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Interim Report The Co operative

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					Good for everyone




             The Co-operative Group
Key results                                                                                            2008
                                                                                                        £m
                                                                                                                    2007
                                                                                                                      £m
Revenues before premiums ceded to reinsurers                                       up 25.2%           5,078         4,057
Operating profit before significant items                                          up 41.0%             256          182
Profit before payments to and on behalf of members                                 up 60.5%             198          123
Members’ funds                                                                     up 12.5%           3,666         3,258
Payments to and on behalf of members                                              up 147.3%             94.7         38.3




Highlights so far…
• The Group announced plans to acquire Somerfield        • We rebranded 946 stores and branches – the largest
  for £1.6bn.                                              number ever carried out in a half-year.
• Plans announced to build new Head Office close         • Members are receiving a record share of profits
  to current HQ in Manchester.                             of over £94m.
• There are record half-year results with operating profits • Membership of The Co-operative Group smashed
  before significant items up 41.0% to £256m and gross        through the three million barrier.
  sales up 29% to £5,693m.




                                                            Contents
                                                       01   Chair’s statement
                                                       02   Progress since the merger
                                                       04   Business review – Trading Group
                                                       07   Business review – The Co-operative Financial Services
                                                       08   Interim financial information
                                                       12   Independent review report by KPMG Audit Plc
                                                            to Co-operative Group Limited
Chair’s statement
Len Wardle, Chair, The Co-operative Group


It has been over a year since the merger
between The Co-operative Group and United
Co-operatives and what a year it has been:
we’ve successfully integrated the two
businesses, we’ve improved business
performance, we’ve rolled out the Group’s
membership proposition to former United
members and we’ve made record pay-outs
to both members and staff. We’re also in the
process of acquiring the Somerfield chain
which will propel the Group into the ranks
of the top five biggest retailers in the market.
And that’s just the tip of the iceberg. We’ve
sponsored the Pride of Britain Awards in           I’d also like to take this opportunity to pass   considered by Lothian Borders & Angus
association with the Daily Mirror, many of the     on my thanks and best wishes, and indeed         members at a series of meetings in the
businesses in the Group have won awards,           the thanks and best wishes of the rest of the    autumn. The Society operates 66 food,
sometimes multiple awards, demonstrating           Board, to Bill Hoult, who retired earlier this   pharmacy, petrol, funeral and non-food
our difference and how we lead the way on          year. Bill served as President of the United     outlets and employs around 1,200 staff.
a whole host of different fronts, ranging from     Society prior to the merger and also as          At 28 January, 2008 its turnover was
being named ‘Green Retailer of the Year’ at        a Director of the Group for seven years.         £123m and its operating profit was just
The Grocer Gold Awards to picking up four                                                           over £4m. As well as trading in the Lothian
Big Ticks at the Business in the Community         As you’ll see from each of the business          Borders & Angus areas, the Society also
Excellence Awards 2008 awarded to the              reviews in the coming pages, the Group           operates stores in Grampian and
Group and CFS in recognition of the positive       has performed very well in the first half of     Dumfriesshire. Lothian Borders & Angus
impact of our corporate social responsibility      the year – but, with the ongoing downturn        is a very strong, well-run society and I am
activities.                                        in the economic climate, it’s likely that        delighted that its Board and management
                                                   the second half of the year will be more         share our vision of creating a strong
The merger also gave us the opportunity            challenging. Thankfully, with the merger         Co-operative Group able to compete
to take a good long look at our Governance         complete ahead of schedule and significant       effectively in tough market conditions.
structure. As I’m sure many of you know,           savings made as a result, we are in a good
we have been conducting a Constitutional           position. That’s not to say that we do not       Finally I’d like to extend thanks, once again,
Review to build a structure that is fit for the    take the current challenges seriously but it     to staff and members for all of your support,
world’s largest consumer co-operative. I’d         confirms our view that we have the right         whether that support has taken the shape of
like to extend my appreciation to members          people in the right positions making the right   working for us, shopping with us or making
for their part in the consultations that have      decisions. There is no doubt that the period     sure your voice is heard at democratic
been taking place. At the SGM in July,             of boom that appears to have lasted for the      meetings (or all three!). We wouldn’t be
25 motions were carried overwhelmingly             better part of the last dozen years, has come    where we are today without you and,
including a reorganisation of both the             to an end and the world is, as they say,         similarly, we won’t get where we need to
regions and the Board itself, and the              changing – and not necessarily for the           be without your continued support. Here’s
establishment of three new subsidiary              better, either. But The Co-operative Group is    to what will hopefully be a profitable second
Boards to oversee our Food business, our           in a good position financially. I am confident   half of the year!
Trading Group businesses and CFS. We are           that we will weather the storm and that I’ll
now progressing to a second SGM later in           be in a position to report favourably on our
the year, to be held in conjunction with the       performance come the year end.
Group’s half-yearly meeting, where a new
rule book will be presented for approval           I am also pleased to announce that
by members. Subsequently, there will               the Board of Lothian Borders & Angus             Len Wardle Chair, The Co-operative Group
be elections – which will lead to the              Co-operative Society has agreed to seek to
establishment of a new, smaller Board              transfer engagements to The Co-operative
by mid-2009.                                       Group. The proposed transfer will be



                                                                                                         The Co-operative Group interim report 2008 1
Progress since the merger
August 2007 – July 2008




August 2007                                            October 2007
Our Pharmacy business                                  We launched the biggest                        December 2007
went international with the                            modernisation programme in                     Record trading figures were
announcement of a new                                  the Group’s history at a cost                  recorded in our Food business
joint venture in China.                                of over £200m.                                 over the Christmas period.




