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www.co-op.co.uk

Corporate social responsibility report 2004

Co-operative Group (CWS) Limitedregistered under the Industrial and Provident Societies Act

Registered No. 525R

Registered officeNew Century HouseManchester M60 4ES

Group SecretaryN A Eyre

AuditorsKPMG Audit Plc, St James’ SquareManchester M2 6DS

This report is available via the Internet at the following sitewww.co-op.co.uk

Access for AllThis document is available on request in large print, in Braille and on cassette.

Freephone 0800 0686 727Minicom 0800 0686 717Email [email protected]

www.co-op.co.uk

If you would like to comment on ourapproach, our performance, or how wepresent this information, or if you wouldlike to make any related suggestions, wewould like to hear from you.

Please contact us at [email protected]

Or write to: Corporate responsibilitymanager, the Co-operative Group, NewCentury House, Manchester M60 4ES.

Corporate social responsibility report 2004

Corporate social responsibility headlines

• Community investment was £7.3m, equivalent to 3.2% pre-tax profit, up from 2.5% in 2003. A further £1.9m leveraged as a result of the Group efforts, an increase of 0.7%.

• The consolidated operating profit* for the Group was £243.7m, compared to £327.3m last year, a decrease of 26%.

• £27.5m proposed to be distributed to members and the community, compared to £30.2m last year, a decrease of 8.9%.

• CFS Sustainability Report was named number one by UN Environment Programme.

• 100% of centrally-procured energy is now purchased from green sources.

• Over 50% of Group employees are now also members.

* before exceptional items

Contents

1 Corporate social responsibilityhighlights

2 the Co-operative Group at a glance 3 Values & principles4 Chief executive’s introduction5 the Co-operative Group strategy6 Managing corporate social

responsibility11 Case study: Protecting our

environment12 Membership14 Community investment16 Overview18 Food Retail20 Travelcare 22 Case study: The changing business

environment23 Case study: Diversity initiative

24 Co-operative Funeralcare26 Co-op Pharmacy 28 Co-operative Financial Services30 Farmcare32 Property 34 Case study: Responsible retailing35 Case study: Public policy36 Priory Motor Group38 Corporate functions 40 Learning from our assurance process42 Independent assurance report43 Glossary

Board members as at 15 June 2005

Bob Burlton Group chair, Oxford, Swindon & Gloucester ACDEF

Terry Morton Group deputy chair, Co-operative Group, North Eastern & Cumbrian DFB

Robin Stewart Group deputy chair, Co-operative Group, Scotland ACE

Graham Bennett Southern Co-operatives ABCDEFChris Blanchett Colchester & East Essex Simon Butler Co-operative Group, Central & Eastern ACDEFHJohn Fitzgerald Midlands Co-operative Douglas Fletcher Plymouth & South West BCJohn George Co-operative Group, Northern BMike Harling Co-operative Group, South East HChris Herries Co-operative Group, South West CGBill Hoult United Co-operatives ACRobert Jamieson Lothian Borders and Angus Frank Jones Co-operative Group, South West GPeter Marks United Co-operatives Margaret McCafferty Co-operative Group, Scotland CGBertie Murray Co-operative Group, Northern Ireland CRussell Porteous Co-operative Group, North Eastern &Cumbrian Alban Rees Co-operative Group, Wales & Borders CBrian Rees Co-operative Group, Wales & Borders BBen Reid West Midlands ABCGRichard Samson Ipswich & Norwich Allan Smith The Channel Islands BCJohn Smith Co-operative Group, Northern CHIKathryn Smith Co-operative Group, South East ACDGJeanette Timmins Co-operative Group, ScotlandLen Wardle Co-operative Group, South East ADFHISteve Watts Co-operative Group, Central & Eastern ADF

AGroup Remuneration & Appointments Committee B Group Audit & Risk CommitteeCGroup Values & Principles CommitteeDCo-operative Financial ServicesE The Co-operative BankF Co-operative Insurance SocietyGCo-operativesUKHCo-operative Group Pension Fund TrusteesI Manx Co-operative

Executive members as at 15 June 2005

Martin Beaumont Group chief executive David Anderson Chief executive, CFS* Richard Bide Director of HR Nick Eyre Group secretary Paul Hewitt Chief financial officer Guy McCracken Chief executive, Food Retail** Zoë Morgan Group marketing directorGerry Pennell Acting chief information officer Yvonne Rankin Chief executive, Specialist Retail

* appointed April 2005** appointed May 2005

www.co-op.co.ukwww.co-operativebank.co.ukwww.cis.co.uk

The Co-operative Group would like to thank those who were featured throughout this report.

CoverKerry Mansfield TravelcareAnn McMullen Food RetailLisa Johnson Food RetailDebbie Banks The Co-operative BankRicky Collingham Department and Home stores

StakeholdersScott Bulmer GrampianAmin Roberts Hayfield SchoolLisa Webb Hayfield SchoolSara Ola Bank customerEstelita Avilez Bank customerSarah Lees Group marketing

CustomersNatasha and Phoebe AndrewsSharon JenkinsonJames McKercharDerek and Doreen Brook

Co-operative sectorJohn Sleigh Co-operative CollegeSarah Lees Group marketingClaire Hyde Unicorn

SuppliersRichard Holmes Reckitt BenckiserPaul Nee P&GDon McKernan P&GPaul Bennett Scottish CourageKaren Wright Karen Wright Photography

EmployeesStephanie Monzon North Eastern & Cumbrian Co-opDerek Collins North Eastern & Cumbrian Co-opRoger Dilkes SyncroAston Matthews Travelcare

MembersTanya LyonsWing KongShirley Kendal

CommunityRyan Glover Hayfield SchoolMariah Light Hayfield SchoolPatrick Condron Hayfield SchoolJoy Loftus Hayfield SchoolJoan George Hayfield School

Back coverAnne Booth Department and Home storesGemma Tanner Department and Home storesJoanne Glenton Department and Home stores

2005

abcdef

Gross capital expenditure £m

2000 (159/100) 259

2001 (174/18) 192

2002 (176/183) 359

2003 (196/55) 251

2004 (199/76) 275

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orporate social responsibility report 2004

Operating profit £m(before exceptional items and associated companies)

2000 138.4

2001 165.8

2002 231.4

2003 327.3

2004 243.7

the Co-operative GroupOperating profit £243.7m

stakeholders

Members’ funds £m

2000 1,418

2001 2,728

2002 2,532

2003 2,858

2004 2,983

Members’ funds up4.4% to £2,983m

Organic Acquisition

Proposed distributions £m

2000 12.7

2001 12.6

2002 19.9

2003 30.2

2004 27.5

£27.5m proposed to bedistributed to membersand the community

Capital expenditure 10%higher at £275m

Community investment £m

2000 2.7

2001 4.3

2002 9.6

2003 6.8

2004 7.3

Community investment£7.3m

Loyalty card payment £m

2000 21

2001 20

2002 27

2003 30

2004 30

£30m returned to Retailcustomers as loyalty card payment

We have identified the following groups asstakeholders; how we respond to their interests and concerns will be key to our future success:

• individual members • customers• corporate members • suppliers• employees • the co-operative sector• the wider community

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Property, production and other trading

PropertyOur successful property business managesinvestment and trading properties.www.co-op.co.uk

FarmcareAs the UK’s leading farmer, we are supplying more to Co-op stores than ever before.www.co-opfarmcare.com

SyncroWe manage an engineering and building services business.www.syncro-online.com

Financial Services

The Co-operative BankWe are famous for both our ethical stance and our standards of customer service.www.co-operativebank.co.uk

smilesmile is our full service internet bank, winner of many awards for customer service.www.smile.co.uk

CISWe are a major life assurance and general insurance business with over five million customers.www.cis.co.uk

the Co-operative Group at a glance

Food Retail

WelcomeWe are the UK leader in top-up foodshopping. Welcome is our successful community store brand.www.co-op.co.uk

SupermarketsWe have a large number of supermarkets serving local communities.www.co-op.co.uk

Specialist Retail

Co-op PharmacyAs the fourth largest pharmacy operator, we provide a high standard of community healthcare services across the UK.www.co-oppharmacy.co.uk

Co-operative FuneralcareWe’re the UK’s largest funeral director, at the forefront of moves to improve client service, reassurance and information.www.funeralcare.co-op.co.uk

TravelcareWe’re the UK’s largest independent retail travel group, with a commitment to offeringimpartial advice to our customers.www.travelcare.co.uk

PrioryWe manage a large and diverse car dealership business.www.priorymotors.co.uk

Department and Home storesWe operate 39 Department and Home stores.www.co-op.co.uk

Business Number of Number ofoutlets employees*

Food Retail 1,787 45,697

Co-operative Funeralcare 504 2,961

Travelcare 368 2,235

Priory 29 810

Co-op Pharmacy 352 2,782

Department and Home stores 39 1,102

The Co-operative Bank 126 4,147

CIS – 8,791

Total 3,205 68,525

Other – 1,086

Total 3,205 69,611

* as at 8 January 2005

Our vision

To be the world’s most successfulconsumer co-operative business

Our aims• to strive for world class levels of business performance

• to be open, responsible and rewarding, putting co-operative values & principles into everyday practice

• to enhance the lives of our people, members, customers and the communities in which we trade

• to work for the long-term success of the co-operative sector

Our objectiveThe core objective of the Co-operativeGroup is to optimise profits frombusinesses where our co-operative valuesgive us a positive marketing advantage,allowing us to serve our members and to deliver our social goals as a successfulco-operative, while making a reasonablefinancial return to our member-owners,both corporate and individual.

