The Davis Service Group Plc

The Davis Service Group Plc 04Report and accounts 2004 Report and accounts 2004

Registered office The Davis Service Group Plc 4 Grosvenor Place London SW1X 7DL Registered Nº 1480047 Tel: 020 7259 6663 Fax: 020 7259 6948 E-mail: [email protected] Website: www.dsgplc.co.uk Radley Yeldar (London) Design and production This is Davis

The Davis Service Group Turnover on continuing operations £797.7m (2003: £814.6m) provides a range of rental based services to a broad spread of commercial, industrial, leisure and -2% public customers. In each area of activity the Operating profit on continuing operations* £108.1m (2003: £101.7m) individual group companies have long established and well recognised names which, together with their +6% trading success, have resulted in their securing Profit before tax £53.4m (2003: £26.8m) leading positions in their respective markets. Through a combination of organic and acquisitive growth the group continually +£26.6m develops and expands the Adjusted earnings per share 31.69p (2003: 30.01p) range of products and services provided. +6%

Dividends per share 16.50p (2003: 15.60p) +6% *Before goodwill amortisation and exceptionals The Davis Service Group Plc 01 Report and accounts 2004

02 Chairman’s statement Summarising what has been an eventful and significant year for the group. 10 Operating and financial review A detailed look at the group’s activities and performance for the past year. 14 Board of directors 15 Corporate governance statement 17 Report on directors’ remuneration 21 Directors’ report 22 Directors’ responsibilities for the financial statements 23 Independent auditors’ report 24 Consolidated profit and loss account 25 Statement of consolidated total recognised gains and losses 25 Note of consolidated historical cost profits and losses 26 Balance sheets 27 Consolidated cash flow statement 28 Statement of accounting policies 30 Notes to financial statements 49 Five year record 50 Principal subsidiary undertakings 50 Advisers 50 Financial calendar 50 Website 51 Notice of annual general meeting 52 Electronic proxy appointment through CREST

Textile maintenance Textile maintenance Building systems UK & Eire Continent

Brands Brands Brands

Locations Locations Locations UK, Eire Denmark, Sweden, Norway, UK Germany, Austria, The Netherlands, Estonia, Poland, France

Markets Markets Markets Hotels and restaurants Hotels and restaurants Public sector Industry and commerce Industry and commerce Construction industry Healthcare Healthcare Industrial

2004 financial summary 2004 financial summary 2004 financial summary £263.3m £388.2m £146.2m Turnover (2003: £251.6m) Turnover (2003: £406.1m) Turnover (2003: £156.9m) £38.3m £56.2m £17.8m Operating profit* (2003: £38.4m) Operating profit* (2003: £48.3m) Operating profit* (2003: £18.1m) 14.5% 14.5% 12.2% Operating margin (2003: 15.3%) Operating margin (2003: 11.9%) Operating margin (2003: 11.5%) *Operating profit before goodwill amortisation and exceptionals The Davis Service Group Plc 02 Report and accounts 2004 Chairman’s statement

It was a good year for the group. Trading A detailed review of the trading Sale of Elliott On 22nd December 2004 we We produced a strong trading performance of our business units is set announced that we were in discussions with performance particularly in Continental out in the Chief Executive’s review on pages a number of parties which had expressed Europe and continued the process of 10 and 11. I have not been in the habit of interest in acquiring Elliott. To date these refocusing the group by completing the making additional comments on trading but discussions have not resulted in an agreement sale of HSS Hire Service Group, full I am sure you will forgive me for directing to sell the business. details of which are set out in the you once again towards the excellent result Employees In the UK our employees Finance Director’s review on page 12. at Berendsen where margins at 14.5% have had to maintain service and product compared with 8.7% in 2001, the last year Results and dividend Turnover at standards in a trying trading environment, before our purchase of the business. £797.7 million compared with £995.4 million and on the Continent they have over the in 2003, the reduction being substantially Development Last year we took steps to last few years had to cope with a significant attributable to the sale of HSS Hire Service focus the group more firmly on to its textile level of disruption caused by reorganisation. Group which was completed in January 2004. related activities by announcing the proposed On your behalf, and on behalf of the board, Pre-tax profit before goodwill, sale of HSS Hire Service Group, completed in I thank them for their outstanding efforts. amortisation and exceptional items, reached January 2004. We continued this process by Pensions Although equity markets have £92.5 million in 2004 compared with announcing in December 2004 that we were improved over the past 12 months you £86.4 million in 2003. In this instance the in discussions to sell our Elliott business. will see from note 8 that under FRS17 loss of the HSS earnings was more than Our policy at Berendsen has been to the actuarial value of our liabilities has also compensated by the strong trading focus on margin enhancement by way of increased and as a consequence our funds performance of Berendsen and a reduced cost control and operating efficiency gain. had a post-tax deficit at 31st December 2004 interest charge. Adjusted earnings per share In such an environment acquisition has not of £42 million compared to £23.4 million grew 6% from 30.01 pence to 31.69 pence. been a priority. However, with the business last year. We have, therefore, increased our The board is recommending a final now looking forward to a more settled contribution levels to take account of the dividend of 11.25 pence which, together period, we have become more active on the required funding levels. with the interim dividend of 5.25 pence paid acquisition front acquiring units in Denmark, in October 2004, gives a total of 16.5 pence, Norway, Poland and Germany and, as part an increase of 6% on last year. The total of our strategy for improving returns within 2004 dividend is covered just under two Berendsen, during the year we have also times by adjusted earnings per share. disposed of small activities in Holland, Norway, Germany and Sweden. Within the Sunlight business we have continued to invest heavily with the prime focus of improving operating efficiency. During the year both hotel and healthcare plants were significant beneficiaries of this policy. In addition we have committed to a two-year IT investment programme to provide integrated systems to support operations, customer relationships, and business development.

Group turnover £000 (continuing operations) Adjusted earnings per share pence

2000 334,737 2000 26.93

2001 362,188 2001 30.32

2002 634,857 2002 30.40

2003 814,635 2003 30.01

2004 797,662 2004 31.69

Operating profit* £000 (continuing operations) Dividends per share pence

2000 46,441 2000 12.71

2001 50,226 2001 14.12

2002 79,928 2002 14.85

2003 101,696 2003 15.60

2004 108,086 2004 16.50 *Before goodwill amortisation and exceptionals. The Davis Service Group Plc 03 Report and accounts 2004

Board and management The process John Ivey became Managing Director of Over the last two and a half years the of change to which I referred in my Sunlight in 1973 and, following the merger Berendsen business has been substantially statement last year is now substantially with Godfrey Davis in 1987, he became restructured and the very significant complete. Philip Rogerson, who joined us as Chief Executive of what is now The Davis benefits of so doing are clear for all to see. a non-executive director in June 2004, has Service Group. The progress of the company This exercise was carried out by the existing already become a highly valued colleague, since then and its acknowledged success over Berendsen management team under the and I feel sure that the same will be true of that period constitute a more eloquent direction of Peter Wason (the former Per Utnegaard who was appointed to the tribute to John’s expertise, skills and talents Managing Director of The Sunlight Service board earlier this year. than could any words of mine. John’s Group). Peter Wason’s unequalled experience Last year our Chief Executive, John Ivey, straight-talking honesty and integrity in all his of the textile rental industry enabled the task about whom I have a little more to say later, dealings (he would object to the classification to be carried out in an extremely short time announced his intention to retire. This he ‘management style’) may not appear on any scale and in a manner which has placed the now intends to do on 30th April 2005. balance sheet, but its value is evident in the business in a strong position from which to With the assistance of outside search quality and culture of the operating teams develop. Our thanks are due to him for consultants, the Nomination Committee which he has developed. It has been both doing such a superb job. From 1st January considered a large number of candidates for a pleasure and a privilege for me to have 2005 the Berendsen business has been the position. Our Finance Director, Roger Dye, worked with him, and for myself, our managed by Christer Ström (Managing was one of those candidates, and I am colleagues and on your behalf I thank him Director), Peter Havéus (Operations Director) delighted to tell you that he has been most warmly for his massive contribution and Henrik Ståhl (Finance Director), all of selected. Roger has been a major force in the to the success of the company. We all wish whom are existing Berendsen directors progress of the company in the years since him well in his retirement. and have played a significant part in the he was appointed, and I am absolutely With the succession of the Chief change programme. confident that he will go from strength Executive confirmed and the Finance Director Outlook Our view is that we will see very to strength in his new role. The search for in train and with the non-executive little change in the UK trading climate over a new Finance Director has been started. membership of the board at the right level the coming year, whereas on the Continent my renewal responsibilities are now we look to see some improvement in the complete. Accordingly, I also intend to retire economies in which we operate. The group from the board on 30th April 2005. I am is well placed to meet the challenges ahead happy to announce that I will be succeeded and expects to deliver further growth in the by Christopher Kemball, currently our Deputy coming year. Chairman, following his re-election at the annual general meeting. Christopher has N W Benson OBE gained a substantial knowledge of our Chairman business over the years, and I wish him and the company all success in the future.

Left John Ivey (left) and Neil Benson (right) look back over the successful development of the Davis business. The Davis Service Group Plc 04 Report and accounts 2004 Textile maintenance: UK & Eire

This business provides workwear rental, linen hire and washroom services. Within the UK, Sunlight occupies a leading market position providing service on a national basis from 50 laundries. The business also has a presence in Ireland with four laundries.

Healthcare No. of operating staff 2,330 Sunlight is the leading supplier of reusable theatre textiles to UK healthcare providers, including the National Health Service.

Operating profit* £000

2000 37,093

2001 37,481

2002 40,870

2003 38,369

2004 38,267 *Before goodwill amortisation and exceptionals The Davis Service Group Plc 05 Report and accounts 2004

Workwear No. of operating staff 2,160 Work clothing is not restricted to the manufacturing sector; increasingly, workers in service industries such as catering and transport now have their workwear professionally processed.

Sunlight is leading the way in three secure markets. They provide a profitable and reliable revenue stream, 3which underpins the business.

Hotels and leisure No. of operating staff 2,820 Sunlight serves a wide range of hotel and leisure brands, including major groups, local operators and many other smaller outlets. The Davis Service Group Plc 06 Report and accounts 2004

Sweden Employees No. of plants 1,600 20 Our rental business delivered profit growth despite revenues held back by the planned reorganisations. In our sales business, we had a slow start to 2004, but finished the year stronger.

Denmark Employees No. of plants 1,200 16 The reorganisation of the hotel and healthcare sectors is now complete. Following a recent acquisition of a mixed business we will now integrate it into our existing operations.

Holland Employees No. of plants 640 9 A competitive market place held back turnover growth. However, customer retention and strong productivity improvements drove growth in operating profits.

Germany Employees No. of plants 2,900 13 In a difficult market, turnover fell slightly due to pricing pressures. However operating improvements led to an overall improvement in operating profit.

Davis has 7,400 employees across nine European countries. Berendsen is exceeding expectations, and has appointed a new management team to identify new opportunities 9and maximise future profitable growth. The Davis Service Group Plc 07 Report and accounts 2004

Norway Textile maintenance: Employees No. of plants 350 7 Continental Europe Turnover growth was restricted by the sale of a plant together with policy decisions on certain types of work. However cost savings, efficiency gains and success within sales provided growth in operating profits.

Estonia Employees No. of plants 220 0 Our business in Estonia performed well in the year. It supplied 1.2 million garments to customers through Berendsen companies.

The Berendsen business offers a full range of textile maintenance services from 69 laundries in Scandinavia, Germany, the Netherlands and Poland. There is also one Modeluxe laundry in France.

Poland Employees No. of plants 170 2 A strong performance from our garment and facility lines delivered sales and operating profit growth. During the year we made three small turnover acquisitions and may add capacity in 2005.

France Austria Employees No. of plants Employees No. of plants 160 1 160 1 Whilst our business in Paris delivered Customer retention has contributed to the turnover growth, we generated a small acceptable revenue performance achieved operating loss. The linen market in Paris during the year, despite the pricing pressures has much the same pricing pressures as from the German market. we experienced in London.

Operating profit* £000

2002** 24,980

2003 48,321

2004 56,159 *Before goodwill amortisation and exceptionals **8 months The Davis Service Group Plc 08 Report and accounts 2004 Building systems: Elliott Group

Elliott designs and manufactures modular buildings which are supplied to customers on a hire or direct sales basis. It is a leader in the UK market. Education Elliott is a leading manufacturer of modular buildings; it supplies services to over 200 31,schools throughout the UK.

Operating profit* £000 Loohire Elliott Loohire is one of the largest 2000 11,408 suppliers of portable toilets and fencing 2001 16,020 panels in the UK. It has a fleet of over 8,000 portable toilet units and 54,000 2002 17,606 fencing panels. 2003 18,063

2004 17,804 *Before goodwill amortisation and exceptionals The Davis Service Group Plc 09 Report and accounts 2004

Elliott is the major force in building systems with more than 31,000 units available for rental. Through good customer mix and finding profitable 000markets we have once again shown our dependability in a challenging environment.

Industry and commerce Elliotthire is the largest supplier of portable accommodation and storage units for short term hire in the UK. It has a fleet in excess of 31,000 units. The Davis Service Group Plc 10 Report and accounts 2004 Operating and financial review

Textile maintenance The healthcare division saw growth in New business levels, whilst satisfactory, were UK and Ireland Turnover for the year turnover and operating profits. However, held back by the underlying health of the increased by 4.6% to £263.3 million here also, pricing pressures were evident, customer base, particularly in Germany. (2003: £251.6 million). Operating profit at especially in the re-tendering process for Sales levels in our linen businesses covering £38.3 million was very much in line with established business. the healthcare and hotel/restaurant markets last year (2003: £38.4 million). It is pleasing to report that our fell below last year, both areas also being This was a good performance in workwear business saw both volume and affected by our Scandinavian reorganisation. an extremely competitive and difficult turnover growth, reflecting the focus we Additionally, in the case of our healthcare market place, characterised by improving are putting on sales and service operations. markets, budgetary constraints within the volumes across all of our business sectors, However, the division faced similar cost and customer base continued to be an adverse significant cost inflation and price pressures. pricing pressures seen in our other activities. factor. Despite an extremely difficult market These factors are reflected in the margin Consequently both margin and profitability in the Netherlands, in total our garment and decline from 15.3% to 14.5%. levels slipped slightly. facilities activities matched last year’s levels. Our policy has been to maintain market In Ireland our business put up a Although we completed the share, to improve our operational efficiency creditable performance. All revenue lines Scandinavian linen rental reorganisation in by way of a strong investment programme were up, particularly those in the healthcare the period, the business areas involved still and to rationalise smaller plants. During 2004 sector, but operating profits were neutral have to settle down, a process which should we closed five plants and have directed the compared with last year. be out of the way by the end of the first bulk of our investment programme towards Looking forward, it is difficult to quarter of 2005. Within Denmark we closed the flatwork area (healthcare and linen). see much change in the trading climate. two plants, one of which was re-equipped In addition we have committed to a two-year Volume is expected to continue at reasonable and subsequently re-opened, and within IT investment programme to provide levels but cost and pricing pressures will Sweden three plants were closed. integrated systems to support operations, remain a feature. However, with Steve Finch, Running parallel with this process we customer relationships, and business Sunlight’s Managing Director, and his reorganised our facilities (mats and hygiene) development. We expect the operating collegues, we feel well positioned to deal business in Sweden – following acquisitions units to fully utilise the new systems in the with such issues and are confident we can in this area in 2003 – and closed seven small first half of 2006. meet the challenges ahead. units. This restructuring process has had Our linen rental business benefited some impact on our turnover levels as we Textile maintenance from the upturn in the fortunes of the hotel did not seek to accommodate all the existing Continent Turnover for the period was sector. In a price driven environment we work within our revised plant network. £388.2 million (2003: £406.1 million) and more than held our market share although During the period we sold a safety business operating profit was £56.2 million (2003: the increased volumes brought little benefit in Holland, linen businesses in Norway and £48.3 million). The overall impact of foreign to the ‘bottom line’. Germany, and we recently agreed to dispose exchange on these results, compared to the of a linen business in Sweden. equivalent period in 2003, was to reduce turnover by £8.7 million and operating profit by £1.3 million. With the economic climate still affecting turnover growth our policy to focus on costs and operating efficiency delivered a strong uplift in operating profit. At £56.2 million, operating profit was 16% up on last year. Consequently, margins were up from 11.9% to 14.5%, an impressive performance.

