assess compliance under severe but plausible downside scenarios.



For the group’s downside scenarios, we considered whether they reflected severe but

plausible changes in key assumptions and adequately reflected our assessment of

management’s historical forecasting accuracy.



We assessed management’s ability to execute feasible, mitigating actions, if applicable, to

respond to the downside scenarios, based on our understanding of the group and the sector.



We obtained a forecast of the future climate-related expenditure, checked whether the related

cashflows were appropriately incorporated into the model and checked that the model

appropriately reflected the Group’s climate-related commitments.



We assessed the appropriateness of the going concern disclosures in describing the risks

associated with the group’s ability to continue as a going concern for the review period.

Explanation of how we evaluated management’s assessment (included in Conclusion section above)

and the key observations arising with respect to that evaluation:

In making the going concern assessment, we have considered the following:

The Group has net current liabilities of £470m (2022: £223m), which is common in the retail industry

due to the working capital cycle. The Group has net debt of £1,326m (2022: £1,639m) of which £688m

(2022: £780m) is subject to covenant testing twice a year.

Cash generated from operating activities was £602m (2022: £455m) and was higher than the prior

period mainly as a result of the trading performance alongside a focus on cost control and improved

working capital management.

We identified the following significant assumptions made by management which have influenced their

going concern assessment:



Sales growth increases through volume recovery because of significant membership price

investment and wider strategic plans to grow the business.

242



This growth is tempered with the impact of cost headwinds (through real living wage increases

and continuing cost inflation) increasing the cost of goods.



Whilst capital investment remains tightly controlled, growth plans and an improved balance

sheet will allow room for higher investment into future growth.



The bonds due for maturity in 2024 and 2025 are expected to be repaid in full out of existing

cash balances, while the bond maturing in 2026 is expected to be refinanced.

Based on the work we have performed, we have not identified any material uncertainties relating to

events or conditions that, individually or collectively, may cast significant doubt on the Group’s ability to

continue as a going concern for a period to 31 December 2025.

Our responsibilities and the responsibilities of the directors with respect to going concern are

described in the relevant sections of this report. However, because not all future events or conditions

can be predicted, this statement is not a guarantee as to the Group’s ability to continue as a going

concern.

243

Overview of our audit approach

Audit scope



We performed an audit of the complete financial information of four

components and audit procedures on specific balances for a further two

components. In addition, we performed specified procedures on one

component and review scope procedures on two components.



The components where we performed full or specific audit procedures

accounted for 84.1% of Profit before tax, 99.9% of Revenue and 98.3% of

Total assets.

Key audit



Revenue recognition;

matters



Supplier income;



Transition to IFRS 17



Valuation of insurance contract liabilities – liability for remaining coverage;



Revenue recognition in respect of the release of contractual service

margin (CSM);



Impairment of Food and non-trading corporate, property, plant & equipment and

right of use assets; and



Group IT Environment

Materiality



Overall Group materiality of £45m which represented 0.5% of Adjusted

Revenue.

Adjusted Revenue is calculated as Group revenue less revenue generated by the

Federal Joint Buying Group (Federal per Note 1 of the accounts). Federal relates to

the activities of a joint buying group that is operated by the Group for itself and other

independent co-operative societies. The Group acts as a wholesaler to the other

independent co-operatives and generates sales from this. This is run on a cost

recovery basis and therefore no profit is derived from its activities. As the Group earns

no profit on the arrangement, we consider Adjusted Revenue to be a relevant

performance benchmark for measuring the value of the Group's activities from which it

derives an economic benefit.

An overview of the scope of the Group audit

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance

materiality determine our audit scope for each component within the Group. Taken together, this

enables us to form an opinion on the Group financial statements. We take into account size, risk

profile, the organisation of the Group and effectiveness of Group wide controls, changes in the

business environment, the potential impact of climate change and other factors such as recent Internal

audit results when assessing the level of work to be performed at each component.

In assessing the risk of material misstatement to the Group financial statements, and to ensure we

had adequate quantitative coverage of significant accounts in the financial statements, we included in

our audit scope all nine (2022: nine) reporting components of the Group. Our audit scope therefore

represents all the principal business units within the Group.

244

Of the nine components selected, we performed an audit of the complete financial information of

Food, Wholesale, Funeral, and Corporate components (“full scope components”) which were selected

based on their size or risk characteristics. For the Legal and Insurance components (“specific scope

components”), we performed audit procedures on specific accounts within those components that we

considered had the potential for the greatest impact on the significant accounts in the financial

statements either because of the size of these accounts or their risk profile. The Property component

was designated as specified audit procedures scope. The remaining two components were designated

as review scope.

The below tables summarise the coverage which has been obtained in respect of the Group’s Profit

before tax, Adjusted Revenue and Total Assets in both the current and prior audit periods.

The audit scope of the Specific scope components may not have included testing of all significant

accounts of the component but will have contributed to the coverage of significant accounts tested for

the Group.

The audit scope of these components included procedures which have been designed to address

specific areas of risk within the component which will contribute to the overall risk assessment at the

Group level.

The review scope components represent CFS Management Services Limited and Angel Square

Investments Limited, for which we performed other procedures, including detailed analytical review,

testing of cash balances, and testing of intercompany balances for elimination. We performed these

procedures to respond to potential risks of material misstatement to the Group financial statements.

Current Period Coverage

Components

Profit before tax %

Adjusted Revenue

Total assets %

Full Scope Components (4)

78.38

98.85

97.49

Specific Scope Components

5.72

1.06

0.80

(2)

Review Scope Components

0.24

0.00

(2)

Specified Procedures

15.66

0.09

1.71

Component (1)

Total

100

Prior Period Coverage

Components

Profit before tax %

Adjusted Revenue

Total assets %

Full Scope Components (5)

80.75

99.42

98.05

Specific Scope Component (1)

2.95

0.48

0.30

Review Scope Components (2)

0.10

0.00

0.31

Specified Procedures

16.20

0.10

1.34

Component (1)

245

Components

Profit before tax %

Adjusted Revenue

Total assets %

Total

100

Adjusted Revenue is defined in 'Materiality' summary in the 'Overview of our audit approach' section

above.

Changes from the prior period

We revised our scope for the Insurance component from full scope in the prior period to specific scope

due to the smaller relative contribution to the Group profit which has been made by this component in

the current period.

Involvement with component teams

In establishing our overall approach to the Group audit, we determined the type of work that needed to

be undertaken at each of the components by us, as the primary audit engagement team, or by

component auditors operating under our instruction. Of the four full scope components, audit

procedures were performed on one of these directly by the primary audit team. For the remaining

components, where the work was performed by component auditors, we determined the appropriate

level of involvement to enable us to determine that sufficient audit evidence had been obtained as a

basis for our opinion on the Group as a whole.

During the audit, an EY Group-wide team planning event was held with representatives from all full

and specific scope component teams in attendance which involved discussing the approach with the

component teams. The primary team interacted regularly with the component teams where

appropriate during various stages of the audit, discussed issues arising from their work, attended

closing meetings with component management, reviewed key working papers and were responsible

for the scope and direction of the audit process. During the current period’s audit cycle, the Food,

Funeral, Wholesale, Insurance, Corporate and Property component teams worked in the same office

location as the primary team when on-site in the Co-operative Group Head Office in Manchester. This

allowed the Group audit partner to meet with the component teams during the performance of the

audit. This, together with the additional procedures performed at Group level, gave us appropriate

evidence for our opinion on the financial statements.

Climate change

Stakeholders are increasingly interested in how climate change will impact the Group. The Group has

determined that the significant future physical risks from climate change are a lack of raw material

availability and reduced access to key facilities (depots & data centres). The material future transition

risks arising from climate change are potential damage to consumer sentiment in the market and

impairment of technological assets as a result of negative impacts from the transition to a more

sustainable business.

These are outlined on pages 127 to 135 in the required Task Force for Climate related Financial

Disclosures and on pages 57 to 64 in the principal risks and uncertainties.

All these disclosures form

part of the “Other information,” rather than the audited financial statements. Our procedures on these

unaudited disclosures therefore consisted solely of considering whether they are materially

inconsistent with the financial statements, or our knowledge obtained in the course of the audit or

otherwise appear to be materially misstated, in line with our responsibilities on “Other information”.

In planning and performing our audit we assessed the potential impacts of climate change on the

Group’s business and any consequential material impact on its financial statements.

246

The Group has explained in the Accounting Policies and Basis of Preparation and in Note 11 and Note

13 their articulation of how climate change has been reflected in the financial statements and cash

flow forecasting, including how this aligns with their commitment to become a net-zero business

before 2040.

Significant judgements and estimates relating to climate change are included within

section “Material accounting judgements, estimates and assumptions in relation to climate change“.

Our audit effort in considering the impact of climate change on the financial statements was focused

on evaluating management’s assessment of the impact of climate risk, physical and transition, their

climate commitments, the effects of material climate risks disclosed on page 127 and the significant

judgements and estimates disclosed within section “Material accounting judgements, estimates and

assumptions in relation to climate change. We assessed whether this impact has been appropriately

reflected in asset values where these are impacted by future cash flows and associated sensitivity

disclosures (see notes [11,13 and 25]) following the requirements of UK adopted international

accounting standards. As part of this evaluation we performed our own risk assessment, which

included a review of the most recent Sustainability Report produced by the Group and a review of “Co-

op’s Climate Plan” released in April 23, in order to determine the risks of material misstatement in the

financial statements arising as a result of climate change and which therefore need to be considered

in our audit. This risk assessment was supported by our climate change internal specialists.

