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Chief Executive Officer

Honorary Secretary K«gati» uo»»»» ui UDL, DHltlo[1»J

In November 2004 the Board appointed Ursula Lidbetter as Chief Executive Officer and following the half

year end Jane Powell was appointed as Group Secretary replacing Keith Darwin who held the honoraryposition of Secretary during the half year.

FOR THE SIX MONTHS ENDED 5th March 2005

TurnoverThe Society recorded an uplift in Gross turnover for the group of 1.0% to f117,650,000 for the 26 weekperiod. Pharmacy and Food business moved forward strongly and production increased significantly in

the Bakery and Dairy. Home and Travel showed a small reverse following strong increases last year.Turnover and volume decreased in petrol filling stations, in part due to the closure of the unit inBracebridge Heath. Motor turnover also fell due to the closure of the Rover dealerships at Bostonand Sleaford.

F ina nciaIGroup trading surplus after depreciation but before interest, exceptional income, dividend, memberbenefits and tax was E6,646,000 a decrease of f9,000 or 0.1%.Trading surplus was depressed by costs ofclosure of the Sleaford and Boston Rover dealerships

Lincolnshire Co-operative Ltd

GENERALHALF- YEARLY MEETING

The Lawn, Union Road, Lincoln

I)'ednesday 25th May 2005 at 7.00pm

1.To co!1f!!"1 'll-; iv!u! ' d.-" o; Me'!!hers 6~i" oudl Gel'e: 3;'IVIES e;lrio,

2.To receive the Directors' Half-Yearly Report.

3.To declare the results of Elections for six Members to the Board.

After the members meeting there will be a presentation bythe University of Lincoln

~ ~ ~ ~ \

MEMBERS MUST PRODUCE THEIR

SHARE BOOK OR

DiVIDEND CARD TO GAIN ENTRY TO

THE MEETING

PLEASE NOTE: To USE DIVIDEND CARD ToGAIN ENTRY, THE MINIMUM BALANCE OF f. 1

MUST BE IN THE MEMBERS' SHARE ACCOUNTBY SATURDAY 14th MAY 2005.

Free transport to the meeting will beavailable from:

Lindsey Centre, GainsboroughMarket Place, HorncastleVictoria Street, NewarkLincoln Road, Sleaford

Winsover Centre, Spa lding

Tickets can be booked by calling(01522) 544632

Questions must be submitted in accordance with Special Rute Vll(d) and General Rule T3.

SPECIAL RULE Vll (d): Members wishing to ask a question at any Members' Meeting of the Society must submit the

question in writing to the Secretary at least 48 hours before the relevant meeting.

GEh)ERAL RULE 73 —COMPLAINTS BY MEMBERS: A Member who has any complaint to make as to the quality, quantity. or

price of any goods or services supplied by the Society, or the conduct of any officer or employee of the Society, shall send

the particulars of such complaint to the board who shall inquire into and decide upon them, subject to an appeal from any

such decision to an ordinary meeting of members; but no such complaint shall be brought before any such meeting

except an appeal.

Developments~A new food store and Post Office was opened in

Misterton in November replacing a smaller storein which the Society had traded for 100 years..The Society re-developed property in

Nunsthorpe, Grimsby to incorporate a new foodstore and Post Office. M:

At the Carlton Centre, Lincoln a food store incor-

porating a Post Office and a new Travelcare outletwere opened as part of the Society's major retail

park development.

.A ceremony held at Convamore Road in

Grimsby signalled the start of a developmentwhich wiil feature a new Food Store and PostOffice along with several retail units andaffordable housing..The purchase of a Pharmacy at Swineshead,near Boston has increased the number ofPharmacies operated by the Society to 30.

Property developments in the last 6 months haveincluded the purchase of the Grand Hotel in

Lincoln, a Shopping Parade in Scartho Grimsby,

property on Beevor Street Lincoln and in Saxilby.

Development of the Carlton Centre in Lincoln hasprogressed well, with tenants now open forbusiness in the neighbourhood shops which

serve the new houses to the rear of the site,together with the Glebe and St.Giles areas.

IN ghl*

gjjj~iiaiii~3.

-F Following the half year end the Societyconcluded the transfer of the Boultham Park

Dairy to Dairy Farmers of Britain, a farmers co-operative. All Dairy staff have transferred with

the business and we wish them well. TheSociety's food stores will continue to be supplied

from Boultham Park.

The Society had 146,384 members at the half year end, having recruited 5,020 new members in the last sixmonths.

In November a final dividend of E1,054,000 was paid to members.

Our nine Members Groups have been active helping to distribute donations to local good causes. In

addition, our stores collected f20,000 from customers for the Asian Tsunami Disaster Appeal. This wasmatched with an additional f20,000 by the Society. In addition, staff donated E1,182 from their wagesand E20,000 was sent to the national co-operative appeal for rebuilding work.

Our Healthy Habits programme in primary schools, which we run with Football in the Community, teacheschildren about healthy eating, keeping fit and other health issues.

Club 12-16 has been relaunched as Activate and, together with Kool Kidz, runs activities for young people.

The Group employed 2,802 staff as at 5th March 2005. The Society continues to invest in training and staff

development. At the Annual Staff Awards evening in October 2004 199qualifications were celebrated.

The following long-serving staff have retired during the last six months and we extend to them our bestwishes for a long and happy retirement.

Mr. P.ThomasMrs. C.PeateMrs. S.Harley

Mrs. P. Kirk

Mr. D.GarnerMrs. V. Sta neerMrs. C.Hindle

Gainsborough GrocerySaxilby GroceryWelton GroceryMarket Rasen Grocery

Food Dist. Centre, Lincoln

City Square Grocery

City Square Grocery

39 years30 years26 years21 years20 years16 years15 years

Mr. C.Pitts Food 24 yearsMr. T.Brumpton Photography 40 yearsMr. R.West Bouttham Park Dairy 38 years

It is with regret that we report the deaths of the following pensioners:

Peter HemsteadHerbert BoothEdward Martin

Eric BinnsAnnie Hardy

Betty WatsonMarion Lusher

Gainsborough Carpet Dept.Gainsborough Dairy

Sleaford Dairy

Bakery, Lincoln

Handybank

Queensway Grocery

Queensway Grocery

aged 73aged 95aged 75aged 90aged 94aged 80aged 70

AcknoM/IBdgm&nt5The Directors acknowledge that the Society's progress is dependant upon its members, staff and managers.

Thanks are extended to all those whose support contributes to the continued success of Lincolnshire

Co-operative.

For and on behalf of the Board of Directors

Terry Wilmer, President

Ursula Lidbetter, Chief Executive Officer

Jane Powell, Group Secretary

l/

5~ I

the widest possible range ofservices for our members

quality, valueand ethical principles

0 '

for the future by generating profits todevelop our services, pay dividends to membersand support our local communities

customers tobecome members and to be involved inrunning their Society

to help achieve

the skills our staff need,

officials

directors' reportboard of directors

financial report

social and co-operative performance

food and filffng stations

pharmacy

travelcare

funerals

post offices

home

dairy

motor

2

3-283

4-56-78-91011

12-1314151617

Sraiemenr oi reepuinieieiiee i i

internal auditors' statement

eud iors report

f nanc:el statements

28

directors+ Juke Romney

Allen Horne MCIPD+ ~ Alan Middleton JP

~ Eileen Bangay BA+*~ Stuart Parker BSc (Eng)

Sue Neal+ ~ Margaret Tranter

Paul AstonRon Foster

PresidentVice PresidentChair of Remuneration and Audit Committees

Audrt CommitteeRemuneration Committee

+ Board nominated trustee of Pension Scheme

chief executive officer+ Ursula Lidbetter BSc Hons, FCIS

group secretaryJane Powell LLB Hone, MBA

senior management teamDavid Darnley Dip. FD. MBIE, MBIFDAlastair Farquhar BSc, MR Pharm S

+ Stephen Galjaard BA Hons, ACAMatthew Jones BSc Hone, MRICSHeather Lee BA Hons, MCIPD, MBAJim Thomson BA HonsAndrew TurnerTracy WilliamsRay Yeardley

Funeral Services ControllerSuperintendent PharmacistChief Financial OfficerEstates and Property ControllerHead of People and PerformanceFood ControllerInformation Systems ControllerSpecialist Retail ControllerOperations Manager

AuditorsKPMG LLPSt Jame's Square, Manchester M2 6DS

BankersCo-operative Bank pic16 Saltergate, Lincoln LN2 1DG

SolicitorsAndrew & CoSt Swrthin's Square, Lincoln LN2 1HB

Registered DfgceStanley Bett House, 15/23 Tentercroft Street,Lincoln LN5 TDB

Registered Number141R

board of directorsThe Directors are pleased to present tomembers their report for the year to 3rdSeptember 2005.

