Co-op Group’s profits slump as energy prices and lack of rates relief send costs higher

The Cooperative Group saw profits plummet after a jump in commodity prices and the end of a vacation from corporate rates.

The food retailer and legal services company’s pre-tax profits fell 84 percent in the six months to early July to £7 million, from £44 million in the same period last year.

Higher worker wages and utility bills contributed around £50m to additional costs for the Manchester-based company, while the return of corporate rates contributed a further £20m.

The profit also benefited last year from a one-time £99m settlement from a creditor who owed money to the company’s banking division.

Due to current inflationary pressures and the resulting uncertainty for consumers and businesses, the Co-op warned it expected to witness “ongoing challenges” throughout the year.

But it said it was “better equipped to withstand the impact of these problems” because of measures taken to reduce operating costs and better manage capital expenditures, which helped cut net debt by a fifth to £731 million. .

Debts are set to fall further later this year as the group completes the £600m sale of its petrol tank division to supermarket giant Asda.

The additional proceeds from the deal will go towards investing in the company’s main convenience division and keeping prices affordable for consumers, it said.

Against a very challenging economic background, we have made significant progress in strengthening our balance sheet,” noted Shirine Khoury-Haq, who became CEO of Co-op in August.

She added: “Looking ahead, while aware of the ongoing economic challenges, we are very confident in the underlying strength of the Co-op and all of our businesses.

“After some difficult decisions in the first half, aimed at cost savings and improving efficiency, we ended the period stronger both operationally and financially.”

Higher gasoline prices helped boost the company’s overall food business revenues and offset a decline in actual food sales due to inflation and Britons returning to dine in on-trade.

Amid all this, the supermarket brand chose to cut or freeze prices on about 4,000 products and increased its share of the UK supermarket market to 6.5 percent, according to data from Kantar.

It also increased market share in its funeral home business, something the company attributed to a new marketing campaign, although revenues fell slightly as death rates plummeted following the massive rollout of Covid-19 vaccines.

At the same time, the division’s underlying profit was impacted by the group’s preparations ahead of the adoption by the Financial Conduct Authority of new regulations on prepaid funeral plans.

However, Co-op’s total after-tax profits held steady at £48 million thanks to a Court of Appeal ruling that forced tech firm IBM to pay the retailer for a failed IT project.