SM Report & Accounts 2014 - CMYK R&A Pages Report... · REPORT & ACCOUNTS 2014 Financial Statements...

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

REPORT & ACCOUNTS

2014

Financial Statements

Owned by You. Working for You. Trusted by You.

CONTENTS

Page

1. Society Information 2

2. Strategic Report 3 - 5

3. Committee’s Report 6 - 12(Incorporating Corporate Governance Report & Remuneration Report)

4. Income and Expenditure Account 13

5. Balance Sheet 14

6. Notes to the Financial Statements 15 - 22

7. Independent Auditors' Report 23 - 25

8. Actuary statement in accordance with section 77 of the Friendly Societies Act 1992 25

Sheffield Mutual Friendly Society Sheffield Mutual Friendly Society

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Registered Office 3 Maple ParkMaple CourtWentworth Business ParkTankersleyBarnsleyS75 3DPTel: 01226 741000Fax: 01226 741222Email: [email protected]: www.sheffieldmutual.com

Committee of Management Sheila Johnson (Chairman)Janet BarberStephen BirchAnthony Burdin (Chief Executive)Thomas BurtonStephen HindmarshMelvyn LunnNeil Spawforth (Vice Chairman)

Trustees Thomas BurtonMelvyn Lunn

Chief Executive/Secretary Anthony Burdin

External Auditors BHP, Chartered Accountants2 Rutland ParkSheffieldS10 2PD

Internal Auditors KPMG Audit Plc1 St Peter’s SquareManchester M2 3AE

Solicitors Hill Dickinson50 Fountain StreetManchesterM2 2AS

Actuarial Function Holder and D Lechmere FIAWith-Profits Actuary OAC Actuaries and Consultants

141-142 Fenchurch StreetLondonEC3M 6BL

Stockbroker Investec Wealth & Investment Ltd

Bankers NatWest Bank plc

Registered under the Friendly Societies Act 1974 (Reg. No. 810F)

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority

Correspondence to the Committee should be addressed to the Society’s registered office

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Strategic Report for the year ended 31 December 2014

STRATEGIC MANAGEMENT

Business ModelThe Society provides a range of long-term savings, investment and protection policies to meet the needs of members and their families, including the popular Tax Exempt Savings Plan, which is exclusive to friendly societies, ISAs, Junior ISAs and Investment Bonds. These products are available through the following distributionchannels:-

● direct from the Society or its introducers● via the Society’s website: www.sheffieldmutual.com● or from professional financial advisers

The Society’s mission statement is: “Being a mutual and having no shareholders to satisfy, our aim is to improvethe financial wellbeing of our members by providing transparent products, quality service and greater potentialreturns.”

The Society’s vision is: “To continue to be a successful independent mutual friendly society by maintaining market-leading returns for our members and operating in a compliant, ethical and financially sound manner.”

The Society seeks to attract members by demonstrating higher potential investment returns over the life of a policy and aims to retain them through a combination of performance, following high standards of ethics and principles, and delivering consistently high levels of personal service. The Society has a three-strand distributionmodel, which can be summarised as follows:

● Intermediaries - Financial Adviser advised and non-advised sales and non-advised referrals● Direct - Internet and on-line applications, local Heartland advertising and newspaper editorials● Social Proof - Member referrals, Advocates, (Tell-a-Friend), Community Fund, Social Media

The Society strives to be efficient relative to its scale and this is achieved through robust cost management. The pursuit of controlled growth and consistent investment yields are seen as key drivers of sustainability and stability in terms of ongoing financial strength. This financial strength is augmented by a mutual model, whichallows the Society to distribute surplus profit to members by way of policy bonuses.

The Society’s key strategic priorities are as follows:

● Meet its contractual obligations to policyholders ● Deliver higher potential returns over the life of a policy● Maintain a healthy free asset ratio

Future Strategy and ObjectivesThe introduction of the new EU capital rules for insurers and friendly societies, known as Solvency II, remains onschedule for 01 January 2016. The Society is well on course to comply with the new requirements and in line withthe Regulator’s implementation guidelines the Committee approved an Interim Own Risk & Solvency Assessment(ORSA), which is the cornerstone of the Solvency II framework, in November 2014. The ORSA will, in future, beused as part of the strategic planning process.

In relation to marketing and distribution, we have continued to attract around half of our new business direct from members of the public. Approximately one third of new policies are applied for via our website(www.sheffieldmutual.com) and we have continued to invest in the functionality of the site, which now includes auseful product selector tool.

The growth in premium income has been driven by the success of the Society’s Investment ISA, which providesinvestors with a potentially better return than a Cash ISA without exposing their money directly to the stock market. Intermediaries remain an important part of our distribution mix and we will retain a focus on developingrelationships with introducers and advisers.

The Committee’s medium term strategy, therefore, is to grow the Society’s business organically at a controlled rateand, in addition to developing our various channels of distribution, we will continue to enhance our product rangeas the opportunities arise. For example, the changes announced in the 2014 Budget in relation to ISAs and pensionfreedoms should provide additional opportunities for growth.

In line with our history, heritage and ethical values, Sheffield Mutual is committed to helping good causes in thecourse of doing business. During 2014 we donated over £21,000 to various charities and good causes and we havemade a commitment to continue this support in 2015.

The Society is well placed to remain a successful independent friendly society, being well run, financially strong,ethically minded and with good prospects for growth.

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Strategic Report - continued for the year ended 31 December 2014

BUSINESS ENVIRONMENT

Investments2014 proved to be a volatile period for global equity investors. A broad range of events created market uncertainty- including the Ebola crisis, the end of Quantitative Easing in the United States, political uncertainty across the EUand a collapse in oil prices. A modest rally in December resulted in the FTSE 100 Index recovering to 6,566.09 by31 December 2014 - 2.7% lower than 12 months earlier. Closer to home the UK economy performed well comparedwith most other developed countries and the increased activity has resulted in significant job creation; albeit with wide regional variations. However, the UK is not immune from global events and these, combined with the uncertainty around the outcome of the 2015 UK general election, is likely to influence investor confidence inthe shorter term.

The Society invested £5 million via its stockbroker in 2014 and after adjusting for the new money added duringthe year the portfolio produced a total annual return, including income, of 3.75%. The Society’s balanced portfolio, which includes fixed interest and alternative assets, means that the full impact of the share price volatility was not felt. However, a reasonable exposure to equities is necessary in order to maintain the value ofinvestments over time and the Committee is satisfied that the portfolio is well positioned to deal with the marketrisks and volatility.

The Society’s commercial properties continued to generate good rental yields and the Committee expanded theportfolio by acquiring seven new properties - including a new fast-food outlet tenanted by Subway Realty at Burtonupon Trent, Nottinghamshire, a trade outlet tenanted by James Hargreaves (Plumbers Merchants) in Sheffield,South Yorkshire and a new-build convenience store tenanted by WM Morrison at Stockport, Cheshire. Each newproperty has the benefit of a long-term commercial lease backed by a strong covenant.

The fall in stock markets together with a modest 2.2% write-down of property assets resulted in a small unrealisedloss of £0.2 million for the year. The Society’s available capital decreased from £10.16 million to £9.67 million, but remains more than double the required minimum margin; thereby maintaining a strong financial base. The Society's investment income was £2.1 million and after taking account of the unrealised losses the overallreturn on the non-CTF assets for the year was 3.95%.

Given the positive investment return, effective cost control and mindful of the in-built guarantees provided bymany policies, the Society has declared competitive annual bonuses on all policy types whilst also maintaining aterminal bonus on investment bonds and certain ISAs. Our investment advisers and many commentators arereporting ‘tempered optimism’ for the economy in 2015, although market expectations have been dulled as a resultof several potential risks. The Committee will, therefore, continue to manage volatility by focusing on quality, balance and diversity when making investment decisions.

The next table shows the asset split of the Society’s investment fund at the end of 2014, with previous years’ figures for comparison purposes. This table excludes Child Trust Fund investments, which are part of a separately managed Unit Linked fund.

2014 2013 2012% % %

Property 39.08 38.26 36.35 Mortgages on land and buildings 6.23 9.60 11.23Listed investments: - equities 27.68 29.05 27.04

- fixed interest 21.08 18.76 20.51- alternative assets 2.31 2.20 1.97

Cash (excluding current account funds) 3.62 2.13 2.90

100.00 100.00 100.00

The Society seeks to adopt an ethical approach to investing and it is our aim not to invest knowingly in industriesrelating to armaments, tobacco, gambling and pornography.

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OFSHEFFIELD MUTUAL FRIENDLY SOCIETY - Continued

YEAR ENDED 31 DECEMBER 2014

Matters on which we are required to report by exception - continued

- Corporate Governance Statement:In accordance with our instructions from the Society we review whether the Corporate Governance Statementreflects the Society’s compliance with the provisions of the UK Corporate Governance Code specified by theAssociation of Financial Mutuals. We have nothing to report in respect of this review.

BHP, Chartered AccountantsStatutory Auditors2 Rutland ParkSheffieldS10 2PD

12 March 2015

ACTUARY STATEMENT IN ACCORDANCE WITH SECTION 77 OF THE FRIENDLY SOCIETIES ACT 1992


The following information has been provided in accordance with Section 77 of the Friendly Societies Act 1992:

The Actuarial Function Holder and With-profits Actuary is Mr David Lechmere FIA, Head of Insurance Consultingat OAC Actuaries and Consultants ("OAC"). The Society has requested him to furnish it with the particularsrequired under Section 77 of the Friendly Societies Act 1992. Mr Lechmere is not a member of the Society, but twomembers of his family hold Junior ISA policies with the Society. Otherwise Mr Lechmere has no financial or pecuniary interests in the Society, with the exception of fees paid to OAC Actuaries and Consultants ("OAC") forprofessional services, which amounted to £133,736 in 2014 (2013: £84,005).

Sheffield Mutual Friendly SocietySheffield Mutual Friendly Society

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Principal Risks and UncertaintiesThe Committee is responsible for determining the nature and extent of the principal risks it is willing to take inachieving its strategic objectives and the Committee seeks to adopt a low-to-medium risk appetite in accordancewith the scale and nature of the Society’s business. It seeks to undertake a structured approach for the effectivemanagement of risk and aims to employ proportionate tools and techniques to enable it to deliver its objectives ina controlled manner. The principal risks are operational and financial, with the latter including solvency risk, market risk, credit risk, insurance risk and liquidity risk. The risk management framework is explained within theCommittee’s Report and the Committee is satisfied that the Society has robust risk and governance procedures andsufficient capital to deal with a range of risks and adverse scenarios, both now and over the business planning period. The analysis of risks also demonstrates that there are no current, emerging or anticipated risks which couldmaterially alter the Society’s risk profile or strategy in the medium term.

BUSINESS PERFORMANCEMembers and PoliciesThe Society achieved record growth in premium income and new policies, resulting in over 1,000 new membersand an increase of around 10% in the total number of traditional policies held. The growth was driven mainly bythe success of our Investment ISA, which provides savers with a potentially higher yielding alternative to CashISAs. Our website accounted for over a third of new business, but our members also value the Society’s ongoingcommitment to providing transparent products, quality service and greater potential returns. The number of ChildTrust Fund (CTF) accounts remained broadly flat due to the product no longer being available for new business.Existing CTF accounts will continue until maturity at age 18.

The following tables show how membership has developed in recent years:-

Year Ending Premium Income (Excl CTF) Assets (Excl CTF)£'000 £'m

31.12.12 4,211 32.531.12.13 5,647 38.031.12.14 9,687 46.4

Year Ending CTF Premium Income Total Assets (Incl CTF)£’000 £’m

31.12.12 2,698 57.331.12.13 482 68.331.12.14 516 77.5

Year Ending Number of Members (Excl CTF) Number of policies (Excl CTF)31.12.12 8,032 9,58031.12.13 8,508 10,27431.12.14 9,189 11,281

Year Ending Number of New Members (Excl CTF) Number of New Policies (Excl CTF)31.12.12 928 1,30131.12.13 883 1,29831.12.14 1,079 1,555

Year Ending Number of New CTF Accounts Number of CTF Accounts31.12.12 17,878 63,55031.12.13 330 63,81231.12.14 23 63,805

Premium Income and AssetsDuring 2014 the Society looked to achieve a sustainable level of controlled growth, whilst also taking advantage ofthe demand for our plans in a low interest rate environment. Your Committee is mindful to ensure that the levelof growth is not at the expense of maintaining competitive bonus rates for existing members and safeguarding theSociety’s financial strength.

The Society’s traditional premium income increased by 72% to £9.69 million, with single premium business againboosted by the popularity of our Investment ISA. Regular premiums accounted for around a quarter of the total.The Society’s unit-linked Stakeholder Child Trust Fund attracted premium income of £0.52 million during the year,made up of transfers from other providers and additional subscriptions to existing accounts.

The growth in our business resulted in a 14% increase in total assets at the end of the year to a record £77.5 million. Excluding the CTF, the Society’s assets increased by 22% to £46.4 million.

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However, given the nature of the Society’s activities and taking into account the users of the financial statements,we consider this performance materiality level to be too high for the Income and Expenditure Account.Accordingly therefore, we set a lower planning performance materiality of £54,000 specifically for the Income andExpenditure Account. Our objective in adopting this approach is to ensure that total detected and undetected auditdifferences that would affect the Income and Expenditure Account do not exceed this performance materialitylevel.

At the conclusion of the audit we re-assess the materiality levels based on the audited financial statements and thencompare this with the planning materiality. The result of this assessment showed there was no significant changeto final materiality and we are satisfied with the levels set at the planning stage.

