Co-op profits drop in ‘highly challenging’ market

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The Co-op has suffered a decline in profitability as it battles to cut costs and shore up its balance sheet.

The mutual, which operates grocery, funeral, insurance and legal businesses, said group pre-tax profit slumped 84% to £7m in the six months to July 2. Underlying operating profit tumbled 64.7% to £18m.

Group revenues of £5.6bn were flat compared with the same period a year ago.

The Co-op’s core convenience grocery business recorded an underlying operating profit of £41m – 39.7% down year on year.

Food sales edged up 1% to £3.91bn during the 26-week period.

Its Nisa wholesale arm delivered an underlying profit of £4m on sales of £700m.

The Co-op said it placed “a clear focus” on slashing costs during the period, which “offset some of the material external cost headwinds” facing the group.

It admitted that energy costs and upward pressure on wages increased costs by around £50m year on year.

Earlier this year, the Co-op axed 400 head-office jobs and last month struck a £600m deal to sell its petrol forecourts portfolio to grocery rival Asda.

That sale is expected to complete in the second half of the Co-op’s financial year and will further reduce the group’s debt, which now stands at £731m.

The Co-op said it has kicked off a £37m investment in price, slashing the price of 120 key product lines during the golden quarter and into the new year.

It also said food availability had improved during its second quarter and returned to “pre-pandemic levels”.

Co-op chief executive Shirine Khoury-Haq said: “Against a highly challenging economic backdrop, we have made significant progress in strengthening our balance sheet while continuing to support the needs of our colleagues, members, customers and the communities in which we operate.

“Our clear focus on developing our businesses while controlling costs, improving our cash position and reducing debt is paying dividends.”

Khoury-Haq added that the Co-op was “mindful of the continued economic challenges” but insisted she had “confidence in the underlying strength of the Co-op and all our businesses”.

She said the mutual took some “tough decisions” during its first half, but entered into the second half of its fiscal year “stronger” as a result.

Co-op chair Allan Leighton added: “The first six months of the year have been a time of challenge for us – as they have been for all businesses.

“I was delighted that we were able to confirm Shirine Khoury-Haq as our permanent CEO during this period. Her energy to move decisively on improving our financial position, focusing on core business development, while still delivering on our vision commitments, is helping us move forwards with pace and purpose.

“We know that the current testing conditions will not ease in the second half and we will continue to face into the challenges by remaining focused and by building upon our incredible co-operative heritage. I would like to thank all our colleagues for their hard work and dedication in these extraordinary times.”