Co-op posts ‘disastrous’ £2.5 billion loss

The Co-operative Group today posted losses of �2.5 billion as it faces more pain from the biggest crisis in its history.
The Co-operative Group today posted losses of �2.5 billion as it faces more pain from the biggest crisis in its history.
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THE Co-operative Group has announced annual losses of £2.5 billion after suffering the worst crisis in its history following the near-collapse of its banking arm.

Interim chief executive Richard Pennycook said: “2013 was a disastrous year for the Co-operative Group, the worst in our 150-year history.

“Today’s results demonstrate that but they also highlight fundamental failings in management and governance at the group over many years.

“These results should serve as a wake-up call to anyone who doubts just how serious the challenges we face are.”

The bulk of the losses relate to the crisis that engulfed the Co-op’s banking arm when a £1.5 billion hole was discovered in its finances, following its ill-fated purchase of the Britannia building society and attempts to buy more than 600 Lloyds branches.

A rescue deal means the majority of the bank is now owned by bondholders though the Co-op group remains the largest single shareholder with 30%.

But this stake may be further diluted after it said in today’s statement that it had still not decided whether to take part in a £400 million rights issue after the lender said it needed to find more cash than previously thought.

The group said the cash call was an “opportunity, not an obligation” and that it would “consider the full details of the issue in due course”.

It will add to speculation about the possibility of the size of the group’s holding in the bank falling to such a low level that it may not be able to continue operating under the Co-operative brand.

Today’s figures showed the Co-op’s vast debt pile, built up during an acquisition spree which included the Somerfield supermarket chain, stood at £1.4 billion.

This was down from £1.7 billion in 2012, but comes as lenders are reported to be increasingly troubled by the run of boardroom disputes hampering plans to shake up the group’s corporate structure.

Bitter resistance to the planned changes saw chief executive Euan Sutherland step down last month while former City minister Lord Myners, architect of the reforms, will also leave after putting them to a members’ vote in May.

Group chair Ursula Lidbetter used today’s results announcement to stress the urgent need for change.

“During 2013, it became apparent that our governance had fallen far short of the standards to which we aspire as a co-operative society.

“Now is the time to put that right through fundamental reform - we have to act with urgency if we are to lay the foundations for a stronger, healthier co-operative business in the future.”

Operating profits at Co-op’s pharmacy, funerals and general insurance businesses all rose but they fell in its food arm - where like-for-like sales were down.

These sales improved in the second half of the year, bolstered by the performance of the Co-op’s expanding convenience store network.

The group also shouldered a £226 million write-down in the value of its earlier purchase of Somerfield.

Meanwhile, it announced that findings of an independent review led by Sir Christopher Kelly into the events leading to the £1.5 billion black hole would be published in around two weeks..

The group set out details of a reform programme drawn up by Lord Myners that will be put to its annual general meeting on May 17. A wider strategic review will also be published.

A resolution on the Myners reforms to be put to members will include the creation of a new board of directors - elected by members - “that is individually and collectively qualified to lead an organisation of the size and complexity” of the group.

There will also be a separate structure giving members powers to hold the board to account for the performance of the business and “adherence to co-operative values and principles” under the proposals.

A “one member one vote” concept would also be adopted, as well as provisions to “protect against de-mutualisation”.

The latter appeared to be designed to assuage fears of the traditional membership that the Myners reforms would threaten the Co-op’s democratic mutual structure.

The group has already committed £333 million towards the rescue of its banking arm, with £70 million of this provided to date, a further £100 million due at the end of June and the remaining £163 million by the end of this year.

It said that it would decide on whether to participate in the further recapitalisation needed when the board of the bank had decided on the structure of the plan.

Ms Lidbetter said the “battle to save the bank” dominated the group’s activity last year since the discovery of the £1.5 billion black hole, which had “risked not only its future but that of the entire group”.

The Co-op will hold its AGM on Saturday May 17, when the mutual’s board will seek backing for Lord Myners’ proposals to reform corporate governance.

Prior to the annual meeting of its membership, the Co-op will publish the findings of Sir Christopher Kelly’s independent review into the events that led to the near-collapse of the banking arm.

This is expected to be released in the week starting April 28 and will be followed by the publication of the full report by Lord Myners.

The Co-op board has already committed to the key principles of the review and has put forward a resolution to be voted on by membership. It proposes:

• The creation of a board of directors elected by members that is individually and collectively qualified to lead an organisation of the size and complexity of the Co-operative Group;

• The establishment of a structure that gives members appropriate powers to hold the board to account for the performance of the business and adherence to co-operative values and principles;

• A move to the concept of “one member one vote” with appropriate representation for independent Co-operative societies;

• The inclusion of necessary provisions in the rules of the Co-operative Group to protect against de-mutualisation.

The board has also established a sub-committee to assist it in taking forward the reform proposals and to maintain the pace of change.