What is a co-operative?A co-operative is an autonomousassociation of persons united voluntarilyto meet their common economic, social and cultural needs and aspirationsthrough a jointly-owned anddemocratically controlled enterprise. (The International Co-operative AllianceStatement on the Co-operative Identity,Manchester 1995.)

Co-operativevalues &principlesValues Co-operatives are based on the values of self-help, self-responsibility,democracy, equality, equity and solidarity. In the tradition of their founders, co-operative members believe in theethical values of honesty, openness, socialresponsibility and caring for others.

Principles The co-operative principles are guidelines by which co-operatives put their values into practice. They are:• voluntary and open membership• democratic member control• member economic participation• autonomy and independence• education, training and information• co-operation among co-operatives• concern for community

Welcome to our second consolidatedcorporate social responsibility report.It sets out the progress we have madein measuring and managing corporatesocial responsibility within the Group, aswell as our commitments for the future.

In my opinion this report showsencouraging progress in our corporatesocial responsibility work, driven by ournew Social Goals Strategy Unit. We havecontinued to develop our key performanceindicators (KPIs), to audit our progress bothinternally and through external assurers,and to drive corporate social responsibilitymanagement into our businesses. Good risk management demands nothing less.

Fundamental to our strategy is a very clear alignment with our stakeholders. It is essential that we make progress withcorporate social responsibility – as withany other business issue – based on afruitful and constructive dialogue withstakeholders. We cover these aspects ofcorporate social responsibility in full here.

Working for a co-operative organisationwith a clear commitment to corporate socialresponsibility is a powerful motivating forcefor our colleagues (as demonstrated by themajority of them being members as wellas colleagues). Many of the examples setout here show how much the Group owesto the work of its employees. The Boardand the executive are grateful to them forall they have done.

Walking away from corporate socialresponsibility in tough business conditions –as we experienced in 2004 – is simply notan option for us.

Our business strategy is based on the ideaof a co-operative difference, which sets usapart from other providers in the sectors inwhich we operate. It is just as fundamentalto our long-term success as havingbusinesses which have the strength andscale to compete on commercial terms inour chosen sectors.

We have a real opportunity here. In today’sworld, consumers are increasingly taking aninterest in what lies behind the brands andthe goods and services they buy. The rise ofethical consumerism, Fairtrade products –once a niche market, now in every highstreet – and consumer concerns over issueslike chemicals and GM foods, are a hugeopportunity for the Group. It means thatour corporate social responsibility credentialshave become more, not less, relevant in the21st century. Corporate social responsibilitywill be an integral part of the way in whichwe develop our brand strategy – as well asour whole Group strategy – in 2005and beyond.

It also poses a challenge for us. Membersand consumers – not to mention our owncolleagues – expect us to behave moreresponsibly than the general run ofcommercial businesses because of our rootsand our record. I welcome that. We shouldrespond to that challenge as part ofshowing that the values & principles of ourmovement are as relevant today as theywere in the last century and in the earlydays of co-operation.

I would be the first to say that we still havea long way to go on corporate socialresponsibility. But the message of this reportis that we are getting the fundamentals inplace and increasingly meeting ourstakeholders’ aspirations for the sort ofbusiness we should be.

There is an immense amount of positivework going on within the Group and sometremendous case studies set out here whichshow the kinds of practical difference ourcorporate social responsibility activity ismaking to communities across the UK.I hope that anyone who reads this reportwill share my optimism about our future.

Martin BeaumontGroup chief executive

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78% of NGO and CSRexperts said that companies’non-financial reports areessential to assess theirsocial and environmentalperformance. Source: MORI NGO Study 2004

Chief executive’s introduction Corporate social responsibility remainsfundamental to our future strategy as a successful co-operative business.

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customers

Business underperformance makes itessential that we continue to progress allelements of our Group strategy with evenmore determination, and with particular focuson meeting customers’ and members’ needs.

To succeed in today’s markets weunderstand that we must be a challengingand commercially successful business,passionate about our social goals and drivenby our co-operative values & principles todeliver a unique competitive edge.

Our strategic priorities cover all threeaspects of this virtuous circle.

Commercial SuccessPerformanceEstablish a successful portfolio of customerfocused businesses: Each with a clear andsustainable market position, achievingupper quartile performances and by sharingresources making the whole greater thanthe sum of the parts.

Wider GroupCapitalise upon the greater potential acrossthe Retail Trading Group and CFS byfocusing on cross selling opportunities,working in partnership to combineresources where effective.

FederalWork in partnership across the co-operativemovement to maximise our combinedstrength to improve results, enhance marketpenetration and achieve our social goals.

Social GoalsCommunityContribute to the good of every community,supporting community ventures, encouragingmembership and developing products andservices to meet local needs.

EthicalTo act as a business with integrity bychampioning the consumer, treatingeveryone we deal with fairly and workingproactively for a better environment.

RewardingReward the participation of our individualand corporate members with a sustainableshare of distributable profit, in the form ofan annual dividend.

Competitive AdvantageBrandBuild a compelling customer and memberproposition at Group and business level thatis guided by co-operative values, and delivera comprehensive brand strategy across theGroup and the movement.

PeopleThrough effective leadership, build acustomer orientated and results drivenorganisation with People Values at its core.

Our social goals strategy will form a majorpart in turning our business around bypresenting our customers with an excitingand alternative proposition. During 2005we will be reviewing our corporate socialresponsibility programme to ensure that itaccurately reflects our social goals agenda.

The review does not mean any relaxationin our commitment to corporate socialresponsibility but it will allow us to havea greater focus on key issues in clearalignment with our business objectives.

the Co-operative Group strategy: a business with integrity Corporatesocial responsibility will remaincentral to the long-term successof our business in the future.

socialgoals

commercialsuccess

competitiveadvantage

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Corporate social responsibility is anexpression of our co-operative identity andan integral part of how we do business. Ourchallenge is to ensure that we express ourvalues in a manner relevant to today’scorporate social responsibility agenda, andthus demonstrate that the co-operative wayof doing business is inherently responsible.

We are also a large organisation, operatingin diverse markets. Our aim is to ensure thatour approach both reflects emerging bestpractice and reporting standards and meetsthe needs of our individual businesses. Wewant to be as transparent as possible abouthow we do this.

Managing corporate socialresponsibilityThe basis of our approach to corporatesocial responsibility management is a setof common KPIs, outlined on page 9.

These were introduced in 2003 as anextension of our previous corporate socialresponsibility work which had includedstakeholder engagement. They wereinformed by our co-operative values &principles, the Group’s commercial, socialand environmental objectives, riskassessment and best practice.

Each of the common KPIs follows genericmanagement criteria to help us measureand assess the quality of the managementof each issue. Process areas and publishedimpact KPI data are audited by our internalaudit department (IAD).

Each of the process KPIs has associatedimpact KPIs to measure our direct impacts in those areas that are material to us. Theseindicators, which where possible are reportedon by each business individually, aredesigned to measure not only our impactbut also how effective we are at managingimprovement.

This combination of process and impactindicators aims to ensure that those issuesthat have been identified as material to ourbusiness are being managed effectively, in much the same way as we would anyother business issue.

Managing corporate socialresponsibility A complex businessrequires a systematic approach.

the Co-operativeGroup Board

the Co-operativeGroup Executive

Values & PrinciplesCommittee

Board Audit & RiskCommittee

DiversitySteering Group

Business Steering Groups

and IndividualChampions

Human ResourcesLeadership Team

Audit & RiskCommittee

Social GoalsSteering Group

Individual Executive responsibilitiesZoë Morgan, Group marketing director –community investment, environment & customersGuy McCraken, Chief executive Food Retail –human rights & supply chain (appointed May 2005)Richard Bide, Director of HR – employee issues

The Social Goals Steering Group is attended by senior representatives from each of the businessareas and has responsibility for providing internalgovernance over corporate social responsibility,environmental and community investment activity.

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co-operativesector

Commitment to AA1000AccountAbility’s mission is to promoteaccountability for sustainable development.As a leading professional institute,AccountAbility provides effective assuranceand accountability management toolsthrough its AA1000 series. It also offersprofessional development and certification,conducts leading-edge research andundertakes related public policy advocacy.

