southern coperatives limited · 2014-05-28 · the southern co-operative limited report and...

Registration No: 1591R

The Southern Co-operative Limited

Report and Financial Statements

52 week period ended 25 January 2014

THE SOUTHERN CO-OPERATIVE LIMITED

REPORT AND FINANCIAL STATEMENTS 2014 CONTENTS PAGE

Officers and Professional Advisers 1

Review of the Business 2

Statement of Corporate Governance 4

Statement of Going Concern 15

Disclosure of Information to Auditor 15

Statement of Compliance 15

Board Certification 16

Remuneration Report 17

Sustainability Report 21

Statement of Directors’ Responsibilities 30

Independent Auditor’s Report 31

Statement of Accounting Policies 32

Group Revenue Account 36

Group Statement of Total Recognised Gains and Losses 37

Group Balance Sheet 38

Group Cash Flow Statement 39

Reconciliation of Movement in Shareholders’ Funds 40

Notes to the Accounts 41

Five period Comparative Statement 58


REPORT AND FINANCIAL STATEMENTS 2014 OFFICERS AND PROFESSIONAL ADVISERS

1

DIRECTORS Chairman D J Blowe

1 2

Vice-Chairman M K Hastilow 1 2 3

T P Blair

1 2 3

G Heath 3

F A Hobson A Vincent-Prior P Lympany N Blanchard

3

S L Toone 4

D Knight 5

1 Remuneration and Appointments Committee

2 Chair’s Committee

3 Audit Committee

4 Resigned as director on 8

th April 2013

5 Elected as director from 8

th June 2013

OFFICERS M S Smith, FCCA MIoD Chief Executive S J Dominy, MBA ACIS Society Secretary REGISTERED OFFICE 1000 Lakeside Western Road Portsmouth Hampshire PO6 3FE Telephone: (02392) 222500 Fax: (02392) 222650 Website: www.thesouthernco-operative.co.uk BANKERS Co-operative Bank Plc Barclays Bank Plc 46-48 Arundel Street Barclays House Portsmouth Ocean Way PO1 1TD Ocean Village Southampton SO14 2ZP INDEPENDENT AUDITOR Deloitte LLP Chartered Accountants & Statutory Auditor Southampton, United Kingdom


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REVIEW OF THE BUSINESS The Southern Co-operative (Society) is, a politically neutral and independent regional co-operative based in southern England. We operate over 187 community stores and over 44 funeral homes and cover the following counties: Berkshire, Dorset, Hampshire, Isle of Wight, Somerset, Surrey, Sussex, Devon, Bristol, Wiltshire and Kent. In addition we operate a home shopping business supplying aids to daily living; and a portfolio of rental properties. As a co-operative business we operate for the benefit of our members, with whom our profits are shared. The ability to fulfil our social responsibilities depends on commercial success and sustainability. The key financial aim is to grow profitability. The Society’s key financial performance indicators are represented by total sales growth; like for like retail sales growth; and return on capital employed; and member and colleague share of the profits as a percentage of total profit after tax. The Society’s main trading activities are from retail and concession agreements, funeral services and property rental. No disclosure of trading surplus or net assets for each business segment is made as the directors believe this would be detrimental to the business. In the period just ended Society revenue increased by 7.8% on 2012 to reach £326.7m (2012: £303.1m). The increase was predominantly as a result of new retail stores as like for like food retail sales decreased by -0.3% following new multiple competitors entering our market. The gross margin for the period just ended was 30.9% in the current year (2012: 30.9%). The margin remained static being representative of how competitive the retail market is in the current economic climate. Surplus before interest, tax and distributions was £10.8m compared to £9.9m in 2012, an increase of 9%. This mainly being due to the increase in Society revenue. The increase in the surplus year on year has enabled the Society to make total distributions of £3.3m (2012: £2.6m) an increase of 15% and reflects the continued growth of members transacting with us and the board’s decision to keep the share of profits payment at two pence in the pound. The surplus before tax was £11.8m, compared to £7.7m last period which was an increase of 53%. The current year includes a curtailment gain of £3.2m. After adjusting for the curtailment gain the increase is 11.7%. During the period the Society closed its defined benefit pension scheme to future accrual and this resulted in a one off curtailment gain of £3.2m. A replacement defined contribution scheme has been put in place as a reduced risk alternative. The Society entered into a revolving credit facility with Barclays Bank Plc for an initial three year term. The facility includes the use of loans and overdraft that are secured by charges on a number of freehold properties with the Society. This facility has allowed for continued investment made in this period to support the continued organic growth of the core retail store and end of life services business. Post year end the Society has provisionally agreed a further loan facility with Barclays Bank Plc for a maximum of £5m with a one year term.

During the period the Society acquired 100% of the share capital of Sussex Woodlands Ltd (trading as

Clayton Wood Natural Burial Ground) and in December 2013 The Oaks Crematorium opened in Havant,

Hampshire, to further complement the services offered to its end of life business. Our franchise retail

business has continued to operate successfully during the year.


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REVIEW OF THE BUSINESS (continued) The main financial performance indicators measured in the period are shown below. A full business review is produced in the Annual Review and Summary Financial Statements booklet available on request from retail stores, the Secretary at our registered office or from our website www.thesouthernco-operative.co.uk.

Return on Capital Employed

(exclusive of investment property)

2013: 11.8% 2012: 12.6% Return on Capital Employed

(inclusive of investment property)

2013: 11.5% 2012: 11.8%

Total Sales Growth

2013: 7.8% 2012: 7.4%

Like for Like Food Retail Sales Growth

2013: -0.3% 2012: 0.4%

Member and Colleague Share

of the Profits as a percentage

of total profit after tax

2013: 28% 2012: 33%


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STATEMENT OF CORPORATE GOVERNANCE

Corporate Governance is the system by which an organisation is directed and controlled at the most senior levels in order to achieve its objectives and meet the necessary standards of accountability and probity. Guidance on achieving the highest possible standards of governance is contained in the Combined Code on Corporate Governance issued by the Financial Reporting Council in 2010. As an Industrial and Provident Society, The Southern Co-operative is not required to adhere to the provisions of the revised Combined Code. However Co-operatives

UK, the apex body for co-operative

enterprises in the UK, with the support of its Congress, issued a Code of Best Practice (‘the 2005 Code’) for consumer co-operatives to which it requests voluntary compliance. This Code is based on the principles contained in the Combined Code but is tailored to the particular governance characteristics found in consumer co-operative societies. A revision to the 2005 Code was published in November 2013 (the 2013 Code) and whilst The Southern Co-operative is only required to report against the 2005 Code for the year ending January 2014, our board have determined that it will report against both Codes in this report. The board is committed to the principles set out in the Code and is compliant with the majority of the recommendations, 98.5% of the 2005 Code provisions and 99.4% of the 2013 Code provisions. Listed on page 15 are the provisions where we are non-compliant. Where the board have specifically chosen not to comply with a recommendation of the Co-operatives

UK

Corporate Governance Code of Best Practice, explanations have been given within the Statement of Compliance at the end of this Corporate Governance statement. The summary that follows highlights the main features of the corporate governance arrangements in The Southern Co-operative that the directors believe are most appropriate for the organisation at this time.

Board of Directors Leadership Team Mr David Blowe (Chairman) Mr Mark Smith Chief Executive Mr Michael Hastilow (Vice-Chairman) Mrs Silena Dominy Society Secretary Mr Thomas Blair Mr Philip Ponsonby Chief Operating Officer Food Retail & Services Mr Glenn Heath Mr Stephen Pearce Chief Operating Officer End of Life Services Mrs Frances Hobson Mrs Amber Vincent-Prior Mrs Pauline Lympany Mr Neil Blanchard Mrs Diane Knight Sub Committees of the Board

Audit Committee Mr Thomas Blair (Chairman) Mr Michael Hastilow Mr Glenn Heath Mr Neil Blanchard Remuneration and Appointments Committee Mr David Blowe (Chairman) Mr Thomas Blair Mr Michael Hastilow Chair’s Committee Mr David Blowe (Chairman) Mr Michael Hastilow Mr Thomas Blair Chief Executive Group Financial Controller


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STATEMENT OF CORPORATE GOVERNANCE (continued) OUR MEMBERS

Co-operatives are member-owned democratic organisations and the board has sought to encourage members to play their part in the governance of the business and improve membership participation. The board, as a whole, considers membership issues on a regular and frequent basis and monitors The Southern Co-operative’s performance in this area. A number of membership key performance indicators are measured with improvements to these sought annually. These are set out throughout this section in grey boxes. As at the year end there were 146,559 members. A continual process is adopted to ensure that the membership register remains as accurate as possible and to apply The Southern Co-operative’s Rules in relation to forfeiture of membership. During the year 16,514 accounts were closed upon request or forfeited in accordance with the Rules. 26,290 new members joined The Southern Co-operative during 2013. There was therefore a membership churn of 159%. The board aim for the membership to comprise of customers and colleagues who are active through their trade and employment with The Southern Co-operative (TSC) and therefore monitor the activity of members. Members transacting with TSC during 2012 received a Share of the Profits in 2013 based on their spend at a rate of 2p per £1 of eligible purchases (2012: 2p per £1 of eligible purchase) The board welcomes contested elections and encourages the participation of the membership in the electoral process. It is recognised that the involvement of a participatory membership is central to our co-operative identity and the board is keen to attract potential future directors. Members interested in the role of our directors may indicate this on the members’ survey which accompanies their Share of the Profit mailing or by contacting Membership Support. Members who have indicated an interest and who are eligible to stand in elections for the board of directors will be provided with information on the role and invited to receive further details in an information session ahead of our board elections.

Elections to determine who will serve on the board are held ahead of the Annual General Meeting (AGM) each year. In order to ensure a fair and transparent election process which is free from fraud and undue influence the board have arranged for Electoral Reform Services to administer the ballot process and vote counting. All members who have been in membership for at least six months are entitled to vote in board elections. In order to make voting accessible to all members a postal and electronic voting system is used with ballot papers despatched to those members who have opted to receive them. Members who have not opted to automatically receive a ballot paper may alternatively vote in person at the registered office of The Southern Co-operative on a specified election polling day. In 2013 eleven nominations were received for four vacancies on the board. An election was held during which 42,461 ballot papers were despatched to members. 8,397 members returned their ballot paper. The board seek to encourage an increasing number of members to participate in elections and therefore monitor the democratic participation of members. Further information relating to the election process can be found in The Southern Co-operative’s Annual Review and on our website www.thesouthernco-operative.co.uk.

The percentage of our members actively transacting with us

2013: 83.5% 2012: 79%

The amount of our trade with members as a percentage of our total turnover

2013: 21.1% 2012: 20.5%

The percentage of our members voting in Board elections

2013: 5.8% 2012: 4.6%

Return rate in Board elections

2013: 19.8% 2012: 16.0%


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STATEMENT OF CORPORATE GOVERNANCE (continued) OUR MEMBERS (continued) Election results are announced at the AGM and published on our website. The AGM is publicised to members in all retail branches and on our website in the lead up to the event. Consideration is given as to the location and timing of the AGM and Members’ Convention in order to encourage maximum participation. In addition to the formal business of the AGM, members are given the opportunity to meet directors and the leadership team informally at the Members’ Convention and have the opportunity to voice an opinion and be consulted, as well as make suggestions to improve our activities. An exhibition of the business areas and engagement work undertaken by The Southern Co-operative enables members to learn more about their co-operative. The directors are keen to encourage more members to attend this event each year and therefore monitor attendance levels. At our AGM in June 2013 the members voted on a number of issues, with the votes being cast as below:

Voted For Voted Against Abstentions Directors' Report and Financial Statements and Advisory Vote on Remuneration Report 86.7% 1.6% 11.7%

Share of the Profit Distribution for Customer Members 86.1% 4.2% 9.7%

Share of the Profit Distribution for Colleague Members 85.4% 5.5% 9.1%

Community Distribution 86.7% 4.9% 8.4% Distribution of Former Members' Unclaimed Funds to Charities and Co-operatives 88.1% 3.2% 8.7%

Rule Amendments 86.4% 3.2% 10.4% The board is keen to encourage members to have a say in the way The Southern Co-operative is run, to help our communities and to enjoy member benefits. Opportunities, in addition to our AGM and Members’ Convention, were made available for members to interact with us. Members attended local Co-operative Community Group meetings in the Spring and Autumn where they received information about our activities and could influence our community activities. There is also the opportunity for members to participate in organised social events and visits where they can learn more about the activities of The Southern Co-operative and its suppliers and partners. Regular updates are provided for our members on our website and via publications. Early 2014 also saw the introduction of communication via Facebook. The number of hours of undertaken by members at such events is set out below:

THE BOARD

The board of directors consists of up to nine members who are directly elected from, and by, the membership on a ‘one member one vote’ basis under The Southern Co-operative's democratic structure. All directors are non-executives and serve terms of 3 years with one third of the board retiring by rotation each year. Since June 2011, it has been determined that no director may serve on the board for more than 9 consecutive years.

Number of members and percentage of our members attending the AGM

2013: 309 (0.21%) 2012: 285 (0.20%)

Number of members attending events and average

hours of educational events per member attending

2013: 1,062 members 2012: 823 members 8.25 hours each 10.82 hours each


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STATEMENT OF CORPORATE GOVERNANCE (continued) THE BOARD (continued) The chart below shows the length of total uninterrupted service on the board for our current directors since their initial election.

The demographics of the current board and our membership generally are shown below:

The board appoints, or re-appoints, a chairperson from one of their number, and thereafter appoints a vice-chair. In accordance with the Corporate Governance Code of Best Practice, the chairperson of the board is an independent director. The current Chairman has held this position for 6 years, which is the maximum time period recommended by the Code. The board have therefore agreed succession planning arrangements for this role. In order to allow a period of handover a chair designate will be appointed in July 2014 who will then assume the role of chairperson following the AGM in 2015 when the current Chairman will step down.


