for the sIx mont!as cede 4th Mare.-., 200=

LINCOLNSHIRE Co Oppua, ;i'rp LTr~

Directors

Julia Romney (President)Allen Horne MCIPD (Vice President)Alan Middleton JPEileen Bangay BA

Stuart Parker BSc (Eng)Susan Neal

Margaret TranterPaul AstonRonald Foster

Chief Executive Officer Ursula Lidbetter BSc Hons, FCIS

Group Secretary Jane Powell LLB Hons, MBA

Directors' Half-Yearly ReportFOR THE SIX MONTHS ENDED 4th March 2006

Lincolnshire Co-operative Ltd

The Lawn, Union Road, LincolnWednesday 24th May 2006 at 7.00prn

ypttttht httty tet &sihsesnhess sshhingas ash a queseon atany~tteethst ofthastutety ntuusutunhthe stueseoninsnhaut to the yestetuyathestee hateshehuothonetesaatnteethuh

GENBIAt atty Ts~sytehteetas is htenttuuuho hasanysomp4im te otsheas tothutputhyutuanoty tu tattu ocanyaoous ot sensssa supphes hy the.tuthettuutust ninny a%senor eatphttes ot the tosttty shall scent the sathuhus ef tush anpiahtt to the hoattt who shaN hstutta htto ates shsthte

to anappesifusnany suststtethion a!an setynaty nuethut of tnenenus hta no such tontphint thett tat tsought hefat» any sushuuethui

Developments

~ A new food store was built at Convamore Road, Grimsby which incorporated the nearby Post Office.

This store opened in October 2005. The site also includes several retail units and some adjoining land has been

earmarked for affordable housing,

~ Our food store at Crowland was extended and refurbished. In addition a new spacious flat was created above thestore.

~ Several food stores were refurbished during the half year including Alford, Long Sutton, Morton and Queen Elizabeth

Road, Lincoln and as a result sales have moved forward.

Membership and Community

The Society had 153,011 members at the half year end, having recruited 4,954 new members in the last six months.

In November a dividend bonus of f731,000 was paid to members.

Our Member Services Council with representatives from each of the nine Members Groups have been active helpingto distribute donations to local good causes.

Our Healthy Habits programme (run jointly with Football in the Community), visited 40 primary and special schools,teaching children about healthy eating, keeping fit and other health issues.

6 volunteers from the Society took part in the partners in Reading initiative run by the Lincolnshire Ir RutlandEducation Business Partnership and Business in the Community. The scheme gives children the opportunity toexperience shared reading with the volunteer. The Society has jointly sponsored the initiative with Siemens.

Employees

The Society employed 2323 staff of which 897 were full time and 1426 were part time as at 4th March 2006. We

continue to invest in training and staff development At the Ann a Staff ",;,irc ~ canning in 0 trrb~'2i!0: !nqualifications were celebra'. ed

Annual Reportand Financial Statements

for the year to 2nd September 2006

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Lincolnshire Co-operative Ltd

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the widest possible range ofservices for our members

quality, valueand ethical principles

for the future by generating prof';s todevelop our services, pay dividends to membersand support our local communities

become members and to Qe Involved In

running their Society

the skI'. s; u S.a~ neeo

officialsfinaii .iai revicvv

foodstorespharmacypost officesho and brothers — Jaguartravelcarefuneralscoffee shopshomefi ing siatiorisgadsby's

pl oped1memberscommunitysoc:a and co-operative performa. cepeople and performanceco-operative deva, opmen'. 8 acknoA', edgementfinancial statements

statement of ac~ ounting policies

group reve e acco,&nt

grouo balance sheetgroup cash flo.v sratenientstatement of recognised gains and lossesnote on h:stor cai cost i; cf ts a-d casesnotes to the financia' s:aternents

historic comparati;e sta', ei ien'.

corporat go; ernanceremuneration reportir de ~cndent auo t-.s re[,statement of directors' rest&onsibilffies

and n crea - a to = eoo"members' meet -gsstanding orac's

8 9101 '

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18;020 21

2 3/4-7o26-27

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@ seThe Directors are pleased to present to members their report for the year to 2nd September 006

directorsfrom rop — left ra riafif

Allen Home MCIPDSue Neal

A!an M.ddleton JP~ Eileen Bangay BA

~ Stuart Parker BSc (Eng)Ju'ia RomneyPaul Aston"- ~ Margaret TranterRon, oster

PresidentVice PresidentChair of Remuneration and Audit Committees

, "era'!a iam r aa~-a(a aa area: s ee aeons, aa Sa, err=.

Auditors KPMG LLP. St Jane=-' Square, Manchester M2 6DS

Bankers Co-operat. e Bank pic. 16 Sa!tergate, Lincoin LN2 1DG

Solicitors Andrew tr, Co. St Swith n's Square. Lincoln LN2; HB

Registered Office S'.aniey Bett Ho se 15f23 Ten'. ercroft Street. Lincoin LN5 TDB

Tne Senior Managemerit Team has t&een in place to tfie 'vhole financ, al, ear ann is making progressin meeting '.he a iis anil obtest . es nf the Societ,

«L

Lincolnshire Co-operativeSenior Management Team

salesStrong sales increases in our FoodFuneral and Pharmacy diwsions morethan compensated for the slowdown in

Home Travel Filling stations and PostOffices Holland Brothers salesdeclined due to the restructunng of thebusiness in Boston following theclosure of Wngnts Rover

Last year, sales related to continuingactwities included an additional twomonths of trading for Lincoln CornExchange and Markets f1991) Ltd. to

bnng ts year end in line Adlusting for

this sales in continuing activities for the

twelve month penod increased by 0 3"

Dunng 2005 the Dairy was sold to Dairy

Farmers of Bntain and this togetherwith the closure of our Roverdealerships has had a marked impacton group sales. which moved down

from E225 082 000 to E200.452 000

The Board is satisfied that this

necessary restructuring hasstrengthened the Society for the future

trading surplusGroup trading surplus has movedforward to E14 749,000 compared toE13.466 000 last year The result forlast yea. was depressed by thediscontinued actiwties. but boosted by!he additional two months of surplusfrom Lincoln Corn Exchange

This year is the first year that thefinancial statements include theadlustments necessary to comply fully

with Financial Reporting Standard 17Reurements Benefits and thecomparafive amounts have beenrestated accord:ngly Previously thetransitional disclosures of that standardhave been followed Unde; FRS 17. wehave accounted fo» an additionalcharge in reiation to pension liabilitiesof F259 000 compared to a cred, t in

2005 of E225, 000 Taking theseunusual items into account, tradingsurplus is marginally up

Overall the Board is pleased with theincrease in surplus for the year giventhe level of shared costs that havebeen absorbed by the remainingdiwsions following the disposal of theDairy and the closure of Wnghtstogether with increasing levels ofcompetition that the maionty of thedivisions are facing

Our ability to generate an improvedtrading surplus underpins ourcommitment to members dividend,community protects and, nvestment in

our services g

capital expenditure and reservesTh s year E16 497 000 has beeninvested in the business The Boardhas also '.aken aavantage Of a strongoroperty market to d spose of severalproperties for st. ategic reasons As aresui! o' these disposais and a strongtrading performance cash and financialinvestments stood at E47 994 000 a!the end of the financial year and nelin', e-est increased by E265 000 toE835 000

The Revenue Reserve has increasedby E"3 591 000 to E128.416.000 w, ththe Revaluation Reserve mowngforward by E17 483 000 Total reservesnow stand at E209 748.000 8

Sales f.'000237.670

223 842 225,062219 702

2002 2003 2004 2005 2006

Trading SurplusE'000

13,466

14,749

11.862

10,338

2002 2003 2004 2005 2006

Reserves K'000

178„674

134 34512 962

153.163

2002 2003 2004 2005 2005

~ 0 ~ ~ ~ ~ ~ ~ ~ ~ ~ ~

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We have had one of our busiestrefit programmes ever, with

fourteen stores benefiting from

investment in new decor, fixtures

and equipment. The customerreaction has been excellentespecially at Birchwood Lincoln,

Heckington, Morton, SuttonBridge and Long Sutton. Wehave extended the stores atCambridge Road Grimsby,

Billinghay and Crowland andrefitted at Moorland AvenueLincoln, Collingham, Alford,

Queen Elizabeth Road Lincoln,

Winning Post Lincoln andNettleham.

warehouse to stores and are

trialling automated stockreplenishment

The refits incorporate energysaving measures including

energy efficient fridges, high

frequency modular lights andmore use of natural daylight toreduce the need for artificial

lighting.

We have been working hard overthe last year to ensure goodstock availability. To assist with

this aim, we have increased thefrequency of deliveries from our

We are continually adapting the

range of products in our storesto ensure we are meeting the

changing needs of ourcustomers. New drinks chillers

and food-to-go, together with

newspapers and magazines in

selected outlets have been verY

popular. Store hours have also

been extended to reflect

changing lifestyles.

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The positive performance ofmost stores has more thancompensated for the increasedcompetition in Market Rasenand the closure of the food hall

at the Lindsey CentreGainsborough.

We have invested in new

computer systems for our foodbusiness. Touch screen tills arebeing installed as part of ourrefit programme. These allow

better communication betweenthe shop floor and warehouseand are quicker and easier to

use, so speeding up transactiontimes and cutting down queues.

We continue to recycle ourcardboard and plastic wasteand provide recycling facilitiesfor customers at many sites. All

our carrier bags are nowbiodegradeable, a big stepforward in environmentalresponsibility.

This year we have absorbedsignificant increases in runningcosts, with utilities, wastedisposal and security costs

impacting severely. Our abilityto satisfy our customers,thereby increasing sales andmitigating the impact of thesecosts is key to our futuresuccess. We are thereforeplacing ever more emphasis onstock range and availability andcustomer service levels. ~ 5

The number of prescriptions wedispensed increased by 7.1%,ahead of the national average.We gained customers throughinvestment in staff, so cuttingwaiting times to a minimum andallowing us more time to spendwith our customers, givingadvice.

Our pharmacy premises havealso benefited from substantialinvestment, with new privateconsultation areas, betterbrighter signage and new

fixtures and systems.Customers have really noticedthe difference.

We relocated our pharmacies atGainsborough and Kirton tonearby surgery sites. We havelaunched a prescriptioncollection and delivery service in

the south of lincoln and will beevaluating the costs andbenefits of this service.

The NHS is committed tomoving pharmacy away from

being purely a supply function

and better using the broadknowledge and accessibility of

pharmacists. As a result of this,

new services are beingcommissioned from ourpharmacies, such as medicine

use reviews and minor ailment

clinics.

Continuing professionaldevelopment is vital for all our

pharmacists and we invest in

our 35 full time pharmacists, toensure that they have the latest

information on new drugs and

clinical developments. We have

three new graduatepharmacists, who are finishing

off their training by working

supervised in our pharmaciesand we are also sponsoring apharmacy student through

university.