In 2003, AccountAbility launched the firstassurance standard in the area of sustainablemanagement and reporting, AA1000AS. It is a process standard based on a set ofcore principles relating to materiality,completeness and responsiveness.

The Co-operative Group is committed tousing the AA1000 series as a platform forunderstanding and developing best practicesocial and environmental accountabilitymanagement programmes. We haverequested that our external assuranceproviders use the AA1000 AssuranceStandard in their work.

GovernanceThis is our second consolidated corporatesocial responsibility report and we haveaddressed:

• the progress we have made since last year

• our commercial and social, ethical andenvironmental (SEE) objectives

• our performance• how we engage with our stakeholders• the issues that are material to the Group

and how we integrate social, ethical andenvironmental issues into our businessplanning and operations.

The Group Values & Principles Committee, a senior committee of the Board, overseesthe delivery of the corporate socialresponsibility programme. It is responsiblefor approving our overall approach,monitoring progress against commitmentsand approving this report.

At a Group level, and within CFS, there are dedicated management teams to co-ordinate our overall approach tocorporate social responsibility. We havealso established corporate level strategygroups to oversee implementation ofparticular management processes and,where necessary, business steering teams.

Policy and guidanceFor each issue that we have identified asmaterial at a Group level, we are working to put a clear policy in place based on thebusiness case.

A stakeholder panel will be used to canvassopinion on the direction of the corporatesocial responsibility programme and to helpadvise on business-specific and Group-widereporting.

Stakeholder responsivenessWe define stakeholders as those individualsand groups which are affected by, or whichaffect, our present and future businessoperations. We have identified thefollowing groups as stakeholders:

• individual members • corporate members• customers• employees • suppliers• the wider community.• the co-operative sector

Our core KPIs address our impacts on all ofthese stakeholder groups. We believe thatbeing responsive to each stakeholder groupwill be key to our commercial success.

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Managing corporate social responsibility (continued)

We have included a core KPI onresponsiveness to stakeholders to ensurethat at a business level we are effectivelymanaging those relationships. Each businessis asked to demonstrate the extent of itsdialogue with specific stakeholders. Thereare of course many more issues that arematerial to the individual businesses but thisreport concentrates on those issues that arematerial to the Group as a whole.

We welcome your feedback on both thecontent and format of this report. If youhave any comments or queries please eitherwrite or email; the addresses are printed onthe back cover of this report.

RiskThe introduction of the new operating andfinancial review and other corporategovernance-related legislation is puttinggreater demands on businesses to considernon-financial risks and opportunities.

We have already identified our mostmaterial non-financial impacts through thedevelopment of our core KPI set and we willbe reviewing the materiality of these KPIsvia a stakeholder panel during 2005.

The Group is also exposed to a complexarray of additional social, ethical andenvironmental (SEE) risks, many of whichare increasing in significance, driven bysociety’s changing expectations of business,the growing importance of intangibleassets and the direct impact social issueshave on commercial performance. Ourown commitment to corporate socialresponsibility also increases the salienceof these risks for us in particular.

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Corporate social responsibility management process

Common KPIs

Process indicator Associated impact indicator(s)

Social responsiveness Key stakeholder groups covered by process

Service effectiveness % of customers satisfied with service

Complaints

Environmental management CO2 emissions arising from operations and transport

Waste recycled/reused as % of total waste arising

Water consumption

Community investment % pre-tax profit

Employee conditions % annual rolling employee turnover

% of employees satisfied with employment

% of employees who are union members

Workforce diversity % of ethnic minority employees (management/general)

% of female employees (management/general)

Investors in People % of employees who are satisfied with training

Sustainable purchasing % of suppliers of goods and services monitored

% of invoices paid to agreed terms

Membership Proportion of turnover with members

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ppliers

We are developing systems to deal with SEErisks in the same way as any other businessrisk and we will use existing risk managementprocesses to do so. By engaging with ourcore stakeholders and continuallymonitoring these risks we aim to identifyany material impacts and issues for thebusiness and its stakeholders.

During 2005 we will seek to integrate SEErisks further into the risk managementprocess, to ensure that in 2006 we are ableto report fully on SEE risk in accordancewith ABI disclosure guidelines on socially

responsible investment and the newoperating and financial review legislation.

ReviewWe are committed to the AA1000 seriesand have assessed our alignment with thecore principles of AA1000 – materiality,completeness and responsiveness. Furtherinformation is set out on pages 40 to 41.

We have also made an assessment of ourprogress against the process indicators andthe ability of these to produce accurate and complete impact data, as outlined in

the table on page 10. The majority of our businesses have processes in place tomanage the areas we have identified asmaterial; however, our assessment is thatfurther work is required in many cases.

Internal assuranceEffective internal assurance of ourmanagement systems is an integral part of our approach, helping to improve thedesign and effectiveness of systems,strengthening controls and ensuring thecompleteness and accuracy of informationreported.

We target our internal audit work on those areas where systems are sufficientlydeveloped to benefit from assessment. We have, therefore, adopted a phasedapproach to assurance, based on a three-year rolling programme. CFS is excludedfrom the scope of internal audit’s workprogramme. The Co-operative Group hasmade significant investment in thecorporate social responsibility competenciesof its internal audit team, to improve theeffectiveness of their review.

External assuranceIn July 2003, on the recommendation of theGroup Values & Principles Committee, theBoard approved the appointment of ourexternal assurance provider, KPMG Audit plc,following a competitive tender exercise.

Process indicatorsSocial responsiveness to:Customers ✓ ✓ ✓ = ✓ ✓ = ✓ =Members ✓ = = = ✓ = = = =Employees = = = = ✓ = = = =Suppliers ✓ = ✗ ✗ ✓ = ✗ = ✗Communities = = = = ✓ = = = =Service effectiveness ✓ ✓ ✓ = ✓ ✓ = = =Environmental management = = = = ✓ = = = =Community investment = = = = ✓ = = = =Employee conditions ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓ ✓Workforce diversity = = = = ✓ = = = =Investors in People ✓ ✓ ✓ = ✓ ✓ ✓ ✓ ✓Sustainable purchasing ✓ = = = ✓ = = = =Membership ✗ ✗ ✗ ✗ ✗ ✗ ✗ ✗ ✗

† Co-operative Financial Services

employees

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Managing corporate social responsibility (continued)

The Group Audit & Risk Committee has putin place safeguards to ensure that theindependence of KPMG is notcompromised, including a policy on theconduct of non-assurance services to ensurethat there is no conflict of interest. Furtherdetails of these safeguards are set out in theannual report and accounts 2004, togetherwith details of all fees paid to KPMG.

KPMG has written to the Co-operativeGroup to confirm their independence inaccordance with the IFAC Code of Ethics for Professional Accountants.

Our external assurance provider has soleresponsibility for expressing an overallassurance opinion. Their work is carried outin accordance with the AA1000 assurancestandard.

Reading this reportThe information contained in this report,unless otherwise stated, is for the year ended8 January 2005. Further information on thefinancial performance of the Co-operativeGroup for this period is available in theAnnual report and accounts 2004.

www.co-op.co.uk

In this report we look at our major businessareas, and data includes wherever possible,acquisitions that have been part of the Co-operative Group for 12 months or more.We will continue to integrate our smallerbusinesses and recent acquisitions into thecorporate social responsibility programme.

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We have set out our overall approach tocorporate social responsibility and the planswe have to develop this. Our relationshipswith members, employees and the widercommunity are heavily influenced by ourcorporate approach and we have providedan overview of these. We also feature anumber of case studies that highlight someof the issues we face as a Group and howwe are dealing with them.

Each individual business has its ownsection in the report, containing anoverview of the business, what corporatesocial responsibility means to it, a summaryof its core KPI performance and examples ofhow the business is managing its social andenvironmental impacts.

We have also identified a number of areasof improvement and our plans to addressthese are set out in our Learning from ourassurance section. We have included aglossary on page 43.

More details on The Co-operative Bank andCIS can be found in the CFS sustainabilityreport 2004.

www.cfs.co.uk/sustainability2004

✓ Processes are in place and internal assuranceprocedures indicate that accurate and completeinformation is produced

= Processes have been developed, but progress needsto be made to ensure that information produced is reliable

✗ Processes under construction or work yet to begin

Progress with common KPIs

Closing the Loop‘Closing the Loop’ is an industry-leadinginitiative which links all elements of theorganisation including employees, suppliers,buyers and consumers. Normal office wastebins have been replaced by a series ofrecycling bins specific to individual material,including paper. All materials are weighedand sorted at a recycling centre at theGroup’s Manchester complex and thentransported by one of our paper productmanufacturers, Georgia Pacific, who has alocally-based pulping plant. Here the paperis pulped and then used to make Co-op100% Recycled Toilet Tissue, Co-op

100% Recycled Kitchen Towel and Co-opSoft Bathroom Tissue which contains 20%recycled paper. The recycled products arethen sold in our grocery stores throughout the UK.

