The Southern Co-operative Limited · 1/27/2018 · THE SOUTHERN CO-OPERATIVE LIMITED REPORT AND FINANCIAL STATEMENTS 2018 OFFICERS AND PROFESSIONAL ADVISERS 1 DIRECTORS Chairman

Registration No: 1591R

The Southern Co-operative Limited

Report and Financial Statements

52 week period ended 27 January 2018

THE SOUTHERN CO-OPERATIVE LIMITED

REPORT AND FINANCIAL STATEMENTS 2018 CONTENTS PAGE

Officers and Professional Advisers 1

Strategic Report 2

Statement of Corporate Governance 4

Statement of Going Concern 19

Disclosure of Information to Auditor 20

Statement of Compliance 20

Board Certification 20

Remuneration Report 21

Sustainability Report 25

Statement of Directors‟ Responsibilities 39

Independent Auditor‟s Report 40

Consolidated Income Statement 42

Consolidated Statement of Comprehensive Income 43

Consolidated Balance Sheet 44

Statement of Changes in Equity 46

Consolidated Statement of Cash Flows 48

Notes forming part of the Financial Statements 49

Five period Comparative Statement 79


REPORT AND FINANCIAL STATEMENTS 2018 OFFICERS AND PROFESSIONAL ADVISERS

1

DIRECTORS

Chairman M K Hastilow 1 4 5 6

Chair Designate M A Ralf

9

Vice-Chair N Blanchard 2 5 6

Vice-Chair A Vincent-Prior

1 2 4 12

K Emmence 7

J B Harrington 2 4 5

A Cast

1 6

G Lewis 5

E Rogers 3

K Hibbert 10

B J Wyatt

8

J M Gray 11

1 Remuneration and Appointments Committee 2 Audit Committee 3 Audit Committee from 13

th July 2017

4 Chair‟s Committee 5 Governance Committee 6 Nominations Committee to 25

th May 2017

7 Director up to 25th May 2017

8 Elected as Director on 25th May 2017

9 Appointed to Board on 25th May 2017

10 Director up to 12th February 2018

11 Appointed to Board on 22nd

February 2018 12 Nominations Committee from 26

th January 2017 to 16

th February 2017

INDEPENDENT MEMBER OF AUDIT COMMITTEE

P James (resigned 17th April 2018)

OFFICERS

M S Smith, FCCA MIoD Chief Executive S J Dominy, MBA ACIS Society Secretary

REGISTERED OFFICE AND TRADING ADDRESS

1000 Lakeside Western Road Portsmouth Hampshire PO6 3FE Telephone: (02392) 222500 Fax: (02392) 222650 Website: www.thesouthernco-operative.co.uk

BANKERS INDEPENDENT AUDITOR Barclays Bank Plc BDO LLP Barclays House Chartered Accountants and Statutory Auditor Ocean Way Arcadia House Ocean Village Maritime Walk Southampton Ocean Village SO14 2ZP Southampton SO14 3TL


2

STRATEGIC REPORT The Southern Co-operative (Society) is a politically neutral, independent regional co-operative based in Southern England. We operate 210 convenience/community food retail stores and 52 funeral homes within the following counties: Berkshire, Dorset, Hampshire, Isle of Wight, Somerset, Surrey, Sussex, Devon, Bristol, Wiltshire and Kent. In addition we operate two crematoria, a natural burial ground, 3 Starbucks coffee houses and a florist. The Society also holds 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 long term profitable growth. The Society‟s key financial performance indicators are represented by total sales growth; like-for-like retail sales growth; gross margin percentage; return on capital employed; surplus before tax and distribution to members as a percentage of surplus before distributions. The Society‟s main trading activities are from food retail sale, 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. 2018 has been another year in which trading conditions have been very challenging for retailers, and we are no exception to this. One of the biggest challenges, especially when our fixed operating costs are rising, is to deliver growth in profits at the same rate or better than the growth we achieve in our sales. Total sales across Southern Co-op grew by £37m in the year to exceed £431m for the first time as 17 new locations were added. This 9% sales increase extended an unbroken period during which the turnover of our businesses has grown each year. Competition in the food retail industry has intensified with signs of significant investment among the market leaders as well as the continued rapid growth of the discounters. Never the less, Southern Co-op has maintained a gross profit margin of 28% in line with last year. Our operating profit remained at £5.6m, which was consistent with last year. The margin earned on the significant additional sales we achieved last year has been offset by cost pressures beyond our control, like National Living Wage, Business Rates and the Apprenticeship Levy. While these external cost pressures are added to the additional operating costs of our investments in new locations, it has the effect of keeping the profit result largely unchanged despite higher sales. Our main indicator for financial performance is our EBITDA (Earnings before Interest, Tax, Depreciation and Amortisation). It is commonly referred to as our “cash” profit and is the measure on which many of our investment decisions are based. For the purposes of the statutory accounts our EBITDA does not include gains or losses on revaluation of investment properties. Our EBITDA for the year was £17.1m slightly down on last year (£17.4m) for the reasons stated above. The Society‟s share of the profits distributed to its members and colleagues as a percentage of its surplus available for distributions remained steady with a small decrease from 51% to 49%, but this still remains around half of the surplus available for distribution. This reflects the continued commitment to reward our members who transacted with us throughout the prior year, with a distribution of two pence in every pound of qualifying spend, being approved at the AGM in June 2017. We have had a renewed focus on how we handle stock within our stores which has led to improvements in product availability while reducing the amount of stock we hold. This year we have made important progress with our Local Flavours range, celebrating its tenth anniversary in 2017. Following the introduction of COOK the highly regarded specialist frozen food range into a number of our stores, we are a building a strategic partnership with the company which, like us, is a business absolutely committed to trading responsibly. We launched the first Co-operative Food franchise convenience stores in the country during 2017, with a group of 10 stores transferring from our managed estate to our new franchise model. Our End of Life Services business benefitted from the addition of East Devon Crematorium, which was successfully integrated as a fully owned Southern Co-op business at the start of the year.


3

STRATEGIC REPORT (continued) This has also been the first full year of operation for our community engagement strategy Love Your Neighbourhood which gives local stores and funeral homes the chance to contribute to the creation of safer, greener, healthier and more inclusive neighbourhoods. Our People strategy remains a major point of focus. This year a priority has been to reduce labour turnover amongst our front line colleagues and while we have delivered improvements to the way we introduce new colleagues to the business through better induction, enhanced training plans and new career development opportunities, we recognise that significant improvements in colleagues turnover cannot be achieved in a single year so we‟ll be retaining this as a priority throughout 2018. We will continue to make our operations simpler and more efficient, looking at how we can further improve sales from our core estate. We have begun work on future store re-fit programmes and we have also launched a new digital strategy to engage more effectively with members and customers. We will also be focussing on growing the number of franchise stores. This will come primarily from new additions as our franchises partners add stores and also through new independent retailers taking the opportunity to become a franchisee of ours. 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 publication available to download from our website www.thesouthernco-operative.co.uk and in hardcopy form, upon request (contact Member Support on tel: 0800 6520 124, email [email protected]. By order of the Board S J Dominy Society Secretary 26

th April 2018

Return on Capital Employed (exclusive of investment property)

2017/18: 6.3% 2016/17: 6.0%

Return on Capital Employed (inclusive of

investment property)

2017/18: 5.8% 2016/17: 6.1%

Total Sales Growth

2017/18: 9.49% 2016/17: 7.37%

Like for Like Food Retail Sales Growth

2017/18: 1.64% 2016/17: 3.31%

Gross Profit Margin

2017/18: 28.1% 2016/17: 28.3%

Member and Colleague Share of the Profits as a percentage of surplus before

distributions

2017/18: 49% 2016/17: 51%

EBITDA

2017/18: £17.1m 2016/17: £17.4m

http://www.thesouthernco-operative.co.uk/


4

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 UK Corporate Governance Code, last issued by the Financial Reporting Council in September 2014.

As a co-operative society, Southern Co-op is not required to adhere to the provisions of the UK Corporate Governance Code. However Co-operatives UK Ltd, the apex body for co-operative enterprises in the UK, with the support of its Congress, has issued guidance for co-operatives in the form of Codes of Best Practice since 2005. The latest of these was published in November 2013 (the 2013 Code) and consumer co-operatives are requested to voluntarily comply with the 2013 Code. The Code is based on the principles contained in the UK Corporate Governance Code but is tailored to the particular governance characteristics found in consumer co-operative societies.

The Board is committed to the principles set out in the Code and is compliant with the majority (99%) of the Code‟s recommended provisions. 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 Southern Co-op that the directors believe are most appropriate for the organisation at this time.

Board of Directors Leadership Team Mr Michael Hastilow Chair Mr Mark Smith Chief Executive Mr Mark Alexander Ralf Chair Designate Mrs Silena Dominy Director of Corporate Affairs/Society Secretary Mrs Amber Vincent-Prior Vice-Chair Mr Simon Eastwood Chief Operating Officer Food Retail Mr Neil Blanchard Vice-Chair Mr Stephen Pearce Chief Operating Officer End of Life Services Mr John Brian Harrington Mrs Sarah Kavanagh HR Director Mr Andrew Cast Miss Gemma Lacey Director of Sustainability & Communications Mr Gareth Lewis Mr Paul Rodford Finance Director (to 13/04/2018) Dr Elizabeth Rogers Mr Greg Wilkins Finance Director (from 13/04/2018) Mrs Beverley Jayne Wyatt Ms Joanne Margaret Gray (from 22/02/2018) Sub Committees of the Board

Audit Committee Mr Neil Blanchard (Chair) Mr John Harrington Mrs Amber Vincent-Prior Dr Elizabeth Rogers Mr Paul James (Independent Member) (to 17/04/2018)

Remuneration and Appointments Committee Mr Andrew Cast (Chair) Mr Michael Hastilow Mrs Amber Vincent-Prior

Governance Committee Mr Michael Hastilow (Chair)

Mr Neil Blanchard Mr John Harrington Mr Gareth Lewis

Nominations Committee (up to 25th May 2017)

Mr Michael Hastilow (Chair) Mr Andrew Cast Mrs Amber Vincent-Prior (from 26

th January 2017 to 16

th February 2017)

Mr Neil Blanchard (from 16th February 2018)

Chair’s Committee Mr Michael Hastilow (Chair) Mr Gareth Lewis (alternate) Mrs Amber Vincent-Prior Chief Executive Mr John Harrington Finance Director


5

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 basis and monitors Southern Co-op‟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 157,533 members. During the year 518 accounts were closed upon request and 26,102 accounts forfeited in accordance with the Rules, with 280 previously forfeited accounts being re-opened upon request by the member. The forfeiture process is set out within the Society‟s Rules and is an important process to ensure that the membership register remains as accurate as possible. The level of forfeitures undertaken in 2017 was higher than normal due to less activity being undertaken in 2016-17. 17,157 new members joined Southern Co-op during 2017-18, which was 32% more than joined in 2016-17. There was a membership churn of 65% in the year (248% in 2016-17).

The Board‟s aim is for membership to be comprised of customers and colleagues who are active through their trade and employment with Southern Co-op. They therefore monitor the activity of members. Members transacting with our businesses during 2016-17 received a Share of the Profits in June 2017 based on their spending at a rate of 2p per £1 of eligible purchases (2016: 2p per £1 of eligible purchase).

The Board welcomes contested elections and encourages member participation 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 a role on the Board are invited to indicate this by contacting the Member Support Team. Members who are eligible to stand in elections for the Board of Directors are invited to receive further detail through 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 are at least 16 years of age and 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. Ballot papers are e-mailed and posted to members. Any member may request a ballot during the election and voting in person is also held at the registered office of Southern Co-op on a specified election polling day.

In order to ensure that members are able to gain a good insight into the candidates in elections a number of special features have been built into our election process. Each candidate will create a video message in addition to the traditional written statement in order that members can hear why the candidates feel they should be elected and to explain what skills and experience they would bring to the Board. The Society has also introduced a process whereby members are able to pose questions to the candidates in relation to matters that are important to them. Each candidate provides answers which can be viewed by all members on our election portal on our website, helping members to make an informed decision as to who they wish to support. The 2017 election saw five nominations from candidates for three vacancies on the Board. 112,742 ballot papers were despatched to members with 9,801 members voting.

Further information relating to the election process can be found in Southern Co-op‟s Annual Review and on our website www.thesouthernco-operative.co.uk.

The percentage of our members actively transacting with us

2017-18: 71.6% 2016-17: 68.7%

The amount of our trade with members

as a percentage of our total turnover

2017-18: 14.5% 2016-17: 14.8%

The percentage of our members voting in Board elections

2017-18: 6.22% 2016-17: 6.96%

Return rate in Board elections

2017-18: 8.69% 2016-17: 11.21%


6

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 in order to encourage maximum participation and free transportation from around our trading area is arranged to encourage more members to attend. The 2017 event commenced with the formal business of the AGM and a Special General Meeting (SGM) to consider Rule amendments, members were also given the opportunity to meet directors and the Leadership Team informally 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 Southern Co-op enabled members to learn more about their co-operative in addition to workshop sessions being delivered on the following subjects:

Local Flavours: From Trout to Tomatoes … and beyond!

Our Bereavement Centre – Supporting the journey of grief

The New Store Journey

Understanding the Co-operative Difference: Our Board, Our Members The event concluded with a question and answer session with the Leadership Team which involved active discussion on matters of importance to members. The directors are keen to encourage more members to attend this event each year; they therefore monitor attendance levels. At our AGM in May 2017 the members voted on a number of issues, with the votes being cast as below. A simple majority was required to pass each motion.

Voted For Voted Against Abstained Did not Participate

Directors' Report and Financial Statements and Advisory Vote on Remuneration Report

347 (99.1%)

3 (0.9%)

10 7

Share of the Profit Distribution for Customer Members 355 (98.9%)

4 (1.1%)

1

7

Share of the Profit Distribution for Colleague Members 348 (97.8%)

8 (2.2%)

1 10

Community Distribution 342 (96.6%)

12 (3.4%)

5 8

Ratification of Board Appointment of Chair Designate 294 (90.5%)

31 (9.5%)

36 6

At our SGM in May 2017 the members voted on Rule amendments which reinforced the principle that as a retail consumer co-operative our members should have a trading relationship with the Society in order to vote in Board Elections and at members‟ meetings. A three quarters majority was required to for the Rule amendments to be approved.

Voted For Voted Against Abstained Did not Participate

Rule Amendments as set out 338 (94.9%)

18 (5.1%)

7 4

Number of voting members attending AGM and

voting members attending as a percentage of our total members

2017-18: 367 (0.23%) 2016-17: 252 (0.15%)


7

STATEMENT OF CORPORATE GOVERNANCE (continued) OUR MEMBERS (continued) The Board is keen to encourage members to have a say in the way Southern Co-op is run, to help our communities and to enjoy member benefits. There are opportunities for members to participate in organised events and visits where they can learn more about the activities of Southern Co-op and its suppliers and partners. Regular updates are provided for our members on our website and within our retail stores which trade near to events. The number of hours 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 Southern Co-op's democratic structure. In accordance with the Rules of Southern Co-op the Board of Directors may also co-opt up to two additional independent non-executive directors to the Board, provided that elected directors, who are not employees or recent former employees of Southern Co-op, remain in the majority on the Board. In January 2017, the Board determined that a search process should be commenced to identify suitable candidates to be considered for co-option to the Board. This decision arose following the Board‟s consideration of succession planning for the Board as part of its Governance Roadmap project. The Board have considered the future needs of the Society and are looking to put the Board in the best possible position to be able to provide stable long term strategic planning and oversight. The Board through its newly established Nominations Sub-committee identified a member with the skills and experience they were searching for and determined that they should be appointed to the Board in the position of Chair Designate, with the intent that in May 2018 they take the role of Chair of the Board. This would ensure stable leadership of the Board. The members were asked to ratify the co-option to the Board at the AGM in May 2017 and as was previously reported this was supported by over 90% of members voting. The Board of Directors had previously used co-option as a method of bringing skills to the Audit Committee to compliment elected directors also sitting on the Committee. The Audit Committee has benefitted from this approach since 2014. All elected directors are non-executives and serve terms of 3 years, with one third of the Board retiring by rotation each year. The members have determined that no Director may serve on the Board for more than 9 consecutive years from June 2011, without seeking annual re-election of the members. Those elected prior to 2011 may have served longer. The chart below shows the length of total uninterrupted service on the Board for our current directors since their initial election.

0

1

2

3

4

5

6

0 - 3 4 - 6 7 - 9 10 - 12 13 - 15

No o

f D

irecto

rs

Years

Total Years Service on Board of Current Directors as at January 2018

Number of members attending events and average hours of educational events per member attending

2017-18: 770 members 2016-17: 618 members

4.87 hours each 3.3 hours each


8

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

The demographics of the current Board and our membership generally as at January 2018 are shown below:

The Board appoints a chairperson from one of their number, and thereafter appoints vice-chairs. In accordance with the Corporate Governance Code of Best Practice, the chairperson of the Board is not an employee or recent former employee. The current Chairman was appointed in 2014 for an initial term of 3 years. This was extended for a fourth year in 2017. The maximum time recommended by the Code for the role is 6 years. The current Chairman will be retiring from the Board in May 2018, therefore the Board have considered carefully succession planning arrangements for this important role during 2017. The Board acknowledged that it is not only important that the Chairperson has the skills and experience to lead the Board effectively, but that the Director who holds this role must also have sufficient time to devote to the role. The Board have also acknowledged that it is necessary for there to be certainty and stability for the role of the Chairperson. It is for this reason that the Board decided to co-opt a Chair Designate in May 2017 with a view to arranging a year long induction programme for that Director ahead of them then taking the role of Chair in May 2018. The members ratified the appointment of the Chair Designate at the AGM in 2017 and the induction programme has progressed well and will continue through to May 2018. The Remuneration and Appointments Committee makes informed recommendations in relation to other Board appointments.

