First-ever dividend reflects Co-op growth

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The co-operative Group, which owns the Co-op Welcome convenience store chain, yesterday pledged to pay its first dividend to its members after reporting a sharp rise in profits.

Each of the mutual retailer's 1 million members will receive a £10 windfall this year, with more to follow next year, depending on the amount of business they do with the group, whose services span funerals to banking.

The move is intended to prompt more of the group's 14 million customers to pay the £1 joining fee and become members. "It will encourage them to shop across our different services," Martin Beaumont, the chief executive, said. "Being members aligns people more closely with the organisation."

Although the Co-op Group in its current form has never paid out a consumer dividend, up to the 1960s the mutual societies that comprise its corporate members used to pay out a share of profits twice a year to their own consumer members.

Strong sales from its retail arm helped the group's operating profits rise 41 per cent to £327.3m. Pre-tax profits were £385.4m, against a loss of £112.5m the previous year that reflected the slump in equity markets.

Mr Beaumont said the group was "looking at opportunities" to expand its 1,700-strong supermarket estate. It is thought to be in talks with TM Group, which owns 1,200 small corner stores, although like J Sainsbury it is anxious not to acquire too many newsagents, which are unsuited to its convenience-store format.

Despite warning that competition had intensified following Wm Morrison's acquisition of Safeway, the group said underlying sales at its 1,000 Co-op Welcome convenience stores had outperformed the market, rising by 3.5 per cent in the first three months of its financial year. Across its food arm, like-for-like sales so far this year are flat, with falling sales from its larger, non-core stores.

Its banking arm achieved profit growth of 6.2 per cent to £130.1m, and insurance returned to profit following stock market fluctuations last year. Pharmacy and funeral profits were strong and farming is showing signs of recovery.