Co-operation among co-operativesTillington Hills farm is situated in the Wye Valley in Herefordshire. Owned by theCo-operative Group, the farm has growncider apples and other fruits for over 150years. However, until recently, cider applesat the farm were grown only under contractto Bulmers, producer of over 65% of thecider consumed in the UK.

When some orchards came out of contractat the end of 2003, some very old varietiesof apple were at risk of being grubbed upand replaced with arable crops. Farmmanager, William Barnett, and the Co-operative Group’s retail drinks departmentdecided to produce the Society’s very firstexclusive Tilllington Hills Premium DryReserve Cider from these rare apples.Tillington Hills cider is a bitter sweet drinkdue to the balance of sugars, acids andtannins in the juice of the apples, a purelynatural drink without the use ofconcentrates, flavourings, artificialsweeteners or colourings. It was available in Co-op stores at the end of 2004 and willbe re-introduced mid-2005.

Customers Who CareAs part of its Customers Who Care (CWC) programme the Bank continued to campaign for Safer Chemicals in 2004. The campaign reflected customers’ supportfor the Bank’s Ethical Policy position onchemicals and their trust in the Bank tocampaign on their behalf.

Since its launch as a one-off charitydonation scheme in 1994, Customers WhoCare has evolved considerably but listeningto and involving customers is still central to the scheme. In late 2004, as the Bank’sactive campaigning for Safer Chemicalscame to a close, over 11,000 customersvoted for their preferred charity beneficiaryin the annual CWC charity vote.

In January 2005, the Bank donated over£112,000 to five charities to continue theirwork for safer chemicals. In the year thatmarked the 20th anniversary of thechemical plant disaster in Bhopal, almosthalf of customers (48%) voted for theBhopal Medical Appeal (BMA). In line withthe percentage of votes received, the Bankdonated £50,000 to BMA to fund a solar-powered generator and medicalsupplies for a new clinic for survivors.

Case study Protecting our environment – a world of opportunity

When asked: Is it very important that businesses minimise pollution?

67% said ‘yes’Source: Shopping with Attitude Survey, NOP 2003

Member economic participationMembership lies at the heart of our co-operative difference. Meeting the needsof our members and enabling them toinfluence and determine the way we dobusiness is not something we simply chooseto do – it is what we were created to do.

The Co-operative Group is also in a uniqueposition. We have two types of member.Firstly there are corporate members – otherco-operative societies that established theCo-operative Group’s predecessor, CWS.Today the Group has 142 corporatemember societies.

Then there are the individual consumermembers – people who trade with theSociety and who share our commitment toco-operative values. Membership is open toanyone who is 16 years or older and whoinvests £1 in the Society.

In 2004, 137,847 customers were recruitedas members, taking the Society’s number ofpotentially active members to 1.4m. 63,865people are registered on the members’network. The Society is keen for people to register on the network as this is thegateway to playing a more active role.

In 2004 a campaign to encourage all of the Group’s 68,000 employees to becomemembers was launched – those joiningreceived a one-off share of the Group’sprofits worth £20 before tax. As a result,the number of employees who are alsomembers rose from approximately 8% to over 50% in a matter of weeks.

The second activity was the payment of a flat rate £10 share of our profits to allmembers who traded with us who we were able to contact. This resulted in over650,000 members receiving a payment. This payment is intended to be theforerunner for the introduction of anindividual members’ dividend based on how much members have actually tradedwith the Society over the year.

Democratic member controlIndividual members can stand for electionto one of our 50 area committees. The areacommittees elect both the regional boardmembers and 17 of the 28 main Boardmembers (the other 11 members areelected by our corporate members).

Members’ meetings are held twice a yearthroughout the country and in 2004, 4,235members attended.

The Society is keen to encourage membersto stand for election to area committeesand, in 2004, this led to 26 out of 50 areashaving contested elections. Ballot paperswere issued to 185,891 members, withvotes cast by post or via the internet.

The demographic profile of our electedmembers does not currently reflect thediversity of the communities we serve. To improve this, a Membership DiversityWorking Group has been established and a membership diversity officer recruited. Arange of activities has taken place over thepast 12 months including the organisationof a national diversity conference, thecreation of networks for women and BME(Black and Minority Ethnic) members andthe development and delivery of diversitytraining for elected members.

In addition a comprehensive programme of other learning and developmentopportunities is provided for our electedmembers, to ensure they have theknowledge and skills required to fulfil theirresponsibilities.

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Membership We want to expandour membership to include everyonewho does business with us.

Member participation 2003 2004

Number attending meetings 4,076 4,235

Votes cast in elections 21,180 24,555

Vacant seats 26 26

Member diversity statistics 2003 2004

Committee members 627 634

Female 244 241

Male 383 393

Average age (years) 56 58

Ethnicity (BME) 11 11

Membership 2003 2004

Active members 1.2m 1.4m

Annual recruitment 95,831 137,847

Members’ network 58,754 63,865

Committee training 2003 2004

Courses run 118 63

Places taken up 939 584

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membersWider membership participationThere is much more to membershipinvolvement than participating in ourgovernance process. Our area committeesand eight regional membership teams arecharged with developing and deliveringactivities that draw their inspiration fromthe seven co-operative principles.

At regional level, scores of activities wereorganised during Fairtrade Fortnight andthese were supplemented throughout theyear by the organisation of conferences,concerts and campaigns in support of theinitiative.

Opportunities for members to learn moreabout the Society are publicised in everyregion and form a key part of our memberdevelopment strategy. Many regionsorganise Welcome events for new members, often held in conjunction withthe Society’s businesses. Know your Co-opdays have also been held across the country,giving members the chance to understandmore about the Co-operative Group, ourvalues & principles and our place in thewider movement.

Hundreds of new relationships are forgedevery year between the Society and like-minded organisations through thedistribution of Community Dividend grantsin every region. Progress has also beenmade in developing a profile amongyounger people, through well established

activities such as the Woodcraft Folk andCo-operative Young Film-Makers and newerinitiatives such as Young Co-operatives andSupporters’ Direct.

New audiences have also been touchedthrough the Society’s involvement in Prideand Mardi Gras events in Manchester andCardiff, a number of Melas as well as moretraditional events such as the DurhamMiners’ Gala and events to celebrateInternational Co-operative Day in NewLanark and in Coin Street, London.

Our community investment strategy targets support at co-operative, self-helpand community groups in the areas inwhich we trade.

We measure our support for the communityusing a recognised leading standard, theLondon Benchmarking Group (LBG) model,which includes both cash and in-kinddonations. These figures include all Co-operative Group units across the UK, but exclude commercial and artssponsorship with direct marketing orcommercial benefits as well as support forthe wider co-operative movement (unlessthis has a clear charitable purpose) andparty political donations.

In 2004, the Group’s contributions to thecommunity were £7.3m, with a further£1.9m leveraged as a result of our efforts.The Group made community contributionsequivalent to 3.2% of pre-tax profit beforeexceptional items and goodwill.

On the basis of these calculations, the Co-operative Group qualified for theBusiness in the Community (BitC) Per CentStandard, reserved for businesses thatcontribute more than 1% of their profits

to community causes. We have adopted the Per Cent Standard as a minimum target forour annual community contributions.

Self-help and community groupsCo-operative Group Dividend cardholderscan donate their ‘spare pennies’ – thebalance left after they receive their twice-yearly payout in full pounds – to theCommunity Dividend scheme, rather thanrolling the balance over to the next payout.

The scheme awards small grants tocommunity projects in areas where wetrade. In 2004, 1,710 local communitygroups benefited, with total awards of£1.14m.

More than 3,000 Co-operative GroupDividend partner cards have enabledfamilies, community groups and charitiesacross the UK to pool cash earned throughthe Dividend scheme. Partner card payoutsto date total £93,830.

The development of our Community FoodDiscount Card scheme, administered by theregional membership teams, meant a savingof £11,123 to 74 community groups ontheir food shopping bills in 2004.

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community

Community investment Gettinginvolved in the community is anintegral part of the way we dobusiness – and we work with ourmovement and our members tomake a difference.

EducationThe Co-operative Group has issued 200Cash for Schools cards raising a total of£10,940 for 54 schools across the UK. The Cash for Schools scheme allowsDividend cardholders to donate the wholeamount of Dividend earned to a localschool. Beneficiaries include LowdhamChurch of England primary school inNottingham, which has partnered 24 cardsand has received over £6,000 since joiningthe scheme.