Terry Wilmer retired from the Board in Mayafter 24 years as a Director. The Directorswish to record their appreciation for hisconsiderable contribution to the developmentand governance of the Somety. Marcus Steadstood down dunng the year and Ron Fosterwas elected in May.

Your Board continues to place greatImportance on sound corporate governanceFollowing the approval by Co-operativeCongress in May 2005 of a new CorporateGovernance Code, members approved a rulechange in October 2005 which will enable theSociety to remain at the forefront of bestpractice. The new rules will allow for Directorsto be appointed to fill any skills gape identifiedon the Board and it is intended to work withinterested members to provide acomprehensive programme for thoseinterested in standing for election as aDirector.

In November 2004 the Board appointedUrsula Lidbetter as the Society's ChiefExecutive Officer, following her career with theSociety spanning 20 years. Jane Powell wasrecruited in April 2005 as Group Secretary.Jane is a lawyer and previously worked for thePlymouth & South West Co-operative SocietyThe Directors look forward to the progress ofthe Society under its new team.

financial report

Group turnover decreased this year by 5.3%to 2225,082,000, reflecting the disposal of theDairy division and the closure of WrightsMotor Group during the year. Group net salesfor continuing operations have increased by1.5%, aided by above inflation increases in

Food and Pharmacy. Reductions in PetrolFilling Stations, Home and Post Offices haveimpacted on this growth but overall theDirectors consider the level of turnoverachieved in the continuing operations to besatisfactory.

Group trading surplus moved forward againthis year to 213,241,000, up 8.9% on theprevious year. Losses in the Dairy andWrights Motor Group totalling 22,474,000have impacted on this result, howeverimprovements in the continuing operationshave resulted in an increase in the grouptrading surplus overall. The Board is satisfiedwith this level of surplus given the difficultiesin the Dairy and Motor divisions.

turnover OOOO237,670

223,662 MPi 225,0622 I 9,702

trading surplus j 000

12, 157I 3,210

ill 51ll"

Et 8 million of capital was invested in thebusiness in the year. Cash and finanmal

investments stood at 223.7 milhon at the endof the financial year and net interest receivedincreased by 2313,000. The Revenue Reservehas increased by 233.2 million to over 2319million with the Revaluation Reserve moving

forward by 212.7 milhon to 263.8 milhon giving

a total addition for the year of 225.8 milhon.

The Society's total reserves now stand at2183.5 million.

..I'V"' f 000 1st 545

I57,712

I 39.655

I I 5, 159

soctal anoco-operativeperformance

Last year we began reporting on ourpedormance as a socialiy responsibleco-operahve in addit on to ourhnancial results IVe are measunngourselves against I 0 indicators ofsociai co-operative and environmentsperformance

fyembe eco"omic n. olLement2 fv'emoe democratic cart c pat on: Pan c pat on of emoloyees a d

r emoers i- ra ri. , o a"d educarion— Staff; u-. acd aosen:ee rar s

Staff croiile —gender nd e:n: S siomer sacsfac: onC -s,oe SI on —etr, ical issu s .croc rema ' a-d rvestme-'clecis 0 .sI".e ' ent - ccmmu ity andco-opera'. .e.n. lia. . s

= ¹Ica.oo- o ":de em. ss o-a = C fro —.ooeraton

'0 oropcnioc of nest ecyc edre sed

lVe have made progres- n measi r IgIhe maiority of the ndica ors and e'eare some ol our f ndings

Member Economic InvolvementMemoer econom c involvementnd cates hots well we are .r eetir- ' ou"me. Cers neecs -d I "e he v. e a, Lioness u I'e. I'LI

' - „' ns cer'orri o i' custo' ' IScsr I' . 'nc'eas ng IO repani!nat fc I-e Ie'enc no Septa me" . OQS nea, I2-Soc.et. Sales recoroeo o- c

against u" iast ea h ..oercenlaoe i strares ou i o "commun "; c 'tu e and o,.r - c..es= i

'rec u'. n- ne. members and sa sfv - .

go i.s

Member Democratic participation, ne Scc ety c demcc' hcco-tro ed O. : mnmoera

therefore important to us to measurethe number of members who areactively involved in the decisionmaking process. In the election formembers of the board of directorsheld this year 874 members voted.This was down on last year's record.This figure equates to 1 in 169members compared to 1 in 119members last year. The reduction is

possibly because this year's vote wasfor a non-contested election.

Staff injury and absentee ratesStaff inlury and absentee ratesprovide the Society with an indicationof how well we control the risks to thehealth, safety and well-being of ouremployees. Staff are encouraged toreport all accidents, no matter howminor, and these are recorded toensure that safety standards aremaintained and continuouslyimproved.

This year 375 accidents werereported. 1 employee per 53 full timeemployees had a reportable accident(as against 1 per 52 last year) and 1

employee in 5 experienced anaccident of some description(compared to 1 employee in 7 last

year) . The average number of dayslost per employee in the year throughsickness and absenteeism was 3.7

days. The comparative figure was 2.4days. Although the level of sicknessand absenteeism has increased it isstill well below the national average of7.2 days per employee. (National

average data taken from Bl /AXA

absence and labour turnover survey

2005)

Customer satisfactionCustomer satisfaction is very important

to us as we strive to offer the bestpossible service. One way of checkingthis is by customer survey. During theyear we mailed out 60,000questionnaires asking our members arange of questions to gauge theiropinions based on their experience ofshopping in our food stores. 7996 ofthose who responded said that theirlevel of expectation was either mst orexceeded by the level of service theyreceived.

The EnvironmentCarbon dioxide (CO) emissions areproduced as a direct result of burning

fossil fuels. For the year endingSeptember 2005 the Society produced11,955 tonnes of CO' from on siteoperations. This represents an increaseof 2.796 in total produced. We arealways looking into ways to reduce ourimpact on the environment and wehave introduced a number of initiatives

in recent store refurbishmentsincluding more energy effiment kghting

and water saving toilets.

Proportion of Waste recycled/reusedWe actively encourage the recycling ofwaste. Cardboard and plastic wasteare collected from our retail outlets,compacted centrally and then sent forrecycling. This year we have recycledlust under 800 tonnes of cardboardand 65 tonnes of plastic. We alsorecycle redundant computers andother IT equipment through aregistered charity.

foocl andfilling stationsWe have an active store dimprovement programmeoutlets.

evelopment andfor our 68 food

~ ~ ~

Sales in the Food Division movedforward strongly in the year, despitedifficult market conditions andincreased competition. Ourcommunity stores are now thebackbone of the division and aim toprovide a wide range of qualityproducts at fair prices in convenientlocations.

We have an active store developmentand improvement programme for our68 food outlets. Refurbishments werecompleted at our stores in Chapel StLeonards, Spilsby, Kirton in Lindsey,Market Rasen, Sutton on Trent,Waddington, Westcliffe Estate inScunthorpe, The Willows in Grimsbyand North Hykeham. We haveopened four new food stores in theyear, each incorporating a communityPost Office. A new store was created

on the precinct at Willoughby RoadScunthorpe. In Misterton we replacedour small unit which has traded on thesite for 100 years with a much biggeroutlet. The former store is beingconverted for community uses. Wealso opened a new store inNunsthorpe Grimsby, as part of ourcommunity strategy to bring backservices to estates where famlitieshave become run down over theyears. Our property development atCarlton Centre in the north of Lincolngave us the opportunity to open asmall convenience store to serve thenorthern end of the city.

We have also been redeveloping ourstore at Crowland and building a newoutlet in Convamore Road Grirnsbywhich opened following the year end.