A number of large supermarketsin Lincolnshire have now

announced their intention totake advantage of a new

exemption to the pharmacy

licencing regime and are

opening pharmacies in theirsuperstores, in competition with

our community pharmacies.These new units have to beopen for 100 hours per weekand we may see some impacton our nearby pharmacies in

due course.

Our pharmacies have had a verysuccessful year and we will be

working ever harder to ensurethat we keep our standards ofcl;nical care and service to thehighest level to retain thesupport of our customersacross the county as these newcompetitive pressures come tobear. ' $%

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JAGUAR holland brother-t

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Holland Brothers Jaguar hashad a successful trading year,following its separation from

Wrights Rover last year. Thestrong performance wasreflected across the business atboth Lincoln and Boston, with

car sales, servicing and parts all

contributing well. Our carservicing teams have wonseveral awards from Jaguar this

vear. outperformir. g many o' thelarger national dealershipchains.

The highlight of the year wasthe launch of the new JaguarXK sports car, which hasreceived exceptional reviews in

all the motonng media. Ourcustomers have been delightedwith the performance of the car

and the mode is attractingmany new devotees.

At our Lincoln dealership, weadded the bodyshop and MOTbay, formerly part of Wrights, toour Holland Brothers brand andthese facilities, which areavailable for ail makes of car, aredeveloping satisfactonly.~%%lI

W were proUd to receive the Edge EmployerAw. trd fot the Egest MidlGt"Ids.

We opened a new Travelcareoutlet in Sleaford in November2005, increasing our branchnetwork to ten agencies.

World events, coupled with hotweather in the UK and the riseof internet bookings havecombined to decrease sales,although we achieved stronggrowth at both Long Sutton andCarlton Centre Lincoln.

We were proud to receive anaccolade for our vocationaltraining, winning the EdgeEmployer Award for the EastMidlands. We now go forwardto the national final. We ensureall our Travelcare staff aretrained to the highest level, togive the best possible advice tocustomers and to give thequality of service not availablethrough other booking channels.

Thanks to all members whocompleted our survey on ourtravel business. The commentswere very favourable and wehave made improvementswhere these were suggestedparticularly in relation to thequeueing experience, withbetter management systems,entertainment and comfortlevels.

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offee shops

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positively to the improvementswe have made this year in ourcoffee shops. We have offeredmore Fairtrade products,increased home cooking anduse of fresh vegetables. Thiscombined with furtherinvestment in training has had a

success of this small butimportant service.

Our coffee shops provide auseful addition to our largerstores and we haveincorporated them within theretail division during the year so

can integrate seamlesslyand benefit from sharedresources.

We have been presented with aNational Clean Air Award in

recognition of the no smokingpohcy now adopted throughoutall of our coffee shops. ~8 @

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Our bakery subsidiary Gadsby'sof Southwell. based nearNewark, has had another goodyear The company, which weown !ointly with the Gadsbyfamily, has been successful in

gaining new customers in

addition to supplying ail ourfood stores with fresh bread.rolls and cakes every day.

We now supply a neighoounngco-operative with the Gadsbyrange. and wth bus nessbooming we deliver reta l

packaged products to over !00stores throughout Lincolnshireand Nottinghamshire, as well asto sandwich manufac!urers andwho esale customers-d stributing our proaucts as farafield as Peterborough anaLi.erpooi

Wi', h updated brand ng for2006. we wili snort':; beiaunching our range ofGhnstmas cakes wi!n some newl:.nes fo. the season

We cont, nue to inves!:n tneGadsby's business!or thefuture, ana in the atto part of2005 the flooring n!he carte",;at So thweli was comp'e'el,replaced and some newve"icles purchased toacean;modate aaoitionaibusiness.

After some years c' d ffic lt

t.adng cond;tions we ocrrforward ',c 2002 in a very

osit ve frame ot iTllno

~ ~

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The Society's wifiingness toinvest in the built environment ofLincolnshire and Newark, allowsus to make our contribution tothe improvement of facilitiesthroughout the area.

All our profit from whateversource is reinvested locally, andsurplus funds not needed todevelop services or paymember and communitydividends, is usefully employedin purchasing buildings toimprove the fabric of our townsand villages.

Property values have beenparticularly high this yearbecause interest rates haveremained low, so more peoplewish to invest in propertyassets. We have thereforetaken the opportunity to sell twoproperties, Paxtons CourtNewark and Simons' HeadOffice development in Lincoln,which we completed during theyear.

We have invested in

improvements to manybuildings, including the

completion of our shoppingcentre in North Hykeham, thesuccessful relocation andupgrading of the outdoormarket stalls in Lincoln, therefurbishment of the NewlandHealth Centre, Lincoln and theconversion of our former foodstore in Misterton for use by theparish and district councils andlocal police.

Other improvements includeworks to the small shoppingparade in Nettleham, renovationof derelict showroom buildings

~ ~ ~ ~

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on Wragby Road Lincoln andnew tenants for the formerWrights Rover garages atLincoln and Boston.

Our showcase development atCarlton Centre Lincoln haswelcomed further new tenants,and we are pleased to beworking with a communitydental practice to open a new

surgery on the site.

After much delay, we havemade good progress on ourplans for the new doctors

surgery at Bracebridge Heathand we are pursuing ourproposed refurbishment ofBirchwood Shopping Centre in

Lincoln.

Prince Charles took a keeninterest in our plans for theredevelopment of the busstation and surrounding sitewhen he visited Lincoln. HisPrince's Foundation for the BuiltEnvironment has helped us toensure that the area isdeveloped in sympathy with the

ancient fabric of the City. Weare now ready to commencethe detailed planning of thescheme and are appointing amalor development partner. Theimprovement of this part of theCity Centre is key to therevitalising of the fortunes of theunderutilised northern andeastern retail core, which hasbeen adversely affected over theyears by the St Marks ShoppingCentre retail park developmentof the 1990s. 88

Ii. de-c tionus ..n;c- .", DeIls. » ' . ! 't aco' .ecI aI the

Nc =" D=i 1 i=

scheine for 'ihe nomeless.Bu'.to" on Be'i Theatre

ompa a"ii H Dea, cD stnc: Commun, ty Assoc, ation

';. a:i i' acfd ' cii:u

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the Percent Ci ib standard ovB' s" ess chic Com: - .-a'aoe, t . ng

na"w, U . ', i mei It's's .'. '

r a MemoerzGrouu commi;tees and nelc u.

CO.P rhe 1 u. auPrc

-:,'ii=a oe I

are very sorry this year to reportthe death of two of our long

serving committee members,Tony Burton and Harry

Dempster. who contnbuted somuch on the Lincoln andSleaford Groups.

Thanks also to the Z.511members who completed asurvey on our Travel and Home

stores services. We werepleased to note the high degreeof satisfaction with theseservices and have putin hand

further enhancements in thelight of your comments.

The highlight of our manymember events this year wasOne World Day. Memberscame together to find out aboutglobal issues such as water andFairtrade.

The 3500 young people in

Activate and Kool Kidz gotinvolved in many activitiesincluding an adventure campingtnp, a beach party at Chapel St

Leonards and a tnp to the BBCstudios in London.

The Lincoln Co-operative Ladiesenjoyed many interesting talks.events ana their annualdedication service. Birchwoodand Central branches joinedforces this year and we wish thenew enlarged group everysuccess. 8

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Top ops for storageetehe the tterth the eight aerate error

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The new bus which we donatedto Dial a Ride in Lincoln hasbeen a great success and over7000 people, who wouldotherwise find it difficult to getout, have used the new service.

Through our stores we collected4,700 books for the CommunityHeart project. These bookshave now been shipped toAfrica where they will be put to

good use. Thanks to all ourcustomers who donated booksfor this appeal.

Our staff and members got on-board with our Charity of theYear, raising over F28,000 forthe Lincolnshire RNLI crewtraining programme.

We continue to support theLincolnshire Centre for Grief and

Loss with both finance andmanagement. The Centreprovides professionalcounselling for both childrenand adults experiencing theeffect of bereavement or loss.

~S

23

We report on our performance asa socially responsible co-operativeby outlining our achievementsagainst 10 indicators of social, co-operative and environmentalperformance.

Member Economic Involvement

This measures the extent to whichmembers are actively involved inour business. Measurement alsohelps us analyse how successfulwe are in recruiting members fromour customer base. For the yearending September 2006 40% ofSociety sales recorded on ourdividend system were withmembers as against 42% last

year This is partially as a result ofthe change in mix of the businessfrom big ticket items to everydayitems. The percentage has stayedrelatively stable and we believethat this illustrates thecommitment of members to theSociety.

Member DemocraticParticipation

The Society is democraticallycontrolled by its members. It istherefore important for us tomeasure the number of memberswho are actively involved in thedecision making process. Thisyear there were no elections held

for the Board of Directors. We uaua good attendance at annual andhalf-yearly members' meetings.515 members attended our AGMsand 80 members attended the half-yearly meetings in May 2006.

Participation of employees andmembers in Training andEducation

This year on average 8.9 hourswere spent per employee on off thejob training. This compares to 8.7hours the previous year. There arevarious member events throughoutthe year. About 40 membersattended the One World event

goods sold in our food stores andnon food stores. There are alsoIoint buying arrangements withother societies to enable us topurchase travel and travel servicesas a group.

Investment in Community andCo-operative initiatives

I ~

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This year we have invested 1.9%of our pre-tax profits in communityand co-operative organisationsand in addition gave significantila'iogen '- i'I . 'i:—.' '", .: " 'T1

;."oiec'.. '

; iie En. irons eni

wh:ch vas espec a ~;

aiined at me noe'=ducat, on

Staff Inlury and AbsenteeRates

Staff injury and absencerates provide the Societywith an indication of howwell the risks to health,safety and well being ofemployees are managed.Staff are encouraged toreport all incidents no matterhow minor and these arerecorded to ensure thatsafety standards are

maintained and continuouslyimproved.

This year 257 accidents werereported compared to 375 lastyear. 1 employee per 72 full timeemployees had a reportableaccident as against 1 employee in

53 last year and 1 employee in 6full time employees experiencedan accident of some descnptioncompared to 1 in 5 last year. Theaverage number of days lost peremployee in the year throughsickness and absenteeism was8.7. There has been an increasein the level of recorded sicknessand absenteeism throughout theyear, due to the way sickness is

'e or.ea;nte naiiy l- parte. i'a'th- nin ill nl a cf p-n--, = s-a

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Staff Profile - Gender andEthnicity

71% of our employees are femaleand 29% male. We also monitorthe diversity of all staff includingethnicity.

Customer Satisfaction

We mailed out to members askingthem a range of questions togauge their opinions based ontheir experience of shopping in ourhome stores and using our travelservices. 97% of those whoresponded were satisfied with thefriendliness and helpfulness ofstaff in the Travelcare division and90% of respondents were verysatisfied. In the Home departmentover 90% of those people whoresponded said they were verysatisfied or very satisfied with

product quahty and value formoney.

