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Midlands Co-operative Society Annual Report 2012

Contents
Board of Directors..................................................................................................................... 3 Management Executive and Advisors..................................................................................... 4 Directors report ........................................................................................................................ 5 Retail ...................................................................................................................................... 8 Travel.................................................................................................................................... 11 Funeral ................................................................................................................................. 12 Transport .............................................................................................................................. 14 Property ................................................................................................................................ 14 Colleagues............................................................................................................................ 16 Corporate matters................................................................................................................. 19 Corporate governance............................................................................................................ 21 Remuneration report............................................................................................................... 24 Social responsibility ............................................................................................................... 26 Social and co-operative performance indicators................................................................. 29 Members .................................................................................................................................. 31 Statement of Directors responsibilities ............................................................................... 36 Report of the independent auditors ...................................................................................... 37 Accounting policies ................................................................................................................ 39 Group revenue account.......................................................................................................... 44 Group balance sheet............................................................................................................... 45 Note of historical cost profits and losses............................................................................. 46 Group statement of total recognised gains and losses ...................................................... 46 Reconciliation of movements in members funds ............................................................... 46 Group cash flow statement .................................................................................................... 47 Reconciliation of net cash flow to movements in net cash ................................................ 48 Notes to the accounts............................................................................................................. 49 Five-year financial record....................................................................................................... 71 Five-year comparison ........................................................................................................... 72 Regional Committees ............................................................................................................. 73 Notice of Annual Meeting ....................................................................................................... 75 Agenda of Annual Meeting..................................................................................................... 76 Minutes of the Interim Meeting of Members held in 2011 ................................................... 77

Midlands Co-operative Society Annual Report 2012

Board of Directors
Membership Audit Committee Community Dividend Selection Committee Remuneration Committee Rules & Practices Committee

Frank Croft, Director and President Rod Findley, Director and Vice-President Liz Lomas, Employee Director Michael Althorpe, Employee Director Paul Singh, Director John Maltby, Director Stuart Unwin, Director Maria Lee, Director Kevin Hepworth, Director Marta Mayhew, Director Keith Redfern, Director David Ellgood, Employee Director Peter Dean, Director Keith Bostock, Director Helen Lees, Director Robin Farrell, Employee Director

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Midlands Co-operative Society Annual Report 2012

Management Executive and Advisors


Management Executive Martyn Cheatle Chief Executive Tony Carroll Deputy Chief Executive James Watts Secretary David Grady Chief Financial Officer Paul Webb Funeral Ian Callaghan Property Tracey Orr Human Resources Mark Ruttley Information Solutions

Auditors PricewaterhouseCoopers LLP Donington Court Pegasus Business Park Castle Donington DE74 2UZ Bankers Co-operative Bank plc 118-120 Colmore Row Birmingham B3 3BA Registered office Central House Hermes Road Lichfield Staffordshire WS13 6RH Telephone: 01543 414140 Fax: 01543 415813 www.midlands.coop Registered no: 10143R

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Midlands Co-operative Society Annual Report 2012

Directors report
Progress achieved in 2011 has further strengthened the Societys position as one of the leading co-operative businesses in the UK

To the members
The Board of Directors is pleased to present its report for the year ended 28 January 2012, which represented a period of considerable progress across the Society. Against the background of the longest and deepest recession for over 60 years the Board is proud to announce another strong financial performance, with improved trading profit, significant capital investment and increased payments to stakeholders. The financial review that follows highlights that trading profit, before exceptional items, of 26.6 million is slightly ahead of the previous year and demonstrates the Societys resilience to withstand the most demanding and competitive conditions. Progress achieved in 2011 has further strengthened the Societys position as one of the leading co-operative businesses in the UK. The Societys ambitious growth strategy has seen investment in new trading outlets and business acquisitions, the accelerated roll-out of The Cooperative brand and continued refurbishment activity across the existing estate. In addition, strategic changes to the business portfolio and the introduction of new pension arrangements have been implemented in the long term interests of the Society, its members, colleagues and customers. The transfer of the Societys Travel business into a joint venture with The Cooperative Group and Thomas Cook, completed on 4 October 2011, represented a major change in the Societys business portfolio. As anticipated in last years report, 2011 saw the continuation of intense pressure on consumer spending as a result of rising unemployment, falling real incomes, the weak housing market and uncertainty about the economic outlook. The Eurozone debt crisis and turmoil in the financial markets have added to concerns over the prospects of recovery in the UK economy. Rising commodity prices, particularly increased fuel and energy costs, continue to erode consumer spending power and dampen demand for discretionary goods and services. Consumer confidence remains fragile, especially for larger purchases, and spending in food categories has seen a shift to value product lines as customers attempt to manage the squeeze on household budgets. Gross sales in continuing activities increased by 7.2 million to 650.9 million during the period. The reduction in total gross sales by 6.8% to 878.8 million is attributable to the impact of Travel sales no longer being reported in the Societys financial statements with effect from the completion of the joint venture in October 2011. The Societys capital expenditure programme continues to be supported by strong cash flow from operating activities, backed by the strength of the asset base. This was again evident in 2011 when capital expenditure and investment in business acquisitions totalled 34.3 million while still leaving positive cash balances of 40.6 million and a total net asset value of 290.2 million.

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Midlands Co-operative Society Annual Report 2012

The growth of the Society continues to be underpinned by a robust strategy that was relaunched in 2011 under the One Vision banner to be the UKs best consumer co-operative society by making a real difference to our members and our communities. The strategy is supported by six core values that reflect the Societys co-operative and ethical principles. The One Vision strategy provides the framework to drive future growth and is embedded in the business plans of the Societys trading operations and support functions. As a positive indicator of the Societys commitment to operate by its values, it is pleasing to report that the Societys Retail business received national recognition in 2011. The Retail team won three major awards in recognition of excellent service and performance in the Societys convenience stores, beating off competition from national food retailers. In addition, the Society was formally recognised as a finalist at the prestigious annual Grocer Gold Awards for the successful implementation of its Zero Waste to Landfill initiative across the whole retail food store estate a retail industry first in the UK. The Societys drive to encourage a growing, thriving membership has been supported by the full roll-out of the new membership card across the business. As part of this strategy, and following approval at the Interim Meeting in October 2011, the membership card can now be used to gain admission to Members Meetings and vote in Society elections. The Societys membership base has also been strengthened through the transfer of cardholders from the former food loyalty card scheme and through the enrolment of all Society colleagues into membership. Elsewhere, the Societys commitment to support other co-operatives was demonstrated through the promotion of Midcounties Societys The Co-operative Energy business to Midlands Society members and colleagues. The Society has also invested in the Energy Saving Co-operative, a newly formed venture providing advice and services for the installation of energy efficient improvements to houses and small businesses. During the year, considerable attention was directed towards the Societys pension scheme arrangements. Following detailed communication and consultation with colleagues, and with the full support of the Board and the Scheme Trustees, a new defined contribution pension scheme was introduced at the beginning of August to replace the previous defined benefit scheme. The changes received a very positive response with 91% of colleague pension scheme members voting in favour, ensuring that Society colleagues have a modern, flexible pension plan to prepare for their retirement. Despite the major step to close the defined benefit scheme, the Board remains fully aware of the costs of funding the significant outstanding liabilities of the closed scheme. As part of the strategy to address the scheme deficit over the medium term, an asset backed funding structure was implemented in January 2012. The Societys future obligations under this arrangement of 108.7 million are included in the Balance Sheet within Creditors, offset by a deferred tax asset of 21.5 million. As a result of this arrangement, the net pension liability on an FRS17 basis shows a significant improvement to 2.9 million from 65.2 million at January 2011. Consistent with the trends experienced over the past year, it is widely anticipated that trading conditions in 2012 will remain challenging, with minimal growth in household spending and the continuation of weak consumer confidence. Recent forecasts indicate that any recovery in the economy is likely to be long and slow and will be dependant on a number of unpredictable
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factors. The Bank of England expects the economy to zigzag in and out of growth during 2012 and sees the impact of rising unemployment, and particularly youth unemployment, as a key area of concern. Despite the uncertain economic environment, the Board is confident that in the 2012 International Year of Co-operatives, the Society remains in a very strong position to trade and grow through difficult times, with a clear strategy and substantial funds in place to continue to develop the business for the future.

Business activities
The Societys principal business activities are food, fashion and home retailing, and funeral services. In addition, the Society has interests in motor dealerships, specialist vehicle construction, coffin manufacture, florists and farming and manages a significant investment property portfolio that underpins the returns from trading activities. In October 2011, the Society entered into a joint venture arrangement that brought together all parts of its Travel business with those of The Co-operative Group and Thomas Cooks UK retail shop network. The Board took the strategic decision to enter into this arrangement in the long term interests of the Society, its members and Travel colleagues and took full account of the risks and volatile nature of the travel market. Through the joint venture, the Societys continued interest in the travel sector allows it to maintain the provision of a comprehensive travel offer to members, customers and colleagues.

Financial review
The financial review covers the 53 week period ended 28 January 2012, consistent with the Societys policy of drawing up its accounts to the last Saturday in January. The trading highlights of the core businesses are covered later in the report, but their contribution to a most successful year is evident in these financial headlines which demonstrate the strength of profit and cash generation. Gross sales, excluding VAT, in continuing activities increased by 1.1% to 651 million Trading profit, before exceptional items, of 26.6 million is ahead of the previous year Payments to and on behalf of stakeholders increased from 3.3 million to 4.0 million, including distributions to members of 2.3 million a 12% increase Significant capital investment of 34.3 million, 11.7 million up on the previous year Cash inflow from operating activities of 40.0 million, an increase of 6.7 million Net assets of 290.2 million, including closing cash balances of 40.6 million

The strength of the financial base places Midlands Co-operative in a strong position to continue its growth strategy and further enhance the Societys profile as a modern, successful cooperative business.

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Midlands Co-operative Society Annual Report 2012

Retail
The strength of The Co-operative Food brand remains a key feature of the Societys success

Trading
Retail food stores are the Societys largest business delivering growth in turnover, driving cash generation and profitability. A very strong trading performance has again been achieved in the most competitive conditions which have seen consumer spending come under intense pressure. Some of the effects of the downturn on customer behaviour have been positive for Retail food stores. Increased local shopping, due to rising fuel costs, has generated impressive sales growth across the food store estate, with customers visiting the stores more regularly and increasing demand for fresh food and produce ranges. The strength of The Co-operative Food brand remains a key feature of the Societys success, and provides the framework for maintaining consistently high operating standards to members and customers. However, positive management initiatives, with the full support of the Board, have been the main factors behind business growth. In 2011 these initiatives included: the continuation of an aggressive approach to the new store development and acquisition strategy, with eight stores opened during the year. the full implementation of the Zero Waste to Landfill initiative across all food stores, achieving national recognition as a finalist in the Green Retailer of the Year category at the 2011 annual Grocer Gold Awards. Plans are underway to extend the project to Fashion & Home stores and the Distribution Centres, reflecting the Societys ongoing commitment to reduce waste and its impact on the environment. the full roll-out of The Co-operative brand across the food store estate through the programme of refurbishment and rebranding projects. continued focus to drive further improvements in standards, customer service, financial performance and colleague development, supported through the introduction of a new business planning and reporting tool. targeted marketing activity to support new store openings, refurbishments and brand conversions in addition to tactical offers including food and fuel voucher promotions.

Trading was particularly strong over the Christmas period, supported by an extensive promotion package produced by the Co-operative Retail Trading Group (CRTG). The importance of product availability cannot be underestimated, particularly given the increased preference of customers to shop locally. The Board takes this opportunity to pay tribute to the efforts of all store and distribution colleagues who constantly support this key requirement on a daily basis, providing the range, offer and service that our customers expect.

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Midlands Co-operative Society Annual Report 2012

Whilst the performance of the Societys food stores has been encouraging, trading in the Fashion & Home business was extremely challenging in a market where purchases are generally deferrable or discretionary. 2011 saw further decline in this area, which is directly affected by the subdued housing market, weak consumer confidence and rising unemployment. The trend of declining customer footfall on the high street and fierce price competition from the internet have been further negatives, all affecting the furniture, beds and electrical areas. In addition, the tough trading environment has seen the exit of several concession partners and suppliers, with reduced scope to provide alternative offers. Efforts to drive sales in the Societys Fashion & Home stores have continued including revised floor layouts, the introduction of new ranges and the rebrand of Stafford department store to The Co-operative. Positive efforts are also being made to increase fashion and home ranges in the food stores including textiles, electrical, gardening and cookshop accessories.

Store development
The development of the food store estate has again been the main feature of capital expenditure in 2011, and is a clear reflection of the Societys ambitious growth strategy. Eight new stores were opened during the year at Long Street in Atherstone; Briton Street in Leicester; Gospel Lane in Acocks Green; West Heath Road in Northfield; Hill Top in West Bromwich; Queensway in Rugeley; Shard End Crescent in Birmingham and Overslade Lane in Rugby. Early trading performance at the new stores has been very positive, giving confidence for further new store openings planned for the coming year. 18 store refurbishments were completed, including major projects at Castle Park in Burton, Glenfield, Melton, Mountsorrel, Oundle, Ripley and Shepshed. The brand conversion programme was accelerated during the year, with 101 food stores rebranded. Five remaining stores will be rebranded in the first quarter of 2012 to complete the programme across all of the Societys food stores. A number of new store developments are well underway in 2012, with several at the planning and assessment stage, as the Board follows its strategy of investment to extend the Retail estate.

Marketing
The Retail food business is supported by the Societys buying arrangements through the Cooperative Retail Trading Group (CRTG) in which senior Retail management take a proactive role. A strong programme of offers during the year was underpinned by national Co-operative television and newspaper advertising. Product ranges were enhanced during 2011, including the further expansion of fresh foods and healthy eating categories. The introduction of new Wholefoods and Free From products has been well received whilst the continued development of The Co-operative brand through the relaunched Simply Value and Truly Irresistible ranges has improved the overall customer offer. In addition, a new initiative to support local product ranges was introduced during the year at a number of Society stores including 68 stores which feature a local bakery offer. The co-operative movement continues to be the leading supermarket supporter of Fairtrade products, and Fairtrade Fortnight was once again a prominent campaign, underpinned by the

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excellent work of the Member Relations team during the year. 2011 saw an 18% increase in the sales of these products during the Fortnight. Member events were held with great success across a number of stores and followed the positive response to similar events held in the previous year. The events saw members benefiting from generous savings on their shopping, in addition to product sampling and promoting The Co-operative difference. Customer service remains a key priority in differentiating the Societys offer, and requires regular monitoring to ensure consistency. Mystery shopper visits are used for this purpose and it is pleasing to report the average measure of customer satisfaction in 2011 was maintained at 97%. Following the success achieved in 2010, the Perfect Day initiative has continued to support store managers in maintaining consistently high standards and has been well received by colleagues throughout the Retail business. During the year a successful conversion exercise was completed to transfer cardholders of the former food loyalty card into Society membership. This provides for a more inclusive provision of dividend benefit across the Society and was a key stage in the successful implementation of a single, all-purpose card for members and colleagues.

