Co-op's recovery is on track, despite troubles of its banking arm

The business must never forget the legacy of its recent past if it is to secure a turnaround

The Co-operative has become a force on the High Street again (Reuters)

In most cases a chairman describing a £132m pre-tax loss as “an exceptional year” would be due a degree of scorn.

However, the Co-operative Group’s chair Allan Leighton has a point. The loss recorded by the group was incurred as a result of it reducing the value of its 20 per cent stake in its troubled banking arm to zero from £185m.

You have to smile at the way the business chose to explain that. “A prudent valuation of minority shareholding in the Co-operative Bank," opined its press release.

Prudence doesn’t have much to do with it. Given that the group will be lucky to get a nominal £1 when, if, the beleaguered bank finds a buyer, it didn’t have much choice.

The pity is that the banking arm’s troubles, one of the legacies of the gross mismanagement that left the entire institution teetering on the brink, obscured what Mr Leighton was talking about.

The group’s food arm, focussed on smaller convenience style stores, has been growing sales faster than all its competitors, with the exception of Aldi and Lidl (they were up 3.5 per cent at outlets open for at least a year in 2016) and is reliably profitable. The funeral business is similarly making money. The insurance operation is losing a lot less than it was.

The numbers for the group as a whole make for a complicated read. There are a lot of one-offs, and the average Co-op member could be forgiven for wondering what’s going on.

Which number do you look at? Pre-tax profits? Adjusted operating profits? Operating profits? Underlying profits?

The “underlying profit before tax” of £59m against £81m is probably the most accurate representation of where the business is. It fell chiefly as a result of increased investment (good thing). Based on that, “pretty good all things considered” might be a better description for the numbers than Mr Leighton's “exceptional”.

However, if you throw into the mix that all three core business units grew market share, and remember where the Co-op was barely a couple of years ago? Mr Leighton’s description could be considered an understatement.

The turnaround of this institution is a remarkable story. It’s the sort of thing MBA students might care to look at were they able to pull themselves away from gazing into their well groomed navels.

As for the future? It's tough out there, but it is possible to look at the Co-operative with a degree of optimism. Mr Leighton, whose father worked at the Co-op, is entitled to a bit of hyperbole.

Steve Murrells, who has taken over as group chief executive from Richard Pennycook, even held out the prospect of exploring new markets on a small scale when I talked to Co-op bosses this morning.

That might make some long standing members shudder a bit.

But the institution now boasts a more traditional plc-style board, combined with an elected member council to keep it honest. So as long as Co-op bosses pay due regard to the necessity of living up the institution’s ideals in practice as well as in principle, there shouldn't be too much cause for concern over any threat to the turnaround Mr Leighton has overseen.