Directors report and accounts 2013/14 by Shared Interest

DIRECTORS’ REPORT AND Financial statements FOR THE YEAR ENDED 30 SEPTEMBER 2014

REPORT OF THE DIRECTORS Welcome to the financial statements of Shared Interest Society Limited for the year to 30 September 2014. 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 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 distributed to all members of the Society and available on the Society website. In the autumn of 2014 all members were sent a copy of our updated strategic approach for Shared Interest Society following a detailed consultation earlier in 2014.

Our mission is to provide financial services and business support to make livelihoods and living standards better for people in disadvantaged communities. We work in partnership with people who share our commitment to fair and just trade. We seek to satisfy the needs of producers as they trade their way out of poverty and to meet the aspirations of our investors and donors to support them in achieving a world where justice is at the heart of trade finance.

The Society made no charitable donations during the year. The Directors are proposing to donate £50k to Shared Interest Foundation if approved by members at the AGM in March 2015.

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. The Shared Interest Foundation, the wholly owned 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 2013/14 2012/13 New members

362

258

Accounts closed

(229)

(242)

Total membership

8,940

8,807

Amount invested

£3.5m

£2.7m

Amount withdrawn

(£1.7m)

(£1.9m)

Net investment

£1.8m

£0.8m

Total share capital

£31.3m

£29.5m

Average (mean) share account balance

£3,496

£3,345

The Society still holds a sum of £328k (2013: £338k) 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.

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Charitable Donations

Results and appropriations The consolidated financial statements of the Society for the year ended 30 September 2014 are attached. The consolidated surplus for the year, after tax and share interest, was £189k (2013: £216k). 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 Directors recommend that the reserve for lending losses be maintained at £766k. The greater part of the Society’s lending is in foreign currency of which about 80% (2013: 80%) is denominated in US Dollars. Customer interest rates have been retained at very similar levels across the entire portfolio in 2013/14 compared with the previous year, and a greater volume of lending has led to an increase in fees and credit charges of £188k. Note 15 to these accounts shows that we made payments of £48m (2013: £46.9m) to producers and buyers during the year and this was a record for the Society. Income would have increased further but the exchange rate between US Dollars and Sterling has been around 10 cents higher during the 2013/14 year compared to the previous one. Deposit income has fallen back from a high of £903k in 2013 to £839k as interest rates have started to fall owing to the banks having access to cheaper funds through the “Funding for lending” scheme and greater diversification of deposits during this year. This is explained further in the risk section on page 4. We continue to explore whether the Co‑operative Bank remains the optimal banking partner for Shared Interest. Together these factors mean that total income for the Society for the year is about £120k higher than the year to September 2013. 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 increased to £516k from £414k in 2013. We seek to maintain a match of currency assets to liabilities to minimise the impact of exchange rates. Operating expenses have been at very similar levels to the previous year and a breakdown of these costs is shown at note 5 on page 13.

Directors’ Report and Financial Statements for the year ended 30 September 2014

Summary of results 2013/14 Society

2012/13

Foundation Consolidated

Society

Foundation Consolidated

£’000

Income*

2,741

270

3,102

2,603

308

2,915

Expenditure

2,368

337

2,705

2,268

316

2,584

Surplus/(deficit) before tax

373

(67)

397

335

(8)

331

Surplus/(deficit) after tax, share interest & donation

165

(67)

189

220

(8)

216

1,264

213

1,434

1,099

280

1,245

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 David Nussbaum and Carol Wills, to the date of signing of these financial statements:

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. The following members served on the Council during the year: Year first appointed

£1 Year first shares appointed held David Nussbaum (retired AGM 2014)

2006

Carol Wills (retired AGM 2014)

2006

Patricia Alexander

6,648

2006

Kate Priestley

2,222

2009

Tim Morgan

500

2010

Pauline Cameron

489

2011

Keith Sadler

1,804

2012

Claire Wigg

2009

David Bowman

2,058

2012

Margaret Newens

2010

Martin Kyndt

2,846

2012

Malcolm Nunn

2011

Paul Chandler (co-opted December 2013)

526

2013

Sue Cotterell

2012

Sue James

2012

Liz Murphy

2013

Rod Gilpin

2013

Ashley Wyatt

2014

Tony Allchurch

2014

Mark Hayes (until AGM 2014)

2012

Jason Watkiss (until AGM 2014)

2011

Claire Wigg completes her term of office at the AGM (March 2015) and the process of replacing her with another randomly chosen member has commenced. Margaret Newens, a non‑randomly chosen member, is retiring at the AGM in 2015 and there are seven candidates in a contested election to replace her. Sue Cotterell is retiring by rotation and standing for re‑election under Rule 33c. Tony Allchurch was randomly chosen to replace Jason Watkiss from the 2014 AGM.