An overview of the scope of our auditOur audit scope focused on the principal activities of the Society which are undertaken from one location. The audit team commenced an interim audit before the Society’s year end in order to undertake a significant proportion of the planned transactional testing. This was followed up shortly after the year end with a further auditsite visit, once our planned procedures had been updated for year end figures.

We scoped our responses to the significant risks identified above in the following ways:

we engaged the services of a suitably qualified and experienced ‘Reviewing Actuary’ to review and challenge themethodology, assumptions and calculations of the Actuarial Function Holder’s long term business provision liabilities. We also tested the integrity of the actuarial data extracted from the Society’s policy data.

we carried out substantive testing on the Society’s premium income relating to existing policies, new policieswritten in the year and surrendered policies, as well as analytical and cut-off procedures to ensure revenue recognition policies complied with The ABI SORP (revised December 2006); and

we carried out analytical procedures and journal entry testing in order to identify and test the risk of fraud arising from management override of control.

Opinion on other matters prescribed by the Friendly Societies Act 1992In our opinion the Report of the Committee of Management has been prepared in accordance with the FriendlySocieties Act 1992 and the regulations made under it, and the information given therein is consistent with thefinancial statements for the financial year.

Matters on which we are required to report by exception

- Friendly Societies Act 1992:

We have nothing to report in respect of the following matters where the Friendly Societies Act 1992 requires us toreport to you if, in our opinion:

proper accounting records have not been kept; or

the financial statements are not in agreement with the accounting records; or

we have not received all the information and explanations and access to documents that we require for our audit.

- Our duty to read other information in the Committee of Management Report:

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annualreport is:

materially inconsistent with the information in the audited financial statements; or

apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Society acquiredin the course of performing our audit; or

is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledgeacquired during the audit and the Committee of Managements’ statement that they consider the Committee ofManagement Report is fair, balanced and understandable and whether the Committee of Management Reportappropriately discloses those matters we communicated to the Committee of Management which we considershould have been disclosed.

We have nothing to report in respect of the matters set out above.

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Committee’s Report for the year ended 31 December 2014

COMMITTEE OF MANAGEMENT

The following have served as members of the Committee of Management during the year:

Mrs J BarberMr S BirchMr A R BurdinMr T BurtonMr S HindmarshMrs S JohnsonMr M LunnMr N Spawforth

Committee Committee Committee/Chief ExecutiveCommittee/TrusteeCommittee (appointed 18 July 2014)ChairmanCommittee/TrusteeVice Chairman

Responsibilities of the Committee of ManagementThe following statement is made by the Committee of Management in relation to the preparation of the annualfinancial statements, annual business statement, Strategic Report and Committee Report.

The Committee of Management is required by the Friendly Societies Act 1992 ('the Act') to prepare for each financial year annual financial statements, which give a true and fair view of the state of affairs of the Society asat the year end and of the income and expenditure of the Society during that year.

In preparing those financial statements, the Committee is required to:

● select appropriate accounting policies and apply them consistently● make judgements and estimates that are reasonable and prudent● state whether applicable accounting standards have been followed, and any material departures

disclosed and explained in the financial statements● prepare the financial statements on a going concern basis, unless it is inappropriate to assume

that the Society will continue in business

In addition to the financial statements, the Committee is responsible for ensuring that the Society:

● keeps accounting records in accordance with the Act● takes reasonable care to establish, maintain, document and review such systems and controls as are

appropriate to its business in accordance with the rules made by the regulators under the FinancialServices and Markets Act 2000

They also have general responsibility for safeguarding the assets of the Society and to take reasonable steps for theprevention and detection of fraud and other irregularities.

The Committee confirms that it has complied with the above requirements and considers that the annual reportand accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary formembers to assess the Society’s position and performance, business model and strategy.

Going ConcernThe Committee is satisfied that the Society has adequate resources to continue in business for the foreseeablefuture. The Committee considers it appropriate, therefore, to prepare the financial statements on a going concernbasis.

Operating PowersIt is the opinion of the Committee of Management that no activities have been carried on outside its powers during the financial period.

SolvencyThe Society had the required margin of solvency as prescribed in regulations made by the Prudential RegulationAuthority for its relevant classes of business at 31 December 2014.

Complaints by MembersThe Society has a documented complaints procedure and aims to treat its members fairly. There have been noreportable complaints this year.

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INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OFSHEFFIELD MUTUAL FRIENDLY SOCIETY


We have audited the financial statements of Sheffield Mutual Friendly Society for the year ended 31 December2014, which comprise the Income and Expenditure Account, the Balance Sheet and the related notes. The financialreporting framework that has been applied in their preparation is applicable law and United Kingdom AccountingStandards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Society’s members, as a body, in accordance with section 73 of the FriendlySocieties Act 1992. Our audit work has been undertaken so that we might state to the Society’s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the Society’smembers as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Committee of Management and auditorAs explained more fully in the Committee of Management’s Responsibilities Statement set out on page 6, theCommittee of Management is responsible for preparing financial statements which give a true and fair view. Ourresponsibility is to audit and express an opinion on the financial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland) (“ISA’s”). Those standards require us to comply with theAuditing Practices Boards [(APB’s)] Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the FRC’s website atwww.frc.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the financial statements:

give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of theSociety’s affairs as at 31 December 2014 and of its income and expenditure for the year ended; and

have been properly prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it.

Audit commentaryWithout modifying our opinion, we highlight the following matters that, in our judgement are likely to be mostimportant to users’ understanding of our audit. Our audit procedures relating to these matters were designed inthe context of our audit of the financial statements as a whole, and not to express an opinion on individualaccounts or disclosures.

Our assessment of risks of material misstatementWe identified the following risks that we believe to have had the greatest impact on our audit strategy and scope:

the integrity of the input data and application of suitable methodology, modelling processes and assumptions inthe calculation of the Society’s long term technical provision liabilities;

revenue recognition, including the timing, completeness and accounting of premium income; and

the risk of management override of internal controls. International Standards on Auditing (UK and Ireland) statethat this risk must always be treated as significant.

Our application of materialityWe apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatement on our audit and the financial statements. For the purposes of determining whether the financialstatements are free from material misstatement, we define materiality as the magnitude of misstatement thatmakes it probable that the economic decisions of a reasonably knowledgeable person, relying on the financial statements, would be changed or influenced.

We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

When establishing our overall audit strategy, we determined an overall level of uncorrected misstatement that wejudged would be material for the financial statements as a whole. We determined planning materiality for theSociety to be £450,000 which is approximately 1% of Gross Assets excluding the Child Trust Fund assets.

On the basis of our risk assessment, together with our assessment of the Society’s overall control environment, ourjudgement is that the overall performance materiality level should be 90% of planning materiality, namely£405,000.

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Finance & Risk Sub-CommitteeThe Society has a Finance & Risk Sub-Committee which meets on a monthly basis and is comprised of the twoTrustees, the Society's Chairman and one other Committee member by rotation, plus the Chief Executive.Occasionally, the matters which are usually dealt with by this Sub-Committee are discussed by the full Committeedepending upon the timing of meetings. The Sub-Committee is not chaired by the Society's Chairman and the position of Sub-Committee Chairman is normally rotated between the Trustees on a bi-annual basis.

The Sub-Committee's main responsibilities are:

● to review monthly Income & Expenditure● to review the Balance Sheet on a quarterly basis● to consider and review recommendations from, and performance of, the Society's Stockbroker and

agree sales and purchases as necessary● to monitor the Society's property portfolio and agree sales and purchases within delegated limits● to monitor the Society’s risks, ensuring that they are managed effectively● to monitor outstanding audit observations, ensuring that any recommended actions are carried out

Risk ManagementThe oversight and direction of the Committee remains central to risk management and it ensures, through theFinance & Risk Committee, that appropriate policies, procedures and processes are implemented across the business to control and monitor both the actual and potential risk exposures which arise from the Society’s operations. The Committee ensures exposed risks are aligned to the Society’s risk appetite and that any unacceptable risk exposures are identified and either terminated or where appropriate mitigated.

In addition to the ongoing assessment of known risk exposures, the Chief Executive and Finance Manager monitor external and emerging risks within the Society’s forward-looking Risk Matrix, which is reviewed by theFinance & Risk Sub-Committee on a quarterly basis. Risks which could threaten the Society’s business model areassessed, managed and mitigated through a process known as reverse stress testing. The full Committee is providedwith an Annual Risk Analysis, which summarises the Society’s principal risks and how they are managed and mitigated. The new ORSA is also central to the risk management framework.

Internal ControlsThe Society has an established framework of internal controls for the management of risk within the business andto safeguard the interests of members. The Committee reviews the effectiveness of its internal control systems at least annually by receiving reports from the external Compliance Consultant and our Internal Auditors. The Internal Auditors carry out an independent risk-based audit each year to international standards, includingseveral days on site, and work to a Committee approved programme designed to evaluate and improve the effectiveness of risk management, controls and governance processes. Their reports are considered by the fullCommittee and action taken where appropriate.

External AuditThe Society has no distinct audit committee but the work normally undertaken by an audit committee is carriedout by the full Committee of Management. The current external auditors, Barber Harrison & Platt, have acted inthis capacity since 2004. They provide no significant non-audit services which would affect their objectivity and independence. The effectiveness of the external audit process is assessed by the Committee based on a comprehensive audit strategy and methodology, which is reviewed and approved by the Committee prior to theaudit commencing. The Committee receives a report and presentation of the audit findings at its conclusion. The appointment and re-appointment of the external auditors is subject to a resolution at the Society’s AGM.

With-Profits GovernanceThe Society’s With-Profits Advisory Arrangement (“WPAA”) is made up of the Society’s two Trustees supported bythe With-Profits Actuary and its role is to act in an advisory capacity to inform the decision making of theCommittee of Management in relation to the with-profits fund. In particular the role of the WPAA is to considerthe interests of with-profits policyholders, ensuring they are treated fairly and that the fund is managed in accordance with the Society’s Principles and Practices of Financial Management (“PPFM”). A copy of the terms ofreference of the WPAA and the PPFM (including a customer friendly version called the “With-Profits Guide”) canbe obtained from the Society’s website www.sheffieldmutual.com.

Report of the Committee to With-Profits PolicyholdersThe Committee is required to produce a report to all with-profits policyholders explaining how it has managed itswith-profits business, complied with the PPFM and how the Committee has exercised discretion in its decisions.This report will be available from the Society’s website before 30 June 2015.

Committee’s Report - Continued for the year ended 31 December 2014


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17 CAPITAL STATEMENT - ContinuedThe Society became Directive on 1 January 2012 and is now required to calculate a Long Term Insurance CapitalRequirement and a Resilience Capital Requirement. The sum of these items is £4,173,000. The Society’s capitalresources are 232% of its capital requirements.

Approximately 39% of the fund excluding the Child Trust Fund business is held in property and approximately30% is held in equities. These are sensitive to market movements in general. About 21% is held in UK bonds, andchanging market conditions can affect bond values and future returns. Each bond also has its own individual credit risk. About 6% is held in the form of commercial mortgages and these are subject to default risk.

The valuation interest rate is determined by the overall return achieved on the assets held by the fund.Adjustments were made to the yield assumed to allow for current market conditions.

The main assumptions used in the statutory valuation carried out on 31 December 2014 are set out below.

● Valuation Interest RateTraditional Benefit Tables, Death Benefit and Sickness Tables: 2.25% (2013: 3.00%)Funeral plans: 2.10% (2013: 3.00%)Tax Exempt With-Profits Business: 2.00% (2013: 2.50%)Taxable With-Profits Business: 1.60% (2013: 2.00%)

● MortalityAll applicable tables: 60% of ELT15 Males.

● SicknessAll applicable tables: 150% of Manchester Unity (AHJ)

● ExpensesThe allowance in the premium rates plus a specific reserve

● Tax20% on interest and expenses for relevant taxable business

The main variable in the calculation of the technical provisions is the assumed interest rate. An increase in theassumed interest rate of 0.50% leads to a reduction of £777,000 in the technical provisions and a decrease in theassumed interest rate of 0.50% leads to an increase of £976,000 in the technical provisions, as at 31 December 2014.The effect of changes in the experienced rates of mortality and morbidity do not have any material effect on the technical provisions. This is because the two largest classes of contract are pure endowments (where the premiums are returned with interest on death), and single premium bonds where the valuation method generallyholds the surrender value as the reserve.

The main variable in the assets is a change in the market value. The actuary has modelled the effect of changes inthe assets backing the liabilities. The resilience capital requirement of £2,300,000 is the amount set aside to coverthis situation.

Notes to the Financial Statements - Continued for the year ended 31 December 2014

Analysis of change in capital resources:

Total available capital resources at 1 January 2014 ..............................................................

Premiums less claims and expenses ..........................................................................................

Investment income less tax ..........................................................................................................

Unrealised (losses) / gains on investments ..............................................................................

Impairment of own property .......................................................................................................

Change in mathematical reserves ...............................................................................................

Cost of bonus ....................................................................................................................................

Change in general reserves ...........................................................................................................

Change in resilience reserve ........................................................................................................

Total available capital resources at 31 December 2014 ........................................................

2014£,000

10,158

7,322

2,128

(199)

(47)

(8,564)

(1,057)

(75)

-

9,666

2013£,000

7,076

3,125

1,866

5,906

-

(6,959)

(781)

(75)

-

10,158

Annotated UK Corporate Governance CodeThe Society has adopted the Annotated Version of the UK Corporate Governance Code for Mutual Insurers (the“Code”) and submits a monitoring questionnaire, along with other mutual societies, to the Association of FinancialMutuals, who will in turn report to the regulators. The Chairman ensures that the Code’s principles relating to therole and effectiveness of the Committee are appropriately and proportionately applied and can confirm that theSociety has complied with the Code during 2014, with the exception of the following, which we identify under the'comply or explain' regime.