               September 2007                                        November 2007                               January 2008
               We announced that a whopping                          The Co-operative Fairtrade 99               Group membership rolled out
               £2.9m had been raised for our                         Tea topped the hot beverages                to former United Co-operative
               charities of the year, The Children’s                 category at the Quality Food &              members.
               Society and Diabetes UK.                              Drink Awards 2007.




               £2.9m
               raised


2 The Co-operative Group interim report 2008
                                            April 2008
                                            Our eco-town proposal
                                            was shortlisted by the
                                            Government.                                         June 2008
                                            The Co-operative Truly                              The Co-operative Group’s
                                            Irresistible English Apple                          sponsorship of the Daily Mirror’s
February 2008                               Crush became the latest                             ‘Pride of Britain Awards’ was
We launched The Co-operative                product supplied by                                 announced, the biggest national
Food Ethical Policy, the world’s            The Co-operative Farms                              awards show of its kind on
largest consumer poll on ethics!            and labelled ‘grown by us’.                         British television.




       March 2008                                            May 2008                                           July 2008
       Waste Works opened, the                               Annual results announced with                      The Group exchanges contracts
       Group’s education centre designed                     sales up 18.8% to £6.3bn and                       to acquire Somerfield for £1.6bn.
       to give school children a hands-on                    profit up 35.2%. Travel rebranded                   Pharmacy announces a £15m
       approach to reducing waste and                        its 350th branch!                                  investment in a new distribution
       sustainable living.                                                                                      depot in Stoke.



                                                                                                                £1.6bn
                                                                                                                acquisition
                                                             Sales up
                                                             18.8%

                                                                                                       The Co-operative Group interim report 2008 3
Business review – Trading Group
Peter Marks, Chief Executive


In the Annual Report & Accounts earlier this
year, I said that I thought this would be the
year in which our staff and our members
started to see how significant a business
The Co-operative Group could be. With the
proposed acquisition of Somerfield building
on last year’s merger, we are now not only
the world’s largest consumer co-operative,
we are also in line to be the fifth largest food
retailer in the market, making the ‘Big 4’ the
‘Big 5’! We are in a position where we can
congratulate ourselves on a strong half year.
Even though there are challenges ahead,
we must not let ourselves be distracted from       Taking each of the businesses in turn:              named ‘Green Retailer of the Year’ at
acknowledging our achievements so far.                                                                 The Grocer Gold Awards, beating Asda,
                                                   The Co-operative Food                               Ocado, Sainsbury’s and Tesco and picked
Financial overview                                 Our Food business delivered an excellent            up a prestigious 2008 European Business
From a financial perspective, the Group            result in the first half of 2008, with sales up     Awards for the Environment. InSight,
has made extremely positive progress in            £0.7bn (43.5%) to £2.4bn and trading profit         the technology behind the innovative pin
the first half of 2008. Whilst the results         up £50.9m (67.7%) to £126m. Like-for-like           pads used in 2,200 of our Food stores,
for the 2007 half-year referred to in the          sales for the first half of the year increased by   won ‘Best Customer Facing Technology’ at
following narrative do not include the interim     5.0%, compared to a total market increase of        the European Retail Solutions Awards 2008.
results for the ‘former’ United Co-operatives      4.6%. We delivered a significant eleventh
businesses, profits in the Trading Group are       quarter of like-for-like growth despite food        As part of our Food Ethical Policy, we also
still up 20.5% on a like-for-like basis            inflation – food inflation, I should say, that      launched a new Responsible Fish Sourcing
including United. Group revenues before            we have attempted to shield members and             Policy, which means every own-brand fish,
insurance premiums were up 25.2% to                customers from as far as possible. In May,          or product containing fish (including canned
£5.1bn, compared to £4.1bn this time last          for the first time in the Group’s history, food     and sandwiches), has been rigorously
year. Our operating profit before significant      sales for a one-week trading period, outside        checked to ensure it is responsibly sourced.
items rose by 41.0% to £256m, an increase          of Christmas, broke the £100m barrier.              To mark the launch of the new range, the
of £74.5m. Income in the Trading Group                                                                 Group is pledging £200,000 in support over
is up by £1bn, boosted by a terrific               Competition in the food sector remains              the next two years to UK fisheries looking to
performance from our Food business and             extremely tough but we have continued               pursue Marine Stewardship Council (MSC)
The Co-operative Travel and equally solid          with our ambitious store refit programme,           certification.
results from the likes of The Co-operative         rebranding 349 stores in the first half of
Funeralcare. The performance of our                the year, and raised the bar as far as              Alongside the performance of the business,
Healthcare business was affected adversely         innovation is concerned with the opening            the big news in the first half of the year
by the Government clawing back £42.0m,             of a Co-operative store in Peacehaven               was the proposed acquisition of Somerfield.
while the Motor Group performance was              that puts our cross-selling initiatives to the      This is a tremendous deal which, once
impacted by the current economic climate           fore by combining a Food store with Bank,           completed, will cement our position as the
and higher interest rates. The Co-operative        Pharmacy and Travel branches.                       UK’s premier community retailer. It is great
Estates delivered a robust performance,                                                                news for our employees, our members and
despite continued challenges and obstacles         We have also been blazing quite a trail             for consumers generally as it will create
in the housing market. Trading Group               through various royal and country shows             a stronger fifth player in the food retailing
borrowings fell from £563m to £538m,               with our ‘Good with Food’ roadshow, which           market.
leading to a net debt to earnings ratio of         has picked up a number of awards and
1.1 compared to 1.5 at the year end.               allowed a great many people to sample the           Somerfield operates around 880 local
                                                   delights of our products. We were also              grocery retail outlets across the UK.