Kate Priestley will retire from the Board at the AGM in 2015. The Board has commenced a process to replace Kate as Chair of the Board. David Bowman and Martin Kyndt will retire by rotation and offer themselves for re-election under Rule 34. Attendance at Board meetings has again been high. Apart from Paul Chandler who had to give apologies on one occasion due to a change of meeting date, 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 third-party 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 Gateshead on 20 March 2015.

Directors’ Report and Financial Statements for the year ended 30 September 2014

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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), Fairtrade Foundation

Tim Morgan **

Gateshead CCG, Ecology Building Society, Cafédirect Producers’ Foundation (Company Secretary)

aimed at Consumer Co-operative Societies but is thought to be the most appropriate Code to adopt. A revised version of the Code was issued in November 2013. 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

Kate Priestley

None

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.

Pauline Cameron

None

Member voting

Keith Sadler

None

Martin Kyndt

Christian Aid, Sightsavers (co-opted member of Audit Committee), The British and Irish Churches Trust Ltd

David Bowman

None

Paul Chandler

Engage Mutual Assurance, William Leech Investments Ltd, William Leech Foundation, Durham Cathedral Council, Trustee of County Durham Community Foundation

Malcolm Curtis *

WFTO (Global Board)

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.

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

Significant transactions

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.

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

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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 Kate Priestley was recruited into the role in the absence of any internal candidates who could dedicate the necessary time. Term of office of Chair 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 of course subject to normal rotational retirement and reappointment by the members. There is no mechanism in place for removing a poorly performing Chair other than

Directors’ Report and Financial Statements for the year ended 30 September 2014

resolution of 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. 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. 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 of the major risks to which the Society is exposed and the steps taken by management to mitigate those risks; • Compilation and publication of annual social accounts which are approved by the Directors; • 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 17 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 Bad and Doubtful debt 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 Credit and Services Manager, the Customer Services Manager and the Finance Director, with the Board taking a final decision as to yearend provisioning. A substantial lending loss reserve is in place and the Board has determined that a minimum of 5% of share capital should 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. • Failure to secure a sustainable return on deposits The interest which the Society can earn from depositing money at the bank is reducing due to market forces (very low central bank interest rate and the “Funding for Lending Scheme” which is placing downward pressure on the cost of borrowing for banks – and hence the rate the Society can earn as a depositor). The diversification of deposits to reduce dependence on any one organisation is also reducing our ability to maximise interest earned. We will continue to make use of appropriate time deposits (which generally offer better rates), whilst ensuring appropriate liquidity. Any significant shortfall in income from this area – which will be felt more in 2015 and 2016 as current time deposits mature – will have to be covered by a combination of increased income from lending and a reduction in costs. • Competition including on interest rates Recent years have seen other specialist entrants in the field of social finance – some of which are much larger organisations, able to lend at very attractive rates to the larger and safer customers. Along with some local banks lending in this area too, this is a challenge for Shared Interest which wants to be lending to the more marginal and less-well served producer organisations but also to balance the portfolio by retaining some of those lower-risk customers in its lending book. We continue to diversify and make best use of our local teams to try to manage this risk, looking to retain a healthy range of customers, across different product and geographical sectors as well as larger and smaller in scale. 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 Nussbaum (Chair, until his retirement), David Bowman (Chair since the AGM 2014) and Keith Sadler, all independent Non-Executive Directors. Paul Chandler, a Non-Executive Director appointed in 2013 and elected at the 2014 AGM has now joined the Committee. 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:

Directors’ Report and Financial Statements for the year ended 30 September 2014

Page 4

• Monitoring the integrity of the financial statements; • Reviewing the integrity 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 one meeting with external auditors when management do not attend. During the year, all members of the Committee have attended its meetings with the exception of the August 2014 meeting which Paul Chandler was unable to attend, due to a change in meeting date. The Committee has again overseen a small amount of internal audit work, undertaken by an independent firm of Chartered Accountants. There was positive assurance provided about a number of key controls in the Society and no significant adverse findings. 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 Carol Wills (Chair) until her retirement at the 2014 AGM, Pauline Cameron (now Chair) and Martin Kyndt. All are 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; • To consider and determine all matters relating to the remuneration package of Executive Directors within any policy agreed by the Board; • To consider and determine the remuneration of the Chair of the Board in the light of policy for the remuneration of the Non-Executive Directors; and • To be aware of the remuneration policy and package for the staff with particular awareness of the package of senior staff below the level of Executive Directors. The Board’s policy for employee remuneration, which was reviewed during the 2010/11 year, is:

Sadler has served on the Committee during the past year, where the main business was leading the process of replacing Carol Wills on the Board when she retired at the AGM 2014. Paul Chandler was co-opted to the Board in December 2013 and elected by members at the AGM 2014. The Committee is now leading the process of identifying the next Chair of the Board for Shared Interest. For this purpose both Kate Priestley and Patricia Alexander have stepped down from the Committee and been replaced by Martin Kyndt (who will Chair this Committee) and Pauline Cameron. They join Keith Sadler and also Malcolm Nunn (Council Member). The process being followed is: • During the summer of 2014 members were notified in QR and on the website of the upcoming vacancy; • A shortlisting process in the autumn identified four candidates from 13 applications; • Interviewing is scheduled for December 2014.

Credit Committee The Board has also established a Credit Committee, with a membership consisting of five Directors. These are Patricia Alexander (Managing Director), David Bowman, Pauline Cameron, Tim Morgan (Finance Director) and Kate Priestley who chairs the Committee. 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. A resolution to reappoint PricewaterhouseCoopers LLP as auditors to the Society will be put before the AGM in March 2015. By Order of the Board 14 January 2015 T D Morgan Company Secretary Registered Office: 2 Cathedral Square Groat Market Newcastle upon Tyne NE1 1EH

• To assess pay/jobs in a clear and consistent manner, using appropriate external data and to be able to clearly communicate the policy; • To ensure that the policy complies with existing policies on transparency, fair pay, equal pay and recruitment; and • To ensure that the total employment package facilitates future recruitment and retention and is appropriate for a not-for-profit organisation. 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 Kate Priestley (Chair of Board), Patricia Alexander (Managing Director), one other Non-Executive Director as appropriate 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. Keith

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Directors’ Report and Financial Statements for the year ended 30 September 2014

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

In our opinion the financial statements, defined below: • give a true and fair view of the state of the consolidated and of the Society’s affairs as at 30 September 2014 and of the consolidated and the Society’s income and expenditure 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 (Group Accounts) Regulations 1969, and United Kingdom Accounting Standards (United Kingdom Generally Accepted Accounting Practice). This opinion is to be read in the context of what we say in the remainder of this report.

What we have audited

The consolidated financial statements and Society financial statements (the “financial statements”), which are prepared by Shared Interest Society Limited, comprise: • the Consolidated and Society Balance Sheets as at 30 September 2014;

become aware of any apparent material misstatements or inconsistencies we consider the implications for our report.

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 2014 we are required to report to you if, in our opinion: • a satisfactory system of control over transactions has not been maintained; or • we have not received all the information and explanations we require for our audit; or • proper accounting records have not been kept by the Society; or • the Society financial statements are not in agreement with the accounting records. We have no exceptions to report arising from this responsibility.

• the Consolidated and Society Profit and Loss Accounts for the year then ended;

Responsibilities for the financial statements and the audit

• the Consolidated Cash Flow Statement for the year then ended;

Our responsibilities and those of the Board of Directors

• 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 their preparation 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.

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 group’s 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. 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

As explained more fully in the Statement of Directors’ Responsibilities set out on page 3, the directors are responsible for the preparation of the financial statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the financial statements in accordance with applicable law and ISAs (UK & Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. 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. Greg Wilson for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Statutory Auditors Newcastle upon Tyne

15 January 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 2014

Page 6

Society Profit & Loss Account for the year ended 30 September 2014 Notes

2014 £’000

2013 £’000

£’000

Income receivable: Credit charges Transmission charges Deposit interest Donations

1,799

1,611

839

903

2,741

2,603

Bank interest payable

(79)

(77)

Transmission costs

(52)

(54)

Exchange gains/(losses)

(14)

Finance costs

(125)

(145)

Provision for doubtful debts

(516)

(414)

Operating income

2,100

2,044

(1,727)

(1,709)

Less: Operating expenses

Profit before taxation

373

Corporation tax

Profit for the year

(50) 323

335 (47) 288

Interest on share capital

(108)

Donation to Shared Interest Foundation

(50)

165

220

Profit for the year after share interest and tax

(68)

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.

