Co-op suffers profits fall

THE Co-operative Group’s chairman Peter Marks argued that his firm achieved a solid set results “against the toughest economic backdrop I have seen in more than 40 years”.

The group managed to increase sales by 1% to £13.3bn in 2011 (2010: £13.1bn), but its profit before tax and payments to members dropped by almost 6% to £373m (£396m).

The mutual said that despite winning preferred bidder status to buy more than 630 bank branches from Lloyds, the deal was not progressing as smoothly as had been expected.

Mr Marks said there were some “very material regulatory issues” to be overcome and said a decision on whether to proceed with the £1bn+ bid – which would give the Co-op Bank 7% of the current account market – would be made in “weeks” rather than months.

Turning to the performance of the core grocery business, he said: “Consumers have been assailed by rising costs, credit squeeze and uncertainty about the future to an extent unparalleled in recent times,” Mr Marks argued.

“Against this background, I believe that this is a creditable performance. We have delivered profitability in-line with expectations, while maintaining our financial strength and resilience.”

Like-for-like sales in its food business fell by 2.1% during the year and margins hit by higher costs, but its banking operation reported an 11% increase in pre-tax profits to £54.2m.

Operating profits at its pharmacy business also fell by 11% to £29.7m, which it blamed on further reductions in government funding that cost the Co-op £18m.

Operating profits at its funeralcare business increased by over 20% to £53.6m, which it attributed to “improvements in our masonry offer and coffin range”, as well as an increase in its market share.

The legal services arm that now employs 500 people and gained Alternative Business Structure status from the Law Society earlier this week grew operating profits by 15% to £4.5m

Its online electrical retail business has “been particularly hit hard by the downturn”, however,  with sales down by 7% to £82.1m and pre-tax profits dropping by 25%.

Mr Marks argued that he did not expect to see any significant economic recovery during 2012.

“If anything, it is quite possible that things will get worse before they get better.

“In spite of this, I remain optimistic. The Co-operative Group is in better shape than ever before because of all the work done over the past five years.

“Our ownership model means that we can take a long-term view and we are as driven, determined and ambitious as ever to modernise our business.”