UK: "Tough" market hits Co-op food profits

Group has delivered results in line with expectations in the context of the continuing economic downturn

Significant strategic and operational progress made in the first half; work undertaken to secure agreement with Lloyds Banking Group was the most important achievement

Maintenance of stable capital position. Balance sheet remains strong. Net borrowings slightly up since the start of the financial year, reflecting continued investment

Results show the benefits of the Group’s structure and the strength of the portfolio of different businesses:

Food’s performance reflected the on-going tough market, the sale of non-core assets and the impact of unseasonable weather which disproportionately hits convenience operators. Sales were down 2.2% overall and by 1.2% like-for-like. Sales in the core convenience chain were up by 1.4% LFL with very encouraging sales in new trial stores, with LFLs up by over 12%. Operating profit fell to £119m (2011: £142m) with continued investment in price for customers, the store estate, supply chain and distribution network and extended opening hours.

 Banking Group’s performance reflected the on-going uncertainty in the Eurozone, the prolonged low-interest-rate environment and increased impairments in the non-core corporate loan book. Revenue rose by 3.9% to £1.0bn but taking into account the year on year impact of PPI provisions fell by 1.1%, and underlying operating profit fell 67.9% to £36.9m. The Bank maintains a stable capital position, with a core tier one ratio of 9.6%, unchanged from 2011. Liquidity has been carefully managed and remains at robust levels, with a loan to deposit ratio of 101%.

The Group’s Specialist Businesses continued to perform well, most notably within pharmacy and funerals, despite challenging market conditions.  Revenue was up 1.5% at £777.1m (2011: £765.7m) and underlying operating profit jumped 19.3% to £62.0m. 

Post the end of the period reported, the Group successfully agreed a £950m refinancing deal

Continuing work on Project Unity to realise the full potential of our vast and diverse customer base and our strong family of businesses, in the interests of our customers and members

 Start of roll out of Banking and electrical services in our food stores after successful pilots

 Roll out of legal services through Bank branches

Investing for the future

Our continued investment and strategic development through the period demonstrates the strength of the Group’s ownership model. Looking ahead, we are planning to invest £2bn over the next three years across our family of businesses - in our people, processes and systems – in the interests of all our customers and members who remain at the very heart of all our diverse businesses:

Food: Under our new management team, 2012 will mark the latest stage in the most ambitious change program that the Co-operative has ever completed. Our growth plans are on track to deliver 80 new stores this year and our award winning SMART stock management system that has increased product availability in store to over 97.5% is being rolled out more widely. We are also investing heavily in new product development. In addition, we are continuing the work to overhaul our workforce management system to ensure great local service, and increasing our trading hours by 15,000 hours a week, all of which is being recognised with vastly improved customer satisfaction scores. Behind the scenes we are continuing to focus on efficiency, completing work on overhauling our supply chain network to underpin the retail proposition. The purpose-built network will have one National DC, nine Regional DCs, and two stockless cross-docks, and will have capacity to handle 32,000 deliveries a week giving us an industry-leading distribution network. 

Original source: The Co-operative Group