Top The need for linen is a growing market in healthcare. Top right Automated handling systems at the West Bromwich factory. Right The Berendsen operation at Århus. The Davis Service Group Plc 11 Report and accounts 2004

Acquisition activity has not been a primary Elliotthire and Loohire both delivered strong concern over the last few years, but with performances. We have continued to invest management now running a more settled in our fleets – our core hire fleet grew by 4% and efficient business we have been more in the period and now has over 31,000 units active, particularly towards the end of the and Loohire over 8,000 units (an increase of year. During the period we purchased two 6%). In March last year the Elliotthire division small facility businesses in Norway, garment embarked on a major project to replace its turnover and a mat processing unit in Poland ageing in-house hire software system. The and a mixed linen and garment business in system went live in November and although Denmark. The cost of acquisitions in the year still capable of improvement the day-to-day totalled £8.0 million. In addition, we have operation of the system is working well and recently agreed a turnover purchase for our has been well received. German business. Turnover in our direct sales and related In the coming year we expect to see a service activities fell short of last year’s levels. slight improvement in the economic climate The shortfall can be attributed to the which, with the benefits of our acquisitions cessation of some larger contracts, a and continuing drive for efficiency, should continued decline in our business for the enable us to make good progress. telecom sector, longer lead times and our failure to support at sufficient speed our Building systems Turnover at £146.2 million sales effort in alternative markets with new was down 7% from last year’s level of products. These issues are being attacked £156.9 million. Operating profits at rigorously, our sales effort refocused, product £17.8 million fell just short of last year’s level development is being targeted at key (£18.1 million). Operating margins were markets and the manufacturing capacity has 12.2% compared to 11.5% last year. been re-balanced. Additionally consideration The fall in turnover was primarily driven has been given to the future shape of our by the lack of product sales and related factory and depot facilities with the closure services and was to a degree compensated in the period of our Brownhills and Thame for by another good performance from our facilities and in relation to Peterborough we hire related activities. have agreed Heads of Terms between parties to move our facilities to a larger site on the edge of the town. Whilst we do not expect an immediate uplift in the fortunes of our sales and related activities, management efforts in this direction and the strength of the balance of the business should be sufficient to drive through an improvement in 2005.

J C Ivey Chief Executive

Bottom Providing a fast and efficient turnaround for customers. Right Elliott providing classrooms for the future. Bottom right Elliotthire provides on-site accommodation units for most locations. The Davis Service Group Plc 12 Report and accounts 2004 Operating and financial review continued

Financial review item is a property profit of £3.4 million Borrowings and gearing Net borrrowings The financial review should be read in relating largely to the sale of UK properties. at the year-end was £250.5 million (2003: conjunction with the Chairman’s statement Profits before tax were £53.4 million £376.7 million). The resulting gearing was and the Chief Executive’s operating review (2003: £26.8 million) after the exceptional 58% compared to 86% at 31st December set out on pages 2 to 11 which contain items and goodwill amortisation. 2003 and 58% at 30 June 2004. The analysis comments on turnover, profit, earnings of the £324.4 million debt by currency Sale of HSS As previously reported, the group and dividends. and by maturity is shown in the table on sold its tool hire business for £142.7 million page 13. Basis of presentation No new Financial on 21st January 2004. The purchase price Reporting Standards were issued during was dependent on the finalisation of the Pensions Actuaries to the group’s defined the year that impacted upon the group at Completion Accounts which were agreed benefits pension schemes in the UK, Ireland, 31st December 2004. The accounting policies in November 2004, resulting in a payment Sweden and Germany continue to advise adopted by the group have not changed and of £8.6 million to the purchaser. the respective Trustees and the group on the are listed on pages 28 and 29. The purchaser has now informed the required funding rates. In total, the group In respect of FRS17 Retirement Benefits, group that it intends selling its business in has charged £12.6 million for the year in the board has continued to use the the United States. As a result, the scale of respect of all pension arrangements for staff transitional approach and has provided in the repayment of the secured vendor loan in order to enable each pension fund to fulfil note 8 additional disclosures in respect of the of £20 million to the US business is now in its obligations. group’s defined benefits pension schemes. doubt. While efforts continue to be made Full disclosure in respect of FRS17 by both the group and the purchaser to Retirement Benefits is listed in note 8 on Interest The net interest charged for the year maximise the repayment, the board believes pages 34 to 36. As at 31st December 2004, was £15.6 million compared to £23.3 million it would be prudent to make a partial there was a total pension deficit, net of in 2003. This significant decrease arose provision of £12.5 million at this time and deferred tax, of £42.0 million (2003: principally from the sale of HSS in January accordingly we have now valued the vendor £23.4 million). This increase has resulted from 2004. The average cost of funding, net of loan at £7.5 million. The board currently changed mortality assumptions and lower cash balances, was 6.2%. Interest costs were believes that no provision is necessary discount factors applied to the UK and covered 6.9 times by operating profit before in respect of the vendor loan notes of Ireland schemes’ liabilities. Of this deficit, exceptional items and goodwill amortisation. £12.5 million to the UK business. £9.5 million net of deferred tax has been Taxation The tax charge of £26.9 million provided in respect of past service obligations Cash flow The detailed cash flow is set compared to £16.4 million in 2003. for HSS staff. Had the group adopted FRS17, out on page 27. The group cash flow This represented a rate of 30.3% on the the unprovided element of the deficit from operations was £227.6 million (2003: profit before exceptional items and goodwill, would have reduced group net assets from £275.8 million). Free cash flow generated compared to 25.6% in 2003 when we were £434.3 million to £401.8 million. was £74.3 million (2003: £76.5 million) using tax losses in our German Berendsen driven by a further excellent performance Treasury policy The group holds or issues operation. The future tax rate is expected from the textile maintenance businesses. financial instruments to finance its operations to remain around 30%. and to manage the interest rate and currency Capital expenditure Capital expenditure for Exceptional items and goodwill amortisation risks arising from those operations and the year was £146.3 million compared with Exceptional items, principally relating to the sources of finance. £174.1 million in 2003. Excluding HSS the loss on the sale of the HSS business, are The group’s strategy regarding financial 2003 level was £144.6 million. Our businesses shown on the face of the profit and loss instruments and managing the risks continue to be predominantly of a hire or account and laid out in more detail in note 4 associated therewith is summarised below. rental nature. The inventory to service these of the Results. There is a separate comment activities is an integral part of the business Financing The group finances its operations on the HSS transaction later in this review. and requires regular replacement in addition through a mixture of short and medium-term An excess provision of £973,000 has been to expansion and enhancement. debt and cash generated through its released in respect of the reorganisation of operations. In planning the maturity of debt, flatwork activities in Scandinavia. The final the group’s policy is to ensure a balance between continuity of funding and flexibility. Short-term borrowings predominantly comprise overdraft facilities with clearing Dividend cover times banks. The group’s UK current accounts are subject to set-off arrangements covered by 2000 2.12 cross-guarantees. Where surplus funds arise 2001 2.14

2002 2.05

2003 1.92

2004 1.94

Gearing % Shareholders' funds £000

2000 34 2000 219,783

2001 39 2001 245,927

2002 91 2002 424,675

2003 86 2003 436,059

2004 58 2004 434,272 The Davis Service Group Plc 13 Report and accounts 2004

International Financial Reporting Standards on a short-term basis, they are placed on Currency rates The majority of operations Under European Union legislation, all listed money market deposit and there is also in the group bill their revenues and incur companies will be required to adopt now a cash pooling arrangement taking their costs in the same functional currency. International Financial Reporting Standards in the cash generated by the Berendsen The group faces some currency exposure (IFRS) for financial years beginning on or after businesses. Surplus funds of a permanent in respect of the procurement of capital 1st January 2005. The adoption of IFRS will nature, such as those arising from significant equipment. These risks are not material and, apply to the group for the first time for the disposals, have either been used to repay where any transaction’s exposure is significant half year ending 30th June 2005 and the year medium-term bank debt or to finance the in the context of the trading company ending 31st December 2005 with appropriate restatement of 2004 results. cost of businesses acquired. concerned, a forward foreign exchange A review has been carried out on the The group continues to have a contract may be entered into by that impact on accounting policies and the results, syndicated loan facility for five years agreed company; this would be dependent upon with the main areas of change, are set with 14 banks. During the year £36.0 million the certainty of the exposure as to timing out below: of scheduled repayments were made which and amount and the exchange rate at the IAS 32 and 39 – Financial instruments together with the net proceeds from the relevant time. There were no such trading The group is required to recognise its interest sale of HSS enabled us to reduce our contracts outstanding at the year-end. rate swaps at fair value into its balance sheet, medium-term borrowing by £105.3 million. It continues to be the group’s policy not with any changes in fair value to be taken Leasing facilities are utilised where appropriate to hedge foreign currency exposures on the through the profit and loss account. The foreign to finance certain categories of assets. translation of its overseas profits to sterling. currency exposure arising from the group’s All the group’s borrowings are Where appropriate, borrowings are arranged borrowings are naturally hedged against its unsecured. in currencies so as to provide a natural overseas net assets. hedge against the investments in overseas Interest rates The interest rate exposure IAS 19 – Employee benefits The group net assets. of the group arising from its bank loan accounts for its pension schemes under SSAP 24 ‘Pension costs’ and has elected under the borrowings has been managed by the use International Financial Reporting Standards transitional rules of FRS17 ‘Retirement benefits’ of interest rate instruments. The group has The group’s current views on how the new to make disclosures only. As shown in note 8, taken out hedging instruments comprising standards will affect the group are shown the application of FRS17 would have reduced swaps in respect of DK 1.7 billion, on the adjacent panel. shareholders’ funds by £32.5 million. IAS 19 is £15 million and $25 million (approximately Going concern After reviewing the group’s similar to FRS17, as both require any defined 50% of the initial borrowings) of its medium- pension scheme deficit or surplus to be budgeted cash flows and having made term debt in order to obtain a level of recognised on the group’s balance sheet. appropriate enquiries, the directors have a protection against projected future interest On transition to IFRS, the group expects reasonable expectation that the company rate increases. The Danish krone instrument to recognise the full assets and liabilities of and the group have adequate resources to matures in 2005 and is not expected to be its defined benefit pension schemes in its continue in operation for the foreseeable restated 31st December 2004 balance sheet. renewed while the sterling and US dollar future. For this reason, the directors continue Actuarial gains and losses arising in the year instruments mature in 2006. The group’s to adopt the going concern basis in will be recognised in full in the statement of policy is not to use derivatives for trading preparing the financial statements. changes in equity, rather than in the profit purposes. Transactions are only undertaken and loss account. if they relate to underlying exposures and IFRS 3 – Business Combinations IFRS 3 should not be viewed as speculative. I R Dye requires intangible assets to be stated at fair Finance Director value at the date of acquisition and amortised over an appropriate time period. Any residual goodwill is not amortised but is subject to an annual impairment review. The transitional arrangements contained within IFRS 1 do not require this standard to be applied to acquisitions made prior to 1st January 2004 and the group intends to take this option. IAS 12 – Income Taxes The scope of IAS 12 is wider than that of FRS19 ‘Deferred Tax’. The principal differences likely to affect the Debt by currency group are expected to be the deferred tax £m % treatment on revalued properties and deferred Danish krone 275.8 85.0 capital gains. US dollar 17.6 5.4 IAS 1 – Presentation of financial statements Dividends will be treated on a cash basis rather Euro 15.2 4.7 than on an accruals basis. Sterling 13.1 4.0 Other 2.7 0.9 324.4 100.0

Debt by maturity Capital expenditure table £m

£m %

Within 1 year 58.6 18 2004 2003 Within 1-2 years 44.8 14 Hire and rental inventory 105.8 127.4 Within 2-5 years 220.8 68 Plant, machinery and vechicles 37.2 37.7 Over 5 years 0.2 –Land and buildings 3.3 9.0 324.4 100 Total 146.3 174.1 The Davis Service Group Plc 14 Report and accounts 2004 Board of directors

Neil W Benson OBE 67, Chairman Non-executive*†‡ Senior partner – Lewis Golden & Co, Chartered Accountants John C Ivey 63, Chief Executive‡ Joined the group in 1973 Non-executive director – Derwent Valley Holdings PLC (Chairman), RWS Holdings Plc Christopher R M Kemball 58, Deputy Chairman Non-executive*†‡Ø Vice chairman – Hawkpoint Partners Limited Non-executive director – WS Atkins plc, Control Risks Group Limited I Roger Dye 53, Finance Director Joined the group in 2000 Non-executive director – Nestor Healthcare PLC Paul E Smeeth 58 Managing director – Elliott Group Limited since 1989 having joined the company in 1968 John D Burns 60, Non-executive*†‡ Managing director – Derwent Valley Holdings PLC Partner – Pilcher Hershman & Partners, Estate Agents Philip G Rogerson 60, Non-executive*†Ø Appointed 28th June 2004 Non-executive chairman – Aggreko Plc, Thus Plc, Viridian Group Plc Non-executive director – Northgate Plc, Carillion Plc (Deputy Chairman) Per Utnegaard 45, Non-executive*†Ø Appointed 5th January 2005 Executive director – Alliance UniChem Plc Board Meetings – Attendance Directors’ attendance at meetings at board and committee meetings convened in the year ended 31st December 2004 was as follows: Board Audit Committee Remuneration Committee Nomination Committee Held Attended Held Attended Held Attended Held* Attended* Executive directors J C Ivey 6 6––––33 I R Dye 6 6–––––– P E Smeeth 6 5–––––– Non-executive directors N W Benson 66333333 J D Burns 66333333 C R M Kemball 66333333 P G Rogerson (note i) 432221––

*In addition there were a number of interview meetings and other consultations in connection with selection of the new Chief Executive and non-executive directors which have not been included. (i) P G Rogerson was appointed to the board on 28th June 2004. Board committees * Audit committee The audit committee meets at least three times a year with internal and external auditors, as well as management, to review matters of internal control and reviews the full-year financial statements prior to their issue. The committee consists solely of non-executive directors and is chaired by C R M Kemball. † Remuneration committee The remuneration committee sets the policy on executive directors’ remuneration and the specific remuneration, benefits and terms of employment of each executive director. The committee consists solely of non-executive directors and is chaired by C R M Kemball. ‡ Nomination committee The committee makes recommendations to the board on additional and replacement directors as and when the need arises: it is chaired by N W Benson. Ø Independent directors The directors thus identified are considered by the board to be independent: of these, C R M Kemball has been nominated as the senior independent director. The Davis Service Group Plc 15 Report and accounts 2004 Corporate governance statement

