The Co-operative Group has published their worst ever results in their 150-year history. The company announced losses of £2.5bn, with over 80% of this deriving from their problematic banking arm, of which the group recently lost their 70% stake to US hedge funds during the Bank’s rescue. The interim Chief Executive described the year as “disastrous”. Mr Pennycook added “These results should serve as a wake-up call to anyone who doubts just how serious the challenges we face are”. He went on to say, “The scale of this disaster will rightly shock our members, our customers and our colleagues.”
In the last five years the group has been plagued with soaring costs and the next few years don’t look promising for the group either. The company does not expect to make a profit for the next two years. Moreover, Mr Pennycook has cited that he believes it will take at least a decade for the business to completely recover from their worst year ever.
Moving forward, the company has already declared its intention to cut costs by £300m, which could potentially lead to job cuts to their 100,000-employee workforce. The Co-operative Food division has plans to open 100 new small convenience stores this year as a part of their new strategy to focus on small towns and villages. Some argue this new strategy places pressing questions on their earlier £1.57bn acquisition of the Somerfield supermarket chain in March 2009. The addition of large stores to the already extensive Co-op’s estate portfolio, which currently consists of 650 unproductive properties of which 33% are vacant, will put the CEO under further scrutiny. Recently, the UK’s fifth-largest food retailer (6.1% market share) has suffered from falling sales and underlying profits due to the cost of store closures along with price reductions.
Last month, a £400m black hole was discovered putting the bank in a dilemma in regards to whether new shares should be issued to fill this sizable gap. Ultimately, this would mean the Co-op Group would have to raise £120m if it is to retain their 30% shareholding in the Bank. Black holes within the balance sheets seem to be a common occurrence in the Co-op’s Bank. Previous to this, a £1.5bn black hole was discovered in April 2013, shortly after the Bank unsuccessfully attempted to purchase 632 Lloyds Bank branches.
The co-operative movement was set up in Rochdale, in the North of England, where their members consisting of small retailers, wanted to combine their purchasing power. Today, the Co-operative Group remains a “mutual” business, owned by its customers and 8 million members and is the biggest of its kind in the UK. During the last century, the Co-operative Group has diversified into different lines of businesses. It now owns the third-largest chain of Pharmacies, where profits have increased by £5m despite falling sales. The Co-operative Group also own a successful funeral provider, the nation’s biggest, where both sales and profits are increasing.
Critics frequently highlight the complexity of the Co-op’s corporate structure that makes it ungovernable; former Chief Executive, Euan Sutherland, has reiterated this view. Furthermore, Lord Myners stated that the group spent too much time focusing on acquisition deals that proved “breathtakingly value-destructive” and as a result the Co-op has amassed a great deal of unsustainable debt. The future of the Co-operative group is uncertain, however it is more than clear that the company has to make structural changes if it is to continue to exist. However, this revision will prove a substantial task considering the group has almost 300 subsidiaries and a more than complex structure.
By Richmond Amoah
By Richmond Amoah
