UK Co-op Group's profits hit by investment, pay rises and price cuts
LONDON (Reuters) - Britain's Co-operative Group <42TE.L>, the mutually-owned supermarkets to funeral services group, reported a halving in half-year profits on Friday as it invested in stores raised pay for staff and cut prices to stay competitive in a cut-throat grocery market. The UK's biggest mutually-owned group, which also operates insurance, legal services, travel and electrical goods retailing businesses, also cautioned that its investment plans meant it expected underlying pretax profits for the full year would be lower than the 81 million pounds made in 2015. The Co-op nearly collapsed in 2013 after a 1.5 billion-pound funding "hole" was found in its banking operation. But it has recovered under Chief Executive Richard Pennycook, aided by a shift in Britons' grocery shopping habits towards smaller, more frequent shopping trips to smaller convenience stores. The firm is investing 1 billion pounds over three years. On Friday Pennycook launched a new Co-op membership scheme that will see the mutual target the recruitment of one million new members and hand back more than 100 million pounds a year from 2018 to members and their communities. The Co-op made an underlying pretax profit of 31 million pounds in the 26 weeks to July 2, down from 63 million pounds in the same period last year. Revenue increased 2.2 percent to 4.7 billion pounds as customer transactions grew by 3.3 percent. In the first half the Co-Op spent 149 million pounds making improvements to its food stores and funeral homes, while lower food prices, mainly in meat, cost it 30 million pounds. Group debt increased to 700 million pounds from 600 million. "In line with our strategy, profitability has fallen due to our major rebuild investment, pay increases for our people and price cuts for our customers," said Pennycook, who hit the headlines in April for requesting a 60 percent pay cut. "We are able to invest for the long-term ... because our business model allows us to pursue our unique approach," he said. Sales at stores open over a year in the Co-op's food business rose by 3.1 percent. The Co-op is Britain's fifth biggest grocer with a market share of 6.6 percent. Grocery industry data published on Tuesday showed the Co-op has continued to outperform the market with total sales growth of 3.1 percent year-on-year in the 12 weeks to Sept. 11. Pennycook said the Co-op was now 100 percent British on all its fresh meat supplies, insulating the group from exchange rate pressures. The Co-Op also said on Friday it has lopped 45 million pounds off the valuation of its 20 percent stake in Co-Op Bank, reflecting declining confidence in the lender's fortunes amid broader problems in the sector. (Reporting by James Davey; Editing by Greg Mahlich)