~ ~

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at the heart of your community

g/p Qol g — tr q lo —.o a, on of arelCammaa;t. t S '. i c1 iC ' C li-altn ana;. C ' "e, =o'. comn-. a~i, :es

post offices

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In April we sold our dairy operationsto a dairy farmers' co-operatwe, DairyFarmers of Bntain. This was as aresult of a strategic review of thewabiiity and prospects for the dairyfol owing the Go-ooerat ve Group'ssaic cf their dairy ous;ness theprev, ous year. which affected ourabiliny to participate in nationalcontrac'. s

We were pieased to pass on our dairyto a fellovr co-ooerative business run

b. 'arme - The ie nas secured, cbs lo us stafr ann has a ioaeo the

productive famlity in Lincoln tocontinue in operation under its newownership. The dairy still supphes all

our food stores and dehvers doorstepmilk around the countv

The sale of '.he dairy marks the end o'

a verv s ccessfui association of thesociety wth 'he dairy inuust y and tire

Drectors souls ' e to '. hank a tn

empo, ees wno have corilr bu ed:otnis business over tne years and wisli

everv success 'o those:: o na:e. ansfen d '. D iv Farn =rs o B ita-

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f@.~'OT i~:"'

We completed a further phase of theCarlton Centre development in thenorth of Lincoin this year and havesecured some good tenants. including

Coop. ands bakers and local servicebusinesses Our own food store. PostOffice and travel agency also occupyunits The sale of a site to the rear ofthe Carlton Centre to Redraw Homesby our Joint t/enture companyGreetwell Developments orovided aone off boost this year.

We are refurbishing the doctorssurgery at Newland Health CentreLinco n, which will be completed in thenew year Further development isunderway at Hykeham Green Centre in

North Hykeham to provide localfadkt es in add tion to the food store.pharmacy doctors surgery. vetennary

surgery and small shops and servicesalreadv at the Centre

We completed the redevelopment ofthe Willoughby Road Shopping Paradem Scunthorpe dunng the year This

was a partnership protect with North

Lmcolnshire Counml prowding a muchneeded upkft to!he commercial vital'. :;of the parade whicn serves theRiddings Estate We undertookenvironmental improvements andrefurbished the flats and shopsmaking up the parade.

Plans for the redevelopment of theLincoln city centre markets. SincilStreet and bus station areas areprogressing and it is hoped that adevelopment partner will be appointedearly in 2006

As part of the development plan theGrand Hotel was purchased, tofacilitate a redesign of the transportnetwork and a new transportinterchange for bus and trainpassengers. The small number ofmarket traders occupying stalls on theCornhill Pavement and Sincil Streetcorner are to be relocated to newstallage on Sincil Street, which will

include lockable storage to minimiseloading and unloading. This will

create more interest on Sincil Streetand support our traders in the indoormarket.

We agreed disposals of someproperties during the year, includingSecor House in Lincoln and our formerWrights showrooms in Spalding andNewark.

The Society's property holdingsprovide an income stream whichunderpins the economic performanceof the business, gives a return on thecapital not immediately required fortrading operations and offersopportunities for future developmentof services. There is also the potentialfor capital growth which strengthensthe Society for the longer term. In lastyear's accounts, properties held in oursubsidiary Lincoln Corn Exchange andMarkets (1991)Ltd were valued as at31st December 2003. This year werevalued all properties held by theSociety and its subsidiaries as at 3rdSeptember 2005. A strong moveforward in valuations has increasedthe revaluation reserve by 212.7million.

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Member events""ne -emoers = o ps c- s me

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Lincoln Co-operative Ladies' c oo-

Co-operative World Programme

'. ses . 0 . =s

cut 1w, o uo

This vear -"345.000 was a'ieca'teEi 'o ccmfTFL:;; y

gQQLi caases.

Our mission is to build for the future bygenerating profits to develop ourservices, pay dividend to members andsupport our local communities. This

year 2345,000 was allocated tocommunity good causes.

Our local area member groups made 758donations totalling over 060,000 tocharities and good causes through theCommunity Dividend scheme.

The Health Care Fund gave 640,000 in

cash and equipment to doctors'=- rge. es scnoo- an comm ntv rcr 53nea:n i

' a' ves In add tion:ne HealtiirHaoil orocramms nas cont nuec and-as gone 'rom strenc' io strencth0 r c:ne:ea we nave sited 65schon s nci c i c 3 soec a' schon's and

, omen: rr o.er —' 000 cupi's I- Ap" i

:-e orocramms ".a our cartners Football- t"o Comm. n', was successiu rscs . . - 'u-o nc ro- the F oioaii

=oundat "- oi r'80 000 over 3 sears

This will enable us to deliver theprogramme into more schools and alsodevelop an additional day based around"Unhealthy Habits".

The Education Fund has continued tosupport schools who bid for spemalistschool status. In particular, we havegone into partnership with BranstonCommunity College to develop co-operative curnculum materials andapproaches that introduce young peopleto the values of co-operative, mutual

and social enterprise

in adcition io ' e ' ncs g 'en tocomm n ty good cau es ws h:esuoporiec a rang"= oi lc al oroan sstionsthroucn soonsors- o nc ud ng Lin o 'ca:neural Flower Festive Ine casse, ire

Band the Ace dent a o Em= gens,Fh ng Sc ad:he C ii of Li coin 'OK

Run L "coin C t, Footoa, l C uo L nco'. , Ladies FC anc me IVI c L cs yourn

Focib I League

ne Sor. ery ain s o suooo . . Od ne pcave'00 o:t e co operat .e and so i

.=—.—.

- o. ses T-is, a. v = - .e ifi '

s '0 tnroust

ma aoe:a cont Out one:0 teeL ccolns re cd;:;-, cc-00 ra: .

de. eoome. r .ge -. :—.t .-. nigr;tne Soc ea and a ra- ge o-' a"-Sig ' 'ica ' evenrs d.. . 0i c ude tne recco- t 0 =' '. e, ane coa 0 r, -s s., cr as greene. n

"am B 0 coa-d:n 0- -= ana"-"=

os .. Isa", . aie ' .- ed

En!e 0 ise East I,t oia-0 r ner. . it s

oped t"z t ca- ens .e:-e t. eatsLinco nsn re emam o.-. sen'. eo a'. a

reg. sra .= Ii a 0 0" 0 0 "tiaco"t'.,i.tec to i: tier' 'eg .o ans of ncoi sni e

0" g tnev .. ~ . . -' '. ' ll' ei -3"ooo ti e Soc = 0 n. rc. se sectr,-" cds .=. suoo' 0 '; a

eea -g;o ..:-= —"----

r.c n-c n=- .=' e'a area'tcomroooe at . . de. e semen "Li c- is- =

ano nas prod ceo ':- '"- gous "ess P a fo' . e re. rs' GB a"d an 0"O.a . =:,". u, e -:erea = 'iarc- =""-"=.

ne coa nas, s 0 .ne ooaro Sc

organisationand people

The Somety's conl nued success relieson the motivation and performance oftne people we employ so their training

and development remain key pnonties567 recognised qualifications havebeen achieved and the number ofempioyees undertaking courses in theyear .vas 15lg Th s year moreemphasis has been olaced on higherlevel qualifications the new NationalCff Licence certificate specialist andcraft kilis courses

Customer S once a:vards went to thestaff of Churcn ll Dnve food store andMarket Rasen Post Offic

We carry ou', a range of n k

assessments to ens re our emoioyeesand c.istomers have a safeenuronment These assessments

,"uoe Hea rh and Safety Food

Hygiene, equal public access to goodsand services pregnant workers healthand safety, asbestos reporting. dnverassessment and manual handling

The Somety aims to offer acomprehensive package Of benefits tostaff. includ ng a share of the Society sprofits As a result of our successfulyear the amount distributed to staffhas increased to D 000.000 Staff areencouraged to support tne Society byshopping with us and the amountgiven in staff discounts this year was6367.900

We said goodbye this year to our dairyand Wnghts Motor Group staff and wethank them for their contnbution to theSociety over the years and wish themweil for the future

Acknowledgement

Internal Control

The Board has overall responsibility for theSociety's systems of internal control and formonitonng their effectiveness The system ofinternal controls is designed to manage ratherthan ekminate the nsk of failure to achieve theSociety's business oblectives. Internal

controls can provide only reasonableassurance against material mis-statement orloss.

The Turnbull Committee published guidancein 1999 on Directors' responsibilities forinternal control, which was incorporated into aCorporate Governance Code of Best Practiceproduced by Co-operatives"'.Co-operatives"' carries out a review ofSocieties penodically to monitor theircompliance with the code. The Sooetyachieved a score of 91% in 2004 (98% at theprevious review in October 2003) and isworking towards fuller compliance over time.

In 2003, Co-operatives"" recognised thatfurther work in this area was required and in

May 2005 published a revised CorporateGovernance Code of Best Practice. TheSociety is not required to comply with thiscode for the year to 3rd September 2005.

The Board wishes to ensure the Society is ascompliant with the new code as possible andwork is already underway in this area. A reportwill be included in the annual report andfinancial statements for the next financial year,setting out any relevant comphance issues.

The Audit Committee of the Board comprisesfour independent Directors and is chaired byone of its number who is not currently

President of the Sooety. The committee is

scheduled to meet at least three times peryear.