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STATEMENT OF CORPORATE GOVERNANCE (continued) THE BOARD (continued)

The Remuneration and Appointments Committee makes informed recommendations in relation to other board appointments and directors complete questionnaires indicating their experience, qualifications and desire to take on such roles to assist the committee with this work.

At the period end, the board consisted of seven directors who are considered to be independent and two directors who are also employees of The Southern Co-operative.

On appointment, directors receive a formal letter of appointment and an induction designed to develop their knowledge and understanding of The Southern Co-operative and their role as a director. Directors receive details of their duties, matters reserved for their decision, information on the board and its committees and details of the powers delegated to those committees. They also receive details of The Southern Co-operative’s corporate governance practices and operational policies and the latest financial information and meet the business heads to understand the different trading activities of The Southern Co-operative.

All directors are required to sign acceptance of, and comply with, a Directors’ Code of Conduct that has been endorsed by the board. The Code of Conduct utilised has been based on the model produced by Co-operatives

UK but has been adapted to suit The Southern Co-operative’s needs. Amongst other areas

the Code of Conduct sets out the requirements of directors in relation to confidentiality, conflicts of interest and behaviour. A Register of Directors’ Interests is maintained and regularly updated. In addition should a conflict of interest arise for a director this is declared, where appropriate, during board business and necessary safeguards are put in place.

The Southern Co-operative provides facilities for all directors to participate in training and development programmes in order to update their knowledge and capabilities and assist them in fulfilling their roles. A number of our directors already hold professional qualifications and others are currently working towards achieving the Advanced Diploma in Co-operation and Mutual Directorship. The Remuneration and Appointments Committee is responsible for determining methods to review the skills and knowledge of directors and for proposing training requirements over and above these arrangements.

Each director has been allocated an area of business interest within The Southern Co-operative and meets three times a year with relevant management to receive updates and a greater level of information and training on their allocated area. The allocation of business areas is reviewed triennially to allow directors to retain their area of business interest throughout each 3 year strategic plan cycle. The board as a whole retains the responsibility for ensuring that long-term objectives are established, policies are approved to achieve these objectives and that The Southern Co-operative’s performance is questioned and monitored effectively across each business area.

The operation of the various business areas remains the responsibility of the Leadership Team. This process enables the directors’ understanding of The Southern Co-operative’s business to be further developed to help them carry out their strategic responsibilities.

During the latter part of 2013, the board engaged in a formal evaluation of the performance of the board as a whole, its committees, individual directors and the chairperson. This evaluation generally looks to highlight improvements that that could further enhance the performance of the board. The evaluation took the form of peer review and utilised both questionnaires and meetings between the directors and the Chair/Secretary on an individual basis. The evaluation determined that the board was performing well and in line with best practice. The recommendations highlighted by the evaluation have either been implemented or will be implemented during the forthcoming year.

The board is responsible for ensuring that business is conducted in the best interests of The Southern Co-operative and its’ members and in accordance with co-operative values and principles. In particular, the board determines the vision and strategies of The Southern Co-operative and ensures that policies and organisational structures are in place to deliver the long term objectives. The board also ensure that The Southern Co-operative’s actions comply with The Southern Co-operative’s Rules, relevant laws and regulations. The board has responsibility for overseeing the work of The Southern Co-operative's Leadership Team in the implementation of strategy and the monitoring of performance against objectives. Members of the Leadership Team make regular presentations to the board at key stages throughout the year in order that progress against strategic plans can be monitored and to increase the directors’ understanding of the business, the markets in which TSC operates and the regulatory environment.


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There is a written list of matters and decisions that may only be approved by the board which is regularly reviewed. The board meet approximately monthly, with additional sub-committee meetings on a regular scheduled basis. The board has established three sub-committees; an Audit Committee, a Remuneration and Appointments Committee and a Chair’s Committee, to consider specific issues and to ensure proper scrutiny and accountability of The Southern Co-operative's activities. Details of these committees are given below. The board determines the powers delegated to its sub-committees and receives regular reports from them and its active subsidiary companies. At least two directors, including the Chairman, where appropriate, sit on each of The Southern Co-operative’s active subsidiary companies. Detailed board and committee papers are distributed in advance of the meetings to provide the opportunity for directors to fully prepare for meetings. The Minutes of all board meetings are circulated to all directors. Where directors require clarification and advice outside of the expertise of management there is an agreed procedure by which they may take independent professional advice at The Southern Co-operative’s expense in furtherance of their duties. The Southern Co-operative’s directors have attended the following board and committee meetings during the period:

Main Board

Audit Committee

Remuneration & Appointments

Committee

Chair’s

Committee

Mr David Blowe 11 (11) 4 (4) 2 (2)

Mr Thomas Blair 11 (11) 3 (3) 4 (4) 2 (2)

Mr Glenn Heath 11 (11) 3 (3)

Mr Michael Hastilow 11 (11) 3 (3) 4 (4) 2 (2)

Mrs Frances Hobson 10 (11)

Mrs Amber Vincent-Prior 11 (11)

Mrs Pauline Lympany 10 (11)

Mr Neil Blanchard 10 (11) 3 (3)

Mrs Diane Knight 7 (7)

The number in brackets indicates the total number of meetings the director was eligible to attend during the period.

The Audit Committee currently comprises four directors including one with recent and relevant financial experience. The chair of the committee is Mr Thomas Blair. In accordance with the Corporate Governance Code of Best Practice the Chairman of The Southern Co-operative, the Chief Executive, employee directors and recently retired and superannuated employee directors do not sit on this committee. In order to enhance the financial experience of the committee the board have determined that a professionally qualified accountant will be co-opted to the Audit Committee from 2014.

Under its terms of reference, the committee:

Monitors the integrity of the financial statements for The Southern Co-operative and its subsidiaries, together with any significant financial reporting judgements contained within the statements;

Reviews the consistency of, and any changes to, accounting policies and methods on a year on year basis, within The Southern Co-operative and its subsidiaries;

Reviews the effectiveness of The Southern Co-operative’s internal controls and risk management systems;

Monitors and reviews the effectiveness of the internal audit function outsourced to PricewaterhouseCoopers LLP, in the context of The Southern Co-operative’s overall risk management system. It is also responsible for approving their remit, their appointment and removal and management’s responsiveness to the findings and recommendations of the internal auditor;


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Reviews The Southern Co-operative’s whistle blowing procedures, ensuring that appropriate arrangements are in place for its employees to raise concerns, in confidence, about possible wrongdoing in financial reporting or other matters;

Monitors the effectiveness of the external audit process and makes recommendations to the board in relation to the appointment, reappointment and remuneration of the external auditor; and

Ensures that an appropriate relationship between The Southern Co-operative and the external auditors is maintained, including reviewing non-audit services and fees.

During the period, the Audit Committee completed its responsibilities by considering the above issues during the three meetings held. The committee met both the external auditor (Deloitte LLP) and the internal auditor (PricewaterhouseCoopers LLP) at two of the meetings. Both the external and internal auditors have direct access to the Chairman of the board and the Chair of the committee at all times and the committee meets with The Southern Co-operative’s external auditors at least once each year with no members of management being present. During the year the board approved an External Audit Policy to ensure compliance with current best practice. The policy provides that the external audit provision should be tendered at least every 10 years and ensures the independence of the external auditor is not compromised. The policy covers the basis on which the external auditor could carry out tax advisory work and other non-audit work as well as covering the responsibilities of the parties. As a result of this Policy a tender exercise was carried out in the latter part of the year in relation to external audit provision from the financial year ending January 2015. The Chair of the Audit Committee provides a report to the board after each of its meeting and minutes of the committee’s meetings are circulated to all directors. All directors also receive the external auditor’s Audit Report and consider fully the Risk Register for The Southern Co-operative.

All new appointees to the committee receive an induction in order to prepare them for the role. The Remuneration and Appointments Committee currently comprises three directors and is chaired by Mr David Blowe, the Chairman of The Southern Co-operative. No employee or recently retired superannuated employee is permitted to serve on the committee. The committee met four times during the year. The Chair of the Remuneration and Appointments Committee provides a report to the board after each of its meeting and minutes of the committee’s meetings are circulated to all directors. The committee’s Remuneration Report can be found on pages 17-20. The board has determined not to establish a Search Committee but instead has incorporated the scope of operation of such a committee into the terms of reference of the Remuneration and Appointments Committee. The Chair’s Committee. The Chair’s Committee has the authority to consider issues of a very urgent nature in between board meetings. The committee met twice during the year. The Chair of the committee provides a report to the board after each of its meetings and minutes of the committee’s meetings are circulated to all directors together with any papers considered by the committee in order that all directors are fully informed and may endorse the decisions of the committee.


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STATEMENT OF CORPORATE GOVERNANCE (continued) THE CHAIRMAN The Rules of The Southern Co-operative clearly set out the separate responsibilities of the board, the Chief Executive and the Secretary. The Chairman, like all the directors of The Southern Co-operative, is a non-executive director. He leads the board in determination of its strategy and in the achievement of its long term objectives. The Chairman is responsible for organising the business of the board, and ensuring its effectiveness. The Chairman has no involvement in the operational management of the business. THE CHIEF EXECUTIVE The Chief Executive is responsible for conducting the day-to-day business of The Southern Co-operative and is accountable to the board for the performance of the business and for compliance with The Southern Co-operative’s Rules and applicable legal and other regulations. THE SECRETARY The directors have access to the advice and services of the Secretary who has responsibility for advising the board on governance matters. The Southern Co-operative’s Rules provide that the appointment and removal of the Secretary is a matter for the full board. The Rules of The Southern Co-operative provide that the roles of Chief Executive and the Secretary may not be held concurrently by the same individual.


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STATEMENT OF CORPORATE GOVERNANCE (continued) INTERNAL CONTROL The Southern Co-operative has had arrangements in place that are consistent with the principles outlined in “Internal Control Guidance for Directors on the Combined Code” (The Turnbull Guidance) for the period under review, and up to the date the Annual Report and Financial Statements were approved. Further specific guidance for co-operative businesses is given in advice provided by Co-operatives

UK.

CONTROL FRAMEWORK In accordance with the Corporate Governance Code of Best Practice published by Co-operatives

UK, the

board has conducted a review of The Southern Co-operative’s system of internal controls. The review covered financial, operational and compliance controls and risk management processes. The Southern Co-operative’s framework of internal controls consists of the following elements:-

an organisational structure with clearly defined lines of responsibility, delegations of authority and reporting requirements;

policies for expenditure, with set authorisation levels resulting in larger capital projects, acquisitions and disposals requiring board approval;

a comprehensive system of financial reporting where actual results together with budget and forecast comparisons are reported regularly to the board throughout the period;

Board review and approval of the annual budget and strategic plans;

a code of business conduct covering relations with members, customers, employees, the community, the environment, suppliers, and competitors; and

an Audit Committee that oversees The Southern Co-operative’s system of internal control and the internal audit function.

CONTROL PROCEDURES The Southern Co-operative has implemented control procedures designed to ensure complete and accurate accounting for financial transactions and to limit the potential exposure to loss of assets or fraud. Measures taken include physical controls, segregation of duties, review by management, internal audit and external audit. However, the system of internal control is designed to manage rather than eliminate the risk of failure to achieve business objectives and can only provide reasonable and not absolute assurance against material misstatement or loss. MONITORING The Audit Committee receives and reviews the annual internal and external audit work plans. A summary of significant matters raised by internal audit is considered by the committee at each meeting. The committee also reviews the annual external audit management letter and the response of the Leadership Team to the auditors’ report. Having completed its work for the period under review, the Audit Committee considers that there have been no errors or control weaknesses that have resulted in any material losses or contingencies that require disclosure. The board receives copies of all Audit Committee minutes, the external audit report and the external audit management letter.


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STATEMENT OF CORPORATE GOVERNANCE (continued)

RISK MANAGEMENT

Managing our Risks

The board has primary responsibility for setting policies and procedures to manage the key risks facing The Southern Co-operative effectively. As such, the board is responsible for The Southern Co-operative’s system of internal control and for reviewing its effectiveness. The role of the Leadership Team is to identify key business risks arising, to assist the board in developing policies and procedures to manage risk and to implement board policies once established. The Southern Co-operative operates a risk management process that identifies the key risks facing each part of the business. The risk assessments are consolidated and reports are made to the Audit Committee and board on how the material risks facing The Southern Co-operative as a whole are being managed. This process has been in place throughout the period and up to the date of approval of the Annual Report and Accounts. The risk management process and the prioritisation of key risks at group level have been reviewed by the Audit Committee. The overall risk register for The Southern Co-operative as a whole is considered by the board. The most significant risks faced by The Southern Co-operative and its subsidiaries (TSC) and related mitigation actions are set out below:

Risk Mitigation

Competitive pressure

The market in which TSC operates is increasingly competitive from both our competitors opening new stores/funeral homes in our operating area; and the requirement to keep prices competitive with our rivals

This is closely monitored and is managed by the introduction of new stores; new funeral locations and innovative products;

Prices are closely monitored and reviewed and adapted to reflect changing customer demands and expectations;

Product ranges are constantly reviewed and adapted.

Economic market conditions

TSC could be adversely affected by the general UK economic conditions.

TSC is investing in the development and implementation of new strategic IT systems and associated new ways of working. Risks associated with this work are being managed by formal ‘PRINCE 2’ project governance, full internal auditing and the matching of the system requirements to TSC’s strategic plan.

Brand and reputation

TSC’s reputation could be damaged by a significant adverse event perception which could lead to loss of trust and confidence amongst consumers. This could lead to financial loss.

TSC continually monitors its corporate reputation and brand standards;

TSC remains committed to its Social Goals Strategy and involvement in the local community in which we operate.

