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The Group went into the
recession in good shape

The challenges have increased as the year progressed but we  
have adapted our plans and have continued to invest

Chief Executive's Review

The BSS Group plc has shown resilience with revenue and earnings holding up well despite the impact of a financial crisis and a contracting economy. The challenges have increased as the year has progressed but we have adapted our plans: scaling down the business where appropriate, identifying new growth opportunities and picking up new contracts and revenue in adjacent markets.

The Group went into the recession in good shape with a strong balance sheet, limited exposure to residential new build and revenue primarily driven by essential repair and maintenance activity. We had a solid first half to the financial year but business got tougher as the year progressed, recessionary conditions took hold and markets tightened. In response, we have adapted our plans, repositioned resources in order to reduce our cost base but have continued to invest to support a number of organic growth initiatives.

Group revenue in the year increased by 4.0% against last year with operating profit before amortisation of intangibles and exceptional charges, increasing by 4.1% to £68.1m (2008: £65.4m).

New revenue streams are being pursued and gross margin enhanced with the benefits of a direct sourcing capability acquired with Birchwood Products.

Costs have been reduced as the business has been set up to meet the challenges of a contracting market. Employee numbers have been reduced by 6% as market circumstances have been re-assessed.

The Group extended its committed banking facilities in April 2009. The revolving credit facility was re-negotiated for £90m on a three year term with a syndicate of banks comprising: HSBC, Barclays and Lloyds TSB. In addition to the £72m US Private Placement, this gives the Group the capacity, flexibility and longevity of funding needed to take advantage of any development opportunities that may arise in the near term. With net debt of £86m at year end, the Group remains well positioned.

Despite the turmoil in the wider economy our strategy has remained unchanged; we continue to drive for profitable, cash generative organic growth in the existing businesses through superior service and continue to deliver good shareholder value. The business remains resilient as a specialist distributor with revenue primarily driven by R & M activity much of which is non-discretionary. Our strategic focus remains on four core elements:

• Consistently delivering
• excellent customer service
• Strong leadership and sensible business practices
• Profitable organic growth and value enhancing acquisitions
• Results driven culture

Our success is underpinned by keeping close to our customers and the market and we continue to see growth opportunities, despite the recession.

Like for like sales increased by 3.3% in the first half but were 4.2% lower in the second half, a decrease of 0.7% in the year. The decrease in like for like sales in the second half reflects the impact of reduced new build housing activity and a tightening in R & M spend.

Gross margin improved to 22.9% of revenue (2008: 22.5%) reflecting the benefits of better commercial terms, direct sourcing and selective price improvement. The costs to sales ratio increased to 18.0% (2008: 17.6%), with like for like costs up 2.0% in the year but down 1.9% in the second half. As a result of action taken, annualised costs have been reduced by £12m. Operating margin, before exceptional costs and amortisation of intangibles, was 5.08% (2008: 5.07%) with the improvement in gross margin more than off setting the increase in the costs to sales ratio. Productivity continues to improve with sales per employee up +3% (2008: +4%) with investment in infrastructure and systems supporting the improvement achieved.