Consideration of Ethical Issuesin Procurement and InvestmentDecisions

The Society loins with other co-operatives in the purchase of

a e ".—.d .: eiJ as a -'.=:: e- .;,.

We are always looking at ways toreduce our impact on theenvironment and we haveintroduced a number of initiativesin recent store refurbishments. In

addition the Carbon Trust havecarried out an energy review andwe are currently collating theirrecommendations into a cohesivestrategy for implementation.

Proportion of WasteRecycled/Reused

This year we have introducedadditional plastic and cardboardrecycling at our head office.Cardboard and plastic wastecontinue to be collected from retailoutlets compacted centrally andthen sent for recychng. This yearwe have recycled lust over 855tonnes of cardboard lcompared to800 tonnes last yearl and 52tonnes of plastic. We also recycleredundant computers and other ITequipment through a registeredchanty and we have a scheme tocompost unwanted furniture fromthe Home department utihsina theservices of a local worm farm

14

,".ar 1 tn 'v". or1r This a, .ard'ecog seo ou real comm;tmenttc eo,a coponu t!es fo' aen j ', —e rw e, e maca~a =. and o., - wore, -o ensure~a'. a'~ tacan= =-=- a.e coen to all

os xfT'na

s n. -== team

crowned w~tn the Foodstcre ot:h Year award, based on anexrerna~ mystery shopc», gsurve; oi all stores

'vie cerned ou', a staff co~-;onsurve, wn ch to'o us that 92=-of o 'r em" oy es enio, t"... r

worK a-d: 6':. wou drecommend tne Soc:ety as acrace to wor1r m"~ 'eihe surve, are be:ng seo tca . co ou~ oeoo ema-agen, en; strateg~ anopract. ces Ner; sta~y wel'lbe' g'"1a. ' es 'n, s .eal'

i

It is with regret that we reportthe deaths of the followingpensioners and employees andwe extend our condolences totheir families and friends.

Donald Sharpe,Dry Goods, aged 97

George Wiles,Dairy, aged 84

Lesley Watson,aged 82

J Spencer.Drapery, aged 82

Geoffrey Stanney,Wrights, aged 80

Margaret Markham.Moorland Avenue, aged 79

Leslie Wiswould.Dairy, aged 77

slimming challenge. with ourpharmacists supporting the 36staff who completed thechallenge. Between them theylost 521 Ibs and along the wayraised over F1000 for ourCharity of the Year.

The following long serving staffhave retired and best wishesare extended to them for along and happy retirement.

Ken Gregory,Assistant Food Controller

Length of Service 31 years

Sheila Wentworth.West Parade PharmacyLength of Service 28 years

Margaret Harper,TV WorkshopLength of Service 25 years

Graham Bratby,PersonnelLength of Service 22 years

Christine Scargill,Moorland Centre FoodLength of Service 17 years

Pauline Jeffery,Wages, aged 68

Howard Sullivan.Sleaford Filling Station, aged 61

Alana Biddle.Birchwood Butchery, aged 59

Rosemary Hazell.Winning Post Grocery aged 57

Jane Binns,Victona Street Butchery aged 50

Lesley StewartWaltham Grocery, aged 45

27

nelpeu Siv suppullels iiusl wn&ll il

was formed in 1999 and continueto do so. The Trust gives ordinary

supporters a stake and ameaningful voice at the top level ofdecision-making within the Club.

We' ve entered into a partnershipwith Branston Community Collegeto introduce co-operative thinking

across the curriculum. They areconsidering a range of issuesincluding the environment andhealthy eating. The co-operativeaward is issued to students who've

made a difference within theircommunities.

l»» ~ ~ »

I==»»»

The society aims to support andpromote the development ofco-operative ventures throughoutLincolnshire.

This year we have given further

support to the LincolnshireCo-operative Development Agency,an organisation tasked by thesociety to promote and nurture co-operative and social enterpriseswithin Lincolnshire.

The CDA has been instrumental in

~ » ~ »

»» ~

»

as Tennis Buddies Welton and afamily entertainmentcentre in Gainsborough.

We have also pledged oursupport for the Fenland GreenPower Co-operative. Thisco-operative aims to purchase twoof the wind turbines which havealready been commissioned atDeeping St Nicholas in southLincolnshire.

Our Co-operative Challenge hasengaged secondary schoolsthroughout Lincolnshire in

considering co-operative values andprinciples. This year we werepleased that the University ofLincoln was able to host the eventaimed at promoting highereducation opportunities to ouryoung people The winning schoolwas Queen Elizabeth GrammarSchool Alford. W

AcknowledgementThe Directors extend their thanks andappreciation to the members for theircontinuing support and to all theSociety's staff, without whose effortsthe progress of the Society would notbe possible.

For and on behalf of the Board

Alien Horne Pres dentSue Neai iy ce Pres~de"tUrsula L,dbett~r Chief Execun;e Off cerJane Powe!! roup Secretary

AVE.z

BASIS OF PREPARATION GOODWILL

The financial statements have been prepared in

accordance with applicable accounting standards andunder the historical cost accounting rules. modified toinclude the revaluation of land, buildings and quotedfixed asset investments. The following accountingpolicies have been applied consistently in dealing with

items which are considered matenal in relation to thefinancial statements. The Group has adopted FRS21"Events after the Balance Sheet Date". FR$28"Corresponding Amounts" and the presentationrequirements of FRS25 "Financial Instruments:Disclosure and Presentation". The recognition andmeasurement requirements of FRS17 "RetirementBenefits" have also been adopted, previously thetransitional disclosures of that standard have beenfollowed Pnor year comparatives have beenrestated. The effect is explained in note 18 FRS28has had no matenal effect.

BASIS OF CONSOLIDATION

The Group Financial Statements consolidateLincolnshire Co-operative Ltd. and its actwesubsidianes as follows

Wholly owned:-Lincoln Co-operative Chemists Ltd

LCS Retail Ltd

Lincoln Shop Equipment Ltd

52 weeks to 2nd September 2006

Wnghts Lincoln Ltd.

Holland Brothers Ltd

12 months to 31st August 2006

LCS Property Ltd.Lincoln Corn Exchange & Markets (1991) Ltd

52 weeks to 2nd September 2006(Based on management accounts)

IVlajority Owned:-Gadsby s of Southwell Ltd. (60% owned)

12 months to 31st August 2006

Joint ventures:-Greetwell Developments Ltd. i50% owned)

Ellcee Ltd. (50% owned)12 months to 2nd September 2006(based on management accounts)

The Society disposed of it's one third share of the

Associate Company LAGAT Ltd during the year The

Society's share of the results up to the disposal have

been included in the financial statements

Goodwill sold is recognised in the Group RevenueAccount as part of the surplus or deficit on disposal offixed assets The histoncal cost of goodwill sold isreinstated directly to the revenue reserve

GROSS SALES

Gross sales includes cash sales. goods sold on creditequipment rental income, post office income andproperty rental income inclusive of value added tax

Gross sales also includes amounts recognised in

respect of sales made on an agency basis pnncipallyrelating to travel and concession sales with areduction to the value of commission receivableshown separately in arnwng at turnover

TANGIBLE FIXED ASSETS ANDDEPRECIATI0 N

Trading properties are included at current marketvalues after being sublect to depreciation at theappropnate rate and to impairment charges where

appropnate Other fixed assets are stated at their

acquisition cost and are depreoated over their

expected useful kves to their estimated residualvalues by equal instalments based on the following

minimum rates

Freehold landFreehold andlong leasehold buildingsFixtures. fittings and plantRental assetsTransport

2 o p.a5-25=-. pa25'v p a14 — 33% p a

Investment properties are stated at curren'. marke:value in accordance with SSAP 19 and are notsublect to depreciation

ASSETS LEASED TO THE GROUP

Operating lease rentals are charged to the GroupRevenue Account on a straight line bas, s over thepened of tne lease

Purchased goodwill is capitalised and amortised overits estimated useful life which is deemed to be amaximum of 20 years Goodwill purchased before 5thSeptember 1998. and previously written off againstreserves. has not been restated onto the balancesheet

In accordance w;th FRS9. the Group s interests in

Joint Ventures are accounted for using the gross

equity method and interests in Associate Companies

using the equity method of accounting

ASSETS LEASED TO CUSTOMERS CASH AND LIQUID RESOURCES

Assets leased to customers under operating leasesare inciuded in the Group Balance Sheet as rentaiassets a! cost of acquisition less deprec. ation basedon the Groups normal accounting policy Rentalincome from these leases s credited!o the GroupRevenue Account on an accruals basis over thepened ofthe lease

TAXATI0 N

Current —Prowsion has been made for the estimatedliability based on the surplus for the year at thecurrent rate of corporation tax

Cash for:he p rpose of:he G oup Cash FlowStatement compnses cash in hand and depositsrepayable on demand less overarafts payable ondemand

Liquid resources are current asset investments which

are disposable without curtailing or disrupting thebusiness and are either readily convertible into known

amounts of cash at or close to their carrying values ortraded in an active market Liquid resources compnseterm deposits of less than one year (other than cash)

I' VESTIVIE:iTS

Deferred —Full prowsion fo deferred tax has beenrecognised in the Balance Sheet without discountingDeferred tax assets are recognised to the extent thatthey are considered to be recoverable

STOC» S

Quoted fixed asset investments are included atcurrent market values Other fixed asset investmentsare stated at cost less provision for any permanentdiminution in value Investments held as currentassets are statea at the lower of cost and netrealisable value

Stocks are valued at the lower of cost and netreal;sable value

REPAIRS

Repa r expend:ture is cnarged to the Group RevenueAccount in the year that the cost was incurred

FUftERAL BONDS

Liabilities for funeral bonds are based on the totalcommitment at the balance sheet date. ii eredemption valuei

FUNERAL BENEFITS

DIVIDEND STAMPS

The Society has now discon:inued the issue ofdiwdend stamps and will continue to prowde forunredeemed stamps '.o the exten'. that '.hey are likely

to be redeemed

DIVIDEND POINTS 4 iD DIVIDEND BO ".US

A charge is made to '.he Group Revenue Accountwhich represents the amount accounted for asdividend points in the year together with tne additionalamount approved by the membership at the prewousAnnual General Meeting

The provision for unredeemed aiwdena points in theGroup Balance Sheet is based on the full redemptionvalue of the div:dend points and has been shown as acurrent liability

Funeral benefits are treated as a distnbution in thefinancial statements, reflecting the underlyingsubstance of the benefit

PE uSIO ' COSTS

The assets of the Society Pension Scheme areadministered by trustees and are kept separate fromthose of the Society Independent actuanes preparevaluations of the fund at least every three years andthe Society makes contnbutions in accordance with

their recommendations The deficit of the definedbenefit scheme is recognised in full on the BalanceSheet and represents the difference between the fairvalue of the assets and the present value of thedefined benefit obligation at the Balance Sheet date

The pension charge recognised in the GroupRevenue Account consists of current service costsln addition a finance income is credited based on theexpected return on pension scheme assets less theinterest on pension liabilities

Differences between the actual and expected returnon assets, expenence gains and losses and changesin actuanal assumptions are included directly in theStatement of Total Recognised Gains and Losses

Year Ended 2nd September 2006

Notes

2006(52 weeks)ContinuingOperations

6'000

20050 !In U Ilg

Operain. 'nsiieet ifed)

6 !00

2005D scent nued

Op~ rationsi re~!ate'0

i' 0(",i

2005152 'eeksi

Toi, il

"ex!air'rii

6 u(!0

GROSS SALES: GROUP AtiD SHARE OFJOINT VENTURESLess Share of Joint Venture SalesGROSS SALES (INCLUDING VAT)Less Value Added TaxTURNOVER (INCLUDING AGENCY TURNOVER) 1

204,333(3,881)

200,452(15,350)185,102

202 616i1,593)

201 023(15.820 I

185.203

24, 059

24 059i1 095l22 964

226 675i, l 593!