Business disruption

TSC could be exposed to any significant incident, including information loss, which could adversely affect business operations

TSC has robust disaster recovery and business continuity plans that have been developed and tested.

Financial capacity

TSC must be able to generate and maintain sufficient funds to meet business needs

TSC prepares and reviews on a regular, rolling basis short, medium and long term cash flow forecasts. This includes reviewing bank covenants.

Funding requirements are identified and financing options are reviewed by the directors.


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STATEMENT OF CORPORATE GOVERNANCE (continued) Managing our Risks (continued)

Risk Mitigation

Credit risk TSC must ensure that a counterparty does not fail to discharge their obligations to TSC.

TSC carries out regular periodic reviews of debtor and loan balances to identify overdue balances;

TSC uses debt recovery services;

TSC adopts a prudent view for any bad or doubtful debts which are provided for.

PREVENTION OF BRIBERY The Southern Co-operative values its reputation for high legal, ethical and moral behaviour. It recognises that in addition to being a criminal act, any involvement in bribery is also unethical and dishonest and will reflect adversely on our image and reputation. The Southern Co-operative and its subsidiaries aim therefore to limit their exposure to bribery by:

adopting a zero tolerance stance to bribery;

setting out a clear anti-bribery policy and a clear policies setting out when gifts and hospitality may be given or received, and the basis on which charitable donations may be made.

risk assessing each business in terms of the risk of bribery therein and establishing proportional measure to address identified areas of risk, which may include:

training colleagues so that they can recognise and avoid the use of bribery by themselves and others;

requiring our suppliers and third parties acting on our behalf to adopt similar anti-bribery policies and to comply with appropriate anti-bribery laws;

encouraging our colleagues to be vigilant and to report any suspicion of bribery, providing them with suitable channels of communication and ensuring sensitive information is treated appropriately;

rigorously investigating instances of alleged bribery and assisting the police and other appropriate authorities in any resultant prosecution;

taking firm and vigorous action against any individual(s) involved in bribery. Non-compliance by colleagues will amount to gross misconduct leading to disciplinary action up to and including dismissal. We will end our relationship with any suppliers or third parties acting on our behalf found to be involved in bribery.

There have been no instances of bribery during the year.


15

STATEMENT OF CORPORATE GOVERNANCE (continued) STATEMENT OF GOING CONCERN The business activities of The Southern Co-operative Limited and its subsidiaries (TSC), together with factors likely to affect its future development, performance and position are set out within the Directors’ Summary contained within the Annual Review and Summary Financial Statements booklet available on request from stores or from our website www.thesouthernco-operative.co.uk. The financial position of the TSC, its cash flows and liquidity position are described in the Chief Executive’s review within the Annual Review and Summary Financial Statements booklet. TSC obtains its financial strength from a broad range of customers and suppliers across different geographic areas. TSC has a solid balance sheet position and significant cash balances. As a consequence, the directors believe that TSC is well placed to manage its business risks successfully despite the current uncertain economic outlook. TSC will continue with its plan to increase the number of retail stores and funeral homes. To achieve this growth the directors continue to review financial options for obtaining external debt to assist with the expansion. Any external debt will be utilised along with internally generated funds to enable TSC to achieve its planned growth. The directors have a reasonable expectation that TSC has adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis in preparing the annual report and accounts. DISCLOSURE OF INFORMATION TO AUDITOR The directors who held office at the date of approval of this Statement of Corporate Governance confirm that, so far as they are each aware, there is no relevant audit information of which The Southern Co-operative’s Auditor is unaware; and each director has taken all the steps that they ought to have taken as a director to make themselves aware of any relevant audit information and to establish that The Southern Co-operative’s Auditor is aware of that information. AUDITOR Pursuant to Section 5(1) of the Friendly and Industrial and Provident Societies Act 1968, Deloitte LLP are deemed to continue as Auditor, until such time as a resolution may be passed at a general meeting of The Southern Co-operative appointing another auditor in their place STATEMENT OF COMPLIANCE The board is committed to the principles set out in Co-operative

UK’s Corporate Governance Code of Best

Practice. The board has reviewed its governance arrangements against those set out in the 2005 Code and can state that there is only one area where the board have chosen not to fully comply and this area is set out below: D1.2 In view of the size and complexity of The Southern Co-operative, the board does not believe it

necessary at the current time to produce an interim statement of trading activities for members. Co-operatives

UK published a revised version of the Corporate Governance Code of Best Practice for

Consumer Co-operatives in November 2013 (the 2013 Code) and although measurement against this Code is not required until the year ending January 2015, the board of The Southern Co-operative have reviewed their governance arrangements against the 2013 Code and have determined that the areas where the board have chosen not to fully comply are as follows: B.22 Where a significant transaction is proposed involving 25% or more of The Southern Co-operative’s

members’ funds consideration as to consultation with members would be given, however in practice there could be confidentiality and regulatory issues in relation to the disclosure of details prior to exchange of contracts which may prevent such a consultation. For this reason the board of The Southern Co-operative will not give an absolute undertaking to consult. The board of directors are elected by the members and have a responsibility to consider the interest of all members and other stakeholders when determining whether to progress such transactions.


16

STATEMENT OF CORPORATE GOVERNANCE (continued) BOARD CERTIFICATION The Statement of Corporate Governance is hereby signed on behalf of the board and the Financial Statements and notes on pages 33 to 59 are hereby signed on behalf of the board of directors pursuant to Section 3(5)(c) of the Friendly and Industrial and Provident Societies Act 1968. D J Blowe Chairman M K Hastilow Vice-Chairman S J Dominy Secretary 1

st May 2014


17

REMUNERATION REPORT The Remuneration and Appointments Committee is pleased to present its Remuneration Report to members for the 52 weeks ended 25 January 2014. This report, which is published in accordance with the Corporate Governance Code of Best Practice published by Co-operatives

UK, aims to provide members with an overview of the role of the

Remumeration and Appointments Committee together with information on the remuneration policies and practices applicable to the Leadership Team. Details of the remuneration and pension benefits for the year for Senior Members of the Leadership Team, The Southern Co-operative Secretary and directors are provided within the report. The report will be presented at the Annual General Meeting on 19

th June 2014 and will be subject to an

advisory vote by members. THE REMUNERATION AND APPOINTMENTS COMMITTEE Membership of the Remuneration and Appointments Committee is appointed by and from the board. The committee Chairman reports to the board on its proceedings at the next available meeting. The committee currently comprises the Chairman (Mr D J Blowe), Vice-Chairman (Mr M K Hastilow) and one other director (Mr T P Blair). The members of the committee have no personal financial interests in the committee’s decisions. No directors who are also employees of The Southern Co-operative or its subsidiaries, or are former employees who have left The Southern Co-operative or its subsidiaries’ employment within the last three years, are eligible to sit on this committee. During the year the committee met four times. The committee has formal terms of reference, set by the board which provide that the committee:

Determines and effects, on behalf of the board, the policy and actual remuneration and other main terms and conditions of employment for the Chief Executive, Secretary and such other senior managers as the board may determine and oversees their contractual arrangements using the services of an independent adviser;

Considers board and senior management succession issues and makes recommendations to the board;

Considers and makes informed recommendations to the board in relation to board appointments, including membership of sub-committees of the board;

Determines the frequency and method of appraisal for the board, individual directors and the Chairman including the method of reviewing the skills and knowledge of directors to determine training requirements; and

Makes recommendations to the board on the level of remuneration for directors, as and when appropriate, and is responsible for proposing any changes to the expenses policy for directors.

EXTERNAL ADVICE During the year the committee sought independent advice on remuneration and other personnel matters from The Hay Group Management Limited. The Hay Group have also provided services to The Southern Co-operative’s Human Resources function. REMUNERATION POLICIES AND PRACTICES The board’s policy is to remunerate fairly and responsibly. Directors’ fees are recommended to members taking into account the need to attract suitable candidates, the time commitment of the board members, comparisons with other societies’ fees and the responsibilities undertaken by the board. The Members decide on the level of board fees.


18

REMUNERATION REPORT (continued) REMUNERATION POLICIES AND PRACTICES (continued) In determining the remuneration policy for senior members of the Leadership Team, a number of factors are considered, including:

The importance of attracting, retaining and motivating senior management of the appropriate calibre to further the success of The Southern Co-operative;

The linking of reward to both individual and business performance; and

Ensuring that the interests of senior management are aligned with those of The Southern Co-operative and its members

The current policy is to pay remuneration at a level close to the market median, subject always to personal performance, when compared with other businesses of comparable size and complexity, with particular regard to companies in the same business sector. The committee adopts the principle of performance-related pay and operates both an annual incentive scheme and long-term incentive scheme. The Remuneration and Appointments Committee determines the remuneration of the Chief Executive, The Southern Co-operative Secretary and any senior members of the Leadership Team whose salaries exceed £100,000. In accordance with best practice, the main components of remuneration for the five most senior members of the Leadership Team, identified in the table on page 15, are disclosed below: Basic Pay The committee reviews the basic salaries of individuals under its remit on an annual basis. It is the committee’s policy to ensure that basic salaries are appropriate and competitive for the responsibilities involved. The committee will have regard to median salary data for organisations of a similar size within the retail sector and will also consider individual performance and the level of salary increases elsewhere in The Southern Co-operative. Annual Incentive Scheme Each member of the Leadership Team is eligible to participate in an annual performance-related bonus scheme which is open to all levels of management in The Southern Co-operative. The structure of the scheme is designed to drive team behaviours and encourage individual contributions towards the achievement of The Southern Co-operative’s aims and objectives. The committee reviews and sets bonus targets for individuals under its remit on an annual basis. During the year participants could potentially receive on target bonuses of up to 32% of basic salary and bonuses of up to 50% of basic salary where targets are exceeded. Performance is measured on a combination of profit before interest, tax, depreciation and amortisations and personal performance against set targets with the proportions of each varying in accordance with individual roles. Those with business unit responsibilities are measured on the profit from their business unit, whilst group profit is used as the measure for members of the Leadership Team with group responsibilities. Long Term Incentive Scheme Senior members of the Leadership Team also participate in long-term incentive schemes which set targets across a three-year period. Three members participated in a scheme which ended in January 2013 and payments were made during the year for this scheme. The next scheme will end in January 2016 with payments being made during the subsequent financial year. The structure of the scheme is designed to drive team behaviours and encourage individual contributions and long-term commitment to the achievement of The Southern Co-operative’s strategic aims and objectives. It is also designed to obviate any long-term risk to The Southern Co-operative and its assets. Participants can potentially receive on target bonuses of up to 50% (up to 75% for outperformance) of their average annual basic salary over the three years of the scheme. The targets upon which the participants are measured are aligned to the 3 Year Strategic Plan of The Southern Co-operative. The targets are both financial and non-financial and include growth in profit before interest, tax, depreciation and amortisations with a minimum average return on capital employed required; colleague and membership engagement and sustainability. Financial measures are based upon the results agreed by the external auditors of The Southern Co-operative and signed off by The Southern Co-operative’s Audit Committee. Non-financial performance measures are assessed by the Remuneration and Appointments Committee, in conjunction with the Chief Executive and an Independent Adviser utilising third party data, where available, to ensure consistency of application.


19

REMUNERATION REPORT (continued) Benefits in Kind The benefits in kind provided during the year were the provision of a car or a cash alternative, the option of a fuel card and health insurance.

Name Position Commenced in Current Role (Date)

Basic Salary

£

Annual Incentive

£

Long Term Incentive

£

Benefits in kind

£

2013/14 Total

Emoluments £

2012/13 Total

Emoluments £

Mark Smith

Chief Executive 01/10/2008 228,000 66,636 73,773 19,245 387,654 286,498

Philip Ponsonby

Chief Operating Officer – Food Retail & Services

18/08/2008 160,750 41,660 39,347 15,999 257,756 204,670

Stephen Pearce

Chief Operating Officer – End of Life Services

03/07/2006 108,000 25,892 35,967 16,750 186,609 151,293

Paul Rodford

Group Financial Controller

05/09/2011 100,000 21,852 n/a 15,968 137,820 105,466

Silena Dominy

Society Secretary 01/07/2008 80,000 11,498 n/a 11,932 103,430 95,541

PENSIONS The Southern Co-operative closed the defined benefit (DB) pension scheme to future accrual on 31

st May

2013 and for ex members of the scheme offered the opportunity to join a defined contribution (DC) Group Personal Pension Plan (GPPP). The Stakeholder pension scheme available to colleagues not participating in the DB scheme was also closed and these members also offered membership of the GPPP. Benefits accrued in both closed schemes have been calculated to the date of the closure and members informed of their pension/fund value. Ex members of the DB scheme have retained the death in service insurance cover previously provided and in all other respects are now classified as deferred scheme members. The GPPP is managed by Legal & General, ex DB members receive a 10% employer contribution for a minimum 3.5% member contribution, other GPPP members receive a matched employer contribution up to 5% member contributions. All contribution rates are based on basic salary. GPPP members are able to take advantage of pension salary sacrifice arrangements.

