Tropical Plants

MARKET CONDITIONS

The overall market for tropical plants has historically grown in excess of GDP. The main markets of operation are at different stages of development with the USA and the Netherlands more developed than the UK. All markets are highly fragmented with a large number of small operators, although the larger companies have a competitive advantage in terms of route density.

2006 REVIEW

The division’s largest operation, representing 58% of 2006 revenue, is in the USA and 2006 was another strong year for the US business, which is the only player in its market able to offer a national service to large, multi-site organisations. US revenue increased by 4.6% in 2006 and adjusted operating profit increased by 4.1%. The portfolio grew by 5.4% with improved customer retention and a solid holiday/ Christmas performance in the fourth quarter.

Tropical Plants’ performance outside North America has generally disappointed. Although a relatively small business in group terms, it has the potential to do better and management changes have been made to facilitate this.

In the UK, revenue declined by 3.9% which had a significant impact on the profitability of the business with adjusted operating profit down 18.5%. The portfolio was affected by high terminations and weak sales performance, compounded by high sales headcount churn.

Continental Europe recorded revenue 5.5% higher than last year with increases achieved by many of the larger businesses including the Netherlands, Belgium, Sweden and Norway. Despite higher revenue, adjusted operating profit declined overall in continental Europe with all markets behind last year.

2007 PREVIEW

2007 will be an exciting year for the Tropical Plants division with the completion of a process which will create a single, international, focused business under the new brand of Ambius. The new brand will be launched in the UK in March and rolled out to all other countries during the rest of the year. The UK restructuring will be completed which is expected to lead to improved customer retention and sales performance. We will seek to eliminate losses in some continental European countries to improve results in that region and continue to pursue acquisitions, primarily in North America.