Directors Report and Accounts 2014-15 by Shared Interest

DIRECTORS’ REPORT AND Financial statements FOR THE YEAR ENDED 30 SEPTEMBER 2015

REPORT OF THE DIRECTORS Welcome to the financial statements of Shared Interest Society Limited for the year to 30 September 2015. This document contains the results and Balance Sheet of the Society and also the group financial statements (“Consolidation”) which show the results and Balance Sheet of the Society combined with its sole, charitable subsidiary - Shared Interest Foundation (a UK charity).

Object and Principal Activities

Business Review

The Object of the Society is to carry on the business of providing financial services, especially for production and trade, in a manner which reflects the principles of love, justice and stewardship which are fundamental to the faith of the Christian Church and are accepted by many other people of goodwill and compassion and in order to promote wholesome, dignified and sustainable employment for the benefit of people in need in any part of the world, particularly in poor countries.

A report on the Society’s affairs and business during the year and its future prospects is contained in the Annual Review which is available on request in hard copy to all members of the Society and is published on the Society website.

Our mission is to provide financial services and business support to make livelihoods and living standards better for people as they trade their way out of poverty. We work collaboratively and innovatively with those who share our commitment to fair and just trade. With a community of investors and the support of donors and volunteers, we seek to contribute to a world where justice is at the heart of trade finance. Shared Interest Society provides loans and short-term working capital facilities to organisations in the fair trade supply chain – buyers in the UK, US, Europe and Australia or producers in the developing world. This has been extended to include some lending to similar organisations outside fair trade, by our strategic review in 2014. The Shared Interest Foundation, the wholly owned charitable subsidiary of the Society, works mainly through training and capacity building work with producer organisations in the developing world.

Corporate status The Society is incorporated with limited liability as a Registered Society (formerly an Industrial and Provident Society) under the Co‑operative and Community Benefit Societies Act 2014. Net profits after interest on the share capital may ultimately be distributed, not to members, but either as a rebate on charges to customers or applied for charitable purposes.

Members and Capital 2014/15 2013/14 New members

367

362

Accounts closed

(262)

(229)

Total membership

9,045

8,940

Amount invested

£4.0m

£3.5m

Amount withdrawn

(£2.0m)

(£1.7m)

Net investment

£2.0m

£1.8m

Total share capital

£33.3m

£31.3m

Average (mean) share account balance

£3,682

£3,496

The Society still holds a sum of £316k (2014: £328k) in unclaimed loan stock from former issues and for which investors have not given instructions regarding repayment or conversion to share capital. This is held in short-term creditors in the Balance Sheet. Page 1

Charitable Donations The Society provided for a charitable donation to its subsidiary, Shared Interest Foundation, in the sum of £50k in the financial statements to September 2014 and this was paid during the year after being approved by members at the AGM in March 2015. There is no equivalent donation being proposed in this year’s financial statements.

Results and appropriations The consolidated financial statements of the Society for the year ended 30 September 2015 are attached. The consolidated surplus for the year, after tax and share interest, was £59k (2014: £189k). The Directors propose to pay interest on share capital amounting to 0.5%. Share interest is calculated on the daily balance at a rate fixed by the Directors and notified to members. The rate prevailing throughout the year was 0.5%. The greater part of the Society’s lending is in foreign currency of which about 80% (2014: 80%) is denominated in US Dollars. Customer interest rates have been retained at very similar levels across the entire portfolio in 2014/15 compared with the previous year, and a greater volume of lending and favourable US Dollar exchange rate have led to an increase in fees and credit charges of £365k. Note 15 to these financial statements shows that we made payments of £51m (2014: £48m) to producers and buyers during the year and this was a record for the Society. Deposit income for the Society has decreased, as forecast a year ago, from £839k in 2014 to £683k as interest rates remained low throughout the year owing to the banks having access to cheaper funds through the ‘Funding for lending’ scheme and the recent greater diversification of deposits held by the Society. The Co operative Bank continued as our main banker throughout the year and we have agreed a facility with the Bank to continue this arrangement throughout the calendar year of 2016. Overall the increase in credit interest earned, the reduction in deposit income and the effect of donations from members, mean that total income for the Society is £183k higher than the year to September 2014. An explanation of the bad debt charge in the Profit and Loss account, including an analysis of the movement in the provision, is shown in Note 24 on page 18. The charge for the year has decreased to £457k from £516k in 2014. The Directors recommend that the reserve for lending losses be maintained at £766k. We seek to maintain a match of currency assets to liabilities to minimise the impact of exchange rates. Operating expenses have increased during the year, mainly due to more posts being created as the organisation expands and the one-off costs associated with a change of premises which will take place for the main Newcastle office in 2016. A breakdown of overheads is shown at Note 5 on page 13.

Directors’ Report and Financial Statements for the year ended 30 September 2015

Summary of results 2014/15 Society

2013/14

Foundation Consolidated

Society

Foundation Consolidated

£’000

Income*

2,924

389

3,221

2,741

270

3,102

Expenditure

2,722

325

3,047

2,368

337

2,705

202

174

373

(67)

397

165

(67)

189

1,351

277

1,493

1,264

213

1,434

Surplus/(deficit) before tax Surplus/(deficit) after tax, share interest & donation Accumulated profit & loss reserve

* Recognition of income is explained in detail in Note 1(b) on page 12.

Ethical investment policy

Directors

We adopt an ethical investment policy in respect of the Society’s ordinary cash deposits. These are to be distinguished from our deposits with social banks, which directly further the Society’s object (see Accounting Policies). During the year the Society held its general funds on deposit with the Co-operative Bank but has started to diversify these to other counterparties (banks or building societies). See the note below Management of Risk for further explanation.