Name Position

Age at end of

financial year

Years of society service

Total accrued DB pension at

end of financial year

£

Increase in DB accrued

pension during year

£

Employer contribution paid to

DC scheme or allowance paid in financial year £

Employer contribution paid

to DC scheme as a % of basic

salary

Mark Smith

Chief Executive 54 8 30,270 1,154 13,651 *n/a

Philip Ponsonby

Chief Operating Officer – Food Retail and Services

48 29 75,250 1,672 9,625 *n/a

Stephen Pearce

Chief Operating Officer –

End of Life Services

48 29 48,986 1,776 5,815 10%

Paul Rodford

Group Financial Controller

51 2 n/a n/a 2,308 5%

Silena Dominy

Society Secretary 44 23 28,916 965 4,769 10%

* receives cash allowance in lieu of contribution to pension scheme


20

REMUNERATION REPORT (continued) SERVICE CONTRACTS It is the policy of The Southern Co-operative for the notice period in service contracts not to exceed one year. The notice period for the Chief Executive and Chief Operating Officer – Food Retail and Services is 12 months. All other members of the Leadership Team have notice periods of 13 weeks. In the event of termination, any payments due to a member of the Leadership Team would be based on the value of these notice periods together with the value of other contractual benefits. NON EXECUTIVE DIRECTORSHIPS Mark Smith, the Chief Executive of The Southern Co-operative, is a non-executive director of The Co-operative Group Limited and a number of its subsidiary companies, a trustee of the Portsmouth Cultural Trust and a non-executive director of Solent Cultural Enterprise. Paul Rodford, the Group Financial Controller of The Southern Co-operative, is a non-executive director of the West Sussex Environment and Climate Change Board. DIRECTORS The board of The Southern Co-operative is a lay board of non-executive directors. Directors do not have service contracts. Directors are elected by the Members of The Southern Co-operative from their number for terms of 3 years. The years of election and expiry of their current terms can be seen in the table below. The Southern Co-operative does not currently have any co-opted professional external directors on the board. Directors’ fees are approved by The Southern Co-operative’s members. The current fee levels were recommended to the membership and approved by them in May 2009 following a detailed review by The Southern Co-operative Secretary whereby comparisons were made with the fees paid by other societies and the varying responsibilities and time commitments of directors’ roles considered. The fees agreed include a formula for updating fees in line with the average earnings and retail prices indices. The annual base fees with effect from 8

th June 2013 are: Chairman £7,271, Vice-Chairman £6,071 and

director £5,000. Further to the payment of the base fee a payment of £500pa is made per Sub-committee or similar appointment held by a director and where a director acts as Chair of such committee or board a further £250pa is paid to that director. In addition to their fees, directors are able to claim expenses reasonably incurred in carrying out Society business.

Name First

Elected

Current Term

Expires

Total Years Served

Total 2013/14

Remuneration

£

Total Expenses Claimed

2013/14 £

David Blowe (Chairman) 1991 2014 22 9,493 583

Thomas Blair 1997 2015 16

1

6,809 431

Glenn Heath 2003 2014 10 5,619 64

Michael Hastilow (Vice Chairman) 2005 2015 8 8,177 256

Frances Hobson 2006 2016 7 5,059 205

Amber Vincent-Prior 2008 2016 5 5,059 165

Pauline Lympany 2009 2015 4 5,059 19

Neil Blanchard 2009 2016 4 5,559 172

Diane Knight 2008 2014 7 months 2,945 69

05.60 On behalf of the Remuneration and Appointments Committee

D J Blowe Chairman 1

st May 2014

THESOUTHERN CO-OPERATIVE LIMITED SUSTAINABILITY REPORT

21

The Southern Co-operative (TSC) has always had a purpose beyond profit and a desire to create a different kind of business. Our long established values and principles continue to guide us today in developing and managing our business in a responsible and sustainable manner. We have made great progress in areas like store energy efficiency, promotion of local food and drink and support for our local communities. However, in 2013 we decided it was time to go further. Recognising the rising importance of issues like climate change, resource scarcity and an increasing global population, we have taken the important step of developing a detailed Sustainability Plan - ‘Making a Difference’, which sets out how we will address these and other challenges that are transforming the world in which we live and do business. The Plan supports our business vision and objectives and brings all areas of our business together behind a clear set of sustainability goals, outlining the actions we will take and how we will measure success. It focuses on the issues that are most important to our business and our members, as well as others who have an interest in our business. We will regularly report our performance and progress and continue to seek the feedback of our members, colleagues and others on how we are doing, also creating opportunities for them to get actively involved. Our board and Leadership Team are ultimately responsible for ensuring we deliver against our Sustainability Plan. We have also appointed a dedicated board champion who meets regularly with our Head of Sustainability to specifically discuss this area of business interest. Our Making a Difference plan, has three main pillars – protect, share and support (see below). Using these core principles we will encourage our colleagues, members, partners and communities to ‘work with us’ to make a positive difference.

We are working to: Protect our environment by…

Reducing carbon emissions

Saving energy and water

Preventing waste

Championing our local wildlife and countryside

We are working to: Share our success with others by…

Engaging members and others in our business

Supporting young people into work

Helping our colleagues to realise their potential

Promoting local food and drink

Trading responsibly

We are working to: Support our communities by…

Getting actively involved in our local communities

Helping to tackle important community issues

Extending the reach of our bereavement education and support service

Making healthy and sustainable living easier

To support us in embedding sustainability into our business, TSC has become a member of Business in the Community (BITC). BITC is the largest business-led charity of its kind - committed to building resilient communities, diverse workplaces and a more sustainable future. As well as being involved in BITC’s various networks and programmes, we have participated in their Corporate Responsibility Index, the leading and most in-depth voluntary benchmark of corporate responsibility in the UK. The Index is helping us to identify opportunities for improving our approach to managing sustainability. We were pleased to achieve a two star rating in the 2014 Index. OUR SUPPLIERS As part of our ongoing commitment to sustainability and in line with our co-operative values and principles, we demand the highest ethical standards when sourcing the products and services we sell and use within our business. All the products that we sell within our food stores (with the exception of ‘Local Flavours’) are procured through the Co-operative Retail Trading Group (CRTG).

THE SOUTHERN CO-OPERATIVE LIMITED SUSTAINABILITY REPORT (continued)

22

OUR SUPPLIERS (continued) Through these arrangements and our membership of the CRTG Food Policy Group and the CRTG Strategy Group we continue to develop and maintain market leading sustainability policies on issues like animal welfare, environmental protection, fairtrade and health and nutrition. This approach extends through to the supply chain, with the application of a Sound Sourcing Code of Conduct which identifies the labour standards expected to be applied across suppliers of all co-operative brand food products and products made exclusively for us. The Code of Conduct covers areas such as pay, working hours, working conditions and child labour. This is supported by a robust monitoring and support programme to help suppliers in key sourcing countries to manage and raise labour standards. We will be looking to extend our approach to ethical sourcing to cover further goods and services procured by our business, focusing on goods that are not purchased for re-sale to customers. OUR MEMBERS Member numbers have continued to increase in line with the growth of our trading area rising in 2013 from 136,783 to 146,559. Despite the ongoing tough economic environment we were pleased to gain approval for a Share of Profits to members of 2p per pound of eligible purchases, for the third year in succession. A total of £2.9m was returned to members under our Share of the Profits scheme. To enable us to better engage future generations of members and to allow all colleagues to become members, including those young people who deliver newspapers, we reduced our membership qualifying age from 16 to 14 years old. Since this change in June, 42 14-16 year olds have joined as members, 29 of which were colleagues. The past year has seen the range of membership engagement opportunities grow both in terms of frequency and variety. Focussing on themes like the environment, education, sustainability (and perhaps just a little bit of fun) members of The Southern Co-operative have taken part in 24 events which have included a 14 mile ‘Walk for Wildlife’ along the Dorset coastline, guided educational trips to sustainability and environmental projects run by wardens from the Wildlife Trusts of Hampshire and Isle of Wight, Dorset and Sussex and a wide variety of tours kindly provided by local producers and suppliers. Our own apiaries on ‘Bee Island’ at Lakeside have proved a huge attraction for members. who have been treated to some up close and personal time with the bees led by fellow member John Perry and our own bee-keeping Vice Chairman Mike Hastilow, learning not only about their importance to our environment but also about honey production and bee keeping itself. Members also took part in various short courses throughout the year including cheese making, wine tasting, foraging and using wild plants for medicine. Visits to local suppliers such as the Tomato Stall and Garlic Farm on the IOW allowed members to find out more about how produce is grown and supplied to our stores, while the team at High Weald Dairy taught members how to make, taste and enjoy locally produced cheese. Colleagues from End of Life Services (ELS) visited the Kensall Green Cemetery and catacombs to learn about the history of their profession; whilst colleague members and their families had the opportunity to learn about climate change and other sustainability issues at a special Science Museum exhibition. In the run up to the 100

th anniversary commemorations of the start of WW1 we led a party of TSC

members and colleagues on a trip to the World War One battlefields of Ypres and the Somme, to pay respect to the 13 former colleagues of TSC (then known as the Portsea Island Mutual Co-operative – PIMCO), who made the supreme sacrifice during the Great War. TSC arranged specific visits to the battlefield area where some of our colleagues served and a wreath in their memory was placed at the Menin Gate on behalf of all TSC Members. The colleagues honoured were: C Burton, A Clark, W L Cooper, H Farrow, A Fleet, S Gatterell, C Gerrish, G Iveson, W A Jinman, C Midlane, R S Pitman, P Treviss and H Wilson.


23

OUR MEMBERS (continued) As many people use social media as their main source of communication, TSC members now have their own Facebook page which highlights activities, events and news. The page allows TSC to provide updates on all events and activities, allow discussions about relevant topics or answer any questions members may have. Information in relation to governance arrangements for members can be found on pages 5 and 6. OUR COLLEAGUES The Southern Co-operative employed 4,071 colleagues at the end of the year. The gender and age split of these colleagues can be seen below.

Pay rates for 85% of colleagues are on a specified rate eg Customer Service Assistants, Team Leaders, Funeral Co-ordinators, Funeral Assistants, there is no gender variation for these rates. Learning and Development

This year 93 colleagues have participated in our apprenticeship programme, with 17 colleagues successfully completing an Intermediate or Advanced Level Apprenticeship in Retail. Lakeside colleagues are also completing apprenticeships in Business and Administration. Seven colleagues completed a Foundation Degree in Retail, a 2 year course run by Manchester Metropolitan University. Our Athena Management Programme has continued with two more groups of colleagues taking part this year and 16 colleagues from Food Retail, Lakeside and ELS achieving a Level 3 qualification in First Line Management. The Level 4 qualification is being offered for the first time this year with a group of colleagues currently studying for this qualification.


24

COLLEAGUES (continued) In the year, over 5,500 hours of e-learning were undertaken across all areas of the business. This included new modules to support the rollout of our new retail system – Retail Vision System (RVS). In addition, over 1,000 colleagues completed qualifications in Food Safety, Health and Safety, First Aid and Licensing; and in ELS, colleagues achieved qualifications in Counselling, Funeral Directing, Funeral Services and Funeral Arranging and Administration.

Our People Pathway continues to provide various routes of progression for colleagues in Food Retail increasing our overall rate of internal promotion. Over 60 internal and external candidates have successfully completed the Management Development Programme and been appointed to management positions in-store. Encouraging others

In addition to our usual programme of work experience placements for young people at school, colleagues in our Learning and Development teams led a number of initiatives during the year to enhance the skills of young job seekers in local communities. This included designing and running workshops as part of the nationwide “Skills for Work” month promoted by the Institute of Grocery Distribution (IGD) and job centre plus; together with similar sessions for other local youth groups. We have been able to offer employment to a number of the young people who attended these activities. Colleague recognition and reward

The second TSC Celebration of Success event saw over 50 colleagues from across all areas of the business who had achieved a qualification receive recognition and their award at a presentation ceremony at Lakeside. Additionally, our food retail colleagues were invited to enter the Sales Assistant of the Year Awards 2013, a national competition organised by Convenience Store magazine. We are proud to say one of our colleagues, was the winner in the Multiple and Co-operative category. Our first Colleague of the Year competition saw the winners named at TSC Annual Awards event in April. This popular award continues with the Colleague of the Month winners in Food Retail and ELS during the year, along with annual nominations from Lakeside again going forward to the final selection by the board for the next Colleague of the Year. We have continued to provide access for colleagues to a variety of tax efficient schemes including Cycle2Work, Childcare Vouchers and our Share Incentive Plan. Colleagues are also able to obtain free confidential professional help via our Employee Assistance Programme to resolve or manage any personal difficulties. We have received good feedback from colleagues who have used this service. Colleague Survey

Since achieving our best result to date in 2012 when 84% of colleagues said they were proud to work for TSC, we have reviewed and updated our colleague survey. This focuses on the issues that matter most to our colleagues, measuring how engaged they are with our business. The new survey will be carried out in early 2014.

Total Hours of Colleague Training

2013: 44,349 hours 2012: 63,745 hours

10.9 hours per colleague 16.54 hours per colleague


25

HEALTH AND SAFETY Significant financial investment into Health and Safety by the TSC board has seen improvements in many areas of the business, to the benefit of our colleagues, customers and members. Working in partnership with our Primary Authority Partners (Portsmouth City Council), we will continue to deliver safety improvements within the business and 2014 will see the planned expansion of these partnerships to include Hampshire Fire & Rescue. Despite the measures we have in place to provide a safe and healthy place to work, accidents undoubtedly occur. The number of colleague accidents and the level of colleague absence (which includes absence for general illnesses and injuries unrelated to accidents at work) have both reduced over the last two years, the latest figures can be seen below: Looking Ahead In 2014 we will review and update our people strategy and ensure it continues to support the delivery of our business goals. Areas of focus in the coming year will include further developing the skills and capabilities of our managers and reviewing our approach to colleague engagement and reward. OUR CUSTOMERS We value the views of our customers and arrange for independent surveys to be carried out with retail customers in order to gain an understanding of how satisfied our customers are with our operations. Two waves of research were carried out by Aquila in April and October 2013. The results are shown below. Percentage THE ENVIRONMENT Reducing carbon emissions This year we conducted an in depth assessment of TSC’s operational carbon footprint to understand the biggest areas of opportunity for greenhouse gas emissions reduction. Not surprisingly, energy related emissions account for more than 75% of our total carbon footprint. Improving energy efficiency therefore remains a key area of focus for us and this year energy consumption was 87.3 kWh per sq ft trading area an 9% reduction on the previous year and we have improved energy efficiency by 18.4% against a 2010 baseline.. Initiatives behind this improvement include:

All food stores receive weekly reports on electricity and gas usage and we are rolling out similar

reports to our funeral homes.