Retail systems
Efficiencies in the stock, sales and ordering process have been achieved during the year using the Societys new retail system. The ability to introduce sales-based ordering and perpetual inventory on selected products has generated benefits in having full visibility of sales, price reductions and waste trends.

Distribution
The Society controls its own distribution to Retail stores through its Food Distribution and Chilled Distribution Centres in Leicester. The retention of this control is a fundamental aspect of the Retail business strategy, underpinning availability of range and freshness of products in the stores. In April, the Society absorbed the significant impact arising from The Co-operative Groups consolidation of its national distribution network and the resultant loss of distribution to 64 Group stores from the distribution centres in Leicester. The distribution centres continue to provide a service to the neighbouring Heart of England, Tamworth and Midcounties Societies. These additional volumes help to ensure that costs per case are minimised. These costs remain extremely competitive, fully justifying the continued investment in the distribution centres and control over their operation. The vast majority of the Societys distribution fleet have been rebranded and include a small number of vehicles that have recently been converted to promote the Societys support of the International Year of Co-operatives in 2012.

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Midlands Co-operative Society Annual Report 2012

Travel
The joint venture provides the Society with a stake in the largest travel agency business in the UK
In last years report, the Board outlined details of the proposed travel joint venture that would bring together all parts of the Travel businesses of the Society and The Co-operative Group with Thomas Cooks UK retail network. The Boards decision to join the joint venture was made in the best long term interests of the Society, its members and Travel colleagues and took full account of the risks and volatile nature of the travel market. The joint venture was completed on 4 October 2011. Prior to the completion of the joint venture, the Society operated Travel on a business as usual basis. The sales and contribution of the operation during this period are included in the financial statements and again highlighted the sensitivity of the travel market to the economic conditions, with pressure on disposable incomes impacting on booking volumes and a shift in duration to shorter length holiday breaks. Foreign exchange sales were also affected by the trend of lower booking numbers, together with ever increasing competition on the high street. Business Travel traded more strongly, supported by growth from new corporate accounts. Since the completion of the joint venture, the Society has supported the integration of the joint venture through the provision of transitional services covering finance, IT, payroll, HR operations, property services and corporate affairs activities. These arrangements have primarily focused on maintaining continuity of service to members and customers, whilst allowing detailed plans to be formulated covering the handover of these functions to the joint venture as soon as it is practical to do so. The joint venture provides the Society with a stake in the largest travel agency business in the UK, and a continuing presence in the travel industry, at a much reduced risk, to complement the Societys other trading activities.

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Midlands Co-operative Society Annual Report 2012

Funeral
The Societys professionally trained staff provide the highest standards of service and 24-hour client care

Trading
The Societys funeral homes conducted 12,491 funerals during the course of the year, representing a slight increase on the previous year. As 2011 saw the number of registered deaths across the trading area decline by 2.4%, the Societys arrangements represented a modest improvement in market share and reflected the favourable impact of recent business acquisitions and new openings. The trend of falling death rates is expected to continue for at least the next five years as a result of the general improvement in life expectancy. Pre-payment funeral bond sales were again strong, increasing by 8.8% on the previous year, and helping to secure future market share. The higher funeral numbers generated increased sales in funeral homes whilst the support businesses of masonry, florists and coffin manufacture also saw consequent sales uplifts. A further improvement in bad debts has been achieved, reflecting the continued prompt collection of disbursement costs, which is now widely accepted as normal practice.

Service
The funeral market has become increasingly competitive as a consequence of the economic environment, with arrangement prices being more keenly compared by clients. In this context, the Societys Funeral business prides itself on delivering quality service, without exception. This commitment continues to be demonstrated by the Societys professionally trained staff providing the highest standards of service and 24-hour client care on a consistent basis. In addition, progress during the year included the launch of a new Funeral Wishes website to allow clients to register their funeral requests online, the organisation of a number of Christmas memorial services across the trading area and the provision of assistance to families with probate and legal matters through the Societys established link with Co-operative Legal Services. A limousine hire service for weddings and civil partnerships, launched in early 2011, continues to be well received, operating closely with the wedding department at the Societys Chesterfield department store.

Investment
In April, the Society completed its first acquisition in the crematoria sector with the purchase of Bretby Crematorium, situated on the outskirts of Burton on Trent. This significant investment extends the Funeral business portfolio and represents a key development for the Society. Growth through acquisitions is integral to the business strategy. In 2011, a well-established funeral business in Leicestershire was secured and a new home was opened in Dronfield Woodhouse, near Chesterfield in January 2012.
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Midlands Co-operative Society Annual Report 2012

Substantial investment was made in the Funeral fleet during the course of the year with four new hearses and nine limousines purchased. In addition, the Society has added a unique funeral service through the acquisition of the Rocket, a custom-built motorcycle trike hearse. The continuing programme of funeral home refurbishments has included the conversion of 24 homes to The Co-operative Funeralcare brand and the introduction of the new brand at two of the Societys masonry outlets. The new brand continues to be well received and plans are underway to extend the brand to the Societys florist operation in 2012. The priority for the business investment strategy remains unchanged to acquire established funeral businesses as well as opening new start homes operating as The Co-operative Funeralcare.

Integrated businesses
The strategy of providing a complete, integrated service to clients is fulfilled through the floral, masonry and coffin manufacture businesses and now extended through the acquisition of Bretby Crematorium. Coffin sales during the year were marginally ahead of the previous year whilst increased Floral sales include the full year impact of the business acquired in Stafford in 2010. Sales trends in Masonry have continued to feel the impact of the current economic climate, with both new stones and renovation work becoming a more discretionary element of the overall package.

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Midlands Co-operative Society Annual Report 2012

Transport
The operation of an efficient, low-cost vehicle fleet remains an integral part of the Societys trading activities
The retail motor dealerships at Kettering and Advantage Motors have continued to face a most difficult trading environment, as the downturn has affected the motor trade significantly. New car sales fell further in 2011, with private car registrations particularly affected by the decline in consumer discretionary spending. As a result of the continuing adverse market conditions, the Hull motor dealership site was closed in January 2012. On a more positive note, the Societys multi-franchise site in Lincoln adopted The Co-operative Motor Group brand during the year and has seen a positive response through improved sales, market share and customer satisfaction scores in the Citroen and Harley Davidson dealerships. Leicester Carriage Builders, the Societys specialist vehicle building operation, has been impacted by a marked decline in orders from local authorities resulting from the reduction in public sector spending. The Transport fleet operation provides an essential, cost effective service to maintain the Societys vehicles to the highest standards. The importance of the service cannot be underestimated, given the reliance of Retail on an internal distribution strategy and of Funeral on a reliable and presentable fleet.

Property
The drive to secure new profitable sites is a core feature of the Societys growth strategy

Development and facilities


The Societys investment property portfolio consists of 446 commercial lettings and 174 residential flats and houses. Management is by a dedicated team of property professionals through the Societys wholly owned subsidiary, Central Midlands Estates Limited. The recession continues to impact on the performance of the portfolio through the slowdown in rental growth and an increasing number of commercial tenants experiencing trading difficulties. The demand for empty properties remains extremely sluggish, with tenants negotiating hard to request more beneficial terms and shorter, more flexible leases on both new lettings and lease renewals. The Board take comfort from the fact that the portfolio is not overexposed to any particular tenant. The latest valuation of the portfolio of 95.7 million includes a reduction of 879,000 during the year, reflecting the challenging market conditions in the commercial property sector.

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Development and facilities


The team provides support and expertise in building, refrigeration, building services, energy management, petroleum and maintenance to all areas of the Society. It also undertakes the project management role for refurbishment of trading outlets as well as the store planning and merchandising needs of all stores and shops. Managing the extensive testing, inspection and planned maintenance regime that is demanded by todays legislation is an ongoing challenge. The maintenance help desk operates 24 hours a day to support the business on any property or repair issue. The team have supported all the capital development projects and refurbishments covered in the Retail, Funeral and Transport sections of this report as well as the store conversion elements of the brand roll-out. The Societys commitment to reduce energy consumption and carbon emissions has been demonstrated in the year through the continued roll-out of high efficiency freezer cabinets in the food stores, successful trials of LED lighting to sales areas, offices and warehouses and the installation of combined air conditioning and refrigeration systems.

Business development
The drive to secure new profitable sites is a core feature of the Societys growth strategy. This approach has targeted opportunities presented by the economic downturn, where business failures have led to sites becoming available for consideration or open to offers. Progress has continued in 2011 with negotiations at an advanced stage at a number of sites and several new leads being assessed to further extend the trading estate. The Board is pleased to see the efforts to secure new sites across the trading area in order to strengthen the Societys trading profile and market share in the Midlands.

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Midlands Co-operative Society Annual Report 2012

Colleagues
The dedication and commitment of colleagues to outstanding service provision and customer focus differentiates the Society from its competitors
In the current challenging trading environment, the contribution and commitment of colleagues has been a key factor in the Societys success. Their dedication to outstanding service provision and customer focus continues to differentiate the Society from its competitors. The focus of HR policy has continued to be the provision of a rewarding and supportive employment environment with Compensation and Benefits being reviewed and benchmarked to ensure that employment provision remains competitive. As part of the Societys stakeholder strategy, a record distribution of 1,322,000 was approved by members and made to all eligible colleagues in June 2011 to recognise their contribution to the business.

Supportive culture and environment


Commitment to encouraging colleague engagement and involvement continued with the 2011 Have Your Say attitude survey. The survey, consisting of 39 questions, elicited a positive response from colleagues, with the participation rate increasing from 87% to 93%. This valuable feedback has identified positive themes such as a strong increase in how the Society is perceived in terms of change, success, recommendation as a place to work and a promising increase in the encouragement of family and friends to purchase from the Society. The research will enable each business area to respond to specific issues for improvement and development identified by colleagues. As part of the ongoing commitment to colleague engagement, the Societys HR policies and procedures are continually reviewed to ensure they demonstrate best practice, transparency and consistency in management, leadership and communication. This includes maternity, paternity, adoption and flexible working.

Learning and development


During 2011, the Society invested 500,000 in the development of colleagues, and almost 800 learning events took place with a complement of 5,042 participants. A new People Development Manager was appointed in August with a key responsibility to review how learning and development is organised to ensure the future development of performance within the Society. During the year a new performance management and review process was implemented through a number of manager briefings and learning events. The new process is designed around the Societys vision and values and will provide a framework for the achievement of our strategic objectives.

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Other progress during the year included: Effective Manager Programme completed by 12 middle management participants the Society was a finalist in the 2011 Customer Service Training Awards over 100 colleagues participated in a new Duty Manager Development Programme a series of all you need to know self-learning modules implemented in nine Fashion & Home stores focusing on leadership and technical skills the launch of a new vocational qualification in Funeral Arranging and Administration a new Colleague Recognition Scheme went live in June 2011 to replace the Service Awards Scheme which had been in place for several years

Risk management
The Risk Management team are accountable for ensuring the Society identifies and responds appropriately to the risks it faces. This is a necessary part of doing business and is particularly important in the current economic climate. A revised management system was introduced in 2011 which enables informed decisionmaking based on a structured process for assessing and controlling risk. This includes a Risk Management Committee whereby the Management Executive meets on a quarterly basis to achieve clarity on the nature, scope and degree of risk encountered by the business, assess management plans to mitigate that risk, and ensure adequate progress in implementing those plans. The results of this activity are reported to the Audit Committee. The Risk Management team also has operational accountability for partnering all aspects of the Societys business activities in terms of health and safety management and loss prevention.

Health and safety


The Health & Safety team are accountable for advising the business on how to ensure that visitors to all of the Societys premises are kept safe and well this covers our colleagues, customers, and any other visitors to the Societys sites. This year the Society has built on the success of 2010 by utilising risk assessments to produce revised safe systems of work. This includes business-specific health and safety manuals which provide easily accessible user friendly guides to doing your job safely. Progress in this area is aimed at achieving further reductions in the number of accidents. The injury rate (per 100,000 employees) of 488 for the Society compares favourably with the industry-wide figure of 900.

Loss prevention
The Loss Prevention team are accountable for ensuring that the Societys assets and people are adequately protected. Increased focus is being directed to develop improved management information tools and ways of cross-functional working to ensure that the right level of support is provided in the right places at the right times.

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Pension scheme
Last years report outlined the decision to close the Societys defined benefit, final salary pension scheme to new entrants and future accrual and to introduce a new arrangement to provide a long term, sustainable and affordable solution to pension provision. This decision reflected the ever increasing costs and financial risk now widely acknowledged with the operation of final salary pension schemes due to the increase in life expectancy, together with other factors such as lower investment returns and increased regulatory influence. The combined effect of these factors contributed significantly to the deficit of 120 million revealed at the Schemes last formal valuation in 2008. The latest triennial actuarial valuation at December 2011 is currently in progress with the outcome of the exercise expected during the course of 2012. The Society has acted to address the Scheme deficit in the year by establishing an asset backed funding structure which has significantly reduced the deficit. An extensive consultation and communication exercise was undertaken in early 2011 to inform colleagues of the Scheme closure and propose a new defined contribution arrangement. This exercise included presentations involving members of the Management Executive held in various locations across the Society to explain the changes to contributing members of the Scheme. In addition, individual communication packs were provided to colleagues, supplemented with notice board and intranet publications. Communications were issued to pensioners and deferred members to confirm that the changes have no impact on their benefits. Following the consultation period, a ballot gave overwhelming support for the Scheme closure, with 91% of colleague pension scheme members voting in favour of the proposed changes. The Societys new flexible retirement plan was implemented on 1 August 2011 and provides colleagues access to a new defined contribution Group Personal Pension Plan (GPP) provided by Standard Life. The plan is designed to meet the forthcoming needs of Auto Enrolment and operates on a two tier basis. New colleagues are offered membership of the Nursery Scheme and after three years transfer into the Principal Scheme. This Scheme provides a generous contribution structure, offers colleagues a wide range of investment funds and a competitive charging structure. Additionally the GPP provides greater flexibility on how and when a colleague can take their pension benefits, recognising the diverse needs of the Societys workforce. In accordance with best practice, the GPP has a Governance Committee providing oversight on Standard Lifes administration of the plan and the Society is applying for accreditation under the new Pensions Quality Mark that recognises high quality defined contribution pension schemes.