At the period end, the Board consisted of six directors who are considered to be independent and three directors who are also employees of Southern Co-op.

On appointment, directors receive a formal letter of appointment and an induction designed to develop their knowledge and understanding of Southern Co-op 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 Southern Co-op‟s corporate governance practices, operational policies and its latest financial information and meet the business heads to understand the different trading activities of Southern Co-op.

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 Ltd

but has been adapted to suit Southern Co-op‟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, at the beginning of each Board meeting directors are asked to declare any interests in relation to matters to be discussed and, where appropriate, necessary safeguards are put in place.

0.0%

10.0%

20.0%

30.0%

40.0%

Under18

18 - 24 25 - 34 35 - 44 45 - 54 55 - 64 65 - 74 75 - 84 Over 85

Age Split of Directors compared to Members

Members

Board

30%

70%

Gender Split of Members

Male

Female 60% 40%

Gender Split of Board

Male

Female


9


The Board of Directors are responsible for maintaining a Board elected by Members that is individually and collectively qualified to lead an organisation of the size and complexity of Southern Co-op. The Board aim to ensure that they have an appropriate balance of skills, experience and knowledge of Southern Co-op and its businesses to enable them to discharge their individual respective duties and collective duties and responsibilities effectively. During the year the Board determined the mix of skills and experience that all directors should possess and those that collectively the Board would need. The Board also carried out a review of their skills and experience to identify where specific individual training and development was required, to determine training priorities for the Board as a whole and to identify skills gaps which were unlikely to be filled by training alone. The skills assessment process has enabled the Board to also plan their approach for the 2018 election for the Board of Directors in order to attract candidates with appropriate skills and experience that will enhance current board skills and experience. All directors have participated in training and development during the year in order to update their knowledge and capabilities and assist them in fulfilling their roles. A number of our directors also hold professional qualifications. The Board is responsible for ensuring that business is conducted in the best interests of Southern Co-op and its‟ members and in accordance with co-operative values and principles. In particular, the Board determines the vision and strategies of Southern Co-op and ensures that policies and organisational structures are in place to deliver the long term objectives. The Board also ensure that Southern Co-op‟s actions comply with Southern Co-op‟s Rules, relevant laws and regulations. The Board has responsibility for overseeing the work of Southern Co-op'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 we operate and the regulatory environment. There is a written list of matters and decisions that may only be approved by the Board which is reviewed biennially. The Board of Southern Co-op has a desire to continually improve. During the latter part of 2017, the Board undertook a board performance evaluation. This aimed to identify any areas which might be improved upon. The review included the completion of questionnaires and interviews with directors. A review of this nature is undertaken annually. The Board also consider whether there would be a benefit in such a review being facilitated by an external governance expert. This was the case in 2014.

The Board has established a Governance Roadmap project. This seeks to determine how the Board should be structured in the future to meet the needs of the business as it grows in scale and complexity. Through the Governance Roadmap project the Board has strengthened its Audit Committee, improved its skills assessment process, determined that co-option of independent directors to the Board can compliment the election of directors and have considered Rule amendments to strengthen governance. This Governance Roadmap project will continue throughout 2018.

The Board meet monthly, with additional sub-committee meetings held on a regular scheduled basis. The Board has established four permanent sub-committees; an Audit Committee, a Remuneration and Appointments Committee, a Governance Committee and a Chair‟s Committee, to consider specific issues and to ensure proper scrutiny and accountability of Southern Co-op's activities. In addition the Board formed a Nominations Committee between January and May 2017 for the specific purpose of searching for a member for appointment to the Board as Chair Designate. Once the role of the Committee had been fulfilled it was disbanded. 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. In order to ensure effective oversight of subsidiary company activities at least two directors, including the Chairman, sit on the Board of each of Southern Co-op‟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 and sub-committee 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 Southern Co-op‟s expense in furtherance of their duties.


10


Southern Co-op‟s directors have attended the following Board and sub-committee meetings during the period:

Main Board

Audit

Committee

Remuneration & Appointments

Committee

Governance Committee

Nominations Committee

Chair’s

Committee

Mr Michael Hastilow 12 (12) 5 (5) 4 (4) 4 (4) 3 (3)

Mr Neil Blanchard 10 (12)

2 (3) 2 (4) 2 (3)

Mrs Amber Vincent-Prior 12 (12) 3 (3) 5 (5) 1 (1) 3 (3)

Mr John Harrington 11 (12) 3 (3) 4 (4) 3 (3)

Mr Andrew Cast 8 (12) 5 (5) 4 (4)

Mr Gareth Lewis 12 (12) 4 (4)

Dr Elizabeth Rogers 12 (12) 1 (1)

Miss Katharine Hibbert 12 (12)

Mr Mark Ralf 7 (8)

Mrs Beverley Wyatt 7 (8)

Mr Paul James 3 (3)

The number in brackets indicates the total number of meetings the Director was eligible to attend during the period. Directors listed are those who were in office as at the year-end date of 27

th January 2018

The Audit Committee plays a critical role in providing oversight and serving as a check and balance on the Society‟s financial reporting system. The Committee provides independent review and oversight of the Society‟s financial reporting processes, internal controls and independent auditors. It provides a forum, separate from management, in which auditors can candidly discuss concerns. The Committee currently comprises four directors including two with recent and relevant financial experience. The chair of the committee is Mr Blanchard. In accordance with the Corporate Governance Code of Best Practice, the Chairman of Southern Co-op, the Chief Executive, employee directors and directors who are recent former employees do not sit on this committee. Through the Governance Roadmap project, the Board of Directors have already taken action to enhance the strength of their Audit Committee by co-opting an Independent Member to the Committee. The Independent Member who held office during the year brought to the Committee his experience gained during 8 years with the audit firm Ernst & Young and a further 19 years‟ senior experience in retail commercial management and finance in companies including British American Tobacco, Inchcape and Dixons Carphone. This added an extra dimension to the constructive challenge of the Leadership Team who manage the business.

Under its terms of reference, the committee:

Monitors the integrity of the financial statements for Southern Co-op 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 Southern Co-op and its subsidiaries;

Reviews the effectiveness of Southern Co-op‟s internal controls and risk management systems;

Monitors and reviews the effectiveness of the internal audit function outsourced to KPMG LLP, in the context of Southern Co-op‟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;

Reviews Southern Co-op‟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


11


Ensures that an appropriate relationship between Southern Co-op and the external auditors is maintained, including reviewing non-audit services and fees and agreement of the External Audit Policy. The latter seeks to ensure the independence of the external auditor is not compromised and sets out the basis on which the external auditor can carry out tax advisory work and other non-audit work, as well as covering the responsibilities of the parties.

During the period, the Audit Committee completed its responsibilities by considering the above issues during the three meetings held. The committee met their external auditor and internal auditor at all three meetings during the year and took the opportunity at each of the meetings to meet with the auditors with no members of the management being present. Both the external and internal auditors have direct access to the Chairman of the Board and the Chair of the Audit Committee at all times. The Chair of the Audit Committee provides a report to the Board after each of its meetings 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 Southern Co-op.

All new appointees to the committee receive an induction in order to prepare them for their role. The Remuneration and Appointments Committee ensures that remuneration arrangements support the strategic aims of the business and enable the recruitment, motivation and retention of the Leadership Team. It determines policies for remuneration and terms and conditions for the employment of the Chief Executive and the Society Secretary. Succession planning and Board appointments are also considered by the committee. This committee currently comprises three directors. During the year the committee was chaired by Mr Cast. No employee or recent former employee is permitted to serve on the committee. The committee met five times during the year. The Chair of the Remuneration and Appointments Committee provides a report to the Board after each of its meetings and minutes of the committee‟s meetings are circulated to all directors. The committee‟s Remuneration Report can be found on page 21. The Governance Committee takes a leadership role in developing corporate governance principles, policies, standards, and practices that optimally support the Society‟s strategic priorities and ensure appropriate direction of the Society. The committee is the steering group for the Governance Roadmap Project which considers the future governance needs of the business and how to transition to such arrangements. During 2017 the committee considered considered arrangements for the 2017 Board Election and Annual General Meeting and following the Members‟ ratification of the appointment of our Chair Designate the Committee have been instrumental in shaping and monitoring the induction programme for Mr Ralf who was appointed to this role. The Committee have considered the skills mix that exists on the Board and have considered what skill additions may benefit the Board most in the future. The Committee have also considered potential Rule amendments that may be appropriate to recommend to the Members. During the year the Governance Committee also considered the performance of the Board, its‟ Committees and directors individually with an aim of driving continuous improvement. The committee currently comprises four directors, one of whom holds a Masters in Business Administration (Corporate Governance). The committee met four times during the year. The committee is chaired by Mr Hastilow, the Chairman of Southern Co-op, who reports back to the Board after each meeting and minutes of the Committee‟s meetings are circulated to all directors. The Nominations Committee To help mitigate inherent risks to continuity and stability which can be created by the results of the „one member one vote‟ democratic election process, common to co-operatives, the Board determined that the inclusion of co-opted additional directors on the Board would be a positive approach. The Board established a Nominations Committee to conduct the search for suitable candidates for such a role, specifically to fill the position of Chair Designate in May 2017. The Committee was established in January 2017 and met four times during the year to undertaken its duties.


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STATEMENT OF CORPORATE GOVERNANCE (continued) THE BOARD (continued) The committee comprised three directors and was chaired by Mr Hastilow, the Chairman of Southern Co-op, who reported back to the Board after each meeting and minutes of the Committee‟s meetings were circulated to all directors. The Chair’s Committee considers matters of a very urgent nature in between Board meetings to ensure that the Board can react quickly to issues and opportunities as they arise. The committee met three times in the year. Prior to any Chair‟s committee meeting all directors receive full papers in relation to matters to be considered by the committee. If the majority of directors require it the matter under consideration may be remitted to the full Board for decision. 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 with decisions of the Committee seeking endorsement of the full Board. The Committee is comprised of the Chairman, a Vice-Chair, one other Director, The Chief Executive and Finance Director. THE CHAIRMAN The Rules of Southern Co-op clearly set out the separate responsibilities of the Board, the Chief Executive and the Society Secretary. The Chairman, like all the directors of Southern Co-op, 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 Southern Co-op and is accountable to the Board for the performance of the business and for compliance with Southern Co-op‟s Rules and applicable legal and other regulations. THE SOCIETY SECRETARY The directors have access to the advice and services of the Society Secretary who has responsibility for advising the Board on governance matters. Southern Co-op‟s Rules provide that the appointment and removal of the Society Secretary is a matter for the full Board. The Rules of Southern Co-op provide that the roles of Chief Executive and the Society Secretary may not be held concurrently by the same individual.


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STATEMENT OF CORPORATE GOVERNANCE (continued) PREVENTION OF BRIBERY Southern Co-op 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. Southern Co-op 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 policy 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 measures 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.

MODERN SLAVERY ACT Southern Co-op has always prided itself on its ethical approach to business. The practice of modern slavery and human trafficking is unacceptable. We continue to wholeheartedly endorse that we should all take steps to eradicate modern slavery of any type from our operations and workplace. The Modern Slavery Act 2015 was brought into force to tackle the worryingly widespread problems of slavery, servitude, forced or compulsory labour and human trafficking which have caused concern in recent times. One of the areas it has dealt with is the introduction of transparency and reporting obligations. Like all large businesses, we are obliged to publish a 'Modern Slavery Statement' after the end of each financial year outlining what steps we are taking to ensure the prevention of modern slavery and human trafficking within our business and supply chains. We issued our first such statement last year and we have now published our second. We continue to be committed to acting with integrity and transparency, proactively applying our values and principles to safeguard against modern slavery within our business and supply chains. This is an extract from our statutory statement, the full version of which can be found on our website. Our business and supply chains As a co-operative, we have a purpose beyond profit and apply sustainable, ethical business practices with a longstanding commitment to local communities which includes a zero tolerance to modern slavery. In relation to our food business, approximately 90% of the products we sell in store are supplied by The Co-operative Group Limited, the separate independent co-operative based in Manchester, via a joint buying arrangement managed by Federal Retail and Trading Services Limited which represents a number of independent retail co-operatives.


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STATEMENT OF CORPORATE GOVERNANCE (continued) MODERN SLAVERY ACT (continued) We directly manage our many other suppliers who provide the range of services we require in our business from cleaning services, stationery and security to IT support, software and hardware; from flowers, facilities management and end of life products to Local Flavour our range of local food and drink stocked in our food stores. Our policies This year we have established a Modern Slavery Working Group, chaired by our Director of Sustainability and Communications, and constituted appropriately from different business areas. The Working Group is tasked with considering our policies, processes, training and reporting to ensure our business and supply chains continue to be safeguarded from the abhorrent practice of modern slavery and that we are transparent and effective in this. One of the first tasks of the new group has been to review the existing policy framework that we reported on last year. As reported last year, we already have a number of policies which demonstrate our commitment to trading in an ethical manner. Our Code of Business Conduct sets out our expectations as to the standard of behaviour required from suppliers and employees and how we, as an organisation, act towards our stakeholders. The Working Group is reviewing this to check it remains appropriate and effective in relation to eliminating the risks of modern slavery. We have a whistleblowing policy which encourages employees and others such as customers and suppliers to report in confidence, without fear of reprisals, any instances of wrongdoing such as modern slavery. This is backed up by an anonymous, free, confidential helpline service provided by an external independent specialist company. In accordance with the Immigration, Asylum and Nationality Act 2006, which aims to safeguard workers from exploitation and mistreatment, our recruitment procedures ensure checks on eligibility to work in the UK are carried out for all employees. Our suppliers Our main supplier in relation to our food business, Co-operative Group Limited, has a robust, proactive anti-slavery policy consistent with its ethical trading stance as set out in its annual Co-op Way Report showing how it does business responsibly and its Modern Slavery Statement. It has a longstanding Sound Sourcing Code of Conduct based on the Ethical Trading Initiative Base Code. All its suppliers are expected to share the principles set out in that Code. It also issued an Ethical Trade and Human Rights Policy Position Statement in 2016 which sets out its approach to the protection of fundamental rights of workers in its supply chains. As a result, we are confident that it has taken considerable steps to minimise the risk of modern slavery within its operations and ensure its commitment in this area is applied across the business and supply chains. Although we do not have any suppliers directly supplying goods and services of any significance in geographical areas which are traditionally seen as high risk, we have undertaken an exercise to identify any risks in our mainly UK based supply chain so that we can deal with any risks by contacting the relevant suppliers to obtain confirmation that there are no instances of modern slavery or trafficking within their businesses. At the end of 2017, we brought the auditing of our contractors in-house, so we now have greater control over the checks carried out and these will continue to include investigating whether our contractors have suitable arrangements to combat modern slavery and human trafficking within their businesses. We have begun to further develop our due diligence processes in relation to these suppliers to ensure any risks are identified at an early stage and dealt with appropriately. We have contractual clauses requiring compliance with the Modern Slavery Act 2015 in our standard terms and, when we are negotiating with suppliers on the basis of their terms and conditions, we continue to insist on appropriate clauses being included. Specifically, these provisions require statutory compliance, confirmation that no offence has been committed and notification in the event of any investigations into or suspicions of instances of modern slavery. The Modern Slavery Working Group is responsible for overseeing the implementation and monitoring the efficacy of these processes in protecting the business and its supply chains from modern slavery.


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STATEMENT OF CORPORATE GOVERNANCE (continued) MODERN SLAVERY ACT (continued) Training This year, key employees in the business have undertaken training on the subject of modern slavery, including attending presentations given by Co-operative Group Limited demonstrating the commitment and importance our largest supplier is attaching to tackling this issue. Our Director of Sustainability and Communications attended the 2017 Co-op Ethical Trade Supplier Conference. The Modern Slavery Working Group is considering where training is required in our business to ensure that employees keep the issue uppermost in their minds in their everyday jobs; understanding the risks, identifying the warning signs and knowing what action to take where they suspect there might be instances of modern slavery. Assessment of effectiveness It is important for us to assess whether the steps we are taking are working to achieve the goal of defending our organisation as a whole from any modern slavery incidences. We can again confirm that this year we have not been made aware of any breaches of the Modern Slavery Act 2015 which have occurred in our business or supply chains. We will remain attentive to the risks and dangers so that we are confident that we are in a position to prevent modern slavery and human trafficking in all its forms within our sphere of influence. INTERNAL CONTROL Southern Co-op 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 Ltd. CONTROL FRAMEWORK In accordance with the Corporate Governance Code of Best Practice published by Co-operatives UK Ltd, the Board has conducted a review of Southern Co-op‟s system of internal controls. The review covered financial, operational and compliance controls and risk management processes. Southern Co-op‟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;

outsourced internal audit services with a programme of internal audit reviews linked to the principal risks identified; and

an Audit Committee that oversees Southern Co-op‟s system of internal control and the internal auditor relationship.

