Chief Executive's review

Slower economic growth and competitive pressures, particularly in the grocery and foodservice sectors, impacted our results compared to the strong performance in 2006. Additionally, some of our recent lower margin acquisitions are taking longer to meet revenue expectations following the restructurings implemented to build long term profitable growth. However, these acquisitions are now positioned well for the future.

In January we completed the acquisition of Tec Products, which is principally engaged in the supply of jan/san and associated products through distributors, and of Westgate, which is a supplier of personal protection equipment through distributors in the eastern US and Canada. These, together with the four acquisitions announced in 2006, have been successfully transferred onto our common IT platform and have begun to realise the efficiencies gained by the conversion and as a result of integration of the businesses into our established operations. All of these acquisitions were redistribution companies focused on the foodservice, jan/san and safety sectors.

Our grocery business remains our largest sector and, while pricing pressures persist as the industry continues to consolidate, our national coverage is second to none and we continue to win new business. Our sourcing expertise and logistics platform uniquely position us to be able to respond to the different needs of our major customers and provide them with competitive advantage in their markets.

As part of the establishment of R3, a separate organisation to lead our sales and marketing in redistribution, we have committed resources and personnel both to our foodservice redistribution business and to develop further the jan/san business. This sector allows us to increase our penetration into existing customers with new products as well as providing an opportunity for potential new customers. We continue to invest in new marketing tools, inventory, training and programmes that will enhance our capabilities and we have taken steps to adapt our operating model to the needs of these customers who traditionally have different service requirements.

The food processor business has shown good growth due to increased customer awareness about worker and food safety practices and consumer demands for products that require more innovative packaging solutions. The increased demand for fresh cut produce provides us with opportunities to sell our value-added programmes to both current and new customers.

The convenience store sector continues to be attractive as the organic growth in smaller format stores is outpacing the growth seen in larger outlets. We operate from highly efficient and large warehouses and are consistently increasing the breadth of our product offering to serve our customers better in this sector.

Our recently acquired safety businesses represent a significant growth opportunity as the operating platform has started to drive efficiencies in the warehouse, enabling us to service better the customers and to expand our product offering. Imported products purchased jointly with our European safety businesses and plans to expand our private label programme in this sector will allow us to access a wider range of products and improve margins.

Our Retail Resources business has provided new growth for us in the non-food retail sector. Their unique operating supply management programme, combined with our national platform and common IT system, has allowed us to gain business in some new retail areas. The key to this success has been our ability to help manage store operating supply costs together with the ability to provide high rates of on time deliveries. We plan to expand this programme to our grocery customers and any other end user customers that require this supply management service.

We continued to invest in the training of our personnel. Following the completion of our VIP (value, integrity and performance) training programme over the last two years, we have initiated a new sales automation programme enabling our general managers and sales managers to track the results of such training and the progress of each sales representative. Additionally, we have launched an e-learning programme that contains training modules for all areas of the business allowing employees to train on site and update their skills for enhanced job performance. This also includes best practice training in areas such as inventory control, purchasing and health and safety. Our people continue to be one of the greatest strengths of our business.

Finally, we have continued to roll out our radio frequency warehouse system, improve our truck routing and improve the efficiencies of our facilities.