4 The Co-operative Group interim report 2008
Once approved by the Office of Fair Trading,      trophy at the Travel Weekly Agent Excellence    clawback policy. We are also seeking to
our combined Food business will operate           awards for Wales and the South West in July.    work with the Department of Health on
more than 3,000 grocery stores and                                                                the Government’s health agenda, an
generate net sales of about £8bn, with            The Co-operative Funeralcare                    agenda that will see pharmacists take more
a market share of around 8%, propelling           Our Funeral business has worked hard to         responsibilities for providing primary care
the Group back into the Premier League of         deliver a good result in the face of a number   to patients; we have yet to learn what the
food retailing in the UK. Inevitably, given       of significant challenges, primarily as a       financial compensation for these new
a deal of this size, there will be some local     result of good cost control. Operating profit   responsibilities will be, but are clear that
competition issues which we are confident         before significant items was £24.1m, £6.5m      this can only be done if it makes economic
we will be able to work through with the          (or 37.3%) higher than this time last year.     sense to the business.
Office of Fair Trading.                           Funeral sales in the half year were also
                                                  up by £38.0m (or 33.9%) to £150.1m.             Elsewhere in Pharmacy, we are investing
Once the acquisition is completed, the            A great deal of work has been going on          heavily in the future of the business. Work is
Somerfield business will become part of our       behind the scenes to roll out the in-house      now underway on the construction of a new
existing Food Group, headed by Tim Hurrell.       funeral home system previously used in          £15m National Distribution Centre in Stoke.
Guy McCracken, who retired as Chief               United Co-operatives to the rest of the         When complete, the 190,000 sq ft facility will
Executive of our Food business at the end         former Group estate and that work is            allow us to deliver to all our UK branches from
of July, will be taking up a temporary role       ongoing. The business has taken a number        the same depot for the first time.
to assist with the integration of Somerfield      of steps to drive cultural change in terms of
into the Group, once the deal is completed.       both take-up of the brand and engagement        We have also begun the roll-out of a new
I would like to take this opportunity to thank    – currently, 75 managers have been tasked       till software system, similar to that used
Guy for his significant contribution to our       with helping achieve an engaged, client-        by Food, consolidating systems that were
food business over the past three years           orientated and responsive workforce.            previously somewhat disjointed.
and wish him well in his retirement.
                                                  Other highlights of the half-year include:      Work is continuing rapidly to convert
The Co-operative Travel                           sponsoring the World Bowls Tournament,          our branches to the new brand, and new
Our Travel business delivered a strong            which provided over 50 hours of coverage        facilities including private consultation
performance in the half year thanks to            on Sky TV; rolling out The Co-operative         rooms are also being installed inside
sustained effort from the whole team              Legal Service’s Probate service to all          branches, helping equip them to take
in terms of driving down costs and                branches; and designing and launching           full advantage of the opportunities for
maximising sales.                                 the Funeralcare Management Designate            Pharmacy to offer a greater range of
                                                  Programme to fast-track high calibre            services to customers.
With an operating profit before significant       candidates.
items of £7.9m, an increase of £7.9m on                                                           The Co-operative Estates
this time last year, and sales in the half year   The Group’s former employee recognition         The challenges The Co-operative Estates
of £149.7m, the business has made serious         scheme – the annual Diamond Award and           experienced in 2007 as a result of the credit
strides in terms of turning around the poor       United’s Employee of the Year – were also       crunch and the fluctuations in the value of
performance of recent years.                      awarded to Funeral staff, Kay Keep from         the investment portfolio have continued in
                                                  The Co-operative Funeralcare in Bletchley       the first part of 2008, with a trading profit
The Co-operative Travel also became the           and Mark Weibracht from JR Barlow’s             of £10.8m. Capital loss on the investment
first UK travel retailer to launch an ethical     funeral home in Manchester. We are also         portfolio was £11.8m. The business has
strategy aimed at supporting the principles       currently in the process of obtaining Forest    delivered a profit on disposals of £11.5m,
of responsible and sustainable tourism.           Stewardship Council (FSC) accreditation in      which was ahead of target.
Together with the Bank, The Co-operative          our coffin range.
Travel is also the first area of the business                                                     Estates has also been involved with two
to have effectively completed the roll-out        Healthcare                                      major Group projects – the relocation of
of the new brand throughout its estate.           The Group’s Healthcare business has             our Manchester Head Office and the
                                                  struggled in the first half of the year as      Government’s eco-town initiative. As far as
It is also worth mentioning that The              a result of the Government clawing back         the relocation is concerned, a great deal of
Co-operative Travel routinely wins more           some profit from the business – estimated       work has been undertaken to narrow down
awards than any other of our businesses           to be £42.0m on an annual basis. With           a shortlist of eight possible locations to two;
and the first half of 2008 is no exception,       an operating profit before significant items    we are currently in negotiations to determine
with the business picking up a hat-trick          of £13.6m, representing a decrease of           the final location.
of awards at the travel industry Agent            £3.8m on this time last year, the business
Achievement Awards in April, a number             is working with other pharmacies through        The eco-town proposals are now in
of awards at the Travel Weekly Agent              its professional bodies to lobby Government     phase four, which means that we are
Excellence Awards in May and a prestigious        in order to try and force a rethink of the      liaising with local communities around