We also challenged the Directors’ considerations of climate change risks in their assessment of going

concern and viability and associated disclosures. Where considerations of climate change were

relevant to our assessment of going concern, these are described above.

Based on our work we have not identified the impact of climate change on the financial statements to

be a key audit matter. However climate change has an impact on one existing key audit matter

Impairment of Food and non-trading corporate, property, plant & equipment and right of use assets

. As

explained

within the section

“

Material accounting judgements, estimates and assumptions in relation

to climate chang

e”

the impact of climate change is considered within the annual impairment

assessment of property, plant & equipment and right of use assets

Key audit matters

Key audit matters are those matters that, in our professional judgment, were of most significance in

our audit of the financial statements of the current period and include the most significant assessed

risks of material misstatement (whether or not due to fraud) that we identified. These matters included

those which had the greatest effect on the overall audit strategy, the allocation of resources in the

audit; and directing the efforts of the engagement team. These matters were addressed in the context

of our audit of the financial statements as a whole, and in our opinion thereon, and we do not provide

a separate opinion on these matters.

Risk

Our response to the risk

Revenue Recognition

Applicable to all material revenue streams

2023: £11,262 million (2022:

We obtained an understanding of and documented the key

£11,484 million)

processes and controls used to record revenue transactions by

performing a walkthrough of the processes.

The timing of when revenue is

recognised is relevant to the

We performed analytical procedures over revenue, comparing

reported performance of the Group.

results with our expectations and corroborating differences. We

There remains opportunity through

management override of controls to

247

Risk

Our response to the risk

misstate revenue throughout the

performed procedures in the month preceding and subsequent to

period.

the period-end.

This is an existing risk of fraud in

We tested whether the Group’s revenue recognition policy is in line

line with our prior period audit. We

with the criteria in IFRS 15: Revenue from Contracts with

have determined the risk to affect

Customers.

overstatement in the current period,

reflecting the risk that management

We performed testing around manual consolidation adjustments.

could override controls to enhance

Utilizing our analytics tools, we tested manual journals to revenue

reported performance.

during the period and around period-end to a lower threshold and

evaluated and corroborated explanations provided by management

The key areas where management

for any unexpected fluctuations.

override may arise relate to manual

journals posted into revenue or

Food- Store revenue

through adjustments in relation to

store revenue polling data close to

We tested manual journals relating to instances where stores

the end of the period.

recognise revenue outside the normal automated store EPOS

process and ensured that there is no duplication of stores within the

Refer to the Audit Committee

population or unusual amounts of revenue recognised.

Report (pages 86-95); Accounting

policies (page 234); and Note 2 of

We performed journal analysis to identify sales journals that have

the Consolidated Statements (page

not resulted in cash receipts and tested a sample of these to

167).

supporting evidence to ensure revenue has been recognised

correctly.

We challenged manual adjustments made in relation to “non-polled”

store data adjustments by comparing these against averages for

those stores.

Funeralcare

In conjunction with our actuarial colleagues, we:

Agreed the expected claims and expenses recognized for the period

to the change in the liability for the remaining coverage,

investigating unusual or material reconciling items;

Reconciled the amount of insurance acquisition cash flows included

in revenue to the amount included in insurance costs, investigating

unusual or reconciling items; and

Wholesale and Legal Services

We tested manual journals to revenue and other transactions to the

revenue account that do not follow the expected critical path from

revenue to debtors to cash to identify any material instances of

misallocation between periods.

CISL

We tested the appropriateness of the release of deferred

consideration into revenue during the period.

We agreed the frontbook revenue to third party commission

statements and traced to cash receipts in the bank for the full year.

We reviewed contracts with insurers to agree the revenue

recognition steps under IFRS 15.

248

Key Observations to the Risk and Audit Committee

Revenue has been recognised appropriately in accordance with IFRS 15: Revenue from Contracts with

Customers. The revenue from pre-need funeral plans has been recognized in accordance with IFRS 17:

Insurance Contracts. We have not identified instances of management override of controls in relation to

revenue.

Risk

Our response to the risk

Supplier income

Income through the period 2023:

We obtained an understanding of and documented the processes

£612m (2022: £626m)

used to record supplier income by performing a walkthrough of the

Income accrued at period-end

processes.

2023: £96m (2022: £116m)

We tested key controls identified from our walkthrough of the

The Group receives money back

process including those related to the approval of key contracts.

from suppliers, specifically in the

Food and Wholesale divisions. This

For sample of supplier income recognised during the period, we

supplier income is categorised as

issued direct requests to third party vendors to confirm the terms of

bonus income, promotional income

arrangements and sales volumes used. We recalculated the income

and long-term agreements (LTAs).

and accrued income recognised for this sample.

The terms of agreements with

suppliers can be complex and

We selected a sample of period-end balances from the trade

varied, including performance

receivables ledger and requested third party balance confirmations.

conditions or promotional periods

that span the Group’s period end.

We tested a sample of credit notes received during January 2024

Due to the complexity and

and assessed whether any of these related to arrangements in

judgement in relation to bonus

respect of FY23.

income and LTA income, there is a

risk that a misstatement in the

We performed analytical review procedures over supplier income

calculation of income may occur

compared to cost of sales throughout the period to identify any

either accidentally or purposefully

unusual or unexpected trends. We investigated any discrepancies.

through management override of

controls and this could arise at any

We tested provisions in place for queries and disputes by comparing

time during the period.

the period-end provisions to the proportion of disputes settled in

favour of vendors throughout the period and investigated the post

Promotional income relates to

period-end outcome of a sample of disputes. We also investigated

short-term promotions which are

aged unpaid supplier billings and ensured the provisions in place for

less complex and settled through

these amounts are sufficient.

offset in the period. The risk of

misstatement through the period is

We read the Group’s disclosures with respect to supplier

reduced, however, the risk related

arrangement amounts.

to manipulation at period-end to

misstate profit remains.

We tested that management’s allocation of supplier income earned

jointly with other independent societies through the member buying

This is an existing risk of fraud in

group was applied appropriately.

line with our prior period audit. We

have determined the risk to affect

overstatement in the current period,

reflecting the risk that management

could override controls to enhance

reported performance.

Refer to the Audit Committee

Report (pages 86-95); Accounting

policies (page 234); and Note 4 of

249

Risk

Our response to the risk

the Consolidated Financial

Statements (pages 169-170).

Key Observations to the Risk and Audit Committee

Promotional income, bonus income and LTA income were recognised in the correct period. We did not identify

any material misstatements through either management override, error or manipulation of the period-end figures

through manual journals.

Risk

Our response to the risk

Valuation of insurance contract

This risk relates to the Funeralcare business.

liabilities - Liability for

Remaining Coverage

In conjunction with our actuaries, we:

Liability for Remaining Coverage

•

Performed process walkthroughs to obtain an understanding of

2023: £1,098m (2022: £1,073m)

the actuarial modelling, plan data flows, and assumption setting

processes and identified relevant controls in place.

The risk related to the valuation of

the Liability for Remaining

•

Compared management’s model validation results with the

Coverage is focussed on the

funeral plan product terms and conditions and management’s

IFRS 17 valuation policies. For a selection of policies, performed

present value of future cash flows

an independent recalculation of the best estimate liabilities and

(PVFCFs), the risk adjustment and

compared the results to the output of the cashflow model used by

the loss component.

management;

The risk is significant due to the

•

Assessed the results of management’s analysis of movements in

complexity of the models used to

insurance contract liabilities to corroborate that there were no

estimate the insurance liabilities,

changes to the model in the period;

the degree to which insurance

liabilities are sensitive to economic

•

Gained an understanding of the rationale for amounts calculated

and non-economic assumptions set

outside of the core actuarial models and for a sample of such

calculations, assessed the appropriateness of the applied

by management and the

methodology and tested that the calculation has been performed

calculations being contingent on

appropriately;

the completeness and accuracy of

the data.

•

Obtained the output of the model baselining exercise of the cash

flow model undertaken by management's outsourced actuarial

We believe the specific risk factors

team and assessed the exercise for reasonableness; For CSM

contributing to the assessment of

and Risk Adjustment at the date of transition, we independently

the risk as significant include the

recalculated the output and compared it to management’s

following:

estimate.

•

Models are not designed

•

On a sample basis, tested the completeness and accuracy of the

policy data used in the models by agreeing this to source systems

appropriately for their

and previously audited information. For new data requirements,

purpose and do not reflect

we tested a sample of key data points back to source information.

and/or model product

250

Risk

Our response to the risk

terms and conditions

•

Agreed the reconciliation of the plan master file to the input into

effectively.

the valuation model to check that all in-force plans are properly

included in the valuation process;

•

Manual adjustments to

•

Tested the underlying data on a sample basis back to the source

liabilities outside of the

administration system, verifying that the key data fields have been

core actuarial models.

correctly and consistently applied period to period;

•

Key plan data utilised by

•

Challenged management’s methodology for splitting expenses

the models is not

between acquisition and maintenance expenses including the spit

complete and accurate.

of attributable and non-attributable costs under IFRS 17, agreeing

a sample of expenses back to source information;

•

Judgment is involved in

setting economic

•

Tested the actuarial model to assess whether the expense

assumptions, particularly

assumptions were applied appropriately within the model;

discount rates (including

the illiquidity premium)

•

Evaluated the appropriateness of the discount rate selected by

and in determining non-

management and compared the information used to determine

the illiquidity premium to the characteristics of the liabilities;

economic assumptions,

the most significant of

•

Challenged the results of management’s experience analyses to

which are expenses.

assess whether these supported the adopted non-economic

Therefore, there is a risk

assumptions;

of management override

in this area; and

•

Benchmarked the significant assumptions against those of other

comparable industry participants in our wider assumptions

•

Finally, IFRS 17 explicitly

benchmarking review;

requires that a risk

adjustment (‘RA’) be

•

Performed procedures to test that the assumptions used in the

included above the best

year end valuation were consistent with the approved basis; and

estimate cashflows within

•

Tested the application of the methodology used to derive the risk

the liability for remaining

adjustment, including the scope of non-financial risks and key

coverage. IFRS 17 does

judgements applied when updating the calibration result.

not specify the estimation

Compared management’s approach to the wider market, where

technique that should be

applicable, particularly where adjustments are applied to the

used to determine the risk

calibration to reflect external events and by applying our industry

adjustment, so

knowledge and experience; and

management must

develop an appropriate

•

Considered the adequacy of the disclosures in the financial

statements.

estimation technique.

