Phone Co-op’s former chair raises questions over long-term growth strategy

'If we are talking about losses of a million we are eating our resources'

Simon Blackley, former chair of the Phone Co-op, has expressed concern over the risks behind the society’s four-year growth strategy.

The strategy, which is noted in the co-op’s annual report, aims to increase annual sales to more than £27m by 2021 – a 250% increase of today’s figures. It will do this through an investment in business systems, processes and people over the next two years, which, it estimates, will lead to losses.

In a motion submitted to the co-op’s annual meeting on 3 February, Mr Blackley argues that while members welcome the ambition and want to see the society grow, “such an attempt to achieve a step change in growth rates may entail sharply increased risks, it merits a full and open dialogue with members.”

Mr Blackley was chair of the Phone Co-op for two consecutive terms. He stepped down from his role shortly after moving to Belgium in 2005, but continued to be involved as a member.

“I am a supporter and I have admired what the Phone Co-op has done for the UK co-operative movement. It seems to me that the society has now taken a radically new direction, not necessarily a bad thing, but it seems to imply a significantly increased risk,” he commented.

“It is a fair question to ask and it is not set out in the annual report what level of increased risk we are talking about – it mentions some losses but doesn’t quantify those. Because if we are talking about losses of a million we are eating our resources,” he added.

In the annual report, interim chief executive Peter Murley wrote: “The considerable investment in business systems, processes and people over the next two years will result in losses. In the third year, the business plan is to make a net profit greater than the average of past years (i.e. in excess of 2.5%).

“The fourth full year of our plan shows forecast net sales of £27.7m with a net profit exceeding 7.5%. This means returning some £2m net profit in 2012/22 – over ten times more than any previous year – enabling us to invest in our business, provide good returns to members and invest in projects which complement our ethics and value.”

But Mr Blackley argues the report does not clarify what will be the impact of these losses on the board’s established policy of maintaining reserves between £900k and £1.1m, as well as the possibility of increased risk to Members’ Share Capital as reserves are depleted by the forecast losses.

“This strategy is something quite new. It is presented as such with enthusiasm and confidence all of which may be justified, I am hoping at AGM our board will convince me and the others that risks are under control and the losses are limited,” he said adding that the target £2m net profit would be difficult to achieve in “a highly competitive, regulated and low margin sector”.

The motion proposed by Mr Blackley calls on the board to explain the process used by management to review the plan from a risk management perspective, specify the upper and lower limits of the range of projected profits and losses for each year of the four-year strategy and clarify the possible impact on the security of members’ capital in best-case and in worst-case scenarios.

The Phone Co-op has not published an official response to the motions submitted for discussion at the meeting in Sheffield. A spokeswoman said the board will respond during the meeting.

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