Statement of Accounting Policies

for The BSS Group plc Group accounts

Basis of Preparation

These financial statements have been prepared in accordance with International Financial Reporting Standards (IFRSs) and IFRIC interpretations in issue and with those parts of the Companies Act 1985 applicable to companies reporting under IFRS.

The following interpretations to existing standards have been published that are mandatory for the Group’s accounting periods beginning on or after 1 April 2008 and have been adopted in the financial statements for the first time this year.

IFRIC 12, ‘Service concession arrangements’, applies to contractual arrangements whereby a private sector operator participates in the development, financing, operation and maintenance of infrastructure for public sector services. The application of the standard has had no material impact on the Group’s accounts.

IFRIC 14, IAS 19, ‘The Limit on a Defined Benefit Asset’, (effective for annual periods beginning on or after 31 December 2008). IFRIC 14 provides guidance on assessing the limit in IAS 19, Employee benefits on the amount of the surplus that can be recognised as an asset. It also explains how the pension asset or liability may be affected by a statutory or contractual minimum funding requirement. The application of the standard has had no material impact on the Group’s accounts. The Group early adopted the standard from 1 April 2008.

At the date of authorisation of these financial statements, the following Standards and Interpretations which have not yet been applied by the Group were in issue but not yet effective or authorised by the European Union.

IAS 1 (Revised) ‘Presentation of Financial Statements’, Amendment to IAS 39, ‘Financial Instruments: Recognition and Measurement’, Amendment to IAS 39, ‘Financial Instruments: Recognition and Measurement on Eligible Hedged Items’, IAS 23 (Revised) ‘Borrowing Costs’, IAS 27 (Revised) ‘Consolidated and Separate Financial Statements’, IFRS 2 (Revised) ‘Share-based payment: Vesting conditions and cancellations’, IFRS 3 (Revised) ‘Business Combinations’, IFRIC 13 ‘Customer Loyalty Programmes’, IFRIC 16 ‘Hedges of a Net Investment in a Foreign Operation’, IAS 32 (Amendment) ‘Financial Instruments: Presentation’ and IAS 37 (Revised) ‘Provisions, Contingent liabilities and Contingent assets’

A summary of the principal Group accounting policies are set out below. These policies have been consistently applied to all periods presented unless otherwise stated.

The financial statements have been prepared under the historical cost convention as modified by the revaluation of certain items as required by IFRS.

In preparing the financial statements set out on the previous pages, the Group has complied with the UK Listing Authority requirements and has presented a comparative balance sheet at 31 March 2008.

Basis of Consolidation

The consolidated accounts comprise the accounts of The BSS Group plc and all its subsidiaries at 31 March 2009. The purchase method of accounting is used to account for the acquisition of the subsidiaries by the Group. Subsidiary trading results are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases.

Revenue recognition

Revenue represents the value of goods sold arising in the United Kingdom and the Republic of Ireland excluding intra-group sales and value added tax. Revenue is recognised when the risks and rewards of ownership of the goods has been transferred to the customer. The risks and rewards of ownership of the goods are deemed to have been transferred when the goods are despatched to, or picked up by, the customer.

Functional currency

With the exception of BSS (Ireland) Limited, which conducts business in the Republic of Ireland, the principal place of operation is the United Kingdom. Consequently the financial statements are presented in GBP (Pounds Sterling).

Foreign currency translation

The monetary assets and liabilities of BSS (Ireland) Limited are translated at the closing rate at the balance sheet date and its income and expenses at the average rate for the year. Differences arising from these translations are recognised as a separate component of equity in the consolidated financial statements.

Derivative financial instruments and hedging activities

The Group uses derivative financial instruments to hedge its exposure to interest rate and foreign exchange risks arising from financing activities.

Derivative financial instruments are stated at fair value. The fair value of the derivative financial instruments is the estimated amount the Group would receive or pay to terminate the derivative at the balance sheet date, taking into account current interest and exchange rates and the current creditworthiness of the counterparties.

Changes in the fair value of derivative financial instruments, that are designated and effective as hedges of the future variability of cash flows, are recognised directly in equity and the ineffective portion is recognised immediately in the income statement.

For an effective hedge of an exposure to changes in the fair value of a hedged item, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding entry in the income statement.

For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken to the income statement as they arise.

Foreign currency forward contracts are not designated effective hedges and so are marked to market at the balance sheet date, with any gains or losses being taken through the income statement.

