CWS plans huge asset disposal: Co-op's new chief executive 'uncomfortable' with high level of debt

THE Co-operative Wholesale Society, Europe's biggest co-op, is planning to sell up to pounds 100m of assets in the next 18 months in a crackdown on its borrowings, which have mushroomed to pounds 361m in the past year.

CWS has been forced to dip into reserves to maintain its annual dividend, after rescuing the Greater Nottingham Society, which got into trouble when its furniture retailing chain, ELS, collapsed.

Trading profits at CWS were stable at pounds 50.5m in the year to 9 January. However, it shouldered about pounds 100m of extra debt when it absorbed the Nottingham society and the interest bill grew by pounds 9.1m to pounds 34.5m.

David Skinner, the new chief executive who took over from Sir Dennis Landau, said the gearing position was now 'uncomfortable' - with debt at 75 per cent of the pounds 480m of shareholders' funds. He plans to cut it sharply by selling pounds 50m- pounds 100m of assets in 12 to 18 months and by lifting trading profits.

Among the CWS assets that could be sold, he said, were shirt factories, farms, printing works, packaging works, safety footwear factories and a substantial property portfolio.

Terry Thomas, chief executive of the Co-op Bank, which is CWS's principal bank and is also owned by CWS, said: 'There are no difficulties over banking covenants or anything of that sort.'

CWS loans are syndicated to co-operative banks across Europe with the Co-op Bank retaining a small exposure. CWS borrowings have already fallen since the year-end. National Westminster, the lead bank to the Nottingham co-op, has continued the loan.

CWS's attempt to sell its Scottish dairies business to the Scottish Milk Marketing Board was blocked on monopolies grounds. But it raised cash by selling a southern dairy business, a laundry, its vehicle leasing arm and other assets.

CWS counted a net pounds 4.2m of disposal and closure losses as an extraordinary item - a practice shortly to be outlawed under new accounting rules. Overall, it made a bottom line loss of pounds 2.6m, against a pounds 15.5m profit last time.

There was a net pounds 12.7m of exceptional losses, including pounds 8.2m of redundancy and rationalisation costs and an pounds 8m provision against property developments.

CWS, with annual sales of pounds 3.3bn, has widespread food production, distribution and retailing operations. It is also the country's biggest funeral director and owns the Co-operative Insurance Society.

CWS is watching carefully the American group Costco's plans to set up large UK warehouse stores offering discounted merchandise to shoppers paying an annual subscription. It has not ruled out following suit.

Mr Skinner said there were some signs of economic recovery, with the car retailing business reporting much stronger sales. But overall like-for- like sales in the grocery stores were roughly flat. The group was in good shape to make progress in 1993, he said.

(Photograph omitted)