                                                                                                       The Co-operative Group interim report 2008 5
the proposed Pennbury site in Leicestershire       in the Group and externally, in order to open     The planned acquisition of Somerfield is
and working with Government to rigorously          new sales opportunities and launch new            one of those opportunities and once we have
assess the bid.                                    products, End of Life Planning is set for a       cleared, as we expect to, the OFT process,
                                                   strong performance in the second half of          we look forward to welcoming tens of
The Co-operative Farms                             the year to build on the results to date.         thousands of new colleagues and potential
Our Farming business has delivered a                                                                 new members into the Group. Together we
creditable result in the first half of 2008,       Specialist Commercial Businesses                  believe we can create a truly market-leading
with a profit of £0.9m. This represents a          There are four businesses in our Specialist       community store business resulting in the
decrease in the half-year position against         Commercial Businesses Division: E-Store,          ‘Big 4’ becoming the ‘Big 5’. However, it is
2007, due mainly to fixed costs which are          The Co-operative Clothing, Sunwin Services        only through the fantastic progress we have
only recovered when the crop is harvested,         Group and Sunwin Motor Group.                     made since the merger in July last year that
payment timings and decreased subsidy                                                                we have put ourselves in a situation to
payments.                                          The two businesses comprising E-Store             achieve this major step forward and I would
                                                   – www.coopelectricalshop.co.uk and                like to thank all colleagues and members for
The packhouses performed less well due to          www.coopbedshop.co.uk – have generated            their support in making this possible.
the high prices that had to be paid for quality    an operating profit before significant items
potatoes after the very wet autumn in 2007,        of £0.4m, an increase of 20.9% on a like-
but this was offset by an uplift in value of       for-like basis.
our 2007 cereal and apple crops.
                                                   The Co-operative Clothing relocated to
In addition, The Co-operative Farms                larger bespoke premises and continued             Peter Marks Chief Executive, Trading Group
continued to demonstrate its value to              to drive improvements, although sales of
our Food business, with the launch of              £2.3m were £0.3m (or 10.3%) down on
The Co-operative Truly Irresistible English        this time last year.
Apple Crush and Truly Irresistible Honey,
the latest additions to the range of produce,      Sunwin Services Group, which comprises
ambient products and beverages labelled            CIT Services, ATM Support, E-Solutions,
‘Grown by Us’.                                     Sunwin Security and Aegis Guarding,
                                                   reported an operating loss of £0.3m.
A celebration at our Essex farm also marked
the 5,500th primary school child to have an        Our motor business performed well in an
educational visit at one of our farms, thanks      incredibly difficult market, reporting a profit
to the roll-out of our groundbreaking ‘From        of £1m thanks in large part to excellent
Farm to Fork’ project, which is now taking         cost control.
place on eight of our farms.
                                                   Conclusion
The Co-operative Legal Services                    The fact that we have made significant
Our Legal Services business has maintained         progress in the first half of the year and
its steady growth, with half year revenues         are able to post such strong figures while
reaching £6.8m, an increase of 33.3% on            many of our competitors lost ground in
the previous half-year figure. This growth,        the wake of the credit crunch, only goes to
together with the formation of The                 demonstrate what a remarkable business
Co-operative Trust Corporation to handle           we are and what remarkable people we
probate business, has necessitated opening         have working here. That is not to say,
a second office on the Aztec Business Park         however, that we will remain untouched
in Bristol.                                        by what is going on. The rest of this year,
                                                   and quite possibly much of next year will
End of Life Planning                               be tough, thanks in large part to the
Our End of Life Planning business                  aforementioned credit crunch, as well as
continues to make very positive headway in         increases in consumer debt, the ongoing
the relatively difficult economic conditions for   slow-down in the housing market, food
the funeral pre-payment plan sector. Sales         inflation and energy cost rises, among other
volumes are 9% ahead of the prior year.            things. Despite the tough trading conditions,
                                                   I firmly believe that, our business model is
With three new products recently                   robust and we will continue to maximise
relaunched with new partner Axa Sun                opportunities as and where they present
Life and a continued focus on building             themselves, while at the same time
relationships, both with other businesses          keeping a firm hand on cost control.