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Midlands Co-operative Society Annual Report 2012

Corporate matters
Stakeholder distributions
The distributions from trading profit recognise and reward the three key groups of members, colleagues and the community for their contribution to the Society. The Membership Card records points for purchases from the Society and, based on the trading in the second half year, the Board is pleased to propose an increased dividend of 1.10 per 1,000 points collected up to 28 January 2012. This will be paid in Co-operative vouchers shortly after approval at the Annual Members Meeting in May 2012. The colleague dividend recognises their contribution and rewards them in line with trading success at 5% of the trading profit, before exceptional items. The Board proposes a dividend of 1,327,000, also to be paid in Co-operative vouchers once approved. The Making a Difference Community Dividend scheme has been allocated 1,483,000 since its launch in 2004. The proposed dividend of 1% of trading profit before exceptional items, of 266,000, will be awarded by the Boards Community Dividend Selection Committee and the Regional Committees to a wide range of community groups and good causes across the Societys trading area.

Membership
As at 28 January 2012, the Society had 992,865 members. The movement in the year was: At 22 January 2011 New members Closed accounts At 28 January 2012 938,683 55,350 (1,168) 992,865

The core membership database of existing members, included in the total above, has increased from 176,000 to 231,000 during the year. This increase includes the transfer into Society membership of 44,000 former food loyalty card holders following the cessation of that scheme in 2011. As part of this arrangement, the 1 member share contributions were deducted from the Interim Members Dividend that was paid in November 2011. The Society has adopted a Code of Practice on withdrawable share capital. Under the Code, all those joining the Society or members investing through their share accounts are reminded in written documentation that share capital is risk capital. A copy of the full Code can be obtained from the Secretary and the Board takes this opportunity to state that, at present, the risk associated with members withdrawable share capital is extremely low, given the strength of the Balance Sheet published with this report. Through the Regional Member Relations structure a wide range of events and community activities are organised for members focused on the three themes of member development, education and co-operative, ethical and environmental trade. Details can be found later in this report.

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Midlands Co-operative Society Annual Report 2012

Political donations
Grants of 112,000 (108,000 in 2010/11) were paid to The Co-operative Party during the year. This includes support at national level and grants to the three Society Party Councils.

Corporate governance
The Society genuinely strives to put co-operative values into practice in all aspects of its activity. The Social Accountability Policy, endorsed by the Board, builds on the Code of Business Conduct. Full details of the progress on the Social and Co-operative Performance Indicators can be found on page 29.

Director and Regional Committee retirements


Robin Bennett and Keith Bostock retire under the age rule at the Annual Meeting and the VicePresident, Rod Findley has also announced his intention to retire in April. On behalf of the members the Board takes this opportunity to record appreciation for their valued contribution and service to the Society. Robin Bennett was first elected by the members in Leicester in 1974, serving on the Area Board and subsequently the Eastern Regional Committee for over 35 years. Robin was a Director of the Society for 16 years and a member of the Leicestershire (now Eastern and Southern Regions) Member Relations Committee for 25 years. He has also been a member of the Midlands Eastern and Southern Region Society Party Council for many years. Keith Bostock was first elected to the NEMCO Area Board in 1998 and subsequently the Northern Regional Committee, serving for a total of 14 years, the last eight as a Director of the Society and was a member of the Audit Committee and a former Trustee of the Societys Pension Scheme. The Societys Vice-President, Rod Findley, resigns from the Eastern Regional Committee in April, having Chaired the Committee for the last five years. Prior to that, he was Chair of the Leicester Area Board for eight years. Rod has been a Director of the Society since May 2005, and for the last year has been Vice-President. He has been a member of the Audit and Remuneration Committees and a former Trustee of the Societys Pension Scheme. The Directors, as always, extend their sincere appreciation to all Society colleagues for their efforts in contributing to the Societys success, and to all members and customers for their loyal support. Frank Croft President Martyn Cheatle Chief Executive James Watts Secretary 22 March 2012

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Corporate governance
Internal Controls and Audit Committee
The Co-operatives UK Corporate Governance Code of Best Practice requires the Board of Directors to review the effectiveness of the Societys system of internal controls. This review covers all controls including financial, operational, compliance and risk management. The Board of Directors is ultimately responsible for the Societys system of internal control and for reviewing its effectiveness. Such a system 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. The Management Executive are responsible for the implementation, day to day operation and management of the Societys system of internal control. The Board of Directors has an established Audit Committee, which operates as a subcommittee of the Board and is responsible for reviewing the effectiveness of the Societys system of internal control. The Audit Committee meets three times a year to: consider reports from the Management Executive, internal audit and external audit on the systems of internal control and any material control weaknesses discuss with the Management Executive the actions taken in response to matters raised in these reports or by the Board review the effectiveness of the risk management process and ensure significant risk issues are referred to the Board for consideration so that appropriate steps can be taken to minimise such risks to the Society consider the effectiveness of the operation of the internal audit function consider the appointment of external auditors and in conjunction with management agree the nature and scope of the external audit review review the external audit management letter and the management response to the report recommend reviews of other areas of the business where a more intense audit procedure is necessary

The Audit Committee also has a duty to discuss problems and reservations arising from the Societys audit and any matter the auditor may wish to discuss, if necessary in the absence of any management. In addition, the Audit Committee carries out periodic self-evaluation to ensure that the remit set by the Board of Directors is being fully satisfied. In accordance with its terms of reference, the remit of the Audit Committee is reviewed by the Board at least every three years, so as to ensure that it fully meets best practice in corporate governance. The Board most recently carried out this review in August 2010 and no amendments were considered to be necessary.

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The Board and the Management Executive


The Society strives for the highest professional standards and business performance and seeks to maintain these standards across all of its operations. The Society has an appropriate organisational structure for planning, executing, controlling and monitoring business operations in order to achieve Society objectives. The organisational structure has clearly defined lines of responsibility and of delegated authority. The Board, elected by members, and the Management Executive have primary responsibility for setting the Societys strategy and monitoring delivery of that strategy by management, identifying key business risks facing the Society and for the development of policies and procedures to manage those risks. The Society operates a risk management process, which identifies the key risks facing each business and reports to the Management Executive and Audit Committee on how these risks are being managed. Regular self-assessment audits are carried out across the business and these self assessments are validated on a sample basis. The Societys Internal Audit department performs independent reviews of operational and financial control procedures across the business. The Risk Management team is accountable for ensuring the Society identifies and responds appropriately to the risks it faces, reporting formally to the Societys Risk Management Committee which in turn is accountable to the Board for the appropriate management of risk. There is a continuous process for identifying, evaluating and managing the significant risks faced by the Society, which operated during the year under review and up to the date of approval of the Annual Report and Financial Statements. This process, which includes the prioritisation of key risks, is regularly reviewed by the Board of Directors. The Risk Management team also has operational responsibility for health and safety management and loss prevention. The Risk Management department works closely with the Internal Audit function in order to provide an integrated approach to the prevention, detection and reduction in losses arising from identified risks. Progress against management action plans to overcome internal control weaknesses and business risks, is monitored and reported to the Audit Committee. Society management recognise the risks attendant on all areas of business resulting from operating in increasingly competitive market places and continue to review processes and procedures with the objective of ensuring effective controls are maintained, overcoming any identified weaknesses and achieving business efficiencies. Where problems do arise positive action is taken to implement appropriate control mechanisms. Accordingly the Board of Directors confirm that the effectiveness of the system of control for the year commencing 23 January 2011 and ending on 28 January 2012 has been reviewed in line with the criteria set out in Corporate Governance Code of Best Practice.

Code of Best Practice 2005


The Code represents a significant expansion and updating of its previous version with which the Society had a 98% compliance rating. The Code and its Appendices are comprehensive in scope. However, Co-operatives UK have recognised that co-operative societies differ in scale, size, trading profile and resources and that it is inevitable that levels of compliance will differ for

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acceptable reasons. The approach to assessing compliance is that societies should review their rules, practices and policies, in the context of what is appropriate for their circumstances, and provide explanations where these do not comply strictly with the Code. The following explanations are, therefore, provided: Remuneration report The report confirms that the disclosure in the notes to the accounts complies with accounting standards and is at a level and in a format deemed appropriate by the Board. Board size The Board believes that size should relate to the democratic structure of a particular cooperative and that under the Societys structure, 16 Directors is sufficiently close to the recommendation of 7 to 15. Refreshing the Board The Society imposes an age rule of 70, in preference to mandatory breaks in service, given the Codes understandable emphasis on Director training, competence and continuity. Search committee The Board has not considered it necessary to establish such a committee, as it believes the designated issues are sufficiently important and capable of being dealt with by the Board as a whole. Independent professional advice The Code prescribes that one-third of the Board should be sufficient to access such advice in order to meet their responsibilities; however, the Board believes that a simple majority is the appropriate criterion for all of its decisions. Appraisal of the Board and individual Directors The Board does not undertake a formal annual evaluation of its own performance or that of individual Directors. It does, however, continue to identify the need for specific training and has undertaken such training during 2011 on management executive remuneration issues. Board meeting independent of Executives The Board does not meet independently on a scheduled basis, but recognises that it has the authority to do so, should circumstances arise.

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Remuneration report
The Remuneration Committee
The Remuneration Committee is a Sub-Committee of the Board of Directors and is responsible for all aspects of remuneration and contractual terms and conditions of the members of the Societys Management Executive. The Committee sets the remuneration policy and strategy for these individuals and determines appropriate levels of reward which are subject to confirmation by the Board. The Committees terms of reference do not include consideration of Directors fees and expenses. The Board directly formulates any proposals on these issues for the approval of Members. The Remuneration Committee is composed entirely of non-employee Directors who have no day-to-day involvement in the management of the business. The membership of the Remuneration Committee during the financial year was Frank Croft, President, Rod Findley, Paul Singh and Keith Redfern. The Committee is chaired by the President. The Chief Executive attends meetings of the Committee to make recommendations relating to the remuneration of the Management Executive. The General Manager, Human Resources provides advice and guidance to the Committee and the Society Secretary is Secretary of the Committee. The Chief Executive is not in attendance when his own remuneration is considered. The Remuneration Committee has access to an external specialist consultancy to provide independent, professional advice to them on remuneration policy, salary ranges and other elements of remuneration, when required. The Committee has met twice during the year.

Remuneration policy
The Societys remuneration policy for the Management Executive is to apply the median of market base salaries once the individual has become fully established in post and performance is viewed as fully acceptable.

Elements of remuneration
Management Executive total remuneration consists of Salary, Pension, a performance-related Incentive Scheme and other benefits. Details of the remuneration of the Management Executive are provided in note 4 to the Accounts in a format deemed appropriate by the Board.

Salary
The Committees objective is that base salaries for the Management Executive should be at the median level for the relevant sector, having regard for job scope, function and the size and complexity of the business. The Committee reviews the base salaries annually or when a material change in responsibility or scope occurs.

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Pension
The Management Executive are eligible to join the Societys defined contribution Group Personal Pension Plan and all but one were members at January 2012.

Incentive scheme
In June 2011 the Board approved the implementation of a revised Management Executive Incentive Scheme. The revised Scheme is set below the market base for comparable schemes, incorporating long term and short term targets based on both financial and non financial measures. Any payments due under the Management Executive Incentive Scheme are nonpensionable. The revised Scheme will reward performance over a rolling three year period and incorporate long term targets covering cumulative trading profit, customer service and colleague engagement. The Scheme replaced the previous Management Incentive Plan that had operated since 2003/04. For the year ended January 2012 incentive costs of 321,000 (2011: 305,000) are recognised in the financial statements of which 271,000 is payable in respect of performance in 2011/12, with a further 50,000 potentially payable in 2014 subject to performance of the business during the three year period ending January 2014

Other benefits
Other benefits provided to the Management Executive include permanent health insurance; private medical insurance; medical examinations; and the provision of a car or a nonpensionable cash alternative.

Service contracts
All members of the Management Executive, including the Chief Executive, are entitled to 12 months notice.

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Social responsibility
The community
The Societys Making a Difference Community Dividend fund continues to be a huge success. The scheme sees the distribution of 1% of the Societys trading profits in the form of grants to local community groups and projects across the region. To date 731 grants have been awarded, totalling over 1.3 million to initiatives ranging from church hall restoration, improving school playgrounds, special needs equipment, new kitchen facilities, educational resources, IT equipment, disabled access and much more. In addition to benefiting the individual projects, the scheme has generated considerable goodwill for Midlands Co-operative as well as positive media coverage.

Charity and donations


The Motor Neurone Disease (MND) Association continues to be the Midlands Co-operative Corporate Charity until May 2012, when the charity Newlife Foundation, elected by our colleagues, will be supported by the Society. Society colleagues have raised over 400,000 for the MND Association since it was elected as the Corporate Charity at the start of 2010. The new colleague elected charity, Newlife Foundation, provide disabled or terminally ill children with essential equipment and specialist aids to help them do the things that most take for granted. Through fundraising and awareness campaigns, colleagues at the Society will be able to make a real difference to the lives of disabled children. The Board would like to take this opportunity to thank colleagues and members for their support and enthusiasm in raising money for the Motor Neurone Disease Association and wish the charity well in continuing to raise funds for those living with this incurable disease. A further 12,600 was distributed during the year covering donations in support of raffles, tombolas and similar activities.

Energy efficiency
The Society continues to reduce overall energy consumption through investment in energy efficient technologies in store refurbishments and new developments. Energy efficiency replacement programmes and store refurbishments completed in 2011 provided an annual energy reduction of 230,000. This is an average annual reduction of 24% per store, equivalent to 1,380 tonnes of CO2 emissions. Successful trials of LED lighting within Retail sales, refrigeration, office and warehouse areas demonstrating high performance have been adopted as standard specification. Trials of energy efficient warehouse lighting are ongoing within Distribution Centres. Specifications for refrigerants have been standardised with a lower global warming potential (GWP) giving the Society the opportunity to reduce CO2 emissions by 50% when compared to previous specifications

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Recycling
Plastic, polythene, paper and cardboard During 2011 the Society recycled an average of 335 tonnes of cardboard per month and 25 tonnes of plastic, which is a decrease of 18% recycling of cardboard and 18% increase of soft plastics. The reduction in cardboard was a result of the Society improving waste control and suppliers actively driving a reduction in packaging. The recycling of rigid plastics, such as yogurt and cream displays, flower buckets and mushroom cartons, has again eliminated waste to landfill and has created increased revenue during 2011. Green Plan-it continues to collect all types of paper waste from the Food Distribution Centre and Business Support Centre, Lichfield via the existing recycling infrastructure. All paper is shredded and certificates of destruction and waste transferred notes issued, ensuring the Society is legally compliant. During 2011, 85 tonnes of paper was diverted from landfill and was broadly in line with the previous year. Electrical waste The Society is fully compliant with the Waste Electrical and Electronic Equipment (WEEE) Directive 2007 and is continuing to recycle all waste equipment returned to stores by customers, via its own registered private collection centre in Leicester. The Society continues to support the Government Battery Take Back Scheme for all domestic batteries, complying with the current legislative requirement for all retailers who sell batteries to offer a safe recycling option to the public. The scheme has been well received with all stores and the Business Support Centre participating. Waste disposal In June 2011 a cost effective, landfill-free, total food waste solution was rolled out to all food stores using industrial anaerobic digestion plant located within the trading area, for the regeneration of food waste into green energy. The remaining non-food waste is compacted and, using a system of pyrolosis, transformed into green energy with residue from the process being used as fuel for the furnaces used in the production of cement. To reduce our carbon footprint collections are made on a weekly basis from Society stores. In November 2011 the Societys Distribution network implemented Zero to Landfill. The initiative will be rolled out to the Societys department stores in March 2012 and will result in the entire Retail business being zero to landfill. Carrier bag reduction In January 2009 the Government planned to reduce the amount of carrier bags used by retailers within the UK by 50%. The Society has achieved this target and in 2011/2012 has further reduced carrier bag usage by 4%.