The annotated Code states that the roles of Chief Executive and Secretary should ideally be split. However, theCommittee is confident that it receives the necessary guidance and support and can also call upon the FinanceManager to ensure good information flows to the Committee and Sub-Committee. The Committee believes thatthe cost of employing a separate Secretary would not at this stage be an appropriate use of funds.

Proportionate to the size and complexity of the business, the Society does not have distinct Nomination andRemuneration or Audit Committees, but matters which would be dealt with by such committees are reviewedby the full Committee.

There is no Senior Independent Committee member, but the Vice Chairman has been nominated to receiveany items from members or other Committee members, where they do not feel that an issue can be resolvedby either the Chief Executive or Chairman.

Two Committee members have served in their position for more than nine years. The Code questions whetherafter this period, an individual can be viewed as being independent, but it is the Committee's ongoing opinionthat both of the individuals in this category still provide balanced views on issues facing the Society. TheseCommittee members will offer themselves for annual re-election.

Although sensitive to pay and employment conditions elsewhere, the Committee does not assess formallyremuneration levels relative to other organisations as it prefers to act independently.

The Society has no formal diversity policy for Committee appointments, preferring instead to appoint the bestcandidate against the criteria agreed in relation to the required skills and experience.

A significant proportion of executive directors’ remuneration is not structured so as to link rewards to corporate and individual performance, as the Chief Executive is the only executive director and is responsiblefor carrying out various functions, including compliance and secretarial.

As the Chief Executive is very close to the day-to-day operations of the business and most Committee members have regular contact with members, we have not established formal member forums or panels inorder to ensure that the views of members are understood and communicated.

Chairman’s Statement on Corporate GovernanceIt is my responsibility to ensure that the Society applies the principles of the Code across the business appropriately. The Committee and I may judge that some of the Code provisions are disproportionate given the size and complexity of the business. However, as set out in the ‘comply or explain’ statements above, theCommittee aims to apply the spirit of the principles and provisions of the Code in a manner with less onerousresource implications. Moreover, the Committee’s intention is to adopt the highest standards of corporate governance for an organisation of our scale and in the best interests of our members.

S Johnson - Chairman


8


1.

2.

3.

4.

5.

6.

7.

8.

Corporate GovernanceIn 2014 the Committee comprised of the non-executive Chairman, two Trustees, four other non-executive members(three until 18 July 2014) and one executive member (Chief Executive). Biographies for each of these are shown onpage 11 and the Committee believes that the balance of skills and experience of the members is appropriate to thecurrent requirements of the business. Furthermore, it believes that all Committee members are independent incharacter and judgement.

The Committee determines the strategic direction of the Society and reviews its operating and financial position.The Committee met on ten occasions during 2014 and there is a schedule of regular reports and information, whichthey consider at the meetings and which is agreed annually. Reports are provided to the Committee in advance ofeach meeting. The Chief Executive is responsible for carrying out the agreed strategy and the day to day runningof the Society and there is a clear division of responsibilities between the roles of the Chief Executive andChairman.

There are certain decisions that are reserved for the Committee and these include:

● declaration of annual bonus rates● acquisition/disposal of significant assets● committee succession planning● approval of the annual report and accounts● remuneration policy

21


2014£

10,582,785

(416,726)

10,166,059

With profits£

25,332,410

9,360,389

34,692,799

Unit linked£

29,129,600

361,634

29,491,234

Other£

2,770,963

(101,815)

2,669,148

Total£

57,232,973

9,620,208

66,853,181

14 LONG-TERM BUSINESS PROVISIONS

At 1 January 2014 ....................................................................

Transfer from Income & Expenditure Account ..............

At 31 December 2014 .............................................................

2014£

1,315

808

2,123

2013£

1,315

1,870

3,185

2013£

7,425,697

3,157,088

10,582,785

15 FUND FOR FUTURE APPROPRIATIONS

At 1 January 2014 ................................................................................................................................

Surplus/(Deficit) for the year ...........................................................................................................

At 31 December 2014 .........................................................................................................................

16 ACTUARIAL VALUATION AND TECHNICAL PROVISIONAn Actuarial Report on the assets and liabilities of the Society was last prepared as at 31 December 2014 and acopy of this Report may be inspected at the Registered Office of the Society.

17 CAPITAL STATEMENTThe Society is required to comply with Financial Reporting Standard (FRS) 27 for Life Assurance. The main impact is to require detailed disclosure of the liabilities and financial strength of the Society.The capital statement illustrates the financial strength of the Society’s life business and shows an analysis of the available capital resources calculated on a regulatory basis for the Society. A statutoryvaluation was carried out at 31 December 2014 in conformity with Rule 5.1(A) of the Interim PrudentialSourcebook for Friendly Societies. This Rule requires Directive Societies to value their business in conformity with the Rules in Chapter 9 of the Interim Prudential Sourcebook for Insurers and so limitations apply to many of the key assumptions used.

Fund for future appropriations (note 15) ..................................................................

General reserve ..................................................................................................................

Total available capital resources ...................................................................................

2014£

10,166,059

(500,000)

9,666,059

2013£

10,582,785

(425,000)

10,157,785

13 RELATED PARTY TRANSACTIONDuring the year, Mr Hindmarsh became a Committee Member of the Society. Previously Mr Hindmarsh had beena partner at Hill Dickinson, the Society’s legal advisors. Mr Hindmarsh is retained on a short term consultancy basisat Hill Dickinson and the Society continues to engage Hill Dickinson as its legal advisors, however the services provided by Hill Dickinson during the year have been supplied by staff unconnected to the Society. Total fees paidto Hill Dickinson during the year amount to £49,590 (2013: £51,984).

12 CREDITORS, ACCRUALS AND DEFERRED INCOME - Continued

Analysis of finance lease obligations

Amounts payable in one year ............................................................................................................

Amounts payable in more than one year .......................................................................................

Committee EvaluationThe Chairman carried out a formal review of each Committee member by obtaining and co-ordinating responsesto individual questionnaires which were circulated to all members. The results were then discussed individually asappropriate. In addition, each member was consulted to assess the performance of the Committee as a whole andthe Sub-Committee.

The Vice Chairman co-ordinates the responses to a questionnaire relating to the performance of the Chairman incarrying out her duties and the results are discussed without the Chairman being present. The Chief Executive'sperformance is reviewed by the Committee.

The Committee has continued to develop its knowledge by receiving specialist presentations from the Actuary,Compliance Consultant, Internal Auditors and Stockbroker. The Chairman has met with other non-executiveCommittee members without the Chief Executive being present.

There is a succession plan in place which has identified potential replacement dates and skills requirements.Subject also to the Society's rules, new appointments to the Committee are being made on the basis of three yearterms. Where Committee members have held their position for more than nine years, they will be subject to re-election at the Society's Annual General Meeting on a year by year basis.

The Society has no formal diversity policy for Committee appointments, preferring instead to appoint the best candidate against the criteria agreed in relation to the required skills and experience. However, the Committee ismindful of gender diversity and it should be noted that two of the seven non-executive Committee members arefemale.

Stephen Hindmarsh, a recently retired solicitor, was appointed to the Committee in July 2014 in anticipation offuture Committee retirements and to meet a particular skills gap. Stephen, whose legal experience will be a greatasset to the Society, will be offering himself for election at the Annual General Meeting and the Chairman recommends that he should be elected. Stephen was personally known and recommended to the Society as havingthe required skills to fill this particular vacancy. It was not necessary, therefore, to use a search agency or place anopen advertisement on this occasion. Future member vacancies would normally be advertised in the Society’sannual Newsletter.

There are four Committee members offering themselves for re-election at the Annual General Meeting and the Chairman confirms that, following formal performance evaluation, each individual's performance remains effective and that they continue to demonstrate commitment and independent judgement to the role. She recommends therefore that they should be re-elected.

Report on the Committee Members’ RemunerationThe Chief Executive is employed on a contract with the Society which requires six months notice by either partyand his salary package is reviewed annually by the Committee without him being present. He is a member of theSociety's Group Personal Pension Scheme and is eligible for a performance related annual bonus payment of up to£5,000, which may be paid as a pension contribution.

Committee members are remunerated for their attendance at meetings and other time spent on Society businessbased on a predetermined hourly rate, plus a retainer fee. The remuneration of the Chairman is decided by otherCommittee members and the Committee agrees their own fee rate. Fee levels are reviewed annually and it wasdecided that the hourly rate would be increased by £1 to £31 for the Chairman and other Committee members from2015. The annual retainer fee was increased by £50 to £2,050 for the Chairman, by £50 to £1,800 for the Trusteesand by £50 to £1,550 for other Committee members from 2015. Whilst Committee fees remain modest comparedwith our peers, the fees must be sufficient to recruit, retain and motivate people with the required skills, experience and qualities to run the Society successfully. With this in mind, an independent third party review willbe undertaken during 2015.


9

Attendance at MeetingsCommittee Finance

Number of Meetings Attended Number of Meetings Attended

S JohnsonT BurtonM LunnJ BarberS Birch A BurdinS Hindmarsh N Spawforth

1010101010105

10

109999

105

10

12121276

1235

12111176

1235


20


Freeholdproperty

£

290,000

2,015

-

(47,015)

245,000

-

-

-

-

245,000

290,000

Plant, officefurniture &equipment

£

79,787

9,487

-

-

89,274

71,960

-

6,862

78,822

10,452

7,828

Computerequipment

£

94,590

14,508

-

-

109,098

85,089

-

7,957

93,046

16,052

9,500

Total

£

464,377

26,010

-

(47,015)

443,372

157,049

-

14,819

171,868

271,504

307,328

9 TANGIBLE FIXED ASSETS

Cost or valuation

Balance as at 1 January 2014 ...................................

Additions ......................................................................

Disposals ......................................................................

Revaluation .................................................................

Balance as at 31 December 2014 ..........................

Depreciation


Disposals ......................................................................

Charge for the year ....................................................


Net book value

As at 31 December 2014 ...........................................

As at 31 December 2013 ...........................................

2013£

925,000

2014£

-

10 CAPITAL COMMITMENTS

At 31 December 2014, the Society had capital commitments as follows:-

Contracted for, but not provided for in the financial statements .............................

11 DEBTORS, PREPAYMENTS AND ACCRUED INCOME

Accrued rents..............................................................................................................................

Bad debt provision....................................................................................................................

Mortgage interest due ..............................................................................................................

Property insurance premiums recoverable .......................................................................

Prepayments ..............................................................................................................................

Accrued investment income ..................................................................................................

12 CREDITORS, ACCRUALS AND DEFERRED INCOME

Accruals and deferred income ..............................................................................................

Amounts due re lapsed policies ........................................................................................

VAT ...............................................................................................................................................

Corporation tax .........................................................................................................................

PAYE and national insurance ................................................................................................

Finance lease obligations ........................................................................................................

2014£

122,548

-

9,751

2,579

20,662

333,167

488,707

2014£

299,981

58,839

84,612

40,000

7,183

2,123

492,738

2013£

96,217

(41,538)

10,820

3,183

127,906

275,143

471,371

2013£

284,999

29,096

25,047

90,000

5,583

3,185

437,910

The freehold property has been revalued in accordance with the details in Note 8(a)


10


Committee Members’ Emoluments

Salary/Fees Taxable Pension 2014 2013& Expenses Benefits Contributions Total Total£ £ £ £ £

ChairmanS Johnson 3,964 - - 3,964 3,474

TrusteesK Hartley (retired 8 June 2013) - - - - 1,432M Kennerell (retired 8 June 2013) - - - - 1,632T Burton 4,448 - - 4,448 3,601M Lunn 3,418 - - 3,418 2,475

CommitteeJ Barber 3,088 - - 3,088 2,467S Birch 3,474 - - 3,474 2,922S Hindmarsh (appointed 18 July 2014) 1,505 - - 1,505 -N Spawforth 2,869 - - 2,869 2,409

Chief ExecutiveA Burdin 87,500 - 16,835 104,335 97,350

19

(b) Mortgages on land and buildings

Commercial:

Balance as at 1 January 2014 ..........................................................................................

Advances during the year ...............................................................................................

Repaid during the year ....................................................................................................

Balance as at 31 December 2014 ...................................................................................

(c) Listed investments at valuation

British Government securities .......................................................................................

Other listed investments - equities ...............................................................................

- fixed interest .....................................................................

Child Trust Fund investments .......................................................................................

Balances as at 31 December ...........................................................................................

Cost of listed investments:


Other listed investments .................................................................................................

Unit linked investments ..................................................................................................

2014

£

1,535,069

13,232,717

7,768,090

31,079,838

53,615,714

1,449,930

19,963,164

21,460,328

42,873,422

Investmentproperties

£

13,602,845

4,595,904

(660,000)

(295,349)

17,243,400

£

3,413,333

-

(663,750)

2,749,583

2013

£

1,101,966

11,112,835

5,569,260

30,300,832

48,084,893

1,061,677

15,068,459

20,921,328

37,051,464

The freehold and leasehold properties were revalued by Mr Robin Curtis MRICS, Director at Brownill VickersLimited. Mr Robin Curtis MRICS is a fully qualified chartered surveyor and an RICS Registered Valuer. A formalvaluation took place in January 2012, on an open market basis. This was updated by a desk-top valuation inDecember 2014 and the property valuations have been adjusted accordingly.

8 INVESTMENTS - Continued

(a) Land and buildings

Cost or valuation:

Balance as at 1 January 2014 ...........................................................