Managers and in store energy champions use this information to identify energy saving

opportunities and to engage other colleagues in supporting actions that drive down energy usage.

‘Smart’ electric meters are already in place in our food stores and are currently being installed

across our End of Life Services estate. All funeral homes have been fitted with devices to ensure

the mortuary environment and refrigeration equipment is run as efficiently as possible.

LED energy efficient lighting and doors on chiller units are now rolled out as standard to all new

and reformatted stores.

Staff Injury and Absentee Rates

2013: 351 employee accidents, of which 2012: 380 employee accidents, of which

23 were reportable 17 were reportable

4.88% absence rate 5.11% absence rate

Percentage of Satisfied Customers

2013: 94% 2012: 91%


26

Reducing carbon emissions (continued)

We continue to explore new technologies and equipment that will support further energy

reduction. We are currently trialing voltage optimisation in a number of stores and we continue to

evaluate the performance of new refrigeration systems.

Virtually all the electricity we use comes from renewable sources through a green energy

contract.

Gross Greenhouse gas emissions arising from our operations

Tonnes of CO2 e

2013 2012

Emissions associated with: natural gas

usage, company cars and freight/service

vehicle fuel and refrigeration and cooling

(Scope1)

6,805.17

8,237.15

Emissions associated with: Electricity

purchased (Scope 2)

16,178.86

16,581.89

Total tonnes CO2e (Scope 1 & 2) 22,984.03 24,819.04

Carbon intensity: Tonnes CO2e per £m

sales 70.31 82.51

Key priorities for 2014 and beyond will be to:

Continue to measure and monitor our operational carbon footprint, with a view to developing a long term plan and target for CO2e emissions reduction.

Reduce Food Retail energy consumption by 32% by end of 2016 (against a 2010 baseline)

Through our energy champion network, continue to build colleague engagement in environmental

issues.

Saving water Although not a big user of water we are looking for opportunities to reduce our water usage. In 2014, we plan to conduct a water audit of our estate. Preventing waste The majority of our waste comes from the food side of our business. As a signatory to the Courtauld Commitment and supporter of the Love Food, Hate Waste campaign, The Co-operative Food is working hard to reduce food waste by helping shoppers to keep food fresh for longer and reduce food waste in their homes. We were the first retailer to introduce storage instructions on to loose fresh produce bags, and we are working with the Waste & Resources Action Programme (WRAP) to introduce clear, customer-friendly labelling on other high wastage categories, including bread and morning goods, to give our customers the information they need to avoid wasting food at home.


27

Preventing waste (continued) While avoiding and reducing waste and packaging remains a key focus, all our food stores are now backhauling their waste to their nearest depot. This is increasing the amount of materials we recycle; ensuring all our food waste is processed through anaerobic digestion and all remaining waste goes to a facility that creates energy from waste. 100% of our food waste and virtually all other retail waste is now being diverted away from landfill. In 2014, we will be looking at further opportunities for reducing the volume of operational waste produced, particularly food waste, and increasing the proportion of waste recycled.

NB: the above figure includes waste reused (0.50%), waste recycled (63.23%) and waste which is sent to an energy recovery facility (36.26%). Sustainable development

Our new Oaks Crematorium in Havant reflects the highest environmental standards for the industry both in the design and construction of the building and the development of the surrounding grounds.

The Crematorium employs the latest techniques in cremation and clean air technology to prevent pollution to the air and surrounding environment. It uses low level energy efficient lighting to minimise light pollution and the main chapel uses a passive ventilation system. Due to the nature of the operation, a large amount of heat is produced. This is being harnessed, via a heat exchange system, to meet the heating and hot water needs of the building. It has also been designed so that should the need arise, any excess heat can be exported to meet the heating and hot water needs of adjacent buildings. These low-energy systems will significantly reduce the overall energy demand of the building helping to reduce its environmental footprint.

Partnering with the Hampshire & Isle of Wight Wildlife Trust we have also developed a conservation plan for the Crematorium site which is creating further habitats for wildlife. This includes a green ‘living’ sedum roof on the crematorium building, the creation of a wildflower meadow, enhancement of a natural pond which is home to a rare species of plant (Floating Clubrush), the planting of native trees and flowers as part of the landscaping and putting up bird and bat boxes in the surrounding woodland. Over the next year we will be looking at creating a more formal framework for developing and managing all our stores, funeral homes and wider estate in a responsible and sustainably manner. Biodiversity Across our businesses we have a significant impact on biodiversity, for example through our food supply chain. We have developed market leading policies in areas such as responsible sourcing of fish, forest stewardship and sustainably sourced palm oil and soy. See http://www.co-operativefood.co.uk/ethics/ We are also looking at how we can protect and enhance natural habitats across our estate – see sustainable development. Support for community environmental projects

As well as reducing the carbon and broader environmental impacts of our own estate and operations, the Southern Co-operative has an important role to play in supporting our local communities to be more environmentally sustainable. In 2013, we came to the end of a two year project which has seen us conduct carbon audits of our freehold and leasehold retail and end of life services premises. As well as identifying carbon reduction opportunities that will inform our future development and reformat programmes, this work will help us to target specific communities for support across the geography of our trading area.

Waste Recycled or Re-used as a Percentage of Waste Arising 2013: 99.9% 2012: 97.53%

http://www.co-operativefood.co.uk/ethics/


28

Support for community environmental projects (continued)

Supporting environmental education projects for young people is an area important to our members. Two

projects we continued to support in 2013 were EYE (Eco, Young and Engaged), which brings school

children from West Sussex together for annual eco summits, and Tuppenny Barn, also in West Sussex,

which is building a sustainable education centre to host organic food workshops for local children and

other courses and events. In Bristol we have provided funding to Youth Moves and their project to engage

school children in growing vegetables at their dedicated allotment. We plan to work further with them in

2014 to build a community space which can be used to educate more people of all ages about

sustainable living.

OUR COMMUNITIES

Whether supplying vouchers for refreshments, fundraising for local good causes or working with the community on large scale events we are committed to making a difference locally. This year colleagues have built on the relationships they have developed over previous years, and where we have joined new communities, we have enjoyed creating new relationships which we hope to grow over time. In 2013 our communities benefited from individual contributions totalling more than £100,000. Volunteering

Volunteering is an effective and powerful way for us to invest in our people and our local communities. Charities benefit from the extra pairs of hands to get much needed jobs done and our colleagues get the chance to apply hard work and practical skills to a task that has a genuine community benefit. TSC actively encourages colleagues working at all levels of the business to volunteer in work time and as a result, this has contributed to over 4,800 hours of volunteering during 2013. Community Engagement

As a co-operative being part of our communities is part of the way we do business Faced with the rising costs of food and fuel, combined with state income, high unemployment and changes to benefits, more and more people are going to foodbanks for help. In 2013 TSC worked with local foodbanks to help support our communities at their time of need with the introduction of food collection points in 6 stores in Portsmouth, 4 stores in Chichester and 11 stores on IOW (with donations accepted in our IOW funeral homes too) alongside smaller schemes in other locations. In addition TSC has donated money to each of the foodbanks to enable them to continue operating when stock levels are low; on the IOW this was match-funded by the local council meaning even more food could be distributed. Community Support Card Our Community Support Card (CSC) is a way for local charities and organisations to raise funds with the backing of our customers. The recipients are chosen by a panel made up of co-operative members and the store team as we believe local people know best what is needed locally. Customers then show their support simply by presenting a card, which we issue free in the store, and having this swiped every time they shop. Support for this scheme continues to grow with cheques totalling £250,000 being presented to local good causes in 2013 of this £135,700 raised will be added to the 2014 contributions and paid to the recipients when their schemes complete during the year.

Investment in Community and Co-operative Initiatives

2013: £473,564 2012: £553,757

4.0% of pre-tax profits 7.16% of pre-tax profits

excludes working hours donated to community projects which totalled £115,000 in 2013 and £118,000 in 2012


29

OUR COMMUNITIES (continued) Charity Partnership Due to the popularity of our partnership with Canine Partners with both customers and colleagues alike, we decided to retain them as our Charity Partner for a second year. Colleagues told us they had more ideas for fundraising and support, and they proved this with over £268,000 raised during 2013. Our Community Partners Our relationships with the Hampshire & Isle of Wight, Sussex and Dorset Wildlife Trusts have continued to go from strength to strength. In addition to colleague volunteering activities on the Trust’s nature reserves across these counties, we supported Dorset Wildlife Trust’s Urbanlink project which is creating an urban ‘living landscape’ across south-east Dorset; we sought the advice of Hampshire & Isle of Wight Wildlife Trust in protecting and enriching wildlife habitats at our Oaks Crematorium and supported the Sussex Wildlife Trust’s Forest Rangers project. We were also involved in supporting and judging the Community and Voluntary category in CPRE (Campaign to Protect Rural England) Hampshire’s Countryside awards which recognise significant achievements across the county that support CPRE’s goal of "standing up for the countryside". Political Donations The Southern Co-operative Limited has made no political donations (2012: £nil) during the year. Future priorities

Our key priorities for 2014 and beyond will be to:

Ensure a minimum of 6% of pre-tax, pre-dividend profits is invested in our communities

Create more opportunities for our colleagues to volunteer, increasing the hours volunteered by 10% each year.

Continue to tackle the issues that matter most to our communities, like food poverty, rolling out food collection points to areas of greatest need across our trading area.

THESOUTHERN CO-OPERATIVE LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES

30

United Kingdom Industrial and Provident Society Law requires the directors to prepare financial statements for each financial period which give a true and fair view of the state of affairs of The Southern Co-operative and its subsidiaries (TSC) at the end of the financial period, and of the income and expenditure of TSC for that period. In preparing those financial statements, the directors are required to:

select suitable accounting policies and then apply them consistently;

make judgements and estimates that are reasonable and prudent;

state whether applicable accounting standards have been followed; and

prepare the financial statements on the going concern basis unless it is inappropriate to presume that TSC will continue in business.

The directors are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of TSC and to enable them to ensure the financial statements comply with the Industrial and Provident Societies Acts 1965 to 2002 and the Industrial and Provident Societies (Group Accounts) Regulations 1969. They are also responsible for safeguarding the assets of TSC and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities.

INDEPENDENT AUDITOR’S REPORT TO THE MEMBERS OF THE SOUTHERN CO-OPERATIVE LIMITED

31

We have audited the financial statements of The Southern Co-operative Limited for the 52 week period ended 25 January 2014 which comprise the statement of accounting policies, group revenue account, group statement of total recognised gains and losses, note of historic cost profits and losses, group balance sheet, group cash flow statement, reconciliation of movements in shareholders’ funds, and related notes 1 to 28. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to The Southern Co-operative’s members, as a body, in accordance with section 9 of the Friendly and Industrial and Provident Societies Act 1968. Our audit work has been undertaken so that we might state to The Southern Co-operative’s members those matters we are required to state to them in an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than The Southern Co-operative and The Southern Co-operative’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the board and auditor

As explained more fully in the Directors Responsibilities Statement, the board is responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Scope of the audit of the financial statements

An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to The Southern Co-operative’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the board; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the annual report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

Opinion on financial statements

In our opinion the financial statements:

give a true and fair view of the state of The Southern Co-operative’s affairs as at 25th January 2014

and of its income and expenditure for the 52 week period then ended;

have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice; and

have been properly prepared in accordance with the Industrial and Provident Societies Acts, 1965 to 2002.

Matters on which we are required to report by exception

We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts, 1965 to 2002 requires us to report to you if, in our opinion:

a satisfactory system of control over transactions has not been maintained; or

the society has not kept proper accounting records; or

the financial statements are not in agreement with the books of account; or

we have not received all the information and explanations we need for our audit.

Deloitte LLP Chartered Accountants and Statutory Auditor Southampton, United Kingdom 9

th May 2014


STATEMENT OF ACCOUNTING POLICIES

32

The financial statements are prepared in accordance with applicable United Kingdom Generally Accepted Accounting Practice. The particular accounting policies adopted by the directors are described below. Accounting convention

The financial statements have been prepared under the historical cost convention as modified by the annual revaluation of certain investments and investment properties which are carried at market value. This departure from the historical cost convention is explained further below in the investment and the investment properties accounting policy notes. Going concern

The Southern Co-operative and its subsidiaries (TSC) obtains its financial strength from a broad range of customers and suppliers across different geographic areas. TSC has a solid balance sheet position and significant cash balances. This is discussed further in the Statement of Going Concern on page 15. As a consequence, the directors believe that TSC is well placed to manage its business risks successfully despite the current uncertain economic outlook. After making enquiries, the directors have a reasonable expectation that TSC has adequate resources to continue in operational existence for the foreseeable future. TSC will continue with its plan to increase the number of retail stores and funeral homes. To achieve this growth the directors will continue to review financial options for utilising external debt to assist with the expansion. This debt will be utilised along with internally generated funds. Accordingly, they continue to adopt the going concern basis in preparing the annual report and accounts. Parental Guarantee In accordance with Sections 394A, 448A and 479A of the Companies Act 2006 The Southern Co-operative Limited has provided a statement of guarantee for its 100% owned subsidiaries to enable them to take the audit exemption, please see note 27 for further details. Accounting date

The financial statements are made up for the 52 weeks to 25 January 2014 with comparative figures for the 52 weeks to 26 January 2013. Basis of consolidation

The group financial statements of The Southern Co-operative consolidate the accounts of The Southern Co-operative and all its subsidiaries. The results of subsidiaries acquired or sold are consolidated for the periods from or to the date on which control passed. Acquisitions are accounted for under the acquisition method. Revenue

Sales includes cash sales, goods sold on credit, property rental and concession income. Income is recognised on delivery of goods or related services. Property rental income is recognised on a straight line basis over the lease term. Funeral income is recognised on completion of the funeral service (burial or cremation). All revenue is shown net of value added tax.

