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Co-op's profit declines in "worst economic crisis in living memory"

Will the mutually owned business jettison its smaller businesses?

The Co-operative Group has had a tough 12 months. Though the UK’s largest mutual business managed to grow sales in the year ended 31 December 2011 by 1 per cent to £13.3bn, its pre-tax profits fell by 5.8 per cent to £373m. The dip was spread across its operations, which range from banks to funeral services.

The group, which runs 4,800 retail outlets and employs more than 100,000 people, generated an operating profit of £375m (2010: £465m).

Peter Marks, the group's chief executive, said: “The Co-operative Group has delivered a solid set of results against the toughest economic backdrop I have seen in more than 40 years in business. 2011 was a time of severe challenge for the UK economy and for our millions of customers and members. We have delivered profitability in line with expectations, while maintaining our financial strength and resilience.” 

However, speculation is rife that Co-op will offload its fringe assets, such as its car dealership, to focus on the grocery and banking divisions. It opened two new food distribution centres last year and has completed the first stage of upgrading its core banking platforms. For 2011, the group’s food division posted an underlying operating profit of £309m (2010: £389m), while banking generated £201m (2010: £202m).
Meanwhile, its bid to take over 632 branches from Lloyds Banking Group is behind schedule. While Co-op still has preferred-bidder status, concerns were raised by Marks's mention of “very material regulatory issues” that need to be resolved before the group can proceed with the formal bid.

The group has an annual turnover of more than £13bn. Its net borrowings increased by 3.3 per cent to £1.49bn in 2011 (2010: £1.44bn).

Marks concluded: “Looking ahead, I do not expect to see any significant recovery in the UK economy during 2012, with little hope of an improvement in disposable income for our customers. If anything, it is quite possible that things will get worse before they get better. In spite of this, I remain optimistic. The Co-operative Group is in better shape than ever before because of all the work done over the past five years.”