225.082i16 915!208 167

Less Agency Share of TurnoverTURNOVER

(12,890)172,212

(14,016!171.187 22.964

(14.016)194 151

Less. Cost of Sales (112,077) {114,614) (15 190) (129 804l

GROSS PROFITLess Expenses —Ordinary Trading

60,135(44,482)15,653

56.573(39.909 I

16 664

7.774I10.222}

(2,448)

64.347I 50, 131114.216

Less Expenses —Member Benefits and Grants 4 (904) (724) (26) (750)

GROUP TRADING SURPLUS 1 14,749 15.940 I2,474 I 13.466

Share of Trading Surplus in Associated Company 10Share of Trading Surplus in Joint Ventures 10

433,055

91,161

91 161

TOTAL TRADING SURPLUSProfit on sale of Discontinued Operations

Profit on sale of Fixed Assets

17,847

5,177

17,110

2, 177

(2,474)2 202

14 6362.2022 177

SURPLUS BEFORE INTERESTNet Interest ReceivedOther Finance Income

10/1324

23,024835605

19.287 (272} 19 0'5570465

SURPLUS FOR THE YEAR BEFOREPAYMENTS TO AND ON BEHALF OF MEMBERSLess: Payments To and On Behalf of Members 4

24,464(2i987)

20 050I2 159!

SURPLUS FOR THE YEAR BEFORETAXATI 0 N

Taxation

21,4776 (6,696)

17 891(4 864,!

SURPLUS FOR THE YEAR AFTERTAXATIONEquity Minority Interest

SURPLUS FOR THE YEARTRANSFERRED TO RESERVES

14,78119 (21)

17 14,760

13 02715

13 042

Discontinued operations in the prior year compnsed the acti ities of the Dairy and vvr ghts Motor Group

The notes on pages 35 to 48 form part of these accounts

~ (I ~As At 2nd September 2006

Notes

2006

K'000

2005(restated)

E 000

FIXED ASSETSIntangible AssetsTangible AssetsInvestment PropertiesInvestments

Share of Joint VenturesShare of Gross AssetsShare of Gross Liabilities

CURRENT ASSETSStocksDebtorsInvestmentsCash at Bank and In Hand

7891010

11

1021

4,092(2,611)

12,2775,465

41,1222,045

60,909

6,37562,374

1 34,4924,827

1,481209,549

2.015(1,826)

12,28612,55416,4982.658

43.996

6.79655,901

119 6314.593

189187,110

CREDITORS: Amounts Due Within One YearCreditors 12 35,976Dividend 12 2,955Loans 13

38,931

29,7262.472

12532.323

NET CURRENT ASSETS

TOTAL ASSETSLESS CURRENT LIABILITIES

21,978

231,527

11,673

198,783

CREDITORS: Amounts Falling Due AfterMore Than One Year:

Creditors 12 (4,238) (4,230)

PROVISIONS FOR LIABILITIES AND CHARGESDeferred Taxation 14 (466)

NET ASSETS EXCLUDING PENSION LIABILITYPension Liability 24

227,289(7,826)

194 087(5,592)

NET ASSETS 219,463 188 495

FINANCED BY:Snare CapitaiRevaluat:on ReserveRevenue Reserve

1516I I

9,97181,332

128.416

10 09763 849

114 825

f/I E M 8E RS' F U N D SEquity M nonty Interest

18

19219,719

(256)188 771

(276i

TOTAL FUNDS EMPLOYED 219,463 '88 495

i-e ""es s// agee 55 './ -"5 rs. . oar. ' "e-e a.i

Year Ennea 2nd Septembe 20Jh

NET CASH FLO((Y FROMOPERATING ACTIVITIES

Nutes

20

2006(52 weeks)

F'000

20,659

in2 w eks8 iii(0

2.1 685

Dividends Received from AssociatesDividends Received from Joint Ventures

10

1075

9001(J

2 ' )(it I

RETURNS ON INVESTMENT AND

SERVICING OF FINANCEInterest Received —GroupInterest Paid —Group

10 811(39)

772

510(291

481

TAXATIONUK Corporation Tax Paid (3,617) l3 923 i

CAPITAL EXPENDITURE AND

FINANCIAL INVESTMENTPurchase of Tangible Fixed AssetsPurchase of Fixed Asset Investments

Sale of Tangible Fixed AssetsSale of Fixed Asset Investments

(11,503)(408)

21,57223

9,684

(16.555 i

(357)1 923

(14 98gi

ACQUISITIONS AND DISPOSALSFurther Investment in Subsidiary

Acquisition of BusinessesSale of Subsidiary Companies and Businesses

192323 (1,500)

i99 i

(1 884i5 900

PAYMENTS TO AND ON BEHALF OF MEMBERS(1,500)(2,711)

3 9172 816(

CASH INFLOW BEFORE USE OFLIQUID RESOURCES AND FINANCING 24,262 9 365

MANAGEMENT OF LIQUID RESOURCESPurchase of Current Asset Investments (24,624) i582;i

FINANCINGIssue of SharesRedemption of SharesDecrease in Debt

2,9691 5 (3,095)(5 (125)21 (251 )

3 785(3 840 i

i5 000!i5 055i

DECREASE IN CASH DURING THE YEAR (613) l 517(

The notes on pages 35 io 48 'orm par( o( ihese ascou. i

Year Ended 2nd September 20062006

(52 weeks)

E'000

2005(52 weeks)

(restated)f 000

Retained Surplus for the Year 14,760 13.042

Unrealised Surplus on Revaluation of Trading PropertiesUnrealised Surplus on Revaluation of Investment PropertiesShare Interest (net of tax)Actuanal Loss on Pension Scheme (net of deferred tax)

4,30914,627

(145)(2,477)

4, 10310.294

(156)(1 772)

TOTAL GAINS AND LOSSES RELATING TO THE YEAR 31%074 25,511

Pnor year adjustment (as explained in note 18)

TOTAL GAINS AND LOSSES RECOGNISED SINCE THE LASTANNUAL REPORT

(4,871)

26,203

!"RYear Ended 2nd September 2006

2006(52 weeks)

K'000

2005(52 weeks)

(restated jL'000

Surplus for the year before taxation

Reaiisation of property revaluation gains of previous yearsDifference between a histo:cal depreciation charge and the actualdepreciat;on charge fon the year calculated on the revalued amount

21,477

4%566

(113)

17.891

1 783

(55 j

HISTORICAL COST SURPLUS BEFORE TAXATION (22,930) 19.619

HISTORICAL COST SURPLUS FOR THE YEAR RETAINEDAFTER TAXATION AND MINORITY INTERESTS 16%213 14 770

ne no!eS C- CageS 15!C48 form Cad Cf r eSe aCCOuntS

Segmental AnalysisThe Group has two pnncipal segments, which are Reta I and Investment Property The results of thetwo segments are

Turnover (including agency turnover)Retail

investment PropertyTotal

2006(52 weeks)

E'OOO

175,9279,175

185,102

2005!52 waeks

(restatedir 000

199,1119 056

208, 167

Gross ProfitRetail

Investment Property

Common CostsGroup Trading Surplus

50,9609,175

60,135(45,386)14,749

55 2919.056

64 347(50 881)13 466

Net AssetsRetailInvestment PropertyTotal

96,689122,774219,463

69 094119401168 495

2. Expenses —Ordinary Trading

Personnel CostsOccupancy CostsHire of Plant —Operating LeasesDepreciation(Surplus):Deficit on Sale of Fixed AssetsAmortisation of Intangible Fixed Assets

Auditors Fees Audit

Non Audit

Directors' FeesOther ExpensesTotal Expenses —Ordinary Tradin9

2006(52 weeks)

E'OOO

26,2815,782

744,082(119)421

554

257,877

44,482

'005i52 weeksi

res!a'.er.'i

6 000

29 4875 360

72

3 83427

46360

2610 80050 1n1

3. EmployeesThe average number employed by the group in the year ended 2nd September was 2 357 (2005 2 523 I

of which 1,432 (2005 1 426! were part-time and the remain, ng 925 i 2005 1 097) we~e .(ul,'-time

The Costs Incurred in Respect of these Employees were

Wages and SalanesSocial Secunty Costs

Other Pension CostsTotal Personnel Costs

2006

K'00023,234

1,6581,389

26,281

2005cata. ec,

E 00026 377

o0rh 2 009

29 467

a) Expenses —Member Benefits and Grants

2006(52 weeks)

K'OOO

(52 wee~st, ras:ate i

E 000

IndividualMotonst PacksNew Member Packs, Members Mailout

Other Member BenefitsMember Benefit General ReleaseDividend Stamps Prowsion ReleasedMember Distnbution General ExpensesTotal Individual

1109

11(28)(10)282365

1511412

(238)(15)

237125

CommunityBereavement Support SerwceHealth Care GrantsMilk for SchoolsMember Serwces Grant

Chanty and Community GroupsForfeits on sharesCo-operative Development Fund

EducationTotal Community

6060

241160

(103)4180

539

7060

I

3470

625

Total Expenses —Member Benefits and Grants 904 750

b) Payments To and on Behalf of MembersDiwdend PointsFurther Diwdend Approved by Members

Funeral benefit

Total

1,788190312,819

1682,987

1 469549

2.018141

2.159

Dividend ooints of E1 788 000 (2005 E1 469 000 l have been accounted for dunng the year. Memberpurchases qualifying for such distnbution are determined by the Board of Directors. from time to time.as is the rate of distnbution A recommendation to allocate a further E1,137,000 (2005 f1,031,000)will be made at the forthcoming members meeting making a total of f2.925.000 (2005 E2,500,000)

A diwdend bonus of 60p (2005 50p) for every f1 of qualifying diwdend points distnbuted has beenrecommended by the Board of Directors which will be paid to members in proportion to the dividendpoints already distnbuted in the year under rewew.