The following members served as Directors during the year and, other than Kate Priestley, to the date of signing of these financial statements: £1 Year first shares appointed held Patricia Alexander

7,230

Kate Priestley (Chair, retired AGM 2015)

Council The Council is appointed from members and may require the Directors to give a report to it on the progress of the Society’s business and to answer questions on the Society’s business. Six members are chosen randomly with the remaining three places filled by contested elections. The following members served on the Council during the year: Year first appointed Malcolm Nunn

2011

Sue Cotterell

2012

Sue James

2012

Liz Murphy

2013

Rod Gilpin

2013

Ashley Wyatt

2014

Tony Allchurch

2014

Martin Canning

2015

Kate Roberts

2015

Margaret Newens (until AGM 2015)

2012

Claire Wigg (until AGM 2015)

2011

Sue James, a non randomly chosen member, is retiring at the AGM in 2016 and there are two candidates in a contested election to replace her. Liz Murphy and Rod Gilpin, both randomly selected, are retiring by rotation and standing for re‑election under Rule 33c. Kate Roberts was randomly chosen in 2015 to fill a vacancy and will be elected in the ballot at the 2016 AGM.

2006 2009

Tim Morgan

500

2010

Pauline Cameron

492

2011

Keith Sadler

1,813

2012

David Bowman

2,725

2012

Martin Kyndt

4,368

2012

Paul Chandler

529

2013

Mary Coyle (Chair, elected May 2015)

500

2015

Mary Coyle, the new Chair of the Board, was co-opted to the Board in March 2015 and then elected by a postal ballot of members in May 2015. Pauline Cameron and Paul Chandler will retire by rotation and offer themselves for re-election under Rule 34 at the AGM in March 2016. Attendance at Board meetings has again been high. Paul Chandler had to give apologies on one occasion due to a summer meeting date which was a compromise because no single date could be identified which worked for all Directors. Otherwise the Directors each attended all of the Board meetings during the year for the period in which they were eligible to do so. As permitted by the Rules of the Society, the Directors have the benefit of an indemnity which is a qualifying thirdparty indemnity provision as defined by Section 234 of the Companies Act 2006. The indemnity was in force throughout the last financial year and is currently in force.

Elections The elections will be by postal ballot. The results will be announced at the Annual General Meeting in Newcastle on 11 March 2016.

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 2

Other External Appointments Below are shown the external directorships/trusteeships of the members of the Board of Directors and Senior Management Team. Patricia Alexander **

Newcastle High School for Girls (Governor)

Tim Morgan **

Newcastle-Gateshead CCG, Ecology Building Society, Cafédirect Producers’ Foundation (Company Secretary), Northern Dance

Pauline Cameron

Glasgow Clyde Education, Argyll College (Board Secretary)

Keith Sadler

None

Martin Kyndt

Christian Aid, Sightsavers (co-opted member of Audit Committee), The British and Irish Churches Trust Ltd, Change Alliance Private Ltd (an Indian subsidiary of Christian Aid)

David Bowman

Auditory Verbal UK (Head of Finance)

Paul Chandler

Co-operative Group, William Leech Foundation, Durham Cathedral Council, County Durham Community Foundation, Bible Society, St Chad’s College Durham (Governor)

Mary Coyle

North Tyneside CCG, Gentoo Group, Newcastle University Retirement Benefits Plan, Northumbrian Water Forum (member)

Malcolm Curtis *

WFTO (Global Board until May 2015)

Kerrey Baker*

Enterprise Durham Partnership

Chris Pay*

Tyne Gateway Trust

** Member of Senior Management Team and Board * Member of Senior Management Team

Statement of directors’ responsibilities We are required by law to prepare financial statements in accordance with applicable law and United Kingdom Generally Accepted Accounting Practice, which give a true and fair view of the state of affairs of the Society at the end of the financial year and of the profit for the period to that date. In preparing those financial statements we are required to: • Select suitable accounting policies and then apply them consistently; • Make judgements and estimates that are reasonable and prudent; • State whether applicable accounting standards have been followed, subject to any material departures disclosed and explained in the financial statements; and • Prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Society will continue in business. We are responsible for keeping proper accounting records which disclose with reasonable accuracy at any time the financial position of the Society and to enable us to ensure that the financial statements comply with the Co operative and Community Benefit Societies Act 2014. We are also responsible for safeguarding the assets of the Society and for taking reasonable steps for the prevention and detection of fraud and other irregularities, such as money laundering. The financial statements to the year 30 September 2016 will be prepared under a new accounting standard, FRS102, which will affect Shared Interest for the first time. The presentation of results, balance sheet and accompanying notes will change under this standard which is designed to give greater Page 3

comparability and transparency internationally, to financial statements.

Going concern We are satisfied that the Society has adequate resources to continue to operate as a going concern for the foreseeable future.

Corporate Governance Desiring to have a recognised standard against which to report, the Directors have adopted the Corporate Governance Code of Best Practice of Co-operatives UK. The Code is aimed at Consumer Co-operative Societies but is presently thought to be the most appropriate Code to adopt. Alongside the transition to FRS102 mentioned above, we will review the ongoing appropriateness of this Code to Shared Interest. The Society complies with many of the provisions of the Code, but partly complies or does not comply with the following provisions for the reasons given:

Code provision and position statement Monitoring of membership participation policies Some elements of this provision are not so relevant to a society which has a focus which is more about benefit to other communities than the members themselves. Member voting The Society does not hold contested elections to the Board due to the professional expertise required to be a director of a financial community benefit society working mainly in the developing world. It does however use a Nominations Committee process which ensures that a pool of candidates for a vacancy is sought and the best person is chosen from this by an open and fair process. Further, all Directors co‑opted to the Board in this manner automatically stand down at the next AGM and must be elected by the membership following circulation of information about the Director. The Nominations Committee includes a member of the Shared Interest Council to further increase the transparency of the process of selecting Directors. Significant transactions The Board does not have a formal policy of consulting members about a major transaction (acquisition or disposal of assets amounting to 25% or more of the assets of the Society). This would represent a very large transaction given the scale of the organisation and past practice has been to discuss with members significant transactions which are at a smaller level than this. There are currently no plans for such a major transaction. Interim report No audited interim statement is produced but the summary update to members at half-year is felt to be appropriate to the scale of the organisation. Co-option of professional external Directors As noted under Member Voting above, the Society considers it is appropriate to use the Nominations Committee to select all Directors. Due to the financial nature of the organisation and in keeping with FCA best-practice guidance, a large majority of the Directors are non-executive (whereas in a co‑operative all directors would be non-executive). The Society does not, however, appoint Directors who are not members of the Society. Appointment of the Chair This provision indicates that the Chair should normally be chosen from those who have served on the Board for at least one term. This rule is not adopted by Shared Interest and Mary Coyle was recruited into the role after a full selection process which was open to both internal candidates and

Directors’ Report and Financial Statements for the year ended 30 September 2015

all other members of the Society. The Society believes that this gives the best chance of securing the most appropriate candidate for the role.

• Review of the major risks to which the Society is exposed and the steps taken by management to mitigate those risks;

Term of office of the Chair

• Compilation and publication of annual social accounts which are approved by the Directors;

The Society does not follow the guidance in the Code in this area which expects the term of office to be no more than three years. This is not felt to be conducive to good governance in a complex financial organisation. The Chair’s role is subject to normal rotational retirement and reappointment by the members. There is no mechanism in place for removing a poorly performing Chair other than resolution at a General Meeting. An annual appraisal of the Chair’s performance is conducted by the entire Board with the support of the HR Department and Deputy Chair (Martin Kyndt). Chief Executive succession plan Due to the small number of staff, the Society does not have a formal succession plan for the Managing Director (MD) but reviewed the options on the three occasions to date when this post has needed to be filled. Reporting line of the Secretary The Secretary reports to the MD rather than the Chair of the Board as suggested by the Code. This is due to the heavy overlap with the role of the Finance Director and both positions are fulfilled by one person in the Society at present. This role is however subject to appointment and removal by the Board. Development programmes for Directors In keeping with its policy of recruiting ‘professional’directors, the Society does not include a rule in its governing document which mandates training for Directors. However training is provided in a number of ways, and both internal and external Directors carry out continuing training and development through membership of appropriate professional bodies or other relevant work. Remuneration Committee remit The Remuneration Committee of Shared Interest does not set the salaries of the senior team members who are not Directors. These are set as part of the annual budget of the Society which is approved by the Board as a whole following a recommendation on the general level of pay increases from the Remuneration Committee. Audit tendering The Society has not committed to automatically carrying out a tender of audit services every ten years but has in practice done a tender more regularly than this.

The Management of Risk The Directors are responsible for the management of risk and ensuring that the Society has a sound system of internal control to safeguard its assets and funds. The system of internal control is intended to manage rather than eliminate risks, and to give reasonable rather than absolute assurance. The Society operates a system of internal controls which are designed to mitigate these risks. During the year, the Society has further strengthened its risk management function by the appointment of a dedicated Risk Manager role. This role was defined as part of the strategic review in 2014 and is a recognition of the growing scale and complexity of the organisation. The procedures used by the Directors to monitor the Society and its internal control system include: • A strategic plan covering a number of years, which is used as the basis for annual planning; • Annual plans and budgets; • Regular reporting of actual performance against these plans and budgets;

• Review and discussion with the external auditors of their audit plans and of the findings arising from their audit; • Internal Audit of a limited number of areas of operation of key controls. As noted above, at least twice a year the Directors review the major risks to which the organisation is exposed, and the measures taken to mitigate those risks. The Directors’ most recent annual review of major business risks identified a total of 19 significant risks. The following three of these were categorised as most significant, with the key mitigations listed below each: • Serious lending loss, caused for instance by the failure of one or more major customers A detailed credit proposal enables each lending risk to be assessed and the credit policy sets prudential limits including commodity exposure. Annual reviews of each facility which has been granted then take place. Regular arrears’ reviews take place and lead to appropriate support/recovery action. The process for assessing provisions is rigorous and is based on a monthly review of accounts involving the Risk Manager, the Customer Relationships Manager and the Finance Director, with the Board taking a final decision as to year-end provisioning. A substantial lending loss reserve is in place and the Board has determined that a minimum of 5% of share capital should normally be kept in reserves in total, to protect against sudden losses or downturn. The Board continues to keep under review the appropriateness and effectiveness of taking security for lending in certain circumstances and with high visibility through Key Performance Indicator reporting is encouraging greater pro-active management of poor-performing accounts. • Safety of bank deposits The Society has adopted a model of depositing most of its capital with banks in the UK and borrowing the currency it requires to fund much of its lending, against this collateral. This approach helps to reduce exchange rate exposure significantly but means that substantial sums are at risk should there be a major banking failure. As noted above, our main banking partner continues to be the Co‑operative Bank, but the Society seeks to spread the risk by depositing surplus funds with a range of other counterparty banks. During the year, within a security charge held by the Co‑operative Bank covering our currency borrowing, we have formalised a set-off arrangement in relation to the Society’s funds. This means that, in extremis, the Society could substantially reduce the impact of a major failure of the Co‑operative Bank, by netting off the funds deposited at the Bank against the funds borrowed from the Bank. • Insufficient capital The Society has experienced a period of strong growth over the last year, following on from its strategic review in 2014. Whilst interest and exchange rates have been settled for a considerable period, there is now some evidence that these will become more volatile in 2015-16. In particular, as interest rates start to rise, there may be attractive rates offered elsewhere which will divert or slow investment growth for the Society. Considerable effort is being made to improve the ease with which members can invest in the Society and subsequently manage their investment account, including understanding the benefits and risks associated with being a member of the Society. The Directors believe that this approach and a clear message

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 4

that the Society can use more capital at this time to further enhance its mission, will mitigate this risk. The Directors exercise their responsibilities for risk management primarily through receiving and considering at their regular Board meetings reports from management, together with the system of internal controls.

