The Co-operative Group has reported a 17 per cent rise in half-year profits – but warned trading conditions would remain challenging until at least the end of next year.

The group, led by Bradford-born chief executive Peter Marks, is now the UK’s fifth largest supermarket chain and poses an increasing challenge to the ‘big four’, including Bradford-based Morrisons.

Co-op now claims a 7.6 per cent share of the market after buying the Somerfield chain more than a year ago.

The diverse group posted underlying profits before dividend payments to members of £260m, up from £221m a year earlier, with a 12.6 per cent leap in profits at its supermarket arm.

Sales at the grocery chain dropped by one per cent, which was blamed on disruption caused by the integration of Somerfield, which should be completed by the end of the first quarter of 2011.

However, the group said like-for-like sales at the 2,500 stores refitted since the acquisition rose 2.5 per cent.

Trading profits at the division rose by 12.6 per cent to £169.7 million in the 26 weeks to July 3 as the firm said it was using its “new-found scale” to drive better supplier terms.

Co-operative Financial Services saw operating profits rise 34.3 per cent to £109.3m thanks to the merger with Britannia Building Society, while it has also been benefiting from the backlash against mainstream banks following the financial crisis.

Bad debt charges fell by 7.7 per cent on an underlying basis and total customer deposits increased by another 4.2 per cent to £1.4bn.

The wider Co-op group – which covers a range of services, including funeral care, pharmacies, farming, travel and property investment – saw adjusted interim trading profits rise 16 per cent to £71 million.

Mr Marks said “The Co-operative Group has delivered another strong performance over the past six months, with continued growth in both revenue and underlying profits.

“Over the last three years the group has been transformed, underlining the strength of our ownership model which allows us to invest through economic cycles, in the long-term interests of our members and our customers.

“We have made further significant progress in the integration of both (Somerfield and Britannia) businesses in the first half.

“The work already done, combined with the various innovations and initiatives being undertaken in our businesses, will strengthen the group and enable us to put even more space between us and our competitors.

“As anticipated, 2010 has been challenging so far, with tough economic conditions across all our businesses. Looking ahead, we do not expect things to improve until late 2011 at the earliest. We are confident our unique approach to business will enable us to continue to make solid progress.”

l Local football players performed the ribbon cutting ceremony to officially launch the £240,000 new-look Co-operative store on Townend Road in Clayton this week.

Youngsters from Horton Foxes Junior Football Club were presented with £200 for club funds by store manager Mark Robinson to mark the occasion.

Mr Robinson said: “As a community retailer it is appropriate we involve the community in our special events and we are delighted our local junior football team played a central role in the relaunch of our store.”

The store will feature the group’s new business identity which aims to highlight its commitment to supporting local communities and ethical trading policies, as well as improved service standards.