Its Terms of Reference have been agreed bythe Board and include:

Consideration of the appointmentof the external auditor and thescope of the audit,Review of the financial statementsand auditors' management letter,Review of the internal auditprogramme and all Internal Audit

reports andReview of the Society's statementon risk management and internalcontrol systems

The Chair of the Audit Committee reports theoutcome of all Audit Committee meetings tothe Board and the Board recewes the minutesof all Audit Committee meetings.

Executive Remuneration is determinedannually by the Board on the recommendationof the Remuneration Committee, whichcompnses the 5 longest serving non-employeeDirectors. The Remuneration Committeetakes external advice to ensure that executiveremuneration is appropriate to the scale andscope of the business. The current advisor isthe Co-operative Employers Association.

Internal audit services continue to beoutsourced. An annual report of the activitiesof the Internal Audit Service has beenproduced for the year 2004/05. The InternalAuditor's Overall Assurance Statement isincluded on page 28. A three yearprogramme for the audit of all key systemsand controls has been agreed with the Board.Any weaknesses identified are highlighted tomanagement and to the Audit Committeewhich monitors all Internal Audit Reports andensures that appropriate actions are taken.

26

Internal control framework

The Society has adopted an internal controlframework which the Directors considerappropnate to its size and diversity:

Risk ManagementThe Board and executive management havethe pnmary responsibility for identifying thekey business risks facing the Society and forthe development of appropriate policies tomanage these nsks. Each trading division

has a responsibility for identifying the keyrisks faong their business. The SeniorManagement Team and Internal Audit functioncontribute to the identification of corporaterisks.

Key risks are monitored throughout the yearand a complete review is undertaken annually

by the Senior Management Team andconsidered by the Audit Committee. Thisenables the targeting of resources on areas ofhighest risk, when analysed by likelihood andimpact.

The work of the business continuity groupcontinues. Recently a greater emphasis hasbeen placed on this area of the Society's

business.

The Executive considers any significantvariances from the budget on a regular basisand remedial action is taken whereappropriate. Following the end of every sixmonth period the Board examines thefinancal results for that period in detail at aSpecial Board Meeting.

Procedure manuals cover the key controlsystems and all divisions are required tocomply with them. The intranet continues tobe used for dissemination and updating ofpolicy documents, instruction manuals, keyinformation and reporting forms.

Monitoring

The out-sourced provision of Internal Audit

services continues to be a success.Resources are concentrated in the areaswhere they are most required. The use of anexternal service provider for this role givesflexibility and an independent view. All

Internal Audit reports are considered by seniormanagement and then presented by theInternal Auditors to the Audit Committee. Thereports contain recommendations and actionplans agreed with management to improve

controls where weaknesses are found. Theseare followed up to ensure successfulimplementation.

Control environment

The Society has clearly defined reporting lines

and levels of delegated authority. Expenditureauthorisation levels are set for every area ofthe business. Larger capital pmlects andacquisitions require prior Board approval. TheGroup is centrally controlled.

There is a comprehensive system of financial

reports. A particular emphasis this year hasbeen an appropriate provision of regular and

timely management accounting information.

Budgets for all divisions are set six monthly

and reviewed by the Board.

Control activitiesThe Board considers information at everyBoard meeting on progress of the business in

relation to the budgets and the prior year.

During the year the Board undertook a review

of the system of internal controls and doesnot consider that any weaknesses have cometo light that have resulted in material losses or

contingences which require disclosure.

Supplier Payment Policy

It is Society policy to agree and clearlycommunicate the terms of payment as part ofthe commercial arrangement negotiated with

suppliers and then pay according to thoseterms based upon the timely receipt of anaccurate invoice. Trade creditor days for theyear ended 3rd September 2005 were 19days. This represents the ratio, expressed in

days, between the amounts invoiced to theSociety by its suppliers in the year and theamounts due at the end, to trade creditorswithin one year.

27

Industnal and Provident Society law requires

the Directors to prepare finanixal statementsfor each financial year which give a true andfair view of the state of affairs of the Group at

the end of the year and of the surplus or lossfor that period. In preparing those financial

statements, the Directors are required to:

s Select suitable accounting policies and

then apply them consistently,s Make judgements and estimates that are

reasonable and prudent,State whether applicable accounting

standards have been followed subject toany material departures disclosed and

explained in the financial statements.

The Board of the Society is responsible for

keeping proper books of account with respectto the Group's transactions and its assets and

liabilities as necessary to give a true and fair

view of the state of affairs of the Group. TheDirectors have general responsibility for taking

such steps as are reasonably open to them tosafeguard the assets of the Group and to

prevent and detect fraud and any otherirregularities.

Board Certification

The financial statements on pages 30 to 49are hereby signed on behalf of the Board ofDirectors pursuant to the Friendly andIndustrial and Provident Societies Act 1966.

Julia RomneyAllen HorneJane Powell

PresidentVice PresidentGroup Secretary

26th October 2005

Statement on Going Concern

After making all appropriate enquines, theDirectors have a reasonable expectation thatthe Group has adequate resources tocontinue in operational existence for theforeseeable future. For this reason, theycontinue to adopt the going concern basis in

preparing the Group's financial statements.

Internal Auditor's overall assurance statement

In our opinion, for the year 2004/06 the Lincolnshire Co-operative Ltd has an adequate, effective andreliable framework of internal control which provides reasonable assurances regarding the effectiveand efficient achievements of objectives.

Whilst some deficiencies in control have been identified by the internal audit service, we are satisfiedthat they are being resolved in an appropriate manner. This is based on our recommendationtracking procedures and follow up work which have confirmed that actions are being taken in

accordance with the agreed action plans as previously reported to the audit committee.

in the context of our three year strategic plan, we are able to confirm that the overall controlframework is reasonable, and due to the attention management have given to our previousrecommendations, generally improving.

Streets Internal Audit

28i

Vve have audited the Iinanciai statements onpages 30 to 49

This report is made solely to the Society'smembers, as a body, in accordance with

section 9 of the Friendly and Industrial andProvident Societies Act 1968. Our audit workhas been undertaken so that we might state tothe Society's members those matters we arerequired to state to them in an auditor's reportand for no other purpose. To the fullest extentpermitted by law, we do not accept or assumeresponsibility to anyone other than the Societyand the Society's members, as a body, for ouraudit work, for this report, or for the opinionswe have formed.

Respective responsibilities ofdirectors and auditors

The directors are responsible for preparing theAnnual Report. As described on page 28 thisincludes responsibility for preparing financialstatements in accordance with applicableUnited Kingdom law and accountingstandards. Our responsibilities, asindependent auditors, are established in theUnited Kingdom by statute, the AuditingPractices Board, Co-operatives 's Code ofBest Practice ("the code') and by ourprofession's ethical guidance.

We report to you our opinion as to whetherthe financial statements give a true and fairview and are properly prepared in accordancewith the Industrial and Provident Societies Act1965 to 2002 and the Industrial and ProvidentSocieties (Group Accounts) Regulations 1969.We also report to you if, in our opinion, theSociety has not kept proper accountingrecords and if we have not received afi theinformation and explanations we require forour audit.

We review whether the statement on pages 26and 27 reflects the Society's compliance with

paragraphs 31 and 32 of the code, and wereport if it does not. We are not required toform an opinion on the effectiveness of theSociety's corporate governance procedures orits internal controls.

fve read ine other information contained in iheAnnual Report, including the statement onparagraphs 31 and 32 of the code, andconsider whether it is consistent with theaudited financial statements. We consider theimplications for our report if we become awareof any apparent misstatements or materialinconsistencies with the financial statements.

Basis of audit opinion

We conducted our audit in accordance with

Auditing Standards issued by the AuditingPractices Board. An audit includesexamination, on a test basis, of evidencerelevant to the amounts and disclosures in thefinancial statements. It also includes anassessment of the significant estimates andjudgements made by the directors in thepreparation of financial statements, and ofwhether the accounting policies areappropriate to the group's circumstances,consistently applied and adequately disclosed.

We planned and performed our audit so as toobtain afi the information and explanationswhich we considered necessary in order toprovide us with sufficient evidence to givereasonable assurance that the financialstatements are free from materialmisstatement, whether caused by fraud orother irregularity or error. In forming ouropinion, we also evaluated the overalladequacy of the presentation of information in

the financial statements.

