Co-op blames economy as profits take huge dive

James Thompson
Thursday 23 August 2012 21:08 BST
Comments

The Co-operative Group has blamed an "unrelenting consumer downturn" for the mutual society's half-year profits tumbling by more 50 per cent.

Peter Marks, chief executive of the Co-op, who steps down in May, said the results, which show a weak performance at its banking and grocery businesses, have to be set in the context of the "dire economy".

He added: "A year ago I warned that we were operating in the worst conditions I have seen in more than 40 years in business. Has it got any better? No, it has got worse."

The Co-op posted a 56 per cent slump to £69m in profits before tax and member payments, the equivalent of the pre-tax figure used by listed companies, for the six months to 30 June. Revenues were flat at £6.56bn.

There is a widely held view that if the Co-op, which operates 4,800 retail trading outlets including funeral care, pharmacy and legal services, had been listed it would probably have been forced to issue a series of profit warnings and make possible management changes over the past two years.

Co-op Bank, which recently sealed the deal to buy 632 branches from Lloyds for up to £750m, swung heavily into the red last year. It turned from pre-tax profits of £9.8m to losses of £58.6m as bad debts soared. The bank blamed "challenging economic conditions" for the rise in bad debt provisions from £46.1m to £91.9m, with particularly bad figures in its corporate loan portfolio. Mr Marks said: "We are a corporate lender to small businesses and the downside of this is that more businesses have got into trouble."

The losses were struck after another £40m charge for mis-selling payment protection insurance, down from £90m last year, and the costs of the long-running negotiations to buy the Lloyds branches of £20m.

The Co-op's food business, which has nearly 3,000 shops, posted a 16.4 per cent fall in its operating profit to £119m. Like-for-like sales dropped 1.2 per cent.

Mr Marks said the grocery market remained highly competitive with up to 40 per cent of products on promotion, adding hard-pressed consumers were "spending less on food" for the first time in his career.

However, the Co-op's specialist businesses, notably pharmacy and funeral care, performed much better and both grew profits strongly.

Join our commenting forum

Join thought-provoking conversations, follow other Independent readers and see their replies

Comments

Thank you for registering

Please refresh the page or navigate to another page on the site to be automatically logged inPlease refresh your browser to be logged in