Welcome to the ‘Understanding the Co-operative Difference – Our Board, Our Members’ session. This is a subject matter we could spend hours talking about but as we have only 45 minutes we will look to give you a whistle stop tour with the intent that everyone goes away knowing something new that they didn’t already know about co-ops and Southern Co-op. Before we start we would just like to take a moment to introduce to you the team who will be presenting and answering your questions. Silena Dominy, Director of Corporate Affairs Tessa Briggs, Assistant Secretary

Melanie Roberts, Membership and Customer Services Manager

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Co-operatives are everywhere, in diverse sectors .. How many can different

markets can you think of that co-operatives operate in?

Of course there are those that we operate (food stores, funeral homes, florist,

online retailing, a natural burial site and crematoria).

Some of our sister retail co-ops operate other businesses such as energy,

childcare, healthcare, travel, banking and credit unions, insurance and legal

services.

There is also a co-op college and lots of schools are also now becoming co-

ops.

There are less well known markets such as pubs, phone and broadband

providers. There are housing co-ops, IT services, bicycle co-ops, wind farms,

solar power and who would have guesses a co-op that operates a train!

Suma wholesaling exports globally and also on a global scale is farming.

Most people know that John Lewis is an employee partnership that is

governed on a similar basis to a co-op and who knew that Bupa was also

structured like a co-op too? The most famous football club set up as a co-op

has to be Barcelona FC.

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These are just the tip of the iceberg, many others co-ops exist -

dentists, doctors, dairies, car sales, you name it there is probably a co-

op that does it.

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Let’s look at a few facts on the extent of co-ops across the world There are 2.6 million co-ops worldwide, employing 250 million people. In the G20 countries this equates to 12% of employment. Co-ops worldwide generate approximately 3 trillion US dollars in turnover and have over a billion members. I’m guessing that it’s a bigger scale than many of you imagined that co-operatives operated under. NB: The members of the G20 are Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russia, Saudi Arabia, South Africa, Turkey, the United Kingdom, the United States and the European Union.

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… and in the UK the statistics are just as impressive! Almost 7,000 co-ops in the UK generate approximately £37 billion pounds in turnover. They employ 223,000 people and have over 17.5 million members. As you can see co-ops are making a difference on a wide scale both within the UK and worldwide.

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I’d like to take a moment to try to clear up some of the confusion around the main retail co-ops in the UK and explain how things fit together. Our starting point is of course with our Society, Southern Co-op, but for sure we do not stand alone. There are two membership bodies, of which we are members, The International Co-operative Alliance and Co-operatives UK. These organisations represent and promote the interests of co-ops. The ICA on a worldwide basis and Co-ops UK here in the UK. The organisations lobby for co-ops to have the same level playing field as other businesses and seek opportunities for the growth of co-ops as a sustainable and ethical business model. Back in 2009, Southern Co-op decided to adopted the national green ‘The Co-operative’ trading name. This did not change the independent nature of our business but enabled us to obtain the benefit of the national advertising in relation to that brand and the products in our

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stores. The brand was used across all our business areas (food retail, funeral and floristry). We weren’t the only co-op to adopt the brand, Midcounties Co-op, Central England Co-op and Chelmsford Star Co-op all do so too and the Co-operative Group also used the brand at that time. Adopting the brand also enabled us to operate The Co-operative Membership scheme as a reciprocal arrangement. I will explain this in a bit more detail in few moments, but for now lets keep looking at the co-ops themselves. Not all retail co-operatives chose to use the national Co-operative brand. There were many who chose to remain with their own brands. The common thing for all of these co-ops, regardless of their branding is the product range. In 2014 Federal Retail Trading & Services Ltd was established to replace the former Co-operative Retail Trading Group. It is through this entity that the co-ops purchase their products that are then sold in our stores. Joining together in this way enables all those co-ops involved to obtain the scale benefits of buying as a collective. However each Society remains independent of each other and make their own decisions in relation to the way they operate their stores. I’ll elaborate on this a bit further in a few moments. In 2016, the Co-operative Group decided to move away from ‘The Co-operative’ branding for its businesses and moved to the new, or perhaps ‘not so new’ Pioneer brand. Despite this they are still part of the Federal Retail and Trading Services Ltd. You may have noticed that there are locations across our trading area where you will find more than one co-op operating stores in close proximity to each other. Let me explain how history has led us to that position. The Co-operative Group used to be a wholesale society (CWS) which provided goods on a national basis. They then decided to enter into retailing with the establishment of CRS and a merger of the two created what you know of today as The Co-operative Group, based in Manchester. Since this time the Co-operative Group have undertaken national acquisitions of chains such as Somerfield which has stretched their retail trading area to overlap with that of other Societies. Today Co-operative Group are also seeking opportunities to open new stores to infill their national trading area, and the South of England is an attractive area to them. Whilst in a lot of respects co-operatives work together for the greater good and to benefit from economies of scale, where our trading sites are close we have a competitive relationship with them.