Opinion

In our opinion the financial statements give atrue and fair view of the state of affairs of thegroup and the society as at 3 September 2005and of the income and expenditure of thegroup for the year then ended and have beenproperly prepared in accordance with theIndustrial and Provident Societies Act 1965 to2002 and Industrial and Provident Societies(Group Accounts) Regulations 1969.Men~.KPMG LLPChartered AccountantsRegistered Auditors

26th October 2005

29

statement of accounting policiesbasis of preparation In accordance with FRS9, the Group'e

'1

u

r '-"— ~ . .''" ': ..ui t

c "oI -rcl og". ':w "- ''

O

oe oi toed. iI r, c n r e'.a:—I

= .: -r& a = -.a 'o .—..

Anonr own o

Mn o"na Ow ed

Jc e n

assets leased to the groupAssets acquired under finance leases arecapitaksed and the outstanding future leaseobligations are shown as creditors.

Operating lease rentals are charged to theGroup Revenue Account on a straight linebasis over the period of the lease.

assets leased tocustomersAssets leased to customers under operatingleases are included in the balance sheet asrental assets at cost of acquisition lessdepreciation based on the Group's normalaccounting pohcy. Rental income from theseleases is credited to the Group RevenueAccount on an accruals basis over the periodof the lease.

taxationCurrent —Provision has been made for theestimated bability based on the surplus for theyear at the current rate of corporation tax.

Deferred —Full provision for deferred tax hasbeen recognised in the balance sheet withoutdiscounting. Deferred tax assets arerecognised to the extent that they areconsidered to be recoverable.

stocksStocks are valued at the lower of cost and netrealisable value.

repairsRepair expenditure is charged to the GroupRevenue Account in the year that the cost wasincurred

amount recommended by the Board isinclusive of the amount distributed asdividend points in the year under review.The provision for unredeemed dividend pointsin the Group Balance Sheet is based on thefull redemption value of the dividend pointsand has been shown as a current kability.

The provision for dividend bonus in the GroupBalance Sheet is the amount available fordistribution based on the recommendation ofthe Board of Directors and subject to memberapproval.

cash and liquid resourcesCash, for the purpose of the Group Cash FlowStatement, comprises cash in hand anddeposits repayable on demand, lessoverdrafts payable on demand.

Liquid resources are current asset investmentswhich are disposable without curtailing ordisrupting the business and are either readilyconvertible into known amounts of cash at orclose to their carrying values or traded in anactive market. Liquid resources compriseterm deposits of less than one year (otherthan cash).

investmentsQuoted fixed asset investments are includedat cunent market values. Other fixed assetinvestments are stated at cost less provisionfor any permanent diminution in value.Investments held as current assets are statedat the lower of cost and net realisable value.

funeral bondsLiabilities for funeral bonds are based on thetotal commitment at the balance sheet date,

group revenue account

Year Ended 3rd September 20052005 2005

Continuing DisconenuetlOperations Operations

2'000 2'000

2005(52 Weeks)

Total2'000

2004(52 Weeks)

Total2'000

TURNOVER: GROUP AND SHARE OF JOINT VENTURE

Less: Share of Joint Venture Turnover

GROUP TURNOVER

Less: Value Added Tax

GROUP SALES

202,616(1,593 )

201,023(15,820)

185,203

24,059

24,059(1,095)

22,964

226,875(1,593)

(16,915)

208,167

240,230(2,560)

237,670(17,502)

220, 168

Less: Agency share of sales

GROUP NET SALES

Less: Cost of Sales

GROSS PROFITLess: Expenses — Ordinary Trading

Less: Expenses — Member Benefits and Grants

(14,016)

171,187

(114,614)

56,573(40,134 )

16,439

(724 )

22,964

(14,016)

194,151

7,774(10,222)

(2,448)

(26)

64,347(50,356)

13,991

(15,190) (129,804)

(14,232)

205,936

(141,312)

64,624(51,791)

12,833

(676)

GROUP TRADING SURPLUS

Share of Trading Surplus in Associated Company

Share of Trading Surplus in Joint Venture

TOTAL TRADING SURPLUS

Profit on sale of Discontinued Operations

Profit on sale of Fixed Assets

1

1010

15,715g

1,161

1 6,885

2,177

(2,474)

(2,474 )

1,302

13,2419

1,161

14r(11

1,3022,177

12,15712

1,897

1 4,066

246

SURPLUS BEFORE INTEREST

Net Interest Received to/1319,062 (1,172) 17,890

57014,312

257

SURPLUS FOR THE YEAR BEFORE DISTRIBUTIONS

Less: Share Interest

Funeral Benefit

Dividend

SURPLUS FQR THE YEAR BEFORE TAXATION

Taxation

18,460(223)(141)

(2,500)

15,596

(4,175)

14,569(225 )

(144)(2,400)

11,800

(3,450)

SURPI US FOR THE YEAR AFTER TAXATION

Equrty Minority Interest

SURPLUS FOR THE YEAR

TRANSFERRED TQ RESERVES

19

17

11,421

15

11,436

8,350

55

8,405

Discontinued operations compose the activities of the Dairy acd Wrights Motor Group.

The notes on pages 36 to 49 form part of these accounts.

32

As at 3rd Septemder 2005

Notes2005f'000

2004& ogn

Intangiole As etsTangible AssetsInsestment Propert esInvestments

Share of Joint Venture

Share of Gross AssetsShare of Gross Liah iiries

8

81018

6,79655,901

119,6314,593

2,015(1,826) 189

187,110

c o '

5c 3&5

8 588u 28o

8 8052 589 1 818

188 iug

CURRENT ASSETSStocksDebtorsInvestments

Cash at Bank and In Hand

CREDITORSAmounts Due Within One Year:CreditorsDividend

Loans

111021

121213

12,28612,55416,4982,658

29,7263~125

18,0249,201

10,6714, 175

42,071

30,1933,4555,000

38,648

10,642

197,752

CREDITORSAmounts Falling DueAfter More Than One Year:CreditorsLoans

1213

(4,230) (3,561)(125)

PROVISIONS FOR LIABILITIESAND CHARGES

Deferred Taxation 14 (156) (199)

NET ASSETS

FINANCED BY:Share CapitalRevaluation ReserveRevenue Reserve

MEMBERS' FUNDSEquity Minority interest

TOTAL FUNDS EMPLOYED

151617

1819

193,366

10,09763,849

119,696

193,642(276)

193,366

167,700

10,15251,180

106,532

167,864(164)

167,700

The notes on pages sa to 49 form part of these accounts.

group cash flow statement

Year ended 3rd September 2005 2005(52 Weeks)

2004(52 Weeks)

NET CASH FLOW FROM

OPERATING ACTIVITIES

Notes

20

6'000

24,685

2'000

16,144

Dividends received from Associates 10

D 9-os .=ce .-" " m J. - '010

2,000

10900

RETURNS ON INVESTMENT AND

SERVICING OF FINANCE

Interest Received —Group

Interest Paid —Group

Dividends paid to minonty shareholders

in subsidiary undertaking

TAXATION

U.K. Corporation Tax Paid

1013

19

510(29)

(3,9K')

388(188)

(49 )

151

(1,625 )

CAPITAL EXPENDITURE AND

FINANCIAL INVESTMENT

Purchase of Tangible Fixed Assets

Purchase of Fixed Asset Investments

Sale of Tangible Fixed Assets

Sale of Fixed Asset Investments

ACQUISITIONS AND DISPOSALS

Further investment in subsidiary

Acquisition ofSubsidiary Compantes and Businesses

Sale of Subsidiary

Companies and Businesses

DISTRIBUTIONS PAID

CASH INFLOW BEFORE USE OF

I.IQUID RESOURCES AND FINANCING

19

23

(16,555)(357)

1,923

(99)

(1,884)

(14,989)

3,917

(2816)

(11,362)(2,372)

8783,642

(2,895)

(9,214)

(2,895)

(2,696)

775

MANAGEMENT OF LIQUID RESOURCES

(Purchase)/Sale of Current Asset Investments (52127) 726

FINAI4CING

Issue of SharesRedemption of Shares(Decrease)/Increase in Debt

(DECREASE)/INCREASE IN CASH

DURING THE PERIOD

15 3,78515 (3,840)

(5,000)

21

(5,055)

(1,517)

4,128(3,547)

35616

2,117

34The notes on pages 36 to 49 form part of these accounts.

