THE Co-op yesterday reported a 40 per cent increase in pre-tax profits after a year of significant change.

In the past 12 months, the Co-operative Group's motors operation sold five regional dealerships to car dealer Reg Vardy and its engineering business Syncro, which has a base in Gateshead, was bought by Aston Ventures.

Co-op also announced it was selling all 36 of its department stores, including four in the North-East.

Yesterday, group chief executive Martin Beaumont said: "2006 has been a year of significant change for the Co-operative Group.

"Although many of the changes we have made have yet to make a significant impact on our group results, there are some encouraging signs."

Strong performances from the Co-op's pharmacy, property and funeral divisions helped the Manchester group to post pre-tax profits of £258.4m for the year to January 14, up 40 per cent on last year.

Sales in its department and home stores business fell by 3.8 per cent to £164.2m, while operating loss increased by £6.1m to £10.8m for the year.

At the beginning of 2005, the Co-op carried out a strategic review of its department and home stores and, in September, announced plans to sell or close all its department stores by February next year.

The group is in the process of selling nine stores to Anglia Regional Co- operative Society, including its Bishop Auckland site, in County Durham, saving 32 jobs. The future of three other stores - in Chester-le-Street, Newcastle and Gateshead - which employ about 120 people, remains unclear.

In July last year, the Co-op sold five Priory Motors dealerships in the North-East to Reg Vardy in a deal worth £15.5m.

Two months ago, the group sold its engineering company, Syncro, to Aston Venture, after sales for the year fell by 14.3 per cent to £36.1m and operating losses increased by £2.8m to £3.9m.

Yesterday, the Co-op announced a sales decline in its superstores in the face of competition from Tesco and Sainsbury's. However, smaller convenience stores performed well, with positive growth in the last quarter of 1.2 per cent, compared to a decline to 0.2 per cent for the full-year.

The group's Travelcare division suffered from the terror attacks in London and Turkey. Coupled with a poor performance at footwear chain Shoefayre, operating profit in specialist retail fell by 14.2 per cent to £23.5m.