6 The Co-operative Group interim report 2008
Business review –
The Co-operative Financial Services
David Anderson, Chief Executive
The first half of 2008 has been challenging
for CFS and the industry as a whole as the
impact of the credit crunch continues to be
felt on the UK economy. CFS has responded
well with a strong balance sheet, a non-
reliance on wholesale markets and a clear
plan to expand further across both retail
and corporate sectors.

Total shareholder profit before tax,
significant items and investment fluctuations
was £73.4m compared to £38.0m in the
previous year. The improvement arose
principally from the General Insurance          investment write downs and significant          supported by television advertising and
business, which was adversely affected last     items increased by £25.7m (56.5%) as            training for all colleagues. Processes have
year by major weather events.                   strong balance sheet growth was achieved        been improved and costs reduced, and
                                                in both lending and deposit balances            this was reflected in a number of external
The first half of 2008 has seen further         resulting in higher non and net interest        awards including Best on line insurer by
strong performance from our Corporate           income. Bad debt and operating costs            Your Money, Best remortgage and Best
Banking sector and strong new business          have also improved on 2007.                     first time buyer at the Moneywise awards
sales performance in the Retail Bank. Sales                                                     and Company of the Year by Business in
volumes have also increased for General         The General Insurance result has improved       the Community. Both the bank and Smile
Insurance, albeit at lower average premiums     by £31.8m from the 2007 result, which was       performed very well in polls by Watchdog
due to a strategic decision to reduce           affected by exceptional weather related         and Which? regarding customer service
underwriting risk. Life and savings new         claims of around £55m. The 2008 result has      quality.
business has continued to be impacted           been impacted by investment losses arising
by reductions in the number of financial        from turbulent market conditions and lower      We know that looking forward market
advisers. The Wholesale business has            average premiums.                               conditions will continue to be difficult and
improved performance as continued                                                               that we need to do still more to improve our
strengthening of our balance sheet and          The long-term business, run in the interests    business. But we are confident that we will
liquidity and low reliance on wholesale         of policyholders, has seen further savings in   succeed and that our co-operative values &
funding has enabled us to benefit from          operating expenses. Sales of new policies       principles will be more relevant than ever in
interest rates in the markets. CFS remains      have declined as a result of a reduction in     challenging markets.
committed to significant future investment      the number of financial advisers, although
and the cost base has begun to benefit          numbers have stabilised. The Field Sales
from initiatives to improve our operational     Transformation Programme has been
performance and efficiency.                     launched to transform how our Field Sales
                                                team operates. It includes addressing
The banking business recorded an                barriers to growth as well as supporting        David Anderson Chief Executive
increased profit before tax and significant     and enabling improved performance.              The Co-operative Financial Services
items of £46.2m compared to £45.5m in
2007 despite extremely difficult market         We are starting to see the results of the
conditions and £25m of structured               investment we are making to transform
investment write downs. Profit before           the business. Our new brand is launched,




                                                                                                     The Co-operative Group interim report 2008 7
Interim financial information
for the 28 weeks ended 26 July 2008
1 Revenue

                                                                                                                       Restated
                                                                                             28 weeks ended     28 weeks ended      52 weeks ended
                                                                                                26 July 2008       28 July 2007    12 January 2008
                                                                                                  (unaudited)        (unaudited)           (audited)
                                                                                                          £m                 £m                 £m

Gross sales – Trading activities                                                                    3,952.3           2,506.8             5,676.4
Less:
Value Added Tax                                                                                      (254.1)            (164.3)             (376.6)
Agency share of sales                                                                                (361.2)            (181.5)             (408.9)
Trading activities                                                                                  3,337.0            2,161.0            4,890.9
Federal services                                                                                      688.7              838.0            1,414.4
Total Trading activities – continuing                                                               4,025.7           2,999.0             6,305.3
Banking activities                                                                                    562.7             529.5             1,016.5
Insurance activities
– Gross general business premiums earned                                                              216.1              238.7              436.6
– Gross long-term business premiums earned                                                            274.4              290.8              534.2
Less intercompany eliminations                                                                         (1.0)               (1.3)              (2.6)
Revenue                                                                                             5,077.9           4,056.7             8,290.0
Less premiums ceded to reinsurers                                                                     (22.1)             (20.9)           (1,836.2)
Net revenue                                                                                         5,055.8           4,035.8             6,453.8