Year ended 3rd September 20052005

(52 Weeks)

'" 04'"2 A cia,

6'000 " 000

Retaineo Su olus fo" tee Yea. 11,436 8 405

Unreal sed Su olu on Reta i..ation of 'ran ng Prcper, esUnrea!ised Surpi„s on Re aluati. i c',nxestrne t Propert es

4.1031 0,294

26 290

25,833 18 05;

Year ended 3rd September 20052005

(52 Weeks)

Surp u ro ne Year before taxaton 15,596

Rea: o" o' propert. re. aiuat o oa -' of cress .e='.Rea. at o- c' n. estment .=-.a uation g- ns o' ore o is, eaDifference oetneer a sto =:-, oeorec eton c"aroe ~ c ne t.aoeprecaccr cnarge or!h, ea -.", = ted o:-e = c. ., ec a-c.n

1.783

{55)

17,324

13.164

notes to the financial statements

1. The Group has two prinopal segments, which are Retail and Investment Property.

of the two segments are:

2005(52 Weeks)

The results

2004(52 Weeks)

Group Net Sales- Retail- Investment Property

Total

199,1119,056

208,167

P.'000

212,4847,684

220, 168

Gross Profit- Retail- Investment Property

Common Costs

Group Trading Surplus

55,2919,056

64,347(51,106)

13,241

56,9407.684

64,624(52,467)

12,157

Net Assets- Retail- Investment Property

Total

73,965119,401

193.366

72,73694,964

167,700

Discontinued OperationsFor companson purposes the 2004result is restated as below:

Net SalesCost of Sales

Gross Profit

2004Continuingoperations

2'000

168,706(1 16,942)

51,764

2004Discontinued

operationsP'000

37,230(24,370)

12,860

2004(52 Weeks)

Total2'000

205,936(141,312)

64,624

Expenses Ordinary Trading

Expenses — Member Benefits and Grants

Group Trading Surplus

(37,760 )(639)

13,365

(14,031)(37)

(1,208)

(51,791)(676)

12,157

36

2. Expenses —Ordinary Trading

Personnel CostsOccupancy CostsHire of Plant —Operating LeasesDepreciation of Owned AssetsDeficit/(Surplus) on Sale of Fixed AssetsAmortisation of Intangible Fixed AssetsAuditors' Fees: Audit

Non AuditDirectors' FeesOther Expenses

Total Expenses —Ordinary Trading

2005(52 Weeks)

2'000

29,7125,708

723,834

27463

2810,452

2004(52 Weeks)

2'000

30,0295,717

773,703

(42)40160

2711,819

51,791

3. Employees2005

(52 Weeks)2004

(52 Weeks)

The Average Number Employed by the Group was

Full-TimePart-Time

Total Average Number Employed

The Costs Incurred in Respect of these Employees were

Number

1,0971,426

2.523

E'000

Number

1.2761,427

2,703

2'000

Wages and SalariesSocial Secunty CostsOther Pension Costs

Total Personnel Costs

26,3911,9011,420

29,712

26.9111,9781.140

30.029

'.I=-tt-

't: R-" =' -' — ' o ea=

=' D

15114

12i2381it5l237

aith Ca .- t' sots0

6011

c"

1„340

223141

5. Profit on sale of Fixed Assets/Discontinued Operations2005

(52 Weeks)2004

(52 Weeks)

2'000 2'000

Continuing operationsProfit on sale of fixed assetsProfit on disposal of businesses

Discontinued operationsProfit on disposal of businessesPension payment due

2,16116

2.177

2,802(1,500)1,302

246

246

6. Taxation

a) Analysis of tax charge in yearCurrent taxUK corporation tax at 30% (2004: 30%)on profits for the year 4,289 2,81 0

Share of taxation in Joint Venture and AssociatesCurrent tax charge for the year

3794,668

5913.401

Deferred TaxOrigination and reversal of timing differencesPension payment dueAdlustments in respect of prior years

Deferred tax credits for the year

Taxation provided in the year

(43)(450)

(493)

4,175

299

(250)

49

3,450

b) Factors affecting tax charge for the yearThe effective rate of tax for the year of 29.9% (2004: 29.2%) is not significantly differentfrom the standard rate of corporation tax in the UK of 30%. The differences in the cunenttax charge are explained below.

Profit on ordinary activities before taxation 15,596 11,800

Profit on ordinary activities multiplied by standard rateof corporation tax in the UK of 30% (2004: 30%) 4,679 3,540

Effects ofiGains on business disposalsPension payment dueRevaluation gain now realisedPermanent differences between items affecting taxand accounting profitOther timing differences

Current tax charge for the year

(845)

(199)

4,668

267(406)

3,401

38

Fixed Assets —intangible

GoodwillCost as at 4/9/2004AdditionsDisposals

Cost as at 3/9/2005

Amortisation as at 4/9/2004Charged in the Year6 m -a;eri rx aisori al

Total2'000

7,833639(343)

8.129

1,109

(239)

Net Book Value as at 4/9/2004 6,724

8. Fixed Assets —Tangible

a) TradingLand 8

Buildings

UOOO

FixturesFittings &

Plant2'000

Transport

OOOO

RentalAssets

Total

P. OOO

Market Value/Original Cost at 4/9/2004Transfer to Investment PropertiesAdditionsDisposalsRevaluation

Market Value/Original Cost at 3/9/2005

Depreciation as at 4/9/2004i iiargea r ce fo v

D xoosa s

47,888(6,288)2,564

(290)3,617

47,491

-38

23,153

2,508(6,160)

19,501

14 881

5,588

940(3.828)

2,700

3,551

546

66(37)

575

428

77,175(6,288)6,078

(10,315)3,617

70,267

18,860

Ner Bock Vair. r. a, ' -' 9 "GGa .8i1

At Market Value/Cost

r, ' ecsr "c

2005E'000

42,8104 681

9. Fixed Assets —Investment Properties Land & Buildings

Freehold Leasehold2'000 2'000

LandlordsFixtures

2'000Total2'000

Market Value/Onginal Cost as at 4/9/2004

Transfer from Trading PropertiesAdditionsDisposalsRevaluation to 31/1 2/2004Revaluation to 03/09/2004

Market Value/Original Cost as at 3/9/2005

Depreciation as at 4/9/2004Charged in the YearDisposals

Depreciation as at 3/9/2005

88,2906,288

11,277(6,015)5,5274,331

109,698

8,976

138

436

9,550

900

279(35)

1,144

598168

(5)

761

98.1666.288

11.694(6.050)5,5274,767

120,392

598168

(5)

Net Book Value as at 3/9/2005

Net Book Value as at 4/9/2004

109,698

88,290

9.550

8,976

383

302

119.631

97,568

A valuation of investment properties was carried out by Banks, Long & Co., Chartered Surveyors, 15 St Mary' sStreet, Lincoln as at 3rd September 2005. Previously valuations of Lincoln Corn Exchange & Markets (1991)Ltd

were camed out at 31st December each year.

10. a) InvestmentsFixed Assets

2005 20042'000 2'000

Current Assets2005 20042'000 2'000

Interest andDividend

2005 20042'000 2'000

Co-operatwe Group (CWS) Ltd.—Corporate Investor Shares

Other I & P Society SharesAssociated Companies (i)

Companies QuotedCompanies UnquotedLocal AuthoritiesMortgagesFuneral Bonds (iii)

Short term Deposits

3816266

1353

2913,608

290

3816566

1353

3773,165

16,248 10,421

250

20408

26

21

22273

225212

Totals

Joint VentureShort Term Deposits

Associated CompanyShort Term Deposits

Total Investments

4,593

4,593

4,239

4,23g

16,498

16,498

10,671

10,671

510

599

388

54

445

40

20052'000

Bal* ' c Bruugilt I-or'A. d

o iara or, rao rg 0 rp s car ri:

Share of Net Interest Received Before Tax

=x I'ayaola

D o ncs R=- ir =c

165

(5)

(10)

i 16

161

a6

2 "00

'1 D bt

Falling DueWithin One Year

2005 20049'000 P.'000

Falling DueAfter One Year

2005 2004f.'000 2*000

Credit Sales

Trade Debtors

Capital Proceeds

Deferred tax relating to pension payment due

Other Debtors and Prepayments

1,386

3,173

7,027

518

1,772

7,051

378

Total Deotors 12 554 9,201

1' ai Creditors

Trade Creditors

Accrued Charges

Pension Liability

VAT

Other Taxation and Social Security

Dividend Stamps and Member Benefits

Corporation Tax

Funeral Bonds

Owing to Joint Venture

Total Creditors

11,709

6,181

1,500

417

392

248

5,055

250

3,974

29,726

16,679

6,508

53

461

530

4,899

250

813

30,193

3,610

4,230

50

350

3,161

3,561

bj Dlvkleltrl

Dividend Bonus

Dividend Approved Not Yet Distributed

Dividend Points Balances on Dividend Cards

1+71

1,497

1,055

1,452

Total Creditor 3,503 3,455

42

13. Loans InterestRate

Falling DueWithin One Year

2005 2004E'000 E'000

Falling DueAfter One Year

2005 2004E'000 E'000

2005E'000

2004E'000

Interest Payable

Pension Fund

Bank

Funeral Bonds

Minority Interests

Owing to Joint Venture

Other Loans

Other Interest Paid

6%Variable

Vanable

12.5%3%Variable 125

1,000

125

14

51

58

66

125 1,000 125 188

Bills of ExchangePayable

Total

4.5% 4,000

125 5.000 125 29 188

The bills of exchange were secured on the Carlton Centre, Lincoln. Interest paid on the bills of exchange iscapita)sad in Investment Properties under development and is not shown as a movement through the GroupRevenue Account. Dunng the year this amounted to E110,484