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Colleague awareness, training and a move from consumer to colleague allocation of bags has resulted in a reduction in the usage of plastic carrier bags. All stores are equipped with recycling facilities for customers to place their unwanted bags. Sales of re-usable cotton bags and bags for life continue to be supported by the Society.

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Social and co-operative performance indicators


Area Member economic involvement: Member democratic participation: Measurement Trade () conducted with members as a proportion of turnover (%) Number of members voting in elections and as a percentage of total membership Outcome 2011/12 (comparisons 2010/11) In 2011, 123.9 million of sales were made to members. These sales represented 15.6% of turnover (gross sales net of VAT) compared to 101.9 million of sales in 2010 representing 11.8% of turnover. In April / May 2011 voting for Regional Committees was necessary in one out of four Regions and for one Regional Member Relations Committee. A total of 361 members voted, representing 0.2% of active membership. (In April 2010 voting for Regional Committees was necessary in two out of four Regions and a total of 422 members voted, representing 0.2% of active membership). A total of 721 learning events (excluding Travel) have taken place during 2011 with a complement of 4,576 employee participants in attendance. Learning events launched in 2011 included a new Duty Manager programme aimed at developing both leadership competencies and technical skills, Gold till training for Fashion & Home stores and Brand Briefings to improve colleague engagement. 1,208 training hours were delivered to members and Directors/Committee members in 2011 compared to 1,228 hours in 2010. Reportable accidents in 2011 totalled 55 as compared to 104 in 2010 and routine accidents of 1,147 in 2011 compared to 1,159 in 2010. Of the Societys workforce, 66% are female and 34% are male (2010: 68% female, 32% male), with the change in profile reflecting the loss of the Travel business. Ethnicity data is held for 84% of employees with a detailed record held for every employee joining since 2001. All trading businesses continue to successfully implement their Customer Promise. The Retail business has again achieved high customer satisfaction ratings. Food stores achieved 96.2% compared to 97% in 2010, reflecting the introduction of more challenging measures to drive further improvements in this area.

Participation of employees and members in training and education schemes:

All types of training (induction, health and safety, IiP etc), member training of all types including committees

Staff Injury and absentee rates: Staff profile gender and ethnicity:

Staff injury rates (full/part-time) broken down by RIDDOR regulations and others. % male/female employees

Customer satisfaction %:

Number of customers satisfied as a percentage

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Area Considerations of ethical issues in procurement and investment decisions: Measurement Qualitative description of how these factors are considered in the course of business. Fairtrade products sold. Investment in community and co-operative affairs: Annual proportion of pre-tax profit invested in community as proportion of profit before tax %. Annual proportion of pre-tax profit invested in other co-operatives. Outcome 2011/12 (comparisons 2010/11) The Society has a Code of Business Conduct covering relationships with customers and suppliers. This, together with the Societys responsible approach to environmental matters, is an increasing requirement as a part of competitive tendering. 6.7 million representing a 26% increase on 2010. The Society Community Dividend Scheme distributed 204,000 across the Societys trading area in 2011, compared to 189,000 in 2010. In addition, 12,600 of smaller donations were made. A further 20,000 was provided to other co-operatives in the form of grants in 2011, compared to 25,000 in 2010. By December 2011 the Society had raised 398,000 in the two year partnership for the corporate charity, Motor Neurone Disease Association. Net carbon dioxide (CO2) emissions arising from operations (tonnes): Waste recycled / reused as percentage of waste arising Annual CO2 emissions associated with energy used for all on-site operations ie offices/shops. At this stage it excludes transport. % of recycled/reused. This includes scrap/effluent waste. The Society produced 51,131 tonnes of CO2 from 374 premises compared to our base data (average three years 2002-2004) of 49,600 tonnes of CO2 from 368 premises. This is a 2.6% reduction in CO2 on the previous year. By June 2011 the Society became the first food retailer to stop sending any waste to landfill; this resulted in 8,339 tonnes of waste being diverted from landfill (1,484 tonnes of which was food waste). All of this waste will be recycled.

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Members
Coming together to share an interest can be the start of members deeper engagement with the Society
The Societys three regional Member Relations Committees had a very busy and productive year. Their programme is structured around a strategy of three themes covering Member Development, Co-operative, Ethical and Environmental Trade, and Education, as agreed at their Joint Conference and approved by the Board. Detailed regional highlights will be given at the Annual Members Meetings. This report seeks to give an overarching picture across the whole Society.

Co-operative member development


The programme delivering this strategic theme aims to improve opportunities for members to play an active part in their Society and to increase the diversity of members participating. This cannot be delivered in a one size fits all way, so this year we have carried out surveys to seek members views, held get to know your Co-op events and community partnership meetings, worked with our member groups, provided access to formal and informal courses and contributed to a major event to raise awareness of and celebrate the gamut of co-operation. Coming together to share an interest or fun activity can be the start of members deeper engagement with the Society. By Rule, Member Relations provides educational, cultural and recreational activities for members and their families. This may be getting together socially, combined with talks on topics of interest at the Caf Clubs held in Chesterfield and Ilkeston department stores, coffee morning gatherings in Birmingham, the Co-op Friendly Club in Stafford or the Friendship Group in Leicester. Members special interest groups and classes include amateur drama, with the highly acclaimed MCS Repertory Company in Birmingham and the Ratae Players in Leicester, art and a variety of crafts, films and photography, wine appreciation and languages, several types of dancing, indoor bowls, keep fit, tai chi and yoga. A number of bands and choirs are also supported. Outings to places of educational interest are well supported. Members have visited the Sir Thomas Boughey Co-operative High School in Stoke on Trent, the Peoples History Museum in Manchester, the Tarnished Earth Exhibition in Sheffield, the National Memorial Arboretum and, together with teachers and students from the Sathya Sai School in Leicester, stayed at New Lanark, the model industrial town established by the father of co-operation, Robert Owen, which is now a World Heritage Site. The Northern Committee has linked with the Workers Educational Association to provide computer taster sessions in our stores at Ripley and Chesterfield, so that members could learn internet skills, for example setting up e-mails or secure online banking. The Eastern and Southern Committee joined in Leicestershires Older Persons Month, supporting a number of events, and members from right across the Society got together for a tea dance at Burton Town Hall, hosted by the Western Region.

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The Co-operative Womens Guild held their national conference in Chesterfield in 2011, and local branches received financial support to send delegates. It was pleasing to note that a new Guild branch opened in Thringstone during the year. Woodcraft Folk groups also receive support from all three committees, and the Western Region holds an annual water party for the young people which always attracts a lively crowd. Member Relations encourages elected members - and those thinking of standing for election to attend courses provided by The Co-operative College, to acquire the skills and information that give the confidence to participate fully. Briefing sessions were held for newly elected committee members in July to help them get a full picture of the work of Member Relations and for all committee members in November, when they were updated on the Society five-year plan, the noteworthy Zero to Landfill programme and the development of the Societys websites. Officers and committee members attended a disability awareness and equality training day, and The Co-operative Groups Values and Principles Conference in November, which provided an excellent opportunity to share knowledge of member programmes and network with fellow co-operators working in the same field. Regionally, Member Relations participates in the two Co-operative Education Groups and Co-operatives East and West Midlands, which seek to highlight the economic contribution of the co-operative and mutual sector. Co-operative Congress was held in the Societys trading area in 2011, at the Hilton Metropole Hotel at the NEC. This coincided with the launch of the 2011 Co-operatives Fortnight and the opportunity was seized to showcase both the Societys businesses and the work of Member Relations at stands in the Congress Exhibition. This was opened up on the final day for all members to visit and, together with other societies in the Midlands, Member Relations coordinated a programme of additional demonstrations, competitions and fun activities for visiting members to enjoy, plus displays and presentations by many different types of co-operative organisations and enterprises, all with the serious purpose of highlighting the achievements of co-operation.

Co-operative, ethical and environmental trade


Member Relations works to promote the Society as a leading ethical retailer, encouraging members and the wider community to trade with it. This involves working with our businesses, to highlight Co-operative products, local sourcing, honest labelling, healthy eating and the Societys recycling, energy saving and other environmentally concerned practices. Community events of all sorts can provide the vehicle for drawing attention to the Societys standing in these areas, from Eastwood Arts and Stafford Music Festivals to Kettering Conference Centre Students Open Day, from Chesterfield Eco Day and the Justice & Peace Network to the Whittington and Fisherwick Environmental Fair. Tastings of Co-operative products were offered at a number of food and drink festivals the Derbyshire at Hardwick Hall, and local events at Wolseley Bridge, Belper and Stone. The Society and its place in the community were promoted at the Birmingham Sustainability Forum and at the Heart of England NHS Trust Community Health Fair. Member Relations was asked to present the Sustainability Award to students at Leicester University and talk about the Societys initiatives in this regard. Member Relations in the Western Region has supported new store launches, sometimes on the opening day itself, explaining membership to new customers, but also in advance by
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making links in the community around the new enterprise for example, at Shard End and Acocks Green in Birmingham and in Rugeley and Rugby. Member Relations has also supported store fun days, relaunches after new branding plus open days and meet and greet events at funeral homes. Northern Member Relations works hard to support the Societys department stores in their region, contributing to in-store, charity and community events, ranging from quizzes to fashion shows. Events demonstrating Co-operative Principle 7 concern for the community initiated in Birmingham and Chesterfield, have been further developed in Ilkeston, Melton Mowbray and Kettering. This involves Member Relations bringing together Society business representatives and like-minded community organisations, to explore ways of working together in mutually supportive ways. This leads to many exciting and sometimes unexpected results, such as the record-breaking Bollywood event in Ilkeston and even bicycle recycling, where people were asked to bring redundant bikes to our Melton store to be reconditioned and sold on at affordable prices to less fortunate members of the community by Groundwork Leicester & Leicestershire. The Bicycle Doctor was also on hand to give some tips on safety and maintenance and 19 bikes ended up heading for new homes. Activities promoting Fairtrade take place throughout the year, highlighting the longstanding Cooperative support for this campaign. Member Relations contributes to the programmes of a number of local Fairtrade groups and, as well as the well-known product tasting sessions chocolate and wine being particularly well received the Committees have also supported Fairtrade fashion shows, a Fairtrade tea dance for members at Birminghams Tower Ballroom, and many workshops and assemblies in schools. Fairtrade hampers and other goodies have been contributed in support of other community events: bananas for the Stafford Fun Run, lunch packs for 500 children at a Sustainable Treasure Hunt, a Fairtrade meal at Chesterfield College, plus helping Leicester achieve the longest length of Fairtrade cotton bunting, displayed around St Martins Square. Member Relations has developed partnerships with community dieticians and local authority healthy eating teams. At the launch of Derby Heart City, fruit kebabs were offered to highlight the joint working. The Five A Day Get On Your Way programme of health advice and activities aimed at adults with learning disabilities in Shepshed and Syston has also produced a recipe book and step-by-step cooking guide, illustrated with many co-operative products. Chernobyl children staying with local families in Leicester were provided with fresh fruit throughout their visit and those staying in Derbyshire were treated, together with their host families, to a visit to the Chesterfield FC B2net stadium with its Midlands Co-operative Community stand. The Luncheon Club programme in the Eastern and Southern Regions has been extended to the cafes in the Glenfield and Melton Mowbray stores. In conjunction with local social services, people who are isolated in their own homes are brought to the Societys cafes for a nourishing meal, in a welcoming and sociable atmosphere.

Education
Member Relations aims to deliver co-operative learning experiences to all levels of the education system, highlighting co-operative values and principles, illustrated through our support of Fairtrade, ethical trade and healthy lifestyles, plus co-operation as a business form

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and the history of the co-operative movement, linked to its relevance today. The Member Relations Officers make many visits to schools, delivering workshops and presentations in classrooms and at assemblies, but sometimes they gain wider reach by linking with community projects and multi-school events. Co-operative support for healthy eating has long been demonstrated by the Eastern and Southern Committee and in a wide variety of ways. They sponsored two performances by Trifle as part of the Leicester Comedy Festival, putting over healthy food messages in an entertaining way, much appreciated by the children at Mowacre Hill and John Wycliffe Primary Schools in Leicester and Lutterworth. Fruit was donated for the Food for Thought Project, linking Leicester with Masaya in Nicaragua. The Soft Touch Arts Co-operative was supported in its healthy eating project in New Parks. Young people were invited into their local Society store to learn about food labelling and ingredients were provided for cookery sessions in New Parks and Braunstone, the latter as part of the National Food Routes Project. Support was given to health professionals working with families and young people struggling with weight problems in New Parks and for the healthy lunchbox project in Syston. A smoothie-making bike provided healthy exercise and a delicious fruit drink at Dunton Bassett School, delivering the message in a fun way. The Committee donated voucher prizes for the Lets Get Cooking project in Groby and for the Leicester Student Chef of the Year. All the Committees work with Young Enterprise, a charity linking schools with the world of work. The Co-operative Masterclass for secondary students, for which the Officer for the Eastern and Southern Regions received the Societys Innovations Award, has been delivered in schools in Oundle, Enderby, Oadby, South Charnwood and Anstey Martin, and has now been rolled out in Chesterfield. Modules for primary level pupils have been delivered in Overseal, Dronfield, Ilkeston and Eastwood. The Western Region Officer delivered workshops on co-operative enterprise at a multi-school event in Solihull in February and supported a Basic 21 event for ten Birmingham schools, examining sustainability issues. Healthy snack bars rewarded 100 children taking part in a Green Day near Stafford, whereas Fairtrade was the subject of the presentation at the College for International Citizenship and at Lakeside and Chase View Primary Schools. Tidbury Green School was supported during their Fairtrade Day. Corporate social responsibility and the Third Sector was debated at a conference in Yardley, Birmingham, with the Officer representing the Society, and co-operative history the subject for a talk to 140 members of the Tamworth History Group. In the Northern Region, the Officer has developed a partnership with Health 4 Life, delivering a healthy breakfast and shopping challenge for secondary students. The caf in the Chesterfield store provides examples of the healthy way to start the day and the students discuss the issues around this. They are then challenged to shop for four adults for three meals on a limited budget, taking account of health and ethical factors. This has successfully developed a range of skills from maths to communication and all the students enjoy getting to scan their selection at the tills to see if they are on budget. The project has been further developed for adults with learning or mental health difficulties. The Northern Committee has supported a number of healthy eating roadshows held around Derby, and has provided the opportunity for local schools to take part in the Farm to Fork project at The Co-operative Farm at Stoughton. The children see the wheat being grown and bees making honey, plus the part that wildlife plays on the farm, before making their own pizza
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using Co-operative ingredients. A number of primary schools have undertaken the Ethical Challenge developed by Member Relations and taken up now by our Retail business, inviting the children to visit their local store to find examples of the co-operative difference, be it naked cucumbers or Braille on medicines. The Societys Member Relations Committees have now further developed their programme for 2012; they thank members for their support and look forward to their continuing participation.

