And although Chief Executive Peter Marks has hailed the interim results as a great success, he warns that it would be naïve to believe that the Group is immune from the effects of the recession and believes the second half of the year will be very challenging for a number of the society’s businesses. The figures reveal:
• Group revenues up 27.1 per cent to £6.4 billion, compared to £5bn in 2008
• Like-for-like food sales up by 7.3 per cent compared to a market average of 4.7 per cent
• Group profit before tax up 17 per cent to £228.8m
• Group operating profit (before significant items) up 32.9 per cent to £294.4m (2008: £221.6m)
• Members’ funds up eight per cent to £4.0bn
• Net debt up at £1,665m (2008: £538m) after net capital investment of £1,321m
One of the big profit drivers has again been the food business with like-for-like sales increasing for the 14th consecutive quarter. As previously reported in the News, Co-operative Financial Services contributed £81.4m. to the bottom line, while Funeralcare’s operating profit before significant items was up by £4 million to £28.1m.
Pharmacy delivered a creditable result with operating profit up 8.7 per cent to £14.8m despite government reductions in prescription reimbursements while the travel business returned an operating profit of £2.5m — down from £7.9m in 2008 — due to the recession.
Mr Marks told the News: “The Group has delivered another strong performance in the face of continuing economic uncertainty and increasing competition. In the Trading Group, our success has again been driven by an exceptional performance from our food business which continues to grow, both organically and as a result of our integration of Somerfield.
“This has enabled us to reduce prices to customers by an average of five per cent when we convert Somerfield stores to Co-operative stores, and there will be some great offers in the run-up to Christmas as well as more price reductions as the integration benefits kick in.”
The integration process is progressing well and around 215 stores are on course to be rebranded by March, though a total of 200 stores have been sold because of competition issues and other factors and the disposal programme has netted £650m, said Mr Marks.
The Chief Executive says the food division’s success has been achieved by the twin pillars of ‘value and values’ that are essential in the convenience store sector.
He explained: “For us, value is about convenience, products, customer service and price — and values are what have distinguished co-operatives from the competition for 165 years. We have continued to gain market share as a result of our reputation as a trustworthy and ethical business.
“As an example of the success of this approach, sales of our value range, which was relaunched and extended under The Co-operative Simply Value label in March, were up almost 80 per cent year on year, while Fairtrade products have enjoyed continued growth of 35 per cent.”
Added Mr Marks: “After a period of extensive expansion and acquisition, the second half of 2009 will be a period of consolidation. We expect the economy to remain challenging with continued increases in unemployment and no immediate signs of a recovery in consumer spending.
“In spite of our recent success it would be naive to think that we are immune to the recession. That said, we are pleased with our half-year performance. The second half has started well and we look ahead to the future with renewed confidence.”
A review of the Group’s family of businesses published with the interim results reveals that food sales, including Somerfield, are up £1.5bn (62.9 per cent) to £3.9bn and the trading profit is up £41.9m to £165.5m from continuing operations.
This success is attributed to “better shops, with better products at better prices and better customer service” combined with record levels of investment and the successful roll-out of the revitalised brand.
The review says Co-operative Electricals has generated an operating profit of £900,000 – an increase of 144 per cent on a like-for-like basis – while the motor sales business achieved a break-even result despite the unprecedented difficulties in the sector.
Estates, Farms, Legal Services and Life Planning all performed well in the period. Estates turned in a trading profit of £9.4m, whilst the farms business delivered a profit of £2.5m. Legal Services saw revenues increase by 52 per cent to £10.4m with profits up by £1.3m to £1.9m, and the Group’s Life Planning business showed an operating profit of £3.2m, £2.9m up on the previous year.
The review concludes: “We expect the latter part of 2009 to be challenging. Unemployment will undoubtedly continue to rise and, with the recession unlikely to bottom out until the beginning of next year, we have to make sure our recent successes do not blind us to the difficult markets in which we operate.”