In April 2004 CIS launched an EnterpriseEducation pack as a resource for Citizenship& Business Studies at Key Stage 4. The packhelps teachers and students through actioncards designed to encourage thought anddiscussion around four key areas: TheBusiness, Marketing, The Product andRunning the Business. The EnterpriseEducation pack was requested by around3,000 secondary schools, over half of all UK secondary schools.

The Co-operative Group sponsored eightschools, one in each of the Group’sdemocratic regions, to become Business &Enterprise Colleges under the Government’sspecialist schools programme.

Social inclusionThe Co-operative Bank and CIS havesuccessful, award-winning partnerships with a number of community organisationsand charities supporting disadvantagedcommunities and promoting inclusion.

Community involvement 2003 2004£m £m

Community investment total* 8.1 7.3

Community dividend 1.1 1.1

Support for co-ops 1.2 2.1

Leveraged support 3.8 1.9

* using LBG definitions

Community investment* £m

Financial support 4.4

Employee time 1.3

Gifts in kind 0.6

Management costs 1.0

Total 7.3

Value distributed to customers, members and community 2003 2004 2004Note £m £m %

(1) Members’ dividend 26.5 24.8 41

(2) Loyalty dividend 30.0 30.0 49

(3) Support for the co-operative sector 1.2 2.1 3

(4) Political support 0.5 0.6 1

(5) Charitable and community support 6.8 3.9 6

Value distributed 65.0 61.4 100

These distributions arise from the following analysis:

Value added 2003 2004£m £m

Income from customers 8,132.3 7,763.1

Less payments for materials and services (6,214.4) (6,019.9)

Value added 1,917.9 1,743.2

Analysis of value distributed 2003 2004 2004£m £m %

Employees’ wages and other benefits 1,128.3 1,189.7 68

Government taxes, rates, National Insuranceand unrecoverable VAT 218.7 200.5 12

Customers, members and the community 65.0 61.4 3

Providers of capital 35.7 34.5 2

Set aside for future growth 470.2 257.1 15

Value distributed 1,917.9 1,743.2 100

Notes(1) Paid to members based on purchases across the Group(2) Paid to retail customers based on purchases in store(3) Includes affiliations, subscriptions and donations to federal co-operative organisations including Co-operativesUK,

International Co-operative Alliance, co-operative councils, Mutuo and others(4) Includes donations to Co-operative and Labour Parties(5) Includes donations to Co-operative Action and a wide range of local and national charities and community projects

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In January 2005 the Bank launched itsresearch entitled ‘Would you credit it?’written by Paul Jones and Tina Barnes, of Liverpool John Moores University andsupported by Citizens Advice, calling on the Government to work with the financialservices industry to develop financialeducation for consumers on low incomes.Measures to implement the findings of theresearch are now being devised, and thesewill include continued support for theBritish credit union movement.

Customers Who CareThe Co-operative Bank’s Customers WhoCare campaign continued to focus on saferchemicals. Working with WWF-UK, thecampaign targeted persistent and bio-accumulative chemicals that may pose athreat to human health and the environment.The campaign was recognised by theBusiness in the Community’s ‘Big Tick’Award for Cause Related Marketing.

Co-operative sectorThrough partnerships with other co-operatives, we seek to work for thelong-term success of the co-operative

sector, and actively promote co-operation –both nationally and internationally –through representative bodies, including the International Co-operative Alliance, Co-operativesUK and the Co-operative Party.

The Co-operative Group contributed £2.1m to co-operative organisations in 2004.

The Group continued to manage Co-operative Action with the aim ofencouraging the development of co-operative solutions to business andcommunity issues. In 2004, Co-operativeAction made grants and loans worth £1.3mto 29 projects ranging from mutual homeownership and recycling to employee buy-outs, community ownership models for primary schools as well as Sure Startchildren’s centres.

2004 saw the launch of Co-operativeAction’s first publication, Co-operativeCapital, which sets out groundbreakingproposals for a co-operative venture capitalfund, an ethical exchange trading in co-operative capital as well as new legalmodels for co-operatives.

Value addedWe continue to monitor our value added –a measure of the wealth created by ouractivities – and how this is distributed. Our total value added fell slightly in 2004from £1.917.9m to £1,743.2m, a decreaseof 9.1%.

Future development During 2005, we intend to further developa framework for community investment forour trading businesses which reflects oursocial goals and builds on our communityinvestment management systems.

+ /(-)%Income £7.8bn (4.5)

Operating profit £243.7m (26.0)

Employees 69,611 (9.4)

Trading units 3,205 1.5

www.co-op.co.uk

• We launched Shopping with Attitude,the biggest independent consumerstudy into the ethics of the foodindustry.

• We became the UK’s largest Fairtradecoffee retailer and were the firstsupermarket to be awarded BUAV’s new cruelty-free standard.

• Guardian and Observer readers namedTravelcare as their favourite major highstreet travel agent.

• Co-op Pharmacy acquired 50pharmacies.

• CFS won the ACCA award for best UK Sustainability Report and was alsojudged best sustainability report at theEuropean Sustainability ReportingAwards.

the Co-operative Group Our vision is to be the world’smost successful consumer co-operative business.

2004 was a difficult year for the Group asour financial results have demonstrated.However corporate social responsibility andthe management of social and environmentalimpacts has remained key to our business.

We are moving away from the developmentstage of our programme to the embeddingstage. This will involve working with ourbusinesses to ensure that all processes andimpact indicators are established and thattarget setting is introduced to the businessplanning process.

We have made a great deal of progress inmany areas, although this has not been asrapid as we would like. We have not yetbeen able to include comparative orbenchmarking data although we hope to be able to do so as the systems mature.Detailed over the page is an overview of the Group-wide progress we have madeagainst our core management processes.

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A responsible business

Highlights

Social responsiveness As a consumer-owned business we generally have welldefined processes for responding to theviews of stakeholders, particularly membersand local communities through ourdemocratic structure, and with customersthrough market research and customerservices. During 2004 we appointed a headof colleague engagement to increase levelsof engagement with employees. Our ‘RetailTherapy’ programme, run in conjunctionwith Envirowise, has enabled us to work with suppliers to help them improve theirenvironmental performance.

Service effectiveness With the majority of our businesses customer-facing, serviceeffectiveness is a high priority. The majorityof businesses have processes in place todeliver high quality customer service. Areview in 2004 highlighted the need forsome businesses to have a more systematicapproach to monitoring customer satisfactionand complaints. We have begun to addressthis by introducing client surveys to thosebusinesses where they did not previously exist.

Environmental management The majorityof businesses within the Group are nowputting environmental management systemsin place. During 2004 we undertook a majorpiece of work with the Carbon Trust to helpreduce our carbon emissions. We also wonan award for our ‘closing the loop’ paperreprocessing. Also during 2004, CFS becamecertified to ISO14001 and in early 2005 ourhead office complex was also awardedISO14001 certification. Throughout 2005 wewill continue to strengthen our environmentalmanagement systems and further improveour data collection processes.

Community investment Much of thecommunity investment activity across theGroup is undertaken on behalf of thebusinesses by corporate functions. We usethe London Benchmarking Group model tomeasure our community investment andrepresent it as a percentage of pre-tax profit.Where a business has made a loss, or is acost centre, this is represented as a negativefigure. A review highlighted the need forincreased business level co-ordination andthe development of systems to ensure

sufficient control and data capture. Toaddress this we have revised our communityinvestment strategy, which we will be rollingout during 2005.

Employee conditions The Co-operativeGroup looks to offer rewarding and excitingcareer opportunities. We have in place clearemployment policies and practices, which setout what we expect from employees andprospective employees. During 2004 weundertook an employee satisfaction survey to establish employee views of the Group,excluding CFS. Over 53% of our colleaguesresponded to the survey compared to only19% in 2003. It showed us that althoughcolleagues were generally happy to work withthe Co-operative Group, they wanted morefreedom to deliver outstanding service totheir customers. We will be working hardthroughout 2005 to address this and other issues.

A review of employee conditions carried outby our internal audit function noted thatthere is a working relationship with tradeunions, which is supported by our chiefexecutive.

The Group has also entered into apartnership with Solutions to offer anEmployee Assistance Programme whichoffers free advice and counselling support.

2004 also saw the continued development of our People Values initiative across theGroup, including the launch of our DiamondRecognition Scheme through whichcolleagues can be nominated for outstandingperformance.

To ensure effective monitoring of employeeconditions the HR Leadership Team meetsmonthly and report to the Board on aquarterly basis.

Workforce diversity During 2004 werecruited a head of diversity to develop andimplement a diversity programme across theGroup. A diversity policy and strategy hasbeen developed which will be supported bya number of projects and initiatives. During March 2004 following changes to the categorisation of ethnicity data in line

with the national census guidelines, HRstarted collecting ethnicity data for all newstarters. In time, the sample size will increaseas we approach the businesses for data onexisting colleagues and therefore give usgreater confidence over the data we reporton. Aside from Farmcare where moredetailed information was held for casualworkers, the sample used to identify ethnicityin this report relates only to new starters forwhom we hold information.

