The Combined Code

Principles of Good Governance

The Company adheres to the principles of corporate governance contained in the Combined Code on Corporate Governance that was issued in 2003 and updated in 2006 and 2008 by the Financial Reporting Council.

The Board is committed to high standards of Corporate Governance and acknowledges the importance of good governance as being in the best interests of the Company, its shareholders and employees.

Statement of Compliance

The Group has adopted the 2006 Combined Code and considers that it has complied throughout the financial year ended 31 March 2009 with the provisions set out in section 1 of the Combined Code, except in respect of:

A3.2 – the independence of the Board

We recognise that with three Executive Directors and two independent Non-Executive Directors excluding the Chairman, the Board does not fully comply with the Combined Code regarding the balance of the Board. However, the Board unanimously believes that the current composition of the Board remains suitable for the nature and size of the Group. Experience and independent judgement of our Non-Executive Directors are more important than absolute numbers. We believe that the collective skills, experience and approach to running the business is appropriate for driving the Group forward and achieving the Group's goals whilst maintaining the highest standard of corporate governance. The Board is satisfied that no individual or group of Directors has unfettered powers of discretion and that an appropriate balance exists between the Executive and Non-Executive members of the Board.

C.3.1 – the composition of the Audit Committee

We recognise that only two of the three members of the Audit Committee are independent Non-Executive directors. However, the Chairman will remain a member of the Audit Committee as in the Board's view his objectivity and ability to advise and question the Executive Directors, particularly in respect of financial affairs is not affected. His counsel has contributed significantly to the Group's success.

Application of the Code

The Board has conducted a review of the Group's Corporate Governance practice and the following statement describes how the principles of good governance in section 1 of the Combined Code have been applied.

The Board

The Company is controlled through the Board which currently consists of three Executive and three Non-Executive Directors. Biographical details of all Directors are given on Board of Directors.

The Board considers that all of the Non-Executive Directors excluding the Chairman are independent of management within the meaning of the Combined Code and are free from any business or other relationships which could materially interfere with the exercise of their independent judgement. They bring to the Board a wide range of experience of senior management in other areas of commerce and industry and represent a source of strong independent advice and judgement. The Non-Executive Directors meet several times a year without the Executive Directors present.

The Non-Executive Directors are appointed for a three year term of office. The Executive Directors have one year service contracts. Details of all payments to Directors are included in the Remuneration Report.

One third of the Directors are required to stand for re-election each year on a rotational basis. New Directors are subject to election at the first opportunity following appointment and all names submitted to shareholders for election are accompanied by biographies.

Board Procedures

All Directors are equally accountable under the law for the proper stewardship of the Group's affairs. The Non-Executive Directors have a particular responsibility to ensure that the strategies proposed by the Executive Directors are fully discussed and critically examined to ensure that they take proper account of the best long term interests of the shareholders, employees, customers, suppliers and the community.

To enable them to do this, all the Directors have full and timely access to all relevant information and can take independent professional advice at the Group's expense at any time should it be necessary. All Directors have access to the advice and services of the Company Secretary whose responsibility it is for ensuring that Board procedures are followed. The appointment and removal of the Company Secretary is a matter reserved for the Board. Appropriate training is available to all Directors on appointment and on an ongoing basis as a consequence of the Board appraisal process.

The Board uses an annual agenda and review timetable to ensure that relevant matters are given due consideration.

Strategy

The Executive Committee held an annual off site meeting at which the Group's strategy was reviewed in the context of the macro and micro economic environment, competitor strategies and the need for the Group to create competitive advantage. The outcome was reported to the Board and taken into account when the Board reviewed and determined the strategy of the Group.

Business Plan

The Board reviewed the three year rolling Business Plan and yearly budgets/forecasts were updated quarterly to support the Group's strategy. Progress reporting includes a detailed monthly board report circulated to the Board and at each regular Board meeting the Group Chief Executive and Group Finance Director provide an update on progress within all areas. In addition, the interim and final results together with the Risk Register and the Register of Directors' Conflicts were reviewed. As part of the bi-annual review of the Risk Register, the Board has analysed social, environmental and ethical ('SEE') risks but have found none to be material.