Having reviewed Southern Co-op‟s system of internal controls in the year, the Board consider that they are effective and appropriate for the business.


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CONTROL PROCEDURES Southern Co-op 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 management 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. RISK MANAGEMENT

Southern Co-op recognises that risk is an integral and unavoidable aspect of our business. Risk arises in many forms and can have positive or negative impacts on Southern Co-op‟s ability to achieve its stated objectives. The identification and management of risk reduces the uncertainty associated with the execution of Southern Co-op‟s business strategies and allows the Society to maximise opportunities that may arise. Southern Co-op is committed to managing risks in a proactive and effective manner to provide assurance to the Board of Directors and stakeholders. It aims to operate effectively and efficiently while meeting the required standards of accountability, compliance and transparency. To facilitate this commitment, the following principles underpin the risk management objectives:

Alignment of risk management processes with Southern Co-op‟s core and main support activities, including strategic and business planning, decision making, and policy governance.

Ensuring that risk information is communicated through a clear and robust reporting structure.

Ensuring that in managing risks, the Society fully complies with all relevant legislation, standards and regulations.

Improving performance through anticipating and responding to risks across all areas of Southern Co-op.

The Board has overall responsibility for the oversight of material risks in Southern Co-op‟s business. Through the Board and its committees, the Board is responsible for risk management by ensuring that an appropriate risk management policy and framework is effectively implemented by management and by giving directions to ensure that appropriate risk management procedures are in place through the business planning process and operational policies. During 2017, the Board identified the risk priorities derived from the business/strategy plan as set out in the Risk Register, created with the input of the Leadership Team (see page 17). The Board has also determined its risk appetite in order that the Leadership Team can plan its management of the identified risks accordingly. The Board seek to balance the Society‟s risk position between promoting innovation, creativity and investment that may drive growth, enhance our products and service delivery and provide for the future, with the need to remain a stable organisation in the long term. The Board therefore determined their risk appetite towards the middle of the risk taking spectrum, taking an open stance to financial and operational risks and an open/cautious approach to reputational and legal/regulatory risks.


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RISK MANAGEMENT (continued)

Risk Type Risk Appetite

Financial Open • Prepared to invest for reward and minimise the possibility of financial loss by managing the risks to a tolerable level.

• Value and benefits are considered. • Resources are allocated in order to capitalise on potential

opportunities.

Operational Open • Innovation is supported, with demonstration of commensurate improvements in management control.

• Responsibility for non-critical decisions may be devolved. • Systems/technology developments are considered to

enable operational delivery.

Reputational Open/Cautious • Risk may be taken where there is the potential to expose the business to additional scrutiny but only where appropriate steps have been taken to minimise any exposure.

Legal/Regulatory Open/Cautious • Risk may only be taken if the gain will outweigh any adverse consequences and there is no infringement of laws and regulations.

The Board‟s Audit Committee assists the Board by having oversight of financial reporting risks and in reviewing the adequacy and effectiveness of the internal control and compliance systems. It has oversight of the risk management framework and reviews effectiveness of the risk management system, including the identification and management of significant risks. During 2017, the Audit Committee reviewed the actions of the Leadership Team to mitigate risks identified and monitored actions taken to mitigate risks identified from internal audit and external audit work at each of their meetings. They also reviewed the effectiveness of the risk management system which had been in place throughout the year and noted the action that had been taken to embed the risk management system into the processes of the Leadership Team and senior management. Work to extend this approach to departmental levels of the business to further enhance the current processes will continue into 2018. The Chief Executive and his Leadership Team are accountable for ensuring that a risk management system is established, implemented and maintained in accordance with the Board‟s Risk Management Policy. They are therefore responsible for the effective design and implementation of detailed risk management strategies and processes to facilitate the achievement of business plans and goals. They have responsibility for ensuring legal and regulatory compliance and to ensure that appropriate management and accountability responsibilities are assigned throughout the business. The Leadership Team are responsible for the ongoing maintenance and regular reporting on the risk register and for the implementation of the agreed mitigation strategies and actions. During 2017 the Leadership Team advanced their work in ensuring that the strategic objectives and projects planned seek to address the risks that have been identified. During the year the Board have carried out a robust assessment of the principal risks facing Southern Co-op and its subsidiaries. The likelihood and consequence of such risks occurring have also been considered. These together with the related mitigation actions are set out below:

Risk, likelihood and consequence What are we doing to manage/reduce the risk

Increasing Operating Costs Increases in the National Living Wage continue to have a significant impact on operating costs. Competitive pressures related to pricing in the food retail market require such increases to be absorbed by the business.

The increased operating costs are occurring and are almost certain to continue and the impact would be severe without mitigation. Managing the position reduces the severity of the consequence.

The Society continues to review its operating structures to ensure that they are aligned to business needs and to gain maximum efficiencies. We also review our procedures to ensure that we are as efficient as possible, utilising systems technology to enhance delivery. Improvements to our procurement processes are also being put in place in to enable us to ensure we pay the right price for the quality of goods and services that we acquire.


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Competitive Pressure The markets in which Southern Co-op operates is increasingly competitive from both competitors opening new stores/funeral homes in our operating area and the requirement to keep prices competitive with our rivals.

The competitive pressure is almost certain to occur and the impact would be major without mitigation. Managing the position reduces the severity of the consequence.

This is closely monitored and is managed by the introduction of new stores, new funeral locations and innovative products and through the refurbishment of existing locations. The Society is also investing in digital marketing platforms and capability. Prices are closely monitored and reviewed and adapted to reflect changing customer demands and expectations and product ranges are constantly reviewed and adapted.

Financial Capacity Southern Co-op must be able to generate and maintain sufficient funds to meet business needs.

The likelihood of not maintaining sufficient funds is low due to the regular review of requirements. If it were to occur the consequence would be severe.

Our business prepares and reviews on a regular, rolling basis short, medium and long term cash flow forecasts. Funding requirements are identified and financing options reviewed and agreed by the Directors. Bank covenants are regularly reviewed to maintain financing arrangements.

Reliance on Key Supplier Southern Co-op acquires the majority of its products for resale from one key supplier, The Co-operative Group. The failure of this supplier to meet its obligations would have a significant impact on food retail operations. The failure of the supplier to meet its obligations is possible and the consequence of this could be severe. Managing the position reduces the likelihood and severity of the consequence.

Robust governance arrangements have been put in place with Southern Co-op being a member of Federal Retail and Trading Services Limited with appropriate voting rights and ongoing senior level review of the arrangements. A Buying Services Agreement governs the supplier relationship which was extended during 2017 and Business Continuity plans for the supplier are reviewed for assurance. In addition our business continuity plan takes account of this risk.

Business Disruption A significant incident at key sites of Southern Co-op which impacts multiple trading locations or external factors could adversely affect business operations and bring financial loss. The likelihood of a significant adverse event is unlikely; however the consequence could be severe. By managing the risk the severity of impact has been reduced.

We have developed business continuity and disaster recovery plans to continue Southern Co-op‟s critical activities in the event of a disastrous event and to return the business to normal processes thereafter. The Business Continuity Plan was tested during the year.

Brand and Reputation The reputation of Southern Co-op could be damaged by a significant adverse event under the control of Southern Co-op or one of its business partners or suppliers. This could lead to loss of trust and confidence amongst consumers and financial loss. The likelihood of a significant adverse event is almost certain and the consequence of this could be major. By managing the risk both the likelihood and severity of impact have been reduced.

We continually monitor our corporate reputation and brand standards and remain committed to our Social Goals Strategy and support for the local communities in which we operate. Whilst having adopted „The Co-operative‟ national co-operative brand, Southern Co-op is an independent co-operative operating in Southern England with its own governance structure and compliance processes and controls. Arrangements are also in place to ensure that our partners and suppliers take an equally robust approach to risk management and compliance.


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Economy Impact and Uncertainty re Brexit There remains uncertainty in markets, in the economy and for businesses as the Government continues to negotiate the UK‟s position in relation to it‟s exit from the EU. Sterling impacts affect import costs and commodity prices. Consumer confidence, the employment market and investment values are also affected by this uncertainty. It is likely that Southern Co-op will be impacted by these risks and the consequence could be major, however by managing the risk the severity of impact can be reduced.

We have robust financial planning processes which consider both short and long term impacts. This includes close monitoring of the general UK economy, wider EU position and the impacts on the markets in which we operate. Southern Co-op has a diverse set of business activities covering Food Retail, End of Life Services and property investments which spreads the risk of impact.

General Data Protection Regulations The General Data Protection Regulations come into force in May 2018, and whilst similar to current Data Protection laws with which the Society is compliant, there are additional requirements with which to comply. It is unlikely that Southern Co-op will not comply with the Regulations, the consequence of which could be major. By managing the risk the likelihood is kept low and the severity of impact can be reduced.

The Society has a programme of activity in place to ensure our compliance with the new Regulations. We are also working with our system hosts and service providers to ensure that, where they process personal data on our behalf, they also have arrangements in place to comply with the Regulations.

STATEMENT OF GOING CONCERN

The business activities of Southern Co-op and its subsidiaries, together with factors likely to affect its future development, performance and position, are set out within the Directors‟ Summary. This is contained within the Annual Review and Summary Financial Statements booklet, available on request from our Member Support Team or from our website www.thesouthernco-operative.co.uk. The financial position of Southern Co-op, its cash flows and liquidity position are described in the Chief Executive‟s review within the Annual Review and Summary Financial Statements booklet.

Southern Co-op obtains its financial strength from a broad range of customers and suppliers across different geographic areas. We have a solid balance sheet position and significant cash balances. As a consequence, the directors believe that Southern Co-op is well placed to manage its business risks successfully, despite the current uncertain economic outlook. Southern Co-op 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 obtaining external debt to assist with the expansion. The external debt will be utilised along with internally generated funds to enable the business to achieve its planned growth.

The prospects of the Society have been assessed by undertaking strategic planning, risk management and financial forecasting covering a three year view. Stress testing has been included to identify the impact that a variety of scenarios would have on the business in order that strategic priorities can be focussed appropriately. During the year the Audit Committee have engaged KPMG LLP to undertake a number of reviews to test the effectiveness of our system of risk management and internal control. Where recommendations for improvements are made the Audit Committee monitors management‟s responses and actions in relation to these. Taking account of the Society‟s current position and principal risks that would threaten the business model, future performance, solvency or liquidity of the Society, the directors have a reasonable expectation that Southern Co-op has adequate resources to continue in operational existence and to be able to meeting its liabilities as they fall due for the next three years. The directors have used this time period as financial forecasting is undertaken on a three year cycle and risks are assessed over a three year view however the business model and future of Southern Co-op is considered to be open ended and the directors undertake strategic planning with a view beyond a three year timeframe. The directors continue to adopt the going concern basis in preparing the annual report and accounts.


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STATEMENT OF CORPORATE GOVERNANCE (continued) CREDITOR PAYMENT POLICY

For trade creditors, it is the Society‟s policy to:

agree the terms of payment at the start of business with that supplier;

ensure that suppliers are aware of the terms of payment; and

pay in accordance with its contractual and other legal obligations. The Society does not follow a standard or code which deals specifically with the payment of suppliers. Trade creditor days of the Group for the 52 weeks ended 27 January 2018 were 35.1 days (33.1 days for the 52 week period ended 28 January 2017), based on the ratio of trade creditors at the end of the period to the amounts invoiced during the period by trade creditors. 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 Southern Co-op‟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 Southern Co-op‟s Auditor is aware of that information. AUDITOR

Pursuant to Section 83 of the Co-operative and Community Benefit Societies Act 2014, BDO LLP are deemed to continue as Auditor, until such time as a resolution may be passed at a general meeting of Southern Co-op appointing another auditor in their place. STATEMENT OF CORPORATE GOVERNANCE COMPLIANCE The Board is committed to the principles set out in Co-operatives UK Ltd‟s Corporate Governance Code of Best Practice. The Board has reviewed its governance arrangements against those set out in the 2013 Code and can state that there is only one area where the Board has chosen not to fully comply and this area is set out below: B.22 Where a significant transaction is proposed involving 25% or more of Southern Co-op‟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 Southern Co-op 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.

BOARD CERTIFICATION The Statement of Corporate Governance is hereby signed on behalf of the Board and the Financial Statements and notes on pages 41 to 78 are hereby signed on behalf of the Board of Directors pursuant to Section 80 of the Co-operative and Community Benefit Societies Act 2014. M K Hastilow Chairman A Vincent-Prior Vice-Chair N Blanchard Vice-Chair S J Dominy Society Secretary 26

th April 2018


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REMUNERATION REPORT The Remuneration and Appointments Committee is pleased to present its Remuneration Report to members for the 52 weeks ended 27 January 2018. This report, which is published in accordance with the Corporate Governance Code of Best Practice published by Co-operatives UK Ltd, aims to provide members with an overview of the role of the Remuneration 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 members of the Leadership Team, the Society Secretary and directors are provided within the report. The report will be presented at the Annual General Meeting on 24 May 2018 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 Chair reports to the Board on its proceedings at the next available meeting. The committee currently comprises the Chairman (Mr M K Hastilow), a Vice-Chair (Mrs A Vincent-Prior) and one other Director (Mr A Cast). Mr Cast has held the role of Committee Chairperson during the year. The members of the committee have no personal financial interests in the committee‟s decisions. No directors who are also employees of Southern Co-op or its subsidiaries, or are former employees who have left Southern Co-op or its subsidiaries‟ employment within the last three years, are eligible to sit on this committee. During the year the committee met five 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, Society 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;

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 Korn Ferry Hay Group. Korn Ferry Hay Group has also provided services to Southern Co-op‟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 co-operative societies‟ and similar organisations‟ fees and the responsibilities undertaken by the Board. The Members decide on the level of Board fees. 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 Southern Co-op;

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

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


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REMUNERATION REPORT (continued) REMUNERATION POLICIES AND PRACTICES (continued) The current policy is to aim 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 operated both an annual incentive scheme and long-term incentive scheme during the year. The Remuneration and Appointments Committee determines the remuneration of the Chief Executive, The Society Secretary and senior managers whose salaries exceed £100,000. In accordance with best practice, the main components of remuneration for those members of the Leadership Team falling within the remit of the Committee, as identified in the table on page 23, 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 for roles not related to retail general industry data, and will also consider individual performance and the level of salary increases elsewhere in Southern Co-op. 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 Southern Co-op. The structure of the scheme is designed to drive team behaviours and encourage individual contributions towards the achievement of Southern Co-op‟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 30% of basic salary and bonuses of up to 60% of basic salary where targets are exceeded. Performance during the year was measured against profit before interest, tax, depreciation and amortisation. 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 Members of the Leadership Team also participated in long-term incentive schemes during the year which set targets across a three-year period. A scheme ended in January 2017 which saw payments being made as set out in the table on page 23. The structure of the scheme is designed to drive team behaviours and encourage individual contributions and long-term commitment to the achievement of Southern Co-op‟s strategic aims and objectives. It is also designed to obviate any long-term risk to Southern Co-op 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 were measured in the scheme ended in January 2017 were aligned to the 3 Year Strategic Plan of Southern Co-op for the same period. The targets were both financial and non-financial and included growth in profit before interest, tax, depreciation and amortisation; colleague and membership engagement and sustainability. Financial measures are based upon the results agreed by the external auditors of Southern Co-op and signed off by Southern Co-op‟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. The non-financial measures in relations to colleague and member engagement and sustainability account for 40% of the on target potential bonus which may be paid under this scheme. Long-term incentive schemes are in operation for the following 3 year periods: 2015/16 – 2017/18, 2016/17 – 2018/19 and 2017/18 – 2019/20. From 2018/19 the long-term incentive scheme has been replaced with a deferred element to the Annual Bonus Scheme. 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 and critical illness insurance.


23

REMUNERATION REPORT (continued)

Name Position Commenced in Current Role (Date)

Basic Salary

£

Annual Incentive

£

Long Term

Incentive £

Benefits in kind

£

2017/18 Total

Emoluments £

2016/17 Total

Emoluments £

Mark Smith

Chief Executive 01/10/2008 247,000 78,768 30,875 22,137 378,780 383,749

Paul Rodford

Finance Director 01/02/2014 135,000 35,870 13,500 10,853 195,223 194,569

Simon Eastwood

Chief Operating Officer – Food Retail

14/03/2016 200,000 44,283 * 16,241 260,524 185,679

Stephen Pearce

Chief Operating Officer - End of Life Services

03/07/2006 113,497 56,750 9,648 13,327 193,222 185,211

Sarah Kavanagh

HR Director 04/11/2013 120,500 32,017 12,050 10,681 175,248 157,837

Gemma Lacey

Director of Sustainability & Communications

18/02/2013 120,500 32,017 12,050 12,439 177,006 177,427

Silena Dominy

Director of Corporate Affairs

28/04/2016 107,000 28,430 10,700 13,935 160,065 143,403

* Not eligible in 2017-18 year.