Profit on sale of Fixed Assets/Discontinued Operations

Continuing operationsProfit on sale of fixed assetsProfit on disposal of businesses

2006(52 weeks)

E'0005,177

5,177

2005)52 weeks)

(restated)f 000

2, 16116

2, 177

Discontinued operationsProfit on disposal of businessesPension losses on curtailments

2.802(600)

2.202

Taxation

a) Analysis of tax charge in yearCurrent taxUK corporation tax at 30% (2005: 30%)on surplus for the year

2006

E'000

2005(restated)

f' 000

5,665 4.356

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

944 3796,609 4,735

Deferred TaxOngination and reversal of timing differencesTaxation on FRS17 pension adjustments

Taxation provided in the year

(16) 102103 27

6,696 4 864

b) Factors affecting tax charge for the yearThe current tax charge for the penod is higher (2005: lower) than the standard rate of corporation taxin the UK (30%) The differences are explained below

2006 2005(restated i

E'000 f 000

Surplus on ordinary actwities before taxation 21,477 17,891

Surplus on ordinary actiwties multiplied by standard rate

of corporation tax in the UK of 30% (2005 30%) 6.443

Effects ofGains on business disposalsRevaluation gain now realised

Permanent differences between items affecting tax and

accounting surplus

Other timing differences

Current tax charge for the year

5793

6,609

(845)360

223(370)

4 735

Intangible Fixed Assets —Goodwill

CostAs at 3rd September 2005 and 2nd September 2006

TotalK'000

8,129

AmortisationAs at 3rd September 2005Charged in the YearAs at 2nd September 2006

1.333421

1,754

Net Book ValueAs at 2nd September 2006As at 3rd September 2005

6,3756.796

Land &

8. Tangible Fixed Assets —Trading Buildings

K'000

FixturesFittings& Plant

f'000

Transport

K'000

RentalAssets

6'000

Total

K'000Market Value/Original CostAs at 3rd September 2005Transfer from Investment PropertiesAdditions

DisposalsRevaluation

47.4911,2151,346

(37)3.623

19.501

3,004(1.560)

2, 700

601(391)

575

46(461)

70,2671.2154, 997

(2.449)3.623

As at 2nd September 2006 53,638 20,945 2,910 160 77,653

DepreciationAs at 3rd September 2005Charged in the Year

DisposalsRevaluationAs at 2nd September 2006

685

(685)

12 3472,635

(1.426)

13,556

1.557420

(328)

1,649

46255

(443)

74

14,3663.795

(2, 197 )

(685)15,279

Net Book ValueAs at 2nd September 2006As at 3rd September 2005

53,63847.491

Ti 3897 154

1i2611,143

86 62,374113 55.901

The value of land and buildings includes f5.041.000 (2005 f4 681,.000) of long )easeholds, the remainderbeing freehold

The value of Buildings depreciated was f25 530,000 (2005: f24.400.000). A valuation of Trading Propertieswas carried out by Banks Long & Co Chartered Surveyors of 15 St. Mary's Street Lincoln as at 2ndSeptember 2006 which valued all of the Group's trading land and buildings at current market value on anexisting use basis at f53.638.000 (2005' f47.491.000) This valuation has been incorporated within the GroupBalance Sheet

The histoncal cost of Land and Buildings included above and in note 9 is f130.572.000 (2005 f126.084.000)

9. Fixed Assets —Investment Properties Land &

FreeholdK'000

Buildings LandlordsLeasehold Fixtures

K'000 K'000TotalK'000

Market Value/Original CostAs at 3rd September 2005Transfer to Trading PropertiesAdditions

DisposalsRevaluation

As at 2nd September 2006

DepreciationAs at 3rd September 2005Charged in the YearDisposalsRevaluation

As at 2nd September 2006

108,626 10 622(1,154) (61)10,843 521

(9,752)11.675 2 731

120,238 13,813

221

(221 )

1 144

136(20)

1,260

76166(8 I

819

120 392(1 215)11.500l9.772)14 406

1351311

761287

(6)(221)819

Net Book ValueAs at 2nd September 2006As at 3rd September 2005

120,238109.698

13,8139 550

441 134,492383 119.631

A valuation of investment properties was earned out by Banks. Long 8 Co. . Chartered Surveyors. 15 St Mary' s

Street. Lincoln as at 2nd September 2006

10. a) InvestmentsFixed Assets

2006 2005K'000 K'000

Current Assets2006 2005K'000 K 000

interest andDividend

2006 2005K'000 K'000

Co-operative Group

(CWS) Ltd— Corporate Investor SharesOther I & P Society SharesAssociated Companies (i)

Companies Quoted

Companies Unquoted

Local Authonties

Mortg agesFuneral Bonds (iii)

Short Term Deposits

Totals

290

38

54135

3222

4,085

4,827

290

3816266

1353

2913 608

4 593

350 250

41,122 16,498

40,772 16 24820

756

46

16

9811

20408

21

53510

Joint VentureShort Term Deposits

Associated Company

Short Term Deposits

Total Investments 4,827 4 593 41,122 16,498 884

86

599

39

10. a) Investments (continued) 2006 20056'000 6000

(i) Associated CompanyBalance Brought ForwardShare of Trading Surplus Before TaxShare of Net Interest Received Before TaxTax PayableDividends RemittedDividends OwedProfit on DisposalTotal Balance Sheet Value

16243

(8)(75)

(133)11

1659

3

(5)(10)

162

Dunng the year the Group sold its interest in the Associated Company.

(ii) Joint VenturesBalance Brought ForwardShare of Trading ProfitsShare of Net Interest ReceivedShare of Tax ChargedDividends RemittedTotal Balance Sheet Values

1893,055

73(936)(900)

1,481

1.3161,161

86(374)

(2,000)189

The sum of F1.481 000 represents the Group s share of reserves in Greetwell Developments Limited(61,471 000) and Ellcee Limited (610,000)

(iii) Funeral BondsBonds are invested as indiwdual life policies with the Co-operative Insurance Society Limited (CIS).other than a commission received from CIS. surpluses are not recognised until such time as the planis invoked

(b) SubsidiariesThe pnncipal business actiwues of the Society's subsidianes are:—

(i)

(iil

( I I I I

(Ivl

Iv)

' vIII

( V I I I I

(tx)

Ixl

Lincoln Corn Exchange and Markets (1991) Ltd. —Property InvestmentLincoln Co-operative Chemists Ltd. —Retail Chemist ShopsL, C.S Property Ltd —Property Holding CompanyLincoln Shop Equipment Ltd —Cash Register Sales 8, ServiceHolland Brothers Ltd —Retail GaragesLCS Retail Ltd —Food and Petrol RetailGadsby s of Southwell Ltd —Bakery (60'/, )Wnghts Lincoln Ltd —Retail Garages — Does not tradeLincoln Carlton 8 Newark Daines (1983) Ltd. —Does not tradeOnyxbndge Ltd —Does not trade

(c) Joint VenturesGreetwe!I Developments Ud —Shareholding 50'ro — Property Devel~pm~ofEilcee Ltd —Shareholding 50' — Co-operative Development

11. Debtors Falling Due WithinOne year

2006 20056'000 6 000

Falling Due AfterOne Year

2006 2005K'000 F 000

Credit SalesTrade DebtorsCapital ProceedsDeferred tax relating to pension payment due

VAT

Owing from Joint Venture

Other Debtors and PrepaymentsTotal Debtors

24312

1,4845,465

51812 554

883 1.3862,843 3.173

7 027450

12 a) Creditors Falling Due WithinOne year

2006 2005irestatedl

6'000 E'000 6'000 6 000

Falling Due AfterOne Year

2006 2005

Trade Creditors

Accrued ChargesPension Liability

VAT

Other Taxation and Social Security

Diwdend Stamps and Member Benefits

Corporation Tax

Funeral Bonds

Owing to Joint Venture

Total Creditors

16,5215,993

469289

7,601350

4,75335,976

11.7096.1811 500

417392248

5 055250

3.97429 726

150

4,088

4,238

60560

3 610

4 230

b) Dividend Falling Due WithinOne year

Falling Due AfterOne Year

2006

6'000

2005Irestatedl

f 000

2006

6'000

2005

F 000

Dividend Approved Not Yet Distnbuted

Dividend Points Balances on Diwdend Cards

Total Creditor

1,3041,6512,955

9751 4972 472

13. Loans Failing Oue WithinOne Year

2006 20056'000 E'000

Falling Cue AfterOne Year

2006 20056'000 6'000

Interest Payable

2006 2005F.'000 6 000

Owing to JointVenture

Other LoansOther Interest PaidTotal

125

125

44549

6

61729

14. Provisions for Liabilities and Charges

Oeferred Tax

2006

K'000

2005(restated)

E'000

Balance to begin the yearMovement for the yearBalance to end the year

466(466)

364102466

An analysis of the amounts prowded are set out belowAccelerated capital allowancesOther timing differencesOeferred tax provisions at the end of the year

(285)285

(319)785466

Deferred tax on chargeable gains rolled over has not been provided in the accounts Inciuded lnother timing differences' are amounts relating to differing treatment of member benefits and prowsionsbetween the accounts and in the current tax provision.

15. Slhare Capital 2006E'000

2005E'000

Balance to begin the yearContnbutionsDiwdend Bonus Credited to Accounts in the YearInterest

Withdrawals

Balance to end the year

10,0972,030

731208

13,066(3,095)9,971

10,1522.5081,054

22313.937(3,840)10 097

i) The whole of the share capital compnses E9,971,043 non equity shares of E1 attracting interest atthe rates below:

BalanceEO — E20E20 - E100E100 — E500E500 — E1,000E1,000 — E2,500E2, 500 — E10.000E10,000 —E20,000

Interest RateNil

1.0%1 5%2 0%2 5%3.0%3.5%

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

iii) Every member who has been a member of the Society for not less than six months and holds aminimum of one share is entitled to one vote

iv) In the event of a winding up. any balance remaining. after meeting all liabilities will be distnbuted

subject to the Society's rules.

v) Dwidends to members are paid by way of redemption of diwdend points and by payments of

dividend into members' share accounts.