Other operating income

Other operating income represents commissions receivable on funeral bond investments. Investments and investment income

Interest and dividends received are accounted for on an accruals basis. Investments held as fixed assets are carried at cost, less provision for any impairment in value. Funeral investments held as current assets are carried at market value with movements being taken annually to the revenue account.



33

Investment properties

In accordance with SSAP 19, investment properties are revalued annually and the aggregate surplus or deficit is transferred to revaluation reserve, except where a deficit on an individual investment property is expected to be permanent in which case it is charged (or credited, where a deficit is reversed) to the profit and loss account of the period. No depreciation is provided in respect of investment properties.The Companies Act requires all properties to be depreciated. However, this requirement conflicts with the generally accepted accounting principle set out in SSAP 19. The directors consider that, because these properties are not held for consumption, but for their investment potential, to depreciate them would not give a true and fair view and that it is necessary to adopt SSAP 19 in order to give a true and fair view. If this departure from the Act had not been made, the profit for the financial year would have been reduced by depreciation. However, the amount of depreciation cannot reasonably be quantified, because depreciation is only one of many factors reflected in the annual valuation and the amount which might otherwise have been shown cannot be separately identified or quantified. Associated companies

In the group financial statements of The Southern Co-operative, investments in associates are accounted for using the equity method. The consolidated revenue account includes the group’s share of the associates’ profits less losses whilst the group’s share of the net assets of the associates is shown in the consolidated balance sheet. Fixed assets and depreciation

Land and buildings are stated at historic cost less depreciation. No depreciation is provided on freehold land. Tangible fixed assets are depreciated by equal annual instalments over their estimated useful economic lives based on cost as follows: Freehold buildings 2.5% per annum Fixtures and fittings 12.5% per annum Plant and machinery 15.0% per annum Computers/software 25.0% per annum Systems Development 20.0% per annum Motor vehicles 25.0% per annum Hearses 16.6% per annum 2

nd hand hearses 33.3% per annum

Cremators 6.7% per annum Leasehold property is depreciated at 2.5% per annum or over the unexpired period of the lease, if shorter. Burial Land is depreciated based on consumption with no residual value. Assets in the course of construction are stated at cost and are not depreciated. Assets are capitalised and transferred to their category once completed. The gain or loss arising on the disposal or retirement of fixed assets is determined as the difference between the sales proceeds (or value of the option to replace the asset) and the carrying amount, and is recognised in the profit and loss for the period. Goodwill and intangible assets

Goodwill represents any excess of the fair value of the consideration given over the identifiable assets and liabilities acquired. For acquisitions of a business, goodwill is capitalised in the period in which it arises and amortised over its estimated useful life up to a maximum of 20 years. The directors regard 20 years as a reasonable maximum for the estimated useful life of goodwill since it is difficult to make projections exceeding this period. Goodwill which arose on the acquisition of a business prior to the implementation of FRS 10, which was written off to revenue reserves as a matter of accounting policy, remains eliminated in that reserve and will be charged or credited in the revenue account as appropriate on the subsequent disposal of the business to which it relates.



34

Goodwill and intangible assets (continued) Post office licences are amortised by equal annual instalments over their estimated useful lives at a rate of 5.0% per annum. Impairment of goodwill

In determining whether goodwill is impaired TSC prepares an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the entity to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Leased assets

Assets held under finance leases are capitalised at their fair value on the inception of the leases and depreciated over the estimated useful lives. The finance charges are allocated over the period of the lease in proportion to the capital outstanding. Rentals under operating leases are charged on a straight-line basis over the lease term, even if the payments are not made on such a basis. Benefits received and receivable as an incentive to sign an operating lease are similarly spread on a straight line-line basis over the lease term. Taxation

Current tax is provided at amounts expected to be paid (or recovered) using the tax rates and laws that have been enacted or substantially enacted by the balance sheet date. Deferred tax is recognised in respect of all timing differences that have originated, but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. Timing differences are differences between The Southern Co-operative group’s taxable profits and its results as stated in the financial statements that arise from the inclusion of gains and losses in tax assessments in periods different from those in which they are recognised in the financial statements. Deferred tax is not provided on unremitted earnings where there is no binding commitment to remit these earnings. Deferred tax assets are recognised to the extent that it is regarded as more likely than not that they will be recovered. Deferred tax is measured at the tax rates that are expected to apply in the periods in which the timing differences are expected to reverse, based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis. Financial assets

Financial assets, including options to obtain replacement fixed assets, are initially recognised at fair value on the date the underlying contract is entered into. Stocks

Retail stocks are valued at purchase price less provisions for slow moving and obsolete stock. Other stock, including stock not for resale, is valued at the lower of cost or net realisable value. Repairs

Repairs expenditure is charged to the revenue accounts in the period that costs are incurred. Funeral bond schemes

The liability for funeral bonds is recognised in line with the actual cash received rather than the retail value of the bond. This gives rise to recognition of a funeral plan debtor and an equal and opposite funeral plan creditor. Amounts received in advance for funeral bonds are recorded as a liability, apportioned between amounts due within one year and after more than one year, based upon past periods’ experience of redemptions.



35

Funeral bond schemes (continued)

All receipts from holders of funeral bonds prior to 1 January 2002 were held in a separate bank account, with State Street Bank Custodian Trustees acting as independent trustees for the Scheme. These funds were liquidated during the year and were invested with the Co-operative Insurance Society (CIS). All receipts since 1 January 2002 are invested in individual whole life insurance policies with the Co-operative Insurance Society (CIS). Investments of the receipts are held as assets in the balance sheet, apportioned between fixed and current assets on the same basis as the related liabilities. The investments are held at cost. Interest receivable on both funds are recognised in the revenue account on encashment of the bond when the related funeral is provided. Commission on funds invested with CIS is recognised in the revenue account on receipt. Until the provision of the related funeral, any changes in the value of investments are recorded as funeral plan debtors with the income being deferred as funeral plan creditors. Pension costs

For defined benefit schemes the amounts charged to the trading surplus are the current service costs and gains and losses on settlements and are included as part of staff costs. Past service costs are recognised immediately in the revenue account if the benefits have vested. If the benefits have not vested immediately, the costs are recognised over the period until vesting occurs. The interest cost and the expected return on assets are shown as a net amount of other finance costs or credits adjacent to interest. Actuarial gains and losses are recognised immediately in the statement of total recognised gains and losses. During the period, and following consultation with active members, the final salary scheme was closed to future benefit accrual with effect from 1 May 2013. See note 21 for further details. Defined benefit schemes are funded, with the assets of the scheme held separately from those of TSC, in separate trustee administered funds. Pension scheme assets are measured at fair value and liabilities are measured on an actuarial basis using the projected unit method and discounted at a rate equivalent to the current rate of return on a high quality corporate bond of equivalent currency and term to the scheme liabilities. The actuarial valuations are obtained at least triennially and are updated at each balance sheet date. The resulting defined benefit asset or liability, net of the related deferred tax, is presented separately after other net assets on the face of the balance sheet. For defined contribution schemes the employer costs are charged to the revenue account in the period in which they are incurred. Distributions

Distributions to and on behalf of members, including colleague and member share of profits, grants and donations, are recognised when approved by members in general meetings and are treated as an application of profits in line with The Southern Co-operative’s rules. Where payments to employee members in their capacity as employees are non-contractual and distinguishable from the operating activities of the business and payment is dependent on, and subject to, member approval in a general meeting, these payments are termed ‘Distributions’.

THE SOUTHERN CO-OPERATIVE LIMITED GROUP REVENUE ACCOUNT 52 weeks ended 25 January 2014

36

Note

52 weeks ended 25 January

2014 £’000

326,716


2013 £’000

303,106

Revenue 1 Cost of sales (225,695) (209,481)

Gross profit 101,021 93,625 Trading expenses 2 (90,806) (83,965) Other operating income 410 168

TRADING SURPLUS 10,625 9,828

Share of operating profit in associated

undertaking

145 32

TOTAL TRADING SURPLUS: Group and share of associated undertaking

10,770

9,860

3,171

- Pension scheme curtailments and settlements 21

SURPLUS ON ORDINARY ACTIVITIES

BEFORE INTEREST RECEIVABLE/(PAYABLE)

Investment income and interest receivable 4

13,941

1,386

9,860

934 Interest payable (115) (112)

Share of interest payable by associated undertaking

(137)

(101)

Total interest payable 5 (252) (213)

SURPLUS FOR THE PERIOD BEFORE

MINORITY INTEREST

15,075 10,581

Minority interest 18 (24) (23)


DISTRIBUTIONS 15,051

10,558

Distributions 6 (3,261) (2,833)


TAXATION 11,790

7,725

Taxation 19 (3,728) (2,324)

5,401 SURPLUS FOR THE PERIOD AFTER TAX

TRANSFERRED TO RESERVES 8,062

All results are derived from continuing operations. The above results have been presented on a historical cost basis, with the exception of the revaluation of investment properties and investments (note 7).

16

THE SOUTHERN CO-OPERATIVE LIMITED GROUP STATEMENT OF TOTAL RECOGNISED GAINS AND LOSSES 52 weeks ended 25 January 2014

37

Note


2014 £’000


2013

£’000

Surplus for the financial period 8,062 5,401

Unrealised deficit on revaluation of investment properties (90) (1,870)

Unrealised (loss)/gain arising from valuation in respect of retirement benefits

21

(8,174)

3,176

Pension fund related deferred tax credit/(charge) 1,880 (828)

TOTAL GAINS AND LOSSES RECOGNISED SINCE THE LAST ANNUAL REPORT

1,678

5,879

NOTE OF HISTORIC COST PROFITS AND LOSSES

2014

£’000 2013

£’000

Reported profit on ordinary activities before taxation 11,790 7,725

Historic cost profit on ordinary activities before taxation 11,790 7,725

Historic cost profit on ordinary activities after taxation 8,062 5,401

THE SOUTHERN CO-OPERATIVE LIMITED GROUP BALANCE SHEET At 25 January 2014

38

Note

2014 £’000

2013 £’000

Fixed assets

Intangible assets 7 17,058 16,282

Tangible assets 7 90,737 77,891

Investments 8 18,875 14,277

126,670 108,450

Current assets

Stocks 13,103 11,262

Debtors

- Due within one year 10 7,190 7,959

- Due after one year 10 3,440 4,077

Investments 11 1,365 2,364

Cash at bank 10,568 10,837

35,666 36,499

Creditors

Amounts falling due within one year 12 (33,612) (25,469)

Net current assets 2,054 11,030

Total assets less current liabilities 128,724 119,480

Creditors

Amounts falling due after more than one year 12 (17,873) (13,237)

Provisions for liabilities

Other provisions 13 (1,189) (1,134)

Deferred tax 20 (1,078) (719)

Net assets excluding pension deficit 108,584 104,390

Pension scheme

Pension deficit 21 (3,529) (986)

Net assets including pension deficit 105,055 103,404

Equity

Financed by:

Share capital 15 590 641

Reserves 16 105,113 103,179

Investment property revaluation reserve 17a (2,491) (2,235)

Revaluation reserve 17b 401 401

103,613 101,986

Minority interest 18 1,442 1,418

Total equity 105,055 103,404

These financial statements of The Southern Co-operative, registered number 1591R, were approved by the board of directors and authorised for issue on 1 May 2014. Signed on behalf of the board of directors Director

THE SOUTHERN CO-OPERATIVE LIMITED GROUP CASH FLOW STATEMENT 52 weeks ended 25 January 2014

39

Note


2014 £’000


2013 £’000

Net cash inflow from operating activities 22 20,398 18,757

Returns on investments and servicing of finance 23 (43) 28

Taxation (2,780) (2,356)

Acquisition of subsidiary 24 (1,897) -

Capital expenditure and financial investment 25 (26,927) (20,762)

Net cash outflow before financing (11,249) (4,333)

Financing 26 10,980 50

Decrease in cash in the period (269) (4,283)

52 weeks ended

25 January 2014 £’000


2013 £’000

Reconciliation of net cashflow to movement in net funds

Decrease in cash (269) (4,283)

Movement in net funds (269) (4,283)

Net funds at start of period 10,837 15,120

Net funds at end of period 10,568 10,837

As at

26 January 2013 £’000

Cash flow

£’000

As at 25 January

2014 £’000

Analysis of net funds

Cash at bank and cash in hand

10,837

(269)

10,568

Total 10,837 (269) 10,568

THE SOUTHERN CO-OPERATIVE LIMITED RECONCILIATION OF MOVEMENTS IN SHAREHOLDERS’ FUNDS 52 weeks ended 25 January 2014

40


2014 £’000


2013 £’000

Surplus for the financial period 8,062 5,401

Other (losses)/gains relating to the period (6,294) 2,348

1,768 7,749

Revaluation of investment properties during the period (90) (1,870)

Movement in share capital (51) 20

Net addition to shareholders’ funds 1,627 5,899

Opening shareholders’ funds 101,986 96,087

Closing shareholders’ funds 103,613 101,986


NOTES TO THE ACCOUNTS 52 weeks ended 25 January 2014

41

1. REVENUE

Results for the period are attributable to retail and concession agreements, funeral services and property rental. The origin and destination of the revenue is wholly within the United Kingdom.

Analysis of revenue:


2014 £’000


2013 £’000

Retail 311,177 288,442

Funeral services 12,599 11,945

Property rental 2,940 2,719

326,716 303,106

Revenue consists entirely from within the United Kingdom. No disclosure of the trading surplus or net assets by each segment has been made as the directors’ consider this would be detrimental to the business.