Audit Committee The Directors have established an Audit Committee. Membership of the Committee during the year comprised David Bowman (Chair), Keith Sadler and Paul Chandler, all independent Non-Executive Directors. The role and main responsibilities of the Audit Committee are set out in its terms of reference, which are available on request and on the Society’s website. They include: • Monitoring the integrity of the financial statements; • Reviewing the operation of the internal financial control and risk management systems; • Reviewing the independence of the internal and external auditors, and any provision of non-audit services by them; • Overseeing the internal and external audit process and assessing its effectiveness; and • Making recommendations to the Board on the appointment of auditors. The Committee meets two or three times each year including space during one meeting with external auditors when management do not attend. During the year, all members of the Committee have attended its meetings. The Committee decided not to recommend any internal audit work this year but will continue to keep this under review on a year-byyear basis. To enable it to carry out its work, the Committee receives written reports from management and from the external auditors. These are considered by the Committee and discussed with management and the auditors as appropriate.

Remuneration Committee The Directors have established a Remuneration Committee. The members during the year were Pauline Cameron (Chair) and Martin Kyndt, both independent Non-Executive Directors. The role of the Remuneration Committee is: • To consider and recommend to the Board the policy for the remuneration of Executive Directors but it is not the remit of this Committee to set the remuneration for NonExecutive Directors other than for the Chair of the Board;

• To consider any other appropriate matters referred to it by the Board; • Periodically review the Remuneration Policy and recommend any changes it deems appropriate to the Board for approval. In accordance with Shared Interest’s Values, the Committee applies the same criteria to the remuneration of Executive Directors. Their total remuneration, including pension and national insurance payable by the Society, is set out in Note 4.

NOMINATIONS COMMITTEE The Directors have established a Nominations Committee. Membership normally consists of Mary Coyle (Chair), Patricia Alexander (Managing Director), Keith Sadler, a NonExecutive Director and, one member of the Shared Interest Council. Membership is temporarily varied if the work of the Committee renders involvement of any of the Directors inappropriate for a period of time. The main business of the Committee during the past year was leading the process of identifying the next Chair of the Board for Shared Interest. For this purpose both Kate Priestley (the previous Chair) and Patricia Alexander stepped down from the Committee and were replaced by Martin Kyndt, who chaired the Committee for this work, and Pauline Cameron. They joined Keith Sadler and also Malcolm Nunn (Council Member) in a process which culminated in the appointment of Mary Coyle to the Board, as Chair, in March 2015.

CREDIT COMMITTEE The Board has also established a Credit Committee, with a membership consisting of five Directors. These are Mary Coyle, who Chairs the Committee, Patricia Alexander (Managing Director), David Bowman, Pauline Cameron and Tim Morgan (Finance Director). The Committee meets when major lending decisions are required between formal Board meetings and considers proposals to extend lending to existing customers or grant new facilities. Two meetings were held during the year, with Kate Priestley, former Chair of the Board, chairing the first one and Mary Coyle chairing the second.

INDEPENDENT AUDITORS A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Society will be put before the AGM on 11 March 2016.

• To consider and determine all matters relating to the remuneration package, including terms and conditions of employment, of Executive Directors;

By Order of the Board

• To consider and determine the remuneration of the Chair of the Board in the light of policy for the remuneration of NonExecutive Directors;

T D Morgan Company Secretary

• To monitor the level and structure of the remuneration package of senior staff below the level of Executive Directors;

Registered Office:

• To discuss and recommend proposed average percentage increases for all staff in advance of the Business Plan being submitted to the Board; • To approve the design of the parameters for performance related pay for Directors and senior management including the total annual payments made under such schemes. There is no such scheme at present;

Page 5

17 December 2015

Pearl Assurance House 7 New Bridge Street West Newcastle upon Tyne NE1 8AQ

Directors’ Report and Financial Statements for the year ended 30 September 2015

Independent Auditors’ Report to the members of Shared Interest Society Limited Report on the financial statements

responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view.

In our opinion, Shared Interest Society Limited’s financial statements (the “financial statements”):

Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors.

Our opinion

• give a true and fair view of the state of the Consolidated and the Society’s affairs as at 30 September 2015 and of the Consolidated and the Society’s surplus and cash flows for the year then ended; and • have been properly prepared in accordance with the Co-operative and Community Benefit Societies Act 2014, the Co-operative and Community Benefit Societies (Consolidated Accounts) Regulations 1969 and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice).

What we have audited

The financial statements comprise: • the Consolidated and Society Balance Sheets as at 30 September 2015; • the Consolidated and Society Profit and Loss accounts for the year then ended; • the Consolidated Cash Flow Statement for the year then ended; • the Reconciliation of Net Cash Flow to Movement in Net Funds; and • the notes to the financial statements, which include a summary of significant accounting policies and other explanatory information. The financial reporting framework that has been applied in the preparation of the financial statements is applicable law and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). In applying the financial reporting framework, the board has made a number of subjective judgements, for example in respect of significant accounting estimates. In making such estimates, they have made assumptions and considered future events.

