THE Co-operative Group reported a 17% rise in half-year profits, but warned trading conditions would remain challenging until at least the end of next year.

It posted underlying profits before payments to members of £260m, up from £221m a year earlier, with a 12.6% leap in profits at its supermarket arm.

Sales at the grocery chain dropped 1%, which it blamed on disruption amid the integration of the Somerfield business bought by the Co-op more than a year ago.

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

The Co-op also bolstered its financial services business with the acquisition of Britannia Building Society.

Co-operative Financial Services saw operating profits rise 34.3% to £109.3m in the first half of the year thanks to the Britannia boost, while it has also benefited from the backlash against mainstream banks after the financial crisis.

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

The Co-operative’s banking division employs about 900 staff at its Skelmersdale administration and call centre operation.