2 Profit

                                                                                                                       Restated
                                                                                             28 weeks ended     28 weeks ended      52 weeks ended
                                                                                                26 July 2008       28 July 2007    12 January 2008
                                                                                                  (unaudited)        (unaudited)           (audited)
                                                                                                          £m                 £m                 £m

Trading activities
Operating profit before significant items, investment properties and fixed asset disposals            191.1              140.9              272.9
Gain on disposal of property, plant and equipment                                                      11.5               28.8                49.8
Change in value of investment properties                                                              (11.8)               3.9               (18.3)
Operating profit before significant items – continuing Trading activities                             190.8              173.6              304.4

Financial services
Banking activities                                                                                     46.2               45.5                50.4
General Insurance activities                                                                           (1.5)             (33.3)               67.1
CFS Other Shareholder result                                                                           36.5               10.5                34.0
Operating profit before significant items – Financial Services                                         81.2               22.7               151.5

Intercompany eliminations                                                                               0.2                3.9                11.3
Group operating costs                                                                                 (16.2)             (18.7)              (35.6)
Consolidated operating profit before significant items                                                256.0              181.5               431.6
Significant items (see 7)                                                                             (46.8)             (57.6)             (182.0)
Consolidated operating profit                                                                         209.2              123.9              249.6


Net interest                                                                                          (19.8)             (12.0)               (31.4)
Mark-to-market movement                                                                                 8.0               11.2               (23.0)
Financial expenses – total                                                                            (11.8)               (0.8)             (54.4)

Share of profit of associates and joint ventures                                                         0.2                  –                0.3
Profit before payments to and on behalf of members                                                    197.6              123.1              195.5
Payments to and on behalf of members                                                                  (94.7)             (38.3)              (45.6)
Profit before tax                                                                                     102.9               84.8              149.9


Loss on sale of discontinuing operations, net of tax                                                    (0.3)              (7.4)             (11.2)


8 The Co-operative Group interim report 2008
3 Net assets

                                          28 weeks ended           28 weeks ended         52 weeks ended
                                             26 July 2008             28 July 2007       12 January 2008
                                               (unaudited)              (unaudited)              (audited)
                                                       £m                       £m                    £m

Assets
Trading activities
– Non-current assets                             3,198.8                 2,307.5                3,233.2
– Current assets                                 1,157.7                   815.4                1,058.6
Financial Services
– Customer accounts and debtors                11,636.8                  9,721.8               10,190.1
– Investments                                  22,038.8                 26,111.4               24,463.0
– Other assets                                  4,789.2                  2,851.1                5,139.1
Total assets                                   42,821.3                 41,807.2               44,084.0

Liabilities
Trading activities
– Non-current creditors and provisions           1,164.4                   865.1                1,222.5
– Current creditors                              1,485.9                 1,064.4                1,326.4
Financial Services
– Amounts owed to credit institutions           3,092.1                  5,102.3                3,649.7
– Customer accounts                            11,170.1                  9,639.3               10,312.5
– Insurance and participation contracts        17,185.0                 18,785.3               18,487.6
– Other liabilities and provisions              5,057.7                  3,092.4                5,287.9
Total liabilities                              39,155.2                 38,548.8               40,286.6


Consolidated net assets                          3,666.1                 3,258.4                3,797.4




                                                             The Co-operative Group interim report 2008 9
Interim financial information (continued)
4 Cash flow – Trading activities

                                                                                              Restated
                                                                    28 weeks ended     28 weeks ended       52 weeks ended
                                                                       26 July 2008       28 July 2007     12 January 2008
                                                                         (unaudited)        (unaudited)            (audited)
                                                                                 £m                 £m                  £m

Operating profit after significant items (continuing activities)             187.2              166.2               189.9
Less:
Operating losses of discontinuing businesses                                  (0.7)                (8.1)             (11.7)
Group operating costs                                                        (16.2)              (18.7)              (35.6)
                                                                             170.3              139.4               142.6

Depreciation and amortisation charges                                         90.8                63.8              143.4
Goodwill and fixed asset impairment                                            2.4                  3.2               39.4
Change in value of investment properties and joint venture                    11.8                 (3.9)              16.2
Change in value of biological assets                                          (6.2)                (6.3)               (0.3)
Profit on disposal of fixed assets                                           (11.5)              (28.2)              (35.4)
Non-cash pension net income                                                  (40.2)              (47.6)              (88.9)
Movements in net working capital                                              (1.6)               71.9               (61.0)
Tax (paid)/received                                                          (23.6)              (18.9)              (64.3)
Net cash inflow from operating activities                                    192.2              173.4                 91.7

Net interest paid                                                            (18.8)              (11.0)               (28.9)
Capital expenditure and financial investment                                (140.4)            (107.0)              (182.6)
Acquisitions and disposals                                                    47.1               (68.0)               (61.4)
Cash and cash equivalents arising on transfer of engagements                     –                    –                25.9
Internal dividends received                                                   25.9                18.1                 30.1
Payments to and on behalf of members                                         (73.6)              (25.9)               (42.1)
Dividends paid to minority shareholders in subsidiary undertaking             (1.2)                (0.1)                (0.5)
Net (repayment)/increase of share capital                                     (0.3)                 0.1               (11.6)
(Decrease)/Increase in corporate investor loans                               (3.6)                (4.8)              (17.0)
Increase in short-term borrowings                                              9.2                81.8                 85.2
Net increase/(decrease) in cash and cash equivalents                          36.5               56.6               (111.2)