PENSIONS

Southern Co-op closed the defined benefit (DB) pension scheme to future accrual on 31st 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 58 12 30,270 Nil 24,700 * 10% *

Paul Rodford

Finance Director 55 6 n/a n/a 6,750 5%

Simon Eastwood

Chief Operating Officer – Food Retail

50 1 n/a n/a 10,000 * 5% *

Stephen Pearce

Chief Operating Officer – End of Life Services

52 33 48,986 Nil 11,350 10%

Sarah Kavanagh

HR Director 55 4 n/a n/a 6,025 5%

Gemma Lacey

Director of Sustainability & Communications

47 4 n/a n/a 6,025 5%

Silena Dominy

Society Secretary

48 27 28,916 Nil 10,700 10%

* receives cash allowance in lieu of contribution to pension scheme


24

REMUNERATION REPORT (continued)

SERVICE CONTRACTS

It is the policy of Southern Co-op for the notice period in service contracts not to exceed one year. The notice period for the Chief Executive is 12 months. Other members of the Leadership Team have notice periods of 13 weeks or 6 months. 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 Southern Co-op, is a non-executive director of Federal and Retail Trading Services Limited. Sarah Kavanagh, HR Director, is a non-executive trustee director of EBP South Limited and Basingstoke Consortium Limited. Gemma Lacey, Director of Sustainability & Communications for Southern Co-op, is a member of The South Downs Partnership and a non-executive director of Tuppenny Barn Education Ltd.

DIRECTORS

The Board of Southern Co-op is made up of 9 directors elected by the Members of Southern Co-op and in addition the Board may, in accordance with the Rules of Southern Co-op, co-opt independent non-executive directors to the Board and/or its sub-committees. Elected directors do not have service contracts. These directors are elected by the Members of Southern Co-op from their number for terms of 3 years. As at the year-end Southern Co-op had one co-opted independent director on the Board, Mark Ralf, who was appointed to the Board following the ratification of members at the AGM on 25

th May 2017.

The years of election or appointment and expiry of their current terms can be seen in the table below. During the year, the Board of Directors co-opted an independent Member to their Audit Committee, Paul James, who received an annual payment of £5,000 for the role.

Directors‟ fees are approved by Southern Co-op‟s members. The current basis of fees was recommended to the membership and approved by them in June 2016 following a detailed review by the Society Secretary, whereby comparisons were made with the fees paid by other co-operative societies and similar boards. The varying responsibilities and time commitments of directors‟ roles were also considered in the review. The fees agreed include a formula for updating fees in line with the average weekly earnings and retail prices indices. The annual base fees with effect from 25 June 2017 were: Chairman £8,280, Vice-Chair £6,915 and Director £5,695. 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 sub-committee a further £500pa 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/

Appointed Current Term

Expires Total Years

Served

Total 2017/18 Remuneration

£

Total Expenses Claimed 2017/18

£

Michael Hastilow (Chairman) 2005 2018 12 12,091 627

Amber Vincent-Prior 2008 2020 9 8,338 323

Neil Blanchard 2009 2019 8 9,040 136

John Harrington 2014 2020 3 6,910 0

Andrew Cast 2015 2018 2 7,574 140

Gareth Lewis 2015 2018 2 6,131 0

Elizabeth Rogers 2016 2019 1 5,972 111

Katharine Hibbert 2016 2019 1 5,632 0

Beverley Wyatt 2017 2020 8 months 3,943 0

Mark Ralf 2017 2021 8 months * 7,974 0

* Remuneration donated to a Charitable Trust.

On behalf of the Remuneration and Appointments Committee

A Cast Chair of Remuneration and Appointments Committee 26

th April 2018


25

SUSTAINABILITY REPORT As a member-owned co-operative, Southern Co-op has always had a purpose beyond profit and an interest in the common good. We want to be a force for good in the lives of our members, colleagues, suppliers and communities. OUR WAY OF DOING BUSINESS We want to manage our business in a responsible and sustainable manner. This means:

We want to be: a fair and caring employer, providing quality work opportunities for local people.

We want to be an outstanding business, supplying high quality, good value products and services to our customers and members.

We want to be partner to our suppliers, treating them fairly and honestly.

We want to be a good neighbour to the communities we operate in.

We also want to understand and act on the sustainability challenges our world faces, such as climate change, population growth, species loss and habitat destruction, and work to protect our environment for the benefit of future generations. These are global challenges, but they have local impacts that we can play an important part in mitigating. MAKING A DIFFERENCE We achieve our sustainability goals in many different ways, including:

Managing our operations in an environmentally sustainable way, whether reducing carbon, saving energy or preventing waste.

Being a good employer, investing in our employees so they can realise their potential.

Trading fairly with our suppliers, including support for local farmers and producers.

Active and genuine support for our local communities.

In this report we focus on some of he highlights and challenges in 2017. Ambassador for Responsible Business Our Chief Executive, Mark Smith, was appointed by HRH The Prince of Wales as Business in the Community‟s Responsible Business Ambassador for the south east of England in 2016. The Prince appoints an inspirational business figure in each of the UK‟s regions for two-year tenures to champion responsible business in the region. In his role Mark has been working with the BITC Business Class education partnership. Pupils from schools in Southampton have benefitted from business mentoring and participation in high profile projects with partner businesses aimed at raising aspirations and preparing them for entry into the workplace. In partnership with Portsmouth City Council, Southern Co-op has also piloted a two-week work readiness programme for young people leaving care at the age of 16. This aims to give them the skills, knowledge and support to move into full-time paid employment on leaving school, and to become self-sufficient by the age of 18. One student is now employed in one of our stores. SUSTAINABILITY GOVERNANCE Our Director, Sustainability & Communications, Gemma Lacey, is responsible for ensuring Southern Co-op develops and manages its business in a responsible and sustainable manner. She works with colleagues across the business to deliver the key elements of our sustainability plan and monitors and reports on our progress. She has specific responsibility for communicating and engaging internal and external audiences with our plan, and for developing and implementing specific policies and programmes that support our environmental, community investment and engagement goals.


26

SUSTAINABILITY REPORT (continued)

Our Leadership Team, chaired by our Chief Executive, oversees our sustainability strategy and performance, ensuring this is integrated into every day business. Members also have responsibility for strategies, policies and programmes relating to the following areas of the sustainability plan:

Health and safety – Chief Executive

Customer engagement and sustainability of our products, service and supply chain – Chief

Operating Officers for Food Retail and End of Life Services.

Colleague and workplace issues – HR Director

Democratic elements of our membership strategy – Director of Corporate Affairs

Environment, community investment and engagement, member and other stakeholder

engagement, overall management of our sustainability plan – Director of Sustainability &

Communications

This area regularly forms part of our strategy and performance discussions with our Board of Directors

and Leadership Team and every member of the latter has their performance and pay linked to our

sustainability plan. This year has seen a continued focus on developing our approach to risk

management and sustainability and corporate responsibility issues continue to be fully embedded in this

process.

PROTECTING OUR ENVIRONMENT We are helping to create a healthy environment across our region by reducing our dependency on finite resources and supporting initiatives that enhance our natural environment. Reducing carbon emissions In 2017, our overall absolute tonnes of CO2e (carbon dioxide equivalent) emissions (Scope 1&2*) increased by 21% compared with the previous year and decreased by 9% compared with 2012, our baseline year. Our carbon intensity, which measures our emissions relative to the size of our business and estate increased to 52.12 tonnes for every million pounds sales, a 10% increase on last year and a 37% decrease against our 2012 baseline. We are pleased to achieve these overall reductions against a backdrop of continued growth; last year we opened 16 new food stores and 1 funeral home and we added a further crematorium, all of which increase our environmental footprint. A focus on refrigeration We continue to take a proactive approach to refrigeration leak testing and maintenance across our estate and to use new refrigerants with a lower global warming potential to reduce our associated carbon footprint. We will continue to explore gas replacement opportunities in line with refrigerant gas legislation as well as the potential installation of leak detection systems.


27

SUSTAINABILITY REPORT (continued) *Scope 1&2 emissions includes those associated with energy, car and service vehicle fleet and refrigeration. NB: Food distribution is outsourced and therefore not included in our carbon footprint.

2017 2016 2015 2012 %

Difference on 2016

% difference on 2012

(baseline)

Emissions associated with: natural gas usage, company cars and freight/service vehicle fuel and refrigeration and cooling (Scope 1)*

9,062.63 5,365.74 6,720.05 8,237.15 69% 10%

Emissions associated with: Electricity purchased (Scope 2)

13,401.06 13,170.88 16,564.61 17,844.93 29% -19%

Total tonnes CO2e (Scope 1 & 2)

22,463.69 18,536.62 23,284.66 22,984.03 21% -9%

Carbon intensity tonnes CO2e per £m sales

52.12 47.29 68.35 82.52 10% -37%

*East Devon Crematorium gas data is excluded. Saving energy Our total retail energy consumption (electricity and gas) was 36,186,028 million kWh in 2017 (up 19% on 2016). Energy efficiency was 65.74 kWh (electricity) per sq. ft. trading area in 2017 compared with 59.52 in 2016 – despite moving backwards slightly this still remains a 43% improvement against our 2010 baseline. Having previously installed LED lighting in our Lakeside office and virtually all of our retail estate, including lighting in our sales areas, chiller cabinets and fascia signage, in 2017 we rolled out LED lighting across our End of Life Services business. We‟re using other energy saving technologies, such as movement sensors to automatically control lighting in stockrooms and employee areas, new improved doors for our refrigeration, aerofoils on open-fronted chiller cabinets where glass doors are not suitable. This has the added benefits of improving customer comfort and reducing store heating requirements. In our early 2018 colleague opinion survey 90% of our colleagues said they were taking actions to save energy at work by turning off lights, monitoring heating and air conditioning usage, pulling down night blinds on chiller cabinets and reporting faults quickly.


28

SUSTAINABILITY REPORT (continued)

Year

Energy efficiency (total electricity

kWh/sq. ft. trading area)

2017 65.74

2016 59.52

2015 72.40

2014 76.10

2013 88.16

2012 97.00

2011 103.88

2010 116.00

Tackling waste Reducing the amount of waste we produce, and recycling and reusing our resources is not only good for the environment, it also makes good business sense. As a food retailer, our key concerns are food and plastic waste. We have been running food donation trials with a number of stores and charity partners including local charity Foodcycle in Portsmouth. We have had success with some of these arrangements with safe, edible, surplus food being sent to charity each week. Our donations to Foodcycle combined with food collected from other retailer stores provided for over 6,800 meals. Other partnerships have proved more challenging with fluctuating waste volumes and the logistics of collecting from a number of small outlets. We will therefore continue to review and refine our approach in 2018 in partnership with these charities. With the televising of David Attenborough‟s plea for action in Blue Planet II and new government commitments to eliminate plastic waste, we are also renewing our focus on plastic waste and the part we can play in reducing this. For many years, Co-op has been challenging itself to improve the amount of our packaging that can be recycled, balancing food hygiene, costs and recyclability. For example, the heat-seal layer has been removed from our cooked meat trays so the tray is now made of a single material which is easier and more cost effective to recycle. Working for wildlife We are also investing in preserving habitats and biodiversity at The Oaks Havant Crematorium and Clayton Woods Burial Ground. This was our fourth year of monitoring the benefits to wildlife at The Oaks, where the wildflower meadow and areas around the mounds are allowing a species-rich habitat to develop which is supporting a range of insects including butterflies, bumblebees, dragonflies and damselflies. In the woodland pond, rare floating club rush continues to thrive and birds are returning to nest in our bird boxes. Our newly established bee hives are doing well in partnership with Local Flavours supplier Sinah Common Honey, and were the focus of 12 members trips in the Spring and Summer.


29

SUSTAINABILITY REPORT (continued) 2017 was our first full year of monitoring at Clayton Wood, where the dense hedgerows offer great opportuntiies for sheltering and foraging to birds, insects and small mammals. In 2018, we will consider creating a specific wildlife pond, suitable for breeding amphibians, particularly great crested newts, dragonflies and damselflies. We‟ve installed new interpretation boards at the site to showcase the wildlife and the habitats created at the site. Over the years we have been supporting the Wildlife Trusts with the purchase of land across our trading region to create connected areas of landscape and important corridors for wildlife, and also to safeguard green spaces and wildlife for local communities. The most recent of these was a £10,000 donation to the Hampshire & Isle of Wight Wildlife Trust to help them reach their fundraising target to buy a 31-acre farm, Hockley Meadows Farm in Twyford. The farm sits within a significant area of floodplain meadow, and supports key species such as the water vole, otter, marsh marigold and the rare southern damselfly. We are now working with HIWWT to develop and trial a new carbon offsetting approach that allows us to invest funds in acquiring, restoring and protecting local land in a way that allows us to offset this against our business environmental footprint. CREATING SUSTAINABLE PRODUCTS AND SUPPLY CHAINS We champion fair and ethical standards in our supply chains, celebrate British and local food, contributing to the local economy and employment, and source our products responsibly, so our customers know they are buying high quality products that are sustainably produced. Fair and ethical dealings with our suppliers We remain committed to ethical trade and ensuring that the people who provide us with products and services are treated fairly and that their fundamental human rights are protected and respected. Through our trading agreement with Federal Retail Trading Services, the buying group for co-operatives in the UK, we work to protect the rights of workers throughout our supply chains through an ethical trade programme that is guided by a Sound Sourcing Code of Conduct. The primary responsibility is towards Co-op brand suppliers and supply chains because there is the greatest opportunity to influence positive change and monitor performance. Further details can be found on the Co-op Food website: www.co-operativefood.co.uk/food-matters. Work is planned in 2018 to improve sustainability in the parts of the supply chain we directly control, such as the procurement of goods and services we use but don‟t sell – everything from bakery bags to printers, cleaning equipment to security services. Fairtrade Our longstanding commitment to Fairtrade continues, supporting better prices, working conditions and terms of trade. Our focus remains on the core categories of wine, bananas, cocoa, coffee, tea, sugar and flowers where, in partnership with the Fairtrade Foundation, we can have the biggest impact on producers. Last year, for example, we moved all our chocolate confectionery into Fairtrade, with all cocoa used in Co-op products sourced on Fairtrade terms, returning over £400K annually to cocoa farming communities.

http://www.co-operativefood.co.uk/food-matters


30

SUSTAINABILITY REPORT (continued) Celebrating British and local food All our own brand fresh meat, sandwiches, pies and ready meals are made with 100% British meat all year round. 2017 was an exciting year for local food and drink suppliers, as we celebrated the 10th anniversary of our Local Flavours range. To mark the anniversary, a Southern Co-op Local Flavours VW campervan toured our region, showcasing 10 of the best artisan producers from 10 counties in 10 stores. The Local Flavours-branded campervan also made appearances at the Royal Isle of Wight County Show, the Hampshire Food Festival and the Sussex Food & Drink Awards Big Reveal. With tastings at every stop, it was a true celebration of all things local and a chance to show our on-going commitment to supporting artisan producers. We continue to enhance the range of local products we offer in our stores, which include seasonal fruit and veg, locally caught and reared fish and meat, bakery goods, and beer, cheeses and chutneys. We introduced a comprehensive Local Flavours range to 11 new stores in 2017. Customers can now buy local products in 190 of our stores and in 2018; Local Flavours will feature more prominently in selected store refits. Developing our relationships with all suppliers remains a key focus for us, whether it be More Foods, who supply 89 stores, or Sinah Common Honey who supply 9. 2017 saw record turnover for Local Flavours. Sales exceeded £6m for the first time and we recorded our highest ever weekly turnover in the run up to Christmas. Our most successful categories were the food-to-go offer, COOK, Isle of Wight tomatoes, cooked meats, pies, craft beers and cider and Montezuma‟s chocolate. We also extended our whole food impulse range into during the year resulting in 34% growth. Overall, it was a great year for us and our suppliers. Making healthy choices easier We know that consumers are eating too much saturated fat, added sugars and salt and not enough fresh fruit and vegetables, so we are working hard to make healthy options accessible for everyone. So:

Co-op brand „low fat‟ or „reduced fat or sugar‟ products are no more expensive than their standard equivalents;

Over 30% of food price-based promotions include healthier products;

Clear front-of-pack traffic light labelling is helping customers to make informed choices, and green dots on the front of products highlight high fibre, low fat or high protein products;

Co-op brand products are being reformulated to reduce salt, sugar and fat. 26.5 million teaspoons of sugar have been removed from Co-op brand breakfast cereals, flavoured milk and pizzas Eco coffins and caskets We continue to evolve our eco range of coffins and caskets for cremated remains and burials providing an attractive, comforting and environmentally responsible alternative to traditional style coffins. These are hand-crafted from natural and biodegradable materials and are popular in particular for woodland burials. We also offer bio-urns made from cellulose and natural fibers designed to turn cremated remains of loved ones into a memorial tree.

Our woodland memorial orbs crafted from sustainable woodland timber at The Oaks are sourced from natural windfall in woodland locations nationwide which once established become home to mosses and insects contributing to the wildlife and health of the environment.


