Co-op Group to sell farms as losses mount

The UK’s Co-operative Group has said it is selling its farming business and looking at offloading its pharmacies after a banking crisis that has sent its losses spiralling to the worst levels in its 170-year history.

The sales are part of a restructuring at the member-owned group, rocked in the past year by the discovery of a 1.5 billion pound ($2.5 billion) capital hole in its banking arm and a drugs scandal involving ex-chairman, Methodist minister Paul Flowers.

The Co-op, a well-known high street presence with banks, supermarkets and funeral homes, said it was looking to shed non-core assets such as its 15 farms and 750 pharmacies to shore up its finances and revitalise the group.

News of the divestments came as the BBC reported that the Co-op would post a loss of over £2 billion for 2013, the worst in its history, when it releases its results on March 26th, and cut up to 5,000 jobs in the next three years to slash costs.

Citing sources, the BBC said the losses stemmed mainly from its banking unit together with a reduction in the value of the stores and goodwill it acquired in a £1.6 billion deal in 2009 to take over the Somerfield grocery chain.

A Co-op spokeswoman declined to comment on the BBC report or give any guidance on the 2013 results.

A loss for 2013 was expected after the group reported a pre-tax loss of £559 million for the first half of the year including a loss of £709 million from its bank. It reported a full year loss for 2012 of £599 million.

With public confidence in the Co-op shaken, the group that operates nearly 4,500 retail outlets admitted this month it had lost touch with its customers and nearly 8 million members and launched a national survey on its future strategy.

In a bid to revitalise its operations, the group has embarked on a strategic review which it said today had concluded that its farming business, described as the largest in the UK, was “non-core”.

“(The group) has started a process that is expected to lead to a sale of the business,” the company said in a statement.

Eyeing sales

“In addition, it is exploring options for the future of the pharmacy business; this could include the sale in whole or part of the business.”

A source familiar with the situation told Reuters the process of selling its 750 pharmacies that employ over 6,500 people was at an earlier stage than the farm sale.

The Co-op described itself as one of the top three pharmacy businesses in the UK with revenue of £764 million in 2012. But, like other pharmacies, it has been hit by moves to cut the cost of prescriptions.

The Co-op's farming business dates back about 100 years and currently involves 15 mostly arable farms, three in Scotland and the rest in England, that cover 50,000 acres in total. The division also owns three packing sites.

Tom Raynham, head of agriculture investment at property consultancy Knight Frank, said there would be fair interest in the land due to a shortage of supply, with good land selling for 10,000 pounds per acre.

“The market has really been crying out for some quality land for investors to buy,” Mr Raynham said, adding that farmland value has risen by 210 per cent over the past decade.

“It’s quite a varied portfolio of farms so they’re more than likely be sold to a number of buyers.”

The Co-op had planned to sell its general insurance business to help the bailout of its banking unit but scrapped that plan in January this year, saying it didn’t need to raise as much capital as originally envisaged to support its bank.

The Co-op was forced to cede control of its banking business to hedge funds in a refinancing plan last year after the bank racked up big losses on commercial property. The Co-op was left with a 30 per cent stake.

Its rescue by bondholders became one of Britain’s biggest financial scandals of the past year, subject to a number of inquiries and with questions raised about how Flowers, with no banking qualifications, was appointed chairman.

Reuters