Co-op has reported a sharp drop in interim profits as the food-to-funerals provider continued to face supply chain disruption, and higher wage and energy costs.
The group’s overall EBITDA slid from £248m to £218m during the half year to 2 July, driven down by “significant inflationary pressures”. Meanwhile, the business recorded an operating loss of £20m whilst pre-tax profit plummeted 84.1%, partly due to one-off impacts this year and last.
Despite the challenging backdrop, Co-op’s total revenue remained almost unchanged at £5.64bn.
In the core Food division, the society noted that it had faced global availability challenges exacerbated by the war in Ukraine and the cost-of-living crisis. The business saw a 1% increase in revenue to £3.91bn, mainly driven by higher fuel sales as prices spiked.
Absolute sales of food (excluding fuel) across all its store formats were down 0.7% on a like-for-like basis, although convenience sales fared slightly better with a 0.4% rise. The group noted that it had faced tough comparatives with bumper trade during the pandemic. Food price inflation also led to reduced volumes and transactions, and shoppers trading down to value ranges.
Profitability within its Food business also fell, down from £68m to £41m. This was partly blamed on the impact of inflation, which increased its costs. The comparative figures also benefitted from £18m of Government rates relief during the pandemic. Co-op noted that the increase in fuel sales had not flowed through to additional profit as input costs had also increased.
Meanwhile, the group’s Wholesale business (covering Nisa and its franchise operations) generated sales of £0.7bn, broadly in line with 2021. The Co-op stated that this reflected a “solid performance in light of the broader economic headwinds impacting all retailers”. Underlying profit of £4m continued an upward trend of improving profitability for Wholesale as the collaboration between Co-op and Nisa strengthened.
“We know that the current testing conditions will not ease in the second half, and we will continue to face into the challenges, by remaining focused and by building upon our incredible co-operative heritage,” said Chairman Allan Leighton.
Shirine Khoury-Haq, Chief Executive of the Co-op, stated that its clear focus on developing the businesses, whilst controlling costs, improving its cash position and reducing debt, was paying dividends.
She added: “Looking ahead, while we are mindful of the continued economic challenges, we have great confidence in the underlying strength of the Co-op and all our businesses. Having faced into some tough decisions in the first half, focused on cutting costs and improving efficiency, we ended the period stronger both operationally and financially.
“Since then, we have progressed further with the planned sale of our non-core petrol forecourts business (to Asda). This will strengthen us more and provide the means to invest in our core businesses, whilst enabling us to support our members, customers, colleagues and communities through the cost-of-living crisis.”
Alongside the interim results, Co-op unveiled a new strategy for its food business which included a major investment in cutting prices.
NAM Implications:
- The Co-op are probably doing as well as can be expected in the circumstances.
- However, adding a major price-cutting initiative will add to the pressure…
- Suppliers (especially brands) need to ensure that they achieve and maintain their fair share of investment and returns…
- Meanwhile, a line-by-line comparison with the above state should provide a steer.