The Group does not enter into speculative derivative contracts.

Financial assets and financial liabilities

Financial assets are classified into the following specified categories: financial assets at fair value through profit and loss (FVTPL), available-for-sale (AFS) financial assets and loans and receivables. The classification depends on the nature and purpose of the financial assets and is determined at the time of initial recognition.

Financial liabilities are classified as either financial liabilities at FVTPL or other financial liabilities.

The Group has defined the classes of financial assets and financial liabilities to be other financial assets, loans and receivables including cash, borrowings, derivative financial instruments and trade and other payables.

(a) Financial assets and financial liabilities at FVTPL

Financial assets and financial liabilities are classified as FVTPL where the financial asset or financial liability is either held for trading or it is designated as a FVTPL.

A financial asset or financial liability is classified as held for trading if:

Financial assets and financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in the income statement unless it is an effective cash flow relationship. The net gain or loss recognised in the income statement incorporates any interest earned or paid on the financial asset and financial liability respectively.

(b) Loans and receivables

Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables which applies to all amounts owed to the Group when the recognition of interest would be immaterial.

(c) Other financial liabilities

Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or where appropriate a shorter period.

(d) Derecognition of financial assets and financial liabilities

The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received.

The Group derecognises financial liabilities when the Group’s obligations are discharged, cancelled or they expire.

Leases

Assets acquired under finance leases, where substantially all the risks and benefits incidental to ownership are transferred to the Group, are capitalised in property, plant and equipment. Depreciation is provided at rates designed to write-off the cost in equal annual amounts over the shorter of the estimated useful lives of the assets and the period of the leases. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease payments are charged to the income statement as incurred.

Property, plant and equipment

Property, plant and equipment are included at cost less depreciation or impairment. Depreciation is provided on a straight line basis to allocate the cost less residual value over the estimated useful life of the asset and is provided at the following rates:–

Freehold land Nil
Freehold properties and long leasehold Lesser of 2% of cost or over the lease term
Short leasehold properties –  
tenant’s improvements 10% of cost Plant
Plant, vehicles and other equipment 10% to 35% of cost

The assets residual values and useful lives are reviewed and adjusted if appropriate at each balance sheet date.

Borrowing costs

Borrowing costs specifically and directly attributable to the acquisition or construction of assets that necessarily take a substantial period of time to get ready for their intended use or sale, are added to the cost of those assets, until such time as the assets are substantially ready for their intended use or sale.

Intangible assets
(a) Goodwill

Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary/associate at the date of acquisition. If the cost of acquisition is less than the fair value of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement.

Goodwill is tested annually for impairment and carried at cost less accumulated impairment losses. Goodwill is allocated to cash-generating units for the purpose of impairment testing. The allocation of the goodwill is made to the lowest level of cash-generating units or group of cash-generating units which are monitored by management and benefit from the acquisition on which the goodwill arose.

Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold not previously written off to reserves.

(b) Computer software

Costs that are directly associated with the development of identifiable and unique software products that will probably generate economic benefits for the Group beyond one year, are recognised as intangible assets. Computer software development costs recognised as assets and acquired computer software licences are amortised over their estimated useful lives (3 to 10 years) and are provided at between 10% and 33% of cost.

(c) Acquired assets

Intangible assets identified as part of the assets of an acquired business are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition. Intangible assets are amortised to the income statement over the useful life of the assets acquired except where they are considered to have an indefinite useful life. All acquired intangible assets are reviewed annually for impairment and whenever there is an indication that the asset may be impaired.

Employee benefit costs
(a) Pension schemes

Group companies operate various pension schemes. Contributions to the Group’s defined benefit pension schemes are charged in accordance with the advice of the Group’s actuaries, so as to spread the cost of pensions over the anticipated service lives of scheme members. As permitted under IAS 19 (revised), actuarial surpluses and deficits are recognised immediately in the statement of recognised income and expense.

Contributions to defined contribution pension schemes are charged to the Income Statement as incurred.

(b) Share-based compensation

The Group operates various equity settled share option schemes. The value of the employee services is determined by reference to the fair value of the options granted using the Black-Scholes valuation model. This value is then expensed in the income statement in the period between grant date and vesting date (vesting period). At each balance sheet date, the Group revises its estimates of the number of options expected to be exercised. Any net proceeds are credited to equity when the options are exercised.

Inventories

Inventories are stated at the lower of cost and net realisable value, after adjusting for impairment (for obsolete and slow moving items) and are calculated on a first in first out basis.

