In what has been described as a tough economic year, the Co-operative Group has reported a 5.8 per cent fall in pre-tax profits, which has been exacerbated by a 20 per cent drop in profits from the food division.
The UK's largest consumer society reported that gross sales reached £13.3 billion (2010: £13.1bn); operating profit climbed 0.5 per cent to £585 million (2010: £582m), while profit before tax and member payments fell 5.8 per cent to £373m (2010: £396m). Net borrowings of the society also increased by 3.3 per cent to £1.49bn (2010: £1.44bn).
Operating profit of the society’s food division, which comprises of 2,801 stores, was down 20 per cent from £388.6m in 2010 to £309.4m in 2011. Sales were down 2.7 per cent from £7.5bn to £7.3bn — 2.1 per cent on a like-for-like basis.
The Co-operative Banking Group produced an underlying profit of £201m (2010: £202m), with a gross revenue rise of nine per cent to £2.2bn. The Bank also said it maintained a stable capital and sound liquidity, with a core tier one ratio maintained at 9.6 per cent (2010: 9.6 per cent) and an improved loan to deposit ratio of 94 per cent (2010: 103 per cent).
The Group's other specialist businesses turned in an underlying operating profit of £99m (2010: £90m). Co-operative Group members will also receive a dividend of 1.75p per point, down from 2p in the previous year.
Peter Marks, Group Chief Executive, said: "The Co-operative Group has delivered a solid set of results against the toughest economic backdrop I have seen in more than 40 years in business. 2011 was a time of severe challenge for the UK economy and for our millions of customers and members.
“It is in times like these that a business shows its true colours; we have revealed ours by continuing to invest for the future – continuing the work that we have been doing over the past five years during which we have revitalised this business and set it up for the future, while doubling sales and doubling profits.
“Our determination to build on this success has not slowed and over the past year we have invested in the services, systems and infrastructure we need to deliver real value to our customers while setting out to realise the true potential of our vast, diverse customer base and our strong family of businesses. We have also invested significantly in discounts and special offers for our customers. Although these moves have impacted our short-term profitability, we believe our first duty in times of financial and job insecurity is to help our customers make their money go further.”
As part of its plan to turn around the food business, the Group has continued to carry out investments. During the financial year this included two new distribution centres, with another two due to open, costing a total of £110m. The warehouse-to-store replenishment system has also been improved at a £12.5m cost.
As well, during the year, 421 stores were refitted, 32 new outlets opened and the acquisition of David Sands brought another 28 branches into the Co-op fold.
Over the next few weeks it will be starting a trial of contactless payment in its four Manchester city stores. In preparation for the Olympic Games, where the technology will be widely promoted, an additional 50 stores within the M25 will be fitted with the payment system throughout April, while another 125 stores in the region will join the trial in May.
Added Mr Marks: “Looking ahead, I do not expect to see any significant recovery in the UK economy during 2012, with little hope of an improvement in disposable income for our customers. If anything, it is quite possible that things will get worse before they get better. In spite of this, I remain optimistic.
“The Co-operative Group is in better shape than ever before because of all the work done over the past five years. Our ownership model means that we can take a long-term view and we are as driven, determined and ambitious as ever to modernise our business.
“We will not allow the current economic downturn to knock us off the course we have set. We have the resources, the resolve and above all the belief to make our vision a reality. When better times come – and they will – these are the foundations on which we will build lasting success.”
The Retail side of the Banking Group reported an operating result (excluding discontinued operations) of £138.3m in 2011, 77.8 per cent up on 2010, with strong mortgage margins maintained and impairment levels significantly below 2010. The average loan to value ratio remained below 50 per cent, in line with 2010. The General Insurance business delivered growth in profits of 42.0 per cent, before significant items and distributions.
Corporate and Business Banking delivered an operating result for 2011 of £14.5m (2010: £54.7m). Corporate banking delivered an operating loss of £36.4m in 2011 (2010: profit of £2.5m), reflecting a rise in impairment losses during a difficult year for the industry. In 2011 the Optimum portfolio, a closed book of intermediary and acquired mortgage book assets, reduced in size, as planned, by 5.5 per cent to £7.7bn, and delivered a profit of £52.7m (2010: £61.2m).
During 2011, the Banking Group introduced current account servicing into the Britannia branches, creating 245 more places to bank. To date, some 62,000 current accounts have been opened via these branches (nearly 45,000 during 2011). The Bank has also continued to attract customers switching their current account; during 2011, 10.8 per cent more customers made the Co-operative Bank their main bank.
The Co-operative Group’s other family of businesses reported a 10.4 per cent increase of profit from £90.1m to £99.4m.
The society’s e-store saw a 25.1 per cent reduction in profits, which, according to the Group, “has been hit particularly hard by the economic downturn as customers have less disposable income to spend on luxury items”. Performance compares positively with other electrical retailers where sales have fallen from 6.6 per cent from £87.9m to £82.1m.
Operating profits in Pharmacy, before significant items, decreased 11 per cent from £33.4m to £29.7m. This is, in large, due to a reduction in government funding for prescriptions experienced by the industry, which cost the business £18m.
Funeralcare’s profits increased 20.4 per cent on 2010, from £44.5m to £53.6m, supported by improvements in the division’s masonry offer and coffin range, along with an iincrease in market share. The funeral home network also benefited from investment in 2011, worth £13m in estate and £8m in fleet. The year saw record sales for Funeral Planning products provided through the Life Planning Business. The total number of funeral planning products sold by the Group increased by 9.3 per cent.
The Co-operative Legal Services, which was founded six years ago, delivered an increase in operating results from 15 per cent to £4.5m.
Sunwin Services Group increased profits by 12 per cent from £5.6m to £6.3m. The division provides a range of services to business, including cash in transit, ATM support, IT services and managed security.
The Co-operative car dealerships saw sales increase four per cent from £267m to £277m.
Co-operative clothing also experienced a challenging year as rising prices of raw materials along with a depressed clothing market squeezed margins and reduced volumes. Operating profits for 2011 were up over 100 per cent from £0.49m to £1.04m.
The Co-operative Estates, which manages the society’s property portfolio, produced a profit of £19.1m, an increase of 1.6 per cent on the previous year.
• For more details on the Co-operative Group, visit: www.co-operative.coop