The Combined Code on Corporate Governance (‘the Code’), issued by the Financial Reporting Council in July 2003, contains both principles and detailed provisions of corporate governance. The Code was introduced with effect from 1st November 2003 and we were required to comply from 1st January 2004. Board balance and independence The Code includes criteria for ensuring that the composition of the board is refreshed on a cyclical basis. Both Neil Benson and John Burns have served on the board longer than nine years. John Burns was re-elected in 2003 for a term of three years and Neil Benson was re-elected in 2004 for a maximum period of two years. In his statement last year the Chairman described the changes to the board which it envisaged would take place during 2004 and 2005. Philip Rogerson joined the board in June 2004 and Per Utnegaard joined in January 2005. As announced in the Chairman’s statement John Ivey is to retire as Chief Executive on 30th April 2005 and is to be replaced by Roger Dye with effect from 1st May 2005. The search for a new Finance Director has been started. In addition, Neil Benson will retire from the board on 30th April 2005. He is to be succeeded as Chairman by Christopher Kemball and Philip Rogerson will replace Christopher Kemball as the Senior Independent Director. John Burns will stay on to provide necessary continuity but the board will be looking for one further new non-executive during 2005 in order to complete the board change process. The board believes by 2006 that the programme of renewal will be complete and the membership of the board will be fully compliant with the revised provisions of the Code. The board consider that this is an appropriate timeframe for the number of changes involved. Until such time as these board changes are complete, the requirement for fully independent members of the board and on the nomination and audit committees will not be fully met. Board appointment process Responsibility for the selection of new directors rests primarily with the nomination committee. The committee has been particularly aware that the board is in the process of wide-ranging change of both non-executive and executive board members. It undertook a careful evaluation of the balance of skills, knowledge and experience leaving the board together with a strategic review of the skills required, particularly in Europe, for the future. Different firms of external consultants were appointed to search for non-executive directors and the successor to John Ivey as Chief Executive. The consultants assisted the committee in developing a description of the role, responsibilities and capabilities required and conducted a search for potential candidates. Shortlists were drawn up in consultation with the Chairman. Shortlisted candidates were interviewed by the committee and, in the case of the non-executives, potential appointees each met the group executive directors. After feedback the committee made its final recommendation to the board. In view of the number of changes to the board no external process was commissioned in respect of the selection of a new Chairman on this occasion. Christopher Kemball was appointed Senior Independent Director in April 2003 and Deputy Chairman in December 2003 and therefore provides both the requisite knowledge of the group and the necessary continuity in office. Composition of the board The board currently comprises three executive and five non-executive directors (including the Chairman who is responsible for running the board). Three of the five non-executive directors (identified on page 14) provide a strong independent element on the board being free from any business or other relationship which could materially interfere with the exercise of their judgement. Christopher Kemball is currently the senior independent director. Operation of the board The board, which routinely meets six times a year, with additional meetings being called as and when required, carries the ultimate responsibility for the conduct of The Davis Service Group business. Prior to each board meeting an agenda, together with supporting papers, is circulated to directors to ensure they are supplied, in a timely fashion, with all the information they need. Included with these papers are detailed monthly accounts, together with appropriate financial analyses. The monthly accounts and financial analyses are also circulated in those months in which no routine board meeting is held. The three principal committees of the board are the remuneration committee, the audit committee and the nomination committee. The terms of reference of these committees are set by the board and have been reviewed in the light of the revisions to the Code. They are available for inspection upon request to the Company Secretary. The membership of these committees, details of which are set out on page 14, is composed of non-executive directors with the exception of the nomination committee on which John Ivey serves. Roger Dye will succeed John Ivey on the nomination committee on 1st May 2005. John Ivey and Roger Dye attend the remuneration and the audit committee meetings respectively by invitation. Minutes of all committee meetings are circulated to and reviewed by the board. Responsibility of the board The terms of reference and matters reserved to the board are complemented by a formal document of delegated authority to the boards of our divisions. Trading companies are managed by separate boards of directors. John Ivey and Roger Dye are directors of all UK trading subsidiaries and either of them attends the majority of Berendsen board meetings. The schedule of matters reserved for the board’s decision includes the approval of financial statements, major acquisitions, disposals, the annual budget, major capital expenditure and significant financing matters. The time commitments of each board member are considered before their appointment or, in the case of executive directors, before permission is granted for them to hold outside directorships. All directors have the right to seek external professional advice in the furtherance of their duties at the expense of the company and have unfettered access to the advice and services of the Company Secretary. The company has purchased insurance to cover its directors and officers against their costs of defending themselves if civil legal proceedings were taken against them and in respect of damages resulting from an unsuccessful defence of any such proceedings unless the director or officer were found to have acted fraudulently or dishonestly. The Davis Service Group Plc 16 Report and accounts 2004 Corporate governance statement continued

Evaluation and development of board performance As a basis for making an initial assessment of their performance and to help develop the selection criteria for new members, the board had regard to a self-evaluation questionnaire prepared by the National Association of Corporate Directors. The process to select and appoint two new non-executive directors and a new Chief Executive has itself stimulated considerable level of review of the way the board should operate. This process will continue as the programme of board change is completed. A formal board evaluation will be undertaken later this year once the new board is in place. Board members are committed to updating their skills and knowledge. In addition to personal reading, members of the board have attended specific courses and share selected briefing materials in order to keep up to date with corporate developments. Board members are willing to undertake additional training if the evaluation process indicates this would be beneficial. Internal control The board has ultimate responsibility for the group’s system of internal control and for reviewing its effectiveness. Internal control comprises financial, operational and compliance controls and risk management. However, such a system is designed to manage rather than eliminate those risks associated with the achievement of business objectives, and can provide only reasonable and not absolute assurance against material misstatement or loss. The Code includes a requirement that the directors review, at least annually, the effectiveness of the group’s system of internal controls, including financial, operational and compliance controls and risk management. The group maintained effective procedures consistent with the guidance throughout the year and up to the date of this report. The board has ratified management’s assessments of the principal risks to the group and the management procedures in place to control these risks. The board places emphasis on ensuring that a balanced risk culture exists in its divisions rather than solely conducting periodic reviews. This culture is demonstrated by an open style of communication which enables issues to be identified and corrective actions put in place. Appropriate reporting and follow-up procedures ensure that the impact of these identified risks is minimised. Audit committee and auditors During the year Phillip Rogerson, a chartered accountant, joined the committee, thus providing a further degree of financial expertise. The committee has met, with full attendance, three times in the year. As standing agenda items the committee receives an update on risks, considers reports issued by the internal audit department, and reviews the appropriateness and timeliness of management responses thereto. The committee has reviewed the effectiveness internal audit function and is satisfied with the capacity and coverage of the work undertaken. The independence and objectivity of the external auditors has been reviewed. In particular the level and nature of non-audit work commissioned from the audit firms is monitored to safeguard their independence and objectivity. The lead audit engagement partner is invited to each meeting of the committee to apprise the committee of relevant accounting and reporting developments and to be apprised of the matters referred to above. In addition the committee chairman meets separately at least once a year with the lead audit engagement partner. Independent ‘whistleblowing’ procedures are being implemented in the first quarter of 2005 to enable staff to report in confidence any possible improprieties and for the matters to be independently investigated and appropriately followed up. Report on directors’ remuneration The report on directors’ remuneration is set out on pages 17 to 20. Shareholder relations John Ivey and Roger Dye regularly meet with institutional shareholders and analysts. All investors have the opportunity to meet the directors at the annual general meeting and the Chairman and Deputy Chairman have, on request, made themselves available to shareholders at other times. It is the company’s practice to propose separate resolutions at the annual general meeting on each separate issue. At the forthcoming annual general meeting the level of proxies lodged together with the balance for and against each resolution will be announced after it has been dealt with on a show of hands (unless a poll is called for). Copies of the details of the proxy voting will be available to shareholders after the meeting on receipt of a written request addressed to the Company Secretary at the registered office. Pension funds A number of pension plans operate within the group. The principal UK scheme is The Davis Service Group Retirement Benefits Scheme. This scheme has five trustees – Roger Dye, one other member of management (who is not a director of the company) and three member nominated individuals, two of whom are pensioners. The power of appointment of new trustees is vested in the trustees. The assets of the scheme are held separately from those of the group and are independently managed on a fully discretionary basis. The scheme’s accounts are audited annually by auditors other than those of The Davis Service Group Plc. Outside the UK, the majority of the pension plans are of a defined contribution nature, some of which are integrated into government schemes and managed outside the group. Compliance Except for the completion of both the programme of change to membership of the board and making a whistleblowing procedure available to all employees, the company was in compliance with the provisions of the Code during the period ended 31st December 2004. By order of the board D F Batchelor Secretary 24th February 2005 The Davis Service Group Plc 17 Report and accounts 2004 Report on directors’ remuneration

The report on directors’ remuneration contains the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 (‘the auditable part’) which comprises that set out in the tables and accompanying notes on pages 18 to 20 and has been prepared in accordance with schedule B of the Combined Code. The remuneration committee The remuneration and benefits of the executive directors of the company are determined by the remuneration committee whose members are non-executive directors: Christopher Kemball (Chairman), Neil Benson, John Burns and Philip Rogerson. The Chief Executive is invited to attend meetings but may not take part in any discussion on matters concerning himself. The terms of reference of the committee are to determine the company’s policy on executive directors’ remuneration throughout the group and to consider and approve the individual salaries and other terms of the remuneration packages for the executive directors. Remuneration policy The committee’s policy is to pay competitive salaries having regard to the director’s experience, the size and complexity of the job and any material special factors which may arise from time to time. During the year, the committee appointed external consultants, New Bridge Street Consultants, and started a review of the group’s policies, the structure of its reward packages and their relative weightings in order to align them more closely to individual and corporate performance. Although the review has been substantially completed, the committee decided to delay its implementation until after the appointment of the new Chief Executive. As a result of this decision, the Long Term Incentive Plan (for the executive directors and a small group of senior management), under which no awards were made in 2003 or 2004, has been suspended for 2005. The committee expects to complete its work and, after appropriate consultation, to propose the new executive remuneration plan to shareholders at the annual general meeting in 2006 which, if approved, will be backdated to the beginning of that year. Remuneration packages In the temporary absence of a longer term benefits element, the remuneration package for group executive directors comprises short-term elements only. Short-term benefits comprise annual salary, annual performance related cash bonuses, provision of a company car, life assurance and medical expenses insurance. Short-term performance bonuses The maximum bonus, based on achievement of targeted levels of budget and payable in cash, is 25% of base salary. This is extendable to 40% if profits in excess of budget are achieved. Under these arrangements the Chief Executive and the Finance Director received non-pensionable bonuses of 20% and 38% respectively. Paul Smeeth, who has direct divisional responsibilities, is incentivised on the basis of achievement of targeted divisional profit. In respect of 2004 he did not receive a performance bonus. In addition, with effect from 2003 the Chief Executive and Finance Director were incentivised based on performance improvements in the Sophus Berendsen division. The incentive scheme, which was self-financing and was based on achieving targeted operating margins and certain additional development criteria for the division, provided for a cash bonus of not more than the annual salary of the participants. Whilst the criteria were met at the divisional level in 2003, it was decided, in light of the shortfall in group earnings for that year, that the bonuses of the Chief Executive and Finance Director should not vest that year. Given that the improved performance was sustained during 2004, the committee decided that non-pensionable bonuses equal to 2004 annual salaries should now vest and accordingly approved payment of them during the year. No further payments will be made under this arrangement. Executive directors’ salaries Salaries for executive directors were reviewed in line with inflation and the following salaries have been effective from 1st January 2005: John Ivey £463,000; Roger Dye £273,000 and Paul Smeeth £228,000. With effect from 1st May 2005, in his new role as Chief Executive, Roger Dye will receive a salary of £375,000. Other share option schemes Discretionary grants of share options are the principal form of long-term incentive for other managers throughout the group. The share option scheme is controlled by the remuneration committee, which considers it to be an important component in the overall executive remuneration package. Options are granted on a phased basis under the rules of the Davis 1998 Share Option Scheme which, amongst other conditions, incorporates rules concerning performance attaching to the right to exercise the options that have been granted. These performance rules require the group’s normalised earnings per share growth over a three year period to exceed the growth in the UK Retail Prices Index by an average of at least 3% per annum. The exercise prices of options granted are not set at a discount to the market value of the company’s shares at date of grant. All employees, including executive directors, are eligible to participate in the group’s sharesave scheme. Retirement benefits Executive directors other than Roger Dye are members of the group’s main contributory pension scheme which provides for members’ contributions at the rate of 5% of pensionable salary. Subject to Inland Revenue limits, they are eligible for a pension of up to two-thirds of pensionable salary at normal retirement age of 60. The pension scheme also provides for payments on death. Employer’s contributions are being paid to the pension scheme in respect of the company’s executive directors and other senior executives within the group, at an appropriate rate of pensionable salary. Further details of the pension scheme are set out in note 8 on page 34. Roger Dye has a personal pension arrangement to which the company made payments equivalent to 30% of salary. Life assurance cover of four times salary and permanent health insurance up to 75% of salary are also provided. The Davis Service Group Plc 18 Report and accounts 2004 Report on directors’ remuneration continued

Directors’ service agreements All executive directors have Share Price graph – Total Shareholder Return service agreements which are terminable on one year’s notice Davis Service Group (TSR vs. FTSE 350 Support Services Index (TSR)) by either party. Non-executive directors The non-executive directors receive fees 200 Davis Service Group – Total Return Index at a level approved by the entire board, currently set at £30,000 FTSE 350 Support Services – Total Return Index per annum together with an extra £2,500 for each committee of which they are a member and a further £2,500 if they chair that 150 committee. They are able to claim reimbursement of actual expenditure incurred in carrying out their duties. The Chairman 125 has use of a motor car but does not receive fuel benefit and none are entitled to participate in the company’s pension scheme and 100 share schemes. The terms of office of non-executive directors are for periods not exceeding three years subject to shareholders’ 50 discretion when seeking re-election at annual general meetings. No director has contracted rights for compensation on early 25 termination other than that quoted above. 0 Total shareholder return The committee believes that, due to the 2000 2001 2002 2003 2004 size of the company, and its mix of activities, the FTSE 350 Support Services Index is the most suitable index to use to present a five year graph comparing the Total Shareholder Return (TSR) of the company. The chart below shows the TSR of the company compared to that index over the period 2000 to 2004. Directors’ remuneration (a) Aggregate disclosures 2004 2003 £000 £000 Salaries, fees and benefits 2,066 1,545 Payments for individual pension arrangements 80 76 Deemed gains made on exercise of share options 143 314

(b) Analysis of directors’ remuneration 2004 2003 Salary/fees Bonus Benefits Total Total £000 £000 £000 £000 £000 Current executive directors J C Ivey 450 540 20 1,010 455 I R Dye 265 365 20 650 275 P E Smeeth 222 – 19 241 288 Non-executive directors N W Benson 65 – 127749 J D Burns 30 – – 30 28 C R M Kemball 40 – – 40 32 P G Rogerson 18 – – 18 – Former executive director L A Fielding (note i) ––––404 Former non-executive director J A Franks (note ii) ––––14 1,090 905 71 2,066 1,545

(i) Lister Fielding resigned on 15th December 2003. (ii) John Franks retired from the board on 25th April 2003. The Davis Service Group Plc 19 Report and accounts 2004