Additions ...............................................................................................

Disposals ................................................................................................

Revaluation in year ............................................................................

Balance as at 31 December 2014 ....................................................


Members of the Committee of Management

Sheila Johnson, FCIB, Age 66 - ChairmanSheila has over 40 years experience in the financial services sector, most of them with building societies. More recently,Sheila held various senior positions with the Mansfield Building Society and was the Society’s Compliance and EmployeeDevelopment Executive until her retirement at the end of 2008. In addition to being the Society’s Chairman, Sheila is anon-remunerated Trustee of the Mansfield Building Society Retirement and Death Benefit Scheme. Sheila lives inFinningley, near Doncaster, with her husband Richard.

Neil Spawforth, MRICS, Age 39 - Vice ChairmanNeil has over 15 years experience as a Chartered Surveyor and his knowledge of commercial property is of great value tothe Society. In addition to being a member of Sheffield Mutual’s Committee of Management, where he became ViceChairman in 2012, Neil is a Regional Property Manager for Community Solutions Partnership Services, where he managesa number of Primary Care facilities across the north of England. He is also a non-executive director of the Priory Campus(non-remunerated). Neil has been a member of the Society since 2007 and lives in Altofts, West Yorkshire, with his wifeCharlotte and their two children.

Thomas Burton, Grad RIC, FPC1, Age 68 - TrusteeTom joined the Committee in 1999 and served as Chairman from 2005 to 2012, then becoming a Trustee in 2013. He retired from full-time employment ten years ago after working in the nuclear fuels industry for 39 years as a teamleader. One of his specialities then was dealing with compliance issues, which has proved to be very useful when servingon the Committee. He lives in Lytham St Anne's with his wife, Marian, and his hobbies include gardening, photographyand home computing.

Melvyn Lunn, FCA MCMI AIC CIHM, Age 66 - TrusteeMelvyn qualified as a Chartered Accountant over 40 years ago and has worked both in the public and private sectors and more recently in private practice. He holds a number of non-executive and trustee positions, including BarnsleyCommunity Build (non-remunerated and a trustee) and Priory Campus (non-remunerated and a trustee). He is HonTreasurer of Barnsley Metropolitan Borough Scouts and Silverwood Camp (non-remunerated), where he is also a trustee.Melvyn is Chair of Berneslai Homes Limited (remunerated) and Chair of the Joint Independent Audit Committee of theSouth Yorkshire Police and Crime Commissioner and Chief Constable (remunerated). During the year he became a non-executive director of the National Federation of ALMOs (non-remunerated) and a trustee of the South YorkshireCommunity Foundation (non-remunerated). He is married to Anne and has two sons.

Jan Barber, Age 59Jan has over 20 years experience in the mutual financial services sector, having held various senior positions in two medium-to-large building societies. Jan brings a wealth of relevant skills to the Committee of Management, particularly inthe areas of customer services, sales management, team performance and regulatory compliance. Having been semi-retiredsince 2009, Jan finds time to help and support local charities close to her home in Cookridge, Leeds and in her spare timeshe enjoys gardening, walking and reading.

Stephen Birch, Age 60Stephen started work at 16 as an apprentice craftsman in the power supply industry and now works as an Electrical PowerEngineer for the National Grid, where he has also been a Trade Union representative for over 20 years. Stephen was aLodge Secretary for 28 years and has served on the Committee since 1989, including two years as President from June 1998to 2000. His hobbies include DIY, gardening and historic vehicles.

Anthony Robert Burdin, Age 53 - Chief ExecutiveTony joined the Society on 2 March 2009 as Chief Executive and during the past six years he has led the continued growthand development of the Society. During this period Tony has overseen an almost fourfold increase in assets and premiumincome, whilst delivering market-leading returns for members. He has worked in the mutual sector for more than 35 yearsand has held a number of senior positions in the building society and friendly society sectors. Tony has a broad base ofexecutive management skills and holds professional qualifications in sales and marketing. He is married and lives in NorthYorkshire.

Stephen Hindmarsh, Age 62Stephen is a retired solicitor who was in practice as a partner with a major regional legal firm. Stephen has more than 36years experience of legal work and also the marketing and management expertise needed to operate as a partner in sucha firm. Stephen’s specialist area was commercial property transaction work. He dealt with major sales, purchases and landlord and tenant work as well as property development. At all times during his years in practice, Stephen acted forfriendly societies including Sheffield Mutual. As a result of this background he has a good working knowledge of theFriendly Society movement, of the issues which affect friendly societies and other mutual organisations and knowledge ofthe legal structures and statutory provisions that underpin those structures. Since his retirement Stephen volunteers as anadviser at his local Citizens Advice Bureau. He is treasurer of the Manchester Area Cross Country League and regularlyattends the matches which the League organise. Stephen’s hobbies are cycling, swimming and hill walking.


11


18


Unrealised gain/(losses) on properties ................................................................................

Unrealised gain/(losses) on listed investments .................................................................

With Profits .............................................

Unit Linked .............................................

(143,368)

240,006

(198,711)

1,310,968

5,125,029

5,905,701

2014£

2013£

8 INVESTMENTS Note

Summary

Land and buildings ........................................................................................................... (a)

Mortgages on land and buildings ................................................................................. (b)

Listed investments ............................................................................................................ (c)

Bank and money market deposits ......................................................................................

17,243,400

2,749,583

53,615,714

1,596,535

75,205,232

13,602,845

3,413,333

48,084,893

755,541

65,856,612

2014£

2013£

6 UNREALISED (LOSSES)/GAINS ON INVESTMENTS

£0 - £5,000 ........................................................................................................................

£80,001 - £90,000 ......................................................................................................................

7

1

8

1

2014No

2013No

Remuneration and attendance fees ....................................................................................

Society pension contributions to defined contribution schemes ..............................

Expenses .....................................................................................................................................

Total emoluments ....................................................................................................................

Chairman ....................................................................................................................................

Highest paid member:

Salary ...........................................................................................................................................

Pension contributions .............................................................................................................

106,430

16,835

3,836

127,101

3,964

87,500

16,835

103,712

9,850

4,200

117,762

3,474

87,500

9,850

2014£

2013£

7 COMMITTEE EMOLUMENTS

The emoluments of the Committee, excluding pension contributions, fell within the following bands:

Committee of Management members receive expenses for travel to and from Committee meetings at head officeand for attending external meetings on Society business.

Certain Committee members also received commission for introducing new business totalling £1,198 (2013: £235) forthe year. £300 of these commissions were paid to charity, after instructions by the member.

(530,296)(295,349)


12

Statement of Disclosure to AuditorsIt is the responsibility of the Committee of Management to ensure that applicable financial reporting standardshave been followed and that the accounts are prepared in an accurate and timely manner.

The Committee of Management members who held office at the date of the approval of the Report and Accountsconfirm that, as far as each of them is aware, there is no information relevant to the audit of the Society’s financial statements for the year ended 31 December 2014 of which the auditors are unaware;

And,

They have taken all steps they should have taken as Committee members to make themselves aware of any relevant audit information and to establish that the Society’s auditors are aware of that information.

By Order of the Committee

S Johnson - Chairman 12 March 2015


17


5 TAXATION

Current Tax:

UK corporation tax ..................................................................................................................

UK corporation tax re prior years .......................................................................................

Tax on excess of income ........................................................................................................

4 MANAGEMENT AND ADMINISTRATIVE EXPENSES

Salaries, including national insurance ................................................................................


Internal auditor’s fees ..............................................................................................................

Actuary’s fees .............................................................................................................................

Auditor’s fees - external audit ................................................................................................

Auditor’s fees - accountancy ..................................................................................................

Legal and professional fees ....................................................................................................

Committee of Management fees and expenses ................................................................

AGM expenses ...........................................................................................................................

Computer running costs .........................................................................................................

Website and software development ....................................................................................

Postage .........................................................................................................................................

Printing and stationery ...........................................................................................................

Insurance ....................................................................................................................................

Motor vehicle and travel costs ...............................................................................................

Subscriptions .............................................................................................................................

Lodge expenses ..........................................................................................................................

Bank charges ..............................................................................................................................

Miscellaneous expenses ..........................................................................................................

Charitable donations ................................................................................................................

Office expenses .........................................................................................................................

Entertaining ...............................................................................................................................

Advertising and promotional costs ......................................................................................

Personnel and training ...........................................................................................................

Fees and commissions paid ...................................................................................................

Depreciation - plant and equipment ...................................................................................

Depreciation - computer equipment ....................................................................................

Depreciation - office furniture ..............................................................................................

Recoverable VAT on expenses ...............................................................................................

Irrecoverable VAT on property insurance .........................................................................

Interest on finance leases .......................................................................................................

2014£

248,203

23,361

14,973

133,736

28,805

11,995

118,193

22,766

6,457

41,062

12,012

21,513

15,961

11,861

2,975

1,167

462

11,494

2,533

21,415

43,753

2,075

80,561

8,080

92,379

3,114

4,843

6,862

-

253

982,133

2013£

223,579

16,140

14,908

84,005

29,784

11,016

119,956

20,412

6,267

30,487

11,016

14,494

15,392

8,056

2,759

1,167

354

11,233

5,516

23,963

43,543

4,197

48,102

561

75,460

3,114

4,019

4,277

678

253

821,573

2013£

90,000

81,147

The tax charge on the excess of income over expenditure for the year was as follows:-

(10,731) (13,135)

(70,751)

(30,751)

(8,853)

2014£

40,000

16 13


2 INVESTMENT INCOME

Rents receivable ........................................................................

Lease surrender .........................................................................

Costs of maintaining properties ...........................................

Bad debt charge .........................................................................

Mortgage income ......................................................................

Income from listed investments ..........................................

Bank and building society interest ......................................

Loss on sale of investment property ...................................

Profit on sale of listed investments .....................................

£

1,062,768

45,000

(32,270)

(2,473)

194,993

925,013

15,429

(162,057)

50,888

£

1,073,025

1,135,435

2,208,460

(111,169)

2,097,291

2014

£

1,202,634

263,548

314,661

102,962

13,125

9

1,583

1,251

1,899,773

2013£

1,253,944

374,423

409,547

109,520

32,199

64

1,286

990

2,181,973

£

881,989

-

(11,321)

(41,538)

829,130

206,153

826,270

20,080

1,052,503

1,881,633

-

65,276

65,276

1,946,909

2014 2013

3 CLAIMS PAID

Matured policies ................................................................................................................

Surrendered policies .........................................................................................................

ISA withdrawals ................................................................................................................

Death benefits ....................................................................................................................

Child trust fund withdrawals .........................................................................................

Sickness benefits ...............................................................................................................

Additional benefits ...........................................................................................................

Cessation grants .................................................................................................................


Income and Expenditure Account for the year ended 31 December 2014

Contributions excluding child trust funds ................................................

Child trust fund contributions .....................................................................

Investment income ..........................................................................................

Claims paid .........................................................................................................

Management and administrative expenses ..............................................

Operating result ................................................................................................

Taxation ...............................................................................................................

Unrealised (losses)/gains on investments .................................................

Impairment of property value (revaluation) ............................................

Changes in long term business provisions ...............................................

Change in fund for future appropriations ................................................

2014£

9,687,479

515,593

2,097,291

12,300,363

(1,899,773)

(982,133)

9,418,457

30,751

(198,711)

(47,015)

(9,620,208)

416,726

-

2013£

5,646,536

482,256

1,946,909

8,075,701

(2,181,973)

(821,573)

5,072,155

(81,147)

5,905,701

-

(7,739,621)

(3,157,088)

-

Note

2

3

4

5

6

9

14

15

All income and expenditure relates to continuing operations.

There were no recognised gains or losses in 2014 or 2013 other than those included in the income and expenditure account.


14

Balance Sheet as at 31 December 2014

ASSETS

Investments .................................................................

Tangible fixed assets ..................................................

Debtors, prepayments and accrued income ........

Cash at bank and in hand .........................................

LIABILITIES

Creditors, accruals and deferred income ............

Long term business provisions ..............................

FUND FOR FUTURE APPROPRIATIONS

£

75,205,232

271,504

488,707

1,546,535

77,511,978

(492,738)

(66,853,181)

10,166,059

10,166,059

£

65,856,612

307,328

471,731

1,617,997

68,253,668

(437,910)

(57,232,973)

10,582,785

10,582,785

2014 2013Note

8

9

11

12

14

15

The financial statements were approved by the Committee of Management on 12 March 2015.

S Johnson N Spawforth A BurdinChairman Vice Chairman Chief Executive

15

Notes to the Financial Statements for the year ended 31 December 2014

1 ACCOUNTING POLICIES

Basis of accountingThe financial statements have been prepared in accordance with the Friendly Societies Act 1992, the FriendlySocieties (Accounts and Related Provisions) Regulations 1994, with applicable accounting standards and withthe Statement of Recommended Practices issued by the Association of British Insurers “The ABI SORP” inDecember 2005 and revised in December 2006.

ContributionsContributions are accounted for on a cash basis. The difference between this and the accruals basis is considered to be immaterial.

Claims paidClaims and benefits are included in the financial statements on an accruals basis.

Investment incomeInvestment income is accounted for on an accruals basis with property rents received in advance at the yearend being deferred to the subsequent period.

InvestmentsInvestments other than property and listed investments are stated at cost.

All investment properties are formally revalued every five years and interim desk-top valuations are performed in the intervening years. In accordance with SSAP 19, no depreciation is provided on the investment properties. Included within investment properties are three leasehold properties where the leaseis greater than 50 years.

Listed investments are restated to market value at each year end and the adjustment is shown in the Incomeand Expenditure Account as unrealised gains or losses.