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Directors’ Report and Financial Statements for the year ended 30 September 2014

Society Balance Sheet As at 30 September 2014

Notes

2014 £’000

2013 £’000

£’000

Tangible fixed assets

Investments

Loans: Fair trade credit limits Approved

35,581

30,376

(351)

(318)

Committed

35,230

30,058

less: undrawn balances

(14,167)

(13,568)

Drawn

21,063

16,490

less: not yet committed

Net advances to customers

21,063

16,490

21,214

16,680

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

less: drawings

26,487

28,222

(22,135)

(16,634)

4,352

11,588

Deposits with social banks

1,509

786

Deposits with other banks & building societies

5,027

1,500

Cash at bank and in hand Total cash Debtors and prepayments

Current assets Creditors falling due within one year

2,868

2,303

13,756

16,177

362

458

14,118

16,635

(542)

(544)

Net current assets

13,576

16,091

Total assets less current liabilities

34,790

32,771

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

(40)

(1,300)

(1,300) (1,340)

(1,340)

33,450

31,431

Share capital and reserves: Share capital

Reserve for lending losses

Proposed share interest Proposed donation Profit and loss account

31,255

29,454

766

115

112

1,264

1,099 33,450

31,431

33,450

31,431

The financial statements on pages 7 to 18 were approved by the Board of Directors on 14 January 2015 and signed on its behalf by: Kate Priestley, 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 2014

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Consolidated Profit & Loss Account for the year ended 30 September 2014 Notes

2014 £’000

2013 £’000

£’000

Income receivable: Credit charges Transmission charges

1,799

1,611

Deposit interest

840

904

Grants and donations

421

354

3,102

2,915

Bank interest payable

(79)

(77)

Transmission costs

(52)

(54)

Exchange gains/(losses)

(14)

Finance costs

(125)

(145)

Provision for doubtful debts

(516)

(414)

Operating income

2,461

2,356

(2,064)

(2,025)

Less: Operating expenses

Profit before taxation

397

Corporation tax

Profit for the year

(50) 347

331 (47) 284

Interest on share capital

(108)

Donation to Shared Interest Foundation

(50)

189

216

Profit for the year after share interest and tax

(68)

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.

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Directors’ Report and Financial Statements for the year ended 30 September 2014

Consolidated Balance Sheet As at 30 September 2014

Notes

2014 £’000

2013 £’000

£’000

Tangible fixed assets

Investments

Loans: Fair trade credit limits Approved

35,581

30,376

(351)

(318)

Committed

35,230

30,058

less: undrawn balances

(14,167)

(13,568)

Drawn

21,063

16,490

less: not yet committed

Net advances to customers

21,063

16,490

21,214

16,680

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

less: drawings

26,487

29,722

(22,135)

(16,634)

4,352

13,088

Deposits with social banks

1,509

786

Deposits with other banks & building societies

5,027

1,500

Cash at bank and in hand Total cash Debtors and prepayments

Current assets Creditors falling due within one year

3,102

2,589

13,990

16,463

352

457

14,342

16,920

(596)

(683)

Net current assets

13,746

16,237

Total assets less current liabilities

34,960

32,917

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

(40)

(1,300)

(1,300) (1,340)

(1,340)

33,620

31,577

Share capital and reserves: Share capital

31,255

29,454

Reserve for lending losses

766

115

112

Proposed share interest Proposed donation Profit and loss account

1,434

1,245 33,620

31,577

33,620

31,577

Directors’ Report and Financial Statements for the year ended 30 September 2014

Page 10

Consolidated Cash Flow Statement for the year ended 30 September 2014

Notes

2014

2013

£’000

£’000 1,408

Net cash inflow from operating activities

(4,829)

Returns on investments and servicing of finance

(105)

(99)

(50)

(47)

(3)

(19)

3,709

(910)