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Statement of Directors responsibilities


The directors are responsible for preparing the Directors Report and the Societys financial statements in accordance with applicable law and regulations. Industrial and Provident Society law requires the directors to prepare financial statements for each financial year. Under that law the directors have elected to prepare the financial statements in accordance with United Kingdom Generally Accepted Accounting Practice (United Kingdom Accounting Standards and applicable law). Under Industrial and Provident Society law the directors must not approve the financial statements unless they are satisfied that they give a true and fair view of the state of affairs of the company and of the profit or loss of the Society for that period. In preparing these financial statements, the directors are required to: select suitable accounting policies and then apply them consistently; make judgements and accounting estimates that are reasonable and prudent; state whether applicable UK Accounting Standards have been followed, subject to any material departures disclosed and explained in the financial statements; and prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Society will continue in business.

The directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Societys transactions and disclose with reasonable accuracy at any time the financial position of the Society and enable them to ensure that the financial statements comply with the Industrial and Provident Society Acts. They are also responsible for safeguarding the assets of the Society and hence for taking reasonable steps for the prevention and detection of fraud and other irregularities. The directors are responsible for the maintenance and integrity of the Societys website. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. So far as the director is aware, there is no relevant audit information of which the Societys auditors are unaware; and he/she has taken all the steps that he/she ought to have taken as a director in order to make himself aware of any relevant audit information and to establish that the Societys auditors are aware of that information.

President | Vice-President | Chief Executive | Secretary


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Report of the independent auditors


Independent auditors report to the members of Midlands Co-operative Society Limited
We have audited the financial statements of Midlands Co-operative Society Limited for the 53 weeks ended 28 January 2012 which comprise the group revenue account, the group balance sheet, the group cash flow statement, the group statement of total recognised gains and losses, the note of historical cost profits and losses, the reconciliation of movements in members funds, the accounting policies and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

Respective responsibilities of directors and auditors


As explained more fully in the Statement of Directors Responsibilities, the directors are responsible for the preparation of financial statements which give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and International Standards on Auditing (ISAs) (UK and Ireland). Those standards require us to comply with the Auditing Practices Boards Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Societys members as a body in accordance with Section 9 and 13 of the Friendly and Industrial and Provident Societies Act 1968 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

Scope of the audit of the financial statements


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

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Opinion on financial statements


In our opinion the financial statements: give a true and fair view of the state of the Groups affairs as at 28 January 2012 and of its profit and cash flows for the year then ended; and have been properly prepared in accordance with United Kingdom Generally Accepted Accounting Practice and the Friendly and Industrial and Provident Societies Acts 1965 to 2002 and the Industrial and Provident Societies (Group Accounts) Regulations 1969.

Matters on which we are required to report by exception


We have nothing to report in respect of the following matters where the Industrial and Provident Societies Acts, 1965 to 2002 require us to report to you if, in our opinion: a satisfactory system of control over transactions has not been maintained; or the Society has not kept proper accounting records; or the Societys financial statements are not in agreement with the books of account; or we have not received all the information and explanations we need for our audit

Opinion on voluntary disclosures corporate governance statement


The Society prepares a Corporate Governance Statement including details of the Societys compliance with the Co-operatives UK Limiteds Corporate Governance Code of Best Practice issued in May 2005. The Directors have requested that we review whether the statement on pages 23 to 25 reflects the Societys compliance with paragraph D1.1 (paragraph 5), D2.1, D2.4, D3.1 (paragraph 3) and D3.2 of the Co-operatives UK Limiteds Corporate Governance Code of Best Practice. We have nothing to report in respect of this review. Christopher Hibbs Senior Statutory Auditor For and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors East Midlands 22 March 2012

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Accounting policies
Accounting basis
The following accounting policies have been applied consistently in dealing with the items which are considered material in relation to the Group financial statements. The Group financial statements are prepared in accordance with applicable UK accounting standards, using the historical cost convention modified to include the revaluation of certain land and buildings.

Accounting date
The Group financial statements are made up to the fourth Saturday in the year ended 31 January. The current period is for the 53 weeks ended 28 January 2012 (2011: 52 weeks ended 22 January 2011). Central Midlands Estates Limited and Oakwell Stores Society Limited make up their financial statements to 31 January each year. Advantage Motor Group Limited makes up its financial statements to 31 December each year.

Basis of consolidation
The Group financial statements consolidate the financial statements of Midlands Co-operative Society Limited and all its subsidiaries. The results of businesses acquired during the year are included in the Group financial statements from the dates of their acquisition using acquisition accounting standards. Midlands Co-operative Society Limited has not presented its own financial statements as part of these Group accounts as these are filed separately.

Turnover
Turnover, as disclosed in accordance with Application Note G to FRS5 includes cash sales, goods sold on credit, commissions and property rental income. It is stated net of VAT, discounts and incentives. Travel commissions are recognised at the point of sale, with appropriate provision for anticipated cancellations

Gross sales
Gross sales is a memorandum disclosure and represents the total transaction value of all our services and hence includes the total amount paid by customers, as opposed to the commission earned using the Groups turnover definition.

Investment income
Interest receivable is accounted for on an accruals basis. Dividends are accounted for when received.

Goodwill
Goodwill, being the excess of the consideration paid for a business over the fair value of its net assets, is capitalised and amortised evenly over its useful economic life. The useful economic life is assessed individually for each acquisition with a maximum useful life of 20 years. In

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accordance with FRS11, an impairment review is undertaken after the first full year of acquisition, or if an event occurs which would impact the carrying value of the goodwill.

Depreciation
Depreciation is provided on all tangible fixed assets, other than investment properties, properties under development, assets in the course of construction and freehold land, at rates calculated to write off the cost of fixed assets, less their estimated residual value, over their expected useful lives on the following bases:
Freehold buildings Leasehold properties Building infrastructure and plant Information technology software and hardware Other plant and machinery and fixtures and fittings Funeral fleet vehicles Other transport 2% per annum Over the unexpired part of the lease 6.7% per annum 12.5% - 33.3% per annum 12.5% per annum 12.5% per annum 20% per annum

Additional depreciation may be charged where Directors consider there has been an impairment in the underlying value of an asset.

Repairs
Repair expenditure is charged to the revenue account in the year that the cost is incurred.

Investment properties
Certain of the Groups properties are held for longterm investment and, in accordance with SSAP19: (i) investment properties are revalued at least once every five years at open market values by external valuers. In all other years, all investment property valuations are reviewed on a desktop basis. All surpluses and deficits arising are taken directly to the revaluation reserve except that any permanent diminution in value of an investment property is taken to the revenue account for the year; and no depreciation or amortisation is provided in respect of freehold investment properties and leasehold investment properties with over 20 years remaining on the lease.

(ii)

Investments
Investments in shares are stated at the lower of cost and net realisable value. Net realisable value is based on the discounted cash flows expected to arise from the investment, using an appropriate discount rate relevant to the investment. Provision for any impairment in value is considered appropriately.

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Stocks and long-term contracts


Stocks are stated at the lower of cost and net realisable value. Cost of manufactured goods comprises materials, direct labour and appropriate overheads incurred in the normal course of business in bringing the product to its current location and condition. Consignment vehicles are regarded as being effectively under the control of the Group and are included in stocks on the balance sheet as the Group has the significant risk and rewards of ownership even though legal title has not passed. The corresponding liability is included in trade creditors. Net realisable value is the price at which stocks can be sold in the normal course of business after allowing for the costs of realisation. Some of the Groups Transport contracts are considered to be long-term contracts and, in accordance with SSAP9, where they are considered to be profitable the Group recognises profit up to the year end date.

Travel debtors and creditors


Amounts owed by customers to the Group in respect of travel holidays booked and amounts owed by the Group to tour operators have been disclosed separately within note 13 and note 14 to the financial statements. This is in accordance with their legal form and industry practice.

Deferred taxation
Deferred tax is recognised in respect of all timing differences that have originated but not reversed at the balance sheet date, where transactions or events that result in an obligation to pay more tax in the future or a right to pay less tax in the future have occurred at the balance sheet date. A net deferred tax asset is regarded as recoverable and therefore recognised only when, on the basis of all available evidence, it can be regarded as more likely than not that there will be suitable taxable profits against which to recover carried forward tax losses and from which the future reversal of underlying timing differences can be deducted. Deferred tax is measured at the average tax rates that are expected to apply in the periods in which the timing differences are expected to reverse based on tax rates and laws that have been enacted or substantively enacted by the balance sheet date. Deferred tax is measured on a non-discounted basis.

Pension costs
The Group operates a defined benefit pension scheme. The contributions are assessed in accordance with the advice of a qualified actuary based on actuarial valuations normally conducted every three years using the projected unit credit method. The assets of the schemes are held in separate trustee administered funds. The Society closed this defined benefit pension scheme to future accrual and new entrants on 30 July 2011 and curtailment gains were calculated in accordance with FRS17.

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The deficit on the defined benefit scheme is recognised in full on the balance sheet and represents the difference between the fair value of the plan assets and the present value of the defined benefit obligation at the balance sheet date. The pension charge recognised in the revenue account consists of current and past service costs. In addition, finance income is recognised based on the expected return on pension assets less the interest on pension scheme liabilities. Differences between the actual and expected return on assets, experience gains and losses and changes in actuarial assumptions are included directly in the statement of total recognised gains and losses. The Group also operates defined contribution schemes. The contributions payable to the scheme in respect of the accounting period are charged to the revenue account.

Assets leased to the group


Assets held under finance leases are capitalised in the balance sheet at cost value and are depreciated in accordance with the Groups normal accounting policy. The interest element of the rental obligation is charged to the revenue account over the period of the lease based on the balance of the outstanding commitment. The outstanding commitment is analysed between current and long term liabilities. Rentals due under operating leases are charged to the revenue account in the year that the cost accrues.

Onerous lease provision


Where the Group is committed to future rental payments on a property that are in excess of rental incomes received, an onerous lease provision is made. The provision is discounted based on the Groups current cost of borrowing and the interest factor unwinds on an annual basis through the interest payable line in the revenue account. Provision is also made where the cash flow of the trading outlet is not expected to cover the lease commitments.

Funeral plans
Amounts received in advance for funeral plans are recorded as liabilities on the balance sheet. The liability has been apportioned between current and long term liabilities based upon the Groups experience of funerals carried out under its pre payment plans over the last five years. All money received for funeral plans taken out since 1 January 2002 is paid into a contract for whole life insurance on the life of the customer for the purpose of providing the funeral and disclosed within fixed asset investments at cost. This investment strategy complies with the provisions of the Financial Services and Markets Act 2000. All money received for funeral plans taken out before 2002 is held in a separate trustee administered bank account and disclosed within current assets. Interest income earned on the cash deposit in the year is not recognised in the revenue account, but is held on the balance sheet in funeral plan debtors and released to profits on performance of the related funeral.

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Holiday pay
For employees who commenced employment on or before 1 April 1998, the Group accrues for the cost of outstanding holiday entitlement. These employees were required to accrue one year of their annual holiday entitlement before taking any holiday. The required accrual is calculated by multiplying one year of their annual holiday entitlement for each employee by their current daily pay rate.

Share interest
The Societys members share capital maintains a fixed nominal value and attracts interest. Share interest is disclosed as a movement in equity and within the reconciliation of movements in members funds.

Payments to and on behalf of stakeholders


The surplus shown in the revenue account is not considered to be attributable solely to the members, but also to various stakeholders including the Groups employees, charitable institutions or other organisations with objectives or purposes consistent with those of the Group. Payments to and on behalf of stakeholders are recognised in accordance with the Groups rules to include approved dividends, member only vouchers, member relations costs and donations to the Co-operative Party. Payments to and on behalf of stakeholders are recognised in the revenue account in the period in which they are approved by the members.

Management Executive Incentive Scheme (MEIS)


The Group has a long-term scheme (MEIS) in place to incentivise the Management Executive within the Society. An expense is recognised over the vesting period of three years based upon meeting specific targets and objectives.