14. Provisions for Liabihties and Charges2004E'000

Deferred Tax

Deferred tax provisions at the beginning of the year

Movement for the year

199

(43)

150

49

Deferred tax provisions at the end of the year 156

An analysis of the amounts provided are set out below:

Accelerated capital allowances

Other timing differences

(319)475

(562)

761

Deferred tax provisions at the end of the year

15. Siiare Capital2005OOOO

20042' 000

Balance to begin the yearContnbutionsDwidend Bonus Credited to Accounts in the Year

Interest

10,1522,5081,054

223

9,5713,205

698225

Withdrawals

Balance to end the year

13,937(3,840)

10,097

13,699(3,547)

10,152

i) Thewholeofthes arecapia cornh h t I comprises 10,096,648 non equity shares of Ft attracting interest at

the rates below:

Balance60 - 220220 - 21009100 —25002500 — 21,00021,000 —22,50022,500 —910,000210,000 —220,000

Interest RateNil

1.0%1.5%2.0%2.5%3.0%3.5%

ii) Shares are withdrawable on periods of notice from demand to two weeks depending on the

amount.

iii) Every member who has been a member of the Society for not less than six months and holds a

minimum of one share is entitled to one vote.

iv) In the event of a winding up, any balance remaining, after meeting all liabikties will be distributed

subject to the Society's rules.

v) Dividends to members are paid by way of redemption of dividend points and by payments of

dividend into members' share accounts.

vi) The Society has in place a scheme covering total share capital, guaranteed by partners of Andrew

8 Co., the Society's Solicitors, and underpinned by a floating charge on property.

16. Revaluation Reserve TradingProperty

20059'000

InvestmentProperty

20052'000

Total

Balance to begin the year

Revaluation during the year

Transfer of amount equivalent to additional

depreciation on revalued assets

Transfer of realised gains on disposals

Minority Interest

Balance to end the year

31,892

4,105

55

(89)

(2)

19,288

10,294

(1,694)

27,888

51,180

14,399

55

(1,783)

(2)

63,849

44

17. Revenue Reserve

Balance to begin the year

Transfer from Revaluation Reserve

Retained Surplus for the Year

2005(52 weeks)

2'000

106,532

1,728

11,436

2004(52 weeks)

2'000

97,573

554

8,405

Balance to end the year 119.696 106,532

The cumulative total of goodwill wntten off directly against the Group Revenue Reserveamounts to 26,254,000 (2004: 26,254,000).

Reconciliation of Movements in

Members Funds

Retained Surplus for the year

Other recognised Gains and Lossesrelating to the year

Minonty share of Group Revaluation Surplus

Movement on Share Capital

11,436

14,399

(2)

(55)

8,405

9,663

(11)

581

Net additions to Members' Funds

Opening Members' Funds

Closing Members' Funds

25,778

167,864

193.642

18,638

1 49,226

167,864

19. Minority Interests

Balance to begin the year

Share of losses for the year

Share of revaluation

Debentures repaid

Dividend paid

Minority interest transferred to Group

Balance to end the year

(164)

(15)2

(24)

(75)

(276)

(71)

(55}11

(49)

(164)

20. Reconciliation of Operating Surplus to Cash

Inflow from Operating Activities

Trading Surplus

Depreciation Charges

Loss/(Surplus) on Sale of Fixed Assets

Amortisation Charges

Decrease in Stocks

Decrease/(Increase) in Debtors

Decrease in Creditors

13,241

3,834

5r337

4,124

(2,341 )

12,157

3,703

(42)

401

1,013

(914)

(174)

Cash Inflow from Operating Activities 24,685 16,144

45

21 Analysis of Net Funds At 4/9/04

6'000

Cash Flow

2'000

Other Non At 3/9/05

Cash ChangesF'000 OOOO

Cash in hand and at bank 4,1 75 (1,517) 2,658

Detit due atter one year

Debt due within one year

Current asset investments

(125)

(5,000)

(5,125)

10,671

5,000

5,000

5,827

125

(125) (125)

(1 25)

16,498

Totals9,721 9.310 19 031

22. Reconciliation of Net Cash Flow

to Net Funds

(Decrease)/increase in cash in the period

Cash outflow/(inflow) from decrease/(increase) in debt

Cash outflow/(inflow) from squid resources

Change in Net Funds resulting from cash flows

Net Funds at the start of the period

Net Funds at the end of the period

2005(52 weeks)

f.'000

(1,517)

5,000

5,827

9,310

9,721

19,031

2004(52 weeks)

2'000

2,117

(35)

(726)

1.356

8,365

9,721

23. Acquisitions and Disposals

During the period, the Group acquired the assets and goodwill of various businesses. The

costs associated are as follows:-

Fixed Assets

Stock

Goodwill

Total Cash Consideration

2005

1,217

The Group also disposed of its dairy business. The following net assets were disposed

from the dairy together with some smaller disposals.

Fixed Assets

Stock

Goodwill

Profit on disposal

Total Cash Consideration

OOOO

2,549

429

104

2,818

46

24. Pension Scheme

2OGS

3=

2=

The assets in the scheme and the expected rate of return were:

Long termrate ofreturn

expectedat 3/9/05

Valueat 3/9/05

OOOO

Long termrate ofrehirrl

expectedat 4/9/04

Valueat 4/9/04

2'000

Long termrate ofreturn

expectedat 6/9/03

Valueat 6/9/03

UOOO

Equities

Bonds

Other

6.0%45%

4.25%

36,2173,9636,153

9.0%1225%

4$%4,124

4,316

9.5%5.0%4.5%

4,1533,521

Total market value of assetsPresent value of scheme liabilities

Deficit in the scheme

Related deferred tax asset

Net pension liability

(54,321)

(5,592)

37,100

(44,147)

(7,047)

2,114

(4,933)

(4~41 )

(fk245)

2,474

(5,771)

Advantage has been taken of the transitional arrangements as outlined in Financial Reporting Standard 17 (Retirement

Benefits), and the pension liability as detailed above is not included in the nst assets of the Society as at 3rd September 2005

47

Pension Scheme

Had the transitional arrangements not included been adopted then the amounts in the

results for the year would be as set out below:

Year ending Year ending

3/9/05 4/9/046'000 O'OOO

Analysis of amount charged to operating profit:

Current service cost

Gains and lasses on any settlements or curtailments

Total Operating Charge

1,209

600

1,809

1,456

1,456

Analysis of the amount credited to other finance income:

Expected return on pension fund assets

Interest an pension fund liabilities

Net Return

3,013

(2,548)465

2,885

(2,344)541

Analysis of amount recognised in the Statement of

Total Recognised Gains and Losses:

Actual return less expected return on pension fund assets

Expenence gains and losses ansing on the fund liabilities

Changes in assumptions underlying the present value of

fund liabilities

Actuarial (loss)/gam recognised

4,149313

(6,993)

(2,531)

(215)

(2,680)

3,880

985

Movement in deficit dunng the year:

Deficit in scheme at beginning of the year

Current service costContributians paid ta pension fund

Contributions provided for

Gains and losses on any settlements or curtailments

Other finance income

Actuarial (lass)/gain

Deficit in scheme at end of the year

P,047)

(1,209)

1,434

1,500

(600)

(2 5311

(7,988)

(8,245)

(1,456)1,128

541

985

(7,047)

History of experience gains and losses

Difference between the expected and actual return on scheme assets:

Amount

% of fund assets

Experience gains and losses on scheme liabilities

Amount

% of the present value of scheme liabilities

4,149

3131%

(215)

(1%)

(2,680)6%

i

'I

48

Total amount recognised in the Statement of TotalRecognised Gains and Losses:

Amount

% of present value of scheme liabilities(~f)

(5%)985

(2%)

20058 000

Within One Year

In Two to Five Years

Over Five Years

Total Annual Commitments

75

511

38

77

270

385

These leases are subject to rent reviews.

