Co-op chief warns of four-year struggle after its £2.5bn loss
The interim chief executive of Co-operative Group warned it would take at least four years to turn the business around after the mutual reported a record £2.5bn loss yesterday.
Richard Pennycook, who took over after the shock resignation of Euan Sutherland last month, vowed to stay in his role "as long as it takes" to find a chief executive and turn around the group that has been hit by boardroom turmoil.
Co-op's losses ballooned to £2.5bn last year, from a 2012 loss of £529m, thanks to a £2.1bn deficit relating to Co-op Bank. The group cut its stake in the bank to 30 per cent in 2013 after a £1.5bn bailout by hedge funds.
Yesterday, Co-op revealed it has now valued the bank in its books on a "prudent" basis at just £735m, which means its stake is only worth £221m.
The City analyst Louise Cooper said: "So holders of the debt injected £1.5bn of capital into a business which is now worth, according to the Co-op, just £735m, half what the investors put in. And now they are now being asked for an additional £400m. That is a tough sell."
Yesterday's results were the worst in the group's 150-year history and Mr Pennycook said the mammoth loss was "not just an accident. This reflects years of poor performance."
He added that the results "highlight fundamental failings in management and governance at the group over many years".
As an example of poor decision making, he cited the £1.6bn takeover of Somerfield in 2009. Yesterday the group took a £226m writedown on the value of the Somerfield stores and Mr Pennycook noted that six out of every 10 stores bought will have gone from Co-op by the end of 2016.
Mr Pennycook said one of the main focuses for the Co-op was to reduce its massive £1.4bn of net debt. It has recently renegotiated covenants and the sale of 15 farms and its chain of 750 pharmacies will help to reduce this debt.
Mr Pennycook said the sales will mean it can "tighten up and simplify" the "big and complex organisation" and get it in the right shape.
The mutuals' grocery arm is also a key focus for Mr Pennycook, who said: "Food is at the heart of our business. Tackling that is very important. It is where our members visit every day." He said it was beginning to see the benefits of its new team, led by Steve Murrells, who joined in 2012.
The Co-op said it will put several of the recommendations made by Lord Myners to improve its corporate governance to its members at the annual meeting in May. Lord Myners said he would quit the board earlier this month.
Ursula Lidbetter, who chairs the Co-op, 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."
The resolution includes an elected board accountable to the membership, one member one vote and provisions against demutualisation.
However, Mr Pennycook declared that he has no intention of standing for the full-time role as chief executive. He said: "We want to attract a dynamic leader and that means we have to show that the Co-op will be an attractive place in which to lead the charge."
But he added they were in "no rush to find a chief executive" and will take their time to find the right candidate. He said he is willing to stay in his role for "as long as it takes".
Mr Pennycook joined Co-op as chief financial officer last year from Morrisons supermarket, where he spent eight years in a similar role.
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