(c) Directors’ pension arrangements Defined benefit scheme Increase in Transfer Transfer Transfer Increase in accrued Accrued Accrued value at value at value of transfer pension entitlement at entitlement at 31st December 31st December increase net value over during the 31st December 31st December 2004 2003 of inflation the year year 2004 2003 £000 £000 £000 £000 £000 £000 £000 Current executive directors J C Ivey 6,941 6,434 95 507 15 285 270 IRDye – – ––––– P E Smeeth 1,580 1,288 102 292 8 65 57

(i) The accrued entitlement shown above for each director is that which would be paid at normal retirement date based on service to 31st December 2004. (ii) The increase in transfer values over the year are net of member contributions paid in the year. (iii) Transfer values do not represent sums payable to the executive directors by the company. (iv) Payments were made to I R Dye in respect of his personal pension arrangements of £80,000 (2003: £76,000). Payments in excess of the Inland Revenue cap are treated as a taxable emolument. (v) The increase in accrued pension net of inflation for 2004 for the current executive directors were; J C Ivey (£4,891) and P E Smeeth (£5,600). Directors’ interests (a) Total interests The interests of the current directors and their families in the issued shares of the company and rights under the share option and sharesave schemes on the dates set out below were as follows: 31st December 2004 31st December 2003 Ordinary Share Sharesave Ordinary Share Sharesave shares options scheme shares options scheme N W Benson 89,054 – – 89,054 – – J C Ivey 1,254,298 105,470 4,588 1,183,754 176,014 4,588 I R Dye 39,166 52,735 6,416 39,166 52,735 6,416 P E Smeeth 184,306 83,049 7,525 184,306 83,049 7,525 J D Burns 89,894 – – 89,894 – – C R M Kemball 20,000 – – 14,166 – – P G Rogerson –––––– P Utnegaard ––––––

No changes have occurred in the above between 1st January and 24th February 2005. The Davis Service Group Plc 20 Report and accounts 2004 Report on directors’ remuneration continued

(b) Share options at 31st December 2004 Market 1st During the year 31st price at January December Exercise date of 2004 Granted Exercised Lapsed 2004 price exercise Number Number Number Number Number Pence Pence Exercise period Share option schemes Current executive directors J C Ivey 70,544 – (70,544) – – 191.25 384.88 Apr 1997 – Apr 2004 52,735–––52,735 340.04 – Jun 2002 – Jun 2008 52,735–––52,735 367.77 – Apr 2002 – Apr 2009 I R Dye 52,735–––52,735 245.32 – Sep 2003 – Sep 2010 P E Smeeth 35,157–––35,157 340.04 – Jun 2002 – Jun 2008 35,157–––35,157 367.77 – Apr 2002 – Apr 2009 12,735–––12,735 251.29 – Mar 2003 – Mar 2010 Former executive director L A Fielding 35,157 – (35,157) – – 367.77 369.87 Apr 2002 – June 2004 Sharesave scheme Current executive directors J C Ivey 3,203–––3,203 202.23 – Dec 2005 – May 2006 1,385–––1,385 256.00 – Dec 2007 – May 2008 I R Dye 6,416–––6,416 256.00 – Dec 2007 – May 2008 P E Smeeth 4,805–––4,805 202.23 – Dec 2005 – May 2006 2,720–––2,720 256.00 – Dec 2007 – May 2008 Former executive director L A Fielding 4,805 – (2,837) (1,968) – 202.23 399.87 Dec 2003 – Jun 2004

(c) Deemed gains on exercise of share options 2004 2003 £000 £000 J C Ivey 137 3 L A Fielding 6 267 P E Smeeth – 44 143 314

Note (i) The closing mid-market price of the ordinary shares at 31st December 2004 was 410 pence and during the year ranged from 352 pence to 413 pence. On behalf of the board C R M Kemball Chairman of the Remuneration Committee 24th February 2005 The Davis Service Group Plc 21 Report and accounts 2004 Directors’ report

The directors present their annual report and financial statements for the year ended 31st December 2004. Financial results The financial results for the year are set out on page 24. The profit for the year before tax was £53.4 million which compares with £26.8 million for the previous year. After taxation, the profit attributable to ordinary shareholders is £26.2 million (2003: £10.0 million). Ordinary dividends paid and proposed amount to £33.7 million (2003: £31.4 million). Financial review The principal activities and a review of the results and future prospects are dealt with in the Chairman’s statement, the Chief Executive’s review and the financial review on pages 2 to 13. Dividends The directors recommend a final dividend of 11.25 pence per share to be paid on 4th May 2005 to shareholders on the register at 15th April 2005 which, together with the dividend of 5.25 pence paid in October 2004, makes a total dividend for the year of 16.50 pence (2003: 15.6 Pence). Directors The current directors of the company are set out on page 14. Each served throughout the year ended 31st December 2004 except Philip Rogerson and Per Utnegaard who were appointed on 28th June 2004 and 5th January 2005 respectively. Christopher Kemball and Paul Smeeth retire by rotation at the annual general meeting and, being eligible, offer themselves for re-election. Paul Smeeth has a service agreement with Elliott Group Limited which is terminable by either party giving to the other one year’s notice in writing. Philip Rogerson and Per Utnegaard, as directors appointed by the board during the year, offer themselves for election by the shareholders. As non-executive directors, Christopher Kemball, Philip Rogerson and Per Utnegaard each have a three year written contract with one month’s notice. The interests of the current directors, together with those of their families, in the shares of the company, are included in the report on directors’ remuneration which is set out on pages 17 to 20. Share capital Details of the movements in the year are set out in note 21. Substantial shareholdings As at 24th February 2005 the following shareholders had notified interests in the company’s ordinary share capital:

Material interests in 3% or more: % Aviva 3.0 Fidelity Investment Services 6.0 Prudential plc 6.0 Entire interests in 10% or more: Silchester International Investors Limited 15.8

Changes in composition of the group The group acquired the businesses and net assets of a number of small textile maintenance operations during the year. These transactions have been accounted for as acquisitions in accordance with Financial Reporting Standard No 6. Details of the fair value of net assets acquired and consideration paid are set out in note 29 to the financial statements. On 21st January 2004 HSS Hire Service Group was sold; further details of this transaction are set out in note 4(b). Share capital As in previous years, resolutions will be proposed at the annual general meeting to authorise the directors to allot shares up to approximately one-third of the company’s issued share capital, of which up to approximately 5% may be issued for cash. The two resolutions (numbers 10 and 11) are set out in full in the Notice of Meeting on page 51. No issue will be made which would effectively alter the control of the company without the prior approval of shareholders in general meeting. The directors have no present intention of exercising this authority. Purchase of own shares In certain circumstances it may be advantageous for the company to purchase it own shares. A special resolution (number 12) will be proposed at the annual general meeting to seek authority from shareholders to do so, such authority to expire on the date of the next following annual general meeting or a date 18 months from the date of the resolution, whichever is the earlier. The directors intend to exercise this power only if and when, in the light of market conditions prevailing at the time, they believe that the effect of such purchases will be in the best interests of shareholders generally. Other investment opportunities, appropriate gearing levels and the overall position of the company will be taken into account before deciding upon this course of action. The resolution specifies the maximum number of shares which may be acquired (being 10% of the company’s issued share capital) and the maximum and minimum prices at which they may be purchased. The shareholders’ authority granted at the 2004 annual general meeting remains valid until the next annual general meeting. Political and charitable donations Financial contributions to charities and good causes during the year amounted to £13,000 (2003: £8,000). There were no political donations. Social, environmental and ethical matters (SEE) Since the acquisition of Sophus Berendsen in 2002 we have been coordinating and developing our approach to managing our Corporate Social Responsibilities (CSR). The board has decided that the further coordination and planning of this should become the responsibility of the new Chief Executive and we will be reporting on these activities in our Operating and Financial Review (OFR) in the 2005 Annual Report. Until such time as we report our strategy and key performance indicators in this area, our current focus on social, environmental and ethical matters can be summarised under four headings: The Davis Service Group Plc 22 Report and accounts 2004 Directors’ report continued

People Our own and those we serve – as customers or users of our products and services. The group recognises it is the responsibility of management to maintain healthy and safe working conditions for all its employees. Subsidiaries are required to take all necessary steps to maintain standards and procedures which discharge the duties laid down by the regulatory framework in each company’s country of operation. Processes The environmental impact of our processes are classified as low impact in respect of resource use, waste generation, noise and emissions. Our facilities are all subject to local regulatory standards and it is the policy of the group to operate all of them in a responsible manner and to take positive management action to avoid adverse impact on our working environment. Products and services Many of our services, particularly in the healthcare sector for textile maintenance, are delivered to very exacting standards required by our customers. Procurement We are conscious of the impact and example we should set with others in our procurement. We are particularly sensitive to avoid sourcing textile items from countries with unsatisfactory labour conditions. Employment policy It is the group’s policy not to discriminate between employees or potential employees on any grounds: promotion and development are based on each individual’s aptitude, abilities and skills. In the event of employees becoming disabled, every effort is made to ensure that their employment with the group continues and that appropriate training is arranged. Creditor payment policy It is the group’s policy to agree the terms of payment with each of its suppliers at the commencement of the trading relationship and to abide by those terms provided that the supplier has performed in accordance with the relevant terms and conditions. Trade creditor days of the company for the year ended 31st December 2004 were ten days and for the group’s major trading companies were 33 days. Auditors The auditors, PricewaterhouseCoopers LLP, have indicated their willingness to continue in office and a resolution that they may be reappointed will be proposed at the annual general meeting on 26th April 2005. By order of the board D F Batchelor Secretary 24th February 2005

Directors’ responsibilities for the financial statements

The directors are required by the Companies Act 1985 to prepare financial statements for each financial year which give a true and fair view of the state of affairs of the company and the group as at the end of the financial year and of the profit or loss for the financial year. The financial statements on pages 24 to 48 have been prepared on a going concern basis, suitable accounting policies have been used and applied consistently, reasonable and prudent judgements and estimates have been made and applicable accounting standards have been followed. The directors are responsible for ensuring that the company keeps accounting records which disclose with reasonable accuracy the financial position of the company and which enable them to ensure that the financial statements comply with the Companies Act 1985. The directors have a general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the group and to prevent and detect fraud and other irregularities. The directors are responsible for the maintenance and integrity of the company’s website. Information published on the internet is accessible in many countries with different legal requirements. Legislation in the United Kingdom governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. By order of the board D F Batchelor Secretary 24th February 2005 The Davis Service Group Plc 23 Report and accounts 2004 Independent auditors’ report To the members of The Davis Service Group Plc

We have audited the financial statements which comprise the consolidated profit and loss account, the statement of consolidated total recognised gains and losses, the note of consolidated historical cost profits and losses, the balance sheets, the consolidated cash flow statement, the statement of accounting policies and the related notes. We have also audited the disclosures required by Part 3 of Schedule 7A to the Companies Act 1985 contained in the directors’ remuneration report (‘the auditable part’). Respective responsibilities of directors and auditors The directors’ responsibilities for preparing the annual report and the financial statements in accordance with applicable United Kingdom law and accounting standards are set out in the statement of directors’ responsibilities. The directors are also responsible for preparing the directors’ remuneration report. Our responsibility is to audit the financial statements and the auditable part of the directors’ remuneration report in accordance with relevant legal and regulatory requirements and United Kingdom Auditing Standards issued by the Auditing Practices Board. This report, including the opinion, has been prepared for and only for the company’s members as a body in accordance with Section 235 of the Companies Act 1985 and for no other purpose. We do not, in giving this opinion, accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing. We report to you our opinion as to whether the financial statements give a true and fair view and whether the financial statements and the auditable part of the directors’ remuneration report have been properly prepared in accordance with the Companies Act 1985. We also report to you if, in our opinion, the directors’ report is not consistent with the financial statements, if the company has not kept proper accounting records, if we have not received all the information and explanations we require for our audit, or if information specified by law regarding directors’ remuneration and transactions is not disclosed. We read the other information contained in the annual report and consider the implications for our report if we become aware of any apparent misstatements or material inconsistencies with the financial statements. The other information comprises only the Chairman’s statement, the operating and financial review, the corporate governance statement, the unaudited part of the directors’ remuneration report and the directors’ report. We review whether the corporate governance statement reflects the company’s compliance with the nine provisions of the 2003 FRC Combined Code specified for our review by the Listing Rules of the Financial Services Authority, and we report if it does not. We are not required to consider whether the board’s statements on internal control cover all risks and controls, or form an opinion on the effectiveness of the group’s corporate governance procedures or its risk and control procedures. Basis of audit opinion We conducted our audit in accordance with auditing standards issued by the Auditing Practices Board. An audit includes examination, on a test basis, of evidence relevant to the amounts and disclosures in the financial statements and the auditable part of the directors’ remuneration report. It also includes an assessment of the significant estimates and judgements made by the directors in the preparation of the financial statements, and of whether the accounting policies are appropriate to the company’s circumstances, consistently applied and adequately disclosed. We planned and performed our audit so as to obtain all the information and explanations which we considered necessary in order to provide us with sufficient evidence to give reasonable assurance that the financial statements and the auditable part of the directors’ remuneration report are free from material misstatement, whether caused by fraud or other irregularity or error. In forming our opinion we also evaluated the overall adequacy of the presentation of information in the financial statements. Opinion In our opinion: • the financial statements give a true and fair view of the state of affairs of the company and the group at 31st December 2004 and of the profit and cash flows of the group for the year then ended; • the financial statements have been properly prepared in accordance with the Companies Act 1985; and • those parts of the directors’ remuneration report required by Part 3 of Schedule 7A to the Companies Act 1985 have been properly prepared in accordance with the Companies Act 1985. PricewaterhouseCoopers LLP Chartered Accountants and Registered Auditors London 24th February 2005 The Davis Service Group Plc 24 Report and accounts 2004 Consolidated profit and loss account For the year ended 31st December 2004

2004 2003 Before Before goodwill Goodwill goodwill Goodwill amortisation amortisation amortisation amortisation and and and and exceptional exceptional exceptional exceptional items items Total items items Total Notes £000 £000 £000 £000 £000 £000 Turnover Continuing operations 797,662 – 797,662 814,635 – 814,635 Discontinued operations –––180,718 – 180,718

2 797,662 – 797,662 995,353 – 995,353 Cost of sales 3 (440,600) – (440,600) (501,948) – (501,948) Gross profit 357,062 – 357,062 493,405 – 493,405 Other operating expenses 3 (252,181) (19,416) (271,597) (388,689) (30,066) (418,755) Other operating income 3 3,205 – 3,205 4,948 – 4,948 Operating profit Continuing operations Before goodwill amortisation and exceptional operating costs Continuing 108,086 – 108,086 101,696 – 101,696 Goodwill amortisation – (20,389) (20,389) – (18,102) (18,102) Exceptional operating items 4 – 973 973 – (11,317) (11,317) 108,086 (19,416) 88,670 101,696 (29,419) 72,277 Discontinued operations –––7,968 (647) 7,321 Operating profit 2 108,086 (19,416) 88,670 109,664 (30,066) 79,598 Profit on sale of properties in continuing operations 4 – 3,448 3,448 – 2,627 2,627 Loss on sale of business 4 – (55,294) (55,294) ––– Provision for the loss on sale of business 4 – 32,165 32,165 – (32,165) (32,165) Profit on ordinary activities before interest 108,086 (39,097) 68,989 109,664 (59,604) 50,060 Interest receivable 3,751 – 3,751 3,230 – 3,230 Interest payable 5 (19,368) – (19,368) (26,532) – (26,532) Profit on ordinary activities before taxation 92,469 (39,097) 53,372 86,362 (59,604) 26,758 Tax on profit on ordinary activities 10 (28,045) 1,154 (26,891) (22,118) 5,732 (16,386) Profit on ordinary activities after taxation 64,424 (37,943) 26,481 64,244 (53,872) 10,372 Minority interests (310) – (310) (391) – (391) Profit attributable to ordinary shareholders 64,114 (37,943) 26,171 63,853 (53,872) 9,981