5 Cash flow – Financial Services (excluding long-term business)

                                                                    28 weeks ended     28 weeks ended       52 weeks ended
                                                                       26 July 2008       28 July 2007     12 January 2008
                                                                         (unaudited)        (unaudited)            (audited)
                                                                                 £m                 £m                  £m

Net cash flow from operating activities                                      524.0              (131.0)              (44.3)
Capital expenditure                                                          (10.1)                (7.0)             (34.6)
Internal dividends paid                                                      (25.9)               (18.1)             (30.1)
Proceeds from sale and maturity of debt securities                         6,118.4            4,658.7            11,108.6
Purchase of debt securities                                               (5,990.7)          (4,535.2)          (10,304.5)
Interest paid in respect of subordinated liabilities                         (10.3)              (14.0)                (8.2)
Repayment of subordinated loan stock                                             –                    –              (30.0)
Repayment of short-term borrowings                                               –                    –              (90.0)
Preference dividends paid                                                     (2.8)                (2.8)               (5.6)
Dividends paid to minority shareholders in subsidiary undertaking             (0.8)                (0.8)               (0.9)
Net increase/(decrease) in cash and cash equivalents                         601.8               (50.2)             560.4




10 The Co-operative Group interim report 2008
6 Consolidated statement of recognised income and expense

                                                                                                    28 weeks ended             28 weeks ended           52 weeks ended
                                                                                                       26 July 2008               28 July 2007         12 January 2008
                                                                                                         (unaudited)                (unaudited)                (audited)
                                                                                                                 £m                         £m                      £m

Changes in available-for-sale assets                                                                           (42.0)                       (9.3)                 14.1
Actuarial gains and losses on employee pension scheme                                                         (173.4)                     (98.9)                  14.5
Revaluation of self-occupied properties                                                                         (2.5)                        0.4                   (3.1)
Revaluation of self-occupied properties transferred to unallocated divisible surplus                             2.5                        (0.4)                   3.1
Changes in cash-flow hedges                                                                                    (49.1)                     (26.0)                  43.8
Adjustment in deferred tax rate relating to pension scheme surplus                                             (22.0)                          –                      –
Revaluation of property, plant and equipment                                                                     8.5                           –                115.0
Tax on items taken directly to statement of recognised income and expense                                       74.4                       38.3                  (49.4)
Net income recognised directly in equity                                                                      (203.6)                     (95.9)                138.0

Net profit – equity shareholders                                                                                70.0                      83.2                  109.7
Net profit – minority interests                                                                                  2.9                       1.3                    3.9
Total recognised income and expense for the period                                                            (130.7)                     (11.4)                 251.6


Attributable to:
Equity holders of the parent                                                                                  (132.8)                     (12.0)                247.0
Minority interest                                                                                                2.1                        0.6                   4.6
Total recognised income and expense for the period                                                            (130.7)                     (11.4)                 251.6


7 Significant items

                                                                                                                                      Restated
                                                                                                    28 weeks ended             28 weeks ended           52 weeks ended
                                                                                                       26 July 2008               28 July 2007         12 January 2008
                                                                                                         (unaudited)                (unaudited)                (audited)
                                                                                                                 £m                         £m                      £m

Restructuring costs                                                                                            (43.2)                     (53.7)                    (69.5)
Merger costs                                                                                                    (2.7)                          –                    (96.9)
Goodwill and fixed-asset impairment                                                                              1.0                        (3.2)                   (26.8)
Goodwill adjustment arising on recognition of previously unrecognised tax assets                                   –                           –                    (12.6)
Gains on PACE scheme settlements and curtailments                                                                  –                           –                     26.0
Brand costs                                                                                                     (1.9)                       (0.7)                     (2.2)
                                                                                                               (46.8)                     (57.6)                (182.0)


Notes

1 This interim financial information is for the 28 week period ended 26 July 2008. The information included within this document has been prepared on the basis
  of the recognition and measurement requirements of IFRS and IFRIC interpretations in issue that are endorsed by the European Commission and effective at
  26 July 2008.
   This financial information should be read in conjunction with the Group’s Annual Report and Accounts for 2007 and has been prepared using the accounting policies
   set out in that report. Industrial and Provident statute places certain limitations on the disclosure of interim financial information. The presentation of financial
   information is therefore not consistent with that applied in the Group’s Annual Report and Accounts.
   The Group has not adopted IAS 34 “Interim Financial Reporting”, having elected to apply the exemption within the transitional provisions of the Disclosure and
   Transparency Rules Exemption 4.2 issued by the FSA.
   The results for the 28 weeks ended 28 July 2007 do not include the interim results for the ‘former’ United Co-operatives businesses.
2 The profit statement excludes taxation.
3 The liabilities at 26 July 2008 and 28 July 2007 shown in the net assets statement are after making estimated provisions for taxation and share interest.
4 The results for the 28 weeks ended 28 July 2007 have been restated to disclose the results of Shoefayre separately as discontinued.




