Annual Report and Accounts 2012 Website See Inside Back Cover for Further Details About the Wolseley Is the World’S Largest Wolseley Plc Website

Best customer service, every day Annual Report and Accounts 2012 Website See inside back cover for further details about the Wolseley is the world’s largest Wolseley plc website. Annual report trade distributor of plumbing and Wolseley publishes an annual report every year. It is sent to shareholders heating products and a leading through the post as a printed document unless the shareholder has chosen to supplier of building materials. receive e-communications (see below). E-communications The Company offers We build our businesses through shareholders the opportunity to access shareholder documents, the quality of our people – the such as annual reports and notices of AGM, via e-communications rather excellent service that they provide than receiving printed documents in the post. You will be notiﬁed by email and their strong relationships with as soon as shareholder documents are available on the website. vendors and customers.

Overview Financials 01 Highlights 97 Index to financial statements 02Group at a glance 98 Group income statement 04 Our investment case 99Group statement of comprehensive income 06 Chairman’s statement 99Group statement of changes in equity 08Chief Executive’s review 100Group balance sheet 12 Focusing on overall quality of service 101Group cash flow statement 14 Focusing on rate and speed of service 102Notes to the consolidated financial statements 16 Focusing on product availability 153 Independent auditors’ report to the members of Wolseley plc (in respect of consolidated 18 Focusing on relationships with employees financial statements) 20 Key performance indicators (“KPIs”) 154Company profit and loss account 22 The business model 154Company balance sheet Performance 155Notes to the Company financial statements 26USA 158Independent auditors’ report to the members 28Canada of Wolseley plc (in respect of Company financial statements) 30 UK Information 32 Nordics 159Five year summary 34France 161 Pro forma information in United States dollars 36Central Europe 162 Principal subsidiary undertakings and 38Financial review their directors 42Risk management and internal control 163 Shareholder information 48 Corporate responsibility 166 Group information Governance 167 Forward-looking statements 62 Governance foreword from Chairman 63 Governance overview 64 Board of Directors and Executive Committee 67 Corporate and governance structure of the Group

Follow us on Twitter 80Other disclosures @wolseleyplc 84 Remuneration report Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 01 Highlights

Financial review See page 38 Another year of progress for Wolseley in

Corporate responsibility which we delivered improved trading proﬁt See page 48 and strong free cash ﬂow generation against a backdrop of tough economic conditions, particularly in Continental Europe.

Generated Strengthened like-for-like growth balance sheet During the year the Group generated During the year we completed the revenue of £13,421 million (2010/11: deleveraging of the business with net £13,558 million). This was 3.8 per cent cash of £45 million at 31 July 2012 ahead of last year on a like-for-like basis. (31 July 2011: net debt of £523 million), an improvement of £568 million. +3.8% –£568m Improved Improved trading margin customer service Our ongoing focus on operational Each business aims to improve efficiency has delivered further customer service which is measured improvements in the trading margin each month to drive growth and of 40 basis points. returns. +0.4% Increased dividend Set ambitious carbon During the year the Board rebased reduction targets the ordinary dividend reflecting the strength of the balance sheet and All of our businesses have targets our confidence in the future prospects in place to reduce carbon, typically of the Group. The total dividend for through reduced consumption of 2011/12 was 60 pence per share, electricity and vehicle fuel. an increase of 33 per cent. +33% –7.5% Wolseley plc 02 Annual Report and Accounts 2012 Group at a glance (ongoing businesses)1

USAUSA Canad Canadaaddaa U UKK Revenue Revenue Revenue £6,168m £850m £1,670m +8.4% 2 +4.5%2 –0.8%2

48% of 7% of 13% of total total total revenue revenue revenue

Trading profit Trading profit Trading profit £389m £49m £92m +24% +26% +3% Key brands Key brands Key brands

a company a company

a company

Market sectors Revenue by market sector Revenue by market sector Revenue by market sector We supply customers in the new residential, 15% 8% 2% Repair, Maintenance 17% 27% and Improvement (“RMI”), 35% 23% 14% commercial, industrial 9% and construction sectors. The exposure to each 58% sector differs by geography 14% 14% and by business unit. 30% 34% Residential RMI Non-residential RMI Revenue by business unit Revenue by business unit Revenue by business unit Residential new construction Other Drain Integrated services Non-residential new Blended Industrial Center 5% Blended 4% Industrial branches 15% 6% construction branches 12% 61% Civil infrastructure HVAC 61% Pipe and HVAC 10% Climate 7% Center 17%