Therefore, due to the

inherent judgment

required to determine both

an appropriate technique

and the relevant inputs,

we consider the RA to be

susceptible to

management bias. This

risk replaces the valuation

of funeral plans liability as

a result of transition from

IFRS 15 to IFRS 17.

This is a new risk in the current

period. This risk has arisen in the

251

Risk

Our response to the risk

current period as a result of the

adoption of IFRS 17,

Refer to the Audit Committee

Report (pages 86-95); Accounting

policies (page 234); and Note 21, of

the Consolidated Financial

Statements (pages 197- 207).

Key Observations to the Risk and Audit Committee

We have concluded that the liability for remaining coverage including risk adjustment is fairly stated in

accordance with IFRS 17.

Risk

Our response to the risk

Revenue recognition in respect

This risk relates to the Funeralcare business.

of the release of contractual

service margin (CSM)

In conjunction with our actuarial colleagues, we have:

Release of CSM (2023: £109m;

Performed a walkthrough of the CSM process and identified

2022: £122m)

management’s key controls in place.

The CSM represents future profit

Evaluated the definition of the coverage units and the appropriateness

within the in-force book and

of the release pattern input into the CSM model;

therefore is highly judgmental.

Recalculated the total CSM release to confirm that this is in line with

Release of CSM is a key

the requirements of the standard;

component of insurance revenue

Reconciled the movement in the CSM to the relevant accounts in the

under IFRS 17 and its calculation

Income Statement and changes in fulfilment cashflows relating to

involves significant management

future services discounted at appropriate rates and aggregation level

judgment. Subsequent to the initial

in the reserving models tested as part of the fulfilment cashflows;

calculation of the CSM, the release

of CSM is measured based on

Obtained the output of the model baselining exercise of the cash flow

coverage units provided and is

model undertaken by management's outsourced actuarial team and

based on the opening CSM,

assessed the exercise for reasonableness; For CSM and Risk

adjusted for movements in the

adjustment at the date of transition, we independently recalculated the

output and compared it to management’s estimate.

period which include additions to

the CSM during the period in

On a sample basis, tested the completeness and accuracy of the

respect of new business, interest

policy data used in the models by agreeing this to source systems and

accretion and changes in fulfilment

previously audited information. For new data requirements, we tested

cash flows relating to future

a sample of key data points back to source information.

service.

Checked the appropriate accretion of interest was included in the

Given the importance of the release

model and the discount rates are accurately applied to adjust the

of CSM to reported insurance

CSM;

revenue, and the complexity of

calculations and subjectivity of

Agreed material input cashflows to the model back to source

information;

assumptions involved in

determining coverage units and

movements in the CSM, we

252

Risk

Our response to the risk

consider release of CSM to give

Agreed the grouping of contracts into the onerous, non-onerous and

rise to a risk of fraud in revenue

other categories for all new business written during the year and

assessed the impact on CSM;

recognition.

Tested the appropriateness of material out-of-model adjustments

This is a new risk in the current

made to the CSM; (No material OOMAs were noted); and

period. This risk has arisen in the

current period as a result of the

Checked the CSM movement disclosures in the financial statements

adoption of IFRS 17,

to the output of the CSM calculation model.

Refer to the Audit Committee

Report (pages 86-95); Accounting

policies (page 234); and Note 21 of

the Consolidated Financial

Statements (pages 197-207).

Key Observations to the Risk and Audit Committee

We have concluded that the CSM calculation model is appropriate and the related release of CSM is fairly

stated in accordance with IFRS 17.

Risk

Our response to the risk

Transition to IFRS 17

This risk relates to the Funeralcare business.

The transition to IFRS 17, effective

We have performed the following procedures to address the risk in relation

for annual reporting periods

to the transition to IFRS 17:

beginning on or after 1 January

2023, has resulted in significant

•

Obtained and challenged managements methodology papers for

changes to the reporting processes

compliance with IFRS17, and assessed management's

and to the consolidated financial

implementation of their methodology;

statements. This transition, which

includes several key judgements

required substantial focus during

•

Obtained and assessed management’s documentation of their

our audit.

judgements in respect of the impracticability of applying the full

retrospective approach and the subsequent application of the fair

We have focused on several

value transition approach for certain cohorts.

transition areas, with the following

being key areas of focus:

•

Tested the appropriateness, accuracy and completeness of

management’s disclosures in respect of IFRS 17 transition in the

financial statements.

Methodology - The risk of

management’s

methodology not following

•

Performed a reconciliation of the opening retained earnings to the

the requirements of the

restated retained earnings under IFRS 17. We also tested the

standard.

restated income statement for the comparative period to ensure

ii)

Models – The risk that

that it has been presented in accordance with IFRS 17.

models used to calculate

best estimate liability

(BEL) at transition do not

appropriately reflect the

Group’s IFRS 17

accounting policies.

253

Risk

Our response to the risk

iii)

Transition approach - The

risk that the calculation of

the CSM on transition

does not appropriately

reflect the requirements of

IFRS 17 where the full

retrospective approach

(FRA) was used, or IFRS

13 where the fair value

approach (FVA) was used.

This is a new risk in the current

period. This risk has arisen in the

current period as a result of the

adoption of IFRS 17,

Refer to the Audit Committee

Report (page 86-95); Accounting

policies (page 234); and Note 33, of

the Consolidated Financial

Statements (pages 230-233).

Key Observations to the Risk and Audit Committee

We have concluded that the transition methodology, models and approach used to implement IFRS 17 on

transition were appropriate.

Risk

Our response to the risk

Impairment of Food and non-

We documented our understanding of the impairment model and the

trading corporate, property, plant

assessment of indicators of impairment for Food and non-trading

corporate PPE and RoUA.

& equipment and right of use

assets

We obtained management’s impairment indicator workings for store

level assets. For those with indicators of impairment, we obtained

PPE 2023: £1,543m (2022:

the Group’s impairment model. We confirmed the integrity of data

£1,631m)

inputs including store-level cash contribution data, listings of stores

RoU Assets 2023: £827m (2022:

which were refitted or new in 2022 or 2023 and the carrying values

£882m)

of PPE. We also re-performed manual calculations to check these

for accuracy.

There is a risk of misstatement

We challenged the composition and accuracy of the cashflow

when performing an impairment

projections and assessed management’s forecasting accuracy by

comparing to previous outturn. We considered making adjustments

assessment, due to challenges in

to forecasts where judgement was applied, such as for new and loss

forecasting for the future effects of

making stores in the Food component, as well as macro-economic

the macro-economic environment.

impact on profits.

These factors can result in a

material decline in the valuation of

We tested the key assumptions (such as growth rates, discount

a wide range of assets at a food

rates and perpetuity rates) by corroborating the data inputs to

254

Risk

Our response to the risk

store level. This is an existing risk

external sources and working with EY Valuation Specialists to

in line with our prior period audit.

compare the key assumptions to external benchmarks.

The macro-economic environment

We performed a sensitivity analysis on the key inputs into the

calculation by assessing the impact reasonably possible changes on

is particularly challenging at the

these inputs would have on the overall headroom within the

moment with high inflation levels,

calculations.

high interest rates, where the

subsequent effect of these issues

We performed additional sensitivities where management forecast

could lead to a material decline in

was based on historical trading that was not representative of store

the valuation of long life assets.

performance, such as if the store was closed for a number of

months or where ‘break even’ profitability was assumed in the value

The food retail component is most

in use calculation.

closely impacted by the macro-

economic environment. Given the

For Corporate division non-trading properties, we assessed the

appropriateness of assumptions regarding future occupancy or sub-

material value of the balances

lease rental income to determine whether those assets were

within this component we consider

impaired.

this risk to affect the Food stores

Property, Plant & Equipment (PPE)

We read the disclosures related to key assumptions and assessed

and Right of use Assets (RoUA).

whether reasonably possible changes to key assumptions could

give rise to an impairment.

Also, we note the presence of a

challenging external environment in

the property market therefore we

consider there to also be a risk on

the non-trading corporate PPE and

RoU Assets.

Refer to the Audit Committee

Report (pages 86-95); Accounting

policies (page 234); and Notes 11 &

12 of the Consolidated Financial

Statements (pages 177-183).

Key Observations to the Risk and Audit Committee

The impairment charge in respect of the Food store portfolio appropriately reflects changes in forecast

performance. The Corporate right of use asset impairment has been appropriately updated to reflect the highest

and best use of the asset under IFRS 13. The disclosures related to the impairment assessments and related

sensitivities are in accordance with the requirements of IAS 36 “Impairment of Assets”.

