Co-op blames economy as profits take huge dive

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.