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Despite working closely with other co-ops, Southern Co-op remains an independent society and as such makes its own decisions on product pricing within our stores. Even though the various co-ops are all obtaining their products from the same source, they will have varying costs to their businesses based on their scale, geography and their operational structures. This will inevitably mean that pricing will vary. Likewise ranging will also vary in stores. In the case of Southern Co-op we have decided to utilise the plans that Federal Retail and Trading Services make available as these have been created through analysis of industry data looking at the buying habits of particular types of customers. Rather than seek to ‘reinvent the wheel’ we use these plans to guide the range of products in our stores. We align each of our stores with a customer segment and then seek to keep 90%+ of the range consistent with the plans. An example of where we move away from this would be our Local Flavours range of local products. Whilst this approach gives us the most benefit from the economies of scale of Federal Retail and Trading Services it can mean that individual requests from customers for specific products in a local store may not

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be able to be met.

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So as I said those Co-ops who adopted ‘The Co-operative’ trading name and The Co-op Group now using their ‘Pioneer’ brand operate the co-operative membership affinity scheme. Members of any of those Co-ops who use any of those societies’ businesses would receive Share of the Profits points regardless of the Society that they were a member of. A better deal for all the Members! Where it can become confusing for members is how the value of the Share of the Profits is calculated. In essence, the co-op that benefits from the trade created is the co-op that pays out the benefits and it is the members of that co-op who decide what each point is worth, just as members who attended our AGM session did. Our members decided that any members shopping with us would receive 2p for each £1 spent on eligible purchases in 2016. That will apply whether our customer was a member of our Society, or whether they were a member of any of the other societies in the reciprocal Membership scheme. The Members of the other Societies determine their own

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rates too for spend within their businesses. Naturally, different rates will exist as the amount paid will depend on the profits that have been created by each Society and their own plans for reinvesting profits back into the business, or sharing them with members and the community. Since 2009, Southern Co-op has consistently maintained its rate of payout at 2p in the £1, ie 2%, however others Societies have reduced their levels. In 2016 the Co-operative Group changed is brand to ‘Pioneer’ and launched a new membership proposition for its members. They continue to participate in the affinity scheme, however as you can see they are not paying any Share of the Profits when members shop in their stores. So lets look at how their new membership proposition compare to our Share of the Profits benefit.

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Southern, Midcounties, Central England and Chelmsford Star Co-ops are still using the national Co-operative Membership card, whilst Co-op Group are using their new Pioneer branded card. Both cards will be accepted in all trading locations operated by those societies. The offer you receive will depend on which Society operates the trading location. This can be seen by looking at the name above the door, and Co-op Group are starting to rebrand their stores to the new blue style which will make it easier to tell the difference. So which offer will you receive in food stores. If the store is operated by Southern Co-op you will earn share of the profits points on all products purchased (subject to certain required exclusions) and we have been paying out at the rate of 2%, so 2% of all products. If the store is operated by Co-op Group you will not receive any share of the profits, regardless of which card you are using. If you are also a

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member of Co-op Group and have a Pioneer membership card, you would receive their 5+1 offer (that’s 5% back to their members and 1% donated to charity) but this is only on co-op own brand products (approximately half of the products sold). Which offer is best for you will ultimately depend upon the type of products you generally like to buy. All co-ops make donations to charity and community organisations, and Southern Co-op is no different utilising its Love Your Neighbourhood programme for this purpose. So, which card should you use? Our recommendation is that when you are shopping in stores operated by Southern Co-op you swipe your Co-operative Membership card. This will ensure that you are able to benefit from our member offers and promotions. If you have an email address register this with our Member Support team to ensure that you are kept up to date. If you shop in Co-op Group stores as well as our stores, then you are probably best having membership of both Societies and using their card when you are in their stores, and our card when you are in our stores. The Board and Leadership Team of Southern Co-op are considering whether adoption of the new Pioneer branding and the 5+1 membership proposition is in the best interests of our members. There are a lot of factors to consider, such as the costs involved, the systems technology required and the impact that adoption may have on existing benefits for members and or communities. It will take some time to work these considerations through fully and we will let you know when a decision has been made.

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From the outside a co-op might look like any other high street business, its what happens inside that makes them different!

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So……. what sort of members might a Co-op have? Shout out your ideas….. Absolutely, and here are just a few examples………………..

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Members have an equal say in what the Co-op does and decide how profits are shared with their supporters – as you’ve done earlier today by voting on your handset to approve the share of our profits payments for customer members and eligible colleague members. And up to £800,000 being given to local communities.