Waterworks Waterworks 15% 14% Plumb and Parts Center 73%

Regional performance Regional performance Regional performance See page 26 See page 28 See page 30 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 03

Key facts… Performance Group revenue £12,716m 2 NordicNordiNordrdicdicicc regregioneeggion Fr Franceannce CentCentra Centralentraall EuropeEuurope +3.8% Revenue Revenue Revenue £2,062m £1,252m £714m Group trading proﬁt3 2 2 2 £658m +1.1% –1.4% +0.8% +10% 16% of 10% of 6% of total total total Operations revenue revenue revenue Number of branches

Trading profit Trading profit Trading profit 3,132 £96m £30m £30m Number of employees –15% –35% –2% 40,541 Key brands Key brands Key brands

Revenue by market sector Revenue by market sector Revenue by market sector

2% 4% 11% 16% 27% 33% 30% 22% 51% 8% The following terms are used 40% throughout the Annual Report: 11% 14% 1 Ongoing businesses 31% This excludes businesses that have been sold or are held for sale.

Revenue by business unit Revenue by business unit Revenue by business unit 2 Like-for-like change in revenue This is the increase or decrease Norway Sweden in revenue excluding the effect of

(building (DIY) Import and Luxembourg Denmark currency exchange, acquisitions materials) 2% (building wood solutions 5% and disposals, trading days and 8% materials) 18% Netherlands Denmark branch openings and closures. 36% 25% Austria (DIY) 3 Trading proﬁt 9% 35% This is operating proﬁt before exceptional items and the Finland amortisation and impairment (building of intangible assets. See note 9 materials) of the Consolidated Financial

22% Building Statements for a reconciliation Sweden (building materials Switzerland from operating proﬁt to materials) 23% 82% 35% trading proﬁt. Regional performance Regional performance Regional performance See page 32 See page 34 See page 36 Wolseley plc 04 Annual Report and Accounts 2012 Our investment case

Our industry Our markets The distribution of plumbing and Plumbing and heating and building heating and building materials materials distribution in the USA, principally to trade customers. Canada, UK, Nordics, France and The key characteristics of our Central Europe. industry are: Growing markets Many customers Demand for plumbing and heating and building materials The customer base is very is somewhat cyclical. Some key factors supporting fragmented. Wolseley long-term growth in the markets are as follows: services approximately 1 million customers across the Group. Population Growth of +1% a year in the growth USA in the next decade. Population is expected to grow Customers’ in almost all the countries we needs are local operate in. Professional contractors typically operate within about 20 miles of a local Bureau Census US Source: branch and may visit it several times a week. Ageing of The median age of homes housing stock in the USA is 36 years. As housing stock ages, there is a strong correlation to increased demand for repairs, maintenance Large vendor base and improvement work. The vendor base is large. Wolseley distributes the Source: US Dept Housing of and Development Urban products of over 100,000 vendors across the world. Increased 89% of new homes comfort levels in the USA have two or more bathrooms. in houses There is a trend for increasing Clear need for comfort levels in homes. distributors in the supply chain

Distributors bridge the gap Bureau Census US Source: between the large vendor base and the large and Sustainable The EU plans for all new geographically dispersed development public buildings to be professional customer base. ‘nearly zero energy’ by 2019. Environmental concerns will drive demand for renovation of existing buildings.

Highly fragmented Benefits of scale for Commission European Source: Economy Efficient Energy industry with no Due to scale benefits market dominated leaders can perform better Large The size of the building repair through the economic cycle. aftermarket market in 2011 in Western by a single player Europe is €524 billion. Our markets are typically There is a very large aftermarket highly fragmented, with few with renovation spend often large players in the in excess of new construction industry. spend. Source: Euroconstruct Source: Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 05

For more detail on our investment case Visit www.wolseley.com

Our business Our strategy We hold leading positions in many An important aspect of our investment case is the Group’s strategy and our goal is to deliver long-term sustainable of the markets in which we operate. and proﬁtable growth. We will continue to extend our Our knowledge, coverage and scale leading positions in plumbing and heating and building materials distribution. We aim to deliver growth ahead of enable us to operate efﬁciently and these markets. provide a high level of service to Explore our strategy in more detail our customers. See page 8