Other matters on which we are required to report by exception Adequacy of accounting records, system of internal control and information and explanations received

Under the Co-operative and Community Benefit Societies Act 2015 we are required to report to you if, in our opinion: • a satisfactory system of control over transactions has not been maintained; or

This report, including the opinions, has been prepared for and only for the Society’s members as a body in accordance with Section 87(2) and Section 98(7) of the Co-operative and Community Benefit Societies Act 2014 and for no other purpose. We do not, in giving these opinions, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.

What an audit of financial statements involves

We conducted our audit in accordance with International Standards on Auditing (UK and Ireland) (“ISAs (UK & Ireland)”). An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: • whether the accounting policies are appropriate to the Consolidated and the Society’s circumstances and have been consistently applied and adequately disclosed; • the reasonableness of significant accounting estimates made by the board; and • the overall presentation of the financial statements. We primarily focus our work in these areas by assessing the Board’s judgements against available evidence, forming our own judgements, and evaluating the disclosures in the financial statements. We test and examine information, using sampling and other auditing techniques, to the extent we consider necessary to provide a reasonable basis for us to draw conclusions. We obtain audit evidence through testing the effectiveness of controls, substantive procedures or a combination of both. In addition, we read all the financial and non-financial information in the Report of the Directors to identify material inconsistencies with the audited financial statements and to identify any information that is apparently materially incorrect based on, or materially inconsistent with, the knowledge acquired by us in the course of performing the audit. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

• we have not received all the information and explanations we require for our audit; or

Greg Wilson

• proper accounting records have not been kept by the Society; or

Chartered Accountants and Statutory Auditors

• the Society financial statements are not in agreement with the accounting records. We have no exceptions to report arising from this responsibility.

Responsibilities for the financial statements and the audit

Our responsibilities and those of the Board As explained more fully in the Statement of Directors’ Responsibilities set out on page 3, the Directors are

for and on behalf of PricewaterhouseCoopers LLP Newcastle upon Tyne

18 December 2015

a. The maintenance and integrity of the Shared Interest Society Limited website is the responsibility of the Board; the work carried out by the auditors does not involve consideration of these matters and, accordingly, the auditors accept no responsibility for any changes that may have occurred to the financial statements since they were initially presented on the website. b. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions.

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 6

Society Profit & Loss Account for the year ended 30 September 2015 Notes

2015 £’000

2014 £’000

£’000

Income receivable: Credit charges

2,164

Transmission charges Deposit interest Donations

Bank interest payable

1,799

683

839

2,924

2,741

(252)

(79)

Transmission costs

(49)

(52)

Exchange (losses)/gains

(16)

Finance costs

(317)

(125)

Provision for doubtful debts

(457)

(516)

Operating income

2,150

2,100

(1,948)

(1,727)

Less: Operating expenses

Profit before taxation

202

Corporation Tax

Profit for the year Interest on share capital

Donation to Shared Interest Foundation Profit for the year after share interest and tax

(5)

373 (50)

197

323

(110)

(108)

(50)

165

The Society’s income and expenditure all relate to continuing operations. The accompanying notes form an integral part of these financial statements. The Society has no recognised gains and losses other than those included in the results above and therefore no separate statement of recognised gains and losses has been presented. There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year stated above and their historical cost equivalents.

Page 7

Directors’ Report and Financial Statements for the year ended 30 September 2015

Society Balance Sheet As at 30 September 2015

Notes

2015 £’000

2014 £’000

£’000

Tangible fixed assets

Investments

Loans: Fair trade credit limits Approved

42,349

35,581

(12)

(351)

Committed

42,337

35,230

less: undrawn balances

(17,404)

(14,167)

Drawn

24,933

less: not yet committed

Net advances to customers

21,063 24,933

21,063

25,063

21,214

Current assets and liabilities: Foreign exchange credit line: Collateral account

less: drawings

32,300

26,487

(27,125)

(22,135)

5,175

4,352

Deposits with social banks

1,509

Deposits with other banks & building societies

2,560

5,027

Cash at bank and in hand

2,458

2,868

11,702

13,756

Total cash Debtors and prepayments

Current assets Creditors falling due within one year

381

362

12,083

14,118

(649)

(542)

Net current assets

11,434

13,576

Total assets less current liabilities

36,497

34,790

Creditors falling due after one year: Bond due 2016

(40)

(975)

Comic Relief loan due 2017

(1,300) (975)

(1,340)

35,522

33,450

Share capital and reserves: Share capital

33,289

31,255

Reserve for lending losses

766

116

115

Proposed share interest Proposed donation Profit and loss account

1,351

1,264 35,522

33,450

35,522

33,450

The financial statements on pages 7 to 18 were approved by the Board of Directors on 17 December 2015 and signed on its behalf by: Mary Coyle, Chair Patricia Alexander, Managing Director Tim Morgan, Company Secretary The accompanying notes form an integral part of these financial statements.

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 8

Consolidated Profit & Loss Account for the year ended 30 September 2015 Notes

2015 £’000

2014 £’000

£’000

Income receivable: Credit charges

2,164

Transmission charges

1,799

Deposit interest

684

840

Grants and donations

334

421

3,221

3,102

Bank interest payable

(252)

(79)

Transmission costs

(49)

(52)

Exchange (losses)/gains

(16)

Finance costs

(317)

(125)

Provision for doubtful debts

(457)

(516)

Operating income

2,447

2,461

(2,273)

(2,064)

Less: Operating expenses

Profit before taxation

174

Corporation Tax

Profit for the year Interest on share capital

Donation to Shared Interest Foundation Profit for the year after share interest and tax

(5)

397 (50)

169

347

(110)

(108)

(50)

189

The consolidated income and expenditure all relate to continuing operations. The accompanying notes form an integral part of these financial statements. The group has no recognised gains and losses other than those included in the results above and therefore no separate statement of recognised gains and losses has been presented. There is no material difference between the profit on ordinary activities before taxation and the profit for the financial year stated above and their historical cost equivalents.