Risk

Our response to the risk

Group IT Environment

We understood the IT systems, the level of integration between

systems and IT general controls for the key systems impacting the

With over 600 IT platforms and

recording of transactions and the presentation of the financial

statements.

applications in use, the Group’s IT

Systems are complex. This

complexity, together with the impact

of sub-optimal system integration

255

Risk

Our response to the risk

and automation results in significant

We enhanced the testing of manual journals posted as part of the

dependence on manual

financial close process due to limitations in the Group’s IT systems

to address the risk of inappropriate journals.

workarounds and a high volume of

monthly key account

We performed procedures on each of the relevant systems

reconciliations.

throughout the Group to assess the sufficiency of relevant controls.

Due to the number of IT systems

In response to the limitations in the systems which affect the

used in the preparation of the

applications and databases within the scope of our audit, we

financial statements, a significant

performed the following audit procedures over information provided

amount of audit effort is directed

to us by the Group:

towards our response to the risks

present from manual workarounds

Testing a sample of transactions within the data processed by

and the high volume of account

the IT systems to underlying source documentation to ensure

that the extracted data is accurate.

reconciliations.

Testing the data extracted from the IT systems to the general

Accordingly, we have identified the

ledgers to ensure completeness of data subject to testing.

Group IT Environment as an area of

audit focus and a Key Audit Matter.

Reconciling trial balance movements in the period to the list of

This is an existing risk consistent

journals posted to ensure completeness.

with our prior period audit.

Observing and testing the input parameters being entered to

ensure appropriateness of the data extracted from the IT

systems for the intended purpose.

Recalculating the computations and categorizations performed

by the IT systems for a sample of transactions in the extracted

data reports to ensure the data was accurate.

Due to the lack of systems integration and the presence of

manual interventions we

increased the extent of our testing

reconciling items in both complex and non-complex areas of

accounting.

Key Observations to the Risk and Audit Committee

We completed additional substantive testing to mitigate the risk of material misstatement due to limitations in the

functionality of certain of the Group’s IT systems and IT general controls and did not identify material

misstatements.

In the current period, the procedures performed in respect to Revenue Recognition and Supplier

Income have been modified to reflect the fact that we are focussing on the risk of overstatement only.

We have also removed goodwill from the scope of the Impairment risk, due to the significant

headroom and limited sensitivity in the calculation.

We have removed the risk on Pre-need funeral plan accounting and replaced this with three new risks

as a result of the new assumptions applied under IFRS 17 in the current period, these new key audit

matters are: Valuation of insurance contract liabilities (Liability for Remaining Coverage), Contractual

Service margin (CSM) roll-forward, and Transition to IFRS 17 which became effective for annual

reporting periods beginning on or after 1 January 2023.

256

In the prior period, our auditor’s report also included key audit matters in relation to Accounting for the

disposal of petrol forecourts (Arthur Food Stores Limited) and the going concern basis of preparation,

which are not considered to be key audit matters in the current period. The risk in relation to disposal

of petrol forecourts has reduced in current period with immaterial residual balances remaining. The

going concern basis of preparation has been downgraded from a key audit matter due to the

improvements in both the net debt position and control over working capital and capital expenditure.

257

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of

identified misstatements on the audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably

be expected to influence the economic decisions of the users of the financial statements. Materiality

provides a basis for determining the nature and extent of our audit procedures.

We determined materiality for the Group to be £45.0 million (2022: £47.9 million), which is 0.5% (2022:

0.5%) of Adjusted Revenue. Revenue is a key performance indicator used by management to monitor

the Group’s performance and the figure which we believe to be relevant to the members when

assessing the performance of the Group. We considered Adjusted Revenue to be a relevant

performance metric on which to base our materiality calculation. Adjusted Revenue is defined in

'Materiality' summary in the 'Overview of our audit approach' section above.

In concluding on this benchmark, we considered that the primary users of the financial statements

were the Member-owners. Providing services for Member-owners and their communities, Membership

benefits, employee discounts and charitable contributions are key performance indicators for Member-

owners. These amounts are a function of revenue. This benchmark is consistent with the prior period.

• Starting point - £11,262 million total third party

Starting

revenue

basis

• Remove £2,142 million of revenue generated by

the Federal Joint Buying Group

Adjustments

• Totals £9,120 million adjusted revenue

• Materiality of £45 million (0.5% of adjusted

Materiality

revenue)

During the course of our audit, we reassessed initial materiality and materiality based on the final

figures used per the financial statements and this has not led to any change in our materiality levels.

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce

to an appropriately low level the probability that the aggregate of uncorrected and undetected

misstatements exceeds materiality.

On the basis of our risk assessments, including the Group’s IT environment, our assessment of the

Group’s overall control environment, conversations with the Group risk and internal audit function and

the number of audit misstatements identified in the prior period, our judgement was that performance

materiality was 50% (2022: 50%) of our planning materiality, namely £22.5m (2022: £24.0m).

Audit work at component locations for the purpose of obtaining audit coverage over significant

financial statement accounts is undertaken based on a percentage of total performance materiality.

The performance materiality set for each component is based on the relative scale and risk of the

component to the Group as a whole and our assessment of the risk of misstatement at that

component. In the current period, the range of performance materiality allocated to components was

£4.5m to £19.1m (2022: £4.8m to £18.0m).

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

258

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in

excess of £2.3m (2022: £2.4m), which is set at 5% of planning materiality, as well as differences below

that threshold that, in our view, warranted reporting on qualitative grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality

discussed above and considering other relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report other than the financial

statements and our auditor’s report thereon. The directors are responsible for the other information

contained within the annual report.

Our opinion on the financial statements does not cover the other information and, except to the extent

otherwise explicitly stated in this report, we do not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other

information is materially inconsistent with the financial statements, or our knowledge obtained in the

course of the audit or otherwise appears to be materially misstated. If we identify such material

inconsistencies or apparent material misstatements, we are required to determine whether this gives

rise to a material misstatement in the financial statements themselves. If, based on the work we have

performed, we conclude that there is a material misstatement of the other information, we are required

to report that fact.

We have nothing to report in this regard.

Matters on which we have been requested to report in accordance with our

engagement letter

The directors have instructed us to express an opinion on whether, based on the work undertaken in

the course of the audit, the information given in the Corporate Governance Statement on page 83 is in

compliance with the following provisions: Section 2 provision 3, Section 5 provisions 1, 3, 5 and 6 of

the Co-operative Corporate Governance Code issued in November 2019 (‘the Code’). We have

nothing to report in this regard.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters in relation to which the Co-operative and

Community Benefit Societies Act 2014 requires us to report to you if, in our opinion:

• The Society has not kept proper books of account; or

• The Society has not maintained a satisfactory system of control over its transactions; or

• The financial statements are not in agreement with the books of account; or

• We have not received all the information and explanations we require for our audit

Corporate Governance Statement

ISAs (UK) require us to review the directors’ statement in relation to going concern, longer-term

viability and that part of the Corporate Governance Statement relating to the Group’s compliance with

the provisions of the UK Corporate Governance Code specified for our review.

259

Based on the work undertaken as part of our audit, we have concluded that each of the following

elements of the Corporate Governance Statement is materially consistent with the financial

statements, or our knowledge obtained during the audit:

• Directors’ statement with regards to the appropriateness of adopting the going concern basis of

accounting and any material uncertainties identified set out on pages 121-123;

• Directors’ explanation as to its assessment of the Group’s prospects, the period this assessment

covers and why the period is appropriate set out on page 124;

• Directors’ statement on fair, balanced and understandable set out on page 137;

• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks

set out on page 56;

• The section of the annual report that describes the review of effectiveness of risk management and

internal control systems set out on pages 87; and

• The section describing the work of the audit committee set out on pages 86-95

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement set out on pages 137-138, the

directors are responsible for the preparation of the financial statements and for being satisfied that

they give a true and fair view,

and for such internal control as the directors determine is necessary to

enable the preparation of financial statements that are free from material misstatement, whether due

to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the Group’s ability to

continue as a going concern, disclosing, as applicable, matters related to going concern and using the

going concern basis of accounting unless the directors either intend to liquidate the Group or to cease

operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole

are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that

includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that

an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it

exists. Misstatements can arise from fraud or error and are considered material if, individually or in the

aggregate, they could reasonably be expected to influence the economic decisions of users taken on

the basis of these financial statements.

Explanation as to what extent the audit was considered capable of detecting

irregularities, including fraud

Irregularities, including fraud, are instances of non-compliance with laws and regulations. We design

procedures in line with our responsibilities, outlined above, to detect irregularities, including fraud. The

risk of not detecting a material misstatement due to fraud is higher than the risk of not detecting one

resulting from error, as fraud may involve deliberate concealment by, for example, forgery or

intentional misrepresentations, or through collusion. The extent to which our procedures are capable

of detecting irregularities, including fraud is detailed below.

However, the primary responsibility for the prevention and detection of fraud rests with both those

charged with governance of the Group and management.

260



We obtained an understanding of the legal and regulatory frameworks that are applicable to

the Group and determined that the most significant are the direct laws and regulations relating

to elements of company law and tax legislation, and the financial reporting framework i.e., UK-

adopted international accounting standards in conformity with the requirements of the Co-

operative and Community Benefit Societies Act 2014. Our considerations of other laws and

regulations that may have a material effect on the financial statements include the Groceries

Supply Code of Practice (GSCOP), FCA Disclosure Guidance and Transparency Rules (DTR),

the UK Corporate Governance Code 2018, Health and Safety at Work Act 2015, National

Minimum Wage Act 1998, Food Hygiene Regulations 2006, Money Laundering Regulations

2019, Network and Information Systems (NIS) Regulations 2018 and The Funeral Plan:

Conduct of Business sourcebook (FPCOB) issued by the Financial Conduct Authority (FCA).