Dividends paid and proposed 11 (33,744) (31,408)

Retained (loss) for the year 23 (7,573) (21,427)

pence pence

Basic earnings per share 12 12.93 4.98 Diluted earnings per share 12 12.85 4.94 Adjusted earnings per share 12 31.69 30.01 The Davis Service Group Plc 25 Report and accounts 2004 Statement of consolidated total recognised gains and losses For the year ended 31st December 2004

2004 2003 £000 £000 Profit for the year 26,171 9,981 Currency translation differences on net investment in overseas subsidiaries 1,701 11,521 27,872 21,502

Note of consolidated historical cost profits and losses For the year ended 31st December 2004

2004 2003 £000 £000 Reported profit on ordinary activities before taxation 53,372 26,758 Realisation of property revaluation gains of previous years 205 32 Difference between an historical cost depreciation charge and the actual depreciation for the year calculated on the revalued amount 10 10 Historical cost profit on ordinary activities before taxation 53,587 26,800 Historical cost loss for the year retained after taxation, minority interests and dividends (7,358) (21,385) The Davis Service Group Plc 26 Report and accounts 2004 Balance sheets As at 31st December 2004

Group Group Company Company 2004 2003 2004 2003 Notes £000 £000 £000 £000 Fixed assets Intangible assets 13 276,525 290,575 – – Tangible assets 14 458,781 561,046 350 416 Investments 15 20,000 – 719,108 739,755 755,306 851,621 719,458 740,171 Current assets Stocks 16 22,319 28,631 – – Debtors 17 151,611 190,937 144,834 231,985 Cash at bank and in hand 18(a) 73,856 50,911 47,527 28,473 247,786 270,479 192,361 260,458 Creditors: Amounts falling due within one year 18 (263,851) (316,072) (127,934) (97,986) Net current (liabilities)/assets (16,065) (45,593) 64,427 162,472 Total assets less current liabilities 739,241 806,028 783,885 902,643 Creditors: Amounts falling due after more than one year 19 (273,779) (333,055) (331,027) (379,629) Provisions for liabilities and charges: Deferred taxation 10(d) (29,518) (34,722) – – 435,944 438,251 452,858 523,014 Minority interests (1,672) (2,192) – Net assets 434,272 436,059 452,858 523,014 Capital and reserves Called up share capital 21 50,692 50,326 50,692 50,326 Share premium account 23 240,240 236,521 240,240 236,521 Revaluation reserve 23 2,164 2,379 – – Other reserves 23 19,629 18,808 21,079 21,079 Profit and loss account 23 121,547 128,025 140,847 215,088

Equity shareholders’ funds 24 434,272 436,059 452,858 523,014

The financial statements on pages 24 to 48 were approved by the board and signed on its behalf J C Ivey Director

IRDyeDirector 24th February 2005 The Davis Service Group Plc 27 Report and accounts 2004 Consolidated cash flow statement For the year ended 31st December 2004

2004 2003 Notes £000 £000 £000 £000

Net cash inflow from operating activities 26 227,582 275,773 Returns on investments and servicing of finance Interest received 2,868 2,917 Interest paid (15,811) (27,338) Net cash outflow (12,943) (24,421) Taxation UK corporation tax paid (6,986) (13,008) Overseas tax paid (10,039) (11,599) Net cash outflow (17,025) (24,607) Capital expenditure Purchase of tangible fixed assets (owned) (142,529) (169,788) Proceeds from sale of tangible fixed assets 19,176 19,581 Net cash outflow (123,353) (150,207) Free cash flow 74,261 76,538 Acquisitions and disposals Acquisition of subsidiaries and businesses 29 (11,059) (18,065) Net balances acquired with subsidiaries 29 (652) 1,120 Disposal of subsidiaries 118,135 – Net (cash) sold with subsidiary undertakings (1,195) – Issue of loan notes (20,511) – Net cash inflow/(outflow) 84,718 (16,945) Equity dividends paid (32,152) (30,324) Net cash inflow before financing 126,827 29,269 Financing Issue of ordinary share capital 4,085 2,718 Repayment of loan notes (68) (52) Net repayment of finance leases/hire purchase liabilities (4,366) (5,196) Net repayment of medium term loans (105,326) (22,712) Net cash outflow from financing (105,675) (25,242)

Increase in cash 27 21,152 4,027 The Davis Service Group Plc 28 Report and accounts 2004 Statement of accounting policies

Basis of financial statements The financial statements are prepared under the historical cost convention, modified to include the revaluation of land and buildings, and in accordance with the Companies Act 1985 and applicable accounting standards in the United Kingdom. A summary of the principal group accounting policies is set out below. All have been applied consistently throughout the year and the preceding year. Basis of consolidation The group financial statements consolidate those of the company and all its subsidiaries made up to 31st December 2004. The results of subsidiaries acquired or disposed of during the year are included in the consolidated profit and loss account from the date of acquisition or up to the date of disposal. In the company’s financial statements, investments in subsidiaries are stated at cost. Changes in accounting policies The transitional provisions of FRS17 – ‘Retirement Benefits’, require additional disclosures relating to the group’s pension schemes as shown in note 8. There will be no effect on the group’s results until full implementation of the standard. Goodwill Goodwill represents the excess of the fair value of the consideration given for a business over the fair value of the net assets acquired. In accordance with FRS10 ‘Goodwill and Intangible Assets’ goodwill arising on acquisitions from 1st January 1998 is capitalised as an intangible asset. Where such goodwill is regarded as having a limited estimated useful economic life, it is amortised through the profit and loss account on a straight line basis over its life. Where such goodwill is regarded as having an indefinite life, it is not amortised but is subjected to an annual impairment review and any impairment will be charged to the profit and loss account. In estimating the useful economic life of goodwill, account is taken of the nature of the business acquired, the stability of the industry, the extent of continuing barriers to market entry and the expected future impact of competition. All acquisitions since 1st January 1998 are considered by the directors to have estimated useful economic lives of between five and 20 years depending on the business acquired. Goodwill arising on acquisitions prior to 1st January 1998 remains eliminated against reserves. The goodwill attributable to any business which is disposed of subsequently is charged to the profit and loss account at the time of disposal. Tangible fixed assets Land and buildings are shown at original historical cost or subsequent valuation. Prior to 1st January 2002, properties were also revalued, albeit less frequently, any surplus or deficit being transferred to the revaluation reserve. From 1st January 2002, following the adoption of the transitional provisions of FRS15 ‘Tangible Fixed Assets’, no further revaluations will take place other than fair value adjustments required on the acquisition of subsidiaries, and any existing valuations, details of which are given in note 14, are being carried forward. Other fixed assets are shown at cost. Depreciation Depreciation is provided at rates calculated to write off the cost or valuation, less estimated residual value, of each asset on a straight line basis over its expected useful life, as follows: Properties occupied by group companies Depreciation is being provided at a rate of 2% per annum on an estimate of the buildings element of freehold properties and properties on leases with 50 or more years unexpired at the balance sheet date. This rate has been determined having regard to the group’s practice to maintain these assets in a continual state of sound repair and to extend and make improvements from time to time. Freehold land is not depreciated. Short leasehold land and buildings Depreciated by equal instalments over the period of the lease. Plant and machinery Depreciated at rates of 10% to 50% per annum, depending on the class of asset. Hire and rental inventory Depreciated at rates of 10% to 55%, depending on the class of asset, and augmented by amounts to cover wastage, obsolescence and loss. Investments Investments are stated at cost less provision for impairment. The Davis Service Group Plc 29 Report and accounts 2004

Finance leases and lease purchase arrangements Assets acquired under finance leases and lease purchase arrangements are capitalised and are reported at cost: the equivalent liability is categorised as appropriate under creditors due within or after one year. Finance charges are allocated to accounting periods over the period of the lease to produce a constant rate of charge on the outstanding balance. Rentals are apportioned between finance charges and reduction of the liability. Operating leases Costs in respect of operating leases are charged on a straight line basis over the lease term. Stocks Stocks comprise portable buildings being manufactured for sale and other stocks and stores. Stocks are valued at the lower of cost and net realisable value. For these purposes cost is defined as being the expenditure which has been incurred (exclusive of value added tax) in bringing the various items to their present location and condition and will, in the case of work in progress and finished goods, include direct costs of labour and materials and, where appropriate, production overheads. Net realisable value is defined as being the estimated net sales value of the various items in their present location and condition. Full provision is made for obsolete, defective and slow moving stock. Deferred taxation Deferred taxation is provided on a full provision basis, without discounting, on all timing differences which have arisen but not reversed at the balance sheet date. Except where otherwise required by Accounting Standards, no timing differences are recognised in respect of: a) property revaluation surpluses where there is no commitment to sell the asset, b) gains on sale of assets where those gains have been rolled over into replacement assets, c) additional tax which would arise if profits of overseas subsidiaries were distributed, and d) deferred tax assets except to the extent that it is more likely than not that they will be recovered. Pension costs It is the policy of the group to fund defined pension liabilities, on the advice of external actuaries, by payments to schemes controlled by independent trustees. Pension costs are charged against profits on a systematic basis over the service lives of the eligible employees, based on payroll, actuarial methods and assumptions, in accordance with the actuaries’ advice. For unfunded pension schemes, the group charges pension costs against profit and provides for liabilities on the advice of external advisers. The costs of defined contribution schemes or pension arrangements of a similar nature are charged against profits as contributions become payable to the relevant scheme or arrangement. The group’s pension cost charged to the profit and loss account is in accordance with SSAP 24 ‘Accounting for Pension Costs’, further, the group has adopted the additional disclosure requirements under the transitional provisions of FRS17 – ‘Retirement Benefits’. Foreign currency The results of overseas subsidiaries are translated at the average rates of exchange during the period and their balance sheets are translated at year end exchange rates. The resulting exchange differences are dealt with through reserves and reported in the consolidated statement of total recognised gains and losses. Exchange differences arising on the consolidation of subsidiary undertakings are dealt with through reserves, net of differences on related borrowings which finance or provide a hedge. Transactions in foreign currencies are recorded at the rate of exchange at the date of transaction. Monetary assets and liabilities denominated in foreign currencies held at the year end are translated at year end exchange rates. The resulting exchange gain or loss is dealt with in the profit and loss account. Turnover Group turnover comprises of operating lease income which is recognised on a straight line basis and the value of sales (excluding sales taxes, trade discounts and intra-group transactions) of goods and services in the normal course of business. Sales of long-term services are recognised in accordance with performance of underlying contractual terms. Derivatives and other financial instruments Interest rate swaps Interest expense reflects the underlying cost of borrowing. Net payments and receipts under interest rate swap contracts are accrued over the period to which they relate and added to or credited against interest expense. No accounting entries are required for the principal amount of interest rate swaps as it is purely a notional figure and does not represent an asset, a liability or a contingency. Employee share schemes In accordance with the exemption provided for in UITF abstract 17 ‘Employee share schemes’ (revised), no cost is recognised in the profit and loss account for the award to employees of shares in the company’s UK Inland Revenue approved Sharesave Scheme. The Davis Service Group Plc 30 Report and accounts 2004 Notes to financial statements

1 Holding company profit and loss account As permitted by Section 230 of the Companies Act 1985, the company has not presented its own profit and loss account. The loss for the year ended 31st December 2004 dealt with in the accounts of the company was £39,477,000 (2003: £21,512,000) after taking account of dividends receivable from subsidiaries of £23,217,000 (2003: £30,871,000). 2 Segmental analysis (a) By class of business 2004 2003 Operating Net operating Operating Net operating Turnover profit assets Turnover profit assets £000 £000 £000 £000 £000 £000 Continuing operations Textile maintenance – UK and Ireland 263,250 38,267 157,087 251,595 38,369 141,840 Textile maintenance – Continent 388,214 56,159 181,831 406,110 48,321 184,354 Building systems 146,198 17,804 85,514 156,930 18,063 87,320 Central overheads net of currency gain – (4,144) (13,137) – (3,057) 1,334 797,662 108,086 411,295 814,635 101,696 414,848 Discontinued operations –––180,718 7,968 128,667 797,662 108,086 411,295 995,353 109,664 543,515 Goodwill amortisation – (20,389) 276,525 – (18,749) 290,575 Exceptional operating items (note 4) – 973 – – (11,317) – 797,662 88,670 687,820 995,353 79,598 834,090 Analysis of goodwill Textile maintenance – UK and Ireland (3,216) 23,922 (2,862) 26,203 Textile maintenance – Continent (16,133) 245,583 (13,999) 255,538 Building systems (1,040) 7,020 (1,241) 8,060 (20,389) 276,525 (18,102) 289,801 Discontinued operations –– (647) 774 (20,389) 276,525 (18,749) 290,575 The Davis Service Group Plc 31 Report and accounts 2004

2 Segmental analysis continued (b) By geographical segment 2004 2003 Operating Net operating Operating Net operating Turnover profit assets Turnover profit assets £000 £000 £000 £000 £000 £000 Continuing operations United Kingdom 382,152 48,360 205,515 381,893 49,631 207,507 Europe 415,510 59,726 205,780 432,742 52,065 207,341 797,662 108,086 411,295 814,635 101,696 414,848 Discontinued operations United Kingdom –––144,778 12,331 92,791 Europe –––3,748 777 4,375 United States of America –––32,192 (5,140) 31,501 –––180,718 7,968 128,667 Goodwill amortisation – (20,389) 276,525 – (18,749) 290,575 Exceptional operating items (Europe) – 973 – – (11,317) – 797,662 88,670 687,820 995,353 79,598 834,090 Analysis of goodwill United Kingdom (4,094) 29,849 (4,072) 34,128 Europe (16,295) 246,676 (14,072) 255,977 United States of America –– (605) 470 (20,389) 276,525 (18,749) 290,575

(c) Reconciliation of net operating assets to net assets 2004 2003 £000 £000 Net operating assets (as above) 687,820 834,090 Investments 20,000 – Net debt (250,509) (376,656) Proposed dividend (23,039) (21,375) Net assets (as per balance sheet) 434,272 436,059

All turnover relates to external customers. There is no material difference in turnover stated by origin and destination. The Davis Service Group Plc 32 Report and accounts 2004 Notes to financial statements continued

3 Cost of sales and other operating expenses and income 2004 2003 Continuing Total Continuing Discontinued Total £000 £000 £000 £000 £000 Cost of sales 440,600 440,600 455,789 46,159 501,948 Gross profit 357,062 357,062 358,846 134,559 493,405 Other operating expenses Distribution costs 139,884 139,884 132,519 20,561 153,080 Administrative expenses 112,200 112,200 128,454 106,409 234,863 Loss on disposal of hire and rental inventory and plant and machinery 97 97 593 153 746 252,181 252,181 261,566 127,123 388,689 Other operating income Profit on disposal of hire and rental inventory and plant and machinery 3,160 3,160 3,372 77 3,449 Property rents received (net of related outgoings) 55(25) 455 430 Other operating income 40 40 1,069 – 1,069 3,205 3,205 4,416 532 4,948 Operating profit Before goodwill amortisation and exceptional operating costs 108,086 108,086 101,696 7,968 109,664 Goodwill amortisation (20,389) (20,389) (18,102) (647) (18,749) Exceptional operating costs 973 973 (11,317) – (11,317) 88,670 88,670 72,277 7,321 79,598