Fixed assets and depreciationOffice and computer equipment are included at cost less depreciation. Depreciation is provided at rates calculated to write off the cost over each assets expected useful life as follows:Computer equipment 33.33% per annum straight lineOffice equipment 15% per annum straight linePlant in buildings (within freehold property) 10% per annum straight line

The society’s freehold property (other than plant in buildings) is included at cost and is not depreciated on thegrounds of immateriality.

TaxationTaxation is provided at current rates in respect of the taxable element of the Society’s business. As a friendlysociety the Society is subject to tax on only part of its life and endowment business, on realised gains on thedisposal of its investments and in respect of the increase / decrease in the value of its listed fixed interest securities.

Pension contributionsThe Society operates a group personal pension scheme, available for the majority of employees. The schemeis invested within the society in an earmarked fund. The Society’s contributions in respect of the year areshown in note 4. None were outstanding at the year end.

Fund for Future AppropriationsThe Fund for Future Appropriations incorporates amounts which have yet to be allocated to participating policyholders. Any surplus or deficit arising in the Income and Expenditure Account is transferred to or fromthe fund on an annual basis. Surpluses are allocated by the Committee of Management to participating policyholders by way of bonuses. Any unallocated surplus is carried forward in the Fund for FutureAppropriations.

Long term business provisionsThe provisions are determined by the Society’s Actuarial Function Holder and With-Profits Actuary followinghis annual investigation of the Society’s long term business and linked liabilities.

(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

16 13


2 INVESTMENT INCOME

Rents receivable ........................................................................

Lease surrender .........................................................................

Costs of maintaining properties ...........................................

Bad debt charge .........................................................................

Mortgage income ......................................................................

Income from listed investments ..........................................

Bank and building society interest ......................................

Loss on sale of investment property ...................................

Profit on sale of listed investments .....................................

£

1,062,768

45,000

(32,270)

(2,473)

194,993

925,013

15,429

(162,057)

50,888

£

1,073,025

1,135,435

2,208,460

(111,169)

2,097,291

2014

£

1,202,634

263,548

314,661

102,962

13,125

9

1,583

1,251

1,899,773

2013£

1,253,944

374,423

409,547

109,520

32,199

64

1,286

990

2,181,973

£

881,989

-

(11,321)

(41,538)

829,130

206,153

826,270

20,080

1,052,503

1,881,633

-

65,276

65,276

1,946,909

2014 2013

3 CLAIMS PAID

Matured policies ................................................................................................................

Surrendered policies .........................................................................................................

ISA withdrawals ................................................................................................................

Death benefits ....................................................................................................................

Child trust fund withdrawals .........................................................................................

Sickness benefits ...............................................................................................................

Additional benefits ...........................................................................................................

Cessation grants .................................................................................................................


Income and Expenditure Account for the year ended 31 December 2014

Contributions excluding child trust funds ................................................

Child trust fund contributions .....................................................................

Investment income ..........................................................................................

Claims paid .........................................................................................................

Management and administrative expenses ..............................................

Operating result ................................................................................................

Taxation ...............................................................................................................

Unrealised (losses)/gains on investments .................................................

Impairment of property value (revaluation) ............................................

Changes in long term business provisions ...............................................

Change in fund for future appropriations ................................................

2014£

9,687,479

515,593

2,097,291

12,300,363

(1,899,773)

(982,133)

9,418,457

30,751

(198,711)

(47,015)

(9,620,208)

416,726

-

2013£

5,646,536

482,256

1,946,909

8,075,701

(2,181,973)

(821,573)

5,072,155

(81,147)

5,905,701

-

(7,739,621)

(3,157,088)

-

Note

2

3

4

5

6

9

14

15

All income and expenditure relates to continuing operations.

There were no recognised gains or losses in 2014 or 2013 other than those included in the income and expenditure account.


12

Statement of Disclosure to AuditorsIt is the responsibility of the Committee of Management to ensure that applicable financial reporting standardshave been followed and that the accounts are prepared in an accurate and timely manner.

The Committee of Management members who held office at the date of the approval of the Report and Accountsconfirm that, as far as each of them is aware, there is no information relevant to the audit of the Society’s financial statements for the year ended 31 December 2014 of which the auditors are unaware;

And,

They have taken all steps they should have taken as Committee members to make themselves aware of any relevant audit information and to establish that the Society’s auditors are aware of that information.

By Order of the Committee

S Johnson - Chairman 12 March 2015


17


5 TAXATION

Current Tax:

UK corporation tax ..................................................................................................................

UK corporation tax re prior years .......................................................................................

Tax on excess of income ........................................................................................................

4 MANAGEMENT AND ADMINISTRATIVE EXPENSES

Salaries, including national insurance ................................................................................


Internal auditor’s fees ..............................................................................................................

Actuary’s fees .............................................................................................................................

Auditor’s fees - external audit ................................................................................................

Auditor’s fees - accountancy ..................................................................................................

Legal and professional fees ....................................................................................................

Committee of Management fees and expenses ................................................................

AGM expenses ...........................................................................................................................

Computer running costs .........................................................................................................

Website and software development ....................................................................................

Postage .........................................................................................................................................

Printing and stationery ...........................................................................................................

Insurance ....................................................................................................................................

Motor vehicle and travel costs ...............................................................................................

Subscriptions .............................................................................................................................

Lodge expenses ..........................................................................................................................

Bank charges ..............................................................................................................................

Miscellaneous expenses ..........................................................................................................

Charitable donations ................................................................................................................

Office expenses .........................................................................................................................

Entertaining ...............................................................................................................................

Advertising and promotional costs ......................................................................................

Personnel and training ...........................................................................................................

Fees and commissions paid ...................................................................................................

Depreciation - plant and equipment ...................................................................................

Depreciation - computer equipment ....................................................................................

Depreciation - office furniture ..............................................................................................

Recoverable VAT on expenses ...............................................................................................

Irrecoverable VAT on property insurance .........................................................................

Interest on finance leases .......................................................................................................

2014£

248,203

23,361

14,973

133,736

28,805

11,995

118,193

22,766

6,457

41,062

12,012

21,513

15,961

11,861

2,975

1,167

462

11,494

2,533

21,415

43,753

2,075

80,561

8,080

92,379

3,114

4,843

6,862

-

253

982,133

2013£

223,579

16,140

14,908

84,005

29,784

11,016

119,956

20,412

6,267

30,487

11,016

14,494

15,392

8,056

2,759

1,167

354

11,233

5,516

23,963

43,543

4,197

48,102

561

75,460

3,114

4,019

4,277

678

253

821,573

2013£

90,000

81,147

The tax charge on the excess of income over expenditure for the year was as follows:-

(10,731) (13,135)

(70,751)

(30,751)

(8,853)

2014£

40,000

Members of the Committee of Management

Sheila Johnson, FCIB, Age 66 - ChairmanSheila has over 40 years experience in the financial services sector, most of them with building societies. More recently,Sheila held various senior positions with the Mansfield Building Society and was the Society’s Compliance and EmployeeDevelopment Executive until her retirement at the end of 2008. In addition to being the Society’s Chairman, Sheila is anon-remunerated Trustee of the Mansfield Building Society Retirement and Death Benefit Scheme. Sheila lives inFinningley, near Doncaster, with her husband Richard.

Neil Spawforth, MRICS, Age 39 - Vice ChairmanNeil has over 15 years experience as a Chartered Surveyor and his knowledge of commercial property is of great value tothe Society. In addition to being a member of Sheffield Mutual’s Committee of Management, where he became ViceChairman in 2012, Neil is a Regional Property Manager for Community Solutions Partnership Services, where he managesa number of Primary Care facilities across the north of England. He is also a non-executive director of the Priory Campus(non-remunerated). Neil has been a member of the Society since 2007 and lives in Altofts, West Yorkshire, with his wifeCharlotte and their two children.

Thomas Burton, Grad RIC, FPC1, Age 68 - TrusteeTom joined the Committee in 1999 and served as Chairman from 2005 to 2012, then becoming a Trustee in 2013. He retired from full-time employment ten years ago after working in the nuclear fuels industry for 39 years as a teamleader. One of his specialities then was dealing with compliance issues, which has proved to be very useful when servingon the Committee. He lives in Lytham St Anne's with his wife, Marian, and his hobbies include gardening, photographyand home computing.

Melvyn Lunn, FCA MCMI AIC CIHM, Age 66 - TrusteeMelvyn qualified as a Chartered Accountant over 40 years ago and has worked both in the public and private sectors and more recently in private practice. He holds a number of non-executive and trustee positions, including BarnsleyCommunity Build (non-remunerated and a trustee) and Priory Campus (non-remunerated and a trustee). He is HonTreasurer of Barnsley Metropolitan Borough Scouts and Silverwood Camp (non-remunerated), where he is also a trustee.Melvyn is Chair of Berneslai Homes Limited (remunerated) and Chair of the Joint Independent Audit Committee of theSouth Yorkshire Police and Crime Commissioner and Chief Constable (remunerated). During the year he became a non-executive director of the National Federation of ALMOs (non-remunerated) and a trustee of the South YorkshireCommunity Foundation (non-remunerated). He is married to Anne and has two sons.

Jan Barber, Age 59Jan has over 20 years experience in the mutual financial services sector, having held various senior positions in two medium-to-large building societies. Jan brings a wealth of relevant skills to the Committee of Management, particularly inthe areas of customer services, sales management, team performance and regulatory compliance. Having been semi-retiredsince 2009, Jan finds time to help and support local charities close to her home in Cookridge, Leeds and in her spare timeshe enjoys gardening, walking and reading.

Stephen Birch, Age 60Stephen started work at 16 as an apprentice craftsman in the power supply industry and now works as an Electrical PowerEngineer for the National Grid, where he has also been a Trade Union representative for over 20 years. Stephen was aLodge Secretary for 28 years and has served on the Committee since 1989, including two years as President from June 1998to 2000. His hobbies include DIY, gardening and historic vehicles.

Anthony Robert Burdin, Age 53 - Chief ExecutiveTony joined the Society on 2 March 2009 as Chief Executive and during the past six years he has led the continued growthand development of the Society. During this period Tony has overseen an almost fourfold increase in assets and premiumincome, whilst delivering market-leading returns for members. He has worked in the mutual sector for more than 35 yearsand has held a number of senior positions in the building society and friendly society sectors. Tony has a broad base ofexecutive management skills and holds professional qualifications in sales and marketing. He is married and lives in NorthYorkshire.

Stephen Hindmarsh, Age 62Stephen is a retired solicitor who was in practice as a partner with a major regional legal firm. Stephen has more than 36years experience of legal work and also the marketing and management expertise needed to operate as a partner in sucha firm. Stephen’s specialist area was commercial property transaction work. He dealt with major sales, purchases and landlord and tenant work as well as property development. At all times during his years in practice, Stephen acted forfriendly societies including Sheffield Mutual. As a result of this background he has a good working knowledge of theFriendly Society movement, of the issues which affect friendly societies and other mutual organisations and knowledge ofthe legal structures and statutory provisions that underpin those structures. Since his retirement Stephen volunteers as anadviser at his local Citizens Advice Bureau. He is treasurer of the Manchester Area Cross Country League and regularlyattends the matches which the League organise. Stephen’s hobbies are cycling, swimming and hill walking.


11


18


Unrealised gain/(losses) on properties ................................................................................

Unrealised gain/(losses) on listed investments .................................................................

With Profits .............................................

Unit Linked .............................................

(143,368)

240,006

(198,711)

1,310,968

5,125,029

5,905,701

2014£

2013£

8 INVESTMENTS Note

Summary

Land and buildings ........................................................................................................... (a)

Mortgages on land and buildings ................................................................................. (b)

Listed investments ............................................................................................................ (c)

Bank and money market deposits ......................................................................................

17,243,400

2,749,583

53,615,714

1,596,535

75,205,232

13,602,845

3,413,333

48,084,893

755,541

65,856,612

2014£

2013£

6 UNREALISED (LOSSES)/GAINS ON INVESTMENTS

£0 - £5,000 ........................................................................................................................

£80,001 - £90,000 ......................................................................................................................

7

1

8

1

2014No

2013No

Remuneration and attendance fees ....................................................................................

Society pension contributions to defined contribution schemes ..............................

Expenses .....................................................................................................................................

Total emoluments ....................................................................................................................

Chairman ....................................................................................................................................

Highest paid member:

Salary ...........................................................................................................................................


106,430

16,835

3,836

127,101

3,964

87,500

16,835

103,712

9,850

4,200

117,762

3,474

87,500

9,850

2014£

2013£

7 COMMITTEE EMOLUMENTS

The emoluments of the Committee, excluding pension contributions, fell within the following bands:

Committee of Management members receive expenses for travel to and from Committee meetings at head officeand for attending external meetings on Society business.

Certain Committee members also received commission for introducing new business totalling £1,198 (2013: £235) forthe year. £300 of these commissions were paid to charity, after instructions by the member.

(530,296)(295,349)


10


Committee Members’ Emoluments

Salary/Fees Taxable Pension 2014 2013& Expenses Benefits Contributions Total Total£ £ £ £ £

ChairmanS Johnson 3,964 - - 3,964 3,474

TrusteesK Hartley (retired 8 June 2013) - - - - 1,432M Kennerell (retired 8 June 2013) - - - - 1,632T Burton 4,448 - - 4,448 3,601M Lunn 3,418 - - 3,418 2,475

CommitteeJ Barber 3,088 - - 3,088 2,467S Birch 3,474 - - 3,474 2,922S Hindmarsh (appointed 18 July 2014) 1,505 - - 1,505 -N Spawforth 2,869 - - 2,869 2,409

Chief ExecutiveA Burdin 87,500 - 16,835 104,335 97,350

19

(b) Mortgages on land and buildings

Commercial:

Balance as at 1 January 2014 ..........................................................................................

