Banking woes hit The Co-operative
Today the Co-operative Group has reported a 1.1% drop in half-year food sales from £119m to £117m.
However, such a dip is nothing compared to the group’s overall loss of £559m coming from its banking struggles, which have hit the business hard.
Although like-for-like (LFL) food sales were down 1.1% for the first half of 2013, there has been some improvement. In Q1 food sales had dropped by around 2% because of the cold weather in March, before recovering in June.
The year overall has been difficult for the company, yet group chief executive Euan Sutherland, who took over the role in May this year, said today’s results reflected the struggles caused by the group’s banking arm. “My first few months in the role have been focused on putting in place the recovery plan for the bank, while also starting the important thinking about the changes that need to be made across the group,” he said.
He said The Co-operative remained “convinced” of the potential across the business and said there was confidence it would be able to restore itself back to the heart of communities up and down the country. “We will recapture the relevance of The Co-operative Group by bringing modern-day disciplines and performance management to bear on the mutual model,” Sutherland said.
However, it was made clear there would be “no quick fixes” and there was another challenging 12 months ahead. He said problems lay with the banking arm, which is a core part of The Co-operative Group, but the burden would be shouldered.
Meanwhile, banking group chief executive and deputy group chief executive Niall Booker echoed Sutherland and said: “This reflects the deep-rooted problems the bank faces, which led to the £1.5bn Capital Action Plan announced in June. Today’s results reaffirm that requirement, which covered the losses announced today as well as currently anticipated future impairments.”
It is expected the group’s food arm will have a better second half and will benefit from better stock availability, improvements to the customer offer and the refit of more than 400 stores.
Plans for the bank set out in June will continue and “recapitalisation” (the Plan) is the key objective for the group.
The bank hopes to increase CET1 capital by £1.5bn through “capital injection” from the rest of the group and an exchange offer, consisting of three tiers:
- The capital generated from new shares in the bank, issued as part of an exchange offer to be made to holders on the bank’s subordinated capital securities
- A further contribution from the group by way of the issue of a fixed-income instrument as part of the exchange offer (items 1 and 2 together, the ‘Exchange Offer’)
- The contribution of sale proceeds of Co-operative Life Insurance and Asset Management and Co-operative General Insurance to the bank, interest savings on retired bank’s subordinated capital securities and certain management actions by the bank.
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