Home Business NewsBusiness Co-op is back in the black – here are 3 reasons why

Co-op is back in the black – here are 3 reasons why

by LLB Editor
4th Sep 14 12:13 pm

The embattled Co-operative Group is going hammer and tongs at fixing the balance sheet. After all, it made losses of a whopping £2.5bn last year, the worst in Co-op’s 150-year history.

The group has reported half year profits of £12m, compared with losses of £767m in the same period last year.

Co-op saw its comprehensive income – a measure of pre-tax profit – top £116m. This was despite its Manchester-based food, funerals and insurance businesses reporting a drop in sales from £5.3bn to £5.1bn for the 26 weeks to July 5. Operating profit dropped from £105m to £43m and underlying profit was down from £116m to £66m.

Here are three reasons why Co-op has returned to black:

1. Offloading assets

The biggest factor in Co-op’s turnaround is the group offloading assets. In August, health charity Wellcome Trust snapped up Co-op’s farms business for £249m.

In July, Co-op agreed to sell its pharmacy division to Bestway for £620m. It also sold 8% of its Britannia building society corporate loan book to an undisclosed buyer for £237m.

Western Mortgage Services, which has £11bn of loans under administration and 350 employees, is the latest part of the Co-op to be put up for sale.

2. Interim CEO Richard Pennycook

Richard Pennycook stepped up from chief financial officer in March after then CEO Euan Sutherland resigned calling Co-op “ungovernable”. Pennycook’s financial background and understanding of the company’s comedy of errors seems to have helped Co-op turn the corner.

Speaking about Co-op’s performance, Pennycook said: “I am delighted to have the chance to lead the Co-operative Group through the crucial job of rebuilding the business.

“We have taken major steps forward over the last six months, securing governance reform and repairing our balance sheet, but we have much to do to return the group to full financial health and improve the performance of our businesses.

“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.”

3. A new board

Pennycook admitted that “a more plc-style structure” is helping Co-op “look to the future with greater confidence”.

Lord Myners, who published a report on the group’s governance, also proposed a boardroom shake-up. He welcomed a “progressive” vote to reform board.

Lord Myners said: “It’s a serious step forward and I am pleased to see a progressive solution was backed. But it is only part of the journey. The key thing now is to respect the principles that underlie my report. In particular the Co-op needs to create a board that is on par with the board’s major competitors.

“This is not about ticking boxes, it’s about the spirit in which they approach executive appointments. It has to be done in an open and transparent way but not good if decisions are made in the equivalent of an old smoke-filled room.”

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