CO-OPERATIVE Group interim boss Richard Pennycook, pictured below, yesterday described its £2.5 billion loss last year as a “wake-up call” revealing the serious challenges it faces.
He said it was the worst 12 months in the movement’s 150-year history, and a result of years of failed management.
Co-op was hit by a £1.9bn funding gap at its bank, a drugs scandal and exodus of top executives. It said it was still considering whether to inject more cash into the Co-operative Bank, which needs £400 million to cover costs of past misconduct.
Unveiling year-end results, 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”.
Co-op said the losses reflected the cost of a £1.5bn recapitalisation of its bank and a decline in the value of stores acquired in a £1.6bn deal in 2009 to take over the Somerfield grocery chain.
The group saw its stake in the bank fall to 30 per cent last year following a capital raising, with bondholders including US hedge funds taking control. It would need to inject a further £120m to retain that stake. Co-op said the £163m that it still owes the bank from the first fundraising would be paid by the end of 2014.
Away from the bank, its core businesses delivered a “solid performance” in tough markets. Like-for-like sales in food stores fell 0.2 per cent, while sales on the same basis in its core convenience chain rose 1.6 per cent.
Underlying profits in its funeral, pharmacy and general insurance businesses edged higher.
The Co-op will hold its annual general meeting on 17 May, when the board will seek backing for Lord Myners’ proposals to reform corporate governance.
Prior to the meeting, the Co-op will publish the findings of Sir Christopher Kelly’s independent review into the events that led to its bank’s near-collapse. This is set to be released in the last week of April and will be followed by the publication of the full Myners’ report.
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:
l 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;
l The establishment of a structure to give members power to hold the board to account for business performance in line with co-operative values and principles;
l A move to “one member one vote” with appropriate representation for independent Co-operative societies;
l The inclusion of provisions in the rules of the group to protect against de-mutualisation.
The board has also established a sub-committee to assist it in taking forward the reform proposals.