The Co-operative Group has reported its biggest-ever loss of £2.5bn.
“Significant losses” at the Co-operative Bank, which include a disposal of £1.44bn and £625m loss on disposal of the Bank, are to blame alongside a £226m write-down of the 2009 acquisition of Somerfield.
The overall loss of £2.5bn, an increase of almost £2bn on last year’s £529m, was also affected by a fall in sales in food, which saw like-for-like figures drop by 0.2%.
Though, the society’s core businesses food, pharmacy, funerals and general insurance all turned a profit in the financial year, ending 4 January.
The second half performance in food stores saw an overall 0.6% increase, with a 5.3% increase in convenience stores sales. Underlying operating profit was lower over the full year at £247m (2013: £269m), which reflects store disposals, a shorter accounting period and price reductions.
Funeral sales rose to £370m (£358m) and underlying operating profit increased to £62m (£60m). Pharmacy sales fell to £760m (£764m), with underlying profits up to £33m (£28m).
General insurance sales dropped to £476m (£580m) with underlying profits climbing to £36m (£13m), reflecting a better claims experience.
“2013 was a disastrous year for the Co-operative Group, the worst in our 150-year history,” said Richard Pennycook, interim chief executive. “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.”
Net debt in the Group was reduced by £286m to £1.4bn, driven by the disposal and sale and leaseback of property assets and the sale of the remaining motor dealerships. Although the Group said its debt has risen from £0.6bn five years ago, which is reflected in its credit rating of B+ from Standard and Poor’s.
The Group said the “goodwill” reduction on the balance sheet of Somerfield by £247m (£226m impairment and £21m relating to 2013 disposals) is after a change in strategy for the food business and by the fact that over 60% of the store space acquired in the Somerfield transaction will have been disposed by the co-operative.
“The scale of this disaster will rightly shock our Members, our customers and our colleagues,” added Mr Pennycook. “While 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.”
Group chair, Ursula Lidbetter echoed the statement that reform is needed: “During 2013, it became apparent that our governance had fallen far short of the standards to which we aspire as a co-operative society. Now is the time to put that right through fundamental reform – we have to act with urgency if we are to lay the foundations for a stronger, healthier co-operative business in the future.”
She added: “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. Our new strategy will be presented to Members at the 2014 Annual General Meeting, along with further plans to reduce our debts.”