We understood how the Group is complying with those frameworks by making enquiries with

management, internal audit, and those responsible for legal and compliance matters. We also

read correspondence between the Group and various UK regulatory bodies; inspected

minutes of the Board and Risk and Audit Committee; and gained an understanding of the

Group’s approach to governance. This final point was demonstrated by the board of directors’

approval of the governance framework and its review of the risk management framework and

internal control processes. Throughout the above procedures we noted that there was no

contradictory evidence to the enquiries held.



We assessed the susceptibility of the Group’s financial statements to material misstatement,

including how fraud might occur by the entity, or that might otherwise seek to prevent, deter or

detect fraud. We also considered areas of significant judgement including complex

transactions, performance targets, economic or external pressures and the impact that these

have on the control environment. Where the risk was considered to be higher, we performed

audit procedures to address each identified fraud risk, refer to the Key Audit Matters section

for further details.



We used an internal fraud analyser, which compares the general ledger data to the

characteristics from a database of fraud schemes, to identify journal entries that exhibit

common characteristics. Using the internal fraud analyser, we reviewed the areas of the

financial statements that could be more susceptible to fraud and assessed whether this was

consistent with our risk assessment procedures. Then applying filters and using our

professional judgement, we analysed the underlying journal detail. For those entries in the

journal detail determined to be higher risk we selected items for testing.



Based on this understanding we designed our audit procedures to identify non-compliance

with such laws and regulations. For laws and regulations having a direct impact on the

financial statements, we considered the extent of compliance with those laws and regulations

as part of our procedures on the related financial statement items. For both direct and other

laws and regulations, our procedures involved; making enquiries with those charged with

governance, senior management and internal legal counsel for their awareness of non-

compliance with laws and regulations, inquiring about policies that have been established to

prevent non-compliance with laws and regulations by officers and employees, inquiring about

the Society’s methods of enforcing and monitoring compliance with such policies, inspecting

significant correspondence with regulatory authorities and making inquiries with external legal

counsel. We communicated relevant items from these procedures to the relevant component

261

teams who performed sufficient and appropriate audit procedures on these areas,

supplemented by audit procedures performed at the Group level.



The Group has disclosed in Note 28 that a claim has been received in respect of an historic

transaction relating to certain former Somerfield stores. We inspected documentation

prepared by management, the in-house legal counsel and management’s external legal

advisors both at the time of the transaction and in the current period. We discussed the nature

of the claim and the basis for the disclosure presented in Note 28 with management, the

external legal advisors and members of the Risk and Audit Committee.



The Group has disclosed in Note 28 that employment tribunal claims have been received in

respect of current and former food store colleagues alleging their work is of equal value to that

of distribution centre colleagues and differences in pay and other terms are not objectively

justifiable. We inspected documentation prepared by management, the in-house legal counsel

and management’s external legal advisors. We also discussed the nature of the claim and the

basis for the disclosure presented in Note 28 with management, the external legal advisors

and members of the Risk and Audit Committee.



During the previous year, new regulation was introduced by the Financial Conduct Authority

relating to the Funeral Plan industry. The Group responded to the new requirements by

transferring its pre-need funeral plan assets and liabilities into a new entity, establishing a new

and separate governance organisation and increased monitoring of compliance with the

regulatory requirements. During this transitional period, management continue to address

internal control improvements and IT systems developments to strengthen the effectiveness of

the control environment. We enquired of members of Funeral management and the Funeral

Business, Risk and Audit Committee members to understand the policies and procedures

implemented to prevent non-compliance with the new regulatory requirements. We also

inspected correspondence with the regulatory authority regarding the new requirements.

A further description of our responsibilities for the audit of the financial statements is located on the

Financial Reporting Council’s website at https://www.frc.org.uk/auditorsresponsibilities.

This

description forms part of our auditor’s report.

Other matters we are required to address

Following the recommendation from the Risk and Audit committee we were appointed by the Society

on 21 May 2016 to audit the financial statements for the 52-week period ending 31 December 2016

and subsequent financial periods. The period of total uninterrupted engagement including previous

renewals and reappointments is 8 periods, covering the 52-week periods ending 31 December 2016, 5

January 2019, 4 January 2020, 2 January 2021, 1 January 2022, 31 December 2022 and two 53-week

periods ending 6 January 2018 and 6 January 2024.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the Group and

we remain independent of the Group in conducting the audit.

The audit opinion is consistent with the additional report to the Risk and Audit Committee.

262

Use of our report

This report is made solely to the Society’s members, as a body, in accordance with Section 87 of the

Co-operative and Community Benefit Societies Act 2014 and our engagement letter dated 20

February 2024. Our audit work has been undertaken so that we might state to the Society’s members

those matters we are required to state to them in an auditor’s report and for no other purpose.

To the

fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the

Society and the Society’s members as a body, for our audit work, for this report, or for the opinions we

have formed.

Ernst & Young LLP

Statutory Auditor

Manchester

3 April 2024

Co-op Annual Report & Accounts for 2023:

Jargon Buster

263

Jargon Buster

There are lots of technical words in our accounts which we have to use for legal and accounting reasons.

We’ve set out some definitions in the jargon buster table in the pages that follow to help you understand

some of the difficult phrases accountants like to use. When a word is in bold in the jargon buster table that

means you can also find the definition of that word in this table.

For the first time this year we have recorded our funeral plan liabilities under a new accounting standard for

insurance contracts and consequently we have added in some new definitions to the Jargon Buster to help

with the new terminology. However, insurance accounting is very complicated and diffcult to explain in

simple terms. As such; it may help a user to also refer to the accounting policies for funeral plans on page 205

(which gives a holistic view of the approach taken) when considering some of the definitions noted in the

Jargon Buster for insurance contracts and funeral plans.

There is also a “What does this show?” introduction to every note to the accounts describing in simple terms

what the note is trying to show.

Initially though we define and explain some of the Alternative Performance Measures (APMs) that we use

throughout the Annual Report and Accounts.

Alternative Performance Measures (APMs)

Our Annual Report and Accounts includes various references to Alternative Performance Measures (APMs).

These are financial ratios and metrics that are not defined by International Financial Reporting Standards

(IFRS) and as such they may not be comparable with the APMs that are reported by other entities.

We include our APMs in the Annual Report and Accounts as we think they give useful information to our

members to help them better understand the underlying performance and financial health of their Co-op. We

don’t however think the APMs that we provide are better than the statutory measures noted under IFRS and

they are not meant to replace them.

The table overleaf explains in simple terms how the APMs are calculated and why we think they are useful

measures to use. Where possible we also call out the nearest equivalent IFRS measure and cross-refer to the

section of the financial statements where we reconcile between the APM and that IFRS measure.

The Group's primary APM is Underlying profit / (loss) before tax.

During 2023 we have amended our net debt APM metric slightly such that we now show net debt before any

interest accruals on the debt that we hold at amortised cost. The adjustment to strip out of the interest

accrual from our net debt metric is clearly shown in our net debt reconciliation on page 163 and in our

Borrowing note (Note 19) on page 194. We think showing our net indebtedness in this way is helpful to our

members as we settle the interest accruals shortly after year-end. We show how we define and calculate net

debt on page 266 of this Jargon Buster.

Co-op Annual Report & Accounts for 2023:

Jargon Buster

264

Alternative Performance Measures (APMs)

continued

APM

Definition and Purpose:

Like-for-like sales growth relates to growth in sales at those Food stores that have been open

for more than one year (with any sales from stores that have opened or closed in the year

being removed from the calculation and prior year figures).

The calculation includes VAT on sales but excludes fuel sales from our petrol forecourts (which

were sold in 2022). For Wholesale then the like-for-like metric relates to those partners

(stores) that have been with Co-op for more than one year (with any sales from partners who

have left in the year being removed from the calculation).

Like-for-like sales

The measure is used widely in the retail sector as a relative indicator of current trading

performance versus the prior year. It is also helpful to our members in comparing our

underlying performance and growth against the wider market as well as against other

retailers (as it removes the impact that opening and closing stores may have on absolute sales

levels).

Closest IFRS equivalent:

There is no close equivalent to this measure under IFRS.

Where reconciled in the financial statements:

Not applicable as there is no close equivalent to this measure under IFRS.

Definition and Purpose:

Underlying operating profit reflects our operating profit before the impact of property and

business disposals (including individual store and branch impairments), the change in the

value of investment properties and one-off items.

We exclude these items as they are not generated by our day-to-day trading and by excluding

Underlying

them it is easier for our members to see and understand how our core businesses are

operating profit

performing.

before tax

Closest IFRS equivalent:

Operating Profit.

Where reconciled in the financial statements:

Income statement Non-GAAP measure table and Note 1 (Operating segments).

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Alternative Performance Measures (APMs)

continued

APM

Definition and Purpose:

Our underlying PBT figure is simply our underlying operating profit (as calculated above)

less our net underlying interest (being the day-to-day interest we pay or earn on our

bank borrowings and lease liabilities).

Other interest income or expense such as our net interest income or expense on funeral

plans is either not generated by our day-to-day trading or is not considered by

management in the day-to-day running of the business as it distorts the underlying

trading performance of the Group. Such items are not included in our underlying PBT

Underlying profit

metric so it is easier for our members to see and understand how our core businesses

/ (loss) before tax

are performing.

(PBT)

Again the measure looks to remove those items that are not generated by our day-to-

day trading (as per the definition noted above) but we also include the day-to-day net

finance costs of running of our businesses.

Closest IFRS equivalent:

Profit before tax.

Where reconciled in the financial statements:

Note 1 (Operating segments).

