The Co-operative Group’s food business has reported a 1.1% fall in half-year like-for-like food sales, but banking woes hit the society hard.
Operating profits in food slipped 1.3% to £117.4m on sales down 0.45% at £3.6bn in the six months to 6 July.
It said that although like-for-likes were down 1.1% overall during the period, they fell by as much as 2% in the first quarter of the year due to the cold weather in March. However, they recovered to a decline of just 0.3% in the second quarter thanks to the June heatwave.
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The Co-op added that operating profits had fallen due to “continued investment in the business”, including £22m in its new Castlewood distribution centre, as well as bringing prices down for customers. Prices had been reduced on more than 1,000 products during the period, it said, “to give our customers better value”.
It also opened 10 new stores during the period.
Head of retail Steve Murrells told The Grocer the society planned to open 25 new food stores in the second half of the year, and 125 in 2014.
Figures released by Kantar Worldpanel yesterday revealed the society’s market share fell from 6.8% to 6.6% in the 12 weeks to 18 August 2013. For the first time, the combined market share of Aldi and Lidl is now bigger than The Co-op, at 6.8%.
“The strategy feels right. There will be a lot of hard work to come but I think we have the right formats, right segmentation and we have really exciting new products in development”
Euan Sutherland, Co-op
Murrells said the society was “losing share to most of our competitors at the moment”. Despite fellow co-op society Scotmid recently opening a discount format store, Murrells said the Co-op Group had no plans to do the same.
“We looked at a value proposition last year but we found that our fresh format won through,” he told The Grocer. “The value format did not show the same level of interest as fresh where like-for-like sales have been in double-digits.”
Group CEO Euan Sutherland added that he thought the food business was “terrific”.
“Steve and his new team have got a real grip on the strategy,” he said. “The strategy feels right. There will be a lot of hard work to come but I think we have the right formats, right segmentation and we have really exciting new products in development. All this leaves me in a very positive position.”
Banking losses
However, it was not so rosy in the society’s bank business. The banking group reported a loss of £709m, against a loss of £58.6m in the same period last year, hit by impairment charges of £496m. This meant the Co-op reported an overall group loss of £559m and a 1% drop in sales to £5.7bn.
On the bank, Sutherland said: “These results show the scale of the problems in our bank. The Co-op Group clearly regards the bank as a core part of the group and we are therefore shouldering the burden of the bank’s recapitalisation with our planned contribution of up to £1bn to the capital action plan. That will allow us not only to benefit from the bank’s transformation under its strengthened management team, but also to provide great service for our 4.7 million bank customers, while safeguarding the interest of other stakeholders.”
Banking Group CEO and deputy group CEO Niall Booker added: “We recognise the disappointment all stakeholders must feel about the financial performance we are reporting for the half year. This in turn reflects the deep-rooted problems that the bank faces which led to the £1.5bn capital action plan announced in June. Today’s results reaffirm that requirement, which covered the losses announced today as well as currently anticipated future impairments.
“The underlying issues in the results today are not new, with significant additional impairment charges leading to heavy losses. These were largely driven by a further £496m of impairments on loans, principally the result of a fresh review of non-core assets and partly driven by our developing knowledge and the earlier-than-anticipated disposal of some of those assets. We have also further written down our IT assets by £148.4m, taken an additional £61m of provisions for customer redress, including PPI, and there are significant charges of £34.6m.”
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