31

SUSTAINABILITY REPORT (continued) SUPPORTING OUR COMMUNITIES We have a deeply-held sense of community. We are proud to employ, serve and support people in local communities across the south of England. Love Your Neighbourhood Our community programme, Love Your Neighbourhood (LYN), aims to create greener, safer, healthier and more inclusive communities across the south of England by empowering our stores, funeral homes and offices to support the causes that matter most locally. Every site has its own budget to spend on loving their neighbourhood, and community groups are encouraged to ask for our support. The programme is jointly funded from the proceeds of the carrier bag levy, and centrally from Southern Co-op‟s community fund, which is agreed by a member vote at our AGM. In 2017, we invested £407,369 in local charities and community groups – this is the equivalent of 8% of our Society‟s pre-tax, pre-dividend profits. As well as donating goods and cash to our local communities, our amazing colleagues also got behind their local fundraising partnerships. In 2017, they took part in raffles, sponsored walks, bake sales, sky dives and other fundraisers, raising an additional £127,228 for local causes. To encourage colleagues to give their time to local causes and events, we launched new guidelines for volunteering and community engagement in 2017 to help colleagues understand how they can make the most of volunteering. Our own investment in the community alongside colleague fundraising, member donations from their Share of the Profits, supplier donations and customer donations raised through funeral tributes, meant over £1.26 million was given back to the local community in 2017.

2017 2016 2015

Charity and community donations (£)

223,464 365,907 490,802

Support for Co-operatives (£) 58,153 38,073 45,554

Time (£) 10,740 7,545 19,816

Management time (£) 115,012 114,998 117,676

Total community investment (£) 407,369 526,523 673,848

Community contribution as a % of pre-tax, pre-dividend profits

8% 10% 13%

Leverage – carrier bag fund (£) 497,000 174,990 -

Other leverage (£) 357,585 278,857 541,561

Total community contribution (£)

1,261,954 980,370 1,215,409


32

SUSTAINABILITY REPORT (continued) Regional campaigns As well as supporting local causes chosen by each of our sites, we support four campaign partners linked to our Love Your Neighbourhood themes. These aim to inspire and provide further opportunities for our colleagues and members to get involved in their communities across our region. Each partner receives a donation from the carrier bag fund. Members also donated the odd pence in the pound from their share of the profits, to one or all of these regional charities and over 1,500 members elected to donate their full share of the profits to these charities. Greener neighbourhoods We are working with 10 Wildlife Trusts across our region to support their My Wild Neighbourhood campaign. The campaign aims to encourage children, young people and families to get outside and explore the wildlife and wild spaces in their neighbourhood. Activities have included kid‟s wildlife clubs – complete with bug hunts, mud art and seed planting – as well as family events and youth ranger projects for 16-24 year olds. Our funding has enabled the Trusts to work collectively on a Facebook engagement campaign, something they have been unable to do previously. They estimated that with our support over 2000 families have found out more about the wildlife on their doorstep and hopefully taken steps to get involved. Safer Neighbourhoods Stand Against Violence (SAV) works with young people to prevent violence, and we supported the second National Day of Non-Violence in September. The event remembers those who have lost their lives to violence. Our retail and Lakeside office colleagues were encouraged to wear red (SAV‟s brand colour) and SAV badges to mark the occasion. Our donation to SAV has supported the charity to delivery free workshops to schools close to our stores as well as enabling the charity to recruit a new Education and Training Lead as well as a Fundraising Manager providing a transformational impact to the organisation. These pivotal roles have expanded the type of workshops the charity can offer and improved their income streams to provide long term sustainability to the charity. Through the workshops they have delivered to 2,160 young people and seen a 87% attitudinal change with 91.5% of young people stating they were against violence following delivery. Healthier neighbourhoods People increasingly recognise the importance of looking after your mental as well as your physical health. Our partnership with Solent Mind funds the charity‟s work in supporting people who‟ve experienced mental health issues. We also supported World Mental Health Day in October, hosting a workshop for Lakeside Office colleagues on how to look after your mental health at work. Wellbeing drop-in sessions shared hints, tips and practical advice with colleagues on how to be more healthy and happy at work. More inclusive neighbourhoods For a second year, our funding has supported Scope‟s End the Awkward campaign, which aims to tackle the awkwardness people feel about disability. A leaflet drop event took place at Lakeside in December to mark the International Day for People with Disabilities in an attempt to raise more awareness of the issue. The charity has undergone a strategic review during 2017 and is launching new projects throughout 2018. As our current funding partnership with them lasts until July 2018, Scope took the decision in 2017 to wait and use the funds to support this new work, which will reach more people in our communities and engage more with businesses seeking to address diversity in the workplace.


33

SUSTAINABILITY REPORT (continued) Other community initiatives Food education As a major local food retailer, we want to help young people and their parents to eat healthily and understand the value of supporting local producers. We support a range of food education projects across the south of England. These have included running food workshops at Eco Young & Engaged (EYE) Project eco-summits in Chichester, Littlehampton and Worthing. Over 400 pupils from 30 different schools in these areas took part. We have also run seven events in Hampshire for children aged 8+, as part of our partnership with Winchester County Council‟s the Market Towns Development project. The activities aim to encourage pupils and their parents to eat healthily and stress the importance of buying your products locally. Events such as Bishops Waltham Bites and The Denmead Apple Day have encouraged families to get involved and find out more about their local high streets. CPRE Hampshire Countryside Awards Southern Co-op was once again main sponsor for these annual awards which celebrate community groups across the region who are helping to create a beautiful living countryside that everyone can value and enjoy. This year‟s winner of the Community & Voluntary Award, which we also sponsor, was the Southampton-based Community Roots Allotment scheme. Southern Co-op judges loved the idea behind this project of „growing people through growing plants‟, and how connecting with our natural environment, even in a small, tucked-away green space in a city centre, can benefit people‟s wellbeing. They were blown away by the people engaged in the project and the difference this project is making to their lives. Disaster relief Southern Co-op supported Co-operatives UK‟s emergency appeal for funds to support countries devastated by natural disasters in south East Asia and the Caribbean with a £10,000 donation. The funds will be used to help develop co-operative enterprises in the affected countries, helping communities rebuild their livelihoods after catastrophic natural disasters. We were deeply saddened by the horrific nature of the terrorist attack on Manchester, particularly as this is the home of our Co-op Group and many of their colleagues and members. We gave our support to the Manchester Evening News fund for those young people and families affected. COLLEAGUES Almost 4,500 local people serve their local communities in Southern Co-op‟s food stores, End of Life Services and Lakeside office. Becoming an employer of choice People are important to the success of our Society. Whether serving customers in our food stores, or helping families through the trauma of bereavement, we need dedicated colleagues to deliver the services our members want. At a time when employment is at record highs, attracting and retaining good people is a growing challenge. Recognising this, we began to develop our „employer brand‟ to attract new skills and talent to the Society. Last year, we launched a 3-year programme to reduce staff turnover and we will step up our efforts to make Southern Co-op an employer of choice in 2018 and beyond.


34

SUSTAINABILITY REPORT (continued) Making a great first impression We know that to attract and retain talented colleagues we must make a great first impression as an employer – before a candidate even joins us. Our newly introduced Applicant Tracking System aims to do just that. This online portal has simplified our recruitment process and improved the application process for candidates. Lakeside and ELS colleagues can view and apply for jobs online, and track the progress of their application. We‟ve also centralised our recruitment so that we now respond to all applications and all candidates will have a consistent experience when they apply to work for us. Feedback has been positive, with candidates commenting on the ease of application, and hiring managers reporting an increase in the quality and number of CVs received. Having launched the new system to Lakeside and End of Life Services in August 2017, this spring we will roll the system out to our Retail Food stores in Spring 2018, putting additional support in place for our managers to recruit customer service assistants and duty managers. During this phase of the rollout we will also introduce online offer letters and contracts, which will speed up the whole recruitment process. Making new colleagues welcome We‟re working hard to transform our induction training so everyone joining Southern Co-op can develop the skills and knowledge they need to do their job. Our newly designed „Welcoming U‟ programme includes a DVD to introduce all colleagues to our business and help them understand what makes a co-operative different. A workbook takes new colleagues through a structured 8-week programme to help them get to know their team, their role and our products, and to understand key compliance issues in running our business safely and legally. The programme is supplemented by e-learning and classroom workshops. Since its launch mid-year to the end of the 2017/18 financial year, 1369 colleagues had started the programme and initial feedback has been positive. We will continue to monitor the impact of the programme in 2018. In November, we introduced the „Welcoming U‟ programme for retail store managers appointed from outside the Society. We have also set up a group of training mentors to support new managers through their induction period. These mentors have had bespoke training to give them the skills to support new managers. In early 2018, we launched our „Business Welcome day‟. Run every 6 to 8 weeks at our Lakeside head office, managers from across the business will meet members of our Leadership Team and hear more about Southern Co-op, our membership, our communities and our business strategy and priorities. In 2018 our focus will be on developing the programme to support internal promotion to store manager roles. Engaging with our colleagues Listening Groups In 2017, we introduced Listening Groups to give colleagues a voice in how we run our business, as we promised in our report last year. In June, the Chief Executive and other Directors from the Leadership Team met over 100 colleagues who

volunteered to take part. Our aim was to explore the key insights from our colleague opinion survey and

give colleagues the chance to share their employment experience and suggest ways to make us a more

attractive employer.


35

SUSTAINABILITY REPORT (continued) Many colleagues told us that they value being part of a co-operative at the heart of our communities and also spoke positively about being part of a hard-working team, giving great customer service, while also having fun. Equally, there were suggestions about how we can make working at Southern Co-op better. These included long-term investment in IT systems and the working environment, as well as more immediate improvements which we quickly implemented. For example, in ELS we provided satellite navigation systems for our ambulance drivers so they can reach our clients quickly. At Lakeside we introduced the „Dress for your Day‟ policy, which was developed by colleagues and in 2018 we will begin a programme to improve and refresh the colleague areas in our Food stores. We will run more Listening Groups in 2018 and respond to colleagues suggestions on how to improve our business and working conditions. 2017 Colleague Opinion Survey In addition to Listening Groups, the 2017 Colleague Opinion Survey provided all eligible colleagues with the opportunity to share their feedback on working at Southern Co-op. 3,021 colleagues took part in this year‟s survey, which is 72% of those eligible, a 21% increase on last year), and some of the highlights are: 87% if respondents said that “overall they are satisfied working for Southern Co-op” 80% said they “would recommend it as a great place to work” 84% of colleagues said “they are motivated by their line manager, who supports them to do the best job they can” 84% also said “if they raise an issue with their line manager their views are taken seriously” 85% of colleagues said “they have the flexibility they need to balance their responsibilities at work and home” Investing in Talent & Development Supporting young people into work For some years we‟ve been working in partnership with community organisations to break down the barriers to getting young people into work. Our three-year partnership with Portchester Community School, which concluded in 2017, was part of Business in the Community‟s (BITC) Business Class programme connecting employers and schools. Over the last three years we have run a range of events for pupils, including employability days, mentoring partnership and careers talks. We have established a new relationship with Cantell School in Southampton, which is part of a new co-operative model with a number of primary schools in the area. We plan to work with them engaging students through projects such as Solent Inspires and supporting them in their co-operative venture. We have also created a partnership with Bridge Learning Campus in Bristol, again working with students on careers and work experience. We held our second Women in Business event in 2017 to help inspire and raise the aspirations of young women. We welcomed 36 Year 10 girls and 9 women business leaders to Southampton Solent University for a day of speed networking and skills identification. Senior managers from Southern Co-op and other local businesses also took part in a Question Time style panel with local schools during BITC's Responsible Business Week in April.


36

SUSTAINABILITY REPORT (continued) Apprenticeships: Learn while you earn Apprenticeships provide young people with a great opportunity to learn while they earn, and Southern Co-op has been proud to play its part in developing the talents of ambitious young people. The introduction of the Apprenticeship Levy in 2017 has provided challenges to many employers as they get to grips with Digital Accounts and training requirements, resulting in a dramatic reduction nationally in the number of new apprenticeships created in 2017 compared with 2016. Having considered how we can benefit from the investment in apprenticeships, and to achieve the required 20% of working hours to be dedicated to off-job-training, we believe this best suits our End of Life business. We will invest in our dedicated apprenticeship and qualification for our End of Life Services colleagues, which will become a mandatory part of skills and knowledge training for all our Funeral Co-ordinators. Additionally as part of our investment in apprenticeships, we will be launching a partnership with South Downs College and the Chartered Management Institute (CMI) to offer a Level 3 Management & Leadership qualification, available to Lakeside and senior field-based managers, and will complement our current talent agenda. Developing our future leaders Helping talented colleagues fulfil their potential is at the heart of our talent strategy. We successfully completed two talent programmes, aimed at senior and middle managers, in 2017. The first, our Future Leaders programme, gave three senior managers the chance to complete an 18-month programme in partnership with Chichester University, focusing on strategic leadership. As well as coaching, external seminars and industry placements, the participants finished the programme by compiling a strategic business project which they presented to the Society‟s Leadership Team and Board, which is helping to shape our future business strategy. Eight colleagues graduated from our second talent programme, Aspire, in December 2017. This programme focused on developing their management and leadership skills, including coaching, change management, engagement, motivation and influencing. We also continue to focus on developing the skills of our colleagues across the organisation. In 2017, we have delivered over 300 workshops; 2,677 training places have been taken up by colleagues; and we have delivered almost 20,000 hours of training. In April 2017 we launched our „Safe & Legal‟ programme for managers and duty managers covering the important subjects of Health & Safety, Food Safety and First Aid, to ensure our food stores are managed in line with legislative requirements. Almost 900 duty managers have participated in 95 workshops.

Gender Pay Gap We were pleased to publish our gender pay data in December, well ahead of the April 2018 deadline set by The Equality Act 2010 (Gender Pay Gap Information) Regulations 2017 which came into force last year. All employers with over 250 colleagues must publish gender pay data annually using defined measures and methods of calculation. Based on average pay, Southern Co-op has reported a 10% pay gap in favour of men, compared with a UK wide gender pay gap of 18%. There are two main reasons for the pay gap. First, more women in our organisation work part-time than men and so receive less pay overall and, second, there are more men in our better-paid management roles. We are committed to gender equality, and want female colleagues to have better opportunities to progress into our more senior roles. Understanding and removing barriers to progression will be our focus over the next three years.


37

SUSTAINABILITY REPORT (continued) More information about our gender pay report can be found on the Government‟s reporting website and on our own website, which also includes a narrative to help colleagues, members and the public understand our results Pay for Performance We want to encourage our colleagues to perform to the best of their ability and make our members‟ experience of Southern Co-op an outstanding one. This is why we‟ve been on a journey to foster a performance culture that asks all colleagues to take responsibility for their performance and development and to think about the behaviours need in their role. Having put a solid performance cycle in place, setting clear goals and objectives, regular review meetings and a formal appraisal for each colleague each year, we now want to link individual performance with reward. We appreciate that talking about reward and pay requires honest, and sometimes challenging, conversations. We want to be open about how we make reward decisions, so through February and March 2018 we ran training sessions for managers to equip them to be able to share this wider reward knowledge and information with their teams. The performance cycle helps us identify high-performing colleagues, who we can support through our talent agenda, as well as those with development needs who have access to our range of foundation skills workshops and various training materials from the Academy Learning Library. In 2018, we will continue to embed the performance culture and the processes to support the introduction of performance related pay by 2020. Sizzling sales success We continue to recognise good business performance with incentive schemes such as „Sizzle into Summer‟ and „Jingle All the Way‟. Prizes were on offer to those teams who achieved the best performance against their targets in two of our key trading periods.

2018 People Priorities Our priorities will continue to centre on stabilising our workforce by reducing labour turnover through:

Managing our recruitment better and providing a better candidate experience by launching and embedding the Applicant Tracking System and centralised recruitment model into our retail businesses.

Embedding our new induction tools, and developing our programme to support internal succession to store manager roles.

Evolving and extending our Academy offer to support our talent agenda and management skills development for colleagues

Continuing our journey toward Performance Related Pay.


38

SUSTAINABILITY REPORT (continued) Health and safety Southern Co-op continues to invest in Health and Safety to deliver improvements across the business for the benefit of our colleagues, customers and members. This year saw the creation of two new Regional Safety, Health and Environment Advisor roles with the primary purposes of coaching and supporting colleagues and identifying opportunities for improvement in these disciplines. Training to ensure legal compliance in the areas of Health and Safety, Licensing and Food Handling was delivered to appropriate colleagues during the year. We continue to work in partnership with our Primary Authority Partners, Portsmouth City Council in the areas of Environmental Health and Trading Standards and with Hampshire Fire & Rescue for Fire Safety. Despite the measures we have in place to provide a safe and healthy place to work, accidents undoubtedly occur. The number of colleague accidents has increased year on year, however we have also seen an increase in our colleague numbers and trading locations. We have also reinforced the importance of our colleagues reporting minor injuries in order that we can learn from experience.. The colleague absence rate (which includes absence for general illnesses and injuries unrelated to accidents at work) has decreased year on year as have the number of reportable accidents. In January 2018 we ran a Colleague Opinion Survey which was completed by 72% of our colleagues. One question asked of colleagues was whether they believed that where they worked within Southern Co-op, Health & Safety in the workplace is taken seriously. We were pleased to hear that 89% of colleagues either agreed or strongly agreed that this was the case.

