New chief vows to revive Co-op

Co-operative boss Richard Pennycook said the business was now ready to rebuild its shattered reputation as he was confirmed as permanent chief executive of the beleaguered food-to-funerals group.

Stand-in Co-op Group boss Richard Pennycook has been appointed as permanent chief executive
Stand-in Co-op Group boss Richard Pennycook has been appointed as permanent chief executive

Mr Pennycook, who is on a basic salary of £1.3 million, accepted the role after the mutual's members voted to approve radical reforms at the weekend.

Previously finance director, he had been standing in as boss since March after predecessor Euan Sutherland walked out claiming the group was ungovernable - as he tried to push through the changes in the teeth of opposition.

The group had reported a record £2.5 billion comprehensive loss for 2013 as it was dragged lower by the near-collapse of its banking arm but said it had now seen an overall return to profit.

It now owns just 20% of the bank, following a rescue which saw bondholders including US hedge funds take majority control of the lender.

Mr 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."

He said the latest results "clearly reflect an organisation in transition".

"The Co-operative Bank and ourselves are now in a phase, having sorted out our balance sheet and our capital, where we build and are trying to restore the reputation and the image of our brands, and we go forward hand in hand to do that together."

For the six months to July 5, the group saw comprehensive income of £116 million, compared to a £1 billion loss for the same period last year.

These figures included profits from its farms and pharmacy operations, now sold, plus gains from pensions reclassifications, and last year's major losses from the bank. Stripping these out the group saw a £9 million pre-tax loss for the first half this year.

Group revenues fell from £5.3 billion to £5.1 billion.

Supermarkets saw a 1% rise in like-for-like sales, including a 4% boost from the Co-op's network of smaller convenience stores, but overall revenues and operating profits fell as it sold off larger former Somerfield sites.

The group is expanding its convenience store network. It plans to have opened 100 new stores by the end of the year. Along with larger rivals it is facing a price war sparked by discounters Aldi and Lidl.

Mr Pennycook said: "The overall grocery market has its challenges at the moment but we think that our strategy is the right one and it is bearing fruit."

Elsewhere the group was hit by a fall in national death rates as funerals fell 6% to 48,000. Online services are now being introduced and a national advertising campaign will begin in September.

General insurance posted a £7 million operating loss for the period after increased claims following bad weather conditions early in 2014, and amid tough competition.

Group chair Ursula Lidbetter said: "We have faced up to the mistakes of the past and we learnt some hard lessons. Now is the time to look forward. We must restore the Co-operative Group to its rightful place at the heart of communities."

She said Mr Pennycook, former finance director at Morrisons, had business credentials that were "second to none" and had developed "an amazing rapport with our members through a very difficult period of adopting radical governance reform".

The new chief executive said that last Saturday's vote on reform - which will largely sweep away elected directors and replace them with professional appointees - had "unlocked" the prospect of him leading the organisation.

He added: "Now we can move on to what will be a long and exciting rebuild phase."

Mr Pennycook said there remained "much work to be done" in cutting costs and admitted this was likely to mean further job cuts.

The group's disposal of its farms and pharmacy businesses, as well as its security and cash-in-transit provider Sunwin Services, gained £910 million to both help towards paying off its £1.4 billion debt mountain and to reinvest elsewhere in the group.

The gains will be reflected in the end-of-year balance sheet after the deals have been completed.

Mr Pennycook said the group aimed to take debt below £1 billion "which for an organisation for our size is very manageable".

The group, which operates through 4,500 outlets, has around 87,000 employees and an annual turnover of £11 billion. It is owned by more than eight million members.