Co-op halves profits but says its rebuild strategy is on track

The Co-op says its turnaround strategy is working despite profits falling by more than half.   Picture: Jon Super
The Co-op says its turnaround strategy is working despite profits falling by more than half. Picture: Jon Super
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THE chief executive of the Co-operative Group insisted its turnaround is on track despite profits falling by more than half in the last six months.

Pre-tax profit for the first half of the year fell 53 per cent from £36m to £17m as restructuring costs and investments in price cuts at its convenience stores and staff pay took their toll on the firm. Revenue nudged up 2.2 per cent to £4.7bn.

Chief executive Richard Pennycook insisted the group’s strategy, dubbed Rebuild, is on track.

In Yorkshire, the Co-op plans to create 250 jobs by investing more than £11m in new stores and funeral homes in the year to May 2017.

The group, which has 322 food stores and 97 funeral homes across the county employing almost 7,000 people, plans to open up to 15 new shops, and refit 10. It will also open a further 10 funeral homes.

The Co-op is also piloting a local supplier initiative which has led to community retailers stocking 130 products made across the county.

It has signed up more than 50 local manufacturers and micro producers to supply Yorkshire stores with a range of locally produced items including eggs, ice cream, pies, sausages and beer.

If successful, the local sourcing initiative will be rolled out to other parts of the UK.

Mr Pennycook said: “Revenues across the group have grown and, in line with our strategy, profitability has fallen due to our major Rebuild investment, pay increases for our people and price cuts for our customers.

“We are only halfway through the Rebuild and much remains to be done, whether it is investing in our digital capability or campaigning on key issues.

“We remain firmly on track with our plans and are encouraged that the work we are doing is attracting more and more people back to the Co-op.”

Like-for-like sales at its food arm grew 3.1 per cent over the period, with the Co-op hailing six consecutive quarters of positive growth.

Like-for-like sales at its convenience store business grew 4.3 per cent, but the firm added that its financial performance has been impacted by an 8.5 per cent pay award for shop workers.

At its funeral business, underlying profit fell from £47m to £42m as the group said that a lower death rate was offset by an increase in “pre-paid funeral plans”.

Sales at its insurance arm performed well, with gross written premiums rising 29 per cent to £242m and underlying operating profit rising from £2m to £11m.

However, the firm booked a £45m write-down on its stake in Co-op Bank, with the company saying that it now values its shareholding at £140m, “consistent with falls in bank valuations generally”.

In April, Mr Pennycook asked the board to slash his pay from £1.25m to £750,000 as the troubled mutual entered “calmer waters”.

The mutual was struggling through a series of scandals when Mr Pennycook was appointed in 2014, including claims that former Co-op Bank chairman Paul Flowers had bought drugs and the discovery of a £1.5bn black hole in its banking unit.

New membership scheme ‘key link’ to strategy

Richard Pennycook yesterday launched a new Co-op membership scheme that will see the mutual target the recruitment of one million new members and hand back more than £100m a year from 2018 to members and their communities.

The group currently has five million members, including 500,000 in Yorkshire, but intends to boost the figure to six million with a marketing campaign to be launched in the new year.

The new membership scheme, which has already been launched to existing members, means that five per cent of the amount they spend on Co-op own brand products and services will be credited to their account and can be used as a discount in the future. One per cent of that figure will be awarded to their account for them to donate to a good cause of their choosing from a selection supported by Co-op.

Ian Ellis, chief financial officer, said: “The launch of the membership offer is a key link in our rebuild strategy.”