Greetwell Developments Ltd.

LAGAT Ltd.

Gadsby's of Southwell Ltd.

Net Sales

2005(52 Weeks)

OOOO

Balance Owingto/(from)

the Group2005

2'000

(3,974)

1,166

Net Sales

2004(52 Weeks)

2'000

24

1,022

Balance Owingto/(from)

the Group2004

2'000

(1,813)

1,220

historic comparative statement

Sept 200152 Weeks

Sept 200253 Weeks

Sept 200352 Weeks

Sept 200452 Weeks

Sept 200552 Weeks

Membership 133,078 138,862 147,054 142,289 149.096

Revenue AccountTurnover

Depreciation

Trading Surplus

Members Benefits

Dwidend

Trans. to Reserves

Balance SheetIntangible Assets

Total Tangible Assets

Total Fixed Investments

Net Current Assets

Long Term Creditors

Liabilities/Charges

Net Assets

Share Capital

Reserves

Minority Interest

P.'000

213,059

3,466

8,549

391

1,810

5,823

2,932

109,842

4,217

5,028

359

961

120,699

5,691

115,159

(151)

2*000

223,842

3,404

10,530

792

1,950

6,475

4,246

119,236

4,382

7,772

711

947

133,978

8,307

125,809

(138)

P.'000

219,702

3,489

12,044

845

2,250

10,428

5,013

138,734

6,178

581

1,201

150

149,155

9,571

139,655

(71)

2'000

237,670

3,703

12,157

676

2,400

8,405

6,724

155,883

5,555

3,423

3,686

199

167,700

10,152

157,712

(164)

2'000

225.082

3.834

13,241

750

2.500

11i436

6.796

175 532

4,782

10,642

4,230

156

193,366

10,097

183,545

(276)

Comparative amounts have been restated where appropriate.

An analysis ot continuing and discontinued operation is shown on pages 32 4 36 for 2005 & 2004 respectively.

50

Minutes of the Half Yearly Meetingheld on Wednesday 25th May 2005at 7.00 p.m. at The Lawn, UnionRoad, Lincoln

PresentTerry Wilmer, President of the Society in theChair, 51 members in attendance.

MinutesThe Minutes of the Central Annual GeneralMeeting held on Wednesday 24th November2004 were signed as a correct record of theproceedings.

Directors Half Yearly ReportThe President presented the Directors' Half

Yearly Report for the six months ended 5thMarch 2005. The President highlighted theSociety's trading performance. He reportedan increase in gross turnover for the Group of1% to 2117,650,000 and an increase in totalsurplus (before member benefits andexceptional income) to 28,077,000.f4,339,000 was allocated to reserves from

revenue in the half year and total reserves atthe half year end stood at 2167,578,000.Membership of 146,384 was reported anddetails were given of the Society's communityand membership programmes. The motion toreceive the Directors' Half Yearly Report wasapproved unanimously.

Declaration of Result of ElectionThe Returning Officer declared the result ofthe Election for six Directors as follows:—

Foster, Ronald DavidParker, StuartNeal, SueTranter, MargaretHorne, Allen

Romney, Julia

379 votes318 votes314 votes290 votes532 votes487 votes

The number of votes cast in the election was874.

The President thanked the members, his VicePresident, fellow directors and staff for theirsupport during his term of office.

The following candidates were thereforeelected to serve on the Board of Directors forthe ensuing two years; Horne Allen, RomneyJulia, Foster Ronald David, Parker Stuart, Neal

Sue, Margaret Tranter.

b' meetings

GAINSBOROUGHThe Weston Rooms, Hickman Street

Gainsborough on Tuesday 15th November

2005 at 7.00pm

NEWARKTown Hall, Market Square, Newark on

Wednesday 16th November 2005 at 7.00pm

SPALDINGSouth Holland Centre, Market Place,

Spalding on Thursday 17th November 2005 at

7.00pm

GRIMSBYHotel Elizabeth, Littlecoates Road, Grimsby

on Monday 21st November 2005 at 7.00pm

HORNCASTLEHorncastle Golf and Country Club, West

Ashby, Horncastle on Tuesday 22nd

November 2005 at 7.00pm

L(NCOLNThe Lincoln Suite, The Lawn, Union Road,

Lincoln on Wednesday 23rd November 2005

at 7.00pm

annual general meeting

AGENDA

1.To confirm the minutes of the Annual

General Meeting held November 2004 (Half

Yearly Meeting 25 May 2005 for Lincoln

AGM only).

2. To receive the Directors' Report, Auditors'

Report and Annual Accounts

3. To consider the recommendation of the

Board of Directors for a final dividend of

50p for every 21 of dividend points received

in the year to 3rd September 2005.

4 To consider the recommendation of the

Board of Directors that the basic rate of

issue of dividend points continues at 1% of

the value of qualifying purchases.

5. To consider the resolution that KPMG LLP

be and are hereby reappointed Auditors of

the Somety to hold office from the

conclusion of the Lincoln Annual General

Meeting until the conclusion of the next

Annual General Meeting at which accounts

are laid before the Somety, at aremuneration to be fixed by the Directors.

Questions must be submitted in accordance

with Special Rule Vlf (d) and General Rule 73.

See standing orders inside back cover of

annual report.

Members must produce their Share Book or

Dividend Card to gain entry to these meetings.

Any Member present who holds a minimum Et

share capital and been a Member of the

Society for 6 months shall have one vote.

Please note: To use Dividend Card as proof of

voting entitlement, the minimum balance of 21

must have been in the Member's Share

Account on Saturday 5th November 2005.

52

The Order of business at every general or special meeting of the Society shall be in accordance with the printed agenda of

business issued with the notice of the respective meeting (or any amendment thereof approved by the Directors).

2. Except in the case of a special general meeting called upon the requisition of members, the agenda of every meeting shall

be made out in the form and order approved by the Directors and shall include only such business as is decided upon by

the Directors.

All notices of motion for consideration at any general meeting must be first submitted to the Directors in writing, signed

by the member giving the notice, not later than twenty one days prior to the date of the first district meeting. Any

amendments to any proposal on the agenda at any general meeting must be received by the Society at least seven days

prior to the first district meeting.

4. No member shall be allowed to speak more than once on any motion except the mover of resolutions, who shall be

allowed a reply and no member shall speak after the reply immediately after which the question shall be put from the

chair.

5. No member shall be allowed to speak for more than five minutes, except the mover, who may speak for ten minutes and

take five minutes in reply.

The same agenda shall be put before the members at the district and the central meetings. Where the agenda contains a

motion and an amendment or amendments thereto voting shall take place as if both the motion and amendments were

substantive motions and on consolidation of the votes at all the meetings if both motion and an amendment or

amendments are carried, the motion or amendment which has the greater number of votes recorded in its favour shall be

declared carried, and if the votes in favour are equal such one of those receiving such equal votes as had the largest

majority shall be declared carried.

Any member who has not spoken to the question before the meeting may at any time during the course of the debate

move "That the question be now put". Such motion must be made without any accompanying speech and must be

forthwith put without amendment or debate, and should such motion be adopted, the chairman shall, subject to the right

of reply of the mover of the question under discussion, at once put the question.

8. Any member choosing to speak upon any question whatsoever must rise in his place and address himself to the chairman.

When two or more members rise at the same time, the chairman shall indicate the member who is to speak first.

9. Whenever the chairman rises to speak, no member shall continue standing, nor shall any member rise until the chairman

resumes his seat

10. A member shall confine his speech strictly to the motion under discussion, or to the amendment or to a question of order.

11. The chairman may call attention to continued irrelevance, tedious repetition, or any breach of order on the part of a

member and may direct such member to discontinue his speech.

12. Any one or more of these standing orders may be suspended at any meeting by the vote of a two-thirds majority of

members present at the meeting. The decision of the chairman upon any point of order shall be final.

Members wishing to ask a question at any members meeting of the Society must submit the question in writing to the Secretary

at least 48 hours before the relevant meeting.

How Votes shall be taken —The minimum number of members required to demand a ballot vote at meetings shall be 40 or atleast 50 per cent of members present and entitled to vote if less than 80 members be in attendance.

Complaints by Members —A member who has any complaint to make as to the quality, quantity, or price of any goods or services

supplied by the Society, or the conduct of any officer or employee of the Society, shall send the particulars of such complaint tothe board who shall inquire into and decide upon them, subject to an appeal from any such decision to an ordinary meeting ofmembers; but no such complaint shall be brought before any such meeting except on appeal.