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Midlands Co-operative Society Annual Report 2012

Group revenue account


For the 53 weeks ended 28 January 2012
Note January 2012 53 weeks continuing 000 709,468 (58,559) 1 1 650,909 643,698 (445,272) 198,426 17 (3,138) (171,776) 3 (174,914) 23,512 5 2 21 5,719 29,231 (106) 816 29,941 6 17 January 2012 53 weeks discontinued 000 228,168 (295) 227,873 32,241 (13,713) 18,528 (252) (15,238) (15,490) 3,038 (161) 2,877 5,061 7,938 January 2012 53 weeks total 000 937,636 (58,854) 878,782 675,939 (458,985) 216,954 (3,930) (187,014) (190,404) 26,550 5,558 32,108 (106) 5,877 37,879 956 377 39,212 7 (4,001) January 2011 52 weeks total '000 992,743 (49,853) 942,890 669,669 (451,730) 217,939 (7,293) (184,212) (191,505) 26,434 (7,581) 18,853 14,051 32,904 601 (2,457) 31,048 (3,321)

Gross sales (including VAT) Less Value Added Tax Gross sales (excluding VAT) Turnover Cost of sales Gross profit FRS 17 current service costs Other expenses Expenses Trading profit before exceptional items Exceptional gain / (expense) Trading profit (Loss) / gain on disposal of fixed assets Profit on disposal of fixed assets Profit before interest and taxation Net interest receivable Other finance income / (costs) Profit before payments to and on behalf of stakeholders Payment to and on behalf of stakeholders Profit before taxation Taxation Retained profit for the year 8 19

35,211 (8,936) 26,275

27,727 (4,494) 23,233

Discontinued activities relate to the disposal on 4 October 2011 of the Groups travel business (note 21).
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Group balance sheet


As at 28 January 2012
Note 2011 000 Fixed assets Intangible assets Tangible assets Investments 9 10 11 27,584 307,639 39,635 374,858 Current assets Stocks Debtors Cash at bank and in hand 12 13 36,281 49,921 49,921 127,485 Creditors Amounts falling due within one year Creditors Borrowings 14 15 (62,417) (76) (62,493) Net current assets Total assets less current liabilities Creditors Amounts falling due in more than one year Creditors Borrowings 14 15 (138,296) (628) (138,924) Provisions for liabilities and charges Net assets excluding pension liability Net pension liability Net assets including pension liability Capital and reserves Share capital Revaluation reserve Revenue reserve Members funds 18 19 19 16,502 35,883 237,793 290,178 16,534 36,788 241,761 295,083 17 16 (7,854) 293,072 (2,894) 290,178 (31,556) (545) (32,101) (10,695) 360,268 (65,185) 295,083 64,992 439,850 (100,629) (43) (100,672) 50,132 403,064 34,396 70,509 45,899 150,804 23,645 300,927 28,360 352,932 000 2011 000 000

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Midlands Co-operative Society Annual Report 2012

Note of historical cost profits and losses


For the 53 weeks ended 28 January 2012 2012 53 weeks '000 35,211 26 35,237 26,301 2011 52 weeks '000 27,727 (92) 27,635 23,141

Profit before taxation Realisation of property revaluation gains / (losses) of previous years Historical cost profit before taxation Historical cost retained profit for year

Group statement of total recognised gains and losses


For the 53 weeks ended 28 January 2012
Note 2012 53 weeks '000 26,275 (41,665) 17 10 11,572 (879) (4,697) 2011 52 weeks '000 23,233 24,045 (7,637) 624 40,265

Retained profit for the year Actuarial (losses) / gains on pension scheme Movement on deferred tax relating to pension scheme Unrealised (loss) / gain from investment property revaluation Total recognised (losses) / gains in the year

Reconciliation of movements in members funds


For the 53 weeks ended 28 January 2012
Note 2012 53 weeks '000 2011 52 weeks '000

Retained profit for the year Other recognised (losses) / gains for year (as above) Share interest Decrease in share capital Net (reduction in) / increase to members funds Opening members funds Closing members funds 18 18

26,275 (30,972) (176) (32) (4,905) 295,083 290,178

23,233 17,032 (176) (70) 40,019 255,064 295,083

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Midlands Co-operative Society Annual Report 2012

Group cash flow statement


For the 53 weeks ended 28 January 2012
Note 2012 000 Net cash inflow from operating activities Returns on investments and servicing of finance Interest and dividends received Interest paid Net cash inflow from returns on investments and servicing of finance Corporation tax received (paid) Capital expenditure and financial investment Purchase of tangible fixed assets Purchase of fixed asset investments Disposal of tangible fixed assets Net cash outflow from capital expenditure and financial investments Acquisitions Purchase of businesses Net cash outflow for acquisitions Disposals Sale of business Cash disposed Net cash outflow for disposals 21 21 (260) (8,412) (8,672) 21 (8,883) (8,883) (1,501) (1,501) (25,233) (5,277) 1,085 (29,425) (21,076) (4,558) 18,887 (6,747) 39,983 (26) 1,093 662 (40) 622 20 000 39,983 2011 000 000 33,264

1,553

Cash (outflow) / inflow before use of liquid resources and financing Financing (Decrease) / increase in cash in the year 22

(4,351)

25,638

(265) (4,616)

(288) 25,350

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Midlands Co-operative Society Annual Report 2012

Reconciliation of net cash flow to movements in net cash


For the 53 weeks ended 28 January 2012
Note 2012 53 weeks 000 2011 52 weeks 000

(Decrease) / increase in cash in the year Cash inflow from movement in debt and lease financing Non-cash movement 22

(4,616) 57 (173)

25,350 42 -

Change in net cash resulting from cash flows Opening net cash Closing net cash 23

(4,732) 45,311 40,579

25,392 19,919 45,311

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Midlands Co-operative Society Annual Report 2012

Notes to the accounts


1. Gross sales and turnover
Gross sales (excluding VAT) 2011 000 2011 52 weeks 000 492,986 70,369 311,156 26,270 33,437 423 8,249 631,734 311,156 942,890 Turnover 2011 000 2011 52 weeks 000 485,926 70,369 44,995 26,270 33,437 423 8,249 624,674 44,995 669,669

Retail Wholesale Travel Funeral Transport Other Rent received from investment properties Total continuing activities Discontinued activities Travel Total

516,022 72,342 1,089 28,032 24,408 648 8,368 650,909 227,873 878,782

508,811 72,342 1,089 28,032 24,408 648 8,368 643,698 32,241 675,939

Turnover consists entirely of sales made in the United Kingdom.

2. Trading profit
2012 53 weeks Continuing '000 Turnover Trading profit 643,698 29,231 Discontinued '000 32,241 2,877 Total '000 675,939 32,108 Continuing '000 624,674 17,242 2011 52 weeks Discontinued '000 44,995 1,611 Total '000 669,669 18,853

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Midlands Co-operative Society Annual Report 2012

3. Expenses
Note 2012 53 weeks 000 110,615 25,064 10 10 9 15,461 8 1,774 335 6,884 4 134 30,341 (212) 190,404 Exceptional (gain) / expense Total expenses 5 (5,558) 184,846 2011 52 weeks 000 110,673 25,769 15,495 1,540 655 6,773 130 30,837 (367) 191,505 7,581 199,086

Personnel expenses Occupancy costs Depreciation: Owned assets Assets held under finance leases

Amortisation of intangible assets Operating lease rentals plant and machinery Operating lease rentals land and buildings Directors fees Other expenses Other income

Other income consists entirely of compensation received for business interruption and insurance recoveries in respect of stock losses following a fire at Oakham Superstore in 2008 Services provided by the Groups auditor During the year the Group obtained the following services from the Groups auditor at costs detailed below:
2012 53 weeks 000 Audit fees: Fees payable for the audit of consolidated accounts Fees payable for the audit of the Society and its subsidiaries pursuant to legislation Other services pursuant to legislation All other services 25 104 25 103 2011 52 weeks 000

Fees payable to Groups auditors for other services: 5 48 182 4 35 167

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Midlands Co-operative Society Annual Report 2012

4. Employees
The average number employed by the Group was: Full-time Part-time Note 2012 Number 3,767 4,314 8,081 Aggregate amounts paid in respect of: 2012 53 weeks 000 99,686 6,159 17 17 1,380 3,390 110,615 2011 Number 3,860 4,289 8,149 2011 52 weeks '000 97,302 5,990 107 7,293 110,692

Wages and salaries Social security costs Defined contribution pension scheme costs Defined benefit pension scheme current year service costs

These figures include exceptional closure costs of nil (2011: 19,000). Directors emoluments The total remuneration of the Directors for their Board duties was:
2012 53 weeks 000 Fees 134 2011 52 weeks '000 128

The average number of Directors whose emoluments fell into each 2,500 bracket was:
2012 Number 0 2,500 2,501 5,000 5,001 7,500 7,501 10,000 10,001 12,500 15,001 17,500 4 6 6 1 1 2011 Number 2 2 5 7 1 1

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Midlands Co-operative Society Annual Report 2012

Management executive emoluments The total remuneration excluding pension contributions of the Management Executive was:
2012 53 weeks 000 Wages and salaries Taxable benefits Performance related 1,630 98 321 2,049 2011 52 weeks 000 1,474 123 305 1,902

Highest paid executive The total remuneration of the highest paid executive included above was:
000 Wages and salaries Taxable benefits Performance related 386 1 96 483 000 340 1 75 416

The Group has paid 26,500 (2011: 22,800) into the Group pension scheme for the future pension provision of the highest paid executive. The number of members of the Management Executive whose emoluments, excluding pension contributions, fell in each 10,000 bracket was:
2012 53 weeks Number 30,001 40,000 80,001 90,000 100,001 110,000 130,001 140,000 140,001 150,000 170,001 180,000 180,001 190,000 1 1 1 1 2 2 2010 52 weeks Number 1 4 2 190,001 200,000 200,001 210,000 280,001 290,000 330,001 340,000 410,001 420,000 480,001 490,000 2012 53 weeks Number 1 1 1 2010 52 weeks Number 1 1 1 -

During the year, the Society introduced changes to its Management Executive Incentive Scheme. The previous short term incentive scheme was altered, in line with best practice recommendations, to include a long-term incentive component. The revised scheme will reward
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Midlands Co-operative Society Annual Report 2012

performance over a rolling three year period and incorporates long-term targets covering cumulative trading profit, customer service and colleague engagement. The first long-term award was recognised during the year ended 28 January 2012 and will be paid in cash after the January 2014 year end providing the three year targets are met

5. Exceptional (gain) / expense


Note 2012 53 weeks 000 (10,593) 9, 10 3,893 247 895 (5,558) 2011 52 weeks 000 6,313 564 290 (83) 497 7,581

Gains arising from the closure of the Group defined benefit pension scheme Contribution towards CRTG efficiencies Impairment of goodwill and fixed assets Costs arising from the proposed Travel reorganisation Costs arising from the closure and re-organisation of Transport businesses Other exceptional costs

During the year the Group closed its defined benefit pension scheme to future accrual and completed a pension increase exchange arrangement with eligible current pensioners. These changes resulted in a one-off gain net of associated costs of 10,593,000. In the previous year the Group paid 6.3 million to The Co-operative Group Limited as a contribution towards the cost of implementing efficiencies within the Co-operative Retail Trading Group (CRTG) following the integration of Somerfield. The carrying value of fixed assets and goodwill relating to a number of acquisitions and loss making sites was reviewed leading to an exceptional impairment charge of 2,070,000 (2011: 564,000) and the provision for two onerous leases of 1,823,000 (2011: nil). During the year the Group took the decision to close the Hull motor dealership site. Costs of closure amounted to 247,000 and included stock provisions, redundancy and other closure costs. Other exceptional costs during 2012 include litigation costs, costs associated with the implementation of the Central Asset Reserve and costs of implementing the single card membership scheme. Prior year other exceptional costs include litigation costs and stock write downs.

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Midlands Co-operative Society Annual Report 2012

6. Net interest receivable


Note 2012 53 weeks 000 (25) 1,114 1,089 Unwinding of a discounted provision Net interest receivable 16 (133) 956 2011 52 weeks 000 (28) 763 735 (134) 601

Interest payable Interest and dividends receivable

15 11

7. Payments to and on behalf of stakeholders


2012 53 weeks 000 Member benefits Member relations Members dividend Unredeemed expired members dividend vouchers 697 673 950 2,320 112 264 1,322 (17) 4,001 2011 52 weeks 000 585 701 811 (26) 2,071 108 219 944 (21) 3,321

Total members distributions Co-operative Party Community dividend Employee dividend Over provision for taxation on employee dividend

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Midlands Co-operative Society Annual Report 2012

8. Taxation
2012 53 weeks 000 Current tax: Provided on chargeable income and gains of the year Adjustments in respect of prior years (10,715) (10,715) Deferred taxation: Origination and reversal of timing differences Adjustments in respect of prior years 1,566 213 (8,936) (4,737) 213 (4,494) 30 30 2011 52 weeks 000

As a result of the change in the UK main corporation tax rate from 26% to 25% that was substantively enacted on 5 July 2011 and that will be effective from 1 April 2012, the relevant deferred tax balances have been re-measured. Further reductions to the UK corporation tax rate were announced in the March 2011 Budget. The changes, which are expected to be enacted separately each year, propose to reduce the rate by 1% per annum to 23% by 1 April 2014. The change had not been substantively enacted at the balance sheet date and, therefore, is not recognised in these financial statements. Factors affecting the tax charge for the current year The current tax charge for 2012 is higher (2011: lower) than the standard rate of corporation tax in the UK of 26.36% (2011: 28%). The differences are explained below:

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Midlands Co-operative Society Annual Report 2012

2012 53 weeks 000 Profit before taxation Current tax at 26.36% (2011: 28%) Effects of: Expenses not deductible for tax purposes Capital allowances for the year (less than) / in excess of depreciation Short term timing differences Profit on disposal of assets not subject to corporation tax Other allowable expenses Adjustments in respect of prior years Pension expenses allowable not shown in revenue account Losses utilised Income taxable not in revenue account Total current tax (charge) / credit (1,956) 151 333 1,742 128 2,602 (581) (3,852) (10,715) 35,211 (9,282)

2011 52 weeks 000 27,727 (7,764) (1,294) (469) (69) 3,998 (4) 30 326 5,293 (17) 30

9. Intangible fixed assets goodwill


Note 2012 000 2011 000

Cost Total brought forward Additions Disposals Total carried forward Amortisation Total brought forward Charge for the year Impairment Disposals Total carried forward Net book value 5 16,845 1,774 171 (1,731) 17,059 27,584 15,305 1,540 16,845 23,645 21 40,490 6,414 (2,261) 44,643 39,565 925 40,490

The Group has performed a review of the carrying value of goodwill as at 28 January 2012. Cash flows for loss making stores have been discounted using a discount rate of 8% (2011: 6%).

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Midlands Co-operative Society Annual Report 2012

10. Tangible fixed assets


Investment properties Note Cost or valuation Total brought forward Additions Transfers Disposals Revaluation adjustment Total carried forward Depreciation Total brought forward Provided this year Impairment Transfers Disposals Revaluation adjustment Total carried forward Net book value At 28 January 2012 At 22 January 2011 95,659 95,390 161,684 159,380 45,409 41,320 4,887 4,837 307,639 300,927 5 2 363 (365) 41,757 3,232 898 (354) (881) 44,652 103,824 10,762 1,001 (9) (11,797) 103,781 8,686 1,473 (1,017) 9,142 154,267 15,469 1,899 (13,695) (365) 157,575 95,390 1,744 (231) (1,244) 95,659 201,137 9,057 (1,866) (1,992) 206,336 145,144 17,109 122 (13,185) 149,190 13,523 1,709 (1,203) 14,029 455,194 27,875 (16,611) (1,244) 465,214 000 Trade properties 000 Machinery and plant 000 Transport 000 Total 000

BNP Paribas Real Estate, independent qualified valuers, (Andrew Oliver MRICS, Peter Fletcher BSc MRICS and Andrew Price BSc MRICS) have inspected and revalued approximately one-fifth of investment properties as at 28 January 2012. The remainder have been valued by BNP Paribas Real Estate at 28 January 2012 on a desktop basis and will be inspected and revalued over the course of the next four years. All valuations were carried out at a market value basis in accordance with the RICS Appraisal and Valuation Manual. These valuations have been incorporated into the financial statements and the resulting revaluation adjustments have been taken to the revaluation reserve. The revaluations during the year resulted in a revaluation loss of 879,000 (2011: revaluation gain of 624,000). No deferred tax is provided on timing differences arising from the revaluation of fixed assets unless, by the balance sheet date, a binding commitment to sell the assets has been entered into and it is unlikely that any gain will be rolled over.