Compliance and External Relationships

All Divisional Managing Directors and Function Heads present to the Board annually. Health and Safety is reviewed at each Board meeting and is the first item on the Board agenda.

The Board meets 10 times a year. Individual attendance at Board meetings and Board Committee meetings is set out in the table below for the year ended 31 March 2009.

In addition, Directors have frequent contact between meetings. Directors also visit trading locations in order to maintain close contact with the Group's business.

There is an agreed Schedule of Matters reserved for the Board for collective decision making, which was reviewed in April 2009. These matters include setting long term Group objectives and the strategies to be employed in achieving them, setting policies in the areas of health and safety, the environment, recruitment and employment, risk management, treasury and, subject to materiality thresholds, decisions on the raising of capital, financial commitments, acquisitions and disposals and the prosecution, defence and settlement of litigation.

The Board has delegated to the Group Chief Executive responsibility for the development and preparation of the Business Plan for the Group and annual Group budget for recommendation to the Board. As the Senior Executive Director, the Group Chief Executive is responsible for all aspects of day to day operational control of the Group and execution of the Group strategy. The Group Chief Executive has established and chairs an Executive Committee (whose other members are the Managing Directors of principal operating businesses, the Group Finance Director, Function Heads and the Group Company Secretary) to assist him in the performance of his duties which meets once a month. There is a clear division between the roles and responsibilities of the Chairman and the Group Chief Executive and both have been set out in writing.

The Terms of Reference for the Board and each of its Committees are available on request from the Group Company Secretary, for inspection at the Annual General Meeting and are also available on the Company's website (www.bssgroup.com). The Business Conduct Policy, the Environmental Policy, the Health and Safety Policy, the Ethical Trading Policy and the Charity Policy are also available on this website.

Information and Professional Development

The Board is supplied with information in a form and quality to enable it to take informed decisions and to discharge its duties. Directors were provided with the opportunity to update their skills and knowledge, including, in the year under review, updates on the Companies Act 2006 and the disclosure requirements in respect of granting securities over shares.

In the case of newly appointed Directors, an induction programme which includes training on the responsibilities of a Director occurs prior to or immediately following the appointment to the Board. In addition, several Board meetings a year are held at Group locations other than Head Office.

Board Effectiveness

The evaluation of effectiveness of the Board and its committees focused on a number of areas, including those concerned with best practice based on the principles of good governance. Our evaluation was carried out internally by the Chairman through a detailed questionnaire and formal appraisals of the individual performance of the Non-Executive Directors were conducted by the Chairman by holding a meeting with each Director. All Executive Directors are appraised annually by the Group Chief Executive and the Group Chief Executive is appraised by the Chairman. The Executive and the Non-Executive Directors assess the performance of the Chairman.

The Directors assessed the findings of the appraisal in February 2009 and concluded that the Board members demonstrate commitment, give sound guidance and direction to the business and that the Board committees operate effectively. Each Director continues to make an effective contribution to the work of the Board, is well prepared and informed and has a good understanding of the Group's businesses. Points raised during the previous years have been satisfactorily addressed.

The papers presented by the executive management are comprehensive and plans brought to the Board are challenged robustly and critically. However, once the debate is summarised and a way forward agreed, the Executive Committee have total support with a strong sense of consensus and collective ownership.

Committee Attendance Board Audit
Committee		 Remuneration
Committee		 Nomination
Committee
P T Warry* 10 2 5 1
R Murray 10 n/a n/a n/a
G Slark 10 n/a n/a 1
A Ball 10 n/a n/a n/a
R J Harrison OBE* 10 2 5 1
T Osbaldiston* 10 2 5 1
Number of meetings in the year 10 2 5 1

*Non-Executive Directors (three)
(where n/a appears in the table the Director listed is not a member of the Committee)

The Remuneration Committee

The Remuneration Committee comprises the Non-Executive Directors only and is chaired by Mr R J Harrison OBE. The Remuneration Committee has access to external research on market data and trends provided by an independent experienced consultant. New Bridge Street Consultants LLP, who have no other connection with the Company, continued to be the Company's advisers during the year. Information available on Report of the Remuneration Committee.