Page 9

Directors’ Report and Financial Statements for the year ended 30 September 2015

Consolidated Balance Sheet As at 30 September 2015

Notes

2015 £’000

2014 £’000

£’000

Tangible fixed assets

Investments

Loans: Fair trade credit limits Approved

42,349

35,581

(12)

(351)

Committed

42,337

35,230

less: undrawn balances

(17,404)

(14,167)

Drawn

24,933

less: not yet committed

Net advances to customers

21,063 24,933

21,063

25,063

21,214

Current assets and liabilities: Foreign exchange credit line: Collateral account

less: drawings

32,300

26,487

(27,125)

(22,135)

5,175

4,352

Deposits with social banks

1,509

Deposits with other banks & building societies

2,560

5,027

Cash at bank and in hand

2,756

3,102

12,000

13,990

Total cash Debtors and prepayments

Current assets Creditors falling due within one year

367

352

12,367

14,342

(791)

(596)

Net current assets

11,576

13,746

Total assets less current liabilities

36,639

34,960

Creditors falling due after one year: Bond due 2016 Comic Relief loan due 2017

(40)

(975)

(1,300) (975)

(1,340)

35,664

33,620

Share capital and reserves: Share capital

Reserve for lending losses

Proposed share interest Proposed donation Profit and loss account

33,289

31,255

766

116

115

1,493

1,434 35,664

33,620

35,664

33,620

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 10

Consolidated Cash Flow Statement for the year ended 30 September 2015

Notes

2015 £’000

£’000

Net cash inflow from operating activities

(3,464)

(4,829)

Returns on investments and servicing of finance

(109)

(105)

(50)

(20) (50)

(3)

1,644

3,709

1,703

1,791

(346)

513

Taxation Capital expenditure

Donation paid Management of liquid resources Financing

Increase in cash in the year

2014

Reconciliation of Net Cash Flow to Movement in Net Funds for the year ended 30 September 2015

Increase in cash in the year Movement in debt outstanding at the period end Movement in net funds for the year Net funds at 1 October Net funds at 30 September

Page 11

2015

2014

£’000

(346)

513

337

(9)

523

1,434

911

1,425

1,434

Directors’ Report and Financial Statements for the year ended 30 September 2015

Notes to the financial statements 1. Accounting policies The financial statements have been prepared in accordance with applicable Accounting Standards in the United Kingdom. a. The financial statements have been prepared under the historic cost convention and under the UK accounting policies set out below. The financial statements have been prepared under the going concern basis using consistently applied accounting policies. b. Recognition of income policy: interest on advances is recognised from the date each advance is drawn until date repaid or until the Board of Directors decide that the loan and interest are irrecoverable. At this time the Board will make a provision for these amounts in the financial statements and stop accruing interest. These provisions are reviewed at each Board meeting and the balance may eventually be written off as a bad debt. Grants and donations are recognised in the financial statements of the subsidiary, Shared Interest Foundation, on a receivable basis under the provisions of current charity accounting rules, the charities SORP. However in the Consolidated financial statements they are accounted for under Statement of Standard Accounting Practice (SSAP) 4 and income is only recognised in the Profit and Loss account once it has been earned. At 30 September 2015 £82k of grant income from Comic Relief which was received before the end of September 2015 and was recognised as Restricted Income in the financial statements of Shared Interest Foundation in the accounting year to 30 September 2015, is still held in the Balance Sheet as deferred income in these Consolidated financial statements. c. Interest on loans and bank balances is credited to the profit and loss account as it accrues. d. Producer rebates recognition policy: at the discretion of the Directors, any risk premium charged to producers may be refunded annually, if that producer has operated their account satisfactorily. If a decision is made to refund risk premium, a provision is made within the accounting period during which the refund accrued. e. Tangible fixed assests are stated at historic purchase cost less accumulated depreciation. Depreciation has been provided to write off fixed assets on a straight-line basis over their anticipated useful life (3 to 5 years). f. Exchange rates: Monetary assets and liabilities denominated in foreign currencies are stated in the balance sheet at the equivalent value in sterling at the exchange rate prevailing at the balance sheet date. Transactions during the year denominated in foreign currencies are stated at their equivalent value in sterling at the exchange rate prevailing at the date of the transaction. g. A ‘social bank’ is a deposit-taking institution that employs monies deposited by the Society wholly or mainly in activities which are compatible with the Society’s object, in addition to providing a return on investment. h. Interest on share capital is treated as an appropriation of profits in accordance with the Society’s rules. i. Rentals payable under operating leases are charged on a straight line basis over the term of the lease. j. Pension contributions. The Society makes payments to a defined contribution pension scheme on behalf of each of its employees who opt to be in the scheme. The pension cost charged in the financial statements represents the contributions payable by the Society during the year. k. The consolidated financial statements comprise the financial statements of the Society and its subsidiary up to 30 September 2015. They are prepared on a going concern basis using consistently applied accounting policies and eliminating any intragroup profits or losses on transactions. l. Investments are stated at cost less provisions for any permanent diminution in value. Impairment reviews are performed where there has been an indication of impairment. m. Liquid resources, as presented in the cashflow statement, represent the balance of cash collateral held with the Bank and remaining undrawn at 30 September 2015.

2. Foreign exchange credit line Collateral Account The Society has agreed a facility with the Co-operative Bank plc under which it may draw money in certain major currencies at rates linked to inter-bank interest rates, in order to fund its foreign currency advances. The Society is required to maintain as security a cash deposit with the Bank of 100% of the facility amount, upon which it receives interest. During the year a Charge over these deposits has been agreed with the Co-operative Bank as security against borrowing under this facility and this is registered at the FCA.