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Midlands Co-operative Society Annual Report 2012

Assets in the course of construction included within trade properties amounts to 4,609,000 (2011: 2,909,000). The cumulative value of finance costs included within fixed assets (cost or valuation) amounts to 1,397,000 (2011: 1,397,000). Included within fixed assets are assets with a net book value of 166,000 (2011: nil) relating to items held under finance lease. Depreciation charged on these assets amounted to 8,000 (2011: nil) during the year.
2012 000 The net book value of land and building comprises: Investment properties: Freehold Leasehold over 50 years Leasehold under 50 years 91,847 749 3,063 95,659 Trade properties: Freehold Leasehold over 50 years Leasehold under 50 years 158,750 3,700 4,234 161,684 Total properties: Freehold Leasehold over 50 years Leasehold under 50 years 245,597 4,449 7,297 257,343 The historical cost of investment properties now included at valuation: Cost Accumulated depreciation Net book value 63,516 (3,740) 59,776 62,228 (3,626) 58,602 243,803 4,457 6,510 254,770 152,139 3,700 3,541 159,380 91,664 757 2,969 95,390 2011 000

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Midlands Co-operative Society Annual Report 2012

11. Investments
Fixed assets 2012 000 The Co-operative Group Limited shares Other I&P societies shares Other I&P societies loans Companies quoted Companies not quoted British Government quoted Funeral plans 2,340 25 53 789 6,010 26 30,392 39,635 Interest earned on cash balances Other interest 2011 000 2,340 25 53 782 26 25,134 28,360 Dividends/interest 2012 000 143 10 1 154 578 382 1,114 Market values of quoted investments 862 882 2011 000 149 11 1 161 602 763

12. Stocks
2012 000 Goods for resale Consignment stock 35,558 723 36,281 2011 000 33,701 695 34,396

13. Debtors
Note 2012 000 8,296 9,622 297 16 23,246 1,353 7,107 49,921 2011 000 12,505 37,839 9,270 1,850 1,271 1,966 5,808 70,509

Trade debtors Travel trade debtors Funeral plans Corporation tax Deferred tax Other debtors Prepayments and accrued income

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Midlands Co-operative Society Annual Report 2012

14. Creditors
Within one year 2012 000 Trade creditors Travel trade creditors Central asset reserve liability Funeral plans Other taxation and social security Other creditors Accruals and deferred income Payments to and on behalf of stakeholders 25,844 6,400 4,000 3,839 6,009 15,435 890 62,417 2011 000 23,309 47,1413 3,462 3,691 7,610 15,014 402 100,629 After one year 2012 000 102,300 35,996 138,296 2011 000 400 31,156 31,556

Trade creditors includes 723,000 (2011: 695,000) in respect of commitments to purchase vehicles on consignment and obligations. The corresponding assets are included in stocks.

15. Borrowings
Within one year 2012 000 Bank overdraft Bank loan - unsecured (a) Finance leases 44 32 76 2011 000 43 43 After one year 2012 000 503 125 628 2011 000 545 545 Interest payable 2012 000 9 14 2 25 2011 000 15 13 28

Terms of bank loan: (a) The loan is wholly repayable in instalments within 15 years and bears an interest rate of 2.15% (2011: 2.15 %).
Borrowings falling due within: 2012 000 One year Between one and two years Between two and five years Over five years 76 77 233 318 704 2011 000 43 44 138 363 588

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Midlands Co-operative Society Annual Report 2012

16. Provisions for liabilities and charges


Travel provision 000 Opening balance Charged to the revenue account Unwinding of a discounted provision Sale of business Utilised this year Released this year Closing balance 891 (522) (369) (3,086) 2,648 (174) (12) 5,043 (150) 163 Deferred taxation 000 6,454 Onerous leases 000 3,200 1,896 133 Other provision 000 150 163 Total 000 10,695 2,059 133 (522) (4,499) (12) 7,854

The travel provision represented an assessment of the future costs to complete the booking of all future holidays for which a deposit had already been paid and an assessment of the cost of anticipated cancellations. The remaining provision was released on disposal of the Groups travel business.
Note The deferred taxation provision comprises: Accelerated capital allowances Other timing differences 16 Spread pension contributions Other timing differences Unutilised losses 13 13 13 (2,648) (2,648) 21,483 63 1,700 20,598 (2,947) (3,507) (6,454) 1,271 (5,183) 2012 000 2011 000

As a result of the Central Asset Reserve, the Society will receive a deduction against current tax of 85.9 million over the course of the next three years. Consequently a deferred tax asset of 21.5 million has been recognised at January 2012. No provision has been made for deferred taxation relating to revalued investment properties for which the potential liability has not been quantified, because of the availability of indexation and other reliefs. No provision has been made for deferred tax assets of 3.5 million (2011: 3.6 million) relating to capital losses that are currently carried forward of 14.1 million (2011: 13.8 million). These amounts will be utilised should the Group have any chargeable gains in the future. There are no other unrecognised deferred tax assets and liabilities.

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Midlands Co-operative Society Annual Report 2012

The onerous lease provision represents an assessment of the costs to cover dilapidations and rent and rates for vacant leasehold premises, taking account of the anticipated period until the leases are assigned or reassigned. The assessment, which is undertaken at the end of each accounting period, is made on a property by property basis. The provision is expected to be utilised within the next 15 years (2011: 16 years). The other provision represents an assessment of the future committed costs associated with the closure of the Hull motor dealership. The provision is expected to be utilised within the next 12 months.

17. Pension commitments


The Group operates a defined benefit scheme, the Midlands Co-operative Society Limited Employees Pension Scheme. The contributions to the scheme are determined with the advice of an independent qualified actuary on the basis of triennial valuations. During the year the Group made normal contributions to the scheme amounting to 2,351,000 (2011: 5,376,000) and special contributions of 6,000,000 (2011: 5,538,000). The Society closed the defined benefit scheme to future accrual and new entrants on 30 July 2011 and a new defined contribution arrangement was introduced to provide both new and existing employees with flexible pension arrangements. A curtailment gain of 10.9 million has been recognised as an exceptional gain on the closure of the scheme (note 5). The Society has also amended the scheme rules to allow for a pension increase exchange whereby pensioners have been offered a one-off increase in annual pension entitlement instead of future increases linked to the retail price index (RPI). A curtailment gain of 2.1 million has been recognised as an exceptional gain on the completion of this exercise (note 5). The Society implemented a pension deficit reduction arrangement (Central Asset Reserve) during the year which has resulted in additional scheme assets of 108.7 million being recognised within the FRS17 valuation at January 2012. The scheme assets are underpinned by way of subordinated pledges given by Central Midlands Estates Limited, a subsidiary of the Society. The latest full actuarial valuation for the Midlands Co-operative Society Limited Employees Pension Scheme was carried out at 31 December 2008 using the projected unit basis and was updated for FRS17 purposes to 28 January 2012 by a qualified independent actuary. The principal assumptions used by the actuary were:
2012 Rate of increase in salaries Rate of increase in pensions in payment Discount rate Inflation assumption 2.9% 4.8% 3.0% 2011 3.9% 3.3% 5.6% 3.4%

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Midlands Co-operative Society Annual Report 2012

The mortality assumptions used are based on the "PA 92" standard tables with an allowance for future mortality improvements using the medium cohort projections. The assumptions are such that a current 45 year old non-pensioner member who later retires at age 65 will live on average a further 22 years after retirement if they are male and a further 24 years if they are female. A current pensioner member aged 65 will live on average a further 20 years if they are male and for a further 23 years if they are female. The assumptions used by the actuary are the best estimates chosen in accordance with FRS17 requirements from a range of possible actuarial assumptions which, due to the timescale covered, may not necessarily be borne out in practice. The fair value of the schemes assets, which are not intended to be realised in the short term and may be subject to significant change before they are realised, and the present value of the schemes liabilities, which are derived from cash flow projections over long periods and thus inherently uncertain were
2011 000 Fair value of scheme assets Present value of funded obligations Deficit in the scheme Related deferred tax asset Net pension liability 413,608 (417,465) (3,857 963 (2,894) 2011 000 308,400 (397,693) (89,293) 24,108 (65,185)

Scheme assets do not include any property occupied by the Group. The expected return on scheme assets is determined by considering the expected returns available on the assets underlying the current investment policy. Expected yields on fixed interest investments are based on gross redemption yields as at the balance sheet date. Expected returns on equity investments reflect long term real rates of return experienced in the respective markets.
2012 000 308,400 21,845 (13,895) 117,051 395 (20,188) 413,608 2011 000 279,115 19,268 17,733 10,914 870 (19,500) 308,400

Changes in the fair value of scheme assets: Opening fair value of scheme assets Expected return Actuarial (losses) / gains Contributions by employer Contributions by members Benefits paid Closing fair value of scheme assets

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Midlands Co-operative Society Annual Report 2012

Changes in the present value of scheme obligations: Opening obligation Service cost Interest cost Employee contributions Actuarial losses / (gains) Plan curtailments Recognition of pensioner increase exchange Benefits paid Closing obligation

2012 000 397,693 3,390 21,468 395 27,770 (10,917) (2,146) (20,188) 417,465

2011 000 393,617 7,293 21,725 870 (6,312) (19,500) 397,693

Analysis of other pension cost charged in arriving at trading profit: Current service cost

2012 000 (3,390)

2011 000 (7,293)

Analysis of amount included in other finance income / (costs): Expected return on pension scheme assets Interest on pension scheme liabilities

2012 000 21,845 (21,468) 377

2011 000 19,268 (21,725) (2,457)

Analysis of amounts recognised in statement of total recognised gains and losses: Cumulative at beginning of year Recognised during the year Cumulative at end of year

2012 000 (85,226) (41,665) (126,891)

2011 000 (109,271) 24,045 (85,226)

Assets in the plan as a percentage of total plan assets: Bonds Equities Other

2012 51% 43% 6%

2011 33% 58% 9%

The scheme holds quoted securities and these have been valued at current bid price.

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Midlands Co-operative Society Annual Report 2012

2012 000 History of experienced gains and losses Benefit obligation at end of year Fair value of plan assets at end of year Deficit Actual return less expected return on pension scheme assets Experience gains and (losses) arising on the scheme liabilities (417,465) 413,608 (3,857) (13,895)

2011 000

2010 000

2009 000

2008 000

(397,693) 308,400 (89,293) 17,733

(393,617) 279,115 (114,502) 45,126

(285,561) 223,060 (62,501) (79,633)

(316,062) 288,037 (28,025) (15,212)

(2,880)

(1,021)

(7,451)

231

(2,661)

Defined Contribution Scheme The costs of contributions to the defined contribution scheme amounted to 1,380,000 (2011: 107,000).

18. Share capital


2012 53 weeks 000 Contributions Withdrawals 1,407 (1,615) (208) Interest Movement in year Opening balance Closing balance 176 (32) 16,534 16,502 2011 52 weeks 000 1,674 (1,920) (246) 176 (70) 16,604 16,534

At 28 January 2012 the Society had 992,865 (2011: 938,683) members who are each entitled to one vote. At the balance sheet date the whole of the share capital comprises non-equity shares of 1 each attracting interest at rates between nil and 2.25%. Share capital is generally withdrawable on demand; however, in accordance with the Society rules, the Board may suspend the right of withdrawal for a limited time and may impose a notice period for withdrawals should they consider it to be in the best interests of the Society. The Society rules for the distribution of the final surplus in the event of winding-up after repayment of the paid-up, share capital state that such assets shall not be paid to or distributed among the members of the Society but shall be:

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Midlands Co-operative Society Annual Report 2012

(a)

transferred to one or more other societies in membership of the Co-operatives UK Limited having the same or similar rule provisions as regards surplus distribution as this rule, as may be determined by the members at an ordinary or special meeting; or if not so transferred shall be paid or transferred to the Co-operatives UK Limited.

(b)

Dividends to members are paid by way of vouchers redeemable against purchases. The Group operates a Share Incentive Plan (SIP) to benefit employees. Employees can invest a proportion of their salary which may not exceed the lower of 1,495 or 10% of an employees take home pay, on which they earn a return of 2.25% in that period. Interest earned is recognised in the share capital note. At the end of five years an employee may withdraw their shares. The Society is allowed to allocate matching shares under rules governed by HMRC. As an incentive to colleagues to join and remain in the SIP, the Society will match the first 10 paid in by each colleague for the purchase of partnership shares in the first year of the scheme by awarding 10 in matching shares. Each year colleagues who continue to contribute will receive a further 10 in matching shares for the first 10 of partnership shares acquired in later years. A year for the purposes of matching shares will be the Societys financial year. As long as the matching shares are held for at least five years, they can be redeemed with the Society free of income tax and National Insurance Contributions. If they are redeemed before this date, income tax and National Insurance Contributions will normally be payable. The issue of matching shares is discretionary. The Society therefore reserves the right to amend or withdraw the issuing of matching shares at its discretion.

