Co-op’s half year profits fall as Pennycook takes top job

AFTER another turbulent period overshadowed by infighting over reforms amid the fall-out from last year’s crisis, the Co-operative Group reported a fall in half-year operating profits.

The Manchester-based mutual reported half-year figures showing operating profits of £66m on sales of £5.1bn for the 26 weeks to July 5. At the half-way stage in 2013 operarting profit was £116m and sales £5.3bn.

On a more positive note, interim chief executive Richard Pennycook, who has steadied the ship after the sudden departure of Euan Sutherland in March, amid rows over leaks over strategy and reforms, has agreed to take the job on a permanent basis.

At the bottom line, the group did post a profit of £12m after losses of £767m in the first half of 2013 – mostly related to the woes of the bank.

The group, which last week voted to adopt a new governance structure to help prevent past mistakes being repeated, has made a number of disposals in recent months to reduce its debt pile. The sale of its pharmacies business to Bestway for £620m, announced in July, was the biggest deal, which leaves the group with its convenience stores, funerals, insurance and legal services business.

After the near collapse of the Co-op Bank, the group now owns just over 20% of the lender after a rescue deal led by a number of hedge funds.
 
Mr Pennycook said: “2014 has marked a defining period for The Co-operative Group. We have delivered the changes we set out including fundamentally reforming our governance and we are developing clear plans to drive our success for the future. We took the tough decisions to re-shape our group to ensure it is on a sustainable footing and the disposals of our Pharmacy, Farms and Sunwin Services businesses as part of this will repair our balance sheet.

“Our group strategy is to build on our existing strengths as a convenience food retailer and to optimise the performance of our new Consumer Services Division, comprising of Funeralcare, General Insurance and Legal Services. We are now in a position to rebuild and restore the Group and can look to the future with greater confidence.

 “At the same time, much remains to be done. These results clearly reflect an organisation in transition and show the scale of work necessary to restore the group to full financial health. Underlying profitability in the business has been curtailed by the deliberate actions we are taking to implement our detailed rebuild plan and to face into the tough trading conditions prevailing in the markets in which we operate.

“Looking ahead, we are confident that we are doing the right things to ensure that the performance in all our businesses is what our millions of members and customers expect. By focusing on our customers, our members and their communities, we will revitalise The Co-operative Group.”

He added: “Looking back at 2013, it will be remembered, at least in part, for the £2.5bn statutory comprehensive loss reported by the group. The equivalent figure for the first six months of 2014 is a comprehensive gain of £116m and is just one indicator showing that the group is moving solidly in the right direction.”

In an ultra-competitive grocery market, where retailers are embroiled in a price war, Co-operative Food saw its underlying operating profits fall from £117m to £107m.

Earnings in funerals fell too, from £42m to £35m, while general insurance slid into the red to the tune of £7m, compared with a £29m profit last time as a result of a raft of claims relating to adverse weather conditions earlier this year.

Mr Pennycook said having gone through a rescue stage, the group’s focus is on  “rebuild and renewal” of the core business.