The Co-operative Group has restated its commitment to its planned £2 billion investment programme over the next three years, despite announcing a £90 million fall in profits for the half year ended June 30th.
The interim results show that sales increased marginally from £6.54bn in 2011 to almost £6.56bn this year, but underlying profits fell to £174m, compared to £264m. Net borrowings increased from £1.4bn to £1.5bn.
Difficulties in Food caused by the grim economy and Banking Group problems as a result of the continuing Eurozone crisis and the need to set aside £40m for mis-sold Payment Protection Insurance claims impacted on the results, which Chief Executive Peter Marks said were in line with forecasts and should not have come as a surprise to anyone, given the country’s poor financial position and the pressure on consumers.
Said Mr Marks: “A year ago I warned that we were operating in the worst conditions that I have seen in more than 40 years in the Movement. These results show the full impact of that with the profitability of nearly all our businesses affected.
“None of this was unexpected and we had planned for this outcome, so were well prepared. The current trading environment only highlights again the strength of our ownership model that lets us plan for the longer term by continuing to invest to ensure our businesses maintain momentum and our customers are always offered value with values.
“We are supported in this by our healthy financial position, with a robust balance sheet and strong cash position.”
In Food, the Group’s largest business, sales dropped by 2.2 per cent to £3.6bn, and were 1.2 per cent lower on a like-for-like basis. Operating profit was £119m, down 16.4 per cent on 2011.
The Group say the figures reflect continued investment in price for customers, the store estate, supply chain and distribution network, as well as extended opening hours. Sales in the core convenience chain rose by 1.4 per cent on a like-for-like basis, with “very encouraging” sales in new trial stores, where like-for-like sales were 12 per cent higher.
The society points out that the Banking Group’s performance for the half-year reflected “the ongoing uncertainty in the Eurozone; the prolonged low-interest-rate environment and increased impairments in the non-core corporate loan book”.
Added the press statement: “Revenue was slightly higher at £1.03bn but fell by 1.1 per cent after taking into account an additional £40m provision for PPI. Underlying operating profit fell 67.9 per cent to £36.9m.”
However, the Group’s Specialist Businesses fared better, most notably Pharmacy and Funerals. Revenue was broadly flat at £777.1m (£765.7m) but underlying operating profit jumped 19.3 per cent to £62.0m.
Added Mr Marks:“This has been an important first half for the Group, marking as it did the progress we made that led to agreement with Lloyds Banking Group. This was the highlight of the ongoing strategic progress across our strong family of businesses.”
He admitted that the first six months of 2012 had been challenging for the Group, but said significant strategic and operational progress had been made including the deal to buy 632 branches from Lloyds TSB, which is set to complete by the end of this year.
Other highlights included the acquisition of the David Sands c-store chain in Scotland and news that Legal Services plans to create 3,000 jobs following changes to legislation which will allow it to expand into offering family law services. The Group is also set to expand its cross-selling activities, with the roll-out of legal services across its 342 bank branch network.
In addition, the Group is on track to move in to its new headquarters at 1 Angel Square, Manchester, later this year and the senior management team has been boosted by the appointment of Steve Murrells as new Food Chief Executive and the expected arrival of new Banking Group Chief Executive Paul Pester from Lloyds later this year.
Although cautious about the short-term outlook for the UK economy, Mr Marks struck a slightly more upbeat note on the Group’s future trading prospects.
He said: “We expect profitability for the remaining six months of 2012 to show an improvement on the first half of the year. The environment is tough and we see no let-up in that. But we believe that the work we have done over the past five years to scale up in our core businesses means we are better placed than ever before to thrive when the economic upturn does come.
“It’s in times like these when our ownership model as a mutual really comes into its own. We have been able to invest for the long-term development of all our businesses and to protect our customers even though we – like all businesses – have felt the impact of the unrelenting consumer downturn.”