Profits tumble at Co-op amid soaring energy and labour costs

The retail and funeral care firm revealed that pre-tax profits tumbled 84 per cent to £7m over the six months to July 2, compared with £44m over the same period last year.

It came as the Co-op said profits in its food operation fell by £27m year-on-year due to rising costs.

The group, which was founded over a 180 years ago, added that it was impacted by a surge in energy costs - which rose to £59m from £41m - and £21m impairment in the value of a number of its food shops.

The retailer highlighted that its finances will be bolstered by its £600m deal to sell its petrol forecourt business to rival Asda, which is due to complete in the current half-year.

The sale will see five per cent of Co-op’s entire retail estate – including 129 petrol stations and three development sites – handed over to Asda, which already runs 323 petrol stations across the UK.

Co-op said offloading its petrol forecourts will allow it to focus on its convenience business as well as raising important cash for the business

Meanwhile, sales slowed to flatline over the half-year at £5.6bn.

Shirine Khoury-Haq, who was appointed chief of the group earlier this year, said: "Against a highly challenging economic backdrop, we have made significant progress in strengthening our balance sheet, whilst continuing to support the needs of our colleagues, members, customers and the communities in which we operate.

"Our clear focus on developing our businesses, whilst controlling costs, improving our cash position and reducing debt is paying dividends.

"Looking ahead, while we are mindful of the continued economic challenges, we have great confidence in the underlying strength of the Co-op and all our businesses."

It came as the Co-op also revealed plans to invest £37m into a shake-up of its food strategy.

This will include price reduction across 120 popular own brand products and renewed focus on convenience stores, the group said.

Ms Khoury-Haq added: "As we face into a cost-of-living crisis we are determined to make life fairer for our members, customers and communities in these extraordinary times, and lowering prices for shoppers is the first step in our strategy."

Confidence levels among Britain's consumers sank to a record low this month as they battled higher costs of living, with the government's mini-budget sowing turmoil in the mortgage market and leading to warnings of a sharp drop in house prices.

"We know that the current testing conditions will not ease in the second half, and we will continue to face into the challenges" chairman Allan Leighton said in statement.

Net debt at the end of the first half of the year was at £731m compared to the £920m at 2021 year end.

Earlier this year, the Co-op announced that it would cut around 400 head office jobs in the face of tough trading conditions worsened by rising inflation.

And in April the firm revealed that annual profits halved following supply chain disruption and higher costs.