Co-op reports 'disastrous' year as losses balloon to £2.5bn

The loss has widened from last year’s £529m following the bank recapitalisation and a goodwill impairment relating to Somerfield of £226m.

In the 52 weeks to January 4, it also recorded a group operating loss of £148m, against a profit of £142m last year.

The Co-operative Group 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.”

Across the 2,779 food stores like-for-like sales fell 0.2%, but rose 1.6% at its core convenience chain. Performance accelerated in the second half with overall like-for-likes in the food arm up 0.6%, and up 5.3% in convenience.

However, food sales over the year dropped to £7.24bn from £7.44bn. Underlying operating profit fell to £247m from £269m. The food arm fell into a loss of £35m after the goodwill charge relating to Somerfield. Last year it made an operating profit of £218m.

The Co-op said it continues to make progress on its True North strategy, which includes a focus on reducing prices. It added the development of its convenience store estate is ongoing, and it has plans to open more than 100 c-stores this year.

Revenues and underlying operating profits were lower over the full year, reflecting store disposals, a shorter accounting period and price reductions.

Group underlying profit plummeted from £297m to £210m. Within that, profits at the food business fell from £269m to £247m.

Group sales were down from £11bn last year to £10.5bn this year.

The retailer has been embroiled in scandal over the past year since it emerged its bank had a £1.5bn hole in its finances and its former chairman Reverend Paul Flowers was accused of taking Class A drugs.

Earlier this month Lord Myners, the man brought in to reform the Co-operative Group, resigned from the board as opposition to his proposals mounted within the mutual.

His resignation followed that of former chief executive Euan Sutherland, who quit after his salary details were leaked by the board.

Sutherland slammed the group as “ungovernable”. Since then trade unions have joined the call for reform, with Unite and Usdaw urging the mutual to back Myners’ plans.

Pennycook added: “Whilst the issues at the Co-operative Group need urgent attention, it is clear to me that with the right, decisive action we can once again restore the Group to financial health. That action will include the need for fundamental reform of the way the Society is governed, if the Group is to be able to navigate successfully the issues that a business of its size and complexity faces. With the continuing support of our members and colleagues, the executive team now in place will make that happen.

“The Group is now very publicly at a crossroads – past mis-management means we lost our way, but we will revitalise our purpose, improve our commercial operations and rebuild belief in the Co-op.”

Group chair Ursula Lidbetter said: “The near-failure of our Bank highlighted wider financial weaknesses across the Group. In particular, our overall indebtedness is too high for an organisation of our nature. When the recent problems arose, we had limited resources with which to cover losses. Consequently, and regrettably, we have had to take some difficult decisions to sell some of our businesses. This will change the shape of our Group significantly as we adapt our strategy and cost base accordingly.”

She added it was a “matter of regret” that Sutherland stepped down, and that “without question” his leadership saved the Bank. She praised him for building a “top-flight team capable of redefining the purpose and relevance of our Co-op.”