Definition and Purpose:

EBITDA is calculated by adding back depreciation and amortisation charges to Operating

profit. Operating profit is stated before interest charges and taxation.

EBITDA

EBITDA is a non-GAAP measure of performance which helps us to understand the profits

(Earnings before

our business segments are generating before capital investment and interest charges.

interest, taxation,

depreciation and

Closest IFRS equivalent:

amortisation)

There is no close equivalent to this measure under IFRS.

Where reconciled in the financial statements:

Note 1 (Operating segments).

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Alternative Performance Measures (APMs)

continued

APM

Definition and Purpose:

Underlying EBITDA is calculated by adding back depreciation and amortisation charges to

Underlying operating profit. Underlying operating profit is another one of our APMs and

is defined in the table above. It is stated before interest charges and taxation.

Underlying EBITDA is a non-GAAP measure of performance which helps us to understand

Underlying

the underlying profits our business segments are generating before capital investment

EBITDA

and interest charges.

Closest IFRS equivalent:

There is no close equivalent to this measure under IFRS.

Where reconciled in the financial statements:

Note 1 (Operating segments).

Definition and Purpose:

Net debt is made up of our of bank borrowings and overdrafts off-set by our cash

balances, short-term investments and short-term deposits. The figure excludes any lease

liabilities and (newly in 2023 as described in the introduction to this APM section) we

also strip out any interest accruals on those bonds held at amortised cost (which is

recorded as debt (<1 year) under IFRSs).

Net debt

(interest bearing

The metric provides a useful assessment of the Group’s overall indebtedness which in

loans and

turn reflects the strength of our balance sheet and consequently the financial resources

borrowings only)

available to us to employ and direct on behalf of our members.

Closest IFRS equivalent:

Interest bearing borrowings less cash and cash equivalents.

Where reconciled in the financial statements:

Consolidated statement of cashflows.

Definition and Purpose:

Total debt is made up of our of bank borrowings and any lease liabilities that we have. It

excludes any cash or cash equivalent balances that we may hold.

Total debt

The metric provides a measure of the Group’s gross indebtedness.

(including lease

liabilities)

Closest IFRS equivalent:

Interest bearing loans and borrowings plus lease liabilities.

Where reconciled in the financial statements:

Consolidated statement of cashflows.

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Jargon Buster

Accounting surplus

When a pension scheme has more

assets

than the amount it expects to pay out in the

(pensions)

future (the

present value

of its

liabilities

) then it has an accounting surplus.

When we’ve performed a service but haven’t billed the customer yet, we hold the

Accrued income

amount due on the

balance sheet

as accrued income. Once we bill the customer the

balance is then moved to

receivables

Costs that relate wholly to issuing and fulfilling

insurance contracts (funeral plans)

Acquisition cashflows

This includes the costs of selling, underwriting, and starting a group of insurance

(funeral plans)

contracts such as internal salaries or external commission paid.

Amortisation

Similar to

depreciation

, but for

intangible assets

This is an amount on our

balance sheet

where we expect to get some sort of benefit

Asset

in the future. It could be a building we use or are planning to sell, some cash or the

amount of money a customer owes us.

Sometimes we have to sell things. When we’ve decided to make a large

disposal

Assets held for sale

before the year-end but the asset hasn’t been sold yet, we have to show it in this line

on the

balance sheet

and reduce its value (

impairment

) if necessary.

When we have significant influence over a company (usually by owning 20-50% of a

Associate

company’s shares and/or having a seat on its Board), we call that company an

associate.

This shows our financial position – what

assets

we have and the amounts we owe

Balance sheet

(

liabilities

We have an agreement in place with a collection of banks (known as our Banking

Banking Syndicate

Syndicate) that gives us quick access to borrowings should we need them.

Benefit payments

This is the amount our pension funds pays out to pensioners.

(pensions)

These are our debt instruments (loans from banks) that we pay interest on to fund

Bond Notes

our businesses’ operations.

When we spend money on items that will become

assets

(such as property or IT

systems) this is shown as capital expenditure. The costs are not shown in the

income

Capital expenditure

statement

of the year it’s spent – instead the costs are spread over the life of the

asset

depreciation

amortisation

This shows how much cash has come in or gone out during the year and how we’ve

Cash flow statement

spent it.

A CGU is the smallest identifiable group of assets that generate cash inflows that are

largely independent of the cash inflows from other assets or groups of assets. For our

Cash Generating Unit

Food business this is defined as an individual store, and for our Funeral’s business this

(CGU)

is defined as a regional care centre and the funeral branches which it serves as they

are heavily interrelated.

We group the

funeral plans

that we issue in to certain buckets depending on their

Cohort

type, how they are managed (risk profile), when they are issued and if we expect to

(funeral plans)

make a profit or a loss on them. Within this framework we use an annual horizon to

bucket plans into a so called 'cohort' year.

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Where we’ve committed to spend money on something (such as building projects)

in the future but we’re not technically liable to pay for it at the

balance sheet

date

Commitments

as it has not been incurred yet, we don’t put the amount on the

balance sheet

but

we disclose the amount in the commitments note.

Comprehensive

This is our profit for the year plus

other comprehensive income

income

As this report is based on the financial performance and position of many

societies

Consolidated

and companies around

the Group

, we have to add up all those entities and the

total is the consolidated position.

This is an amount that we might get in the future. Unless it’s almost certain that

Contingent asset

we’ll get the amount, we’re not allowed to put it on the

balance shee

t but we show

the amount in the

commitments

and contingencies note.

This is an amount that we might have to pay in the future. If it’s only possible,

rather than probable, that we’ll have to pay the amount, then we won’t show the

Contingent liability

amount on the

balance sheet

but we show the amount in the commitments and

contingencies note.

Contractual service

The unearned

profit

relating to future service to be provided under an

insurance

margin (CSM)

contract

(i.e. the profit margin we expect to earn over the life of the

insurance

(funeral plans)

contract

funeral plan

Corporate investor

This is money that other

societies

invest with us and we pay them interest on it.

The

societies

can get their money back at any time.

A means of reflecting the pattern of services provided under a group of contracts

Coverage period

(specifically relates to

funeral plans

and the time period covered by a group of

(funeral plans)

funeral plans

and how revenue is recognised).

The number of coverage units in a group is based on the quantity of service

Coverage unit

provided by the contracts in the group (specifically relates to our

funeral plans

and

(funeral plans)

the time period covered by a group of

funeral plans

and how revenue is

recognised).

This is an increase in income / reduction in costs on the

income statement

or an

Credit

increase in a

liability

/ reduction in an

asset

on the

balance sheet

Current

asset

liability

that is expected to last for less than a year.

This is the amount we expect to pay in tax for the year based on the profits we

Current tax

make.

Debenture

This is a type of loan that we’ve issued and are paying interest on.

This is a decrease in income / increase in costs on the

income statement

or a

Debit

decrease in a

liability

/ increase in an

asset

on the

balance sheet

Debt

Loans that we’ve issued and are paying interest on.

This is an amount we’ll be paying to a seller for businesses we’ve bought or an

Deferred consideration

amount we’ll be getting from a buyer for businesses that we’ve sold.

Occasionally we receive monies (or recognise

deferred consideration

following the

sale of a business) in advance of when we will actually perform the service we are

Deferred income

being paid for. When this happens we hold a

liability

(deferred income) on our

balance sheet

until the point at which we perform the service at which point we

extinguish the

liability

and recognise the income.

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Sometimes our

assets

and

liabilities

are worth more or less on our

balance sheet

than

they are for tax purposes. The tax on the difference in value is called deferred tax and

Deferred tax

can be an

asset

liability

depending on whether the value is greater in the

balance

sheet

or for tax purposes.

Defined benefit

This is a pension scheme where an amount is paid out to an employee based on the

schemes

number of years worked and salary earned.

Defined contribution

This is a pension scheme where an amount is paid into the scheme and at retirement

schemes

the employee draws on the amount that has been invested over the years.

Some

assets

the Co-op will have for a while (such as vehicles). When we buy them the

Depreciation

cost goes on our

balance sheet

and then

depreciation

spreads the cost of the

asset

evenly over the years we expect to use them in the

income statement

These are financial products where the value goes up or down based on an underlying

Derivatives

asset

such as currency, a commodity or interest rate.

When we sell a large business, we report its results at the bottom of the

income

Discontinued

statement

so that it’s easier for readers to see the performance of

the Group’s

other

operations

continuing businesses.

This is the amount that we are

discounting

by. It’s a percentage and varies based on

Discount rate

what we expect interest rates or inflation to be in the future.

Every year the amount that we’re

discounting

is going to be worth more as we get

Discount unwind

nearer to paying or receiving it. We have to put that increase in value (the

discount

unwind

) through our

income statement

When we have to pay or receive cash in the future then we reduce the value of that

Discounting

cash at the balance sheet date because cash we pay or receive in the future is going to

be worth less than it is now – mainly because of inflation.

Disposals

When we have sold an

asset

This is

operating profit

excluding any

depreciation

amortisation

. The letters stand

EBITDA

for earnings before interest, tax,

depreciation

and

amortisation

(see APM section at

the start of the Jargon Buster for further details).

This is the average tax rate we pay on our profits. This might be different to the

Effective tax rate

standard corporation tax rate, for example, if we aren’t allowed to deduct some of

(ETR)

our costs for tax purposes.

This is the difference between the

assets

we own and the

liabilities

we owe –

Equity

theoretically, this is how much money would be left for our members once every

asset

is sold and every

liability

is paid.

Expected credit losses

This is an estimate of the amount of our

receivables

which will not be repaid.