1,791

782

513

1,115

Taxation Capital expenditure Management of liquid resources Financing Increase in cash in the year

Reconciliation of Net Cash Flow to Movement in Net Funds for the year ended 30 September 2014

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

Page 11

2014

2013

£’000

513

1,115

523

1,118

911

(207)

1,434

911

Directors’ Report and Financial Statements for the year ended 30 September 2014

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 accounts 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 2014 £47k of grant income from Comic Relief which was received before the end of September 2014 and was recognised as Restricted Income in the financial statements of Shared Interest Foundation in the accounting year to 30 September 2014, 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 2014. They are prepared on a going concern basis using consistently applied accounting policies and eliminating any intra-group 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 2014.

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 any major currency at 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.

Directors’ Report and Financial Statements for the year ended 30 September 2014

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

2014

2013

2014

2013

Full-time

Part-time

£’000 964

£’000 925

£’000 874

£’000 839

Employers’ National Insurance

Pension costs

1,133

1,088

1,025

988

and their aggregate remuneration was: Wages and salaries

4. Directors’ Remuneration Group & Society 2014 £’000 69

2013 £’000 69

Peter Freeman (retired March 2013)

David Nussbaum (retired March 2014)

Carol Wills (retired March 2014)

Pauline Cameron

Keith Sadler

David Bowman

Martin Kyndt

Paul Chandler (appointed December 2013)

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

Total costs are as follows: 113

112

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

Salaries

Employers’ National Insurance

Pension contributions

157

153

Total remuneration

5. Operating Expenses Group

Society

Personnel costs *

2014 £’000 1,168

2013 £’000 1,131

2014 £’000 1,060

2013 £’000 1,031

Occupancy costs

163

176

149

162

Depreciation (note 8)

Directors’ fees

Auditor’s remuneration

Other professional fees

Other operating expenses

627

595

415

396

2,064

2,025

1,727

1,709

* Personnel costs includes the salary and associated costs from Note 3 above plus other associated costs such as training.

Page 13

Directors’ Report and Financial Statements for the year ended 30 September 2014

Notes to the financial statements 6. Corporation Tax Charge Group & Society 2014

2013

£’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 (2013: 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 (2013: 20%) Effects of: Differences between capital allowances for the period and depreciation Interest allowable for corporation tax Charity (surplus)/deficit

Society

2014

2013

2014

2013

£’000 397

£’000 331

£’000 373

£’000 335

(22)

(14)

(22)

(14)

(4)

Income not taxable

(12)

(9)

(12)

(9)

Disallowable costs

Adjustment in respect of prior periods

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

7a. Interest on share capital Group & Society

A provision of £115,000 (2013: £112,000) 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 75% 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 2013

£’000 112

Interest paid in year

(105)

Charge for the 2013/14 year

108

Provision carried forward at 30 September 2014

115

7b. Proposed Donation to Shared Interest Foundation Group & Society

The Directors of the Society are proposing to make a donation of £50,000 from the surplus generated in 2013/14 to support the Access to Finance project of Shared Interest Foundation. This is subject to approval by members at the AGM in March 2015.

Group & Society Provision at 30 September 2013

£’000 -

Charge for the 2013/14 year

Provision carried forward at 30 September 2014

Directors’ Report and Financial Statements for the year ended 30 September 2014

Page 14

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

£’000 269

1 October 2013 Additions

3 (41)

Disposals

231

30 September 2014 Accumulated depreciation 1 October 2013

172

Charge for year

43 (41)

Depreciation on disposals

174

30 September 2014 Net book value 1 October 2013

30 September 2014

9. Investments At 30 September 2014 the Society had share investments of £94,000 (2013: £93,000). These represent an investment in Oikocredit of £72,000 (2013: £71,000) and equity investments in social banks, in line with the Society’s social purpose, of £22,000 (2013: £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

2014

2013

2014

2013

£’000 -

£’000 18

£’000 6

281

389

273

384

352

457

362

458

11. Creditors falling due within one year Group

Taxation and social security Trade creditors Unclaimed loan stock Grants Accruals

Page 15

Society

2014

2013

2014

2013

£’000 72

£’000 70

£’000 72

£’000 70

328

338

328

338

134

123

114

115

109

596

683

542

544

Directors’ Report and Financial Statements for the year ended 30 September 2014

Notes to the financial statements 12. Movement in share capital Group & Society £’000 29,454

