We will have to be whiter than white, say Co-op's new board

Chairman claims scandal-hit group is already putting past behind it as profits hit £36m

Co-operative Group enjoyed a festive sales boost thanks to its smaller convenience stores (PA)

The new board of the Co-operative Group are well aware they must meet higher standards than the typical boardroom if they are to win back the public’s trust, according to its chairman.

Allan Leighton, a former board member at companies including Asda, Royal Mail and Selfridges, said: “Clearly the governance issue was at the lead of everything. We’ve got a new board with a number of new executives who are high-calibre people. We’re all here because of the governance issue and we’ve made great strides.

“Clearly when you’ve got something that’s a great institution that went wrong, it’s very intellectually challenging. But we look through two lenses – as a corporate business and a co-operative business – and that makes it more interesting than most boardrooms.”

Mr Leighton’s comments came as the chief executive, Richard Pennycook, insisted the business had turned the corner after recent events that nearly led to the 171-year-old member and employee-owned company going bust.

The problems centred on massive losses at the Co-op Bank, which became over-exposed to bad loans and where the former chairman Paul Flowers was involved in a drugs scandal. An 80 per cent stake in the bank was sold, along with the pharmacy and farming businesses.

A three-year growth plan is being implemented and comes as the Co-op Group swung into a pre-tax profit of £36m for the six months to 4 July, compared to a £9m loss a year ago. Sales at its core convenience stores jumped 3.3 per cent, although group revenues dipped from £4.7bn to £4.6bn.

The company also recently increased pay for shop-floor staff by 8.5 per cent, bringing it in line with next year’s minimum wage rise to £7.20 an hour for workers over 25.

Mr Pennycook insisted that the recent claim by the former Sainsbury’s Justin King – that the rise will “destroy jobs” – was not the case for the Co-op. He said: “We don’t see that. We’re growing and made that investment around our colleagues before George Osborne’s Budget statement and didn’t know it was coming. But with the ethics of the Co-op, it was important to do.”

The company is also keen to keep expanding its convenience stores. There were 35 new outlets opened in the six months, drawing on funds from the closure of bigger store.

Mr Pennycook said he would continue expanding but ruled out buying Morrisons’ convenience stores. The supermarket, where he used to work as finance director, is looking to offload its smaller stores after a move that has proved ill-fated. Mr Pennycook added: “We are focused on fresh fruit and vegetables and are cheaper than Tesco Express and Sainsbury’s Local [where prices are typically higher than in larger stores].”

He also dismissed fears that the discounters Aldi and Lidl will take away business. “You have to drive to them and the focus is not so much on fresh food. They are very formidable and causing pain in larger shops, but I don’t think they are direct competitors.”

The Co-op’s funeral homes business also put in a good performance, with underlying profits up 50 per cent to £51.8m on sales up 16 per cent to £216.4m. Mr Pennycook said this was due to a higher death rate but also a recovery in the Co-op’s reputation.