There are some things on our

balance sheet

which we have to revalue every year.

Fair value movement

This includes some of our

debt

investment properties

, our pension schemes and

funeral plan investments

. The change in value is called the fair value movement.

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Federal relates to the activities of a joint buying group that is operated by

the Group

for

itself and other independent co-operative societies.

The Group

acts as a wholesaler to

Federal

the other independent co-operatives and generates sales from this. This is run on a cost

recovery basis and therefore no profit is derived from its activities. This is separate to

our

Wholesale

business.

These are usually the interest we pay on our

debt

, but can also be other things such as

Finance costs

the

fair value movement

on our

debt

or the

discount unwind

liabilities

This mainly relates to the interest on our pension assets and the

unrealised gains on

Finance income

funeral plan investments

, but can also be other things such as the

fair value movement

on our

debt

or the

discount unwind

receivables

A finance lease is a way of providing finance. Effectively a leasing company (the lessor or

Finance lease

owner) buys the asset for the user (usually called the hirer or lessee) and rents it to them

for an agreed period.

Financial Conduct

The FCA regulates the financial services industry in the UK.

Authority (FCA)

Financial instruments

A collective term for

debt

derivatives

that we have.

Financial Reporting

The FRC regulate auditors, accountants and actuaries and they set the UK’s Corporate

Council (FRC)

Governance and Stewardship codes.

Sometimes we agree to partner with independent food retailers in a mutually beneficial

arrangement whereby Co-op supply the retailer with goods and retail expertise and

Franchise

support (including Co-op branding) through a franchising agreement but we do not own

the store or business and it is still run by the independent retailer.

Fuel

Refers to fuel sales generated from our petrol forecourts (which were sold in 2022).

For

funeral plans

these cashflows mainly comprise; premiums received from customers

Fulfilment cashflows

for

pre-paid plans

and

LCIPs

, premiums paid or repayable to re-insurers, direct internal

(funeral plans)

and external costs of delivering funerals, amounts recoverable from re-insurers and

costs of acquiring new

insurance contracts

(

funeral plans

Our customers may not want their family to pay a large single sum for a funeral when he

or she dies. Therefore, the customer can pay for it gradually or in lump sums over a

Funeral plans

number of years and

the Group

will invest that money to cover the costs of the funeral

when it is needed.

Funeral plan

When a customer gives us money for their funeral in the future, we invest this money.

investments

The balance of these investments is held on the

balance sheet

GAAP stands for Generally Accepted Accounting Principles. This is the common set of

accounting principles, standards and procedures that companies must follow.

GAAP

Sometimes, companies want to provide different measures to help readers understand

their accounts (such as underlying profit - APM section of teh Jargon Buster) where there

isn’t a standard definition – these measures are called

Non-GAAP

measures.

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The GMM model is the overarching approach that we use to account for our

funeral

General Measurement

plans

(insurance contracts)

under the new insurance accounting standard (

IFRS

17).

Model (GMM)

There's a choice of 3 approaches but the GMM approach is the default choice and

(funeral plans)

most appropriate to our funeral plans as they cover a specific risk over an extended

period of time.

Bonds (loans) issued to the UK Government and listed on the Stock Exchange. These

are considered to have a very low risk of default and are highly liquid (so can be easily

(UK) Gilts

traded in an active market) so they are used to help determine a risk free borrowing

rate for use in

discounting

When we buy a business or a group of

assets

, sometimes we pay more for it than what

Goodwill

its assets less

liabilities

are worth. This additional amount we pay is called

goodwill

and we put it on our

balance sheet

(the) Group

This is Co-operative Group Limited and all companies and

societies

that it owns.

Sometimes we want to protect ourselves in case we have to pay more in the future for

something. This could happen if the value of the pound falls so we have to pay more

Hedging

when buying something abroad or if interest rates go up. We take out

derivatives

protect us from this and this process is known as hedging.

International Accounting Standards.

The Group

use these as the accounting rules.

IAS

There are many different

IAS

s that cover various accounting topics (e.g. IAS 38 is for

intangible assets

International Financial Reporting Interpretations Committee. These are interpretations

IFRIC

IAS

s or

IFRS

s that the

Group

also has to abide by.

International Financial Reporting Standards. Similar to

IAS

, but cover different subjects

IFRS

(e.g. then standard on

insurnace contracts

that we apply to our

funeral plans

known

as IFRS 17.

Sometimes our

assets

fall in value. If a store, branch, business or investment is not

Impairment

doing as well, we have to revalue it and record the downward change in value as a cost

in our

income statement

This not only shows our income as the name suggests, but also what our costs are and

Income statement

how much profit we’ve made in the year.

A contract under which

the Group

accepts significant

insurance risk

from another

Insurance contract

party by agreeing to compensate that party if it is adversely affected by a specified

(funeral plans)

uncertain future event. Our

funeral plans

are insurance contracts.

The risk Co-op are exposed to in an

insurance contract

when we agree to compensate

Insurance risk (funeral

a policy holder if a specified uncertain event occurs. For our

funeral plans

the risk

plans)

relates to the uncertain cost of delivering the funeral at some unknown point in the

future.

We have

assets

at the Co-op that we can’t see or touch which are shown separately to

Intangible asset

other

assets

. These include things like computer software and

goodwill

We like to know what interest we’re going to be paying in the future so we can

manage our businesses effectively. We enter into arrangements with banks so that we

can do this – for example, if we have debt where the interest rate can vary, we can buy

Interest rate swaps

an interest rate swap which means that instead we’ll pay a fixed rate of interest. The

value of these swaps can go up or down depending on how the market expects

interest rates to change in the future.

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This represents the goods (the stock) we’re trying to sell. The cost of this is shown on

Inventories

our

balance sheet

If some of our stock isn’t selling, we write those costs off to the

income statement

and

Inventory provision

hold a

provision

against those goods on the

balance sheet

Properties that we don’t trade from, and which we might rent out or hold onto

Investment properties

because the value might go up, are called investment properties.

Invoice discounting is an arrangement with a finance company so that we can be paid

Invoice discounting

for amounts we are owed on invoices earlier than the date our customers are due to

facility

pay us.

Low cost instalment plans (LCIPs) - this is where customers can take out a

funeral plan

LCIPs

but pay for it over monthly instalments of between 2 and 25 years.

This represents the

discounted

future payments we are due to make to suppliers in

Lease Liability

exchange for the right to use their equipment or property.

Liability

This is an amount on our

balance sheet

which we’ll have to pay out in the future.

People can trade some of our

debt

such as our bonds on the financial markets. When

Listed debt securities

this is the case, it’s a listed debt security.

Maintenance

Direct costs of servicing already acquired funeral plans such as costs of handling claims

cashflows

or policy changes.

(funeral plans)

This is an amount we’ve paid our members in the year and approved at the AGM such

Member payments

as dividends.

These are the benefits that members have earned for themselves during the year as

Member rewards

part of the 2% membership offer.

Net assets

Same as

equity

Net debt

This is the

debt

we have less any cash (or cash equivalents) that we might have.

Net assets

less investments,

funeral plans

deferred tax

pension surplus

and drawn

Net operating assets

debt

Non-current

asset

liability

that is expected to last for more than one year.

GAAP stands for Generally Accepted Accounting Principles. This is the common set of

accounting principles, standards and procedures that companies must follow.

Non-GAAP measure

Sometimes, companies want to provide different measures to help readers understand

their accounts (such as underlying profit) where there isn’t a standard definition –

these measures are called non-GAAP measures.

Charges or gains in our Income statement that are not regular in size or nature and

would otherwise cloud the underlying profitability of

the Group

are stripped out within

One-off items

our

non-GAAP measures

. This could include a large

impairment

or a large

restructuring exercise.

A contract that the Group holds where we think we will lose money on it over it's life

(so any profit we make will not cover the costs we will incur). As soon as we think we

Onerous contracts

have an onerous contract then we prudently recognise the full expected loss

immediately (rather than waiting for it to happen over the course of the contract).

When we close a store we sometimes still have to pay running costs until the lease

runs out (such as rates). When this happens, we make a

provision

for the amount of

Onerous leases

the running costs we will have to pay in future and hold this on the

balance sheet

Rental costs are excluded from this

provision

now we have adopted

IFRS

16 (Leases) as

those costs are included in the

lease

liability

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This is our profit before we have to pay any interest to our lenders or tax to the tax

Operating profit

authorities. It is also stated before any net finance income / (costs) from

funeral plans

This is an accounting term for the different businesses we have. When the financial

performance of one of our businesses is reviewed separately from the other businesses

Operating segments

by our Board, we call that business an operating segment and its sales and profit are

disclosed in Note 1 as a separate segment.

Sometimes we have big

fair value movements

on long term

assets

and

liabilities

. The

Other comprehensive

income statement

is meant to show the performance during the year, so to avoid this

income

being distorted by these big changes, they are shown separately as other

comprehensive income.

Parent

This is the owner of a

subsidiary

Payables

Another name for

liabilities

PAYE

Pay As You Earn. A tax which is paid on wages.

If a customer dies after 12 months of taking out a

funeral plan

and their

instalments

are up to date (or the death is an accident < 12 months) then Co-op will still honor the

Payment waiver risk

plan without requiring the remaining

instalments

to be settled. Co-op manage this risk

(funeral plans)

through a

re-insurance

arrangement with a 3rd party insurer who will cover the cost

(risk) in such circumstances.

This is the interest that we’re allowed to show in our

income statement

and is the

Pension interest

discount rate

used to

discount

the pension

liabilities

multiplied by the pension surplus

or deficit last year.

