Co-op braced for challenging year

THE Co-operative Group today reported a 17 per cent rise in half-year profits, but warned trading conditions would remain challenging until at least the end of next year.

It posted underlying profits before payments to members of 260m, up from 221m a year earlier, with a 12.6 per cent leap in profits at its supermarket arm.

Sales at the grocery chain dropped one per cent, which it blamed on disruption amid the integration of the Somerfield business bought by the Co-op more than a year ago.

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However, the group said like-for-like sales at the 2,500 stores refitted since the acquisition rose 2.5 per cent.

Peter Marks, group chief executive of Co-op, said: "As anticipated, 2010 has been challenging so far, with tough economic conditions across all our businesses.

"Looking ahead, however, we do not expect things to improve until late 2011 at the earliest."

The Co-op said it was on track with aims to complete the integration and rebranding of the Somerfield arm within two years of the deal - due to finish in the first quarter of 2011.

Trading profits at the division rose to 169.7m in the half-year to July 3 from 19m a year earlier as the firm said it was leveraging its "new found scale" to drive better supplier terms.

Co-op now claims a 7.6 per cent share of the market after the Somerfield transaction secured its place as the fifth largest supermarket chain and saw it become a bigger rival to the "big four" players.

The past year has been a transformational one for the Co-op, which also bolstered its financial services business with the acquisition of Britannia Building Society.

Co-operative Financial Services saw operating profits rise 34.3 per cent to 109.3m in the first half of the year thanks to the Britannia boost, while it has also been benefiting from the backlash against mainstream banks following the financial crisis.

Bad debt charges fell by 7.7 per cent on an underlying basis and total customer deposits increased by another 4.2 per cent to 1.4bn.

The wider Co-op group - which covers a range of services, also including funeral care, pharmacies, farming travel and property investment - saw adjusted interim trading profits rise 16 per cent to 71m.

Mr Marks said the broad nature of the business meant it had been hit in a "variety of ways" by the recession

But despite ongoing challenges to consumer spending, he said the group was "confident our unique approach to business will enable us to continue to make solid progress".