Staff Injury and Absentee Rates

2017-18: 260 employee accidents, of which 2016-17: 199 employee accidents, of which

8 were reportable 18 were reportable

Absence rate Absence rate 4.93 days lost per colleague 5.57 days lost per colleague

THE SOUTHERN CO-OPERATIVE LIMITED STATEMENT OF DIRECTORS’ RESPONSIBILITIES

39

United Kingdom Co-operative and Community Benefit Societies 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 Co-operative and Community Benefit Societies Act 2014. 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

40

Opinion

We have audited the financial statements of The Southern Co-operative Limited for the 52 week period ended 27 January 2018 which comprise 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 notes to the financial statements including a summary of significant accounting policies. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards, including Financial Reporting Standard 102 “The Financial Reporting Standard applicable in the UK and Republic of Ireland” (United Kingdom Generally Accepted Accounting Practice).

Opinion on financial statements In our opinion the financial statements:

give a true and fair view of the state of the society‟s affairs as at 27 January 2018 and of its profit for the 52 week period then ended;

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

have been prepared in accordance with the requirements of the Co-operative and Community Benefit Societies Act 2014.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. Our responsibilities under those standards are further described in the Auditor‟s responsibilities for the audit of the financial statements section of our report. We are independent of the Group and the Parent Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in the UK, including the FRC‟s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Conclusions relating to going concern

We have nothing to report in respect of the following matters in relation to which the ISAs (UK) require us to report to you where:

the Directors‟ use of the going concern basis of accounting in the preparation of the financial statements is not appropriate; or

the Directors have not disclosed in the financial statements any identified material uncertainties that may cast significant doubt about the Group or the Parent Company‟s ability to continue to adopt the going concern basis of accounting for a period of at least twelve months from the date when the financial statements are authorised for issue.

Other information

The Directors are responsible for the other information. The other information comprises the information included in the annual report other than the financial statements and our auditor‟s report thereon. Our opinion on the financial statements does not cover the other information and, except to the extent otherwise explicitly stated in our report, we do not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit or otherwise appears to be materially misstated. If we identify such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in the financial statements or a material misstatement of the other information. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Opinion on other matters

In our opinion, based on the work undertaken in the course of the audit:

the information given in the Strategic Report for the financial year ended 27 January 2018 for which the financial statements are prepared is consistent with the financial statements; and

the Strategic Report has been prepared in accordance with applicable legal requirements.

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

41

Matters on which we are required to report by exception In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the audit, we have not identified material misstatements in the strategic report.

We have nothing to report in respect of the following matters where we are required to report to you if, in our opinion:

the information given in the Report of the Board for the financial 52 week period for which the financial statements are prepared is not consistent with the financial statements;

adequate accounting records have not been kept, or returns adequate for our audit have not been received from branches not visited by us; or

certain disclosures of Directors‟ remuneration specified by law are not made; or

the financial statements are not in agreement with the accounting records and returns; or

we have not received all the information and explanations we require for our audit. Respective responsibilities of the board As explained more fully in the Directors Responsibilities Statement, the board members Directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the Directors are responsible for assessing the Group‟s and the Parent Company‟s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Directors either intend to liquidate the Group or the Parent Company or to cease operations, or have no realistic alternative but to do so. Auditor’s responsibilities for the audit of the financial statements This report is made solely to the association‟s members, as a body, in accordance with the Section 87 of the Co-operative and Community Benefit Societies Act 2014. Our audit work has been undertaken so that we might state to the association‟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 association and the association‟s members as a body, for our audit work, for this report, or for the opinions we have formed. Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor‟s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements. A further description of our responsibilities for the audit of the financial statements is located at the Financial Reporting Council‟s website at: https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor‟s report.

Malcolm Thixton (senior statutory auditor) For and on behalf of BDO LLP, statutory auditor United Kingdom 30

th April 2018

BDO LLP is a limited liability partnership registered in England and Wales (with registered number OC305127).

https://www.frc.org.uk/auditorsresponsibilities

THE SOUTHERN CO-OPERATIVE LIMITED CONSOLIDATED INCOME STATEMENT 52 weeks ended 27 January 2018

42

Note

52 weeks ended

27 January 2018

£’000

52 weeks ended

28 January 2017 £‟000

Turnover 3 431,190 393,823 Cost of sales (310,116) (282,393)

Gross profit 121,074 111,430 Administrative expenses (117,088) (106,027) Gain / (loss) from changes in fair value of investment properties 1,146 (321) Other operating income 461 524

GROUP OPERATING PROFIT 4 5,593 5,606 Investment income and interest receivable 6 1,827 1,223 Interest payable and similar charges 7, 8 (2,132) (1,359)

PROFIT FOR THE PERIOD BEFORE DISTRIBUTIONS

5,288

5,470

Distributions 9 (2,857) (3,105)

PROFIT FOR THE PERIOD BEFORE TAXATION

2,431

2,365

Taxation 10 375 (362)

2,003 PROFIT FOR THE PERIOD AFTER

TAX TRANSFERRED TO RESERVES 2,806

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, investments (note 15) and funeral bond assets and liabilities (notes 15 & 18 to 20). The notes on pages 49 to 79 form part of these financial statements.

THE SOUTHERN CO-OPERATIVE LIMITED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME 52 weeks ended 27 January 2018

43

Note

52 weeks ended

27 January 2018

£’000

52 weeks ended

28 January 2017 £‟000

Profit for the financial period 2,806 2,003

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

26

1,574

(980)

Pension fund related deferred tax credit/(expense) 26 (293) 179

Other comprehensive income for the period

1,281

(801)

TOTAL COMPREHENSIVE INCOME

4,087

1,202

Total comprehensive income for the financial period attributable to:

Owners of the parent 4,087 1,202 Non-controlling interests - - Profit for the financial period attributable to:

Owners of the parent 2,806 2,003 Non-controlling interests - - The notes on pages 49 to 79 form part of these financial statements

THE SOUTHERN CO-OPERATIVE LIMITED CONSOLIDATED BALANCE SHEET At 27 January 2018

44

Note

27 January 2018

£’000

28 January 2017 £‟000

Fixed assets

Intangible assets 13 20,753 23,023

Tangible assets 14 109,620 106,029

Investments 15 35,021 31,062

165,394 160,114

Current assets

Stocks 16 14,998 13,331

Debtors

- Due within one year 17 10,268 8,662

Investments 18 2,567 2,377

Cash at bank and in hand 4,278 11,833

32,111 36,203

Creditors

Amounts falling due within one year 19 (41,499) (46,197)

Net current (liabilities) (9,388) (9,994)

Total assets less current liabilities

156,006

150,120

Creditors

Amounts falling due after more than one year 20 (34,771) (31,119)

Provisions for liabilities

Other provisions 23 (1,392) (1,633)

Deferred tax provision 11 (744) (1,035)

Net assets excluding pension surplus 119,099 116,333

Pension surplus

26

2,492

1,168

Net assets including pension surplus 121,591 117,501

The notes on pages 49 to 79 form part of these financial statements.

THE SOUTHERN CO-OPERATIVE LIMITED CONSOLIDATED BALANCE SHEET At 27 January 2018

45

Note

27 January 2018

£’000

28 January 2017 £‟000

Capital and reserves

Called up share capital 589 586

Revenue reserves 119,542 115,473

Equity attributable to owners of the parent undertaking

120,131

116,059

Non-controlling interests

25

1,460

1,442

121,591 117,501

These financial statements of The Southern Co-operative Ltd, registered number 1591R, were approved by the Board of Directors and authorised for issue on 26

th April 2018.

Signed on behalf of the Board of Directors M K Hastilow Chairman The notes on pages 49 to 79 form part of these financial statements.

THE SOUTHERN CO-OPERATIVE LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the period ended 27 January 2018

46

Share capital £‟000

Profit and

loss account

£‟000

Equity

attributable to owners

of the parent

undertaking £‟000

Non-

controlling interests

£‟000

Total Equity £‟000

At 29 January 2017 586

115,473

116,059

1,442

117,501

Comprehensive income for the period

-

Profit/(loss) for the period -

2,788

2,788

18

2,806

Unrealised gain arising from valuation in respect of retirement benefits -

1,574

1,574

-

1,574 Pension fund related deferred tax (expense) -

(293)

(293)

-

(293)

Other comprehensive income for the period -

1,281

1,281

-

1,281 Total comprehensive income for the period -

4,069

4,069

18

4,087

Contributions by and distributions to owners

Issue of shares 16 - 16 - 16 The Southern Co-operative (SIP) Trustee Limited 73

-

73

-

73 Share withdrawals (86) - (86) - (86) Total contributions by and distributions to owners 3

-

3

-

3

At 27 January 2018 589 119,542 120,131 1,460 121,591


THE SOUTHERN CO-OPERATIVE LIMITED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the period ended 27 January 2018

47

Share capital £‟000

Profit and

loss account

£‟000

Equity

attributable to owners

of the parent

undertaking £‟000

Non-

controlling interests

£‟000

Total Equity £‟000

At 31 January 2016 615

114,271

114,886

1,442

116,328

Comprehensive income for the period

Profit/(loss) for the period -

2,003

2,003

-

2,003

Unrealised gain arising from valuation in respect of retirement benefits -

(980)

(980)

-

(980) Pension fund related deferred tax (expense) -

179

179

-

179

Other comprehensive income for the period -

(801)

(801)

-

(801) Total comprehensive income for the period -

1,202

1,202

-

1,202

Contributions by and distributions to owners

Issue of shares 21 - 21 - 21 The Southern Co-operative (SIP) Trustee Limited 62

-

62

-

62 Share withdrawals (112) - (112) - (112) Total contributions by and distributions to owners (29)

-

(29)

-

(29)

At 28 January 2017 586 115,473 116,059 1,442 117,501


THE SOUTHERN CO-OPERATIVE LIMITED GROUP CASH FLOW STATEMENT 52 weeks ended 27 January 2018

48

Note

52 weeks ended

27 January 2018

£’000

52 weeks ended

28 January 2017 £‟000

Cash flows from operating activities 27 12,866 21,251

Net taxation paid (305) (554)

Net interest paid (269) (136)

Net cash generated from operating activities 12,292 20,561

Cash flows from investing activities

Proceeds from sale of tangible fixed assets 1,071 3,482

Purchase of tangible fixed assets (15,705) (16,202)

Purchase of intangible fixed assets - (475)

Purchase of fixed asset investments (1,744) (3,281)

Cash acquired with subsidiary undertaking - 99

Cash paid for business combination - (8,704)

Net cash from investing activities (16,378) (25,081)

Cash flows from financing activities

Issue / (redemption) of share capital 3 (29)

Net loan (repayments) / drawdowns (2,207) 7,271

Net increase in funeral bond liabilities 1,592 3,395

Distributions (2,857) (3,105)

Net cash from financing activities (3,469) 7,532

Net increase in cash and cash equivalents (7,555) 3,012

Cash and cash equivalents at start of period 11,833 8,821

Cash and cash equivalents at end of period 4,278 11,833

Cash and cash equivalents comprise:

Cash at bank and in hand 4,278 11,833


THE SOUTHERN CO-OPERATIVE LIMITED NOTES FORMING PART OF THE FINANCIAL STATEMENTS 52 weeks ended 27 January 2018

49

1. ACCOUNTING POLICIES The Southern Co-operative Limited (the “Society”) is a Registered Society under the Co-operative and Community Benefit Societies Act 2014. The address of the registered office is given on page 1 and the nature of the Society‟s operations and its principal activities are set out in the directors‟ report. The financial statements have been prepared in accordance with FRS 102 the Financial Reporting Standard applicable in the United Kingdom and the Republic of Ireland. The preparation of financial statements in compliance with FRS 102 requires the use of certain critical accounting estimates. It also requires Society management to exercise judgement in applying the Society‟s accounting policies (see note 2). The following principal accounting policies have been applied: Basis of consolidation The consolidated financial statements present the results of The Southern Co-operative Limited and its subsidiaries ("the Group") as if they formed a single entity. Intercompany transactions and balances between group companies are therefore eliminated in full. The consolidated financial statements incorporate the results of business combinations using the purchase method. In the statement of financial position, the acquirer‟s identifiable assets, liabilities and contingent liabilities are initially recognised at their fair values at the acquisition date. The results of acquired operations are included in the consolidated statement of comprehensive income from the date on which control is obtained. They are deconsolidated from the date control ceases. Going concern

The Southern Co-operative Limited and its subsidiaries (TSC) obtain their 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 19. As a consequence, the Directors believe that TSC is well placed to manage its business risks successfully despite the current uncertain economic outlook. The directors have a reasonable expectation that Southern Co-op has adequate resources to continue in operational existence and to be able to meeting its liabilities as they fall due for the next three years. 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.


50

1. ACCOUNTING POLICIES (continued)

Parental Guarantee In accordance with Section 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 30 for further details.

Accounting date

The financial statements are made up for the 52 weeks to 27 January 2018 with comparative figures for the 52 weeks to 28 January 2017. Associates An entity is treated as an associated undertaking where the group exercises significant influence in that it has the power to participate in the operating and financial policy decisions. In the consolidated accounts, interests in associated undertakings are accounted for using the equity method of accounting. Under this method an equity investment is initially recognised at the transaction price (including transaction costs) and is subsequently adjusted to reflect the investor‟s share of the profit or loss, other comprehensive income and equity of the associate. The consolidated statement of comprehensive income includes the group's share of the operating results, interest, pre-tax results and attributable taxation of such undertakings applying accounting policies consistent with those of the group. In the consolidated balance sheet, the interests in associated undertakings are shown as the group's share of the identifiable net assets, including any unamortised premium paid on acquisition. Any premium on acquisition is dealt with in accordance with the goodwill policy. Revenue

Revenue from the sales of goods is recognised when the Group has transferred the significant risks and rewards of ownership to the buyer and it is probable that the Group will receive the previously agreed upon payment. These criteria are considered to be met when the goods are delivered to the buyer. Where the buyer has a right of return, the Group defers recognition of revenue until the right to return has lapsed. However, where high volumes of sales are made to established wholesale customers, revenue is recognised in the period where the goods are delivered less an appropriate provision for returns based on past experience. Revenue includes cash sales, goods sold on credit, property rental and concession income. 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. Investment properties Investment property is carried at fair value determined annually by external valuers and derived from the current market rents and investment property yields for comparable real estate, adjusted if necessary for any difference in the nature, location or condition of the specific asset. No depreciation is provided. Changes in fair value are recognised in profit or loss.


51

1. ACCOUNTING POLICIES (continued) Valuation of investments Investments in subsidiaries are measured at cost less accumulated impairment. Where merger relief is applicable, the cost of the investment in a subsidiary undertaking is measured at the nominal value of the shares issued together with the fair value of any additional consideration paid. Investments in unlisted company shares, which have been classified as fixed asset investments as the Group intends to hold them on a continuing basis, are remeasured to market value at each balance sheet date. Gains and losses on remeasurement are recognised in profit or loss for the period. Investments in listed company shares, which have been classified as current asset investments, are remeasured to market value at each balance sheet date. Gains and losses on remeasurement are recognised in profit or loss for the period. Tangible fixed assets

Tangible fixed assets, other than investment properties, are stated at historical cost less accumulated depreciation and any accumulated depreciation and any accumulated impairment losses. Historical cost includes expenditure that is directly attributable to bringing the asset to the location and condition necessary for it to be capable of operating in the manner intended by management. The group adds to the carrying amount of an item of fixed assets the cost of replacing part of such an item when that cost is incurred if the replacement part is expected to provide incremental future benefits to the group. The carrying amount of the replaced part is derecognised. Repairs and maintenance are charged to profit or loss during the period in which they are incurred. 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 8.33% per annum Plant and machinery 8.33% per annum Computers/software 20.0% per annum Systems Development 10.0% 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.


52

1. ACCOUNTING POLICIES (continued) The assets‟ residual values, useful lives and depreciation methods are reviewed, and adjusted prospectively if appropriate, if there is an indication of a significant change since the last reporting date. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognised within the income statement. Intangible assets a) Goodwill Goodwill represents the excess of the cost of a business combination over the fair value of the group‟s share of the net identifiable assets of the acquired subsidiary at the date of acquisition. Goodwill on acquisitions of subsidiaries is included in „intangible assets‟. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. Goodwill is carried at cost less accumulated amortisation and accumulated impairment charges. Goodwill amortisation is calculated by applying the straight-line method to its estimated useful life. If a reliable estimate cannot be made, the useful life of goodwill is presumed to be 5 years. Goodwill is being amortised over periods ranging from 3 to 20 years. Estimates of the useful economic life of goodwill are based on a variety of factors such as the expected use of the acquired business, the expected useful life of the cash generating units to which the goodwill is attributed, any legal, regulatory or contractual provisions that can limit useful life and assumptions that market participants would consider in respect of similar businesses. (b) Research and development costs In the research phase of an internal project it is not possible to demonstrate that the project will generate future economic benefits and hence all expenditure on research shall be recognised as an expense when it‟s incurred. Intangible assets are recognised from the development phase of a project if and only if certain specific criteria are met in order to demonstrate the asset will generate probable future economic benefits and that its cost can be reliably measured. The capitalised development costs are subsequently amortised on a straight line basis over their expected useful economic lives, which range from 3 to 6 years. The expected useful economic life of development costs are estimated based on business plans which set out the development plan and time to market for the associated project. If it is not possible to distinguish between the research phase and the development phase of an internal project the expenditure is treated as if it were all incurred in the research phase only. (c) Post office licences Post office licences are amortised by equal annual instalments over their estimated useful lives at a rate of 5.0% per annum.