2. TRADING EXPENSES

52 weeks ended

25 January 2014

£’000


2013 £’000

Personnel expenses 44,950 42,165

Occupancy costs 9,659 9,011

Depreciation:

- owned assets 9,885 8,602

- amortisation of goodwill 1,611 1,516

Surplus on disposal of fixed assets (1,188) (756)

Impairment -additional depreciation

- on goodwill 58 -

- on owned assets 262 25

Operating leases:

- land and buildings 7,376 6,312

- plant and machinery 729 767

Onerous property provision 120 139

Auditors’ remuneration:

- fees payable to the Company’s auditors for the audit of the

Company’s annual financial statements 68 75

- fees payable to the Company’s auditors for non-audit services - 6

Other expenses 17,276 16,103

90,806 83,965

The non-audit services were in respect of The Southern Co-operative group’s taxation.



42

3. EMPLOYEES (including directors) 52 weeks ended

25 January 2014

No.


2013 No.

The average number employed by The Southern Co-operative and its subsidiaries was:

Full-time 1,391 1,374

Part-time 2,591 2,370

3,982 3,744

£’000 £’000

The costs incurred in respect of these employees were:

Wages and salaries 44,809 41,628

Social security costs 2,532 2,357

Other pension costs 666 966

48,007 44,951

Of the above salaries £3,057,000 (2013: £2,786,000) is included in cost of sales, relating to operational staff within the funeral business. Other pension costs include £323,000 (2013: £ 857,000) in respect of defined benefit schemes and £343,000 (2013: £109,000) in respect of defined contribution schemes.

4. INVESTMENT INCOME AND INTEREST RECEIVABLE 52 weeks ended

25 January 2014

£’000


2013 £’000

Southern Co-operatives investment fund 23 48

Pension scheme financing 1,058 620

Long term deposits 27 66

Other interest receivable 8 7

East Devon Crematorium Loan 270 193

1,386 934

5. INTEREST PAYABLE


2014 £’000


2013 £’000

Bank overdraft, other interest and commission 101 92

Onerous contract interest 14 20

Share of interest payable by associated undertaking 137 101

252 213



43

6. DISTRIBUTIONS


2014 £’000


2013 £’000

Share interest 2 2

Pensioners’ welfare 60 59

Donations 65 68

Corporate partnerships 102 164

Facilitation fund 19 22

Volunteering 31 26

Community support card 250 214

Colleague members share of profits 1,050 960

Customer members share of profits 1,556 1,189

Work hours donated to community projects Grants Education

115 6 5

118 6 5

3,261 2,833

7. FIXED ASSETS – TANGIBLE AND INTANGIBLE

Land and

buildings

£’000

Plant and

fixtures

£’000

Vehicles

£’000

Assets in course of

construction

£,000

Total

£’000

Goodwill and

intangible assets

£’000

Cost or valuation

As at 27 January 2013

37,884 79,862 2,181 9,125 129,052 27,066

Additions - - - 27,820 27,820 2,487

Transfers in year 9,634 18,241 335 (28,210) - -

Revaluation 15 - - - 15 -

Disposals (4,486) (4,667) (31) - (9,184) (770)


43,047

93,436

2,485

8,735

147,703

28,783

Accumulated depreciation and amortisation


3,902 45,667 1,592 - 51,161 10,784

Provided this period 627 8,989 269 - 9,885 1,611

Impairment -

262 - - 262 58

Disposals (288) (4,023) (31) - (4,342) (728)


4,241

50,895

1,830

-

56,966

11,725

Net book value at 25 January 2014

38,806

42,541

655

8,735

90,737

17,058

Net book value at 26 January 2013

33,982

34,195

589

9,125

77,891

16,282

The net book value of assets held under finance leases included above is £nil (2013: £nil). An impairment charge of £320,223 was made in the period, following an impairment review (2013: £24,616).



44

7. FIXED ASSETS – TANGIBLE AND INTANGIBLE (continued)

The Southern Co-operative prepares cash flow forecasts derived from the most recent financial budgets approved by management and extrapolates cash flows based on an estimated growth rate of 1.25%. This rate does not exceed the average long-term growth rate for relevant markets. The rate used to discount the forecast cash flows is 5.6% (2013: 4.9%). Goodwill and intangible additions of £2,487,228 relate to the purchase of goodwill on four retail acquisitions of going-concerns in TSC’s operating area. Included in land and buildings are investment properties of £9,765,000 (2013: £9,750,000) which are valued each year on an open market basis by external chartered surveyors. The valuation in 2014 on certain properties was performed by Vail Williams, based on open market values at 31 December 2013.

At the 25 January 2014 the external valuation obtained gave a market value for investment properties held of £9,765,000. An internal exercise was undertaken to assess (on a property by property basis) whether the revaluation is permanent or temporary. This resulted in £105,000 (realised gain on revaluation of investment properties) taken to revenue account and £90,000 (unrealised loss) included in the statement of total recognised gains and losses with respect to these investment properties. The assumptions used in the external market valuation calculation were:

Valuation date 31 December 2013

Discount factor 5.6%

ERV growth rate % pa 0.0%

Post current lease average occupancy 100.0%

Costs 13.4%

Void period following current lease 12 months

Future lease terms 60 months

The net book value of land and buildings comprises: 2014

£’000 2013

£’000 Cost or valuation: Land 12,998 7,880 Freehold buildings 15,563 15,798 Investment properties 9,765 9,750 Long leasehold buildings 480 554 Total Net Book Value 38,806 33,982

There are capital commitments contracted for, amounting to £9,510,121 (2013: £9,738,722), which have not been provided for in these accounts.



45

2014 £’000

2013 £’000

Operating Lease Commitments Operating leases expiring:

Within one year 571 509 In the second to fifth year inclusive 1,203 1,082 Over five years 6,513 4,736

8,287 6,327

The leases of land and buildings are subject to rent reviews.

8. INVESTMENTS – LONG TERM

2014 £’000

2013 £’000

Co-operative Group Limited 780 780

Other Co-operative organisations 8 8

CIS Funeral Bond Scheme 18,043 13,453

East Devon Crematorium Limited 44 36

18,875 14,277

2014

£’000 2013

£’000

Share of net assets in associated undertaking:

At start of period 36 104

Profit/(loss) in the period 8 (68)

At end of period 44 36

2014

£’000 2013

£’000

Movement on the CIS Funeral Bond Scheme during the period:

At start of period 13,453 10,827

Additions 1,436 2,626

Transfer in of State Street liquidated funeral bond funds 3,154 -

At end of period 18,043 13,453

During the year, the State Street money market deposits were liquidated and all funds were transferred to the CIS Funeral Bond Scheme.



46

9. ACQUISITION OF SUBSIDIARY UNDERTAKING

On 31 January 2013, The Southern Co-operative group acquired 100% of the issued share capital of Sussex Woodlands Limited for a consideration of £2,161,000. The following table sets out the book values of the identifiable assets and liabilities acquired and their fair value to TSC. BOOK VALUE

£’000 REVALUATION

£’000 FAIR VALUE

TO GROUP £’000

Fixed Assets Tangible

469 1,952 2,421

Current Assets Debtors 1 - 1 Cash 14 - 14

Total Assets 484 1,952 2,436

Creditors

Bank Loans (202) - (202) Trade Creditors (1) - (1) Accruals (31) - (31) Taxation Hire purchase Provisions

(15) (17) (9)

- - -

(15) (17) (9)

Total Liabilities (275) - (275)

Net Assets 209 1,952 2,161

Satisfied by: Cash paid 1,911 Deferred consideration 250

2,161

Burial land was re-valued by the directors to fair value taking into consideration the potential future cashflow revenues generated from increased occupancy.

10. DEBTORS AND PREPAYMENTS 2014

£’000 2013

£’000 Falling due within one year: Customer accounts 2,631 2,264 Expenses prepaid and other debtors Loan to East Devon Crematorium Limited

4,268 238

3,340 75

Asset loan to East Devon Crematorium Limited 53 48 Funeral plan debtors - 2,232

7,190 7,959

These amounts are net of a provision for bad and doubtful debts of 185 225

Falling due in more than one year: Loan to East Devon Crematorium Limited 2,884 3,122 Asset loan to East Devon Crematorium Limited 556 605 Other debtors - 350

3,440 4,077



47

10. DEBTORS AND PREPAYMENTS (continued) During the year the funeral plan debtor was liquidated and invested into the CIS Funeral Bond Scheme. The funeral plan debtor in the prior year represented the increase in value of the investments held under the funeral bonds scheme, represented by money market deposit accounts. The loan was issued to East Devon Crematorium Limited, a company set up as an associate of South of England Funeral Partners Limited, a group company to acquire, develop crematorium facilities and trade on land at Whimple, Devon. The loan is for a maximum principal sum of £3,200,000 and is solely for the purpose described above.

Interest is receivable on the loan at a rate of 6.0% and will rise in 1% increments to 8% by April 2014. The loan is repayable in quarterly instalments which commenced in June 2013 at £25,000. Repayments will then rise to £37,500 in June 2015 and increase annually thereafter to £154,866 by June 2022. The asset loan to East Devon Crematorium is repayable over ten years and interest is charged at 7.9%.

11. INVESTMENTS – SHORT TERM

2014 £’000

2013 £’000

State Street Funeral Bond Scheme – at cost - 1,387

CIS Funeral Bond Scheme – at cost 1,365 977

1,365 2,364

Amounts are held with third party investment managers which are readily available but not accessible within twenty four hours. The funeral bond money market deposits are to meet liabilities that fall due under the Funeral Bond Schemes. With effect from 31 December 2001, the State Street Funeral Bond scheme was closed to new business. A new bond scheme was opened on 1 January 2002 and all funds received are invested through the Co-operative Insurance Society Limited (CIS). During the year, the State Street money market deposits were liquidated and all funds were transferred to the CIS Funeral Bond Scheme.



48

12. CREDITORS

2014 £’000

2013 £’000

Falling due within one year:

Bank loans and overdrafts 11,000 -

Trade creditors 8,925 9,033

VAT 127 41

Corporation tax 1,379 1,910

Funeral bonds and prepayment plans 1,535 2,348

Funeral plan creditors - 2,230

Other creditors 10,646 9,907

33,612 25,469

2014

£’000 2013

£’000 Falling due after more than one year:

Funeral bonds and pre-payment plans 17,873 13,237

13. OTHER PROVISIONS

2014 £’000

2013 £’000

Onerous property leases 1,048 914

Dilapidation provision 141 220

1,189 1,134

Movements in the period:

As at beginning of period 1,134 1,022

Additions 419 359

Utilised in the period (310) (287)

Released in the period (54) 40

As at end of period 1,189 1,134

The onerous property lease provision relates to the sub-letting of Winklebury and Milford-on-Sea and the vacant Denmead, Fareham, Southsea, Mere, Freshwater, Tadley and Overton sites. The costs provided for relate to the remaining lease terms of 7, 9, 7, 1, 7, 14, 2, 1, and 6 years respectively over which period the provision will be released. In 2013, TSC made provision for dilapidations in respect of the Fareham leasehold premises. The provision was made in accordance with a report commissioned and carried out by an independent surveyor. The amount has been adjusted to reflect the amounts paid during the year and the final amount payable.

The bank loans and overdraft represent the total drawdown of a facility with Barclays Bank. The sums drawn have various maturity dates all of which are within twelve months from the date of drawdown. The monies are secured on a number of freehold properties. Interest is payable based on the LIBOR interest rates.



49

14. OPERATING LEASE COMMITMENTS

Amounts due under non-cancellable operating leases for vehicles and plant and equipment are:

2014 £’000

2013 £’000

Operating leases expiring:

In less than one year 13 25 In the second to fifth year inclusive 487 634 500 659

Amounts due under non-cancellable operating leases for land and buildings are shown in note 7.

15. SHARE CAPITAL

2014 £’000

2013 £’000

As at beginning of period 641 621

Contributions - 29

Southern Co-operative (SIP) Trustee Limited 55 59

Interest 2 1

698 710

Withdrawals (108) (69)

As at end of period 590 641

The Southern Co-operative abides by a code of practice which requires it to provide a statement to its shareholders of the nature of their investment and any change affecting it. The position that a shareholder of The Southern Co-operative occupies is no different from that of a shareholder in any other corporate body in the sense that, if The Southern Co-operative fails, not all or any of their investment may be returned to them. Investments are withdrawable without penalty. The Southern Co-operative, unlike banks and building societies, is not subject to prudential supervision by the Financial Services Authority. Any questions regarding the code should be addressed to the Secretary at The Southern Co-operative’s registered address at 1000 Lakeside, Western Road, Portsmouth, Hampshire, PO6 3FE.

16. REVENUE RESERVES 2014

£’000

2013 £’000


Other net recognised (losses)/gains in the period (6,294) 2,348

Transfer from investment property revaluation reserve 166 -

Transfer from revenue account 8,062 5,401




50

17. a) INVESTMENT PROPERTY REVALUATION RESERVE

2014 £’000

2013 £’000

As at beginning of period (2,235) (365)

Deficit on property revaluation in period Transfer to revenue reserves

(90) (166)

(1,870) -

As at end of period (2,491) (2,235)

b) REVALUATION RESERVE

2014 £’000

2013 £’000

At beginning and end of period 401 401

The revaluation reserve relates to the property development in 2008/09 at New Hawthorn Road, where the uplift in value over the previous cost has been taken to reserves.