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

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

16. Revaluation Reserve Trading investmentProperty Property

2006 2006K'000 E'000

Total

2006E'000

Balance to begin the yearRevaluation dunng the yearTransfer between reservesTransfer of amount equivalent to additional

depreciation on revalued assetsTransfer of realised gains on disposals

Minority Interest

Balance to end the year

35.9614.308

41113

(21)1

40,403

27 88814 627

(41i

(1 545'

40,929

63,84918.935

113

(1 566i1

81,332

17. Revenue Reserve 2006E'000

Balance to begin the year as previously reportedPnor year ad)ustments

FRS21 Member Distnbutions

FRS17 Pension Liability

Balance to begin the year restatedTransfer from Revaluation ReserveRetained Surplus for the YearActuanal Loss on Pension SchemeShare interestBalance to end the year

119,696

721(5,592)

114,8251,453

14,760(2,477)

(145)128,416

The cumulative total of goodwill wntten off directly against the Group Revenue Reserve amounts toE6.254 000 (2005 E6.254, 000)

18. Reconciliation of IVlovements in IVlembers' Funds

Retained Surplus for the yearOther recognised Gains and Lossesrelating to the yearMinonty share of Group Revaluation SurplusMovement on Share Capital

Net additions to Members' FundsOpening Members' Funds as prewously reportedPnor Year AdlustmentsFRS21 Member Distnbutions

FRS17 Pension Liability

2006

E'00014,760

16,3131

(126)30,948

193,642

721(5,592)

2005(restated)

EQQQ

13 042

12.471(2)

(55)25.456

167 664

384(4.933)

Opening Members Funds restatedClosing Members' Funds

188,771219,719

163 315188.771

Prior Year AdjustmentsThe effect of the change in accounting policy to adopt FRS17 in 2005 was to reduce staff costs andincrease profit on disposal of discontinued operations reflecting the specia) contnbutions prowded forprewausly in the year ended September 2005 Other finance income is now included in the GroupRevenue Account and taxation fo~ the year to September 2005 increased by E477 000 Actuanallosses of E1 772 000 were recognised in the Statement of Total Recognised Gains and Losses Theoverall impact on tne net assets of the group was to reduce them by E5,592,000 as at september2005

By adopting FRS21 as an accounting policy dividends proposed are not recognised as a liabilitv untilaporoved at a members meeting The net impact an the net assets at September 2QQ5 was an, ncrease of E721 000

Ta compiy with FRS25 share interest nas been included in the Statement of Total Recognised Gainsand Losses rather than the Group Revenue Account

19. Minority Interests 2006 2005(52 weeks) (52 weeksi

6'000 E 000

Balance to begin the yearShare of profitsi(lossesl for the yearShare of revaluation

Debentures repaid

Minonty interest transferred to Group

Balance to end the year

(276)21(1)

(256)

(164)(15)

2

(24)i 75)

(276)

20. Reconciliation of Operating Surplus to CashInflow from Operating Activities

2006(52 weeks)

6'000

2005(52 weeksl

(restatedl8'000

Trading Surplus

Non cash Pension CostsSpecial Contnbution to Pension SchemeDepreciation Charges(Surplus)/Loss on Sale of Fixed AssetsAmortisation ChargesDecrease in Stocks(Increase)/Decrease in Debtors

Increase/(Decrease) in Creditors

Cash Inflow from Operating Activities

14,749259

4,082(119)421

9(62)

1,32020,659

13.46625

(250)3.834

27463

5 3374 124

(2 341i24 685

21. Analysis of Net FundsAt 3.9.05

E'000

CashFlow At 2.9.06

f."000 6'000

Cash in hand and at bank 2 658 (613) 2,045

Debt due within one year (125 i 125

Current asset investments

Totals

16.498

19 031

24.624

24 136

4"., 122

43 167

22. Reconciliation of Net Cash Flow to Net Funds 2006(52 weeks)

6'000

2005i52 weeks)

L 000

Decrease in cash in the yearCash outflow from decrease in debt

Cash outflow to liquid resourcesChange in Net Funds resulting from cash flowsNet Funds at the start of the yearNet Funds at the end of the year

(613)125

24,62424, 1 3619,03143,167

(1.517)5 0005.8279 3109 721

19 031

23. Acquisitions and Disposals

During the pnor period. the Group disposed of its dairy business Additional pension costs of

61 500 000 were provided for in 2005 but paid dunng the current year

24. Pension Scheme

The contnbutions relating to the fund have been assessed in accordance with the adwce of theprofessional actuanes based on a formal valuation carried out at 30th September 2003. At that datethe market value of the fund assets was F 34,431.720 of which E1,052.762 was invested in theSociety. The fund was in deficit and the actuanal valuation of the assets was sufficient to cover only

86 /o of the benefits accruing to the members after allowing for expected future increases in earningsThe Society pays pension contributions at 3 8%o above the employees rate

The full actuanal valuation was updated to 2nd September 2006 by a qualified independent actuaryThe ma)or assumptions used by the actuary were

Rate of increase in salanesRate of increase in pensions in payment

Rate of increase in deferred pensionsDiscount rateInflation assumption

20064.0%3.0%3.0%5.1%3.0%

20053 5%2.5%2 5%5 0%2 5%

20043 5%2 5%2 5%5.75%2 5'/o

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

Long term

rate of return

expected at

2006

Value at2006K'000

Long term

rate of return

expected at

2005

Value at

20058 000

Long term

rate of return

expectedat 2004

Value at

2004

L 000

EquitiesBondsOther

8=ro

4 5%o

4 5'o

41,3274,5706,079

8%4 5%

4 25%

36.2173 9636.153

9%5 25%

4 5'/o

28.6604, 1244 316

Total maoket value of assetsPresent value of scheme liabilit esDeficit in the schemeRelated deferred tax assetNet pension liability

51,976(63,156)(11,180)

3,354(7,626)

46.333(54.321)(7.988)2 396

(5,592)

37.100(44, 147)

(7.047)2 114

(4 933)

24. Pension Scheme (continued)

20066'000

20056ooo

Analysis of amount charged to group trading surplus:Current service costGains and losses on any settlements or curtailments

Total Operating Charge

1,389

1,389

1 209600

1.809

Analysis of the amount credited to other finance income:Expected return on pension fund assetsInterest on pension fund liabilities

Net Return

3,309(2,704 )

605

3.013(2.548)

465

Analysis of amount recognised in the Statement ofTotal Recognised Gains and Losses:

Actual return less expected return on pension fund assetsExperience gains and losses ansing on the fund liabilities

Changes in assumptions underlying the present value of fund liabilities

Actuarial loss recognised

3,094187

(6,819)(3,538)

4, 149313

(6 993)(2.5311

IVtovement in deficit during the year:

2006f."000

20056 ooo

Defiot in scheme at beginning of the yearCurrent service costContnbutions paid to pension fund

Contnbution prowded for

Gains and losses on any settlements or curtailments

Other finance income

Actuanal lossDeficit in scheme at end of the year

(7,988)(1,389)1,130

605(3,538)

(1 1,1 80)

(7,047 I

('.209!1 4341 500(6ooi465

(2 531)(7,988)

History of experience gains and lossesDifference between the expected and actual return on scheme assetsAmount

% of fund assetsExpenence gains and losses on scheme liabiities

Amount

% of the present value of scheme liabilities

20066'000

3,0946%

1870%

20056 ooo

4 1499-

313

Total amount recognised in the Statement of Total Recognised Gains and Losses.

Amount

% of present value of scheme liabilities

(3,538)(6%)

)2 531)l5 a~

25. Capital Commitments

Outstanding contracts for Capital Expenditure not provided for in the accounts amounted to E3,438 000(2005 E6.936.000) and capital expenditure authonsed by the Directors for which no contracts havebeen placed totalled E7.076,000 (2005 E9.576.0001

26. Commitments Under Operating Leases

At 2nd September 2006 the Group had annual commitments under non-cancellable operatingon Land and Buildings, these are as follows.

2006K'ODD

leases

2005E 000

Within One YearIn Two to Five YearsOver Five YearsTotal Annual Commitments

6396

257416

7553

383511

These Leases are subject to rent rewews

27. Contingent Liability

No prowsion has been made for Corporation Tax on the capital gain estimated at E17,000,000(2005 E12.400, 0001 which would anse if the Trading and Investment Properties were sold at therevalued amounts

28. Related Party Transactions

Dunng the year. the Group had transactions with subsidianes and other undertakings in which it holdsless than 90"s of the share capital

The net sales conducted during the year between the Group and such undertakings and the baiancesowing to/(froml the Group by these undertakings as at 2nd September 2006 are as follows

Net Sales Balance Net Sales20D6 Owing 2006 2pp5

{52 weeks) (52 weeks)

Balance Owing

2005

K'000 E'000 E ppp E'000

Greetwe'I Developments Ltd

ELLCEE Ltd

LAGAT Ltd

Gadsby s of Southwell L!d12

1,134

{4,753)'I 2

133 111..242 1.095

{3974 i

1.166

200253 Weeks

200352 Weeks

200452 Weeks

200552 Weeks

200652 Weeks

Ivlembership 138 862 147,054 142.289 149,096 145,662

Revenue AccountGross SalesDepreciationTrading SurplusMembers' BenefitsDividend

Trans. to Reserves

f 000

223,8423,404

10,338792

1,9506.820

f 000

219,7023 489

11,862845

2.25010.817

f '000

237 6703.703

11,829676

2.4008 634

f'000

225, 0823,834

13.466750

2.50013,042

6'000

200,4524,082

14,749904

2,92514,760

Balance Sheet

Intangible AssetsTotal Tangible AssetsTotal Fixed InvestmentsNet Current AssetsLong Term CreditorsLiabilities/ChargesNet Assets Before Pension Liability

Pension Liability

Net AssetsShare CapitalReservesMinonty Interest

4,246119.236

4.3828.441

7111.148

134.4464.315

130.1318.307

121.962(138)

5.013138,734

6, 1781,2401,201

348149.616

5.771143,845

9,571134,345

(71)

6,724155,883

5.5553.9723.686

364168.084

4,933163.151

10,152153.163

(164)

6.796175,532

4.78211,6734.230

466194 087

5,592188.495

10,097178 674

(276)

6,375196,866

6,30822,4034,663

227,2897,826

219,4639,971

209,748(256)

Comparative amounts have been restated where appropnateDividend includes amounts proposed for approval at forthcoming members meetings

Corporate GovernanceThe board is commited to compliance with thepnnciples set out in the Corporate Governance Codeof Best Practice for consumer co-operatives whichwas issued by Co-operatives" in May 2005

On 21st September 2006 Co-operatives" issued toits member organisations guidance in relation to thenew compkance requirements for the CorporateGovernance Code of Best Practice. It has beenacknowledged by Co-operatives thatco-operatives with September year-ends. likeLincolnshire Co-operative, will not therefore be ableto meet the compliance timetable in its currentfinancial year. However, Co-operatives" recognisesthat Lincolnshire Co-operative is already wellpositioned to ensure that its members are able toidentify the society's commitment to the new codefrom 2007 onwards. Co-operatives" acknowledgesthat Lincolnshire Co-operative continues to besupportwe of its work in promoting best practice in

the developing field of corporate governance.

As a result this part of the annual report andaccounts has been prepared taking account of theSociety s compliance as against the previousCorporate Governance Code of Best Practice issuedby Co-operatives" in 1995 as subsequentlyamended. The Society achieved a compliance scoreof 91% in relation to this code. when compliance waslast measured by Co-operatives"' in 2004.