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 12

Notes to the financial statements 3. Employees The average monthly number of persons employed by the Society (including Executive Directors) during the year was:

Group

Society

2015

2014

2015

2014

Full-time

Part-time

£’000 1,069

£’000 964

£’000 975

£’000 874

Employers’ National Insurance

Pension costs

1,243

1,133

1,132

1,025

and their aggregate remuneration was: Wages and salaries

4. Directors’ Remuneration Group & Society 2015 £’000 72

2014 £’000 69

Kate Priestley (Chair) (retired March 2015)

Mary Coyle (Chair) (appointed March 2015)

Executive: Patricia Alexander Tim Morgan (based on 3.5 days a week employment) Non-Executive:

David Nussbaum (retired March 2014)

Carol Wills (retired March 2014)

Pauline Cameron

Keith Sadler

David Bowman

Martin Kyndt

Paul Chandler

117

113

Non-Executive Directors’ fees (as detailed above) and after rounding

Employers’ National Insurance

Total costs are as follows: Salaries

Pension contributions Total remuneration

161

157

5. Operating Expenses Group

Personnel costs *

Society

2015 £’000 1,298

2014 £’000 1,168

2015 £’000 1,187

2014 £’000 1,060

Occupancy costs **

217

163

203

149

Depreciation (note 8)

Directors’ fees

Auditor’s remuneration (PwC as auditor)

Other professional fees **

Other operating expenses

630

627

433

415

2,273

2,064

1,948

1,727

* Personnel costs includes the salary and associated costs from Note 3 above plus other associated costs such as training. ** Occupancy costs and other professional fees include a number of one-off costs relating to an office move in January 2016.

Page 13

Directors’ Report and Financial Statements for the year ended 30 September 2015

Notes to the financial statements 6. Corporation Tax Group & Society 2015

2014

£’000

UK Corporation Tax Current tax on income for the period Adjustment in respect of prior periods

Tax on profit on ordinary activities

The tax assessed for the year is lower (2014: lower) than the standard rate of Corporation Tax in the UK (20%).

Group

Profit on ordinary activities before taxation Profit on ordinary activities multiplied by 20%, being the small companies’ rates of Corporation Tax in the UK during the period (2014: 20%) Effects of: Differences between capital allowances for the period and depreciation Interest allowable for Corporation Tax Charity deficit/(surplus)

Society

2015

2014

2015

2014

£’000 174

£’000 397

£’000 202

£’000 373

(22)

(4)

Income not taxable

(8)

(12)

(8)

(12)

Disallowable costs

Adjustment in respect of prior periods

(10)

Charitable donation paid in the year

The small company rate of Corporation Tax in the UK has been 20% with effect from 1 April 2011.

7 Interest on share capital Group & Society

A provision of £116,000 (2014: £115,000) has been made for interest payable to members and for the purposes of these financial statements has been accrued at a rate of 0.5% for the full year on 70% of year-end balances, reflecting the proportion for which we hold a declaration of waiver. The same basis was used last year. Interest on the share capital of a Registered Society is deductible as an expense for the purposes of Corporation Tax.

Group & Society Provision at 30 September 2014

£’000 115

Interest paid in year

(109)

Charge for the 2014/15 year

110

Provision carried forward at 30 September 2015

116

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 14

Notes to the financial statements 8. Tangible fixed assets Group & Society Cost

£’000 231

1 October 2014 Additions

Disposals

(18) 233

30 September 2015 Accumulated depreciation 1 October 2014

174

Charge for year

41 (17)

Depreciation on disposals

198

30 September 2015 Net book value 1 October 2014

30 September 2015

9. Investments At 30 September 2015 the Society had share investments of £95,000 (2014: £94,000). These represent an investment in Oikocredit of £76,000 (2014: £72,000) and investments in social banks of £19,000 (2014: £22,000). The Directors consider the value of the investments to be supported by their underlying assets.

10. Debtors and prepayments Group

Amounts due from Shared Interest Foundation Other debtors Taxation and social security Accrued income Prepayments

Society

2015

2014

2015

2014

£’000 -

£’000 16

£’000 18

287

281

285

273

367

352

381

362

11. Creditors falling due within one year Group

Taxation and social security Trade creditors

Society

2015

2014

2015

2014

£’000 29

£’000 72

£’000 29

£’000 72

Unclaimed loan stock

316

328

316

328

Grants

135

Accruals

172

123

167

115

Other creditors (including Bond due 2016)

Page 15

791

596

649

542

Directors’ Report and Financial Statements for the year ended 30 September 2015

Notes to the financial statements 12. share capital Group & Society £’000 31,255

1 October 2014 Receipts

3,993

Withdrawals

(1,959) 2,034

Net inflow

33,289

30 September 2015

Shares are withdrawable at six months’ notice. During the year Directors continued to exercise their discretion to allow withdrawal on demand. The right to withdraw may be suspended without notice. At 30 September 2015, Directors had not suspended the withdrawal of shares. The entitlement of members to the assets of the Society is limited to the shares that they hold in the Society, together with any interest declared by Directors on those shares.

13. Reserve for lending losses Group & Society

Balance brought forward Balance carried forward

2015

2014

£’000 766

766

The lending loss reserve may be applied in meeting any bad-debt related contingency affecting the business of the Society as the Directors may recommend and as a general meeting may by ordinary resolution determine. This sum is in addition to the provisions explained in Note 24 of these financial statements.

