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Co-op records worst year in group history

CO-OPERATIVE Group has reported a £2.5 billion loss after what it described as the worst 12 months in its 150-year history.

UNCERTAIN FUTURE: The 'ungovernable' Co-op is struggling to deal with disastrous results amid calls for change.
UNCERTAIN FUTURE: The 'ungovernable' Co-op is struggling to deal with disastrous results amid calls for change.

Co-op was hit by problems at its banks, and a writedown on Somerfield stores it as it struggled to turn around its food business in a cut-throat grocery market.

Co-op retains a 30% stake in Co-op Bank but said it had yet to decide whether to participate in a £400 million cash call by its former subsidiary.

Richard Pennycook, Co-op's interim chief executive said: "2013 was a disastrous year for the Co-operative Group, the worst in our 150-year history."

Mr Pennycook, the former finance director of supermarket chain Wm Morrison, took charge of Co-op after the exit of Euan Sutherland, a Scot, after just 10 months.

Mr Sutherland has described Co-op as "ungovernable" and Mr Pennycook also insisted the member-owned organisation needs to be overhauled, citing " fundamental failings in management and governance at the group over many years".

He added: "These results should serve as a wake-up call to anyone who doubts just how serious the challenges we face are."

Co-op said £2.1bn of the loss for the year to January 4 stemmed from its bank, which needed an £1.5 billion recapitalisation last year after the collapse of its attempt to buy a package of branches, including 185 in Scotland, from Lloyds Banking Group revealed financial problems.

It also took a £226m writedown on the value of stores it acquired in a takeover of Somerfield in 2009

Co-op, which has 400 food stores in Scotland, said like-for-like food sales were down 0.2% and underlying operating profit fell 8.2% to £247m. Like other grocers, Co-op is seeking to implement price cuts. It plans to open 100 convenience stores this year.

Its funerals business remains highly profitable, with operating profit up £2m at £62m.

The mutual is pressing ahead with plans to sell farms, including three north of the Border and its pharmacy business, which has 60 outlets in Scotland.

Former City minster Lord Myners has announced he is stepping down from the Co-op board after running into opposition to his review of governance at Co-op. His plans, including the creation of a new board elected by members, will be put to a vote at Co-op's annual meeting on May 17.

Co-op chairman Ursula Lidbetter said: "We have to act with urgency if we are to lay the foundations for a stronger, healthier co-operative business in the future."

Co-op's problems have thrown up unlikely allies with both the Institute of Directors and Unite the Union calling for reform.

Unite national officer Adrian Jones said: "Today's results should sharpen minds and leave people in no doubt of the need for reform to secure jobs and the Co-op Group's future."

Roger Barker, director of corporate governance at the Institute of Directors, said: "Without major changes to its governance model, the Co-operative Group will struggle to survive over the medium term."

The group said it is still considering whether to inject more cash into the Co-op Bank, which needs an extra £400m to cover the cost of past misconduct. Co-op saw its holding in the bank fall to 30% last year following a capital raising, with bondholders including US hedge funds taking control. It would need to inject another £120m to retain that stake.

"When the board of the bank has finalised the structure of its capital raising, the hroup will decide upon its participation in this exercise," Co-op said.

Co-op said the £163m it owes the bank from the first fund-raising would be paid by the end of 2014.

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