Statement by the Directors on compliance with the New Code of Best Practice
In July 2003 the Financial Services Authority published the New Combined Code. This replaces the Combined Code issued by the London Stock Exchange in June 1998. It derives from a review of the role and effectiveness of non-executive directors by Derek Higgs and the role of audit committees by Sir Robert Smith. It includes a requirement that Directors review the effectiveness of the Group’s system of internal controls, including operational, compliance and risk management, as well as financial controls.

The key objective of the Board is to represent shareholders’ interests on maintaining and growing a successful business and optimising long-term returns. To achieve this, the Board comprises individuals who can bring relevant skills and knowledge to the benefit of the Group, whilst also meeting the requirements of the subscription agreement dated 1 August 1996 with ET Training LLC (“the subscription agreement”). The subscription agreement provides a right for ET Training LLC to nominate three directors to the Board whilst it remains the owner of at least 30% (currently 42%) of the issued share capital. In meeting the above Board structure criteria, the company does not comply with the non-executive director independence provisions set out in provision A3.1 of the Code for the following reasons:

• Two of the three directors appointed to the Board by ET Training LLC (Thomas Kalinske and Philip Simon) are representatives of a major shareholder;



• Barrie Clark was previously Finance Director of Spring Group plc and was appointed to the Board in excess of nine years ago;



• The members of the audit, remuneration and nomination committees are Steven Fink, Barrie Clark and Peter Magowan. Steven Fink is the Chairman of the Board and Barrie Clark is not considered independent as described above.

As a result of the above, for the year under review Peter Magowan was the only independent director on the Board and therefore the company did not comply with provisions A3.1, A3.2, A3.3, A4.1, C3.1 and B2.1 of the Code.

The Board is mindful of the provisions of the Code and as part of its continual review of the changing needs of the business appointed a new non-executive director, Amir Eilon, on 14 January, 2005 and announced the resignation of Joseph Harch, a director representing ET Training LLC. This new appointment increases the representation of independent non-executive directors on the Board at the date of this report and the resignation ensures our board structure complies with the subscription agreement in this regard.

A statement of the Directors’ responsibilities in respect of the accounts is set out on here. Below is a brief description of the role of the Board and its committees followed by a statement regarding the Group’s system of internal control and a statement on going concern.

The workings of the Board and its committees

The Board
At 31 December 2004 the Board comprised the Chairman, five non-executive Directors and two executive Directors and is responsible to shareholders for the proper management of the Group. It meets regularly, reviewing trading performance, setting and monitoring strategy and examining major capital expenditure and acquisition opportunities. There is a formal schedule of matters reserved for decision by the Board , which includes determining the strategy and control of the Group, approval of financial reporting controls, oversight of the Group’s internal controls, approval of capital and revenue expenditure of a significant size, acquisitions, disposals and share dealings, Board membership and appointments, corporate governance matters and approval of group policies and risk management strategies.

The Chairman ensures that all Directors are properly briefed on issues considered at Board meetings and, to enable them properly to discharge their duties, all Directors receive accurate and clear information in a timely manner. This includes detailed briefings on all matters where the Board is required to make a decision or give its approval, together with regular reports on such issues as the trading performance and outlook. Specific business presentations from senior management and others are given where appropriate, thereby ensuring the Directors continually update their knowledge of, and familiarity with, the Group. There is a clear division of responsibilities between the roles of the Chairman, who is responsible for the effective operation of the Board, and the Chief Executive, who is responsible for the management of the Group’s day-to-day activities. No individual has unfettered powers of decision and no one individual or small group of individuals dominates the Board’s decision making processes.

Board and committees: meetings and attendance
In addition to the AGM (which all executive directors attended), the Board met four times during 2004, twice in the UK and twice in the US.

The Board requires all members to devote sufficient time to the work of the Board to discharge the office of director and to use their best endeavours to attend meetings. Directors' attendance at board and committee meetings is set out below. All Directors attended at least 75% of meetings, except J Harch (who resigned on 7th January 2005).

The following committees deal with specific aspects of the Group’s affairs:

Audit committee
The audit committee, which comprises two non-executive Directors, Barrie Clark and Peter Magowan, and is chaired by Steven Fink and meets not less than twice annually. The committee provides a forum for reporting by the Group’s auditors. By invitation, the meetings are also attended by other Directors.

The audit committee is responsible for reviewing a wide range of financial matters including the half-year and annual accounts before their submission to the Board and for monitoring the controls that are in force to ensure the integrity of the financial information reported to the shareholders.

Its remit includes a review of the effectiveness of the Group’s system of internal financial control, based on information received from both internal and external sources including the quarterly internal control and risk assessment report. In addition, the audit committee receives assurance annually from the heads of all operating units as to the adequacy of controls in their respective operations through internal control questionnaires. The audit committee has reviewed the effectiveness of the system of internal financial control as it operated during the period and reported its conclusions to the Board. The committee is also responsible for actioning the recommendations of the Board arising from its review of the internal control and risk assessment report.