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Co-op Values include self-help - so by members joining together and making a difference, self-responsibility by every member doing their bit to make the co-op a success by using its products and services as well democracy, equality, equity and solidarity. A Co-op’s Ethical values are honesty, openness, social responsibility and caring for others. 1. Voluntary and Open Membership Co-ops are voluntary organisations, open to everyone able to use their services and willing to accept the responsibilities of membership, without gender, social, racial, political or religious discrimination. 2. Democratic Member Control Co-op’s are democratic organisations controlled by their members. Members make decisions at the AGM, such as deciding how profits should be shared and through the Rules, how the co-op should operate. Members choose who represents them on the Board of Directors to govern their co-op and to act in their interests. And all members are equal, with each member having one vote. 3. Member Economic Participation Members contribute to the capital of their co-op by investing in shares. Members decide how to allocate surpluses (profits) which can include investing for the future, supporting the community, benefiting members in proportion to what they have spent with the co-op, and supporting other activities approved by the membership. 4. Autonomy and Independence Co-ops are controlled by their members. If they enter into agreements with other organisations or raise capital from external sources, they do so on terms that ensure democratic control by their members is maintained. 5. Education, Training and Information Co-ops provide education and training for their members, directors and employees so they can help the co-op grow. For example our colleague and board member development and training programmes, member visits to see our local producers and educational sessions like today’s workshop. We also want to be able to educate about what Co-ops are and the benefits they bring.

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6. Co-operation among Co-operatives Co-ops serve their members effectively and strengthen the co-operative movement by working together locally, nationally, regionally and internationally. 7. Concern for Community And lastly, Co-ops work hard for the sustainable development of their communities.

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Southern Co-op was established as Portsea Island Mutual Co-operative Society over 140

years ago. This was a time of huge inequality, exploitation, and life-threatening poverty. A group of dock workers formed the Society and opened their first store in 1873 to ensure that safe goods could be purchased at reasonable prices. Over the years the range of goods and services available grew and shops became more sophisticated. Did you know that in 1948, our Society was the first business in Britain to open a self-service shop. This was on Albert Road, Southsea. The purpose of Co-ops inevitably change over time, so lets take a quick look at how Southern Co-op brings its purpose to life today.

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As you’ll see here, our strategic purpose is to work together for the benefit of communities across the south of England. We hope to do this by being fair to our members, customers, colleagues, suppliers and our community partners. By championing a fresh approach to business putting our purpose beyond profits and making it easy for everyone to join us and share our success.

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Southern Co-op is owned by just over 171,000 members at present. What do you think the split is between male and female? 70% female, 30% male 3% or just under 4,500 are colleagues working within the business Our members range in age from 14, the minimum age to join, to our oldest member who is currently 104 years of age!

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Our members live across the whole of the south of England as you’ll see here in teal blue, and we’ve also plotted our store locations shown by the green diamonds and our funeral homes in purple.

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Being a member is much more than receiving deals and rewards. Every time you use your membership card you’ll earn points from your purchases. The more points you save, the bigger your share of our profits, which are paid in June each year in the form of vouchers, for you to spend in store. Last year members benefited from £2.8 million in members share of profits which equated to 2 pence for every £1 spent with us! Our members have a voice, helping to shape our business and our future. As a member we hope you took the opportunity to vote for your chosen Board candidates and by meeting the required qualifications you could even choose to stand for election yourself. Hopefully today you’ll have met and spoken to other members as well as our Board, Leadership Team and other colleagues representing their area. I’d like to show you another video……

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As you heard from Mark and Mike we’re going to be introducing some new opportunities for you to engage with us and give us your feedback as a member. We’re still working on the finer details for these. So, if you’d like to come along to a listening group, join a Local Flavours tasting group or join one of our webcasts or webinars please come to the membership stand to pre register your interest. Thank you. I’ll now hand over to Tess who will talk a little bit more about our Board and Leadership Team.

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- From midnight on the day of the AGM our Board composition changed. This is your new Board - Bev Wyatt replaces Kelly Emmence as the third colleague director, Amber and John were re-elected. 9 elected directors elected directly from the members by the members still but now we also have an additional co-opted director to which you as members have given your approval at the AGM. Mark Ralf joins the Board as the newly co-opted director in the role of Chair Designate with the intention that he will take over from Mike Hastilow, our current chair, when he retires in 2018.

- We expect that directors come to the board with a minimum level of business acumen and financial knowledge but some have professional qualifications

Neil – qualified accountant and auditor and member of Institute of Chartered Secretaries Beth – marketing specialist Andy – HR professional - but they are not all professional directors as such. Other Directors have expertise gained through their time working for Southern Co-op and other businesses (Mike and John)– 3 Directors are currently colleagues (Kate, Gareth and now Bev) - Training and development is also arranged for individual directors and for the Board as a whole depending on their needs. Often directors develop further

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skills whilst within the role through their own endeavours. Over the last few years, Amber has visited all of our Food Retail stores at least once a year to ensure that she has a greater knowledge of the communities in which we operate. - Also require an affinity with our co-operative values and principles. Some have

a strong interest and are very active in co-operative movement such as Amber and John who have a life long involvement in co-operatives. Others demonstrate similar values through their personal lives through activities in their local communities – volunteering or charitable.