The MembersCo-operatives are member owned democraticorganisations and the Board has sought to encouragemembers to play their part in the governance of theSociety and improve membership participation. Wediscuss membership further in pages 20 and 21 ofthis report.

The posters advertising AGM dates and venues aredisplayed in stores and other Society premisesadwsing members of the dates and times ofmeetings. Attendance at meetings is actwelypromoted through these media and also on theSociety website and in the local press. We believethat by taking the meeting venues to the membersand holding them in a number of locations around thecounty we will maximise attendance. This hasproved to be very successful in the past.

Board's Role and Statement of Directors'Responsibilities

Directors' responsibilities to the members are wellrehearsed in statute, common law and otherwiseThe details of all matters reserved to the Board arecontained within a wntten statement which isrewewed annually by the Board of Directors. Thatdocument clearly identifies those managementdecisions which are delegated to the Chief ExecutiveThe Group Secretary is independently accountable tothe Board of Directors.

The Board of Directors currently consists of eightmembers. There are three directors who are alsoemployees of the Society. One director is apensioner hawng been employed by the Societywithin the last five years. The remaining fourdirectors are considered independent. There arecurrently two sub committees of the Board, the AuditCommittee and the Remuneration Committee. Inaddition, this year a Working Party has been set upwhich consists of directors and Helen Barber fromCo-operatives uk The objectives of the groupinclude consideration of future elections. renewal ofthe Board and succession planning.

Members'MeetinoThe venues and dates of the members meetings areset out on page 56 at the end of this report. Eachyear we nold members' meetings at locations wherewe trade. but predominately throughout Lincolnshire.We also hoid a half yearly meeting each year;nLincoln:n May. The Board of Directors are eiecteddirectly by the membership. There were no electionsin May 2006 to enable a transit on to the new boardstructure foilowing ruie changes which wereapproved by the members in October 2005There is currently a Board of Directors of up to nineind~v dual's. Thee is no geographical area restnctionin place in reiation to elections to the Board ofDirectors. Members who Iwe ~n any part of the tradingarea are eiigible fo. election subject to meeting theother critena set out in the Society s rules

~ '

During the year Paul Aston resigned as a director ofthe Society. The Board and management would likeformally to express their thanks and appreciation forthe energy, consistency, clear advice and assistancehe afforded them dunng his term as a director. TheSociety is sorry to see his departure which was dueto his relocation outside the trading area of theSociety. The Board and management would like towish Mr Aston all the best for the future

Audit CommitteeThe Audit Committee of the Board compnses fourindependent directors and is chaired by one of itsnumber who is not currently the President of theSociety. The committee is scheduled to meet at leastthree times per year.

Its terms of reference have been agreed by the Boardand include—

Hawng Ioined the Board in 2003, Margaret Trantersuccessfully completed the Institute of Co-operativeDirectors' Diploma and congratulations are due toMargaret on this achievement.

Board Working PartyDunng the year the Board set up a Working Party tolook at the issue of succession planning, skills andindependence of the Board generally. In October2005 the members passed a resolution changing therules of the Society to enable the Board to appointindependent directors. The Working Party mernbers-Margaret Tranter. Stuart Parker, Sue Neal and EileenBangay together with Helen Barber from Co-operativesux have considered the implications of this.Work has been done to evaluate the skills of theexisting members of the Board. In particular eachdirector has taken part in a Skills Audit facilitated bythe Co-operative College which has reported on itsfindings. In addition the Board have undertaken aBelbin personakty profile analysis utilising theservices of the Belbin organisation. The findings ofboth of these activities will be utilised to inform atraining programme and succession planning for theBoard in the future. The information gleaned will alsobe most valuable in assisting the Board of Directorsto take forward the appointment of independentdirectors.

1. Consideration of the appointment of theexternal auditor and the scope of the audit

2. Review of the Financial Statements and auditors'management letter

3. Review of the internal audit programme and all

internal audit reports and

4. Review of the Society's statement on nskmanagement and internal control systems.

The President of the Society is elected annually bythe Board. The current President, Allen Horne waselected by the Board of Directors in May 2006 andwill serve until May 2007

The Chair of the Aud:t Committee reports theoutcome of ail Audit Committee meetings to theBoard and the Board receives the m, nutes of all Audit

Committee meetings.

Internal audit work is earned out by Streetsaccountants All internal audit reports are consideredby senior management and presented by the internalauditors to the Audit Committee The reports containrecommendations and action plans agreed with

management to improve controls where weaknessesare found. These are followed up to ensuresuccessful implementation

Dunng the year the Board undertook a review of thesystem of internal controls and does not considerthat any weaknesses have come to light that haveresulted in matenal losses or contingencies whichrequire disclosure.

Internal Control FrameworkThe Society has adopted an internal controlframework which the directors considerappropnate to its size and diversity.

Risk ManagementThe Board and executwe management have thepnmary responsibility for identifying the key businessnsks facing the Soc ety and the development ofappropnate policies to manage these nsks. Eachtrading division has worked with the internal auditfunction to review and identify the key nsks facingtheir business dunng the year and they have alsoprov ded their views on the key corporate nskswhich affect the societv.

The nsk register outl n;ng the key risks in detail hasbeen completeiy reviewed and updated aunng theyear by the senior management team and theoutcome of this review has been reported to theAudit Committee. The process is entirely iterativeand each year '.he nsk registers are reviewed againand further work done to ensure that steps are takento minimise those nsks that affect the Society Thisenables the target ng of resources on areas of highestnsk when analysed by impact and likei hood

Control Activit, esThe Board considers information at every Boardmeeting on progress of the business in relat on to thebudget and the pnor year. Executive managementconsiders any significant vanances from the budgeton a regular basis and remedial action is taken whereappropnate. Following the end of every 6 month

penod the Board examines the financial results forthat penod in detail at a special Board meeting.

Procedure manuals cover the key control systemsand all dwisions are required to comply with them.The intranet continues to be used for disseminationand updating the policy documents and instructionmanuals, key information and reporting forms.

M 0n I to r'I n gThe outsourced provision of internal audit servicescontinues to be a success Resources areconcentrated in the areas where they are mostrequired. The use of an external service provider forthis role gives flexibility and an independent view An

annual report of the activities of the internal auditservice has been produced for the year 2005/06 Theinternal auditors overall assurance statement isincluded on page 55.A three year programme for the audit of all keysystems and controls has been agreed with the AuditCommittee. Any weaknesses identified arehighlighted to management and to the AuditCommittee which monitors all internal audit reportsand ensures that appropnate actions are taken.

Supplier Payment PolicyIt is Society policy to agree the terms of payment aspart of the commercial arrangement negotiated withsuppliers and then pay according to those termsbased upon the timely receipt of an accurate invoice.Trade creditor days for the year ended 2ndSeptember 2006 were 21 days This represents theratio expressed in days between the amountsinvoiced to the Society by its suppliers in the yearand the amounts due at the end to trade creditorswithin one year

Control Environm ntThe Society has cieariy definea reporting lines andievels of aeiegated authority. Expenditureauthonsation levels are set for every area of thebusiness Large cap. tai protects and acquis. tionsrequ ~e pror Board approval!in accordance vnth thecriteria set out in the Scnedule of Matters Reservedto the Boardl The group is centrally controlled

Underlying PnnciplesThe pnnciple which the Society and the Board adoptin relation to remuneration is that no-one should beinvolved in consideration or determination of theirremuneration package or any aspect of that package.

DirectorsThe members approve the directors' fees in annual orspecial meeting. The research which precedes arecommendation to members is undertaken by theSociety Secretary, who obtains external advice,usually from Co-operatives" and otherco-operative societies.Co-operatives" also regularly publishes details ofdirectors' fees, on an anonymous basis and this ismonitored by the Society Secretary.

Directors also receive mileage allowances for usingtheir own cars on society business. reimbursement ofpublic transport fares and reimbursement ofreasonable actual expenditure for meals and hotels.

ExecutivesThe remuneration package of the Chief Executive andthe Society Secretary are determined by the Boardon the recommendation of the RemunerationCommittee. Unlike most pic s and in common withmost consumer co-operatives the Chief Executiveand the Society Secretary at Lincolnshire Co-operative are not members of the Board and underthe arrangements outlined in this report. do nottherefore play any part in the consideration ordetermination of their own remuneration package.

Directors' fees were last reviewed on 23 May 2001when the present arrangements were agreed bymembers. There is also a formula for updating thefees in line with the index of average earnings. Thisformula was agreed by members.

The present fiat rate fees are:—

The Remuneration Committee is made up of the fwemost senior non-employee directors (by length ofservice) and is chaired by the most senior. TheRemuneration Committee currently compnses:—

Alan Middleton (Chair), Eileen Bangay, Stuart Parker,Sue Neal. Margaret Tranter

President

Vice-President

Directors

23.76023.1 1 022.827

The Society Secretary is Secretary to theRemuneration Committee but is excluded from anypart of any meeting where her own remuneration isunder consideration.

In addition to the fiat rate fees. directors are entitledto delegation fees for undertaking duties outside thesociety. The present scale of delegation fees wasagreed by members on 23 May 2001. There is also aformula for updating delegation fees in line with theindex of average earnings. This formula was alsoagreed by members. The present level of delegation

The Remuneration Committee obtains advice fromexternal professional adwsers. pnncipally the Co-operative Employers Association, who themselveshave access to industry data worldwide. but theSociety has in the past also received adwce from theinternational recruitment consultants. Korn Ferry.

For delegations up tofour hours 27.93

For delegations overfour hours 215.85

Julia Romney

Allen Horne

Alan Middleton

Margaret Tranter

Sue Neal

Ron Foster

Eileen Bangay

Stuart Parker

23.762.75

23.157.95

83.042 18

E2,896.16

22, 848.81

22, 832.76

22.816.16

22.81 6.1 6

Delegation fees are not paid in respect of attendanceat an organisation which itself pays fees. if thedirector concerned receives such a fee. For the yearended 2 September 2006 indwidual directors' totalgross remuneration was as follows:—

The Chair of the Remuneration Committee is amember of the Remuneration Committee Institute.sponsored by KPMG, which keeps members up todate on current best practice

The objective of the Remuneration Committee is topay at the median point foi the relevant professionaldiscipline.

Determination of the remuneration packages of othermembers of the Senior Management Team isdeiegated to the Chief Executive who discusses herapproach and her conclusions with the RemunerationCommittee.

Alan Iv). i".'6',,r. n Cna r

naLi

We have audited the financial statements ofLincolnshire Co-operative Limited for the year ended2nd September 2006 which compnse the GroupRevenue Account, the Group Balance Sheet. theGroup Cash Flow Statement. the Group Statement ofTotal Recognised Gains and Losses and therelated notes These financial statements have beenprepared under the accounting policies set outtherein.