There were no operations classified as discontinued activities during the year. The results of acquisitions made during the year are not material to the group. 4 Exceptional items (a) Exceptional operating items 2004 2003 £000 £000 Closure costs of laundries – (11,317) Release of provisions (note i) 973 – 973 (11,317)

(i) The exceptional income reflected in 2004 represents the release of excess provisions not required in respect of the reorganisation of flatwork activities in Scandinavia. 2004 (b) Exceptional items 2003 £000 £000 £000 Excess of consideration over net assets 4,001 Provision for transaction costs (6,641) Provision for past service pensions (13,500) Related goodwill previously written off to reserves (18,571) Partial provision for US vendor loan notes (note i) (12,500) Settlement of completion account matters (note i) (8,594) Realised exchange gain 511 Loss on sale of HSS (55,294) Provision for loss on sale of HSS 32,165 (32,165) Profit on sale of properties in continuing operations (note ii) 3,448 2,627 (19,681) (29,538)

(i) The actual loss on sale of HSS exceeded the provision for loss on sale made at 31st December 2003 principally due to the finalisation of completion account matters and a partial provision for the US Vendor loan notes. (ii) The profit on sale of properties realised in 2004 largely related to the sale of properties within the Sunlight Group and Elliott (tax effect is a credit of £221,000). The Davis Service Group Plc 33 Report and accounts 2004

5 Interest payable 2004 2003 £000 £000 On bank loans and overdrafts 17,619 24,370 Finance leases and similar charges 624 677 Other 1,125 1,485 19,368 26,532

6 Profit on ordinary activities before taxation 2004 2003 £000 £000 This is stated after charging: Amortisation of intangible fixed assets 20,389 18,749 Depreciation of tangible fixed assets: Owned 131,353 157,961 Held under finance leases and hire purchase contracts 3,758 4,320 Operating lease payments: Plant and machinery 5,825 14,832 Land and buildings 6,896 25,494 Audit services provided to the group Statutory audit 607 906 Audit-related regulatory reporting 102 90 Non-audit services provided to the group by PricewaterhouseCoopers LLP and its network firms Further assurance services 41 7 Services related to the sale of HSS 319 – Tax services Compliance services 24 19 Advisory services 584 132 Other services not covered above 148 53 1,825 1,207

Auditors’ remuneration – audit services to the company: £143,000 (2003: £88,500) 7 Staff costs 2004 2003 £000 £000 Employee costs (including directors) during the year amounted to: Wages and salaries 252,795 313,093 Social security costs 34,832 39,206 Other pension costs 12,606 14,873 300,233 367,172

The average monthly number of persons employed by the group during the year was as follows: 2004 2003 Number Number Textile maintenance – UK and Ireland 7,961 8,359 Textile maintenance – Continental 7,380 7,749 Building systems 1,512 1,656 Other activities 25 23 16,878 17,787 Tool hire – 2,919 Total group 16,878 20,706

The above includes 2,838 part-time staff (2003: 2,871). The Davis Service Group Plc 34 Report and accounts 2004 Notes to financial statements continued

8 Pension arrangements Within the United Kingdom, the group principally operates an approved defined benefit scheme (The Davis Service Group Retirement Benefits Scheme). The group has also established stakeholder arrangements on behalf of its UK employees. Overseas, the only significant pension arrangements are the defined benefit schemes operated by Spring Grove Services Limited in Ireland and Sophus Berendsen. Under such schemes the group discharges its pension obligations through actuarially determined contributions to schemes administered by insurance companies or government agencies. The group’s pension cost for the year with respect to Sophus Berendsen was £7,100,000 (2003: £7,801,000) of which £1,059,000 (2003: £897,000) related to defined benefit schemes. Each of the UK defined benefit schemes is funded in accordance with the advice of qualified actuaries, is subject to independent actuarial valuations every three years and, where applicable, has its assets held in separate trustee administered funds. Payments in respect of defined contribution schemes or similar arrangements are made in accordance with the rules of the relevant scheme or arrangement. The group has continued to account for pensions in accordance with SSAP 24 – ‘Accounting for pension costs’ and the disclosures given in (a) are those required by that standard. The disclosures required under the transitional provisions of FRS17 – ‘Retirement Benefits’, to the extent not given in (a), are set out in (b): these provide information which will be necessary for full implementation of FRS17. (a) SSAP 24 Details of the most recent actuarial valuation of the principal scheme, which accounts for 36% of the group’s total pension cost, are as follows: Effective date – 1st February 2004 Valuation methods – Projected unit (four categories) – Attained age (two categories) Main assumptions Investment returns – Pre-retirement 6.5% pa – Post-retirement 5.9% pa Pensionable salary increases 4% pa Employers’ contribution level – as a percentage of pensionable salaries 15.2% Market value of scheme assets at effective date £85,628,000

The actuarial value of the assets of the scheme was sufficient to cover 64% of the benefits that had accrued to members after allowing for future salary increases. The then deficit of £47,448,000 (before tax) is being amortised over 15 years and is being paid in addition to the percentage of pensionable salary contribution for future service, at a rate of £4,000,000 per annum. (b) FRS17 The actuarial valuations of the principal scheme, referred to in (a) above, and of the six other defined benefit schemes operated by the group have each been updated as at 31st December 2004 by qualified actuaries using revised assumptions that are consistent with the requirements of FRS17. The assets of the scheme are stated at their fair market value as at 31st December 2004. The principal actuarial assumptions used to calculate the schemes’ liabilities as at 31st December 2004 were: 2004 2003 2002 Projected unit Projected unit Projected unit Sweden and Projected unit Sweden and Projected unit Sweden and Projected unit Valuation method Germany UK and Ireland Germany UK and Ireland Germany UK and Ireland Rate of increase in salaries 2.68% 4.00% 2.66% 3.50% 3.00% 3.53% Rate of increase in pensions in payment and deferred pensions: Excess over GMP pre 1st February 1999 (Davis RBS only) – 5.00% – 5.00% – 5.00% Other 1.95% 2.94% 1.94% 2.53% 2.00% 2.53% Inflation rate 1.95% 2.97% 1.94% 2.49% 2.00% 2.50% Discount rate 5.22% 5.47% 5.00% 5.96% 5.00% 6.00% The Davis Service Group Plc 35 Report and accounts 2004

8 Pension arrangements continued The assets and liabilities of the schemes together with the expected rates of return on the schemes’ assets are shown below: 2004 2003 2002 Long-term Long-term Long-term expected expected expected rate of return Valuation rate of return Valuation rate of return Valuation % £000 % £000 % £000 Equities 7.75% 75,801 6.58 68,139 6.58 51,683 Bonds 4.92% 37,516 5.48 33,046 5.48 25,707 Cash and other assets 5.75% 728 5.75 483 5.50 602 Total fair value of assets 114,045 101,668 77,992 Present value of liabilities (173,742) (134,614) (118,437) Net (deficit) in schemes (59,697) (32,946) (40,445) Related deferred tax assets 17,723 9,564 11,774 Net pension liability (41,974) (23,382) (28,671)

The following disclosures are required under FRS17 arrangements, the balances of which would be reflected in the financial statements upon full disclosure of FRS17.

2004 2003 2002 £000 £000 £000 Analysis of the pension expense in the profit and loss account Current service cost 3,369 4,948 4,144 Past service cost – –– Total charge against operating profit 3,369 4,948 4,144 Expected return on net assets 6,379 5,398 5,810 Interest on pension liabilities (8,481) (7,948) (6,766) Net return (2,102) (2,550) (956)

Analysis of amount recognised in statement of total recognised gains and losses (STRGL) Actual return on scheme assets greater/(less) than expected 3,939 7,748 (20,415) Experience gains and losses on scheme liabilities (5,753) 817 (1,840) Change in assumptions (28,308) 445 (1,491) Actuarial (losses)/gains recognised in STRGL (30,122) 9,010 (23,746)

History of experience gains and losses Difference between the actual and expected return on scheme assets: Amount 3,939 7,748 (20,415) Percentage of scheme assets 3.5% 7.6% 26.2% Experience gains and losses on scheme liabilities: Amount (5,753) 817 (1,840) Percentage of the present value of the scheme liabilities 3.3% 0.6% 1.6% Total amount recognised in statement of total recognised gains and losses: Amount (30,122) 9,010 (23,746) Percentage of the present value of the scheme liabilities 17.3% 6.7% 20.0% The Davis Service Group Plc 36 Report and accounts 2004 Notes to financial statements continued

8 Pension arrangements continued 2004 2003 £000 £000 Movement in deficit during the year Deficit at beginning of year (32,946) (40,445) Currency (17) (238) Contributions 5,347 8,666 Current service cost (3,369) (4,948) Past service cost – – Other financial income (2,102) (2,550) Gain on curtailment recognised in loss on disposal of HSS 3,562 – Actuarial (losses)/gains recognised in STRGL (30,122) 9,010 Acquisitions – (2,441) Prior year adjustment (50) – Deficit at end of year (59,697) (32,946)

Had FRS17 been adopted in full, the group’s net assets and profit and loss reserves would have been stated as follows: 2004 2003 £000 £000 Net assets excluding net pension liability 434,272 436,059 Pension assets 305 Pension liability (41,974) (23,687) Pension liability already included within reserves (note i) 9,450 5,950 Net assets including pension liability 401,748 418,627 Profit and loss reserve excluding pension deficit 121,547 128,025 Pension deficit (41,974) (23,382) Pension deficit already included within reserves (note i) 9,450 5,950 Profit and loss reserve including pension deficit 89,023 110,593

(i) On the advice of the Scheme Actuary, a liability of £9,450,000 after tax in respect of the HSS share of the pension deficit has been accrued. 9 Directors’ emoluments Details of directors’ emoluments are given in the report on directors’ remuneration set out in the tables on pages 17 to 20. The Davis Service Group Plc 37 Report and accounts 2004

10 Taxation (a) Analysis of charge for the year Group Group 2004 2003 £000 £000 £000 £000 Current tax: UK corporation tax on profits for the year 6,434 10,682 Adjustments in respect of previous years 1,066 (686) 7,500 9,996 Overseas tax 14,529 11,888 Total current tax (note 10b) 22,029 21,884 Deferred tax: Origination and reversal of timing differences 6,146 (4,595) Changes in tax rates and laws (455) 12 Adjustment to deferred tax assets arising in previous years (829) (915) Total deferred tax (note 10d) 4,862 (5,498) Tax on profit on ordinary activities 26,891 16,386 On ordinary activities before exceptional items 28,045 25,816 On goodwill amortisation and exceptional items (note 4) (1,154) (5,732) Tax credit in respect of prior years (Germany) – (3,698) 26,891 16,386

(b) Factors affecting the current tax charge for the year The current tax charge for the year is different from the standard rate of corporation tax in the UK. The difference is explained below: Group Group 2004 2003 £000 £000 Profit on ordinary activities before tax 53,372 26,758 Profit on ordinary activities multiplied by the standard rate of UK corporation tax of 30% (2003: 30%) 16,012 8,027 Effects of: Differences between capital allowances and depreciation (3,555) (4,905) Timing differences (1,041) 11,457 Expenses not deductible for tax purposes (primarily goodwill amortisation) 5,158 8,257 Tax losses (934) (4,853) Differences between chargeable gains or allowable losses and profit or loss on disposal 5,535 3,315 Overseas tax rates (212) 1,272 Adjustments in respect of prior years 1,066 (686) Current tax charge for the year (note 10a) 22,029 21,884

(c) Factors that may affect the future tax charge Group Group 2004 2003 £000 £000 Taxes that would arise if properties were to be disposed of at their revalued amounts 4,947 43 Tax on rolled-over gains which become payable only if the relevant assets are sold and no qualifying assets are available for subsequent roll-over 3,648 1,363 Tax value of losses which will be recognised when the benefit thereof can be anticipated with reasonable certainty 2,778 10,004 The Davis Service Group Plc 38 Report and accounts 2004 Notes to financial statements continued

10 Taxation continued (d) Deferred taxation Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Deferred tax comprises: Excess of tax allowances over depreciation 29,513 25,404 (38) (35) Other timing differences 790 4,301 (4,045) 5 Tax losses carried forward (1,144) (3,558) – – 29,159 26,147 (4,083) (30) Movement during the year: Beginning of the year 26,147 26,596 (30) (29) (Disposal)/acquisition of subsidiaries (2,103) (68) – – Currency translation differences 253 1,168 – – Transfer to current tax – 3,949 – – Amount charged/(credited) to profit and loss account 4,862 (5,498) (4,053) (1) End of year 29,159 26,147 (4,083) (30) Balance sheet presentation: Current assets (note 17) (359) (8,575) (4,083) (30) Provisions for liabilities and charges 29,518 34,722 – – 29,159 26,147 (4,083) (30)

The group current assets figure comprises net deferred tax assets (principally tax losses) in overseas jurisdictions. 11 Dividends 2004 2003 £000 £000 Ordinary: Interim paid of 5.25 pence per share (2003: 5.00 pence) 10,705 10,033 Final proposed of 11.25 pence per share (2003: 10.60 pence) 23,039 21,375 33,744 31,408

12 Earnings per ordinary share Basic earnings per ordinary share are based on the group profit for the year and a weighted average of 202,346,162 (2003: 200,492,294) ordinary shares in issue during the year. Diluted earnings per share are based on the group profit for the year and a weighted average of ordinary shares in issue during the year calculated as follows: 2004 2003 Number Number of shares of shares In issue 202,346,162 200,492,294 Dilutive potential ordinary shares arising from unexercised share options 1,367,305 1,546,183 203,713,467 202,038,477

An adjusted earnings per ordinary share figure has been presented to eliminate the effects of exceptional items and goodwill amortisation. This presentation shows the trend in earnings per ordinary share that is attributable to the underlying trading activities of the group. The Davis Service Group Plc 39 Report and accounts 2004

12 Earnings per ordinary share continued The reconciliation between the two figures is as follows: 2004 2003 Earnings Earnings per share per share £000 pence £000 pence Profit for basic earnings per share calculation 26,171 12.93 9,981 4.98 (Profit) on disposal of properties (after taxation) (3,669) (1.81) (2,509) (1.25) Goodwill amortisation (after taxation) 19,842 9.81 18,735 9.35 Tax credit in respect of prior years (Germany) ––(3,698) (1.84) Exceptional operating costs (after taxation) (998) (0.49) 9,531 4.75 Loss on sale of business (after taxation) 50,883 25.15 –– Provision for loss on sale of business (after taxation) (28,115) (13.90) 28,115 14.02 Profit for adjusted earnings per share calculation 64,114 31.69 60,155 30.01

13 Intangible fixed assets Intangible Goodwill assets Total £000 £000 £000 Cost Beginning of year 327,610 – 327,610 Currency 1,672 – 1,672 Acquisitions during year (see note 29) 4,785 1,525 6,310 Disposals (note i) (1,414) – (1,414) End of year 332,653 1,525 334,178 Amortisation Beginning of year 37,035 – 37,035 Currency 856 13 869 Charge 20,148 241 20,389 Disposals (note i) (640) – (640) End of year 57,399 254 57,653 Net book value End of year 275,254 1,271 276,525 Beginning of year 290,575 – 290,575