1 October 2013 Receipts

3,515

Withdrawals

(1,714)

Net inflow

1,801 31,255

30 September 2014

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 2014, 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

2014

2013

£’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

2014

2013

2014

2013

£’000 1,245

£’000 1,029

£’000 1,099

£’000 879

189

216

165

220

1,434

1,245

1,264

1,099

2014

2013

15. Cash flow of lending activities

Cash paid

£’000 (47,997)

£’000 (46,895)

Cash recovered (or written off)

42,908

48,094

Net (increase)/decrease in funds loaned

(5,089)

1,199

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

Profit before taxation Depreciation charges

2014

2013

£’000 397

£’000 331

Provision for bad debts

516

414

Decrease/(increase) in debtors

104

(Decrease)/increase in creditors (Increase)/decrease in funds loaned Cash (advanced to) from social banks Net cash from operating activities

Directors’ Report and Financial Statements for the year ended 30 September 2014

(84)

(77)

(5,089)

1,199

(723) (4,829)

(501) 1,408

Page 16

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

Share interest paid

2014

2013

£’000 (105)

£’000 (99)

2014

2013

£’000 (3)

£’000 (19)

(3)

(19)

18. Capital Expenditure

Payments made to acquire tangible fixed assets less sale proceeds

19. Cash Financing 2014

2013

Share receipts

£’000 3,515

£’000 2,714

Share withdrawals

(1,714)

(1,929)

(10)

Debt (redeemed)

(3)

1,791

782

2014

2013

£’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

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 2014 were £213,000 (2013: £280,000) and the net income for the year ended 30 September 2014 was minus £67,000 (2013: minus £8,000). Restricted income in the current year totalling £89,000 includes £84,000 received from Comic Relief (2013: £137,000), £57,000 of which was for The Swaziland Craft Development Project and £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 £50,000 (2013: £141,000) includes £38,000 arising from Comic Relief funding for the Access to Finance Project which is due to be spent in the 2014/15 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 £15,045 (2013: £14,062) was paid by the Foundation to the Society in respect of rent and related attributable overheads and a sum of £24,733 (2013: £18,697) was paid by the Foundation to the Society in respect of services to it provided by staff employed by the Society.

22. Analysis of Net Funds

Cash at bank Debt due within one year Debt due after one year Net funds

Page 17

1 Oct 2013

Cash Flow

30 Sept 2014

£’000 2,589

£’000 513

£’000 3,102

(338) (1,340) 911

(328)

(1,340)

523

1,434

Directors’ Report and Financial Statements for the year ended 30 September 2014

Notes to the financial statements 23. Reconciliation of shareholders’ funds 2014

2013

Increase/(decrease) in proposed share interest

£’000 3

£’000 (31)

Increase in share capital

1,801

785

239

216

2,043

970

Shareholders’ funds at 1 October

31,577

30,607

Shareholders’ funds at 30 September

33,620

31,577

Profit for the year Net increase in shareholders’ funds

24. Bad Debt Disclosure The following table explains the bad debt charge and provision for the financial year. 2013/14

Explanation (of 2013/14 charges and year end position)

2012/13

£’000

Provision 1 October

1,334

992

Released during the year

(264)

Write-offs of brought forward provision

(116)

Year-end provisions (doubtful debts)

513*

Year-end provisions include 17 producer (2013: 11) and 2 buyer (2013: 4) accounts. Newest customer is 2 years with the Society and longest is 10 years. 10 accounts are in America (mostly Central and South), 8 in Africa and 1 in Asia.

431*

Amounts added or no longer needed in relation to previous provisions

(17)*

Credited to provision rather than income, due to recovery of the customer accounts being doubtful

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

3* 53 1,639

Rounding Total of 19 accounts represented (2013: 15 accounts)

1 1,334

* These two figures together comprise the charge of £516k (2013: £414k) in the P&L accounts on pages 7 and 9.

Directors’ Report and Financial Statements for the year ended 30 September 2014

Page 18

Shared interest 2 Cathedral Square Groat Market Newcastle upon Tyne NE1 1EH 0191 233 9100 www.shared-interest.com

The Shared Interest Social Accounts are available to download from our website. Shared Interest Society Ltd is registered with the Registrar of Mutual Societies, number 27093R.

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