Advances during the year ...............................................................................................

Repaid during the year ....................................................................................................

Balance as at 31 December 2014 ...................................................................................

(c) Listed investments at valuation


Other listed investments - equities ...............................................................................

- fixed interest .....................................................................

Child Trust Fund investments .......................................................................................

Balances as at 31 December ...........................................................................................

Cost of listed investments:


Other listed investments .................................................................................................

Unit linked investments ..................................................................................................

2014

£

1,535,069

13,232,717

7,768,090

31,079,838

53,615,714

1,449,930

19,963,164

21,460,328

42,873,422

Investmentproperties

£

13,602,845

4,595,904

(660,000)

(295,349)

17,243,400

£

3,413,333

-

(663,750)

2,749,583

2013

£

1,101,966

11,112,835

5,569,260

30,300,832

48,084,893

1,061,677

15,068,459

20,921,328

37,051,464

The freehold and leasehold properties were revalued by Mr Robin Curtis MRICS, Director at Brownill VickersLimited. Mr Robin Curtis MRICS is a fully qualified chartered surveyor and an RICS Registered Valuer. A formalvaluation took place in January 2012, on an open market basis. This was updated by a desk-top valuation inDecember 2014 and the property valuations have been adjusted accordingly.

8 INVESTMENTS - Continued

(a) Land and buildings

Cost or valuation:

Balance as at 1 January 2014 ...........................................................

Additions ...............................................................................................

Disposals ................................................................................................

Revaluation in year ............................................................................

Balance as at 31 December 2014 ....................................................


Committee EvaluationThe Chairman carried out a formal review of each Committee member by obtaining and co-ordinating responsesto individual questionnaires which were circulated to all members. The results were then discussed individually asappropriate. In addition, each member was consulted to assess the performance of the Committee as a whole andthe Sub-Committee.

The Vice Chairman co-ordinates the responses to a questionnaire relating to the performance of the Chairman incarrying out her duties and the results are discussed without the Chairman being present. The Chief Executive'sperformance is reviewed by the Committee.

The Committee has continued to develop its knowledge by receiving specialist presentations from the Actuary,Compliance Consultant, Internal Auditors and Stockbroker. The Chairman has met with other non-executiveCommittee members without the Chief Executive being present.

There is a succession plan in place which has identified potential replacement dates and skills requirements.Subject also to the Society's rules, new appointments to the Committee are being made on the basis of three yearterms. Where Committee members have held their position for more than nine years, they will be subject to re-election at the Society's Annual General Meeting on a year by year basis.

The Society has no formal diversity policy for Committee appointments, preferring instead to appoint the best candidate against the criteria agreed in relation to the required skills and experience. However, the Committee ismindful of gender diversity and it should be noted that two of the seven non-executive Committee members arefemale.

Stephen Hindmarsh, a recently retired solicitor, was appointed to the Committee in July 2014 in anticipation offuture Committee retirements and to meet a particular skills gap. Stephen, whose legal experience will be a greatasset to the Society, will be offering himself for election at the Annual General Meeting and the Chairman recommends that he should be elected. Stephen was personally known and recommended to the Society as havingthe required skills to fill this particular vacancy. It was not necessary, therefore, to use a search agency or place anopen advertisement on this occasion. Future member vacancies would normally be advertised in the Society’sannual Newsletter.

There are four Committee members offering themselves for re-election at the Annual General Meeting and the Chairman confirms that, following formal performance evaluation, each individual's performance remains effective and that they continue to demonstrate commitment and independent judgement to the role. She recommends therefore that they should be re-elected.

Report on the Committee Members’ RemunerationThe Chief Executive is employed on a contract with the Society which requires six months notice by either partyand his salary package is reviewed annually by the Committee without him being present. He is a member of theSociety's Group Personal Pension Scheme and is eligible for a performance related annual bonus payment of up to£5,000, which may be paid as a pension contribution.

Committee members are remunerated for their attendance at meetings and other time spent on Society businessbased on a predetermined hourly rate, plus a retainer fee. The remuneration of the Chairman is decided by otherCommittee members and the Committee agrees their own fee rate. Fee levels are reviewed annually and it wasdecided that the hourly rate would be increased by £1 to £31 for the Chairman and other Committee members from2015. The annual retainer fee was increased by £50 to £2,050 for the Chairman, by £50 to £1,800 for the Trusteesand by £50 to £1,550 for other Committee members from 2015. Whilst Committee fees remain modest comparedwith our peers, the fees must be sufficient to recruit, retain and motivate people with the required skills, experience and qualities to run the Society successfully. With this in mind, an independent third party review willbe undertaken during 2015.


9

Attendance at MeetingsCommittee Finance

Number of Meetings Attended Number of Meetings Attended

S JohnsonT BurtonM LunnJ BarberS Birch A BurdinS Hindmarsh N Spawforth

1010101010105

10

109999

105

10

12121276

1235

12111176

1235


20


Freeholdproperty

£

290,000

2,015

-

(47,015)

245,000

-

-

-

-

245,000

290,000

Plant, officefurniture &equipment

£

79,787

9,487

-

-

89,274

71,960

-

6,862

78,822

10,452

7,828

Computerequipment

£

94,590

14,508

-

-

109,098

85,089

-

7,957

93,046

16,052

9,500

Total

£

464,377

26,010

-

(47,015)

443,372

157,049

-

14,819

171,868

271,504

307,328

9 TANGIBLE FIXED ASSETS

Cost or valuation


Additions ......................................................................

Disposals ......................................................................

Revaluation .................................................................


Depreciation


Disposals ......................................................................

Charge for the year ....................................................


Net book value

As at 31 December 2014 ...........................................

As at 31 December 2013 ...........................................

2013£

925,000

2014£

-

10 CAPITAL COMMITMENTS

At 31 December 2014, the Society had capital commitments as follows:-

Contracted for, but not provided for in the financial statements .............................

11 DEBTORS, PREPAYMENTS AND ACCRUED INCOME

Accrued rents..............................................................................................................................

Bad debt provision....................................................................................................................

Mortgage interest due ..............................................................................................................

Property insurance premiums recoverable .......................................................................

Prepayments ..............................................................................................................................

Accrued investment income ..................................................................................................

12 CREDITORS, ACCRUALS AND DEFERRED INCOME

Accruals and deferred income ..............................................................................................

Amounts due re lapsed policies ........................................................................................

VAT ...............................................................................................................................................

Corporation tax .........................................................................................................................

PAYE and national insurance ................................................................................................

Finance lease obligations ........................................................................................................

2014£

122,548

-

9,751

2,579

20,662

333,167

488,707

2014£

299,981

58,839

84,612

40,000

7,183

2,123

492,738

2013£

96,217

(41,538)

10,820

3,183

127,906

275,143

471,371

2013£

284,999

29,096

25,047

90,000

5,583

3,185

437,910

The freehold property has been revalued in accordance with the details in Note 8(a)

Annotated UK Corporate Governance CodeThe Society has adopted the Annotated Version of the UK Corporate Governance Code for Mutual Insurers (the“Code”) and submits a monitoring questionnaire, along with other mutual societies, to the Association of FinancialMutuals, who will in turn report to the regulators. The Chairman ensures that the Code’s principles relating to therole and effectiveness of the Committee are appropriately and proportionately applied and can confirm that theSociety has complied with the Code during 2014, with the exception of the following, which we identify under the'comply or explain' regime.

The annotated Code states that the roles of Chief Executive and Secretary should ideally be split. However, theCommittee is confident that it receives the necessary guidance and support and can also call upon the FinanceManager to ensure good information flows to the Committee and Sub-Committee. The Committee believes thatthe cost of employing a separate Secretary would not at this stage be an appropriate use of funds.

Proportionate to the size and complexity of the business, the Society does not have distinct Nomination andRemuneration or Audit Committees, but matters which would be dealt with by such committees are reviewedby the full Committee.

There is no Senior Independent Committee member, but the Vice Chairman has been nominated to receiveany items from members or other Committee members, where they do not feel that an issue can be resolvedby either the Chief Executive or Chairman.

Two Committee members have served in their position for more than nine years. The Code questions whetherafter this period, an individual can be viewed as being independent, but it is the Committee's ongoing opinionthat both of the individuals in this category still provide balanced views on issues facing the Society. TheseCommittee members will offer themselves for annual re-election.

Although sensitive to pay and employment conditions elsewhere, the Committee does not assess formallyremuneration levels relative to other organisations as it prefers to act independently.

The Society has no formal diversity policy for Committee appointments, preferring instead to appoint the bestcandidate against the criteria agreed in relation to the required skills and experience.

A significant proportion of executive directors’ remuneration is not structured so as to link rewards to corporate and individual performance, as the Chief Executive is the only executive director and is responsiblefor carrying out various functions, including compliance and secretarial.

As the Chief Executive is very close to the day-to-day operations of the business and most Committee members have regular contact with members, we have not established formal member forums or panels inorder to ensure that the views of members are understood and communicated.

Chairman’s Statement on Corporate GovernanceIt is my responsibility to ensure that the Society applies the principles of the Code across the business appropriately. The Committee and I may judge that some of the Code provisions are disproportionate given the size and complexity of the business. However, as set out in the ‘comply or explain’ statements above, theCommittee aims to apply the spirit of the principles and provisions of the Code in a manner with less onerousresource implications. Moreover, the Committee’s intention is to adopt the highest standards of corporate governance for an organisation of our scale and in the best interests of our members.

S Johnson - Chairman


8


1.

2.

3.

4.

5.

6.

7.

8.

Corporate GovernanceIn 2014 the Committee comprised of the non-executive Chairman, two Trustees, four other non-executive members(three until 18 July 2014) and one executive member (Chief Executive). Biographies for each of these are shown onpage 11 and the Committee believes that the balance of skills and experience of the members is appropriate to thecurrent requirements of the business. Furthermore, it believes that all Committee members are independent incharacter and judgement.

The Committee determines the strategic direction of the Society and reviews its operating and financial position.The Committee met on ten occasions during 2014 and there is a schedule of regular reports and information, whichthey consider at the meetings and which is agreed annually. Reports are provided to the Committee in advance ofeach meeting. The Chief Executive is responsible for carrying out the agreed strategy and the day to day runningof the Society and there is a clear division of responsibilities between the roles of the Chief Executive andChairman.

There are certain decisions that are reserved for the Committee and these include:

● declaration of annual bonus rates● acquisition/disposal of significant assets● committee succession planning● approval of the annual report and accounts● remuneration policy

21


2014£

10,582,785

(416,726)

10,166,059

With profits£

25,332,410

9,360,389

34,692,799

Unit linked£

29,129,600

361,634

29,491,234

Other£

2,770,963

(101,815)

2,669,148

Total£

57,232,973

9,620,208

66,853,181

14 LONG-TERM BUSINESS PROVISIONS

At 1 January 2014 ....................................................................

Transfer from Income & Expenditure Account ..............

At 31 December 2014 .............................................................

2014£

1,315

808

2,123

2013£

1,315

1,870

3,185

2013£

7,425,697

3,157,088

10,582,785

15 FUND FOR FUTURE APPROPRIATIONS

At 1 January 2014 ................................................................................................................................

Surplus/(Deficit) for the year ...........................................................................................................

At 31 December 2014 .........................................................................................................................

16 ACTUARIAL VALUATION AND TECHNICAL PROVISIONAn Actuarial Report on the assets and liabilities of the Society was last prepared as at 31 December 2014 and acopy of this Report may be inspected at the Registered Office of the Society.

17 CAPITAL STATEMENTThe Society is required to comply with Financial Reporting Standard (FRS) 27 for Life Assurance. The main impact is to require detailed disclosure of the liabilities and financial strength of the Society.The capital statement illustrates the financial strength of the Society’s life business and shows an analysis of the available capital resources calculated on a regulatory basis for the Society. A statutoryvaluation was carried out at 31 December 2014 in conformity with Rule 5.1(A) of the Interim PrudentialSourcebook for Friendly Societies. This Rule requires Directive Societies to value their business in conformity with the Rules in Chapter 9 of the Interim Prudential Sourcebook for Insurers and so limitations apply to many of the key assumptions used.

Fund for future appropriations (note 15) ..................................................................

General reserve ..................................................................................................................

Total available capital resources ...................................................................................

2014£

10,166,059

(500,000)

9,666,059

2013£

10,582,785

(425,000)

10,157,785

13 RELATED PARTY TRANSACTIONDuring the year, Mr Hindmarsh became a Committee Member of the Society. Previously Mr Hindmarsh had beena partner at Hill Dickinson, the Society’s legal advisors. Mr Hindmarsh is retained on a short term consultancy basisat Hill Dickinson and the Society continues to engage Hill Dickinson as its legal advisors, however the services provided by Hill Dickinson during the year have been supplied by staff unconnected to the Society. Total fees paidto Hill Dickinson during the year amount to £49,590 (2013: £51,984).

12 CREDITORS, ACCRUALS AND DEFERRED INCOME - Continued

Analysis of finance lease obligations

Amounts payable in one year ............................................................................................................

Amounts payable in more than one year .......................................................................................

Finance & Risk Sub-CommitteeThe Society has a Finance & Risk Sub-Committee which meets on a monthly basis and is comprised of the twoTrustees, the Society's Chairman and one other Committee member by rotation, plus the Chief Executive.Occasionally, the matters which are usually dealt with by this Sub-Committee are discussed by the full Committeedepending upon the timing of meetings. The Sub-Committee is not chaired by the Society's Chairman and the position of Sub-Committee Chairman is normally rotated between the Trustees on a bi-annual basis.