                                                                                                                        The Co-operative Group interim report 2008 11
Independent review report by KPMG Audit Plc to Co-operative Group Limited

Introduction                                       Our responsibility                                Conclusion
We have been engaged by the Society to             Our responsibility is to express to the Society   Based on our review, nothing has come to
review the interim financial information for       a conclusion on the condensed set of              our attention that causes us to believe that
the 28 weeks ended 26 July 2008 which              financial statements in the half-yearly           the condensed set of financial statements
is set out on pages 8 to 11. We have read          report based on our review.                       in the half-yearly report for the 28 weeks
the other information contained in the half-                                                         ended 26 July 2008 is not prepared, in all
yearly report and considered whether it            Scope of review                                   material respects, in accordance with the
contains any apparent misstatements or             We conducted our review in accordance             recognition and measurement requirements
material inconsistencies with the information      with International Standard on Review             of IFRSs as adopted by the EU.
in the condensed set of financial statements.      Engagements (UK and Ireland) 2410 Review
                                                   of Interim Financial Information Performed
This report is made solely to the Society          by the Independent Auditor of the Entity          KPMG Audit Plc
in accordance with the terms of our                issued by the Auditing Practices Board for        Chartered Accountants
engagement. Our review has been                    use in the UK. A review of interim financial      St James’ Square
undertaken so that we might state to the           information consists of making enquiries,         Manchester
Society those matters we are required              primarily of persons responsible for financial    17 September 2008
to state to it in this report and for no other     and accounting matters, and applying
purpose. To the fullest extent permitted           analytical and other review procedures.
by law, we do not accept or assume                 A review is substantially less in scope than
responsibility to anyone other than the            an audit conducted in accordance with
Society for our review work, for this report,      International Standards on Auditing (UK and
or for the conclusions we have reached.            Ireland) and consequently does not enable
                                                   us to obtain assurance that we would
Directors’ responsibilities                        become aware of all significant matters that
The half yearly report is the responsibility of,   might be identified in an audit. Accordingly,
and has been approved by, the directors.           we do not express an audit opinion.

The annual financial statements of the
Society are prepared in accordance with
IFRSs as adopted by the EU. The condensed
set of financial statements included in this
half-yearly report has been prepared in
accordance with the recognition and
measurement requirements of IFRSs
as adopted by the EU.




12 The Co-operative Group interim report 2008
Board members as at 26 July 2008

Len Wardle Group Chair, Co-operative Group, South East BCDIJ             David Pownall Co-operative Group, United region C
Douglas Fletcher Group Deputy Chair, Plymouth & South West               Alban Rees Co-operative Group, Wales & Borders C
Co-operative Society A                                                   Brian Rees Co-operative Group, Wales & Borders AEH
Patrick Grange Group Deputy Chair, Co-operative Group, United region B   Ben Reid The Midcounties Co-operative ABC
Stephen Watts Group Deputy Chair, Co-operative Group,                    Richard Samson East of England Co-operative Society
Central and Eastern BCJ                                                  Allan Smith The Channel Islands Co-operative Society AC
Joyce Baruch Co-operative Group, United region C                         John Smith Co-operative Group, Northern F
Graham Bennett Southern Co-operatives ABJ                                Kathryn Smith Co-operative Group, South East BCEGJ
Duncan Bowdler Co-operative Group, United region A                       Robin Stewart Co-operative Group, Scotland E
Allen Brett Co-operative Group, United region AB                         Jeanette Timmins Co-operative Group, Scotland CH
Bob Burlton The Midcounties Co-operative BCJ
Simon Butler Co-operative Group, Central & Eastern BCDJ
Eric Calderwood Co-operative Group, Scotland F
                                                                         A
David Doyle Co-operative Group, South West                                   Group Audit & Risk Committee
                                                                         B
John Fitzgerald Midlands Co-operative Society                                Group Remuneration & Appointments Committee
Paul Flowers Co-operative Group, United region B *                       C
                                                                             Group Values & Principles Committee
John George Co-operative Group, Northern AC                              D
                                                                             PACE Trustees Limited
                                                                         E
Mike Harling Co-operative Group, South East                                  Co-operativesUK
Bob Jamieson Lothian, Borders and Angus Co-operative Society B           F
                                                                             The Manx Co-operative Society Limited
Frank Jones Co-operative Group, South West BCE                           G
                                                                             Co-operative Fund
John Macbeth Co-operative Group, United region A                         H
                                                                             Co-operative Press
Ian Mason Co-operative Group, United region C                            I
                                                                             Co-operative Party
Terry Morton Co-operative Group, North Eastern & Cumbrian ADJ            J
                                                                             Co-operative Financial Services Limited
Bertie Murray Co-operative Group, Northern Ireland C
Russell Porteous Co-operative Group, North Eastern & Cumbrian CG         * Appointed to the Board on 5 April 2008




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