14. Profit and loss account Group

Balance brought forward Profit for the year Balance carried forward

Society

2015

2014

2015

2014

£’000 1,434

£’000 1,245

£’000 1,264

£’000 1,099

189

165

1,493

1,434

1,351

1,264

2015

2014

15. Cash flow of lending activities

Cash paid

£’000 (51,380)

£’000 (47,997)

Cash recovered

47,053

42,908

Net increase in funds loaned

(4,327)

(5,089)

16. Reconciliation of consolidated profit before taxation to net cash flow from operating activities 2015

2014

Profit before taxation

£’000 174

£’000 397

Depreciation charges

(Loss)/profit on disposal of fixed assets Provision for bad debts (Increase)/decrease in debtors Increase/(decrease) in creditors Increase in funds loaned Cash advanced to social banks Net cash from operating activities Directors’ Report and Financial Statements for the year ended 30 September 2015

(1) 457 (16) 208 (4,327) (3,464)

516 104 (77) (5,089) (723) (4,829) Page 16

Notes to the financial statements 17. Returns on investments and servicing of finance

Share interest paid

2015

2014

£’000 (109)

£’000 (105)

2015

2014

£’000 (20)

£’000 (3)

(20)

(3)

18. Capital Expenditure

Payments made to acquire tangible fixed assets less sale proceeds

19. Financing 2015

2014

Share receipts

£’000 3,993

£’000 3,515

Share withdrawals

(1,959)

(1,714)

(331)

Debt (redeemed)

(10)

1,703

1,791

2015

2014

£’000

20. Financial Commitments Financial commitments at the year-end under non-cancellable leases will result in the following payments: Land and buildings Annual commitment for leases expiring: One to five years After five years

The Society is changing its Head Office location in 2016 and has signed a lease for a 10-year period with a break at five years. The annual payment shown in the table above reflects the new average, annualised payment under the new lease plus the residual element of the expiring lease.

21. Subsidiary The Society is the only member of the charitable company Shared Interest Foundation (SIF). SIF is a company limited by guarantee and registered in England and Wales. SIF’s objectives are to advance education and training; and to relieve poverty, sickness and distress in all parts of the world in all respects for the benefit of the public. The reserves of SIF at 30 September 2015 were £277,000 (2014: £213,000) and the net income for the year ended 30 September 2015 was £64,000 (2014: minus £67,000). Restricted income in the current year totalling £258,000 (2014: £89,000) includes £162,000 received from Comic Relief (2014: £84,000), £0 (2014: £57,000) of which was for The Swaziland Craft Development Project, £157,000 (£2014: £0) was for Improving Livelihoods in Swaziland and £5,000 (2014: £26,000) re Access to Finance. This income is restricted due to the terms and conditions of the grant funding agreements. The balance of restricted funds at the year end of £142,000 (2014: £50,000) includes £82,000 (2014: £0) arising from Comic Relief funding for the Improving Producers Livelihoods in Swaziland Project and £0 (2014: £38,000) re Access to Finance which is due to be spent in the 2015/16 financial year. In these consolidated financial statements, the unspent element of the Comic Relief grants are treated (under normal UK accounting rules rather than charity accounting rules) as deferred income and are shown in creditors under Note 11. During the year, a charge of £14,000 (2014: £15,045) was paid by the Foundation to the Society in respect of rent and related attributable overheads and a sum of £20,000 (2014: £24,733) was paid by the Foundation to the Society in respect of services to it provided by staff employed by the Society.

Page 17

Directors’ Report and Financial Statements for the year ended 30 September 2015

Notes to the financial statements 22. Analysis of Net Funds 1 Oct 2014 £’000 3,102

Cash at bank Debt due within one year

Cash Flow £’000 (346)

(328) (1,340)

Debt due after one year

(28) 365

1,434

Net funds

(9)

30 Sept 2015 £’000 2,756 (356) (975) 1,425

23. Reconciliation of shareholders’ funds 2015

2014

Increase in proposed share interest

£’000 1

£’000 3

Increase in share capital

2,034

1,801

Decrease in charitable donations payable

(50)

Profit for the year

239

2,044

2,043

Shareholders’ funds at 1 October

33,620

31,577

Shareholders’ funds at 30 September

35,664

33,620

Net increase in shareholders’ funds

24. Bad Debt Disclosure The following table explains the bad debt charge and provision for the financial year. 2014/15

Explanation (of 2014/15 charges and year end position)

£’000 Provision 1 October

2013/14 £’000

1,639

1,334

Released during the year

(62)

Write-offs of brought forward provision

(264)

Year-end provisions (doubtful debts)

436*

Year-end provisions include 25 producer (2014: 17) and 2 buyer (2014: 2) accounts. Newest customer is 2 years with the Society and longest is 19 years. 9 accounts are in America (Central and South), 17 in Africa and 1 in the UK.

513*

Adjustment to previous provisions Income not recognised in P&L Rounding Provision 30 September

-* 169 1* 2,183

Amounts added or no longer needed in relation to previous provisions Credited to provision rather than income, due to recovery of the customer accounts being doubtful Rounding Total of 27 accounts represented (2014: 19 accounts)

3* 53 1,639

* These figures, together with a charge of £21,000 relating to write-offs during the year, comprise the charge of £457,000 (2014: £516,000) in the P&L accounts on pages 7 and 9.

Provisions are based on an assessment of the recoverability of customer’ accounts in arrears or with known cashflow problems. Where a provision is deemed to be necessary, because there is an expectation that the Society will not recover the full amount due, a sum of 25%, 50%, 75% or 100% of the balance will be charged to the provision account. The Society works with customers in arrears and exercises forbearance where possible, seeking to find a resolution which gives time for a customer to trade successfully again. Even when a 100% provision has been allocated and/or a debt has been fully written off the books, efforts continue to recover due amounts until such point as the Society knows that no further recovery is possible.

Directors’ Report and Financial Statements for the year ended 30 September 2015

Page 18

Shared interest Pearl Assurance House 7 New Bridge Street West Newcastle upon Tyne NE1 8AQ 0191 233 9100 www.shared-interest.com

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