Scotmid fires Brexit alert as profits steady
Newbridge-based co-op warns over uncertainty
SCOTMID has warned the uncertainty created by the Brexit vote, allied to the impact of the National Living Wage (NLW), will cause trading conditions to be challenging in the second half of the year.
The Newbridge-based co-operative highlighted a “magnification” of uncertainty in the run-up to and following the vote to leave the European Union in June as it reported a trading profit of £2 million in the 26 weeks ended July 30, in line with last year. Turnover rose by four per cent to £185m.
Chief executive John Brodie hailed as “solid” the co-op’s performance across its grocery, funeral care, Semichem and property operations “against a very challenging backdrop”.
Amid “sluggish” conditions in the retail market, with “lukewarm consumer sentiment”, price deflation and the extra costs brought by the introduction of the NLW, he said it was “satisfied to have come in with a result that’s in line with the previous year”.
However, Mr Brodie warned the difficult conditions would persist in the second half, and could get even tougher, as the full impact of the NLW becomes clear.
While noting the long-term impact of the Brexit vote remains unclear, he said the decision to exit the EU had already manifested itself by hiking the cost of goods imported from Europe.
“On the flip side of that, our [Semichem] stores have seen a return of more cross-Border trade from the South, because it is now obviously better value for them to head north,” he said.
“An unknown is the impact on our pension fund, with the decrease in interest rates and subsequent change in bond yields [and] what that will mean on our year-end.”
He added: “These are the sort of immediate impacts. It is the uncertainty of everything else that has to be sorted out in terms of Brexit.”
Mr Brodie said six of its 25 Semichem stores in Northern Ireland had seen an uplift in cross-border trading following the depreciation in sterling after the Brexit vote. The co-op had previously seen a surge in that trade prior to 2008, when the euro had been riding high versus the pound, he added.
Asked whether Scotmid had detected any change in customer spending patterns following the Brexit vote, Mr Brodie added: “I think it’s too early to say. We’re in a business that’s subject to shortterm fluctuations, be it weather, sporting events, things happening in the country. It’s too early to say whether it is a trend or not.”
On the introduction of the living wage, which will mean “single digit percentage” wage rises for Scotmid and Semichem staff, Mr Brodie said “there’s no doubt it presents a challenge”. He added: “But we have delivered a good response to that challenge since it was implemented, and it’s something we need to keep doing over the next few years to mitigate that challenge.”
Looking further forward, Mr Brodie highlighted further cost rises on the horizon in the shape of the apprenticeship levy next year.
He declined to offer a firm view on the prospect of a second referendum on Scottish independence being held, stating that it is “up to the people of Scotland to decide what the future is”. He added: “We’re a long-established business and we will just work within whatever parameters there are to work within politically.”
No stores were added to the Scotmid’s store portfolio over the first half, as investment was focused on upgrading the existing estate, as well as in energy efficiency and retail technology. It added to its property base with the acquisition of a block of 15 flats in Hamilton.
Scotmid said it had assets in excess of £91m at the end of the period.
Asked if the co-op is looking to make any store acquisitions, Mr Brodie said: “We will always consider appropriate opportunities when they present themselves. At the moment we see more mileage in investing in our core estate, but that doesn’t rule out looking at other opportunities.”