Costs comprise direct materials and where appropriate a proportion of attributable overheads, supplier rebates and discounts. Net realisable value is the estimated selling price less further costs expected to be incurred to completion and disposal.

Trade receivables

Trade receivables are recognised at the value of the sale of goods or services on the date of the transaction. Subsequently trade receivables are reduced when objective evidence exists that the Group will not be able to collect all amounts due according to the original terms of the receivables.

Taxation

The current taxation charge in the income statement is based on the profit for the year as adjusted for disallowable and not taxable items using current rates and takes into account tax deferred because of the timing differences between the treatment of certain items for taxation and accounting purposes.

Deferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred income tax is determined using tax rates that are expected to apply when the related deferred income tax asset is realised or the deferred income tax liability is settled.

Deferred income tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised.

Significant and exceptional items

Items that are both material and non-recurring and whose significance is sufficient to warrant separate disclosure and identification within the financial statements are referred to as exceptional items and disclosed within their relevant consolidated income statement category.

Critical Accounting Estimates

The preparation of the financial statements in compliance with IFRS require management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and revenue and expenses during the period. Management evaluates its estimates on an ongoing basis using historical experience, consultation with experts and other assumptions that it believes reasonable. The Audit Committee have been party to discussions about the development, selection and disclosure of the Group’s critical accounting policies and estimates and about their actual application. The Group’s most sensitive estimates are discussed below:

Inventories

As required by financial reporting standards, the Group continually evaluates its stock holding to ensure that it is carried at the lower of cost or net realisable value. Provisions are made against damaged, slow moving and obsolete inventories. As damaged inventories are identified their value is written down through each division’s inventory counting procedure. Slow moving and obsolete inventories are assessed by each division during standard reporting procedures and again by Group management for statutory reporting. Obsolescence is considered by comparing future sales with current levels of inventory holding. External factors will also influence this estimate as new legislation, trends, or manufacturers withdrawing product lines might render certain inventories obsolete ahead of any reasonable expectations. The extent to which these external factors influence the profitability of inventory will determine the significance of any provision variance.

As at 31 March 2009 the Group had inventory provision of £10.4m (2008: £12.9m).

Allowance for doubtful debts

The Group makes provisions for debts that management estimates may become impaired. Each division makes monthly assessments on the recoverability of all its accounts based on external factors such as the creditworthiness of the customer, prevailing market conditions and the age of the receivable. A detailed formal review is undertaken at half and full year to ensure that all provision balances are fair and accurate. If the Group has been cautious in assessing the financial conditions of the customer and its ability to pay, then amounts that have been provided for may subsequently be recovered. Likewise if the Group has been optimistic then amounts expected to be recovered and therefore not provided for may subsequently be deemed irrecoverable.

As at 31 March 2009 the Group had a provision for doubtful debts of £8.0m (2008: £6.7m).

Long-lived assets

Management review long-lived assets for impairment on an annual basis. Determining whether impairment has occurred typically requires various estimates and assumptions, including determining which cash flows are directly related to the potentially impaired asset, the useful life over which cash flows will occur, their amount, and the asset’s residual value, if any. In turn, measurement of an impairment loss requires a determination of fair value, which is based on the best information available. Management use internal discounted cash flow estimates, quoted market prices when available and independent appraisals as appropriate to determine fair value. Management derive the required cash flow estimates from historical experience and internal business plans and apply an appropriate discount rate.

Pension liabilities

The Group operates various defined benefit pension schemes, all of which are closed to new members. These are accounted for using methods that rely on actuarial assumptions to estimate the value of liabilities and amount of costs to be included in the financial statements. The actuarial assumptions include discount rates, assumed rate of return, future salary and pension increases and employee turnover rates. While management believe that the actuarial assumptions are suitable, any significant change to those would affect the balance sheet and income statement.

Property leases

The Group holds a number of leases on properties which are no longer used for trading. The Group has recently been successful in sub-letting a number of properties but despite all efforts this is sometimes not possible. Where a lease is onerous to the Group, a provision is recognised in the accounts as the difference between the amounts contractually owed to the landlord and the amount contractually receivable (if any) from the tenant for the period up until the lease is judged to be no longer onerous. Estimates are based on the current condition of the UK property market and advice from external advisors and management believe that they are appropriate. It may be possible that a lease takes longer than anticipated to dispose of resulting in an understatement of the provision. If this is the case, management does not believe it likely to be material.