The Committee decides on all aspects of the remuneration of the Executive Directors and the Chairman including basic salaries, performance related elements like short and long term bonuses, share options and other benefits. It advises the Board on matters relating to the remuneration of the Group as a whole such as pay rises, Group wide SAYE schemes, Executive Share schemes or grants for Executives other than main Board Directors.

The Nomination Committee

The Nomination Committee comprises the Non-Executive Directors and the Group Chief Executive and is chaired by Mr P T Warry. Appointments to Executive Director are fully discussed by the Chairman and Group Chief Executive with the Remuneration and Nomination Committees before a proposal is formally made to the Board by the Chairman of the Nomination Committee. Possible new Non-Executive Directors are chosen from a shortlist supplied by external consultants in light of the requirements of the Group's business and the need to have a balanced Board. Recruitment consultants are used to assist the process.

Following the appointment of a new Director, the Chairman, in conjunction with the Group Company Secretary and the Group Chief Executive, is responsible for ensuring that a full, formal and tailored induction to the Company is given.

The Nomination Committee meets at least annually and reviews the structure, size and composition of the Board and makes recommendations for any changes. It discusses and gives full consideration to succession planning at both Group level and the management level immediately below. Candidates are identified and nominated to fill Group vacancies both Executive and Non- Executive, as and when they arise.

The Audit Committee

The Audit Committee comprises the Non-Executive Directors and the Group Chairman only and has been chaired by Mr T Osbaldiston since his appointment on 1 January 2004, who as the Finance Director of Raymarine PLC, has recent and relevant financial expertise. The Board considers that the membership of the Audit Committee as a whole has sufficient recent and relevant financial experience to discharge its functions. Executive Directors, external auditors and the internal auditors also attend by invitation as required. The Committee monitors the integrity of the financial statements of the Group and reviews significant financial reporting issues. The effectiveness of internal controls and risk management systems are kept under review. Through the Group's Whistle Blowing Policy employees of the Group, may raise concerns about possible improprieties in financial reporting, other operational matters or inappropriate personal behaviours in the work place. Whistle blowing incidents and their outcome are reported to the Audit Committee. The Chairman of the Audit Committee meets with both the external and internal auditors on several occasions during the year without executive directors being present.

The Committee ensures that an adequate, properly resourced and supported internal audit function is in place and monitors and reviews its effectiveness. The effectiveness of the external audit is also reviewed and the Committee ensures that recommendations are acted upon by management.

The external auditors have direct access to the Chairman of the Audit Committee and meet with him without management present. The Audit Committee meets at least twice a year and has overall responsibility for monitoring the Group's systems of internal financial control, the external and internal reporting processes and the financial control environment of the Group. The Audit Committee reviews the scope and results of the audit, its cost effectiveness, and the independence and objectivity of the auditors.

PricewaterhouseCoopers LLP are engaged as the external auditors to all the Group's companies. Details of audit and non-audit fees are set out in note 2 to the accounts. Non-audit fees principally relate to due diligence and taxation advice. All services performed by PricewaterhouseCoopers LLP are carried out in accordance with the requirements of the UK Auditing Practices Boards' Ethical Standard 5, relating to non-audit services performed by the Company's auditors.

Executive Committee

The Executive Committee is responsible for implementing the strategies and policies determined by the Board, managing the business and affairs of the Company, prioritising human resources and establishing best management practices. The Executive Committee is also responsible for monitoring the Divisional Boards' performance. The Executive Committee is currently comprised of Gavin Slark (Chairman) – Group Chief Executive, Roddy Murray – Group Finance Director, Alan Ball – Executive Director and MD of PTS, Frank Elkins – MD of BSS Industrial, Kelvin Stevens – MD of F & P Wholesale, Kelvin Liscombe – MD of Buck & Hickman, Anthony Smith – MD of Birchwood Products, Sandra Smith – Group Human Resources Director, Jonathan Jennings – Group Central Services Director, Mike Spalding – Group IT Director and Ute Ball – Group Company Secretary.

