Losses of £2.5bn cap ‘disastrous year’ for Co-op

The annual loss of £2.5bn follows the near-collapse of the group’s banking arm after an ill-advised purchase of the Britannia building society and an aborted attempt to buy 600 Lloyds branches.

In the aftermath of the failed Lloyds deal, a £1.5bn hole was discovered in the Co-op’s balance sheet.

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

Co-op bosses today stressed the need for sweeping changes in the group’s business model.

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.”

Group chair Ursula Lidbetter said: “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.”

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

This stake could shrink if a £400m rights issue goes ahead, leading to speculation that the size of the holding will become so small that the banking arm may not be able to carry on trading under the Co-op brand.

An independent review led by Sir Christopher Kelly into the events leading to the £1.5 bn black hole will be published in around two weeks.

And a corporate governance reform programme drawn up by the former City minister Lord Myners will be put to the Co-op’s annual general meeting on 17 May.

Lord Myners has said he will leave the group in May. His resignation from the board follows the exit of chief executive Euan Sutherland last month amid bitter opposition to reform plans.

Mixed fortunes

Today’s figures put the Co-op’s debt at £1.4bn, down from £1.7bn in 2012.

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 swallowed a £226m write-down in the value of its earlier purchase of Somerfield.

Co-op has already committed £333m towards the rescue of its banking arm, with £70m of this already provided, a further £100m due at the end of June and the remaining £163m by the end of the year.

New board proposed

The group says it will decide on whether to participate in further recapitalisation of the banking arm when the board of the bank decides on the structure of the reform plan.

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

There will 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”.

A “one member, one vote” concept will also be adopted, as well as provisions to “protect against de-mutualisation” – designed to assuage fears that the reforms will threaten the Co-op’s traditionally democratic mutual structure.