Investors in People We have Group-wideInvestors in People accreditation. At abusiness level, systems in place are generallysatisfactory with the exception of Co-opPharmacy which has been placed on aretention plan.

Sustainable purchasing A process that can be applied across the Group has beendeveloped and will be implemented during2005. The process enables us to screen allsuppliers of goods-not-for-resale againstsocial, ethical and environmental criteria. This allows us to more effectively managerisks within our supply chain whilst alsooffering the opportunity to encourage bestpractice in social and environmentalperformance. Food Retail and CFS havealready implemented systems to screensuppliers against social, ethical andenvironmental criteria.

Membership In 2004 we’ve made aprovision to distribute £9.8m to individualmember customers. We are developing aGroup Dividend where members will be paida dividend on trade with all customer-facingbusinesses. This will allow us to accuratelybegin reporting in this area.

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Group overview of key performance indicators

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Food Retail Aiming for sustained leadership of thetop-up shopping market.

+ /(-)%Food sales £3,438.8m 11.7

Food operating profit £74.5m (34.3)

Food shops 1,787 1.8

Department stores* 39 –

Non-Food sales £151.3m (12.1)

Non-Food operating profit (£0.3)m –

Employees 45,697 (10.1)

* in early 2005, Department and Home storesbecame part of Specialist Retail Division

www.co-op.co.uk

• Our long-term commitment tocommunity convenience stores wasillustrated by the acquisition of over 80 stores in 2004.

• In 2004 we invested £30m in refitting238 stores, as well as piloting newformats in 13 locations.

• We opened new stores, including a £5mstore in Woolston, a £2.5m store inStudley and new format conveniencestores in Hull, Cambuslang and Ashford.

• We were awarded the title of Retailer of the Year for Innovation at theInternational Wine Challenge inrecognition of our work in developingFairtrade wine.

• We distributed over £1m of ourcustomers’ ‘spare pennies’ from ourloyalty card to good causes in thecommunities where we operate.

The Co-operative Group operates as abusiness with integrity which is deliveredwithin Food Retail through our policy ofresponsible retailing. Retailing is a highlycompetitive sector. Our business propositionrests on a strong position in theconvenience and top-up market – withmodern, innovative stores and ranges –complemented by an emphasis onresponsible retailing which both creates an obvious point of difference withcompetitors, and addresses key interestsand concerns held by our members. Webelieve that business activities should takeaccount of a wider social agenda, and thatconsumers increasingly look to see theirvalues expressed in the food and goodsthey buy.

The development of our Fairtrade productrange supports the principles of equitablebusiness and co-operation amongst co-operatives as we work alongsideproducer co-operatives in developingcountries, supporting their access to theworld market and sustainable trade.Elsewhere, also in line with our values, our product labelling policy has longcampaigned for open and honestinformation that helps consumers makeinformed choices when shopping. Both of these activities have received significantexternal coverage and recognition,strengthening our co-operative brand in the eyes of consumers.

Workshops with suppliers in the UK haveexplored new ways of reducing pesticideuse. Other workshops in Spain, China andColombia have helped suppliers improveconditions for workers making Co-op brandproducts.


Highlights

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Process ✦✧ Impact measure PerformanceSocial responsiveness Stakeholders covered ●●●●●Service effectiveness ✦ Customer satisfaction 1 68%

✧ Customer complaints 2 51,344 Environment ✧ CO2 334,419 tonnes

✧ Waste recycled/reused 3 56% ✧ Water consumption 4 885,390m3

Community investment ✦ % pre-tax profit 1.6% Employee conditions ✦ Employee turnover 41%

✦ Employee satisfaction 5 77%✦ Union membership 6 31%

Workforce diversity Ethnicity 7

✧ Ethnic minority employees 8 7.1%✧ Ethnic minority managers 9 0.2%

Gender 10

✦ Female employees 11 57%✦ Female managers 12 7%

Investors in People ✦ Satisfaction with training 13 72% ● Customers ● Suppliers ✦ Internal assurance procedures indicate that accurate and complete ● Members ● Communities information is produced● Employees ✧ Progress needs to be made to ensure that information produced is reliable

Responsible retailingOur 2004 Shopping with Attitude reportinvestigated consumer concerns about thefood industry. Having consulted almost30,000 consumers and Co-operative Groupmembers, we were able to develop ourown Responsible Retailing strategy to reflecttheir concerns. Consumers and memberswill continue to be involved through ourexpert advisory panel, which is helping toshape polices and activities.

Greener road transportRoad transport is often the only viablemeans of reaching our stores, many ofwhich are in isolated areas of the country,but road transport has a significant impacton the environment, and we are working toreduce this. In 2004 we began the processof redeveloping our depot and distributionnetwork to create a more effective system,

reducing the distances travelled. We alsointroduced 60 vehicles that use compressednatural gas (CNG) fuel, with two dedicatedfuel depots, contributing to significantlyreduced vehicle emissions. These are beingevaluated, with the intention to expand theuse of CNG widely across our fleet.

Notes1 Figure relates to % of people who rated Co-op

food stores 6+ out of 10. Based on annualresearch carried out by RDSI research.

2 Figure includes both product and servicecomplaints.

3 Figure includes CRTG waste.4 Figure is based on estimates. 5 All Co-operative Group employees were surveyed.

Figure based on a 50% response rate for Retail.6 Figures only available for those whose

subscriptions are paid direct from wages.7 Figures based on those individuals for whom we

hold information.8 Figures represent ethnic minority non-managers as

a % of total workforce.9 Figures represent ethnic minority managers as a

% of total workforce.10 Figures based on those individuals for whom we

hold information.11 Figures represent female non-managers as

a % of total workforce.12 Figures represent female managers as a % of total

workforce.13 All Co-operative Group employees were

surveyed. Figure based on a 50% response rate for Retail.

Case studies

Performance overview

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Travelcare Aims to be the most dynamic travel service provider, trading across multi-channels as the customers’ champion.

+ /(-)%Sales £105.5m 36.1

Operating profit £1m* 900.0

Trading units 368 (4.9)

Employees 2,235 2.0

Passengers 1.191m (2.4)

www.travelcare.co.uk

• Travelcare was voted the favourite majorhigh street travel agent in theGuardian/Observer 2004 Travel Awards,and best online travel agent at theTravel Trade Gazette Awards.

• Our Travel Money and Flightdeskbusinesses continued to show a healthyprofit.

• Two direct businesses were acquired:Medinland which sells via teletext andthe internet, and Magic Breaks whichconcentrates on the affinity and mediamarkets.

• We launched the Travelcare Credit Cardin conjunction with The Co-operativeBank which has been a great success.


Highlights

The travel industry continues to change atan even faster pace than experts predicted.Customers are demanding more flexibilityand varied travel products together with theoption of booking face to face, bytelephone or over the internet. Technologyis the key enabler to ensure that travelbusinesses can react and stay ahead of thechanging face of the industry.

During 2004 Travelcare invested heavily intechnology and implemented new bookingand selling systems across its business. Thesenew systems enable Travelcare to offercustomers today a much improved overallbooking experience, as well as ensuring thatTravelcare is well placed to capitalise on thechanging marketplace. The systemssimultaneously search multiple holidaycompanies meaning Travelcare can still offerthe widest holiday choice but in a moreefficient and effective manner.

Travelcare has continued to invest in directchannels, acquiring two new businessesduring 2004, Medinland and Magic Breaks.Travelcare has also relaunched much

improved websites for travelcare.co.uk andcheapestflights.co.uk.

Travelcare has, through selected holidaycompanies, collected monies for the TravelFoundation who sponsor and lead manyprojects to minimise the impact tourism hason the environment. Training programmeswere completed and many initiatives wereimplemented to help Travelcare become moreaccessible to less able bodied customers.

Many other initiatives were put on holdduring 2004 but are now firmly back ontrack and are scheduled for completion in2005. An environmental working group hasbeen set up in order to focus on a numberof high profile projects. The opportunity tooffer customers more than just a packageholiday is a key focus, together withenhancing and making Travelcare’s offeronline more effective and customer friendly.Employee recruitment, reward and retentionstrategies will be redefined and updated inline with market changes in order to protectand retain Travelcare’s motivated andengaged workforce.

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Process ✦✧ Impact measure Performance Social responsiveness Stakeholders covered ●●●●Service effectiveness ✦ Customer satisfaction 1 69.65%

✦ Customer complaints 2 766 Environment ✧ CO2 3 1,036.7 tonnes

✧ Waste recycled/reused 4 0.01% ✧ Water consumption ✗

Community investment ✦ % pre-tax profit 0.05%Employee conditions ✦ Employee turnover 24%

✦ Employee satisfaction 5 82% ✦ Union membership 6 14%


✧ Ethnic minority employees 8 4.5%✧ Ethnic minority managers 9 0%

Gender 10

✦ Female employees 11 62% ✦ Female managers 12 24%

Investors in People ✦ Satisfaction with training 13 71% ● Customers ● Suppliers ✦ Internal assurance procedures indicate that accurate and complete ● Members ● Communities information is produced● Employees ✧ Progress needs to be made to ensure that information produced is reliable

✗ Data unavailable

Notes1 Derived from Mystery Shopper Programme.