(i) During the year the group disposed of £774,000 of goodwill as part of the sale of the HSS tool hire business. (ii) Intangible assets arising from the CapsLock AB acquisition are being amortised on a straight line basis over five years. The Davis Service Group Plc 40 Report and accounts 2004 Notes to financial statements continued

14 Tangible fixed assets Plant and machinery Land and buildings Owned Leased Hire and rental Total £000 £000 £000 £000 £000 Cost or valuation Beginning of year 206,993 350,245 29,966 604,764 1,191,968 Currency 866 1,564 28 2,580 5,038 Additions 3,347 33,390 3,787 105,792 146,316 New subsidiaries 2,769 3,043 – 2,535 8,347 Sold subsidiaries (44,246) (36,618) (3,583) (116,890) (201,337) Disposals (8,192) (21,663) (3,351) (130,617) (163,823) End of year 161,537 329,961 26,847 468,164 986,509 Depreciation Beginning of year 59,163 222,662 20,207 328,890 630,922 Currency 285 964 11 1,732 2,992 Charge 4,682 25,920 3,758 100,751 135,111 Sold subsidiaries (14,545) (21,886) (3,322) (50,390) (90,143) Disposals (2,783) (18,359) (3,020) (126,992) (151,154) End of year 46,802 209,301 17,634 253,991 527,728 Net book value End of year 114,735 120,660 9,213 214,173 458,781 Beginning of year 147,830 127,583 9,759 275,874 561,046

Property valuation The group’s land and buildings have been valued on an existing use basis by independent professional valuers or by way of a directors’ valuation as follows: Long Short Freehold leasehold leasehold £000 £000 £000 Land and buildings: At 31st December 2004 At 1989 valuation 6,112 – – At 1992 valuation – 170 – At 2003 valuation 13,517 144 – At cost 136,757 1,324 3,513 156,386 1,638 3,513 At 31st December 2003 162,003 2,486 42,504

If land and buildings had not been revalued they would have been included at the following amounts: Land and Land and buildings buildings 2004 2003 £000 £000 Cost 159,196 204,448 Aggregate depreciation based on cost (46,554) (58,904) Net book value based on cost 112,642 145,544 The Davis Service Group Plc 41 Report and accounts 2004

14 Tangible fixed assets continued Short Plant and leasehold machinery property owned Total £000 £000 £000 Company Cost: Beginning of year 330 676 1,006 Additions – 111 111 Disposals – (182) (182) End of year 330 605 935 Depreciation: Beginning of year 228 362 590 Charge 16 145 161 Disposals – (166) (166) End of year 244 341 585 Net book value: At 31st December 2004 86 264 350 At 31st December 2003 102 314 416

15 Fixed asset investments Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Investment in shares of subsidiary undertakings – – 699,108 739,755 Other investments 20,000 – 20,000 –

During the year the group issued £32,500,000 in the form of vendor loan notes as part of the sale of the HSS tool hire business. A provision of £12,500,000 has been made against the US element of the loan notes. The list of the principal trading subsidiary undertakings of the group is given on page 50 of these financial statements. The company owns, either directly or through subsidiary undertakings, 100% of the issued share capital of each of the subsidiary undertakings listed thereon. A full list of subsidiary undertakings will be filed with the company’s next annual return. 16 Stocks Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Raw materials and consumables 5,402 6,277 – – Work in progress 4,855 2,587 – – Finished goods and goods for resale 12,062 19,767 – – 22,319 28,631 – –

17 Debtors Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Amounts falling due within one year: Trade debtors 124,849 149,150 – – Due from subsidiaries – – 8,608 19,108 Dividends receivable from subsidiary companies – – 12,849 24,486 Other debtors 4,445 8,735 555 1,050 Prepayments and accrued income 19,647 18,654 1,277 563 Taxation recoverable 2,311 5,823 1,451 3,135 Deferred tax asset 140 6,725 270 30 151,392 189,087 25,010 48,372 Amounts falling due after more than one year: Due from subsidiaries – – 116,011 183,613 Deferred tax asset 219 1,850 3,813 – 151,611 190,937 144,834 231,985 The Davis Service Group Plc 42 Report and accounts 2004 Notes to financial statements continued

18 Creditors: amounts falling due within one year Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Bank overdrafts (note a) 12,184 12,682 41,230 17,182 Bank loans 43,115 84,795 37,906 36,000 Trade creditors 43,028 54,480 51 76 Customer deposits 1,761 1,889 – – Obligations under finance leases/hire purchase contracts 3,290 4,247 – – Loan notes – 69 – – Due to subsidiaries – – 3,704 20,641 Other creditors 37,611 30,296 15,973 1,107 Dividend payable 23,039 21,375 23,039 21,375 Corporation tax payable 8,774 7,422 – – Other taxes and social security 24,700 24,156 379 79 Accruals and deferred income 66,349 74,661 5,652 1,526 263,851 316,072 127,934 97,986

(a) The group’s UK and overseas bank accounts are subject to set-off arrangements covered by cross-guarantees and are presented accordingly. 19 Creditors: amounts falling due after more than one year Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Bank loans 259,586 319,538 259,177 319,267 Obligations under finance leases/hire purchase contracts 6,190 6,236 – – Due to subsidiaries – – 71,850 60,362 Other 8,003 7,281 – – 273,779 333,055 331,027 379,629 Obligations under finance leases/hire purchase contracts Amounts falling due: Between one and two years 2,680 2,747 – – Between two and five years 3,361 3,342 – – Over five years 149 147 – – 6,190 6,236 – –

In accordance with FRS4, Capital Instruments, bank loans are stated net of issue costs of £1,098,000 (2003: £1,719,000). 20 Derivatives and other financial instruments (a) Objectives, policies and strategies A commentary on the objectives, policies and strategies of the group regarding the use of derivatives and other financial instruments is included in the financial review on pages 12 and 13. (b) Short-term debtors and creditors In accordance with FRS13, short-term debtors and creditors are excluded from the disclosures relating to derivatives and other financial instruments shown in this note 20, other than the currency disclosures shown in note 20(f). (c) Financial assets Financial assets comprise cash at bank and in hand. There are no financial assets, other than short-term debtors, excluded from this analysis. Group Group 2004 2003 £000 £000 Currency profile Sterling 44,408 19,111 Swedish krona 7,062 8,574 Danish krone 7,366 4,973 Euro 13,549 15,674 Other European 1,426 1,035 US dollars 45 1,544 73,856 50,911

Interest rate profile Other than cash in hand of £89,000 (2003: £495,000), the financial assets are all at floating rates linked to the relevant market’s overnight market or short-term bank deposit rate. The Davis Service Group Plc 43 Report and accounts 2004

20 Derivatives and other financial instruments continued (d) Borrowings Borrowings equate to total financial liabilities other than short-term trade creditors; there are no other financial liabilities requiring disclosure. Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Maturity analysis of borrowings including finance leases and hire purchase contracts: Within one year – bank 55,299 97,477 79,136 53,182 – other 3,290 4,316 – – Within one to two years – bank 42,110 34,064 41,860 34,000 – other 2,680 2,747 – – Within two to five years – bank 217,413 285,381 217,317 285,267 – other 3,361 3,342 – – Over five years – bank 63 93 – – – other 149 147 – – 324,365 427,567 338,313 372,449

Interest rate profile of borrowings (after taking account of interest rate swaps) Group 2004 Danish Other krone Sterling US dollars Euro European Total £000 £000 £000 £000 £000 £000 At fixed rates 162,869 13,049 13,022 258 1,619 190,817 At floating rates 112,953 – 4,557 14,938 1,100 133,548 Total 275,822 13,049 17,579 15,196 2,719 324,365 Fixed rates: Weighted average interest rate 5.25% 6.27% 5.53% 5.95% 2.81% 5.36% Weighted average period for which rate fixed (years) 0.42 1.55 1.50 3.47 1.74 0.63

Group 2003 Danish Other krone Sterling US dollars Euro European Total £000 £000 £000 £000 £000 £000 At fixed rates 161,818 23,775 13,966 13,992 1,385 214,936 At floating rates 42,655 148,004 21,687 111 174 212,631 Total 204,473 171,779 35,653 14,103 1,559 427,567 Fixed rates: Weighted average interest rate 5.25% 6.31% 5.53% 3.03% 3.57% 5.23% Weighted average period for which rate fixed (years) 1.42 2.14 2.51 1.31 1.59 1.56

Floating rate borrowings comprise bank loans bearing interest at rates set for periods ranging from one to six months by reference to the London Inter Bank Offer Rate or the relevant local currency equivalent. (e) Borrowing facilities The group has undrawn committed borrowing facilities which at 31st December 2004 amounted to £76,602,000 (2003: £31,014,000). This has been reduced since the year end by cancellation of £50,000,000 of the facility. The facility is due for renewal by 2007. The Davis Service Group Plc 44 Report and accounts 2004 Notes to financial statements continued

20 Derivatives and other financial instruments continued (f) Currency exposure The table below shows the group’s currency exposures being those transactional exposures that give rise to the net currency gains or losses that are recognised in the profit and loss account. Such exposures comprise the monetary assets and liabilities of the group that are not denominated in the functional currency of the relevant operating entity. Group 2004 Danish Swedish Other US dollars Euro Sterling krone krona European Total £000 £000 £000 £000 £000 £000 £000 Functional currency of group operation: Sterling – 331 ––––331 Euro ––(179) – – – (179) Danish krone – 4,272 262 – 80 1 4,615 Swedish krona (8) (195) (42) (152) – (123) (520) Norwegian kroner –(124) – (5) – – (129) Estonian kroon ––1––34 Polish zloty – (16) – – (8) (2) (26) Total (8) 4,268 42 (157) 72 (121) 4,096

Group 2003 Danish Swedish Other US dollars Euro Sterling krone krona European Total £000 £000 £000 £000 £000 £000 £000 Functional currency of group operation: Sterling – 1,505––––1,505 Euro – – (231) – – – (231) Danish krone – 3,778 481 – 1,392 32 5,683 Swedish krona (20) (263) (3) (44) – (1) (331) Norwegian kroner – (62) (71) (53) – – (186) Total (20) 4,958 176 (97) 1,392 31 6,440

(g) Fair values of financial assets and liabilities Group Group 2004 2003 Book value Fair value Book value Fair value £000 £000 £000 £000 Primary financial instruments held or issued to finance operations: Bank borrowings (314,885) (314,885) (417,015) (417,015) Finance lease obligations (9,480) (9,384) (10,483) (10,574) Loan notes ––(69) (69) (324,365) (324,269) (427,567) (427,658) Cash balances 73,856 73,856 50,911 50,911 Derivative financial instruments held to manage the interest rate and currency profile: Interest rate swaps – (3,005) – (7,498)

(i) The fair value of bank borrowings and loan notes and cash balances (all being short maturity) equate to book value. (ii) The fair value of finance lease obligations have been determined by discounting the minimum lease payments at market rates. (iii) The fair value of the group’s then outstanding interest rate swap agreements were obtained by reference to the market price for a swap with a similar profile at the balance sheet date. The Davis Service Group Plc 45 Report and accounts 2004

20 Derivatives and other financial instruments continued (h) Gains and losses on hedges The unrecognised gains and losses on the interest rate swap and the movements therein are as follows: Group Group Gain/(loss) Gain/(loss) 2004 2003 £000 £000 Beginning of year (7,498) (8,204) Losses arising in previous years recognised during the year 4,493 706 Losses arising in previous years not yet recognised (3,005) (7,498) Losses arising during the year not yet recognised – – End of year (3,005) (7,498) Comprising gains and losses expected to be recognised: Within one year (2,818) (4,996) After one year (187) (2,502)

21 Called up share capital Issued and Authorised fully paid Issued and Number of Authorised Number of fully paid shares £000 shares £000 Ordinary shares of 25 pence each At 1st January 2004 275,000,000 68,750 201,303,847 50,326 Issued upon exercise of employee share options (note a) – – 1,462,620 366 At 31st December 2004 275,000,000 68,750 202,766,467 50,692

(a) The exercise of employee share options resulted in the receipt of £4,085,000 of which £3,719,000 has been credited to the share premium account. 22 Share options Not exercised at Price per 31st December share 2004 pence The company has options still to be exercised in respect of the following ordinary shares: The Godfrey Davis 1987 Executive Share Option Scheme Date of grant 11th April 1996 7,424 207.65 12th April 1996 40,836 207.65 The Davis 1998 Share Option Scheme Date of grant 25th June 1998 322,496 340.04 19th April 1999 454,256 367.77 24th March 2000 228,934 251.29 20th September 2000 52,734 245.32 11th October 2002 458,000 291.00 10th October 2003 367,500 367.00 The Davis Service Group Savings Related Share Option Scheme (‘Sharesave Scheme’) Date of grant 10th October 2000 675,799 202.23 14th October 2002 654,963 256.00 15th October 2004 554,770 299.00 3,817,712

(a) The options, other than the Sharesave Scheme, are normally exercisable between three and ten years from the date granted. Options under the Sharesave Scheme are exercisable at various times ranging from three years one month and five years seven months from the date granted. (b) In the event that all the above options were to be exercised at the prices shown, the company would receive £11.0 million in cash. (c) The closing mid-market price of the ordinary shares at 31st December 2004 was 410 pence and during the year ranged from 352 pence to 413 pence. The Davis Service Group Plc 46 Report and accounts 2004 Notes to financial statements continued

23 Reserves Share Revaluation Other Profit and loss premium reserve reserves account Total £000 £000 £000 £000 £000 Group Beginning of year 236,521 2,379 18,808 128,025 385,733 Issue of share capital 3,719 – – – 3,719 Depreciation charge – (10) – 10 – Realisation of revaluation surplus – (205) – 205 – Currency translation differences – – 821 880 1,701 Retained loss for the year – – – (7,573) (7,573) End of year 240,240 2,164 19,629 121,547 383,580

Share Other Profit and loss premium reserves account Total £000 £000 £000 £000 Company Beginning of year 236,521 21,079 215,088 472,688 Issue of share capital 3,719 – – 3,719 Currency translation differences – – (1,020) (1,020) Retained loss for the year – – (73,221) (73,221) End of year 240,240 21,079 140,847 402,166

Cumulative goodwill arising on acquisition prior to 1st January 1998 written off to group reserves at 31st December 2004, net of amounts attributable to subsidiary undertakings disposed of, amounted to £120,938,000 (2003: £120,938,000). 24 Reconciliation of movements in equity shareholders’ funds 2004 2003 £000 £000 Profit attributable to shareholders 26,171 9,981 Dividends (33,744) (31,408) (7,573) (21,427) Currency translation 1,701 11,521 Reinstatement of goodwill – 18,571 Issue of share capital 4,085 2,719 Net (reduction)/addition to shareholders’ funds (1,787) 11,384 Opening equity shareholders’ funds 436,059 424,675 Closing equity shareholders’ funds 434,272 436,059 The Davis Service Group Plc 47 Report and accounts 2004

25 Guarantees and other financial commitments Group Group Company Company 2004 2003 2004 2003 £000 £000 £000 £000 Capital commitments Contracted for 5,305 4,340 – –

2004 2003 Land and Land and buildings Other buildings Other £000 £000 £000 £000 Lease commitments At 31st December 2004 annual commitments under non-cancellable operating leases comprise those which expire as follows: Group Within one year 486 783 2,047 3,419 Within two to five years 2,700 3,569 9,643 10,735 Over five years 4,313 347 3,691 377 7,499 4,699 15,381 14,531 Company Within one year –––– Within two to five years –––– Over five years 357 – 357 – 357 – 357 –