Internal Control

The Board is responsible for the Group's system of internal control and has reviewed its effectiveness during the year. The Combined Code requires that the Directors review the effectiveness of the Group's system of internal control which includes financial, operational, compliance and risk management controls.

The system of internal control is designed to safeguard the assets of the Group, ensure the accuracy of its reporting and enable efficient operations and compliance with laws and regulations. In establishing this system, the Directors considered the nature of the Group's business, including the materiality of the risks being run, the likelihood of a loss being incurred and the costs of control and mitigation of likely losses. It therefore follows that the system of internal control can only provide reasonable and not absolute assurance.

An ongoing process for identifying, evaluating and managing the significant risks faced by the Group has been in place from the beginning of the financial year to the date of approval of the Annual Report and Accounts. The process is regularly reviewed by the Board and accords with the Internal Control Guidance for Directors and the Combined Code produced by the Turnbull Guidance 2005.

The processes by which the Board review the effectiveness of the internal control system include the following:

The Directors have also reviewed the effectiveness of the system of internal financial control during the period in conjunction with the work of the internal audit department in relation to the safeguarding of assets, the maintenance of proper accounting records and the reliability of financial information used within the business and for publication.

Investor Relations

Communication with all shareholders is given a high priority. Formal communications accounting for the Company's performance and strategy are principally through the Annual Report and Accounts and announcements made through the Stock Exchange and at the Annual General Meeting. In addition, corporate information is made available to investors on the Company's website (www.bssgroup.com).

Presentations are made to institutional shareholders following the announcement of the Company's full year and interim results, and regular meetings are held between these investors and the Group Chief Executive and the Group Finance Director. In addition, institutional shareholders have visited some of the Group locations. The Chairman attends some of the meetings with investors and is available to meet with institutional investors upon request.

All members of the Board, including the Non-Executive Directors, receive a report on any significant discussions with shareholders and the feedback that follows the half yearly and yearly presentations to investment analysts and shareholders.

All Directors attend the Annual General Meeting and the Board encourages shareholders to attend its Annual General Meeting. Directors, including the Chairmen of the Committees, are present to answer any questions from shareholders. The Notice of the Meeting is sent to shareholders at least 20 working days before the meeting. The results of proxy voting by shareholders will be disclosed for each separate resolution and will be posted on the Company's website as well as disclosed upon request.

Mr R J Harrison OBE, has held the post of Senior Independent Director since 3 August 2006 and is the Director whom shareholders may contact if they feel their concerns are not being addressed.

The Group implemented the ICSA Guidance on Proxies and Corporate Representatives at General Meetings at last year's Annual General Meeting and will continue to do so going forward.

Going Concern

The Group's business activities, together with the factors likely to affect its future development, performance and position are set out in the Business Review section. The financial position of the Group, its cash flows, liquidity position and borrowing facilities are described in the Financial Review section. In addition notes 13 and 16 to the financial statements include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its exposure to credit risk and liquidity risk.

The Group has reviewed its key risk areas and in particular liquidity risk in relation to its bank facilities, credit risk associated with the Group's key customers and the risk of reduced demand for its products due to the current economic downturn in the United Kingdom. The Group's forecasts and projections, taking account of reasonably possible changes in trading performance, show that the Group should be able to operate within the level of its current facility. The Group has renegotiated its Revolving Credit Facility during April 2009 and therefore now has £90m debt not due for repayment until 2012, £43m not due until 2013 and £29m not due until 2016.

After making enquiries, the Directors have reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. Accordingly, they continue to adopt the going concern basis in preparing the Annual Report and Accounts.