Recovery will take five years, new chief executive of Co-op Richard Pennycook warns

Reviving the beleaguered Co-operative Group after two years of turmoil could take as long as five years, the new chief executive declared yesterday.

The Co-op — whose former boss Euan Sutherland branded the business “ungovernable” — has appointed Richard Pennycook as its new, permanent chief executive, less than five months after it gave up control of its controversial bank, which had a £1.5bn black hole.

The wider group narrowed pre-tax losses to £9m in the half-year to 5 July, vastly improving on last year’s £2.5bn loss.

Mr Pennycook — the interim boss who previously said he had no intention of taking on the job full-time — laid out a five-year plan for the mutual, likening the Co-op to a hospital patient.

He said: “We’re out of the operating theatre and in the recovery room. In time we’ll be on our feet again.”

But he also warned that the mutual is braced for a three-year “rebuild” phase and a further two-year “renewal” phase following a year of scandals and fallouts during which its banking chairman, Paul Flowers, was convicted for possession of cocaine, crystal meth and ketamine.

Debts hit an incredible £1.4bn last year but a series of disposals, including its pharmacy, farming and security businesses in recent months, will cut the debt pile significantly this year.

“Co-op is a reshaped business and the businesses we have are all really well suited to the type of organisation we are,” Mr Pennycook said.

“This is now primarily a convenience retail business and that will be a foundation for our future.”

Last week, the mutual voted through plans by the former City minister Lord Myners to create a new board of governors with outside experience to improve corporate governance. But analysts have questioned whether senior business leaders would be willing to put themselves forward.

Its chairwoman, Ursula Lidbetter, admitted she has yet to be approached by anyone looking to fill posts on the new board, but said the pay would be within the “median” range for non-executives.

Ms Lidbetter added: “We will be a median payer but we clearly realise that excessive pay is a major issue for our members.”

Co-op’s food business managed underlying profits of £107m for the period, down 8.5 per cent compared with a year ago, while profits at its other major business, funerals, also fell by 17 per cent to £35m.