19. Movement in reserves


Revaluation reserve 000 At 23 January 2011 Retained profit for the year Actuarial loss on pension scheme (net of deferred tax) Transfer of realised losses (Deficit) on revaluation of property Share interest At 28 January 2012 36,788 (26) (879) 35,883 Revenue reserve 000 241,761 26,275 (30,093) 26 (176) 237,793

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Midlands Co-operative Society Annual Report 2012

20. Reconciliation of trading profit to trading cash flows


2011 53 weeks 000 Trading profit Non-cash pension (gains) / costs Depreciation Amortisation of goodwill Payments to and on behalf of stakeholders Decrease in debtors Increase / (decrease) in creditors (Increase) / decrease in stocks Increase / (decrease) in provisions Special contribution to pension scheme 32,108 (12,024) 17,368 1,945 (3,513) 9,957 673 (1,885) 1,354 (6,000) 39,983 2011 52 weeks 000 18,853 1,918 16,059 1,540 (3,224) 1,088 (1,375) 4,396 (453) (5,538) 33,264

21. Acquisition and disposal of business


During the year the Group acquired a number of businesses. An analysis of the assets and liabilities acquired at book value which equated to the provisional fair value is:
2012 000 Net assets acquired (all fixed assets) Goodwill Consideration Satisfied by: cash 2,469 6,414 8,883 8,883

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Midlands Co-operative Society Annual Report 2012

On 4 October 2011, the Society sold its travel business through the disposal of two principal subsidiaries, Midlands Co-operative Travel Limited and Midlands Co-op Travel Group Limited for a 3.5% shareholding in TCCT Holdings UK Limited. The assets and liabilities of the disposed business are as follows:
2012 000 Intangible assets Tangible assets Debtors Cash Creditors Provisions Net assets disposed Shareholding received in TCCT Holdings UK Limited Costs of disposal Net assets disposed Gain on disposal of travel business discontinued operations 433 1,826 3,772 8,412 (13,242) (522) 679 6,000 (260) (679) 5,061

22. Financing
2012 53 weeks 000 Capital element of finance lease rentals repaid Debt due beyond a year: Decrease in utilisation in bank loans Increase / (decrease) in debt Decrease in share capital (41) 572) (208) (265) (42) (42) (246) (288) (16) 2011 52 weeks 000 -

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Midlands Co-operative Society Annual Report 2012

23. Analysis of net cash


2011 000 Non-cash movement 000 42 (42) (32) (414) (173) Cash flow 000 Disposal 000 2012 000

Cash at bank and in hand Debt due within one year Debt due after one year Finance leases due within one year Finance leases due after one year

45,899 (43) (545) 45,311

3,796 (41) 16 3,853

(8,412) (8,412)

41,283 (44) (503) (32) (125) 40,579

24. Commitments
Finance leases The minimum finance lease payments to which the Group is committed in future years are:
2012 000 Within one year In the second to fifth years inclusive 32 125 157 2011 000 -

Obligations under finance leases are shown as part of loans in note 15. Operating leases At 28 January 2012 the Group had the following annual commitments under non-cancellable operating leases, excluding onerous lease commitments of 687,000 per annum (2011: 338,000) which are fully provided for as described in note 16.
Land and buildings 2012 000 Operating leases expiring: Within one year In the second to fifth years inclusive Over five years 351 654 2,086 3,073 147 98 245 1,124 2,270 3,194 6,588 91 141 232 Other 2012 000 Land and buildings 2011 000 Other 2011 000

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Midlands Co-operative Society Annual Report 2012

As part of the disposal of the travel business Thomas Cook Travel (TCT) took occupation under licence of the Societys former leased travel branches. The terms of the licence are that as from 4 October 2011 TCT are wholly responsible for all outgoings and costs associated with these properties. At January 2012 the lease commitments on these operating leases expiring within one year, in the second to fifth years and over five years are as follows; 865,000, 1,046,000 and 933,000. Capital commitments Amounts contracted for but not provided for in the financial statements were 18.0 million (2011: 7.2 million).

25. Subsidiaries
% of equity owned Central Midlands Estates Limited Terry Smith Limited M.C.S. Funeral Services Limited Oakwell Stores Society Limited Midlands Co-op Scottish Limited Partnership Midlands Co-op General Partner Limited Advantage Motor Group Limited Leicester Carriage Builders 2002 Limited Metro Discount Stores (Midlands) Limited Ilkeston Travel Services Limited Ken Ives Motors (Derby) Limited Ilkeston Motor Finance Limited Ilkeston Consumer Co-operative Society Pension Trustees Limited 100 100 100 100 83 100 100 100 100 100 100 100 100 Principal activity Property management Coffin manufacturer Funeral services Corporate trustee Investment in corporate bonds Partnership administration Motor dealership Non-trading Non-trading Non-trading Non-trading Non-trading Non-trading

All subsidiaries are registered within the United Kingdom.

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Midlands Co-operative Society Annual Report 2012

Five-year financial record


2008 52 weeks 000 Gross sales (excluding VAT) Turnover Depreciation and amortisation (excluding exceptional items) Trading profit Trading profit before exceptional items Profit before taxation Retained profit for the year Share interest Payments to and on behalf of stakeholders Tangible fixed assets Net cash Share capital Revaluation reserve Revenue reserve Members funds (net assets) Net assets excluding pension liability Cash flow from operating activities Cash flow from sale of tangible fixed assets Capital expenditure Number of members Trading profit (before exceptional items) / turnover ratio Gearing ratio (net borrowings / net assets) 800,883 567,468 17,876 2009 52 weeks 000 847,592 603,360 17,429 2010 52 weeks 000 918,420 670,566 16,982 2011 52 weeks 000 942,890 669,669 17,035 2012 53 weeks 000 878,782 675,939 17,243

11,179 12,993 13,422 10,146 329 2,847 294,705 17,217 16,696 49,733 230,231 296,660 316,453 29,868 3,615 27,622 914,522 2.3%

24,837 16,996 4,764 23,792 325 3,187 286,191 45,474 16,279 39,451 228,412 284,142 329,143 41,495 8,872 19,465 921,911 2.8%

17,355 22,343 17,737 10,684 182 3,098 299,538 19,919 16,604 36,072 202,388 255,064 337,506 8,730 8,339 40,058 931,246 3.3%

18,853 26,434 27,727 23,233 176 3,321 300,927 45,311 16,534 36,788 241,761 295,083 360,268 33,264 18,887 22,577 938,683 3.9%

32,108 26,550 35,211 26,275 176 4,001 307,639 40,579 16,502 35,883 237,793 290,178 293,072 39,983 1,085 34,289 992,865 3.9%

nil

nil

nil

nil

nil

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Midlands Co-operative Society Annual Report 2012

Five-year comparison
Turnover million Trading profit million

Cash flow from operating activities million

Net cash million

Capital expenditure million

Members funds million

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Midlands Co-operative Society Annual Report 2012

Regional Committees
Attendance at Board / Regional Committee Meetings for the year ended 28 January 2012
The attendance record of Directors and Regional Committee members during the year under review is provided below. The number of meetings attended is the bold figure, which is compared to the number of meetings that each person was eligible to attend (in brackets).

Eastern Region:
Chair: Rod Findley Vice-Chair: Robin Bennett Sean Clothier Paul Dawswell Robin Farrell John Howells Max Hunt Ray King John Maltby John McGlade Doreen Statham Stuart Unwin Barry Walne

Board
11 (12) 3 (3)

RC
12 (12) 12 (12) 11 (12) 10 (12)

Northern Region:
Chair: Elaine Dean Vice-Chair: Kevin Hepworth Tina Allen David Beeston Keith Bostock Peter Dean David Elliott Philip Fee Patricia Goodwin Mark Grayling John Kenney Liz Lomas Dave Roberts

Board

RC
12 (12)

9 (9)

10 (12) 11 (12) 10 (12)

12 (12)

11 (12) 9 (9) 9 (9) 11 (12)

12 (12) 12 (12)

12 (12) 12 (12) 12 (12) 12 (12) 11 (12) 9 (9) 11 (12)

8 (9)

12 (12) 11 (12) 3 (3)

12 (12)

12 (12) 12 (12)

10 (12) 3 (3)

10 (12) 3 (3)

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Midlands Co-operative Society Annual Report 2012

Southern Region:
Chair: Maria Lee Vice-Chair: Marta Mayhew Michael Althorpe David Brown Joanne Dack Gaye Duncombe John Kibble Bill Pringle Phil Sawford Nathan Shepherd Peter Smith Glenda Weston Peter Weston

Board
12 (12) 11 (12) 11 (12)

RC
11 (12) 11 (12) 11 (12) 8 (9) 11 (12) 12 (12) 11 (12) 8 (12) 9 (12) 6 (9) 9 (12) 7 (9) 2 (3)

Western Region:
Chair: Paul Singh Vice-Chair: Frank Croft Simone Comelio Dave Ellgood Mark Foley Neil Franklin Richard Hughes Angela Loughran Bernard Parry Helen Lees Keith Redfern Sue Rushton

RC
12 (12) 12 (12)

Board
12 (12) 12 (12) 11 (12)

12 (12)

11 (12) 8 (8) 11 (12) 9 (12) 11 (12) 12 (12)

12 (12) 12 (12)

11 (12) 12 (12) 11 (12)

Board = Attendance at Board meetings (Directors) RC = Attendance at Regional Committee Meetings

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Midlands Co-operative Society Annual Report 2012

Notice of Annual Meeting


The Annual Meeting of Members will be held as follows:

Eastern Region:
Tuesday, 24 April 2012 at 7pm Coalville: Snibston Discovery Museum, Ashby Road LE67 3LN Leicester: The Grand Hall, St Martins House, 7 Peacock Lane LE1 5PZ

Southern Region:
Wednesday, 25 April 2012 at 7pm Kettering: Rutland Suite, Kettering Park Hotel, Kettering Parkway NN15 6XT Market Harborough: Conference Centre, Three Swans Hotel, High Street LE16 7NJ Melton Mowbray: Conference Hall, Pera Conference Centre, Nottingham Road LE13 0PB

Northern Region:
Tuesday, 1 May 2012 at 7pm Chesterfield: Legends Lounge, B2net Stadium, Chesterfield Football Club, Sheffield Road S41 8NZ Derby: Carriage Shop Theatre, Derby College, The Roundhouse, Roundhouse Road DE24 8JE Eastwood: Lawrence Suite, Eastwood Hall, Hayley Conference Centre, Mansfield Road NG16 3SS

Western Region:
Wednesday, 2 May 2012 at 7pm Birmingham Lakeside Centre, Aston University, Aston Triangle B4 7ET Burton on Trent Albion Suite, Burton Albion Football Club, Pirelli Stadium, Princess Way DE13 0AR Stafford Royal Suite, Tillington Hall Hotel, Eccleshall Road ST16 1JJ

Members are requested to note the following: Elections: Details of the Elections are available from the Registered Office at Lichfield (telephone 01543 414140) and online www.midlands.coop/elections To gain admission members must present their valid share book or valid membership card and have held at least 1 in their share account for at least six months prior to the date of the meeting. At the conclusion of the meeting members are invited to remain for tastings of Cooperative food products, including cheese and wine, and take the opportunity to talk to Directors and Regional Committee members on an informal basis.

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Midlands Co-operative Society Annual Report 2012

Agenda of Annual Meeting


1. 2. 3. 4. Minutes of the Interim Meeting of Members held 11, 12, 18 and 19 October 2011 Report of the Board of Directors and financial statements, together with the Annual Report of the Remuneration Committee Appointment of auditors: PricewaterhouseCoopers LLP, Donington Court, Pegasus Business Park, Castle Donington DE74 2UZ Distribution of trading surplus the Board of Directors proposes the following distributions from trading surplus:
000 Members dividend second half year * Colleagues dividend 2011/12 Community dividend 2011/12 * 697 1,327 266 2,290

* Based on a dividend rate of 1.10 per 1000 points (changes to points on Travel purchases were made from 4 October 2011) 5. 6 7. Member Relations annual report Annual report and accounts of the Society Co-operative Party Councils (Midlands Northern, Midlands Eastern and Southern, and Midlands Western regions) Elections declaration of results: o o o o Election of Members and Employee Members to Regional Committees Election of Members to Regional Member Relations Committees Election of Members to Society Co-operative Party Councils (Midlands Northern, Midlands Eastern and Southern, and Midlands Western regions) Election of Members' Delegates to Co-operative Congress 2012

J. Watts, Secretary 30 March 2012

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Midlands Co-operative Society Annual Report 2012

Minutes of the Interim Meeting of Members held in 2011


Eastern Region Tuesday, 11 October 2011 at 7pm Coalville: Conference Room, Marlene Reid Centre, 85 Belvoir Road, Coalville 90 members present; Robin Farrell in the Chair Leicester: Grand Hall, St Martins House, 7 Peacock Lane, Leicester 121 members present; Rod Findley in the Chair

Southern Region Wednesday, 12 October 2011 at 7pm Kettering: Kettering Park Hotel, Kettering Parkway, Kettering 71 members present; Marta Mayhew in the Chair Market Harborough: Conference Centre, Three Swans Hotel, High Street, Market Harborough 42 members present; Maria Lee in the Chair Melton Mowbray: Royal British Legion Club, Thorpe End, Melton Mowbray 58 members present; Michael Althorpe in the Chair

Northern Region Tuesday, 18 October 2011 at 7pm Chesterfield: Club Lounge, B2net Stadium, Chesterfield Football Club, Sheffield Road 62 members present; Peter Dean in the Chair Derby: Carriage Shop Theatre, Derby College, The Roundhouse, Roundhouse Road, Pride Park, Derby 88 members present; Elaine Dean in the Chair Ripley: Ripley Junior School, Poplar Avenue 52 members present; Kevin Hepworth in the Chair

Western Region Wednesday, 19 October 2011 at 7pm Birmingham: Lakeside Centre, Aston University, Aston Triangle, Birmingham 124 members present; Frank Croft in the Chair Burton: Tom Bradbury Lounge, Burton Albion Football Club, Pirelli Stadium, Princess Way, Burton on Trent 82 members present; Dave Ellgood in the Chair Stafford: Royal Suite, Tillington Hall Hotel, Eccleshall Road, Stafford 88 members present; Paul Singh in the Chair

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Midlands Co-operative Society Annual Report 2012

1. 2. 3. 4.

Apologies received were read to the meetings at respective venues. Minutes of the Annual Meeting of Members held 26 / 27 April; and 3 / 4 May 2011, including Results of Elections, were approved as a correct record. Interim report of the Board of Directors resolved: "That the Interim Directors' Report for the 28 weeks ended 6 August 2011 be adopted". Member Relations interim reports verbal reports of the Northern, Eastern and Southern, and Western Regional Member Relations Committees for the half year ended July 2011 were received and adopted. Rule amendments the following amendments to Rules 11 and 17 were proposed by the Board of Directors (amendments shown in bold; words crossed through to be deleted): Rule 11 Members Meetings: 11.19 Only members of the Society who produce their valid share book or valid Society membership card shall be admitted to a members meeting. Rule 17 Elections: 17.11 The scrutineers shall have power to reject spoiled or improperly filled up papers. Only members who produce their share book or Society membership card shall vote. and the The scrutineer shall stamp the share book with the date of the election or record that the membership card has been used, prior to issuing a ballot paper.

5.

6. 7.

Distribution of Trading Surplus - Members Card Interim Dividend. The interim dividend of 1 per 1000 points was approved by a show of hands. Written reports of the Members' Delegates to Co operatives Congress 2011 were received.

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Midlands Co-operative Society Annual Report 2011

A big thank you!


The Directors would like to thank members and colleagues for their contribution to the Societys success in 2011. Many thanks also to members and colleagues whose photographs appear in this annual report.

Registered Office Central House, Hermes Road, Lichfield, Staffordshire WS13 6RH Registered under the Industrial and Provident Societies Acts 1965 to 2002 Registered No 10143R

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