STRONG sales at Co-op convenience stores have helped return the Co-operative Group to profit in the half year, but the group warned that increased investment will hit full year figures.
Under chief executive Richard Pennycook, the respected former Morrisons finance director, the Co-op has been restructured after a tumultuous time when its banking arm nearly collapsed, causing the group to report a hefty £2.3bn loss in 2013.
Mr Pennycook, alongside retail veteran Allan Leighton who has taken over as chairman, is now investing in the business.
Capital expenditure rose 48 per cent to £144m over the first half in the shape of 35 new convenience stores and 10 new funeral homes.
Pre-tax profits for the 26 weeks to July 4 rose to £36m, up from a £9m loss the previous year.
The core convenience store estate reported an impressive 3.3 per cent increase in like-for-like sales. Overall the supermarket chain, which includes the group’s larger stores, saw a 0.8 per cent rise in like-for-like sales.
The supermarket business posted a 21 per cent rise in underlying profits to £120.4m during a period when 1,000 new workers were recruited.
The group said its funeralcare arm had its busiest start to the year since 2008 following a higher death rate, while general insurance swung into profit from a loss last year, thanks to a lower volume of claims.
Mr Pennycook said: “We’ve made a good start on the three-year journey to rebuild The Co-operative Group.
“These early days are about fixing the basics - putting in place new leadership teams and providing the investment to deliver the strategies for our businesses. Our customers and members are beginning to see the difference.”
He said group profit would probably be “pretty flat” at the end of the year although “the businesses themselves continue to turn around nicely”.
“Whatever we are generating we are investing in the business, and that’s over profitability or cash flow, because we are in an investment phase,” said Mr Pennycook.
Debt fell to £600m from £1.4bn a year ago. The group is committed to keeping this below £900m, but debt is expected to rise over the rest of this year amid increased investment.
This has included a £125m investment in food store prices, with a focus on fruit and vegetables and popular cheap deals such as slashing the price of wine, soft drinks, crisps and biscuits.
Mr Pennycook said the grocery sector is likely to remain “very, very competitive”.
The Co-op is getting rid of up to 300 food stores over the coming years as it sells larger sites to rivals such as Waitrose, Asda, Aldi and Lidl in order to concentrate on its smaller convenience store network.
“We expect gradual market share reduction,” Mr Pennycook said.
“That is not something we are hung up about at all.”
He said there are no plans to enter the online grocery market despite larger rivals running web operations, saying he is “not aware of them doing it profitably”.
But the group is trying to expand its online electrical goods business, competing with larger rivals such as AO World and Dixons Carphone.
Mr Pennycook said the Co-op is the only player offering one-hour delivery slots, saving customers from having to wait in all day after ordering products such as washing machines.
Overall group revenues fell 2 per cent to £4.6bn.