THE Co-operative Group named Richard Pennycook as its permanent chief executive today as it revealed that it battled back to a bottom line profit over the past six months.
Pennycook, who had been stand-in boss since Euan Sutherland walked out earlier this year claiming the beleaguered food-to-funerals group was ungovernable, said there was still much work to be done re-building the business after the collapse of its banking arm last year.
The wider group now owns just 20 per cent of the lender, following a rescue which saw bondholders, including US hedge funds, take majority control.
Pennycook said: “We have taken major steps forward over the last six months, securing governance reform and repairing our balance sheet, but we have much to do to return the group to full financial health and improve the performance of our businesses.
“The Co-operative Bank and ourselves are now in a phase, having sorted out our balance sheet and our capital, where we build and are trying to restore the reputation and the image of our brands, and we go forward hand in hand to do that together.”
His appointment comes just days after a vote by members approved a radical shake-up in the way the group is run.
It scraped to a £12 million profit in the 26 weeks ending to 5 July, compared to a loss of £767m a year earlier.
But by other metrics the performance was less impressive. The group’s £9m pre-tax loss compares with a pre-tax profit of £110m for the same period last year.
Pennycook said the results “clearly reflect an organisation in transition”.
Among the highlights, the Co-op’s food business saw a 1 per cent rise in like-for-like sales, with a 4 per cent improvement for its convenience chain, during a period of fierce competition in the grocery sector.
But overall revenue for the division fell and operating profits dropped 9 per cent to £107m as it sold larger stores acquired from Somerfield and invested in other branches as well as price cuts.
Pennycook said: “The overall grocery market has its challenges at the moment but we think that our strategy is the right one and it is bearing fruit.”
The group’s disposal of its farms and pharmacy businesses, and more recently its security and cash-in-transit provider Sunwin Services, gained £910m to both help towards paying off its £1.4 billion debt mountain and to reinvest elsewhere in the group. The gains will be reflected in the end-of-year balance sheet after the deals have been completed.
Pennycook said the group aimed to take debt below £1bn “which for an organisation for our size is very manageable”.
Professor John Thanassoulis of Warwick Business School was “broadly optimistic” for the Co-op following the figures, but said the key to preserving its “unique appeal” would be in the choice of independent board members appointed to the new boardroom structure.
He said the risk with a system that sets out to bring in a majority of directors from outside the organisation was that the ethos of the Co-op would gradually diluted, making it “indistinguishable from a PLC”.