Performance

These are promises to provide distinct goods or services to customers.

obligations

We bucket up our

funeral plans (insurance contracts)

into certain groupings for

Portfolio

accounting and reporting purposes. We make the distinction of 2 portfolios - one for

(funeral plans)

our funeral plans and one for our

re-insurance

contracts (the

payment waiver

LCIPs

When we pay in advance for a cost which relates to services that will be received over

Prepayment

a future period of time (for example, rent or insurance), we hold that cost on our

balance sheet

as a prepayment and then spread the cost over the period of the service.

This is the value of a future cost or income in today’s money and is arrived at by

Present value

discounting

This is a

liability

, but one where we’re unsure what the final amount we have to pay

Provisions

will be and when we’ll have to settle it. We use our best estimate of the costs and hold

that on the

balance sheet

Realised gains

This is when we sell an

asset

for a profit.

When someone owes us some money, we hold that amount as a receivable on our

Receivables

balance sheet.

If a customer dies after 12 months of taking out a

funeral plan

and their

instalments

are up to date (or the death is an accident < 12 months) then Co-op will still honor the

Re-insurance

plan without requiring the remaining

instalment

s to be settled. Co-op manage this risk

(funeral plans)

through an arrangement with a 3rd party insurer who will cover the cost (risk) in such

circumstances. This is known as a re-insurance arrangement.

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This is a company or person that is closely linked to the Co-op. It’s usually a member

Related party

of our Board or Executive or their close family plus companies such as our

associates

and

joint ventures

There are lots of assumptions that are used when valuing pensions. If those

Remeasurement gains

assumptions change this can have a big effect on the size of the pension

asset

/ losses on employee

liability

. So that we don’t distort the

income statement

, this effect is shown in

other

pension schemes

comprehensive income

This is a type of loan (subordinated debt instrument), which we repay either in

Repayment notes

instalments or in a lump sum at the end of the loan.

Reserves

This is the amount of

equity

we have, but excluding any

share capital

Sometimes we change the numbers that we showed in last year’s accounts. This might

be because we have changed where or how we record certain things or it could be

Restated

that we have corrected an error. There are strict rules around what can be changed

and when we make changes we explain why in the accounting policies.

This is all the profits we’ve made since the beginning of time for the Co-op that have

Retained earnings

not yet been paid out to members.

Retirement benefit

obligations

Another term for our pension

liabilities

(pensions)

Return on plan assets

This is the income our pension

assets

have generated in the year.

(pensions)

When we revalue a property upwards, we’re not allowed to put this

unrealised gain

through our

income statement

or within

retained earnings

as law dictates that this

Revaluation reserve

can’t be distributed to members until the property is sold. It’s then ring-fenced as a

specific reserve.

Revolving Credit

This is money that our lenders have agreed we can borrow if we need to. It works a bit

Facility (RCF)

like an overdraft.

This is an

asset

that we don’t own legally, but which we lease from another party. The

Right of use asset

asset

represents the value the Co-op has in being able to use the

asset

over the length

(ROU)

of a lease contract.

This reflects the compensation Co-op requires for bearing the uncertainty about the

amount and timing of the cash flows that arise from non-financial risk as the Group

Risk Adjustment

fulfils its

funeral plans (insurance contracts)

. The risk adjustment reflects an amount

(funeral plans)

that Co-op would rationally pay to remove the uncertainty that future cash flows will

exceed the expected value amount.

Return on capital employed. This is based on our underlying profit we make in the

ROCE

year divided by the

net operating assets

we have.

This is when an

asset

is sold to a third party and then immediately leased back under a

Sale and leaseback

lease agreement. For the Co-op, this usually relates to the sale of a building such as a

store.

When an item on our balance sheet varies in value from year to year based on some

Sensitivity analysis

estimates that we make, we show a sensitivity analysis which shows you how much

the asset or liability would change by if we were to change the estimate.

Co-op Annual Report & Accounts for 2023:

Jargon Buster

275

We further sub-divide or

funeral plans (insurance contracts)

issued in a given

cohort

Sets

year into ‘sets’ to see if they are expected to make a profit or a loss. Sets are based

(funeral plans)

where the funeral plans have similar pricing and margin expectations.

This is the amount of money that our members have paid us to become members less

Share capital

any amounts that we’ve repaid to them when they cancel their membership.

The Co-operative Group Limited is a registered co-operative society. We sometimes

Society

refer to our collective whole as ‘

the Group

’ or ‘the Society’ and the terms are broadly

interchangeable.

Subsidiary

This is a company or

society

that is owned by another company.

Sometimes our agreements with suppliers mean they will give us money back based

Supplier income

on the amount of their products we buy and sell. We call this supplier income.

This is the net day-to-day interest we incur or receive on our bank borrowings and

lease liabilities

and is what management consider in the day-to-day running of our Co-

op. Non-underlying interest are those items that are not generated by our day-to-day

Underlying interest

trading or are not considered by management in the day-to-day running of the

business (such as the interest on

funeral plan liabilities

or the

fair value movement

the Group’s

quoted

debt

and

interest rate swaps

asset

may have gone up in value, but we’ve not sold it. If this is the case, the profit

Unrealised gains

from the gain is unrealised as we’ve not sold the

asset

yet.

The

funeral plan investments

which we hold on behalf of our customers attract

Unrealised gains –

interest and bonus payments each year (depending upon market conditions). The gains

funeral plans

or losses in the

fair value

of the plan investments is recognised within finance income

/costs each year.

The Group’s operating segment

(trading Division) that sells direct to other retailers

(rather than to individual members of the public). This primarily relates to the business

Wholesale

we operate after we bought Nisa but it also includes any franchise stores. Wholesale is

separate to our

Federal

segment.

These are

assets

that we’re in the middle of building. They’re on our

balance sheet

Work in progress

we’ve spent money already building them, but they aren’t ready for us to use them yet

so we’re not

depreciating

them.

Co-op Annual Report & Accounts for 2023:

Five year summary (unaudited)

276

Five year summary (unaudited)

£m

2023

2022*

2021

2020

2019

Revenue

Food

7,262

7,805

7,671

7,765

7,505

Wholesale

1,480

1,439

1,386

1,577

1,423

Federal

2,142

1,895

1,756

1,813

1,613

Funerals

281

275

264

272

Insurance (marketing and distribution)

Legal

Other businesses & Costs from Support functions

Total revenue

11,262

11,484

11,151

11,472

10,864

Underlying (loss) / profit before tax

Food

154

139

156

350

283

Wholesale

(10)

Funerals

(11)

(1)

Insurance (marketing and distribution)

(2)

Legal

Other businesses & Costs from Support functions

(95)

(93)

(95)

(139)

(118)

Underlying segment operating profit

100

235

173

Underlying net interest expense on lease liabilities

(68)

(76)

(72)

(74)

Underlying interest

(31)

(55)

(56)

(63)

(64)

Underlying (loss) / profit before tax

(2)

(48)

(32)

100

EBITDA (i)

Underlying segment operating profit (above)

100

235

173

Depreciation (plant, property and equipment)

225

244

254

250

252

Depreciation (right-of-use assets)

106

119

122

113

110

Amortisation

Underlying segment EBITDA (i)

468

473

505

615

552

Insurance (underwriting business) - (iii)

Revenue

273

315

Underlying PBT

(1)

(10)

Profit / (loss) on discontinued operation

(16)

Other performance items

2% Member reward (iv)

(25)

(20)

(21)

(45)

(59)

2% Community reward (iv)

(20)

(18)

(19)

(13)

(11)

Profit / (loss) after tax - continuing operations

258

ROCE (i)

3.5%

2.7%

3.2%

8.1%

6.0%

Balance sheet items

Total assets

6,755

7,994

9,180

8,986

9,913

Group net debt (excluding leases)

(82)

(322)

(920)

(550)

(695)

Group net debt (including leases)

(1,315)

(1,628)

(2,436)

(1,975)

(2,165)

Total equity

2,020

3,023

2,939

2,669

2,685

Net debt: EBITDA ratio (excluding leases)

0.18

0.68

1.82

0.89

1.26

Net debt: EBITDA ratio (including leases)

2.81

3.44

4.82

3.21

3.92

Total pension assets

6,213

7,124

11,452

11,708

11,168

Total pension liabilities

(5,857)

(5,543)

(9,194)

(9,854)

(9,304)

Total net surplus

356

1,581

2,258

1,854

1,864

Business-specific measures

Total Food like-for-like sales increase

4.7%

3.2%

-2.9%

6.9%

1.9%

Number of Food stores

2,349

2,377

2,584

2,613

2,611

Total Food sales area ('000 sq ft) (ii)

7,592

7,685

8,276

8,407

8,327

Number of at-need funerals sold

95,978

93,867

90,731

100,943

90,630

Number of pre-need funerals sold

16,874

16,774

44,751

42,497

49,066

Number of funeral homes

811

818

830

840

998

* The 2022 comparatives have been restated following the adoption of IFRS 17. The comparatives 2021-2019 have not been restated as this is not

required under the new standard on an individual year-by-year basis (and it is not practical to do so). See Note 33 for further details of the impact and

transition to IFRS 17.

(i) See Jargon Buster on page 263 for definition.

(ii) Quoted excluding petrol forecourt area but including in-store space at those sites with a petrol forecourt. We sold our forecourt stores in Oct 2022.

iii) Our Insurance underwriting business has been held as a discontinued operation from 2018 and was sold on 3 December 2020.

iv) Our membership proposition was updated from October 2020 such that member and community rewards were earned at 2% each during the year (so

4% in total) on own brand purchases (prior to that it was 5% and 1% respectively).