Co-op faces 'wake-up call' after disastrous £2.5bn loss

The Co-operative Group has confirmed it made a loss of £2.5bn last year.

The loss, for the year to 4 January 2014, included £2.1bn from discontinued operations, as well as a £226m goodwill impairment charge relating to the society’s acquisition of Somerfield in March 2009. Group sales fell 4.5% to £10.5bn.

The Co-op is refocusing itself as a convenience operator and selling off its larger stores. It said it would have divested more than 60% of the Somerfield store space when it completes its ongoing True North food strategy.

Because of the Somerfield write-off, The Co-op’s food arm reported an operating loss of £35m. Total sales fell 2.7%, with like-for-like sales down 0.2%.

“These results should serve as a wake-up call to anyone who doubts just how serious the challenges we face are”

Richard Pennycook

However, like-for-like sales in its core convenience estate rose 1.6%, and by 5.3% in the second half of the year. Total like-for-likes were also up 0.6% in the second half.

Interim CEO Richard Pennycook described 2013 as “disastrous” for The Co-op Group and “the worst in our 150-year history”.

“Today’s results 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,” Pennycook said.

He added that the heavy losses had incurred due to three reasons. These were continuing losses reported by The Co-op Bank; the write-off of a 115-year investment in the Bank following its emergency recapitalisation; and the partial write-off relating to the Somerfield acquisition.

Despite this, The Co-op said its family of businesses had “traded consistently with management expectations in the early part of the new financial year” and “continued to make progress” on its True North Strategy.

Pennycook added: “The Group is now very publically 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.

“We have a huge job ahead of us – transforming this organisation will take at least four years and the path will not always be smooth. This country needs a strong Co-op and that is what the management team and I are determined to deliver.”