We read the other information contained in theAnnual Report. including the statement on

paragraphs 31 and 32 of the Code and considerwhether it is consistent with the auditedfinancial statements. We consider the implicationsfor our report if we become aware of any apparentmisstatements or matenal inconsistencies with thefinancial statements. Our responsibilities do notextend to any other information.

This report is made solely to the Society s members.as a body, in accordance with section 9 of theFnendly and Industnal and Provident Societies Act1 968. Our audit work has been undertaken so thatwe might state to the Society's members thosematters we are required to state to them in anauditor's report and for no other purpose To thefullest extent permitted by law, we do not accept orassume responsibility to anyone other than theSociety and the Society's members. as a body, forour audit work. for this report. or for the opinions wehave formed.

Respective responsibilities of directors and auditors

As descnbed in the Statement of Directors'Responsibilities on page 55. the Society s directorsare responsible for the preparation of the Annual

Report and the financial statements in accordancewith applicable law and UK Accounting StandardsIUK Generally Accepted Accounting Practice).

Our responsibility is to audit the financial statementsin accordance with relevant legal and regulatoryrequirements and International Standards on Auditing

(UK and Ireland). We report to you our opinion as towhether the financial statements give a true and fair

wew and are properly prepared in accordance with

the Industrie, and Provident Societies Act 1965 to2002 and the Industnal and Prowdent SocietiesIGroup Accounts) Regulations 1969 We also reportto you if. in our opinion the Directors' Report is notconsistent w th the financial statements. if the societyhas not kept proper accounting records, if we havenot received all the informat:on and explanations werequire for our audit.

We rewew whether the statement on page 52 reflectsthe society s compliance with paragraphs 31 and 32of the Corporate Governance Code af Best Practicessuea by Co-operat ves-- in 1995 I the Code 'l. andwe report if it does nat We are not required to forman opinion on the effect veness o. the society scorporate governance procedures or its internalco~trois

Basis of audit opinionWe conducted our audit in accordance with

International Standards on Auditing (UK and Ireland)issued by the Auditing Practices Board An auditincludes examination. on a test basis. of evidencerelevant to the amounts and disclosures in thefinancial statements. It also includes an assessmentof the significant estimates and judgments made bythe directors in the preparation of the financialstatements, and of whether the accounting policiesare appropriate to the Group's and Society'scircumstances. consistently applied and adequatelydisclosed.

We planned and performed our audit so as to obtainall the information and explanations which weconsidered necessary in order to prowde us withsufficient ewdence to give reasonable assurance thatthe financial statements are free from matenalmisstatement, whether caused by fraud or otherirregulanty or error. In forming our opinion, we alsoevaluated the overall adequacy of the presentation ofinformation in the financial statements.

OpinionIn our opinion the group financial statements

give a true and fair view, in accordance with UKGenerally Accepted Accounting practice. of the stateof affairs of the group as at 2nd September 2006 andof its surplus for the year then ended: and

have been properly prepared in accordance with theIndustnal and Provident Societies Acts 1965 to 2002and Industnal and Prowdent Societies (GroupAccounts) Regulations 1969

KPI(riG LLPChartered AccountantsRegistered Auditor

Statement of d:rec.o~s' 'esponsibilities in respect ofthe Director' Reoort and the financial statements

The directors are responsible for prepanng the Annual

Report and the Group financial statements in

accordance with applicable law and regulations.

Board C rtificat:onThe financial statements on pages 29 to 48 arehereby signed on behalf of the Board of Directorspursuant to the Fnendly and industnal and ProvidentSociety Act 1968

Industnal and Provident Society Law requires thedirectors to prepare financial statements for eachfinancial year. Under that law the directors haveelected to prepare the financial statements in

accordance with UK Accounting Standards

Allen HorneSue NeaiJane Powell

PresidentVice PresidentGroup Secretary-~

AkInternal Auditors' Overall Assurarrce Statement

The Group financial statements are required by law togive a true and fair wew of the state of affairs of theGroup and of the surplus of the Group for that penod.

In preparing each of these financial statements, thedirectors are required to:

select suitable accounting policies and then applythem consistently:

make Iudgments and estimates that are reasonableand prudent,

state whether applicable UK Accounting Standardshave been followed, subject to any material

departures disclosed and explained in the financial

statements: and

prepare the financial statements on the goingconcern basis unless it is inappropnate to presumethat the Society will continue in business.

The directors are responsible for keeping properaccounting records that disclose with reasonableaccuracy at any time the financial position of theSociety and enable them to ensure that its financial

statements comply with the Industnal and Provident

Society Acts. They have general responsibility for

taking such steps as are reasonably open to them tosafeguard the assets of the Society and to prevent

and detect fraud and other irregulanties.

Under applicable law the directors are also

responsible for prepanng a Directors' Report that

complies with those Acts

Overall assurance

1. In our opinion, for the year 2005/06. LincolnshireCo-operative Ltd has an adequate. effective andreliable framework of internal control which prowdesreasonable assurances regarding the effective andefficient achievements of oblectives

2. Whilst some deficiencies in control have beenidentified by the internal audit service, we aresatisfied that they are being resolved in an

appropnate manner This is based on ourrecommendation tracking procedures and follow upwork which have confirmed that actions are beingtaken in accordance with the agreed action plans aspreviously reported to the audit committee.

3 In the context of our three year strategic plan, we

are able to confirm that the overall control framework

is reasonable and, due to the attention managementhave given to our previous recommendations.generally improving

Streets Internal Audit

GAINSBOROUGHTne yyestoci Rooms Hickman S:rect.Gainsocrot&gh on Tu=sda; ', ctr No. eii oe:20'16 at Qgo-i.

GRIMSBYHotel E' abeth Lttleconre~ R~tr~ rtr — r

Mon&:ay 20th ¹,en oe; 202!6 a;, 'Qpn-

NEWARKBear;-gs Cor tereiice ','eiiue. B ",.o'idge

Road. Nev, ark on Wedi~esday 15tl No. ember2006 a. 7 QGpm.

SPALDINGSouth Holland Centre. Market Place. Spaldingon, nursday 1oth No. ember 2006 at, 00pm.

HORNCASTLEThe Horncastle Golf 8 Countrv C uo. WestAs~o. . Horncas le -, Tuesda, '. st No. c»re2n06 at . 00pm

LINCOLNIte Lincon Su:te. The Lavvn. Union Roa;l,l incon on Wedriesday 22nd No. embe 2006at T 00pm

ANNUAL GENERAL MEETING

AGENDA

1. To confirm the minutes oi the Annua Genera' Meeting held Novembe 2005 !Half Yearly Meeti;io2't" May 2006 'or Lncoln AGM on'yl

2. To receive the Directors' Report. Auditor's Reoort and Annua' Accounts

"To c..'s der '.ne reco nmendatior of the Board of Directors

iai that "2.925.000 is al ocated '.o dividend from .".hich inienm dividends cf 61, 66 000 ha: a a!;been pa, o ano6 ' o; a . d -" bor us "' ogp 'or e.ery

" o' d" ideno poin!s dis!I' outed In the, ear;o 2r

Seu entt er 2 ~ 6

To .ns le -.ne ~econ-iver, endaaon of the Board ot D rectors tnat the basic rate ot issue ot o,vioertantiit es at 2-', po nts per "1 spent and .vit! a value of C i

'. or et cry 2 '00 points reoeemed

To onsioer;he 'esolutior tnat KPMG LLP be ani1 are hereby re-appointed Aiiditors of tt.e Society--= co"elusion "' t'-e L"'co;n A",

, uai Gen ra Meet ng unti. '.ne conc:lus;on o' tnenekt An al -enema' Meeting at::hie~ accou-ts are 'aid before the So"iety. at a remur-erat~on tc erixecl o, ;ne D eclots.

Due-t--- must .-,= si

oretc.

cd .- adtance of the ecting and in acco dance v. i:h General R le, -

See stand no orders ins;oe bacr co.e~

Me - oe-s - s ore 1,ce 1-eir S-are Book cr D; de"d Caro to gain ent", to these meet, ngs. An,mernbe Oreae t -. . Cde a -

.~'.m" Sha e Canital and haS been a member O-the SO" e'. ~ r

P„ase note To i.se Dv, dend Card as oroo: of votng entitlente't the.„-,oa---- -- 6- - St -„-- - t-e Member = S;are ACCO. nt b, Sat.,rd-", atn NOVember 20G6

The Order of business at every general or special meeting of the Society shall be in accordance with the pnntedagenda of business issued with the notice of the respective meeting

Except in the case of a special general meeting called upon the requisition of members. the agenda of every meetingshall be made out in the form and order approved by the Directors and shall include oniy such business as is decidedupon by the Directors

amendments, who shall be allowed a reply and no member shall speak after the reply immediately after which thequestion shall be put from the chair.

5 No member shall be allowed to speak for more than fwe minutes, except the mover, who may speak for ten minutesand take five minutes in reply.

The same agenda shall be put before the members at the distnct and the central meetings Where the agendacontains a motion and an amendment or amendments thereto. voting shall take place as if both the motion andamendments were substantive motions and on consokdation of the votes at all the meetings if both motion and anamendment or amendments are earned. the motion or amendment which has the greater number of votes recorded in

its favour shall be declared earned. and if the votes in favour are equal such one of those receiving such equal votesas had the largest malonty shall be declared earned

Any member who has not spoken to the question before the meeting may at any time dunng the course of the debatemove "That the question be now put" Such motion must be made without any accompanying speech and must beforthwith put without amendment or debate, and should such motion be adopted, the chairman shall, sublect to thenght of reply of the mover of the question under discussion. at once put the question

Any member choosing to speak upon any question whatsoever must nse m his place and address himself to thechairman. When two or more members nse at the same time, the chairman shall indicate the member who is to speakfirst.

Whenever the chairman nses to speak, no member shall continue standing. nor shall any member nse until thechairman resumes his seat.

10. A member shall confine his speech stnctly to the motion under discussion or to the amendment or to a question oforder.

11. The chairman may call attention to continued irrelevance. tedious repetition. or any breach of order on thepart of a member and may direct such member to discontinue his speech.

12. Any one or more of these standing orders may be suspended at any meeting by the vote of a two-thirds malonty ofmembers present at the meeting The dec(s(on of the chairman upon any point of order shall be final

SPECIAL RULE VII(d)Members wishing to ask a question at any members meeting of the Society must submit the question in wnting to theSecretary at least 48 hours before the relevant meeting.

SPECIAL RULE X

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

GENERAL RULE 73Complaints by Members —A member who has any complaint to make as to the quakty, quantity, or pnce of any goods or

services supplied by the Society, or the conduct of any officer or employee of the Society, shall send the parhculars of such

complaint to the board who shall inquire into and decide upon them. sublect to an appeal from any such decision to an

ord . meet(- - of bere but no such complaint shall be brought before any such meeting except on appeal