Excludes Cheapestflights and Just Flights.2 Equivalent of 0.2% passengers booked.

Excludes Cheapestflights, Just Flights and supplied related complaints.

3 Energy consumption data only available for siteson national contracts. Transport data based onlyon Society mileage.

4 Based on paper recycling only.5 All Co-operative Group employees were surveyed.

Figure based on 71% response rate for Travelcare.6 Figures only available for those whose

subscriptions are paid direct from wages.7 Figures based on those individuals for whom we

hold information.8 Figures represent ethnic minority non-managers as

a % of total workforce.9 Figures represent ethnic minority managers as a

% of total workforce.10 Figures based on those individuals for whom we

hold information.11 Figures represent female non-managers as

a % of total workforce.12 Figures represent female managers as a % of

total workforce.13 All Co-operative Group employees were surveyed.

Figure based on 71% response rate for Travelcare.

Transparent pricingResearch with customers has indicated thatthere is a growing frustration in the waythat tour operators price their holidays,especially late bookings. Travelcare togetherwith the other members of Co-operativeTravel Trading Group (CTTG) have exposedthese practices and have launched acampaign for more transparent pricingstrategies to be adopted across the industry.All members of CTTG already display

holidays, including all compulsorysupplements, in their branch windows inorder to be totally open and honest withcustomers. CTTG is campaigning to not onlyrequest that tour operators include thesesupplements in their basic brochure pricesbut also that other travel agents advertisethem correctly across all channels tomarket. Currently compulsory supplementscan add up to 10% to the advertised prices.

The Holiday ReportFor the last six years Travelcare’s Holiday Reporthas provided the only way for the public tomeasure how well they are being treated bythe UK’s largest suppliers of package holidays.This year’s report is the most comprehensiveever, drawing on the records of all five Co-operative travel businesses and a sample of over one million travellers.

The Co-op’s independence gives us thefreedom to present an unbiased account

of the experience of UK holidaymakers. It helps identify what the industry is doingwell, what it needs to do better andhighlights areas where consumer protectionneeds to be increased. The Co-op believesin giving its customers the facts they needto help them make an informed choice.

Overall the findings are positive withcomplaints against major tour operatorsfalling and only 0.23% being made aboutmembers of CTTG.

Case studies


Business salesThe Co-operative Group is a diverse rangeof businesses operating in a dynamiccommercial environment. We need toensure that we are in businesses that bestmeet our members’ interests and where wehave the opportunity to be truly successful.

The dairy industry has gone throughsignificant change in recent years andconsolidation has resulted in fewer andbigger players. After extensive consultationwith stakeholders, we decided thatremaining in the sector was not sustainablein business terms.

During 2004 we sold our dairy business,Associated Co-operative Creameries (ACC)to the Dairy Farmers of Britain. Theopportunity to sell to another co-operativeenterprise was an attractive proposition andwe have got the best deal we can formembers, employees, customers andconsumers alike.

We also have a clear policy of continuing tomake acquisitions in areas – such as foodretailing, travel and pharmacy – where wesee potential for expansion on the basis ofan existing strong commercial position. Itmakes sense to divest ourselves ofunderperforming businesses to raise fundsand free capital for promising investments.

OffshoringThe practice of offshoring within all sectorsis becoming increasingly commonplace as aresult of lower labour and operational costs.The practice is particularly common in thecase of telephone call centres.

CFS operates a number of call centres inNorth West England and firmly believes thatstaff are key to delivering the quality ofservice that customers come to expect.Because of quality concerns, CFS will not beoutsourcing front-line services to overseascall centres. Instead CFS will create anadditional 500 call centre jobs, all in theNorth West.

CIS’ modernisation programmeCIS has launched a modernisationprogramme in response to market andeconomic changes to ensure its future as aprofitable and growing operation with adistinctive customer service proposition.

CIS is not immune to the intensifyingeconomic and competitive pressuresoccurring in its core markets and we needto take action now to ensure a vibrant,successful and sustainable future for thebusiness.

An estimated 2,500 jobs are to be lost aspart of the process. We hope that many of the redundancies can be achieved bynatural turnover, voluntary redundancy and redeployment within the co-operativemovement.

By taking action now we will be betterplaced to fulfil our co-operative mandate of meeting the needs of millions of UKhouseholds, helping to bring savings,investments and insurance to the widersociety, not just to the better off segmentsof the population.

Case study The changing business environment

90% of NGO and CSR experts thinkthat the Co-operative Group takes its responsibilities seriously.Source: MORI NGO study, 2004

Case study Diversity initiative

Engaging our diversity brings realresults in managing our business

Diversity WorksWithin the Co-operative Group, we valuethe attributes and experiences of everyonewe have contact with, whether they areone of our employees, one of our membersor one of our customers. At the beginningof 2004 we decided to take a morestructured approach to diversity both as aninternal and external issue.

The first step was the creation of a diversitystrategy – recently approved by ourmanagement and Board – that works for usas a business. We recognise that the talent,contribution and commitment of our peopleare key to achieving our business aims andwe know that we can get the maximumresults from a more diverse culture. We alsoknow that we want to provide customers ofall backgrounds with goods and services,and we can best do that if we ourselvesreflect the communities we serve.

We can only really make progress if wehave the governance in place to drive adiversity initiative through the business,through formal and informal mechanisms.Formally, we have a Diversity SteeringGroup whose members represent theexecutive, the Board, the Values & PrinciplesCommittee and the operational andcorporate areas of the Group. It is thisSteering Group that will approve and directour diversity progress.

Our progress in 2004 has not just beenabout establishing strategy. We have realachievements on the ground to point to.The Sholing, Totton and Shirley branches ofthe Co-operative Group were awarded theBest Large Retailer Award for their ease ofaccess for customers with disabilities by theSouthampton Centre for Independent Living.

CFS made significant progress in recruitingpeople from ethnic minorities in 2004, withthe proportion of employees increasing to5.2% at the Bank and 3.6% at CIS. Overthe last five years, numbers have almostdoubled at the Bank, with most of thisincrease resulting from recruitment to front-line positions; employees from ethnicminorities now account for 7% of branchand 8.6% of all customer servicesemployees.

The Society sponsored Manchester Prideand Cardiff Mardi Gras, generating muchbusiness interest from gay, lesbian and bisexual people. The Group has been listedin the Stonewall Top 100 employers for gaypeople in Britain.

Along with 10 other significantorganisations, we are founder members ofthe Employers Forum on Belief where weshare best practice in relation toemployment of mixed faith groups.

We cannot make further progress withoutmeasuring where we are and knowing whatopportunities exist to make improvements.To understand what we do well and wherethe opportunities are, we have developed ameasurement framework and haveidentified some key priorities for 2005:

• We will take forward the measurementframework and, in particular, developmore external benchmarks. This willallow us to understand the gaps andopportunities clearly.

• We will begin to prepare for theforthcoming age discriminationlegislation recognising that we will needto make changes in our policies andpractices to support it.

• Later in the year, we will review ourflexible working programme and launch‘Flexibility Works’.

• We have initiated ‘Respect Works’, a programme to improve policies,processes and training to removebullying and harassment from theGroup.

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Co-operative Funeralcare Aims to be nationallyrecognised and acknowledged by its clients as theUK’s number one funeral services provider of choice.

+ /(-)%Sales £172.7m 0.6

Operating profit £16.3m* (10.4)

Trading units 592 (15.6)

Employees 2,961 14.1

Funerals 80,520 (5.8)

* before exceptionals

www.funeralcare.co-op.co.uk

• More than 320 branches have benefitedfrom a £8m refurbishment programme.

• Three independent businesses wereacquired in Eastbourne, Farndale andBurry Port.

• Pre-payment plans sold in conjunctionwith CIS now attract loyalty dividendpoints as well as discounts being offeredto members.

• Funeralcare launched its ‘Real Funerals’initiative, designed to get peoplethinking about what they really want for their funeral.

• We were a finalist at the UK charityawards for corporate communityinvolvement after a number ofsuccessful fundraising campaigns.


Highlights

Operating as a co-operative within theFuneralcare market provides as manychallenges as opportunities.

Funeralcare has an established practice,aligned to the co-operative values ofoffering funerals to all. One of the negativeissues that this creates is significantly higheramounts of debt, especially associated withclients who have stretched themselves toprovide a fitting tribute to their loved one.Whilst retaining the practice of offeringfunerals to all, Funeralcare has implementedpolicies to more closely manage this debt, toboth ease the burden on those customerswho are in debt and to reduce the financialimpact on customers who pay in full and on time.