The Sub-Committee's main responsibilities are:

● to review monthly Income & Expenditure● to review the Balance Sheet on a quarterly basis● to consider and review recommendations from, and performance of, the Society's Stockbroker and

agree sales and purchases as necessary● to monitor the Society's property portfolio and agree sales and purchases within delegated limits● to monitor the Society’s risks, ensuring that they are managed effectively● to monitor outstanding audit observations, ensuring that any recommended actions are carried out

Risk ManagementThe oversight and direction of the Committee remains central to risk management and it ensures, through theFinance & Risk Committee, that appropriate policies, procedures and processes are implemented across the business to control and monitor both the actual and potential risk exposures which arise from the Society’s operations. The Committee ensures exposed risks are aligned to the Society’s risk appetite and that any unacceptable risk exposures are identified and either terminated or where appropriate mitigated.

In addition to the ongoing assessment of known risk exposures, the Chief Executive and Finance Manager monitor external and emerging risks within the Society’s forward-looking Risk Matrix, which is reviewed by theFinance & Risk Sub-Committee on a quarterly basis. Risks which could threaten the Society’s business model areassessed, managed and mitigated through a process known as reverse stress testing. The full Committee is providedwith an Annual Risk Analysis, which summarises the Society’s principal risks and how they are managed and mitigated. The new ORSA is also central to the risk management framework.

Internal ControlsThe Society has an established framework of internal controls for the management of risk within the business andto safeguard the interests of members. The Committee reviews the effectiveness of its internal control systems at least annually by receiving reports from the external Compliance Consultant and our Internal Auditors. The Internal Auditors carry out an independent risk-based audit each year to international standards, includingseveral days on site, and work to a Committee approved programme designed to evaluate and improve the effectiveness of risk management, controls and governance processes. Their reports are considered by the fullCommittee and action taken where appropriate.

External AuditThe Society has no distinct audit committee but the work normally undertaken by an audit committee is carriedout by the full Committee of Management. The current external auditors, Barber Harrison & Platt, have acted inthis capacity since 2004. They provide no significant non-audit services which would affect their objectivity and independence. The effectiveness of the external audit process is assessed by the Committee based on a comprehensive audit strategy and methodology, which is reviewed and approved by the Committee prior to theaudit commencing. The Committee receives a report and presentation of the audit findings at its conclusion. The appointment and re-appointment of the external auditors is subject to a resolution at the Society’s AGM.

With-Profits GovernanceThe Society’s With-Profits Advisory Arrangement (“WPAA”) is made up of the Society’s two Trustees supported bythe With-Profits Actuary and its role is to act in an advisory capacity to inform the decision making of theCommittee of Management in relation to the with-profits fund. In particular the role of the WPAA is to considerthe interests of with-profits policyholders, ensuring they are treated fairly and that the fund is managed in accordance with the Society’s Principles and Practices of Financial Management (“PPFM”). A copy of the terms ofreference of the WPAA and the PPFM (including a customer friendly version called the “With-Profits Guide”) canbe obtained from the Society’s website www.sheffieldmutual.com.

Report of the Committee to With-Profits PolicyholdersThe Committee is required to produce a report to all with-profits policyholders explaining how it has managed itswith-profits business, complied with the PPFM and how the Committee has exercised discretion in its decisions.This report will be available from the Society’s website before 30 June 2015.



722

17 CAPITAL STATEMENT - ContinuedThe Society became Directive on 1 January 2012 and is now required to calculate a Long Term Insurance CapitalRequirement and a Resilience Capital Requirement. The sum of these items is £4,173,000. The Society’s capitalresources are 232% of its capital requirements.

Approximately 39% of the fund excluding the Child Trust Fund business is held in property and approximately30% is held in equities. These are sensitive to market movements in general. About 21% is held in UK bonds, andchanging market conditions can affect bond values and future returns. Each bond also has its own individual credit risk. About 6% is held in the form of commercial mortgages and these are subject to default risk.

The valuation interest rate is determined by the overall return achieved on the assets held by the fund.Adjustments were made to the yield assumed to allow for current market conditions.

The main assumptions used in the statutory valuation carried out on 31 December 2014 are set out below.

● Valuation Interest RateTraditional Benefit Tables, Death Benefit and Sickness Tables: 2.25% (2013: 3.00%)Funeral plans: 2.10% (2013: 3.00%)Tax Exempt With-Profits Business: 2.00% (2013: 2.50%)Taxable With-Profits Business: 1.60% (2013: 2.00%)

● MortalityAll applicable tables: 60% of ELT15 Males.

● SicknessAll applicable tables: 150% of Manchester Unity (AHJ)

● ExpensesThe allowance in the premium rates plus a specific reserve

● Tax20% on interest and expenses for relevant taxable business

The main variable in the calculation of the technical provisions is the assumed interest rate. An increase in theassumed interest rate of 0.50% leads to a reduction of £777,000 in the technical provisions and a decrease in theassumed interest rate of 0.50% leads to an increase of £976,000 in the technical provisions, as at 31 December 2014.The effect of changes in the experienced rates of mortality and morbidity do not have any material effect on the technical provisions. This is because the two largest classes of contract are pure endowments (where the premiums are returned with interest on death), and single premium bonds where the valuation method generallyholds the surrender value as the reserve.

The main variable in the assets is a change in the market value. The actuary has modelled the effect of changes inthe assets backing the liabilities. The resilience capital requirement of £2,300,000 is the amount set aside to coverthis situation.


Analysis of change in capital resources:

Total available capital resources at 1 January 2014 ..............................................................

Premiums less claims and expenses ..........................................................................................

Investment income less tax ..........................................................................................................

Unrealised (losses) / gains on investments ..............................................................................

Impairment of own property .......................................................................................................

Change in mathematical reserves ...............................................................................................

Cost of bonus ....................................................................................................................................

Change in general reserves ...........................................................................................................

Change in resilience reserve ........................................................................................................

Total available capital resources at 31 December 2014 ........................................................

2014£,000

10,158

7,322

2,128

(199)

(47)

(8,564)

(1,057)

(75)

-

9,666

2013£,000

7,076

3,125

1,866

5,906

-

(6,959)

(781)

(75)

-

10,158


6

Committee’s Report for the year ended 31 December 2014

COMMITTEE OF MANAGEMENT

The following have served as members of the Committee of Management during the year:

Mrs J BarberMr S BirchMr A R BurdinMr T BurtonMr S HindmarshMrs S JohnsonMr M LunnMr N Spawforth

Committee Committee Committee/Chief ExecutiveCommittee/TrusteeCommittee (appointed 18 July 2014)ChairmanCommittee/TrusteeVice Chairman

Responsibilities of the Committee of ManagementThe following statement is made by the Committee of Management in relation to the preparation of the annualfinancial statements, annual business statement, Strategic Report and Committee Report.

The Committee of Management is required by the Friendly Societies Act 1992 ('the Act') to prepare for each financial year annual financial statements, which give a true and fair view of the state of affairs of the Society asat the year end and of the income and expenditure of the Society during that year.

In preparing those financial statements, the Committee is required to:

● select appropriate accounting policies and apply them consistently● make judgements and estimates that are reasonable and prudent● state whether applicable accounting standards have been followed, and any material departures

disclosed and explained in the financial statements● prepare the financial statements on a going concern basis, unless it is inappropriate to assume

that the Society will continue in business

In addition to the financial statements, the Committee is responsible for ensuring that the Society:

● keeps accounting records in accordance with the Act● takes reasonable care to establish, maintain, document and review such systems and controls as are

appropriate to its business in accordance with the rules made by the regulators under the FinancialServices and Markets Act 2000

They also have general responsibility for safeguarding the assets of the Society and to take reasonable steps for theprevention and detection of fraud and other irregularities.

The Committee confirms that it has complied with the above requirements and considers that the annual reportand accounts, taken as a whole, is fair, balanced and understandable, and provides the information necessary formembers to assess the Society’s position and performance, business model and strategy.

Going ConcernThe Committee is satisfied that the Society has adequate resources to continue in business for the foreseeablefuture. The Committee considers it appropriate, therefore, to prepare the financial statements on a going concernbasis.

Operating PowersIt is the opinion of the Committee of Management that no activities have been carried on outside its powers during the financial period.

SolvencyThe Society had the required margin of solvency as prescribed in regulations made by the Prudential RegulationAuthority for its relevant classes of business at 31 December 2014.

Complaints by MembersThe Society has a documented complaints procedure and aims to treat its members fairly. There have been noreportable complaints this year.

23

INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OFSHEFFIELD MUTUAL FRIENDLY SOCIETY


We have audited the financial statements of Sheffield Mutual Friendly Society for the year ended 31 December2014, which comprise the Income and Expenditure Account, the Balance Sheet and the related notes. The financialreporting framework that has been applied in their preparation is applicable law and United Kingdom AccountingStandards (United Kingdom Generally Accepted Accounting Practice).

This report is made solely to the Society’s members, as a body, in accordance with section 73 of the FriendlySocieties Act 1992. Our audit work has been undertaken so that we might state to the Society’s members those matters we are required to state to them in an auditors report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone other than the Society and the Society’smembers as a body, for our audit work, for this report, or for the opinions we have formed.

Respective responsibilities of the Committee of Management and auditorAs explained more fully in the Committee of Management’s Responsibilities Statement set out on page 6, theCommittee of Management is responsible for preparing financial statements which give a true and fair view. Ourresponsibility is to audit and express an opinion on the financial statements in accordance with applicable law andInternational Standards on Auditing (UK and Ireland) (“ISA’s”). Those standards require us to comply with theAuditing Practices Boards [(APB’s)] Ethical Standards for Auditors.

Scope of the audit of the financial statementsA description of the scope of an audit of financial statements is provided on the FRC’s website atwww.frc.uk/apb/scope/private.cfm.

Opinion on financial statements

In our opinion the financial statements:

give a true and fair view, in accordance with UK Generally Accepted Accounting Practice, of the state of theSociety’s affairs as at 31 December 2014 and of its income and expenditure for the year ended; and

have been properly prepared in accordance with the Friendly Societies Act 1992 and the regulations made under it.

Audit commentaryWithout modifying our opinion, we highlight the following matters that, in our judgement are likely to be mostimportant to users’ understanding of our audit. Our audit procedures relating to these matters were designed inthe context of our audit of the financial statements as a whole, and not to express an opinion on individualaccounts or disclosures.

Our assessment of risks of material misstatementWe identified the following risks that we believe to have had the greatest impact on our audit strategy and scope:

the integrity of the input data and application of suitable methodology, modelling processes and assumptions inthe calculation of the Society’s long term technical provision liabilities;

revenue recognition, including the timing, completeness and accounting of premium income; and

the risk of management override of internal controls. International Standards on Auditing (UK and Ireland) statethat this risk must always be treated as significant.

Our application of materialityWe apply the concept of materiality both in planning and performing our audit, and in evaluating the effect of misstatement on our audit and the financial statements. For the purposes of determining whether the financialstatements are free from material misstatement, we define materiality as the magnitude of misstatement thatmakes it probable that the economic decisions of a reasonably knowledgeable person, relying on the financial statements, would be changed or influenced.

We also determine a level of performance materiality which we use to determine the extent of testing needed to reduce to an appropriately low level the probability that the aggregate of uncorrected and undetected misstatements exceeds materiality for the financial statements as a whole.

When establishing our overall audit strategy, we determined an overall level of uncorrected misstatement that wejudged would be material for the financial statements as a whole. We determined planning materiality for theSociety to be £450,000 which is approximately 1% of Gross Assets excluding the Child Trust Fund assets.

On the basis of our risk assessment, together with our assessment of the Society’s overall control environment, ourjudgement is that the overall performance materiality level should be 90% of planning materiality, namely£405,000.

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5


Principal Risks and UncertaintiesThe Committee is responsible for determining the nature and extent of the principal risks it is willing to take inachieving its strategic objectives and the Committee seeks to adopt a low-to-medium risk appetite in accordancewith the scale and nature of the Society’s business. It seeks to undertake a structured approach for the effectivemanagement of risk and aims to employ proportionate tools and techniques to enable it to deliver its objectives ina controlled manner. The principal risks are operational and financial, with the latter including solvency risk, market risk, credit risk, insurance risk and liquidity risk. The risk management framework is explained within theCommittee’s Report and the Committee is satisfied that the Society has robust risk and governance procedures andsufficient capital to deal with a range of risks and adverse scenarios, both now and over the business planning period. The analysis of risks also demonstrates that there are no current, emerging or anticipated risks which couldmaterially alter the Society’s risk profile or strategy in the medium term.

BUSINESS PERFORMANCEMembers and PoliciesThe Society achieved record growth in premium income and new policies, resulting in over 1,000 new membersand an increase of around 10% in the total number of traditional policies held. The growth was driven mainly bythe success of our Investment ISA, which provides savers with a potentially higher yielding alternative to CashISAs. Our website accounted for over a third of new business, but our members also value the Society’s ongoingcommitment to providing transparent products, quality service and greater potential returns. The number of ChildTrust Fund (CTF) accounts remained broadly flat due to the product no longer being available for new business.Existing CTF accounts will continue until maturity at age 18.

