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Highlights:
- Profitability Growth: S&P forecasts Co-op’s EBITDA to rise from £480 million in 2024 to over £530 million in 2025.
- Deleveraging Efforts: Co-op has repaid £200 million in bonds and plans to pay an additional £109 million by 2025.
- Stable Outlook: S&P expects Co-op to sustain credit improvements with leverage below 3.0x and positive cash flow over the next two years.
S&P Global Ratings has upgraded Co-operative Group’s long-term credit rating from BB- to BB, citing improvements in profitability, reduced leverage, and strong performance in the food segment. The upgraded credit rating reflects Co-op’s strategic initiatives that have driven operational efficiencies, enhanced transaction volumes, and led to positive momentum across the business.
Profitability and Growth Projections
S&P projects that Co-op’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) will reach £480 million in 2024, with expectations of further growth to more than £530 million in 2025. This projected growth is attributed to the company’s focus on increasing transaction volumes through membership pricing initiatives, expanding e-commerce operations, and achieving greater operational efficiencies.
Co-op’s resilient food segment has been a key driver of its profitability. In the first half of 2024, food segment revenue grew by 3.2%, despite broader challenges in the convenience market. This growth has been significantly supported by membership sales, which contributed 36.2% to the food segment, and the continued expansion of e-commerce, which is expected to bolster sales density and overall profitability.
Deleveraging Efforts and Bond Repayments
The Co-operative Group has made significant strides in its efforts to deleverage, a key factor highlighted in the S&P upgrade. In recent months, Co-op repaid £200 million in bonds that were due in May 2024. Additionally, the company has outlined plans to repay an additional £109 million in subordinated notes maturing in December 2025. These proactive measures to reduce debt have positioned Co-op favorably for maintaining financial stability in the coming years.
S&P expects Co-op to maintain leverage at or below 3.0x over the next 24 months, with the group consistently generating positive free operating cash flow after lease payments. These financial metrics further underscore the company’s commitment to maintaining a healthy balance sheet and positioning itself for continued success.
Stable Outlook for the Future
The stable outlook from S&P Global Ratings reflects expectations that Co-op will sustain its credit improvements over the next two years. The company’s ability to maintain low leverage and generate strong cash flow underpins this positive outlook. With over 5.5 million members owning the Co-operative Group, the company’s strong community-based approach and continued focus on profitability, growth, and deleveraging efforts are expected to drive long-term success.
