The Co-Operative Group, home of food, funerals and insurance, slipped to a pre-tax loss last year, stung by the costs of a revamp operation, the struggles of the Co-Op Bank, and an unfavourable revaluation of its bonds.
The group bumped up revenues by 3 per cent, including a 3.5 per cent rise in like-for-like food sales and a strong performance in the increasingly competitive funerals business. Insurance sales rose by 28 per cent to £439m, partly because of motor premium inflation, and overall operating profits grew by an impressive 32 per cent.
But costs relating to its ‘Rebuild’ programme, changes in the value of the company’s bonds, and a very cautious zero valuation on its 20 per cent stake in the Co-Operative Bank (which is seeking a buyer) have left to a statutory loss of £132m, from a profit of £23m in 2015.
The group said its bank valuation was “prudent” given that it is up for sale. The bank has struggled since 2013 when a £1.5bn capital hole emerged in its books. Its bondholders, mainly US hedge funds, took it over but have not been able to turn round its fortunes despite customer loyalty.
The Co-op said it was “supportive of the process the bank is going through to find a secure home for members who use their services”
New CEO Steve Murrells said:
We’ve made great progress in rebuilding our Co-op, with all our businesses delivering strong performances. While much remains to be done, our Rebuild plans have really started to deliver value for our customers, our members and their communities. That is exactly what the Co-op should be doing.
Against this backdrop, 2017 sees us turning our attention to the next phase of our development. Our ambition will remain the same – championing a better way of doing business in communities up and down the country. We will continue to take our existing businesses forward and ensure they are ready for the digital age, but we will also look wider than our current markets.
On the bonds, it says:
In common with other bonds, our bonds increased in value because of falling interest rate yields available elsewhere. In addition our improving credit outlook also served to increase our bond values. As the value of our bond debt liability increases in the accounts, it creates a charge to the income statement.