Additionally, Funeralcare has launched andwill continue to launch additional productsaimed at reducing the burden on thebereaved following the death of a lovedone. A key example of this is ‘Expression ofWish’ which provides customers with theopportunity to register their wishes for theirfuneral without the full financial commitmentof purchasing a pre-payment plan.

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Process ✦✧ Impact measure PerformanceSocial responsiveness Stakeholders covered ●●●●●Service effectiveness ✧ Customer satisfaction 1 89.7%

✦ Customer complaints 2 2,621Environment ✧ CO2 13,117.6 tonnes

✧ Waste recycled/reused 3 36% ✧ Water consumption ✗

Community investment ✦ % pre-tax profit 2.03% Employee conditions ✦ Employee turnover 12%



✧ Ethnic minority employees 7 0% ✧ Ethnic minority managers 8 0%

Gender 9

✦ Female employees 10 40% ✦ Female managers 11 2%

Investors in People ✦ Satisfaction with training 12 68%● Customers ● Suppliers ✦ Internal assurance procedures indicate that accurate and complete ● Members ● Communities information is produced● Employees ✧ Progress needs to be made to ensure that information produced is reliable


Notes1 Figure derived from feedback forms.2 Excludes NEC Funerals.3 Production and clinical data only. Clinical data

based on DETR guidance on typical weights ofcontainers.

4 All Co-operative Group employees were surveyed.Figure based on 32% response rate forFuneralcare employees.

5 Figures only available for those whosesubscriptions are paid direct from wages.

6 Figures based on those individuals for whom wehold information.

7 Figures represent ethnic minority non-managers asa % of total workforce.

8 Figures represent ethnic minority managers as a% of total workforce.


10 Figures represent female non-managers as a % of total workforce.

11 Figures represent female managers as a % of totalworkforce.

12 All Co-operative Group employees were surveyed.Figure based on 32% response rate forFuneralcare employees.

We’re listeningTraditionally, getting people to discuss theirrequirements, expectations and desires fortheir own funeral has proved a sensitive anddifficult issue. Funeralcare, through aninnovative promotional campaign, has notonly captured the views of a significantnumber of people but also communicatedthe range of possibilities open to individuals.

During 2004 a promotional activity waslaunched which resulted in beer mats beingproduced and distributed across a chain of

public houses. These beer mats, with thewords ‘Last Orders?’ on one side, encouragedindividuals to contact Funeralcare with theirpersonal requests and suggestions forfunerals that would be a fitting tribute for themselves.

The ‘Real Funerals’ campaign allowedFuneralcare to not only collect the views of a wide range of individuals as to theirrequests for a funeral, but also allowedplanning to be undertaken on how anyspecial requests can be fulfilled.

Excellent customer serviceDue to the nature of our business we onlyget one opportunity to provide exceptionalservice to our clients and have developedsystems to monitor compliments andcomplaints as well as general levels ofcustomer satisfaction to help ensure thatwe get it right every time. At the start of2005 our ‘service effectiveness’ wasreviewed by the Group’s internal auditdepartment and several aspects of theprocess were highly commended.

During 2004 Funeralcare has run a numberof initiatives based on understanding andimproving our service effectiveness. One ofthe major projects was Project Alpha. Thiswas designed to pull together a number ofinitiatives incorporating all areas of thebusiness and trial them in one specificgeographical area (Purley, South London).The objective of Alpha was to improve ourcustomer offering by utilising informationgained from both clients and employees.

Case studies


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Co-op Pharmacy Our priority is customer care.

+ /(-)%Sales £264.4m 10.3

Operating profit £13.2m* 10.9

Trading units 352 14.7

Employees 2,782 29.4

Prescriptions 19.3m 9.0

* before exceptionals

www.co-oppharmacy.co.uk

• Another successful year for Co-opPharmacy with a record profit of£13.2m, £1.3m up on 2003.

• Completed a record 50 acquisitions,bringing the total to over 350 outlets.

• Selected by the Government as the firsttest site for the electronic transfer ofprescriptions.

• 29 branches were equipped withelectronic point of sale facilities, and a further 10 refitted.

• The total of 19.3m prescriptions filledwas a record.


Highlights

Co-op Pharmacy is the UK’s largest co-operative pharmacy chain and providesvaluable health screening and adviceservices to local communities. During 2005these have included blood pressure testing,specialist asthma advice, smoking cessationservices and diabetes advice.

In the face of likely increased competition as a result of the new NHS contract we aredetermined to maintain our commitment to providing local pharmaceutical care. Webelieve that we are best placed to do so by operating within a co-operative modelwhere meeting our social goals is key to our commercial success.

During the summer we took cholesteroltesting out to pubs and clubs following theover-the-counter launch of Zocor, acholesterol-lowering drug. Under thescheme, pharmacists provide a healthy heartcheck to see if people are at risk of heartdisease. Overweight male smokers areamong the least likely to get health adviceso the scheme aims to overcome thisproblem by taking health messages directlyto them.

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Process ✦✧ Impact measure Performance Social responsiveness Stakeholders covered ●●●●●Service effectiveness ✦ Customer satisfaction 1 82%

✧ Customer complaints ✗Environment ✧ CO2 2 1,481.7tonnes

✧ Waste recycled/reused 3 0.2%✧ Water consumption ✗

Community investment ✦ % pre-tax profit 0.13%Employee conditions ✦ Employee turnover 21%



✧ Ethnic minority employees 7 5.3% ✧ Ethnic minority managers 8 4.3%

Gender 9

✦ Female employees 10 77%✦ Female managers 11 9%

Investors in People ✦ Satisfaction with training 12 65%● Customers ● Suppliers ✦ Internal assurance procedures indicate that accurate and complete ● Members ● Communities information is produced● Employees ✧ Progress needs to be made to ensure that information produced is reliable


Notes1 Derived from the Mystery Shopper Programme.2 Energy consumption data only available for those

sites on a national contract.3 Based on seven months’ paper collection and

recycling.4 All Co-operative Group employees were surveyed.

Figure based on 72% response rate for Co-opPharmacy employees.

5 Figures only available for those whosesubscriptions are paid direct from wages.


7 Figures represent ethnic minority non-managers asa % of total workforce.

8 Figures represent ethnic minority managers as a% of total workforce.


10 Figures represent female non-managers as a % of total workforce.

11 Figures represent female managers as a % of totalworkforce.

12 All Co-operative Group employees were surveyed.Figure based on 72% response rate for Co-opPharmacy employees.

Recognising achievementIn line with the Group’s People Valuesscheme we launched a very successful ‘Little Diamonds’ recognition programmeproviding acknowledgement for colleaguesperforming extraordinary service. 12 monthlywinners are selected from hundreds of entries.All monthly winners are put forward to beconsidered for a Group monthly award.

Christine Rowley (left) a dispensary technicianfrom the Alloa branch of Co-op Pharmacywas the proud recipient of the Group-wideDiamond award for December 2004.

Environmental responsibility2004 has seen the implementation of aformal environmental management systemto address all the significant impacts of ourbusiness activities on the environment.Nominated individuals representing all areasof the business meet every two months tolook for ways to manage and minimise ourimpacts, in order to meet both legislativerequirements and best practice. As astarting point we have tackled waste

management and minimisation at Co-opPharmacy head office, by establishing arecycling system which diverts four wastestreams from landfill and sourcing recycledpaper. We have also begun to look at waysto reduce water and energy consumptionacross our branch network.

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Co-operative Financial Services Seeking to becomethe primary financial services provider for a broadrange of co-operative customers.

+ /(-)%Bank operating profit £132m 1.5

Bank operating income £509m 1.2

CIS operating profit £26m (81.0)

CIS total net premiums income £1,454m (18.4)

Employees 12,938 (6.9)

www.cfs.co.uk/sustainability2004

• The Co-operative Bank realised its 11thconsecutive year of record profits(£132m), demonstrating that sustainableprofit growth is achievable for abusiness with ethical and co-operativevalues so clearly in place.

• CIS announced its New OperatingModel (NOM), which seeks to ensurethat the business is more customer-focused and flexible to consumer andmarket needs. Regrettably, themodernisation programme is expectedto result in 2,500 job losses.

• CFS reaffirmed its commitment toretaining call centre jobs within the UK,announcing that it would be seeking tofill 500 customer service roles in NorthWest England.

• The CFS Sustainability Report 2003 wasranked as world’s best in the biennialglobal benchmark of sustainabilityreporting commissioned by the UnitedNations Environment Programme. Earlyin 2005, it went on to be declared thebest in Europe and

corporate social - aeca.es...* appointed april 2005 ** appointed may 2005 the co-operative group...

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