The following tables show how membership has developed in recent years:-

Year Ending Premium Income (Excl CTF) Assets (Excl CTF)£'000 £'m

31.12.12 4,211 32.531.12.13 5,647 38.031.12.14 9,687 46.4

Year Ending CTF Premium Income Total Assets (Incl CTF)£’000 £’m

31.12.12 2,698 57.331.12.13 482 68.331.12.14 516 77.5

Year Ending Number of Members (Excl CTF) Number of policies (Excl CTF)31.12.12 8,032 9,58031.12.13 8,508 10,27431.12.14 9,189 11,281

Year Ending Number of New Members (Excl CTF) Number of New Policies (Excl CTF)31.12.12 928 1,30131.12.13 883 1,29831.12.14 1,079 1,555

Year Ending Number of New CTF Accounts Number of CTF Accounts31.12.12 17,878 63,55031.12.13 330 63,81231.12.14 23 63,805

Premium Income and AssetsDuring 2014 the Society looked to achieve a sustainable level of controlled growth, whilst also taking advantage ofthe demand for our plans in a low interest rate environment. Your Committee is mindful to ensure that the levelof growth is not at the expense of maintaining competitive bonus rates for existing members and safeguarding theSociety’s financial strength.

The Society’s traditional premium income increased by 72% to £9.69 million, with single premium business againboosted by the popularity of our Investment ISA. Regular premiums accounted for around a quarter of the total.The Society’s unit-linked Stakeholder Child Trust Fund attracted premium income of £0.52 million during the year,made up of transfers from other providers and additional subscriptions to existing accounts.

The growth in our business resulted in a 14% increase in total assets at the end of the year to a record £77.5 million. Excluding the CTF, the Society’s assets increased by 22% to £46.4 million.

24



However, given the nature of the Society’s activities and taking into account the users of the financial statements,we consider this performance materiality level to be too high for the Income and Expenditure Account.Accordingly therefore, we set a lower planning performance materiality of £54,000 specifically for the Income andExpenditure Account. Our objective in adopting this approach is to ensure that total detected and undetected auditdifferences that would affect the Income and Expenditure Account do not exceed this performance materialitylevel.

At the conclusion of the audit we re-assess the materiality levels based on the audited financial statements and thencompare this with the planning materiality. The result of this assessment showed there was no significant changeto final materiality and we are satisfied with the levels set at the planning stage.

An overview of the scope of our auditOur audit scope focused on the principal activities of the Society which are undertaken from one location. The audit team commenced an interim audit before the Society’s year end in order to undertake a significant proportion of the planned transactional testing. This was followed up shortly after the year end with a further auditsite visit, once our planned procedures had been updated for year end figures.

We scoped our responses to the significant risks identified above in the following ways:

we engaged the services of a suitably qualified and experienced ‘Reviewing Actuary’ to review and challenge themethodology, assumptions and calculations of the Actuarial Function Holder’s long term business provision liabilities. We also tested the integrity of the actuarial data extracted from the Society’s policy data.

we carried out substantive testing on the Society’s premium income relating to existing policies, new policieswritten in the year and surrendered policies, as well as analytical and cut-off procedures to ensure revenue recognition policies complied with The ABI SORP (revised December 2006); and

we carried out analytical procedures and journal entry testing in order to identify and test the risk of fraud arising from management override of control.

Opinion on other matters prescribed by the Friendly Societies Act 1992In our opinion the Report of the Committee of Management has been prepared in accordance with the FriendlySocieties Act 1992 and the regulations made under it, and the information given therein is consistent with thefinancial statements for the financial year.

Matters on which we are required to report by exception

- Friendly Societies Act 1992:

We have nothing to report in respect of the following matters where the Friendly Societies Act 1992 requires us toreport to you if, in our opinion:

proper accounting records have not been kept; or

the financial statements are not in agreement with the accounting records; or

we have not received all the information and explanations and access to documents that we require for our audit.

- Our duty to read other information in the Committee of Management Report:

Under the ISAs (UK and Ireland), we are required to report to you if, in our opinion, information in the annualreport is:

materially inconsistent with the information in the audited financial statements; or

apparently materially incorrect based on, or materially inconsistent with, our knowledge of the Society acquiredin the course of performing our audit; or

is otherwise misleading.

In particular, we are required to consider whether we have identified any inconsistencies between our knowledgeacquired during the audit and the Committee of Managements’ statement that they consider the Committee ofManagement Report is fair, balanced and understandable and whether the Committee of Management Reportappropriately discloses those matters we communicated to the Committee of Management which we considershould have been disclosed.

We have nothing to report in respect of the matters set out above.

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254


BUSINESS ENVIRONMENT

Investments2014 proved to be a volatile period for global equity investors. A broad range of events created market uncertainty- including the Ebola crisis, the end of Quantitative Easing in the United States, political uncertainty across the EUand a collapse in oil prices. A modest rally in December resulted in the FTSE 100 Index recovering to 6,566.09 by31 December 2014 - 2.7% lower than 12 months earlier. Closer to home the UK economy performed well comparedwith most other developed countries and the increased activity has resulted in significant job creation; albeit with wide regional variations. However, the UK is not immune from global events and these, combined with the uncertainty around the outcome of the 2015 UK general election, is likely to influence investor confidence inthe shorter term.

The Society invested £5 million via its stockbroker in 2014 and after adjusting for the new money added duringthe year the portfolio produced a total annual return, including income, of 3.75%. The Society’s balanced portfolio, which includes fixed interest and alternative assets, means that the full impact of the share price volatility was not felt. However, a reasonable exposure to equities is necessary in order to maintain the value ofinvestments over time and the Committee is satisfied that the portfolio is well positioned to deal with the marketrisks and volatility.

The Society’s commercial properties continued to generate good rental yields and the Committee expanded theportfolio by acquiring seven new properties - including a new fast-food outlet tenanted by Subway Realty at Burtonupon Trent, Nottinghamshire, a trade outlet tenanted by James Hargreaves (Plumbers Merchants) in Sheffield,South Yorkshire and a new-build convenience store tenanted by WM Morrison at Stockport, Cheshire. Each newproperty has the benefit of a long-term commercial lease backed by a strong covenant.

The fall in stock markets together with a modest 2.2% write-down of property assets resulted in a small unrealisedloss of £0.2 million for the year. The Society’s available capital decreased from £10.16 million to £9.67 million, but remains more than double the required minimum margin; thereby maintaining a strong financial base. The Society's investment income was £2.1 million and after taking account of the unrealised losses the overallreturn on the non-CTF assets for the year was 3.95%.

Given the positive investment return, effective cost control and mindful of the in-built guarantees provided bymany policies, the Society has declared competitive annual bonuses on all policy types whilst also maintaining aterminal bonus on investment bonds and certain ISAs. Our investment advisers and many commentators arereporting ‘tempered optimism’ for the economy in 2015, although market expectations have been dulled as a resultof several potential risks. The Committee will, therefore, continue to manage volatility by focusing on quality, balance and diversity when making investment decisions.

The next table shows the asset split of the Society’s investment fund at the end of 2014, with previous years’ figures for comparison purposes. This table excludes Child Trust Fund investments, which are part of a separately managed Unit Linked fund.

2014 2013 2012% % %

Property 39.08 38.26 36.35 Mortgages on land and buildings 6.23 9.60 11.23Listed investments: - equities 27.68 29.05 27.04

- fixed interest 21.08 18.76 20.51- alternative assets 2.31 2.20 1.97

Cash (excluding current account funds) 3.62 2.13 2.90

100.00 100.00 100.00

The Society seeks to adopt an ethical approach to investing and it is our aim not to invest knowingly in industriesrelating to armaments, tobacco, gambling and pornography.



Matters on which we are required to report by exception - continued

- Corporate Governance Statement:In accordance with our instructions from the Society we review whether the Corporate Governance Statementreflects the Society’s compliance with the provisions of the UK Corporate Governance Code specified by theAssociation of Financial Mutuals. We have nothing to report in respect of this review.

BHP, Chartered AccountantsStatutory Auditors2 Rutland ParkSheffieldS10 2PD

12 March 2015

ACTUARY STATEMENT IN ACCORDANCE WITH SECTION 77 OF THE FRIENDLY SOCIETIES ACT 1992


The following information has been provided in accordance with Section 77 of the Friendly Societies Act 1992:

The Actuarial Function Holder and With-profits Actuary is Mr David Lechmere FIA, Head of Insurance Consultingat OAC Actuaries and Consultants ("OAC"). The Society has requested him to furnish it with the particularsrequired under Section 77 of the Friendly Societies Act 1992. Mr Lechmere is not a member of the Society, but twomembers of his family hold Junior ISA policies with the Society. Otherwise Mr Lechmere has no financial or pecuniary interests in the Society, with the exception of fees paid to OAC Actuaries and Consultants ("OAC") forprofessional services, which amounted to £133,736 in 2014 (2013: £84,005).


326

Strategic Report for the year ended 31 December 2014

STRATEGIC MANAGEMENT

Business ModelThe Society provides a range of long-term savings, investment and protection policies to meet the needs of members and their families, including the popular Tax Exempt Savings Plan, which is exclusive to friendly societies, ISAs, Junior ISAs and Investment Bonds. These products are available through the following distributionchannels:-

● direct from the Society or its introducers● via the Society’s website: www.sheffieldmutual.com● or from professional financial advisers

The Society’s mission statement is: “Being a mutual and having no shareholders to satisfy, our aim is to improvethe financial wellbeing of our members by providing transparent products, quality service and greater potentialreturns.”

The Society’s vision is: “To continue to be a successful independent mutual friendly society by maintaining market-leading returns for our members and operating in a compliant, ethical and financially sound manner.”

The Society seeks to attract members by demonstrating higher potential investment returns over the life of a policy and aims to retain them through a combination of performance, following high standards of ethics and principles, and delivering consistently high levels of personal service. The Society has a three-strand distributionmodel, which can be summarised as follows:

● Intermediaries - Financial Adviser advised and non-advised sales and non-advised referrals● Direct - Internet and on-line applications, local Heartland advertising and newspaper editorials● Social Proof - Member referrals, Advocates, (Tell-a-Friend), Community Fund, Social Media

The Society strives to be efficient relative to its scale and this is achieved through robust cost management. The pursuit of controlled growth and consistent investment yields are seen as key drivers of sustainability and stability in terms of ongoing financial strength. This financial strength is augmented by a mutual model, whichallows the Society to distribute surplus profit to members by way of policy bonuses.

The Society’s key strategic priorities are as follows:

● Meet its contractual obligations to policyholders ● Deliver higher potential returns over the life of a policy● Maintain a healthy free asset ratio

Future Strategy and ObjectivesThe introduction of the new EU capital rules for insurers and friendly societies, known as Solvency II, remains onschedule for 01 January 2016. The Society is well on course to comply with the new requirements and in line withthe Regulator’s implementation guidelines the Committee approved an Interim Own Risk & Solvency Assessment(ORSA), which is the cornerstone of the Solvency II framework, in November 2014. The ORSA will, in future, beused as part of the strategic planning process.

In relation to marketing and distribution, we have continued to attract around half of our new business direct from members of the public. Approximately one third of new policies are applied for via our website(www.sheffieldmutual.com) and we have continued to invest in the functionality of the site, which now includes auseful product selector tool.

The growth in premium income has been driven by the success of the Society’s Investment ISA, which providesinvestors with a potentially better return than a Cash ISA without exposing their money directly to the stock market. Intermediaries remain an important part of our distribution mix and we will retain a focus on developingrelationships with introducers and advisers.

The Committee’s medium term strategy, therefore, is to grow the Society’s business organically at a controlled rateand, in addition to developing our various channels of distribution, we will continue to enhance our product rangeas the opportunities arise. For example, the changes announced in the 2014 Budget in relation to ISAs and pensionfreedoms should provide additional opportunities for growth.

In line with our history, heritage and ethical values, Sheffield Mutual is committed to helping good causes in thecourse of doing business. During 2014 we donated over £21,000 to various charities and good causes and we havemade a commitment to continue this support in 2015.

The Society is well placed to remain a successful independent friendly society, being well run, financially strong,ethically minded and with good prospects for growth.

Notes

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272

Registered Office 3 Maple ParkMaple CourtWentworth Business ParkTankersleyBarnsleyS75 3DPTel: 01226 741000Fax: 01226 741222Email: [email protected]: www.sheffieldmutual.com

Committee of Management Sheila Johnson (Chairman)Janet BarberStephen BirchAnthony Burdin (Chief Executive)Thomas BurtonStephen HindmarshMelvyn LunnNeil Spawforth (Vice Chairman)

Trustees Thomas BurtonMelvyn Lunn

Chief Executive/Secretary Anthony Burdin

External Auditors BHP, Chartered Accountants2 Rutland ParkSheffieldS10 2PD

Internal Auditors KPMG Audit Plc1 St Peter’s SquareManchester M2 3AE

Solicitors Hill Dickinson50 Fountain StreetManchesterM2 2AS

Actuarial Function Holder and D Lechmere FIAWith-Profits Actuary OAC Actuaries and Consultants

141-142 Fenchurch StreetLondonEC3M 6BL

Stockbroker Investec Wealth & Investment Ltd

Bankers NatWest Bank plc

Registered under the Friendly Societies Act 1974 (Reg. No. 810F)

Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority

Correspondence to the Committee should be addressed to the Society’s registered office

Notes

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CONTENTS

Page

1. Society Information 2

2. Strategic Report 3 - 5

3. Committee’s Report 6 - 12(Incorporating Corporate Governance Report & Remuneration Report)

4. Income and Expenditure Account 13

5. Balance Sheet 14

6. Notes to the Financial Statements 15 - 22

7. Independent Auditors' Report 23 - 25

8. Actuary statement in accordance with section 77 of the Friendly Societies Act 1992 25


28 1

Notes

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Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority.

REPORT & ACCOUNTS

2014

Financial Statements

Owned by You. Working for You. Trusted by You.

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