The committee remit also includes a review of the scope, results, cost effectiveness, independence and objectivity of the external auditors, in respect of both audit and non-audit services. During the year the committee completed an evaluation of the external auditors and concluded that they were sufficiently independent, objective and effective in undertaking the audit process. It also advises the Board on the appointment of external auditors and on their remuneration.

In addition, the committee reviews arrangements for answering staff concerns over improprieties, should these arise, ensuring that procedures are in place for appropriate investigation and follow up.

Remuneration committee
The remuneration committee comprises two non-executive Directors, Barrie Clark and Peter Magowan, as well as Steven Fink and is chaired by Barrie Clark. The committee is responsible for recommending the contract terms, remuneration and other benefits for executive Directors, including performance-related bonus schemes.

The report of the Board on Directors’ remuneration, which includes details of the Director’s renumeration and Directors’ interests in options, together with information on service contracts. The amount of fees received by executive directors in respect of their services on outside Boards is not disclosed since this information is not considered relevant to Spring this does not comply with provision B1.4 of the Code.

Nomination committee
The nomination committee comprises two non-executive Directors, Barrie Clark and Peter Magowan, one executive Director, Richard Barfield, and Steven Fink who chairs the meeting. The committee is responsible for recommending to the full Board candidates for appointment to both executive and non-executive Board Director positions. This process includes reviewing the Board composition, skills, knowledge and experience, and nominating candidates on the basis of merit and objective criteria. It also ensures that the procedures for the appointment of new Directors are formal, rigorous and transparent and that there is an orderly succession for appointments to the Board. External professional advice is taken regarding each new Board appointment.

Relations with shareholders
Communications with shareholders are given high priority. The Chairman’s statement and Chief Executive Officer’s Review include a review of the business and future developments. There is regular dialogue with institutional investors including presentations after the Company’s preliminary announcement of the year end results and at the half year. The Chairman arranges for the Directors to receive regular reports on shareholders’ views to ensure the Board develops an understanding of the matters of concern to the major shareholders. The senior non-executive Director is available to answer any shareholder concerns that are unable to be resolved through regular channels.

The Board uses the Annual General Meeting to communicate with private and institutional investors and welcomes their participation. Details of resolutions to be proposed at the Annual General Meeting on 2 June 2005 can be found in the Notice of meeting.

Internal control
Following the publication of the recommendations of The Turnbull Committee on 27 September 1999 the Board adopted processes for identifying, evaluating and managing the significant risks faced by the Group. These processes include the review by the Board on a quarterly basis of an internal control and risk assessment report, to allow it to report on internal controls in this annual report. Management and the executive Directors are responsible for ensuring the completeness and accuracy of this report on a continuous basis.

The Board has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness whilst the role of management is to implement Board policies on risk and control. The system of internal controls is designed to manage rather than eliminate the risk of failure of the achievement of business objectives. In pursuing these objectives internal controls can only provide reasonable and not absolute assurance against material misstatement or loss.

This process, which is in accordance with the Turnbull guidance, has been in place for the financial period and up to the date the accounts were approved.

A whistle-blowing policy was implemented during the course of 2004 and has been reviewed by our auditors, who have confirmed its compliance with the Code at the Balance Sheet date. However, as the whistle-blowing policy has not been in place for the entire year the Group has not fully complied with provision C3.4 of the Code.

The key procedures that the Directors have established with a view to providing effective internal financial control are as follows:

Management structure
The Board has overall responsibility for the Group and there is a formal schedule of matters specifically reserved for its decision, thus ensuring that it maintains control over appropriate strategic, financial, operational, risk management and compliance issues. The size of the Group and its management style ensures the involvement in and knowledge of the activities of each operating division by at least one member of the Board.

Budgetary process
Each year the Board approves the annual budget, the components of which form the financial objectives for individual operating divisions. Key risk areas are identified. Performance against these objectives is monitored and relevant action taken throughout the year through the regular reporting to the Board of variances from the budget, updated forecasts for the year and information on the key risk areas.

Group procedures manual
Responsibility levels are communicated throughout the Group as part of the Group procedures manual, which sets out delegation of authority and authorisation levels and other control procedures, together with accounting and reporting procedures. The manual is updated regularly.

Internal audit
The Group internal audit function, comprising two members of the head office finance team, reports to the Chief Financial Officer and monitors the effectiveness of key internal controls and compliance with the Group procedures manual. The Board utilises the internal audit function to assist the Board in the preparation of a risk and internal control memorandum, embedded within existing control systems and updated on a regular basis, to monitor and formally report to the Board the Group’s compliance with the Combined Code. Additional assignments are carried out at the request of the audit committee.

Going concern
After making enquiries, the Directors have a reasonable expectation that the Group has adequate resources to continue in operational existence for the foreseeable future. For this reason they continue to adopt the going concern basis in preparing the accounts.

Signed on behalf of the Board

Steven Fink
Chairman
22 March 2005