18. MINORITY INTEREST

2014

£’000

2013 £’000


Transfer from revenue account 24 23


19. TAXATION

Current tax 2014

£’000

2013 £’000

United Kingdom corporation tax: 2014: 23% (2013:24%) 2,494 2,505

Adjustments in respect of prior period (129) (287)

Total current taxation 2,365 2,218

Deferred tax

Timing differences, origination and reversal 166 100

Decrease in tax rate (35) (26)

On pension deficit 1,120 107

Adjustments in respect of prior periods 112 (75)

1,363 106

3,728 2,324

The tax assessed for the period is higher (2013: higher) than that resulting from applying the standard rate of corporation tax in the UK: 2014: 23% (2013: 24%).



51

19. TAXATION (continued)

2014 %

2013 %

The differences are explained below:

Standard tax rate for period as a percentage of profits 23 24

Effects of:

Expenses not deductible for tax purposes 6 6

Other timing differences 1 (1)

Depreciation in excess of/(less than) capital allowance 6 4

Prior period adjustment (2) (4)

Current tax rate for period as a percentage of profits 34 29

Factors that may affect the future tax charge: a. A deferred tax asset has not been recognised in respect of timing differences relating to

funeral bonds as there is insufficient evidence that the asset will be recovered. The amount of the asset not recognised is £461,694 (2013: £541,823);

b. Deferred tax has not been provided in respect of gains realised of that have been rolled over

into the acquisition cost of replacement assets. This tax will become payable if the replacement assets are sold and further rollover relief is not obtained. The taxable gain that would arise in these circumstances is £428,189 (2013 £559,178).

c. Deferred tax has not been provided on revaluations of investment properties. This tax will

only become payable if the assets are sold and rollover relief is not obtained. The estimated amount of tax that would become payable in these circumstances is £nil (2013 £nil).

d. The Finance Act 2013, which provides for reductions in the main rate of corporation tax from

23% to 21% effective from 1 April 2014 and to 20% effective from 1 April 2015, was substantively enacted on 2 July 2013. These rate reductions have been reflected in the calculation of deferred tax at the balance sheet date. The impact of any further changes in the main rate of corporation tax will be taken into account at subsequent reporting dates, once any changes have been substantively enacted.

We estimate that the future rate change to 20% would further reduce our UK deferred tax liability recognised at 26 January 2014 from £22,000 to £19,000. The actual impact will be dependent on our deferred tax position at that time.



52

20. DEFERRED TAX

2014 £’000

2013 £’000

Analysis of deferred tax balance:

Capital allowances in excess of depreciation 1,078 719

Pension creditor (1,056) (296)

22 423

Movements in deferred tax during the period:

As beginning of period 719 721

Charge to revenue account 359 (2)

As at end of period 1,078 719

Tax movement on pension deficit:

At beginning of period (296) (1,231)

Movement for the period – revenue account 1,120 107

Movement for the period – statement of total recognised gains and losses (1,880) 828

As at end of period (1,056) (296)

21. PENSION SCHEME

FRS 17 ‘Retirement Benefits’ has been fully adopted in these financial statements. The Southern Co-operative operated a defined benefit scheme in the UK. A full actuarial valuation was carried out as at 28 January 2013 and updated to 25 January 2014 by a qualified independent actuary. The major assumptions used by the actuary were:

2014 %

2013 %

2012 %

2011 %

2010 %

Discount rate 4.30 4.60 4.70 5.60 5.50

Rate of increase in salaries N/A 4.00 3.60 4.10 4.00

Rate of increase in deferred pensions - RPI 3.50 3.50 3.10 3.60 3.50

Rate of increase in deferred pensions - CPI 2.50 2.50 2.10 N/A N/A

Rate of increase in pensions in payment accrued after 5 April 1997

3.30 3.30 3.00 3.50 3.50

Rate of increase in pensions in payment accrued before 6 April 1997

2.20 2.20 2.10 2.30 2.40

Inflation assumption 3.50 3.50 3.10 3.60 3.50

Mortality assumption – uses the S1PxA table using the CMI 2013 projection model rated up to 1 year for males with default parameters and a 1% per annum long term rate of improvement (2013: S1PxA table using the CMI 2011 projection model rated up to 1 year for males with default parameters and a 1% per annum long term rate of improvement). The Southern Co-operative’s contributions during the 52 week period amounted to £964,000 (2013: £701,000). The best estimate of contributions to be paid to the scheme by The Southern Co-operative for the 52 weeks ended 24 January 2015 is £583,000. The scheme is closed to new entrants so the average age of membership is expected to increase over time. The projected unit method is used to calculate the current service cost. This calculates the value of the following year’s pension accrual and expresses is as a percentage of pensionable pay. This percentage will increase as the members of the Scheme approach retirement. The scheme was closed to future benefit accrual on 31 May 2013 and a curtailment gain of £3,171,000 was realised.



53

21. PENSION SCHEME (continued) The assets in the scheme and the expected rate of return were:

2014 2013 2012

Long term rate of return

expected

Value £’000


expected

Value £’000


expected

Value £’000

Equities and property 7.00% 49,700 7.00% 71,202 7.00% 66,746

Gilts and bonds 3.30% 50,829 2.65% 29,935 2.30% 27,430

Other 0.25% 34 0.25% (5) 0.25% 169

Total market value of assets 100,563 101,132 94,345

Present value of scheme liabilities 105,148 102,413 (99,266)

(Deficit) in scheme (4,585) (1,281) (4,921)

Restriction of surplus - - -

Related deferred tax asset 1,056 295 1,230

Net pension liability (3,529) (986) (3,691)

The scheme deficit at 25 January 2014 after deferred tax was identified of £3,529,000. This deficit has been recognised as a liability under FRS 17 of The Southern Co-operative group (2013: deficit of £986,000 was recognised as a liability in the balance sheet).

The expected return on assets is derived from the assumptions of long term expected returns on each asset class, these are shown below:

2014 %

2013 %

2012 %

Equities 7.00 7.00 7.00

Bonds 3.30 2.65 2.30 Gilts - - - Property - - - Other investments 0.25 0.25 0.25

The overall expected return on assets of 5.17% pa (2013: 5.71%) is the weighted average of the expected returns on each individual asset class.

Analysis of amount charged to trading surplus

2014 £’000

2013 £’000

Current service cost 323 857

Total operating charge 323 857

Analysis of amount credited/(charged) to other finance income 2014

£’000 2013

£’000

Expected return on pension scheme assets 5,689 5,224

Interest on pension scheme liabilities (4,631) (4,604)

Net return 1,058 620



54

21. PENSION SCHEME (continued)

Analysis of amount recognised in statement of total recognised gains and losses (STRGL)

2014

£’000 2013

£’000 Actual return less expected return on pension scheme assets (3,272) 4,298 (Loss) arising from changes in assumptions underlying the scheme liabilities

(4,902)

(1,122)

Actuarial gain/(loss) recognised in STRGL (8,174) 3,176

The cumulative amount of losses recognised in the STRGL is £27,766,000 (2013: £19,592,000) Reconciliation of the present value of the defined benefit obligation 2014

£’000 2013

£’000

Present value of the defined benefit obligation at the beginning of the year

102,413

99,266

Movement in year:

Current service cost 323 857

Interest cost 4,631 4,604

Members’ contributions 85 212

Benefits paid (4,035) (3,648)

Actuarial loss 4,902 1,122

Curtailments and settlements (3,171) -

105,148 102,413

Reconciliation of the fair value of scheme assets 2014

£’000 2013

£’000

Fair value of scheme assets at the start of the year 101,132 94,345

Movement in year:

Expected return on scheme assets 5,689 5,224

Actuarial (loss)/gain on scheme assets (3,272) 4,298

Employer contributions 964 701

Members’ contributions 85 212

Benefits paid (4,035) (3,648)

100,563 101,132



55

21. PENSION SCHEME (continued) History of experience gains and losses

2014

£’000 2013 £’000

2012 £’000

2011 £’000

2010 £’000

Difference between the expected and actual return on scheme assets

(3,272) 4,298 (2,306) 5,458 11,524

Percentage of scheme assets (3)% 4% (2)% 6% 14%

Experience gain/(loss) on scheme liabilities (96) 2,250 (306) (358) 2,530

Percentage of the present value of the scheme liabilities

0% 2% 0% 0% 3%

Total amount recognised in statement of total recognised gains and losses before the restriction of surplus

(8,174) 3,176 (10,250) 6,181 2,336

Percentage of the present value of the scheme liabilities

(8)% 3% (10)% 7% 3%

Defined contribution scheme For new employees, the society provides a Group Personal Pension Plan to which it contributes. The cost to TSC in the 52 week period ended 26 January 2014 was £323,833 (2013 £109,703). The amount payable to the scheme at the end of the period was £nil (2013: £nil).

22. RECONCILIATION OF TRADING SURPLUS TO NET CASH INFLOW FROM TRADING ACTIVITIES

2014 £’000

2013 £’000

Trading surplus 10,770 9,860

Share of operating profit in associated undertaking (145) (32)

Distributions (3,261) (2,833)

Depreciation 9,780 8,528

Amortisation 1,611 1,501

Impairment reversal on goodwill (19) (49)

Impairment on owned assets 339 25

Difference between pension contributions paid and amount recognised in profit and loss

(641) 156

Forfeited shares written back (31) (30)

(Profit)/loss on sale of fixed assets (1,188) (707)

(Increase)/decrease in stocks (1,841) (1,297)

Decrease/(Increase) in debtors (945) 459

Increase/(decrease) in creditors 5,969 3,176

20,398 18,757



56

23. RETURNS ON INVESTMENTS AND SERVICE OF FINANCE


2014 £’000


2013 £’000

Interest paid (101) (93)

Interest received 58 121

(43) 28

24. ACQUISITION OF SUBSIDIARY 52 weeks

ended 25 January 2014

£000

52 weeks ended 26

January 2013 £000

Purchase of subsidiary undertaking (1,911) - Net cash acquired with subsidiary undertaking 14 -

(1,897) -

25. CAPITAL EXPENDITURE AND FINANCIAL INVESTMENT


2014 £’000


2013 £’000

Payments to acquire tangible and intangible fixed assets (28,410) (21,093)

Net increase in funeral bond investments (4,978) (2,325)

Proceeds from sale of fixed assets 6,072 2,447

East Devon Crematorium loan repayments 389 210

Payments to acquire other investments - (1)

(26,927) (20,762)

26. FINANCING


2014 £’000


2013 £’000

(Repayment) / Issue of share capital (20) 50 Loan facility drawdown 11,000 -

10,980 50

27. RELATED PARTY DISCLOSURE

The Southern Co-operative has taken advantage of the exemption within FRS 8 which does not require disclosure in consolidated financial statements, of any transactions or balances between group entities that have been eliminated on consolidation. The amount due to The Southern Co-operative in relation to a loan issued to East Devon Crematorium Limited, an associate of South of England Funeral Partners Limited, is £3,731,000 at the year end (2013: £3,850,000).



57

28. SUBSIDIARIES

The financial statements consolidate the results of The Southern Co-operative and the following subsidiaries, all of which are incorporated in Great Britain. Subsidiary Registered

No. Type of registration Activity Percentage

of shares held %

Net profit/ (loss) £,000

Southern Co-operative Dairies Ltd

24986R Industrial & Provident Society

Property Management 91 249

Mutual Associates Ltd * 02207748 Limited Company Property investment 100 607

Mutual Services (Portsmouth) Ltd *

05904980 Limited Company Funeral furnishing 100 1,270

Southern Co-operative Retailers Ltd *

02301593 Limited Company Property investment and management

100 (911)

SCL (Members) Trustee Ltd 3397456 Limited Company Trustee 100 -

J Edwards & Son (Funeral Directors) Ltd

1256971 Limited Company Non-trading 100 -

Southern Co-operative Funerals Ltd *

00382640 Limited Company Funeral furnishing 100 277

Southern Co-operative Properties Ltd *

05016485 Limited Company Property management 100 19

Co-operative Franchising Ltd*

06492138 Limited Company Grocery retail licensing agent

100 750

Co-operative Independent Living Ltd *

06538560 Limited Company Disability products 100 (895)

Caring Ladies Funeral Directors Ltd *


Caring Lady Funeral Directors Ltd


South of England Funeral Partners Ltd *

06961496 Limited Company Investment

100 (41)

South of England Natural Burials Ltd


Sussex Woodlands Limited* 06542570 Limited Company Natural Burial Ground 100 128

*Subsidiaries taking advantage of the exemption from the requirement to have their own accounts audited in accordance with s479A of the Companies Act 2006. The limited companies above all have an accounting year end date of 31

st January 2014, however, for the

purposes of consolidation and their individual account preparation the cut off of 25th

January 2014 has been used.

Copies of financial statements of The Southern Co-operative Ltd can be obtained from the

Secretary at 1000 Lakeside, Western Road, Portsmouth, Hampshire, PO6 3FE.

THE SOUTHERN CO-OPERATIVE LIMITED FIVE PERIOD COMPARATIVE STATEMENT 52 weeks ended 26 January 2014

58

Year ending January

2010 53 weeks

2011 52 weeks

2012 52 weeks

2013 52 weeks

2014 52 weeks

Membership (‘000)

93 100 115 137 147

£’000

Revenue 243,028 260,094 281,442 303,106 326,716

Depreciation and

amortisation

6,616 7,615 9,140 10,143 11,816

Trading surplus 9,811 9,422 11,001 9,828 10,625

Retained surplus

6,688 5,900 6,622 5,401 8,062

Fixed assets 73,821 84,350 97,719 108,450 126,670

Net current assets

29,669 26,323 16,546 11,030 2,054

Total assets less current

liabilities

103,490 110,673 114,265 119,480 128,724

Long term liabilities including pension liabilities

14,301 14,756 16,783 16,076 23,669

Net assets including pension liabilities

89,189 95,917 97,482 103,404 105,055

Share capital 940 683 621 641 590

Reserves 86,279 93,404 95,466 101,345 103,023

Minority interest 1,358 1,379 1,395 1,418 1,442

Total sales area (sq. ft ‘000)

316 346 367 390 442

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