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Co-op Group Profit Slumps As Bank Struggles

(c) Sky News 2012

Profit at the Co-op Group has fallen by a third in the first half of this year, as the double-dip recession hit its bank hard.

Operating profit in the six months to the end of June 2012 fell 34% to £174m - down from £264m over the same period last year.

The Group's bank made a half year loss before tax of £58.6 million, after a charge of £40m for PPI mis-selling and £20m of costs as part of its bid to buy more than 600 branches from Lloyds.

The bank's results were due in part to "difficult market conditions" and the cost of holding higher liquidity, the Co-op said, adding that on-going uncertainty in the eurozone and low interest rates also had an impact on performance.

However, it still described the bank's performance as "satisfactory" given the state of the economy, adding that the outlook looks unlikely to improve any time soon.

The bank's £750m bid for the Lloyds' branches - which includes 4.8 million customers and 754 ATMs - would boost its financial strength, it added.

Sales at the Co-op's food business were also down as its 3,000 stores were hit by "fierce" competition from supermarkets and the bad weather.

Underlying sales in the division fell 1.2%, while operating profit dropped 16% to £119m.

Despite the tough conditions, the company said it is planning to open 80 new stores this year.

The group's so-called specialist businesses performed better than its larger divisions.

A 27.2% year-on-year increase in operating profit, to £16.1m, was seen at its pharmacies and Co-op Funeralcare’s operating profit rose 6.6% to £36m.

The group's chief executive, who recently announced his retirement, talked of an "unrelenting consumer downturn".

"A year ago I warned that we were operating in the worst conditions that I have seen in more than 40 years in business," Peter Marks said.

"The results we are announcing today show the full impact of that with the profitability of our two biggest businesses affected."

He added that the company had expected and planned for these results and was "well prepared" looking ahead.