Co-op sees overall profits rise despite tough trading in food

The re-opening of the East of England Co-op store at Rosehill, Ipswich, following its recent refurb

The re-opening of the East of England Co-op store at Rosehill, Ipswich, following its recent refurbishment. The society says that strong cash flow has enabled it to continue to invest in its store, despite pressure on profit margins. - Credit: Archant

The East of England Co-operative Society has reported increased overall profits for the first half of its current financial year, despite its food stores coming under pressure amid the supermarket price war.

Total turnover across the society’s operations edged higher to £185.803million in the 28 weeks to August 9, compared with £185.455m in the corresponding period last year, and profit before tax increased from £4.141m to £5.858m.

However, the bottom line benefited from an increase in interest income and trading profit on an underlying basis fell from £3.6m in last year’s first half to £3.1m.

This reflected increased competition in the food sector, with the society sacrificing margin amid tough competition between the UK’s “Big Four” supermarket chains, Tesco, Asda, Sainsbury’s and Morrisons, in response to the growing challenge from discounters such as Aldi and Lidl.

The society said the impact of tough market conditions had been compounded by the absence of a corporate dividend from the Co-operative Group, but added that the impact of this had been kept to a minimum by strong control of operating costs.

This helped most of its non-food businesses to increase their profits compared with last year’s first half, with is funeral business performing “exceptionally well”, despite a lower death rate.

Sales in the East of England Co-op’s food stores fell 1.4% on last year’s first half in total, and by 2.2% on a like-for-like basis. Its larger stores were the worst affected, with sale down by 3.9%.

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However, the society that that a “competitive” pricing strategy within its fuel forecourt business had resulted in a 9.6% rise in sales while its specialist retail businesses had seen 5.7% growth in turnover.

The biggest increase came within the travel business, which benefited from the opening of a new branch in Felxistowe and three new travel money bureaus. The funeral and opticians businesses also saw small sales increases although the was partly offset by a fall in pharmacy sales.

The society added that its property business put in another strong performance, with rental income rising by 2.9% to £3.6m, reflecting investment in the portfolio as well as improved market conditions.

In its interim report to members, the society says: “Our perfomance is not as strong as we had planned it to be. An increasingly competitive food retail market is resulting in lower sales and profits.

“However, we continue our hard work to strengthen the foundations of our business and invest in further growth. Given current market conditions, our £0.3m increase in turnover is very positive.”

The society added that, despite the reduced trading profit, it had seen a “healthy” net cash inflow of £12.7m from its trading activities, up from £12.3m a year earlier, and this had been used to finance an investment programme including new and refurbished stores.

Looking ahead, it said: “We expect the challenging market conditions, intense competition and the rapid pace of change in retailing to continue during 2014-15.

“These pressures on our sales and margins will reduce profitability. However, a focus on strong cash generation will allow continued investment as we grow our business for a secure future.”