53

1. ACCOUNTING POLICIES (continued) Impairment of fixed assets and goodwill Assets that are subject to depreciation or amortisation are assessed at each reporting date to determine whether there is any indication that the assets are impaired. Where there is any indication that an asset may be impaired, the carrying value of the asset (or cash-generating unit to which the asset has been allocated) is tested for impairment. An impairment loss is recognised for the amount by which the asset‟s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset‟s (or CGU‟s) fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (CGUs). Non-financial assets that have been previously impaired are reviewed at each reporting date to assess whether there is any indication that the impairment losses recognised in prior periods may no longer exist or may have decreased. Government grants Grants are accounted under the accruals model as permitted by FRS 102. Grants relating to expenditure on tangible fixed assets are credited to the profit and loss account at the same rate as the depreciation on the assets to which the grant relates. The deferred element of grants is included in creditors as deferred income. Grants of a revenue nature are recognised in profit or loss in the same period as the related expenditure. Financial liabilities and equity Financial liabilities and equity are classified according to the substance of the financial instruments contractual obligations, rather than the financial instrument's legal form. Current and deferred taxation The tax expense for the period comprises current and deferred tax. Tax is recognised in profit or loss, except that a change attributable to an item of income or expense recognised as other comprehensive income or to an item recognised directly in equity is also recognised in other comprehensive income or directly in equity respectively. The current income tax charge is calculated on the basis of tax rates and laws that have been enacted or substantively enacted by the reporting date in the countries where the Society‟s subsidiaries operate and generate taxable income. Deferred balances are recognised in respect of all timing differences that have originated but not reversed by the balance sheet date, except:

• The recognition of deferred tax assets is limited to the extent that it is probable that they will be recovered against the reversal of deferred tax liabilities or other future taxable profits;

• Any deferred tax balances are reversed if and when all conditions for retaining associated tax allowances have been met; and

• Where timing differences relate to interests in subsidiaries, associates, branches and joint ventures and the group can control their reversal and such reversal is not considered probable in the foreseeable future.

Deferred tax balances are not recognised in respect of permanent differences except in respect of business combinations, when deferred tax is recognised on the differences between the fair values of assets acquired and the future tax deductions available for them and the differences between the fair values of liabilities acquired and the amount that will be assessed for tax. Deferred income tax is determined using tax rates and laws that have been enacted or substantively enacted by the reporting date.


54

1. ACCOUNTING POLICIES (continued) 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. At each reporting date, inventories are assessed for impairment. If inventory is impaired, the carrying amount is reduced to its selling price less costs. The impairment loss is recognised immediately in profit or loss. Onerous leases

Where the unavoidable costs of a lease exceed the economic benefit expected to be received from it, a provision is made for the present value of obligations under the lease.

Funeral bond schemes

The 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 and these are held on the balance sheet at their fair value. The fair value being the market value of the funeral bond at the year end on the basis that bond could be redeemed at a different funeral provider. In addition all receipts are invested in individual whole life insurance policies with the Royal London Insurance Group. 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 fair value, being the market value of bond at the year end. Interest receivable on the fund is recognised in the revenue account on encashment of the bond when the related funeral is provided. Commission on funds invested with Royal London is recognised in the revenue account on receipt. Leased assets: Lessor Where assets are leased to a third party give rights approximating to ownership (finance leases), the assets are treated as if they have been sold outright. The amount removed from the fixed assets is the net book value on disposal of the asset. The profit on disposal, being the excess of the present value of the minimum lease payments over net book value is credited to profit or loss. Lease payments are analysed between capital and interest components so that the interest element of the payment is credited to profit or loss over the term of the lease and represents a constant proportion of the balance of capital repayments outstanding. The capital part reduces the amounts owed by the lessee. Incentive payments to new tenants to occupy the group's investment properties are treated as a reduction in revenue and initially recorded as prepayments. The payments are charged to profit or loss over the term of the lease. Where such prepayments relate to investment properties, the properties are carried at open market value less the amount of the unamortised incentive. All other leases are treated as operating leases. Their annual rentals are charged to profit or loss on a straight-line basis over the term of the lease.


55

1. ACCOUNTING POLICIES (continued) Leased assets: Lessee Where assets are financed by leasing agreements that give rights approximately to ownership (finance leases), the assets are treated as if they has been purchased outright. The amount capitalised is the present value of the minimum lease payments payable over the term of the lease. The corresponding leasing commitments are shown as amounts payable to the lessor. Depreciation on the relevant assets is charged to profit or loss over the shorter of estimated useful economic life and the term of the lease. Lease payments are analysed between capital and interest components so that the interest element of the payment is charged to profit or loss over the term of the lease and is calculated so that it represents a constant proportion of the balance of capital repayments outstanding. The capital part reduces the amounts payable to the lessor. All other leases are treated as operating leases. Their annual rentals are charged to profit or loss on a straight-line basis over the term of the lease. For leases entered into on or after 1 January 2012, reverse premiums and similar incentives received to enter into operating lease agreements are released to profit or loss over the term of the lease. Sale and leaseback When a sale and leaseback transaction results in a finance lease no gain is immediately recognised for any excess of sales proceeds over the carrying amount of the asset. Instead, the proceeds are presented as a liability and subsequently measured at amortised cost using the effective interest method. When a sale and leaseback transaction results in an operating lease, and it is clear that the transaction is established at fair value, any profit or loss is recognised immediately. If the sale price is below fair value, any profit or loss is recognised immediately unless the loss is compensated for by future lease payments at below market price. In that case any such loss is amortised in proportion to the lease payments over the period for which the asset is expected to be used. If the sale price is above fair value, the excess over fair value is amortised over the period for which the asset is expected to be used.


56

1. ACCOUNTING POLICIES (continued) 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 consolidated statement of comprehensive income. Following consultation with active members, the final salary scheme was closed to future benefit accrual with effect from 1 May 2013. See note 26 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 Southern Co-op‟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‟ Related party transactions The Group discloses transactions with related parties which are not wholly owned within the same Group. Where appropriate, transactions of a similar nature are aggregated unless, in the opinion of the directors, separate disclosure is necessary to understand the effect of the transactions on the Group financial statements. Holiday pay accrual A liability is recognised to the extent of any unused holiday pay entitlement which has accrued at the balance sheet date and carried forward to future periods. This is measured at the undiscounted salary cost of the future holiday entitlement so accrued at the balance sheet date.


57

2. JUDGEMENTS IN APPLYING POLICIES AND KEY SOURCES OF ESTIMATION UNCERTAINTY

In preparing these financial statements, the directors have had to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets, liabilities, income and expenses.

The estimates and associated assumptions are based on historic experiences and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities and are not readily apparent from other sources. Actual results may differ from these estimates. The judgements, estimates and assumptions which have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities are:

A. Leases Determine whether leases entered into by the group either as a lessor or a lessee are operating or finance leases. These decisions depend on an assessment of whether the risks and rewards of ownership have been transferred from the lessor to the lessee on a lease by lease basis. B. Impairment of tangible and intangible fixed assets Determine whether there are indicators of impairment of the group‟s tangible and intangible assets. Factors taken into consideration in reaching such a decision include the economic viability and expected future financial performance of the asset and where it is a component of a larger cash-generating unit, the viability and expected future performance of that unit. C. Investment property valuation Investment properties are valued annually by the directors using a yield methodology. This uses market rental values capitalised at a market capitalisation rate, but there is an inevitable degree of judgement involved in that each property is unique and value can only be reliably tested in the market itself. Key inputs into the valuations were:

• Reviewing yields annually to reflect market conditions. For 2018 these were 10% for Commercial properties and 7.1% for Residential properties (2017: 10% and 7.1% respectively).

• Reviewing the current annual rent receivable for properties not within Mutual Associates Ltd and then applying the above yield to these.

D. Pension scheme assets 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 directors recognise that small changes in the assumptions could have a significant impact on the liabilities in the scheme. The directors note that a 0.2% increase in certain assumptions could have a material impact on the pension scheme liabilities.

E. Funeral bond scheme Funeral Plan Investments were revalued to fair value based on the carrying investment value received from the investment manager Royal London as at each balance sheet date. The carrying investment value represents the cash value of the amount redeemable on the death of the plan holder. The adjustment to fair value was calculated to reflect the difference between the carrying fair value of the amount receivable and the value of the original investment less any commissions already redeemed by TSC. The TSC Liability to plan holders was adjusted to also reflect the fair value of the amounts due to plan holders. This was calculated using the same method as the adjustment that was made to the carrying asset. Note that the Investment held with Royal London is subject to normal market conditions and fluctuations and may increase or decrease on a like for like basis in the proceeding 12 months.


58

2. JUDGEMENTS IN APPLYING POLICIES (continued)

F. Cash flow forecasts Southern Co-op 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 7.6% (2017: 7.6%).

G. Stock provision At each stock take we will take the stock at cost and compare this to the sales for the same period of time to give us a percentage. The provision that is posted into the accounts on a monthly basis is the average percentage loss from the last 3 stock takes carried out. All new stores are given a 1.5% stock provision (company average) until they receive their first stock take results. H. Onerous lease provisions This provision primarily relates to properties that are no longer used for trading. The provision is estimated on the basis of the minimum amount which could be paid to landlords to exit the lease agreements. This is based on an underlying calculation on a property by property basis by reference to the headlease cost and term, including property holding costs such as business rates, estimated rental income from subletting the properties and assuming that rental streams terminate at the next most likely break point.

3. ANALYSIS OF TURNOVER

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 by class of business:

52 weeks ended

27 January 2018

£’000

52 weeks ended

28 January 2017 £‟000

Retail 410,509 373,703

Funeral services 17,706 17,409

Property rental 2,975 2,711

431,190 393,823

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.


59

4. OPERATING PROFIT 52 weeks

ended 27 January

2018 £’000

52 weeks ended

28 January 2017 £‟000

This is arrived at after charging/(crediting):

Personnel expenses 58,975 53,955

Occupancy costs 10,962 11,677

Depreciation

- tangible assets 8,445 8,684

- amortisation of goodwill and software 2,788 1,750

Profit on disposal of fixed assets (494) (897)

Impairment charge

- on goodwill and software 582 613

- on tangible assets 846 711

Operating leases:

- land and buildings 12,286 10,547

- plant and machinery 1,183 955

Onerous property charge/(credit) 128 (548)

Auditors‟ remuneration:

- fees payable to the Society‟s auditors for the audit of the Society‟s annual financial statements 63 65 - fees payable to the Society‟s auditors for non-audit services - - Other expenses 21,324 18,516


60

5. EMPLOYEES (including Directors) 52 weeks

ended 27 January

2018 No.

52 weeks ended

28 January 2017

No. The average number employed by The Southern Co-operative and its subsidiaries was:

Head office 198 201 Retail 3,951 3,847 Funeral 243 209

4,392 4,257

£,000 £,000

The costs incurred in respect of these employees were:

Wages and salaries 58,640 53,803 Social security costs 3,317 3,099 Cost of defined contribution scheme 893 774

62,850 57,676

Of the above salaries £3,875,000 (2017: £3,721,000) is included in cost of sales, relating to operational staff within the funeral business. There was no pension cost incurred in respect of defined benefit schemes during the period. A defined contribution pension scheme is operated by the group on behalf of the employees of one of the subsidiary undertakings. The assets of the scheme are held separately from those of the group in an independently administered fund. The pension charge represents contributions payable by the group to the fund and amounted to £893,000 (2017: £774,000).


61

6. INVESTMENT INCOME AND INTEREST RECEIVABLE 52 weeks

ended 27 January

2018 £'000

52 weeks ended

28 January 2017 £'000

Analysis of interest receivable:

Pension scheme financing 43 85 Other interest receivable 8 13 Gain from changes in fair value of funeral bond assets 1,744 1,094

1,795 1,192

52 weeks

ended 27 January

2018 £'000

52 weeks ended

28 January 2017 £'000

Analysis of investment income:

Southern Co-op‟s investment fund 32 31

32 31

1,827 1,223

7. INTEREST PAYABLE AND SIMILAR CHARGES

52 weeks ended

27 January 2018 £'000

52 weeks ended

28 January 2017 £‟000

Bank overdraft, other interest and commission 261 164 Onerous contract interest 109 101 Loss from changes in fair value of funeral bond liabilities 1,744 1,094 Minority interest 18 -

2,132 1,359


62

8. OTHER FINANCE COSTS 52 weeks

ended 27 January

2018 £'000

52 weeks ended

28 January 2017 £'000

Net interest receivable on defined benefit pension scheme

(43)

(85)

(43) (85)

9. DISTRIBUTIONS

52 weeks ended

27 January 2018 £'000

52 weeks ended

28 January 2017 £‟000

Share interest - 2 Colleague members share of profits paid out 1,243 1,283 Customer members share of profits paid out 1,470 1,623 Forfeiture of share of profit vouchers (111) (106) Donations 41 23 Pensioners‟ welfare 21 53 Corporate partnerships 42 83 Facilitation fund - 7 Volunteering 4 3 Community support card - 2 Work hours donated to community projects 115 115 Community investment 28 13 Education 4 4 2,857 3,105


63

10. TAXATION

Current tax 52 weeks

ended 28 January

2018 £’000

52 weeks ended

28 January 2017 £‟000

UK corporation tax: 2018: 19.17% (2017: 20%)

484 828

Adjustments in respect of prior period (568) (145)

Total current taxation (84) 683

Deferred tax

Timing differences, origination and reversal (578) (476)

Decrease in tax rate (15) -

Adjustments in respect of prior periods 311 138

On pension deficit (9) 17

(291) (321)

Total tax (credit)/charge for the period (375) 362

The tax assessed for the period is lower (2017: lower) than that resulting from applying the standard rate of corporation tax in the UK: 2018: 19.17% (2017: 20%). The prior year adjustment of £568,000 was the result of an Enhanced Capital Allowance claim on fixtures and plant that was higher than expectations at the preparation of the 2017 accounts.


64

10. TAXATION (continued)

52 weeks

ended 28 January

2018 £’000

52 weeks ended

28 January 2017 £‟000

Profit on ordinary activities before tax 2,431 2,365

Profit on ordinary activities at the standard rate of corporation tax in the UK of 19.17% (2017: 20%)

466

473

Effects of:

Expenses not deductible for taxable purposes

164

430

Depreciation in excess/(shortfall) of capital allowances (639) (445)

Other timing differences (94) (89)

Decrease in tax rate (15) -

Prior period adjustment (257) (7)

Total tax charge for period (375) 362

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 £Nil (2017: £Nil);

b. 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.


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11. DEFERRED TAX

Accelerated capital

allowances £’000

Pension contribution

timing differences

£’000

Investment

property revaluations

£’000

Total £’000

As at 29 January 2017 105 483 447 1,035 Charged to other comprehensive income

-

(9)

-

(9)

Credited to profit or loss (282) - - (282)

As at 27 January 2018 (177) 472 447 744

12. PARENT UNDERTAKING PROFIT FOR THE PERIOD

The Society has taken advantage of the exemption allowed under section 408 of the Companies Act 2006 and has not presented its own statement of comprehensive income in these financial statements. The profit after tax of the parent for the period was £1,588,000 (2017: £685,000)


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13. INTANGIBLE FIXED ASSETS

Goodwill and

lease premiums £’000

Computer software

£’000

Total £’000

Cost or valuation

As at 29 January 2017 34,574 9,313 43,887 Transfers in year from assets in construction

1,586

60

1,646

Disposals (3,270) (1,423) (4,693)

As at 27 January 2018 32,890 7,950 40,840

Accumulated Amortisation

As at 29 January 2017 16,442 4,422 20,864 Provided this period 1,941 847 2,788

Impairment movement 609 (27) 582

Disposals (2,728) (1,419) (4,147)

As at 27 January 2018 16,264 3,823 20,087

Net book value at 27 January 2018 16,626 4,127 20,753

Net book value at 28 January 2017

18,132 4,891 23,023

Goodwill is being amortised over periods ranging from 3 to 20 years. This estimate is based on a variety of factors such as the expected use of the acquired business, the expected useful life of the cash generating units to which the goodwill is attributed, any legal, regulatory or contractual provisions that can limit useful life and assumptions that market participants would consider in respect of similar businesses. An impairment charge of £582,000 was made in the period, following an impairment review (2017: impairment charge of £613,000)


67

14. TANGIBLE FIXED ASSETS

Investment properties

£’000

Land and buildings

£’000

Plant and fixtures

£’000

Vehicles £,000

Assets in course of

construction £,000

Total £’000

Cost or valuation

At 29 January 2017 19,236 36,424 114,934 2,900 6,121 179,615 Additions - - - - 16,492 16,492

Transfers in year 4,772 194 10,743 - (17,355) (1,646)

Revaluation 1,146 - - - - 1,146

Disposals (1,426) (19) (8,914) (131) 26 (10,464)

As at 27 January 2018 23,728 36,599 116,763 2,769 5,284 185,143

Accumulated Depreciation

At 29 January 2017 - 5,748 66,501 1,337 - 73,586 Provided this period - 931 7,239 275 - 8,445

Impairment movement

-

60

786

-

-

846

Transfers in year 486 (486) - - - -

Disposals (217) 17 (7,125) (29) - (7,354)

As at 30 January 2018 269 6,270 67,401 1,583 - 75,523

Net book value at 27 January 2018 23,459 30,329 49,362 1,186 5,284 109,620

Net book value at 28 January 2017 19,236 30,676 48,433 1,563 6,121 106,029

The depreciation, impairment charge and impairment reversals are recognised in trading expenses in the profit and loss account Included within fixed assets are assets with a net book value of £1,251,124 (2017: £1,545,072) which are provided as security for the asset backed bank loans. An impairment charge of £846,000 was made in the period, following an impairment review (2017: impairment charge of £711,000) Assets in the course of construction carried forward are projects which have not been completed at the period end and include assets which belong to all of the classes shown above. Once the projects are completed, the assets are then transferred out to their respective classes. In addition, all assets that are purchased in the year are included as additions within the “assets in course of the construction” asset class and are then transferred out to their respective classes during the period. Included within fixed assets are assets which have a nil net book value, but are currently used within the business. The original cost of these assets is £32,852,000.