- All directors understand the values and principles as a requirement of the role, however those with a keener interest and knowledge are able to ensure a that they remain at the forefront of the directors’ minds during business discussions.

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- Although a co-op, directors still have legal responsibilities and duties

akin to those which apply to companies

- must act in a way which promotes the success of the Society,

- for the benefit of the members as a whole taking into account the

long term effects of any decision,

- the impact on the environment and the community,

- the interests of employees, suppliers and the customers (who

may not be members) and

- the desirability of good business practices.

- Ulitmately the Board ensures a sustainable co-operative business within

the statutory and co-operative framework

- When considering the interests of members, directors should act in the

interests of the members as a whole. If they are elected as colleague

directors they still represent members as a whole not just colleagues

- Determine the long term strategy of the Society in consultation with the

Chief Executive whilst day to day operation of the business is delegated

to the Leadership Team. Devise objectives, implement policies and

procedures to ensure that the strategic objectives are achievable and

achieved

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- Consider the appropriate risk appetite for the Society in the context of its

strategic objectives and set relevant mitigations and internal controls to

ensure these risk levels are not exceeded

- Monitor the performance of the Chief Executive and his Leadership Team

in delivering the objectives, managing risks and progressing

opportunities

In summary, in order to be able to fulfil its role, the Board of Directors is responsible for maintaining a Board elected by members that is individually and collectively qualified to lead an organisation of the size and complexity of Southern Co-op and is required to this end to assess itself and its training and development needs.

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In relation to key areas within the Board’s remit, it has established sub committees which can focus in more detail on these areas or can act more flexibly in response to specific needs. All sub committees report back to the full Board on their meetings and conclusions The Chair’s Committee considers matters of a very urgent nature in between Board meetings to ensure that the Board can react quickly to issues and opportunities as they arise. The committee met twice in the year. The Governance Committee takes a leadership role in developing corporate governance principles, policies, standards, and practices that optimally support the Society’s strategic priorities and ensure appropriate direction of the Society. The committee is the steering group for the Governance Roadmap Project which considers the future governance needs of the business and how to transition to such arrangements. During 2016 the committee has considered the composition and skills requirements for the Board together with succession planning for key Board roles and specifically recommended to the Board that a search should be undertaken for a Chair Designate in the interests of continuity and stability of the Board thereby promoting good long term governance standards. The Audit Committee plays a critical role in providing oversight and serving as a check and balance on the Society’s financial reporting system. The Committee

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provides independent review and oversight of the Society’s financial reporting processes, internal controls and independent auditors. It provides a forum, separate from management, in which auditors can candidly discuss concerns. The committee also reviews the risks identified or the business and the mitigations in place to control them. The Remuneration and Appointments Committee ensures that remuneration arrangements support the strategic aims of the business and enable the recruitment, motivation and retention of the Leadership Team. It determines policies for remuneration and terms and conditions for the employment of the Chief Executive and the Society Secretary. Succession planning and Board appointments are also considered by the committee. The Nominations Committee is only established for a specific recruitment task. This year it was formed to conduct the search for a Chair Designate. It managed the process from initial invitation to apply, to review of CVs, short listing and interview to recommendation to the Board of the final candidate.

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It is the Board which is responsible therefore for the strategic high level direction of the Society. The Leadership Team on the other hand deal with the running of the business on a day to day basis but they are not executive, statutory directors. - Mark is our Chief Executive and he heads up the team of experts in their individual

areas. - Manage risks and opportunities in accordance with strategic plan as devised by Board

in conjunction with the Leadership Team - Accountable to Board for performance of business in compliance with our Rules and

statute

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The aim of this session was to help you understand a bit more about our co-operative structure. So to recap: - You, as members, own the Southern Co-op and have rights as owners to be involved

in certain decisions and elect the Board - You delegate to the Board the job of governing the Society on a strategic level in

accordance with the Society’s Rules, our values and principles, in the interests of the members as a whole

- In turn, the Board hold the Leadership Team to account in relation to their management of the Society’s business on a day to day basis

Thank you for listening and participating. We are happy to take any questions now which we or one of our directors will answer or feel free to chat to the directors or any of us afterwards.

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As I said at the beginning of the session, we could talk about this subject area for hours, but with 45 minutes we have tried to keep to the main points. We will be around in the break so if you have any further questions feel free to contact us and if you think of anything after today please do contact your Member Support team.

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The team are located in Portsmouth and will be happy to hear from you with any membership questions you might have. Contact details are on our website and on your membership card. Thank you for coming along to our session today.

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