Co-operative action pays off while Somerfield acquisition adds to divi

IT BOUGHT Somerfield and merged its banking arm with Britannia Building Society at a time when most businesses were retrenching but the Co-operative Group said yesterday that its aggressive expansion in 2008 has started to pay dividends as first-half underlying profits jumped 17 per cent.

Britain's biggest mutual retailer credited its 2008 deals for an 8 per cent boost in interim revenues to 6.9 billion. Profit before payments to members rose to 260 million.

Although the integration of its latest assets allowed the Co-op to ride out the mixed economic conditions at the start of the year, its chief executive Peter Marks sounded a note of caution over the next 18 months. Marks warned that he did not anticipate a full economic recovery until the end of 2011.

"2010 has been challenging so far, with tough economic conditions across all our businesses. Looking ahead … we do not expect things to improve until late 2011 at the earliest," he said.

The group's food stores - of which there are about 380 in Scotland - are likely to be hit by rising food inflation over the next few months, Marks admitted.

One research group, Kantar Worldpanel, has warned that fires and droughts in Russia and the Ukraine would fuel a doubling of grocery inflation to 4 per cent by the end of the year as the prices of commodities such as wheat, meat and cocoa soar.

Marks said the Co-op, which is known for its Fairtrade and ethically-sourced products, would do its best to protect customers from the increases.

"We are going to see food prices rising at the cost base as we see the impact of increased wheat prices for instance," he said. "We are going to be working very hard to shield customers from the impact of increased food prices."

The group, which employs more than 11,500 in Scotland across its different operations, said it was on track to complete the integration and rebranding of Somerfield stores by the first quarter of 2011.

Trading profits at the food division leapt 12.6 per cent to 169.7m in the half-year to 3 July even though sales dipped slightly by 1 per cent.

Thanks to the Somerfield acquisition, the Co-op now lays claim to a 7.6 per cent share of the grocery market, rendering it Britain's fifth biggest supermarket chain.

Co-operative Financial Services saw operating profits rise 34.3 per cent to 109.3m in the first half of the year due to the Britannia boost, while it has also been benefiting from the backlash against mainstream banks following the financial crisis.

The financial services arm operates two corporate banking centres in Scotland - one each in Edinburgh and Glasgow - accounting for some 200 business customers between them.The Co-op traces its roots to the founding of the co-operative movement in Rochdale, north-west England, in 1844. It is a separate company from Scotmid, which also owns Semichem, although Scotmid uses the Co-op as one of its suppliers.