The majority of leases of land and buildings are subject to rent reviews. Contingent liabilities (i) The company has guaranteed overdrafts of certain subsidiary undertakings, the amount outstanding at 31st December 2004 being £12,095,000 (2003: £25,633,000). (ii) The company has guaranteed the liabilities of its subsidiaries, Spring Grove Ireland Limited, Spring Grove Services Limited and Steri-Tex Limited pursuant to Section 17 of the Irish, Companies (Amendment) Act, 1986. 26 Net cash flow from operating activities 2004 2003 £000 £000 Operating profit 88,670 79,598 Amortisation of intangible fixed assets 20,389 18,749 Depreciation of tangible fixed assets 135,111 162,281 Profit on disposal of tangible fixed assets (3,063) (2,703) Decrease/(increase) of stocks 2,913 (1,687) (Increase)/decrease of debtors (10,420) 18,133 (Decrease)/increase of creditors (6,018) 1,402 227,582 275,773

27 Reconciliation of net cash flow to movement in net debt 2004 2003 £000 £000 Increase in cash 21,152 4,027 Cash inflow from movement in debt and lease financing 109,760 27,960 Changes in net debt resulting from cash flows 130,912 31,987 New finance leases (3,787) (4,437) Bank loans and lease obligations (acquired)/disposed with subsidiaries (2,779) (2,411) Translation difference 1,801 (18,171) Movement in net debt in period 126,147 6,968 Net debt at beginning of period (376,656) (383,624) Net debt at end of period (250,509) (376,656) The Davis Service Group Plc 48 Report and accounts 2004 Notes to financial statements continued

28 Analysis of net debt At beginning Other non-cash Exchange At end of year Cash flow changes movement of year £000 £000 £000 £000 £000 Cash at bank and in hand 50,911 19,509 – 3,436 73,856 Bank overdrafts (12,682) 1,643 – (1,145) (12,184) 38,229 21,152 – 2,291 61,672 Loans and lease obligations (414,885) 109,760 (6,566) (490) (312,181) Net debt (376,656) 130,912 (6,566) 1,801 (250,509)

29 Acquisition of subsidiary undertakings During the year the group acquired a number of small textile maintenance operations, details of the fair value of the assets and liabilities are set out below: Fair value Book value adjustments Fair value to at acquisition revaluation the group £000 £000 £000 Net assets acquired Intangible fixed assets – 1,525 1,525 Tangible fixed assets 8,347 – 8,347 Debtors 1,391 – 1,391 Cash at bank and in hand 29 – 29 Bank loans and overdrafts (3,900) – (3,900) Lease finance obligations (120) – (120) Current liabilities – other (1,002) (8) (1,010) Current taxation 8–8 Deferred tax (491) 2 (489) Minority interests 785 – 785 5,047 1,519 6,566 Goodwill and expenses of acquisition 4,785 Consideration 11,351

Net cash outflow Consideration in cash 11,351 Deferred consideration (292) Net overdraft balances acquired 652 11,711

The fair value adjustments principally relate to the recognition of an intangible asset arising from the CapsLock AB acquisition made during the year. The Davis Service Group Plc 49 Report and accounts 2004 Five year record

2004 2003 2002 2001 2000 £000 £000 £000 £000 £000 Turnover Continuing operations 797,662 814,635 634,857 362,188 334,737 Discontinued operations – 180,718 182,105 173,730 136,403 797,662 995,353 816,962 535,918 471,140

Operating profit Continuing operations – before goodwill amortisation and exceptional costs 108,086 101,696 79,928 50,226 46,441 – goodwill amortisation (20,389) (18,102) (11,785) (2,377) (2,227) 87,697 83,594 68,143 47,849 44,214 Restructuring costs following acquisitions 973 (11,317) (4,282) – (1,330) 88,670 72,277 63,861 47,849 42,884 Discontinued operations – 7,968 18,882 26,406 23,506 – goodwill amortisation – (647) (665) (401) (123) Operating profit 88,670 79,598 82,078 73,854 66,267 Loss on sale of business (55,294) –––(40) Provision for loss on sale of business 32,165 (32,165) – – – Profit/(loss) on sale of properties 3,448 2,627 6,988 820 1,379 Profit on ordinary activities before interest 68,989 50,060 89,066 74,674 67,606 Interest receivable 3,751 3,230 1,700 806 706 Exceptional finance costs – – (655) – – Interest payable (19,368) (26,532) (18,890) (6,799) (6,978) Profit on ordinary activities before taxation 53,372 26,758 71,221 68,681 61,334 Taxation (26,891) (16,386) (23,703) (19,780) (19,127) Profit on ordinary activities after taxation 26,481 10,372 47,518 48,901 42,207 Minority interests (310) (391) (270) – – Profit attributable to ordinary shareholders 26,171 9,981 47,248 48,901 42,207 Dividends paid and proposed (33,744) (31,408) (29,750) (23,281) (20,897) Retained profit for the year (7,573) (21,427) 17,498 25,620 21,310

Shareholders’ funds 434,272 436,059 424,675 245,927 219,783

Basic earnings per share 12.93p 4.98p 25.07p 29.73p 25.71p Adjusted earnings per share 31.69p 30.01p 30.40p 30.32p 26.93p Dividend per ordinary share – net 16.50p 15.60p 14.85p 14.12p 12.71p Dividend times covered – on profit for financial year 0.78 0.32 1.59 2.10 2.02 – on adjusted earnings 1.92 1.92 2.05 2.14 2.12 The Davis Service Group Plc 50 Report and accounts 2004 Principal subsidiary undertakings

Company Country of incorporation and principal country of operation Textile Maintenance – UK and Ireland The Sunlight Service Group Limited* Great Britain Spring Grove Services Limited Republic of Ireland Textile Maintenance – Continent Sophus Berendsen AS* Denmark Berendsen Textil Service* Denmark Berendsen Tekstil Service AS Norway Berendsen Textil Service AB Sweden Berendsen Safety AB Sweden Berendsen Beteiligungs GmbH Germany Berendsen Textiel Service BV The Netherlands Berendsen Textile Service Sp.z.o.o. Poland Modeluxe Linge Service SA France Building Systems Elliott Group Limited* Great Britain

*Owned directly by The Davis Service Group Plc

Advisers Investment Bankers Dresdner Kleinwort Wasserstein, London Stockbrokers Dresdner Kleinwort Wasserstein, London Solicitors Slaughter and May, London Auditors PricewaterhouseCoopers LLP, London Registrars Lloyds TSB Registrars, The Causeway, Worthing, West Sussex BN99 6DA The portfolio service from Lloyds TSB Registrars gives shareholders access to more information on their investments including balance movements, indicative share prices and information on recent dividends. For more details on this and practical help on transferring shares or updating details, visit: www.shareview.co.uk.

Financial calendar

Interim results announced September Final results announced February Ordinary interim dividend paid October Ordinary final dividend paid May Annual general meeting 26th April 2005

Website These financial statements may be downloaded as a pdf file from the company’s website (www.dsgplc.co.uk) which also contains further information about the group and links into the websites of its subsidiaries: Sunlight Service Group www.sunlight.co.uk Sophus Berendsen www.berendsen.com Elliott Group www.elliott-group.co.uk The Davis Service Group Plc 51 Report and accounts 2004 Notice of annual general meeting

Notice is hereby given that the twenty-fourth annual general meeting of The Davis Service Group Plc will be held at Glaziers’ Hall, 9 Montague Close, London Bridge, London SE1 9DD on 26th April 2005 at 11 am for the following purposes: Ordinary business 1 To receive and adopt the audited financial statements and the reports of the directors. 2 To give advisory approval to the report on directors’ remuneration. 3 To declare the dividend recommended by the directors. 4 To re-elect C R M Kemball, as a director. 5 To re-elect P E Smeeth, as a director. 6 To elect P G Rogerson, as a director. 7 To elect P Utnegaard, as a director. 8 To reappoint the auditors, PricewaterhouseCoopers LLP and to authorise the directors to determine the auditors’ remuneration. Special business 9 To propose as a special resolution that the existing Article 1 (E) of the company’s Articles of Association (which set a limit on an individual director’s fees) be deleted and be replaced with the following Article 1 (E): ‘Directors’ fees Each of the directors shall be paid a fee at such rate as may from time to time be determined by the board provided that the aggregate of all fees so paid to directors (excluding amounts payable under any other provision of these articles) shall not exceed £400,000 per annum or such higher amount as may from time to time be decided by ordinary resolution of the company.’ 10 To propose as an ordinary resolution that, the directors be and they are hereby generally and unconditionally authorised to exercise all the powers of the company to allot relevant securities (within the meaning of Section 80 of the Companies Act 1985) up to an aggregate nominal amount of £16,897,000 provided that this authority shall (unless previously revoked or varied by the company in general meeting) expire on the date of the next annual general meeting of the company after the passing of this resolution or a date 15 months from the date of this resolution whichever is the earlier save that the company may before such expiry make an offer or agreement which would or might require relevant securities to be allotted after such expiry and the directors may allot relevant securities in pursuance of such an offer or agreement as if the authority conferred hereby had not expired. 11 To propose as a special resolution that, subject to the passing of the previous resolution, the directors be and they are hereby empowered pursuant to Section 95 of the Companies Act 1985 to allot equity securities (within the meaning of Section 94 of the said Act) wholly for cash pursuant to the authority conferred by the previous resolution as if sub-section (1) of the said Section 89 did not apply to any such allotment provided that this power shall be limited: (i) to the allotment of equity securities in connection with a rights issue in favour of ordinary shareholders where the equity securities respectively attributable to the interests of all ordinary shareholders are proportionate (as nearly as may be) to the respective numbers of ordinary shares held by them and for the purposes of this resolution ‘rights issue’ means an offer of equity securities open for acceptance for a period fixed by the directors to (a) holders on the register on a fixed record date of ordinary shares in proportion to their respective holdings and (b) holders on the register on a fixed record date of other equity securities to the extent expressly required or (if considered appropriate by the directors) permitted by the rights attached thereto (but subject to such exclusions or other arrangements as the directors may deem necessary or expedient in relation to fractional entitlements or legal or practical problems under the laws of, or the requirements of, any regulatory body or any stock exchange in any territory); and (ii) to the allotment (otherwise than pursuant to sub-paragraph (i) above) of equity securities up to an aggregate nominal value of £2,534,000 and shall (unless previously revoked or varied by the company in general meeting) expire on the date of the next annual general meeting of the company after the passing of this resolution save that the company may before such expiry make an offer or agreement which would or might require equity securities to be allotted after such expiry and the directors may allot equity securities in pursuance of such offer or agreement as if the power conferred hereby had not expired. 12 To propose as a special resolution that, the company be and is hereby unconditionally and generally authorised for the purpose of Section 166 of the Companies Act 1985 to make market purchases (within the meaning of Section 163(3) of the Act) of ordinary shares of 25 pence each in the capital of the company provided that: (a) the maximum number of ordinary shares which may be purchased is 20,276,000 ordinary shares; (b) the minimum price which may be paid for each ordinary share is 25 pence and the maximum price which may be paid for each share is an amount equal to 105% of the average of the middle market quotations of the company’s ordinary shares as derived from the London Stock Exchange Daily Official List for the five business days immediately preceding the day on which such share is contracted to be purchased, in both cases exclusive of expenses paid; and (c) this authority shall expire on the date of the next annual general meeting of the company after the passing of this resolution or a date 18 months from the date of the resolution, whichever is the earlier (except in relation to the purchase of shares the contract for which was concluded before such date and which would or might be executed wholly or partly after such date). By order of the board

D F Batchelor Secretary 24th February 2005 Notes (i) A member entitled to attend and vote at the annual general meeting is entitled to appoint a proxy to attend and, on a poll, to vote in his stead. Such proxy need not be a member of the company. (ii) There will be available at the registered office of the company on any weekday (except Saturday) during normal business hours from the date of this notice until the date of the meeting and for a period of 15 minutes prior to and during the annual general meeting, a statement of all transactions of each director (and also, so far as he can reasonably ascertain, of his family interests) in the share capital of the company for the past year. (iii) The company, pursuant to Regulation 41 of the Uncertificated Securities Regulations 2003, specifies that only those shareholders entered on the register of members of the company as at 6 pm on 22nd April 2005 shall be entitled to attend or vote at the aforesaid annual general meeting in respect of the number of shares registered in their name at that time. Changes to entries on the relevant register of securities after 6 pm on 22nd April 2005 shall be disregarded in determining the rights of any person to attend or vote at the meeting. The Davis Service Group Plc 52 Report and accounts 2004 Electronic proxy appointment through CREST

CREST members who wish to appoint a proxy or proxies through the CREST electronic proxy appointment service may do so for the annual general meeting to be held on 26th April 2005 and any adjournment(s) thereof by using the procedures described in the CREST Manual. CREST Personal Members or other CREST sponsored members, and those CREST members who have appointed a voting service provider(s), should refer to their CREST sponsor or voting service provider(s), who will be able to take the appropriate action on their behalf. In order for a proxy appointment or instruction made using the CREST service to be valid, the appropriate CREST message (a ‘CREST Proxy Instruction’) must be properly authenticated in accordance with CRESTCo’s specifications and must contain the information required for such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or to an amendment to the instruction given to a previously appointed proxy must, in order to be valid, be transmitted so as to be received by the issuer’s agent (ID 7RA01) by the latest time(s) for receipt of proxy appointments specified in the notice of meeting. For this purpose, the time of receipt will be taken to be the time (as determined by the timestamp applied to the message by the CREST Applications Host) from which the issuer’s agent is able to retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time any change of instructions to proxies appointed through CREST should be communicated to the appointee through other means. CREST members and, where applicable, their CREST sponsors or voting service providers should note that CRESTCo does not make available special procedures in CREST for any particular messages. Normal system timings and limitations will therefore apply in relation to the input of CREST Proxy Instructions. It is the responsibility of the CREST member concerned to take (or, if the CREST member is a CREST personal member or sponsored member or has appointed a voting service provider(s), to procure that his CREST sponsor or voting service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any particular time. In this connection, CREST members and, where applicable, their CREST sponsors or voting service providers are referred, in particular, to those sections of the CREST Manual concerning practical limitations of the CREST system and timings. The company may treat as invalid a CREST Proxy Instruction in the circumstances set out in Regulation 35(5)(a) of the Uncertificated Securities Regulations 2001. Radley Yeldar (London) Design and production This is Davis

The Davis Service Group Turnover on continuing operations £797.7m (2003: £814.6m) provides a range of rental based services to a broad spread of commercial, industrial, leisure and -2% public customers. In each area of activity the Operating profit on continuing operations* £108.1m (2003: £101.7m) individual group companies have long established and well recognised names which, together with their +6% trading success, have resulted in their securing Profit before tax £53.4m (2003: £26.8m) leading positions in their respective markets. Through a combination of organic and acquisitive growth the group continually +£26.6m develops and expands the Adjusted earnings per share 31.69p (2003: 30.01p) range of products and services provided. +6%

Dividends per share 16.50p (2003: 15.60p) +6% *Before goodwill amortisation and exceptionals The Davis Service Group Plc

The Davis Service Group Plc 04Report and accounts 2004 Report and accounts 2004

Registered office The Davis Service Group Plc 4 Grosvenor Place London SW1X 7DL Registered Nº 1480047 Tel: 020 7259 6663 Fax: 020 7259 6948 E-mail: [email protected] Website: www.dsgplc.co.uk