Co-op returns from brink of collapse despite sliding profits

The Co-op, Britain’s biggest mutual, which three years ago came close to collapse, is back on track despite first-half profits halving, its boss said today.

Richard Pennycook, who earlier this year opted to take a 60% pay cut, said his plan to rebuild the food-to-funerals group was going well, thanks to investments to drive sales.

“There is a real confidence around the organisation that we are heading in the right direction,” he added.

In 2013, the Co-op was rocked by the near-collapse of its bank, which needed £1.5 billion to stay afloat. Revelations later emerged about the bank’s then-chairman Paul Flowers’ drug use.

Attempting to draw a line under its troubles, Pennycook today said the affair “was a good while ago now”. “We are back to being the Co-op and back to being different,” he added.

Revenue rose 2.2% to £4.7 billion in the six months to July 2 but profits slid from £63 million to £31 million. Pennycook said the fall in profitability stemmed from major investments including pay increases for staff and price cuts for customers.

Sales at its food business, which has focused on the growing convenience sector, were up 3.1% on a like-for-like basis reflecting efforts to lower prices, particularly in fresh food. That has helped it take market share from competitors like Tesco Express and Sainsbury’s Local. It plans to open more stores this year and is looking to build its presence in London.

The bank continued to be a source of pain, however, as the group wrote down the value of its stake in the business by £45 million. The Co-op said that was “consistent with falls in bank valuations generally”.

The funeral business saw sales rise 1.2% to £164 million as prepaid funerals made up for a lower death rate. Meanwhile, insurance sales rose 30.8% to £208 million as the company rolled out a new IT platform to improve service.

Pennycook said there had been “no impact whatsoever” from Brexit so far and that while the firm would continue to monitor the situation it would be focused on self-help measures.

It is aiming to attract new members with a new advertising campaign launching in early 2017.