68

14. TANGIBLE FIXED ASSETS (continued)

Investment properties Investment properties are valued each year internally using market based yields. The valuations in 2018 on properties within Mutual Associates Limited were performed by Vail Williams, based on open market values at 31 December 2017. Land and buildings

The net book value of land and buildings comprises: 27 January

2018 £’000

28 January 2017 £‟000

Land 6,058 6,581

Freehold buildings 23,963 20,092

Long leasehold buildings 308 273

Net book value 30,329 26,946

There are capital commitments contracted for, amounting to £1,670,150 (2017: £2,648,993), which have not been provided for in these accounts. The leases of land and buildings are subject to rent reviews. Finance leases The net book value of assets held under finance leases and hire purchase contracts included above is £Nil (2017: £Nil). The Society had no assets held under such leases at either period end.


69

15. FIXED ASSET INVESTMENTS

Funeral bonds £’000

Other investments

£’000

Total £’000

Cost or valuation

At 29 January 2017 30,274 788 31,062 Additions at cost 2,405 - 2,405 Increase in fair value 1,744 - 1,744 Transfer from long term to short term investments (190) - (190)

As at 27 January 2018 34,233 788 35,021

Net book value at 27 January 2018 34,233 788 35,021

Net book value at 28 January 2017

30,274 788 31,062

Investments held within the Funeral Bond Scheme have been measured at fair value. The total income recognised on those investments in the period was £1,744,000 (2017: £1,093,000)

All receipts of the Funeral Bond Scheme are invested in individual whole life insurance policies with the Royal London Insurance Group). 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 fair value.

16. STOCKS 27 January

2018 £'000

28 January 2017 £'000

Finished goods and goods for resale 14,998 13,331

14,998 13,331

Stock recognised in cost of sales during the year as an expense was £271,646,000 (2017: £248,814,000).


70

17. DEBTORS 27 January

2018 £’000

28 January 2017 £‟000

Falling due within one year: Trade debtors 4,355 3,794 Other debtors 1,783 688 Prepayments and accrued income 4,065 4,180 Corporation tax 65 -

10,268 8,662

18. CURRENT ASSET INVESTMENTS

27 January

2018 £’000

28 January 2017 £‟000

Royal London Funeral Bond Scheme – at fair value 2,567 2,377

Amounts are held with third party investment managers which are readily available but not accessible within twenty four hours.

19. CREDITORS: AMOUNTS FALLING DUE WITHIN ONE YEAR

27 January 2018

£’000

28 January 2017 £‟000

Bank loans and overdrafts 10,440 12,375

Trade creditors 14,282 14,664

Taxation and social security 1,523 1,895

Corporation tax - 288

Funeral bond scheme liability 2,851 2,778

Accruals and deferred income 10,649 12,533

Other creditors 1,754 1,664

41,499 46,197

The bank loans and overdraft represent the amount drawn down from a facility with Barclays Bank and asset backed loan agreements with the same bank. The sums drawn from the facility 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. The asset backed loan agreement is repayable on a quarterly instalment basis over five years and are secured on specific tangible fixed assets. Interest is payable based on the LIBOR interest rates.

Funeral bond scheme payments in advance 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.


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20. CREDITORS: AMOUNTS FALLING DUE AFTER MORE THAN ONE YEAR

27 January 2018

£’000

28 January 2017 £‟000

Bank loans and overdrafts 705 977

Funeral bonds scheme liability 34,066 30,142

34,771 31,119

21. DEBT FINANCE

The maturity of sources of debt finance are as follows:

27 January 2018

£’000

28 January

2017 £‟000

Loans and overdrafts:

In one year or less, or on demand 10,000 12,000

In more than one year, but not more than five years 1,145 1,352

11,145 13,352

22. FINANCIAL INSTRUMENTS The Group‟s financial instruments may be analysed as follows: 27 January

2018 £’000

28 January 2017 £‟000

Financial assets

Financial assets measured at amortised cost 10,417 16,315

Financial assets measured at fair value through the income statement 35,021 31,062

Financial liabilities

Financial liabilities measured at amortised cost 26,746 27,729

Financial liabilities measured at fair value through the income statement 36,917 32,920

Financial assets measured at amortised cost comprise cash at bank and in hand, trade debtors and other debtors. Financial assets measured at fair value comprise of funeral bond scheme fixed assets and other investments.

Financial liabilities measured at amortised cost comprise bank loans and overdrafts, trade creditors, and other creditors. Financial liabilities measured at fair value comprise funeral bond scheme liabilities.


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23. OTHER PROVISIONS

Onerous leases £’000

Total £’000

As at 28 January 2017 1,633 1,633

Charged to profit or loss 128 128

Utilised in the period (369) (369)

As at 27 January 2018 1,392 1,392

24. COMMITMENTS UNDER OPERATING LEASES

The group had minimum lease payments under non-cancellable operating leases as set out below:

27 January 2018

£’000

28 January 2017 £‟000

Not later than 1 year 683 454

Later than 1 year, but not later than 5 years 5,281 4,280

Later than 5 years 120,894 110,381

126,858 115,115

25. MINORITY INTEREST

27 January 2018

£’000

28 January 2017 £‟000

As at beginning of period 1,442 1,442

Transfer from profit and loss reserve 18 -

As at end of period 1,460 1,442


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26. PENSION SCHEME The Society sponsors a funded defined benefit pension plan, The Southern Co-operative Limited Group Pension Scheme (the “Scheme”). The disclosures below are in respect of the whole Scheme. The level of benefits provided by the Scheme depends on a member‟s length of service and their salary at their date of leaving the Scheme. The Scheme was closed to new members on 1 December 2002 and closed to future benefit accrual on 31 May 2013. The last funding valuation of the scheme was carried out by a qualifying actuary as at 28 January 2017 and contributions of £250,000 are expected to be paid by the Society to the Scheme during the year ending on 27 January 2018. The results of the latest funding valuation at 28 January 2017 have been adjusted to the balance sheet date taking account of experience over the period since 28 January 2017, changes in market conditions and differences in the financial and demographic assumptions. The present value of the defined benefit obligation was measured using the Projected Unit Credit Method. The principal assumptions used to calculate the liabilities under FRS102 are set out below:

2018

% 2017

% 2016

% 2015

% 2014

%

Discount rate 2.60 2.90 3.60 3.20 4.30

Rate of increase in salaries N/A N/A N/A N/A N/A

Rate of increase in deferred pensions - RPI 3.30 3.40 3.00 3.10 3.50

Rate of increase in deferred pensions - CPI 2.20 2.30 1.90 2.10 2.50

Rate of increase in pensions in payment accrued from 6 April 1997 to 5 April 2005

3.20

3.30

3.00

3.00

3.30

Rate of increase in pensions in payment accrued before 6 April 1997 and after 5 April 2005

2.20

2.30

2.20

2.10

2.20

Inflation assumption 3.10 3.10 3.10 3.10 3.50

Main demographic assumptions

2018 2017

Life expectancy for male currently aged 65

21.6 21.6

Life expectancy for female currently aged 65 22.9 23.0

Life expectancy at 65 for male currently aged 45 22.7 22.9

Life expectancy at 65 for female currently aged 45 24.1 24.5


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26. PENSION SCHEME (continued)

Mortality assumption – 105% males / 113% females of the S2PxA tables with improvements in line with the CMI 2016 projections and a long-term rate of improvement of 1.0% pa (2017 - 105% males/113% females of the S1PxA tables with improvements in line with the CMI 2015 projections and a long-term rate of improvement of 1.0% pa). Cash commutation – on average members exchange 20% of their pension for a cash sum at retirement (2017 – on average members exchange 20% of their pension for a cash sum at retirement). Scheme asset allocation 2018 2017

£’000 % £’000 %

Growth funds 55,659 40 56,409 42

Matching funds 78,939 57 73,742 55

Property 3,468 3 3,180 3

Other 784 0 218 0

Total 138,850 100 133,549 100

None of the Scheme assets are invested in the Society‟s financial instruments or in property occupied by, or other assets used by, the Society.

The Society‟s contributions for the 52 week period ended 27 January 2018 amounted to £250,000 (52 weeks to 28 January 2017: £250,000).


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26. PENSION SCHEME (continued) The assets in the scheme were:

2018 2017 2016 £’000

£‟000 £‟000

Equities and property 59,127 59,589 55,634 Gilts and bonds 78,939 73,742 59,591

Other 784 218 346

Total market value of assets 138,850 133,549 115,571

Present value of scheme liabilities (135,773) (132,089) 113,216

Surplus/(deficit) in scheme 3,077 1,460 2,355

Related deferred tax asset/(liability) (585) (292) (471)

Net pension liability 2,492 1,168 1,884

The scheme surplus at 27 January 2018 after deferred tax was identified of £2,492,000. This surplus has been recognised as an asset (2017: £1,168,000 was recognised as an asset). Analysis of amount recognised in Income Statement

2018

£’000 2017

£’000

Administration expenses 250 250

Interest on net defined benefit (surplus)

(43) (85)

Pension expense recognised in profit and loss 207 165

Analysis of amount recognised in Other Comprehensive Income

2018 £’000

2017 £’000

Actual return less expected return on pension scheme assets 5,716 18,118

Loss arising from changes in assumptions underlying the scheme liabilities

(4,142)

(19,098)

Total amount recognised in Other Comprehensive Income

1,574

(980)


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26. PENSION SCHEME (continued) Reconciliation of the present value of the defined benefit obligation

2018 £’000

2017 £’000

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

132,089

113,216

Movement in year:

Interest cost 3,769 4,000

Benefits paid (4,227) (4,225)

Actuarial loss 4,142 19,098

135,773 132,089

Reconciliation of the fair value of scheme assets 2018

£’000 2017

£’000

Fair value of scheme assets at the start of the year 133,549 115,571

Movement in year:

Expected return on scheme assets and admin costs 3,562 3,835

Actuarial gain on scheme assets 5,716 18,118

Employer contributions 250 250

Benefits paid (4,227) (4,225)

138,850 133,549

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 27 January 2018 was £572,620 (2017: £674,335). The amount payable to the scheme at the end of the period was £42,051 (2017: £45,008).


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27. CASH FLOWS FROM OPERATING ACTIVITIES

52 weeks

ended 27 January

2018 £’000

52 weeks ended

28 January 2017 £‟000

Net profit 2,806 2,003

Distributions 2,857 3,105

Depreciation of tangible fixed assets 8,445 8,363

Amortisation of intangible fixed assets 2,788 2,761

Impairment charge on goodwill 582 613

Impairment charge on owned assets 846 711

Net fair value gain/(loss) of investment properties recognised in profit or loss 1,146 (321) Difference between net pension expense and cash contribution (43) (85) Onerous lease provision movement (241) (442)

Net interest payable 305 136

Taxation (credit) / expense (375) 362

(Profit) on sale of fixed assets (494) (897)

(Increase) / decrease in stocks (1,667) 1,715

(Increase) / decrease in trade and other debtors (1,541) 3,402

(Decrease) in trade and other creditors (2,548) (175)

12,866 21,251

28. RELATED PARTY DISCLOSURE

Controlling parties The directors do not consider there to be an ultimate controlling party. The Society has taken advantage of the exemption conferred by FRS 102 Section 33 „Related party disclosures‟ not to disclose transactions with its wholly owned subsidiaries. Key management personnel include all directors and a number of senior managers across the group who together have authority and responsibility for planning, directing and controlling the activities of the group. The total compensation paid to key management personnel for services provided to the group can be found on pages 21 to 24. Related party transactions At the year end, there is an amount owing by the Society to its 91% subsidiary Society, Southern Co-operative Dairies Limited of £14,915,181 (2017: £14,973,617). The Society has not charged a Management Fee to Southern Co-operative Dairies Limited (2017: £Nil).

29. CONTINGENT LIABILITIES

The Group is currently involved in judicial proceedings whose outcome may have an impact on its financial statements. Proceedings are being taken against Southern Co-op for breach of a Health and Safety regulation at one of its trading stores, during a specific 3 day period, which resulted in an isolated accident. The case is scheduled to be heard by the courts in April 2018. Southern Co-op intends to plead guilty to an offence under the Health and Safety at Work Act 1974. The sentencing guidelines contain elements which require significant judgments to be made by the court which together impact the range of potential liability. The range is so wide, it makes any estimate unreliable – this view is supported by legal advice.

Therefore no provision for any liability that may result has been made in the financial statements.


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30. SUBSIDIARIES

The financial statements consolidate the results of Southern Co-Op and the following subsidiaries, all of which are incorporated in Great Britain and have a year end of 31 January 2018. Subsidiary Registered

No. Type of registration Activity Percentage

of shares held %

Net profit/ (loss) £,000

Southern Co-operative Dairies Ltd

24986R Registered Society Property Management 91 (23)

Mutual Associates Ltd * 02207748 Limited Company Property investment 100 42

Mutual Services (Portsmouth) Ltd *

05904980 Limited Company Funeral furnishing 100 (14)

Southern Co-operative Retailers Ltd *

02301593 Limited Company Property investment and management

100 (370)

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

East Devon Crematorium Ltd 07158852 Limited Company Crematorium 99 154

J Edwards & Son (Funeral Directors) Ltd

1256971 Limited Company Non-trading 100 -

Southern Co-operative Funerals Ltd *

00382640 Limited Company Funeral furnishing 100 (198)

Southern Co-operative Properties Ltd *

05016485 Limited Company Property management 100 90

Co-operative Franchising Ltd*

06492138 Limited Company Grocery retail licensing agent

100 98

Co-operative Independent Living Ltd *

06538560 Limited Company Disability products 100 (55)

Caring Ladies Funeral Directors Ltd


Caring Lady Funeral Directors Ltd


South of England Funeral Partners Ltd *

06961496 Limited Company Investment 100 33

South of England Natural Burials Ltd


Sussex Woodlands Limited* 06542570 Limited Company Natural Burial Ground 100 279

*Subsidiaries taking advantage of the exemption from the requirement to have their own accounts audited in accordance with s479A of the Companies Act 2006. Copies of financial statements of The Southern Co-operative Ltd can be obtained from the Society Secretary at 1000 Lakeside, Western Road, Portsmouth, Hampshire, PO6 3FE.

THE SOUTHERN CO-OPERATIVE LIMITED FIVE PERIOD COMPARATIVE STATEMENT 52 weeks ended 27 January 2018

79

Year ending January

2018 52 weeks

2017 52 weeks

2016 53 weeks

2015 52 weeks as

restated

2014 52 weeks

Membership („000)

158 167 159 151 147

£‟000

Turnover 431,190 393,823 366,786 350,505 326,716

Depreciation and amortisation

12,661 11,758 13,031 15,021 11,816

Trading surplus 5,593 5,606 4,843 4,637 10,625

Retained (deficit)/ surplus

2,806 2,003 4,314 (1,436) 8,062

Fixed assets 165,394 160,114 139,204 136,927 126,670

Net current assets / (liabilities)

(9,388) (9,994) 4,952 490 2,054

Total assets less current liabilities

156,006 150,120

144,156 137,417 128,724

Long term liabilities including pension liabilities

34,415 31,119 27,828 28,492, 23,669

Net assets including pension liabilities

121,591 117,501 116,328 108,925 105,055

Share capital 589 586 615 618 590

Reserves 119,542 115,473 114,271 106,685 103,023

Minority interest 1,460 1,442 1,442 1,442 1,442

Total sales area (sq. ft „000)

556 520 482

475 442

Documents

The Southern Co-operative Limited · 1/27/2018 · THE SOUTHERN CO-OPERATIVE LIMITED REPORT AND FINANCIAL STATEMENTS 2018 OFFICERS AND PROFESSIONAL ADVISERS 1 DIRECTORS Chairman