The worst conditions in 40 years, says Co-op chief

The Co-op, the UK’s fifth biggest food retailer, reported a 10 per cent decline in underlying operating profits to £275.1m in the 26 weeks to July 2.

The mutual saw a boost to profits and sales in its financial services division, which includes the Smile bank and recently acquired Britannia building society, but this was overshadowed by a 5 per cent drop in revenues and 21 per cent fall in profits at its foods arm, which includes the Somerfield chain.

Peter Marks, group chief executive, said: “At the full year we warned that the downturn was biting deeper than anyone had expected and predicted that challenging trading conditions would continue into 2012.

“This has clearly proved to be the case. Indeed, it is the worst I have seen in more than 40 years of retailing and, against this backdrop, the results we are announcing are in line with our expectations.”

The food business recorded sales of £3.7bn in the half year, down from £3.9bn last year, and underlying operating profits of £135.4m, down from £171.6m.

“Intense competition from all major retailers, greatly diminished customer confidence and the start of the Government’s austerity cuts have all had a part to play,” the group said.

The company has committed to investing £2bn in the business over three years, with £280m spent in the period.

The Co-op opened two new distribution centres – in Hampshire and North Lanarkshire – for its foods division in the period and two more, worth £110m, are in the pipeline.

The group has refitted 244 food stores and opened eight new stores in the period. It plans to refit 259 and open 30 in the second half of the year.

Mr Marks, who lives in Bingley, continued: “Looking ahead, we do not see signs of any real improvement in the economy and we are planning accordingly to help our customers, as much as possible, through this difficult period.

“Given the outlook and our determination to continue to invest through the cycle, we will find it difficult to match the record profits we made in 2010; but I remain optimistic.”

The financial services arm saw underlying operating profits of £131.3m in the period, up from £109.3m the previous year.

Income was 17 per cent higher, the group said, driven by growth in its insurance business.

But the group did incur a £90m charge to cover claims for mis-selling of Payment Protection Insurance (PPI). This has been an industry-wide issue, hitting all of Britain’s biggest banks. The Co-op runs a number of other businesses, including legal services, funeral care and a pharmacy.