Market leading positions Servicing principally Repair, Maintenance and Improvement markets % Ongoing revenue 2011/12 % of total 2011/12 revenue

Civil infrastructure 8% Non-residential new

construction 15% 46% Residential RMI 37% 40%

6% 8% Residential new construction 18% Number 1 Number 2 Number 3 Other Non-residential RMI 22%

A large proportion of our businesses are market leaders 59 per cent of the Group’s revenue in 2011/12 was derived in their local markets, and 86 per cent of the Group’s revenue from RMI markets. is generated by businesses which are number 1 or 2 in their markets.

Substantial growth opportunities Sustained gross margin % % gross margin

% Blended Blended Plumb & Stark Building Tobler 1 1 Average 27.7% Branches Branches Parts Center 2.1x materials 2.0x 28 2.1x1 0.9x1 0.9x1 0.4x1 17% 13% 20% 16% 8% 28% 26

24 USA Canada UK Nordics France Central Europe 05 06 07 08 09 10 11 12

1 RMS = Relative Market Share. Deﬁned as estimated Wolseley share in addressable market/share of largest competitor or nearest competitor. Our reported gross margins have historically been resilient, averaging between 27 per cent and 28 per cent over the last Whilst many of our businesses are the number 1 or 2 players eight years despite changes in the economic environment. in their respective markets, their absolute market shares remain relatively low. This provides signiﬁcant opportunities to grow our businesses through a combination of organic expansion and acquisitions.

Excellent returns on capital employed Strong cash generation EBITDA % return on capital employed (excluding goodwill) EBITDA and operating cash ﬂow2 as % EBITDA Adjusted operating cashﬂow as % EBITDA

% £m % 30 1,500 150 1,250 120 20 1,000 29.3% 750 90 24.3% 25.4% 10 500 16.4% 60 14.4% 250 0 0 30 2008 2009 2010 2011 2012 03 04 05 06 07 08 09 10 11 12

Returns on capital are attractive; Wolseley achieved a 2 Adjusted for receivables ﬁnancing and year end working capital measures. return on capital employed in the year ended 31 July 2012 Wolseley’s businesses utilise working capital carefully of 29.3 per cent. and convert proﬁts strongly to cash. Wolseley plc 06 Annual Report and Accounts 2012 Chairman’s statement

Results and strategy with net cash of £45 million at 31 July 2012 In summary… (31 July 2011: net debt of £523 million). Strong financial I am pleased to report another year of Our financial strength will stand us in results and cash progress for Wolseley in which we have good stead in these uncertain times. delivered improved trading profit and strong generation. free cash flow generation. We have achieved An important theme of the past year has this against a tough economic backdrop, been the further work undertaken by the Further clarification particularly in Continental Europe, and I am Executive and the Board in refining our of our strategy and immensely proud of the hard work and strategy and its execution. In particular, business model. commitment to achieving these goals shown in each country we are now beginning to by my colleagues around the Group. define more precisely the inherent strengths Increased total of our business models which drive Our fundamental strategy is unchanged competitive advantage in our local markets. dividend to 60p and our core focus remains on delivering Over the medium term we will progressively (2010/11: 45p). shareholder value from our strength and move our business units to a local service the significant growth opportunities in the common process business model, with Proposed capital distribution of plumbing and heating and core processes being developed to return of £350 million. building materials. Since Ian Meakins was achieve benefits of scale, productivity and appointed as Group Chief Executive three efficiencies. You can read more about our years ago, he and his Executive team have progress in Ian’s review on pages 8 to 11. made excellent progress in refocusing Wolseley through top-down resource allocation on those businesses where we Dividend increase have or can create market leading positions. Our commitment to creating shareholder Our objective is to improve and expand value remains strong. This year, we rebased our market leading businesses through our dividend with an interim dividend execution of bottom-up business unit increase of 33 per cent. The Board is now strategies to make sure we grow these proposing a final dividend of 40 pence businesses faster than the competition. (2010/11: 30 pence) for payment on A number of disposals of non-core 30 November 2012. This brings the total businesses have been made, which dividend for 2012 to 60 pence (2010/11: allow us to focus all our resources on our 45 pence) costing £172 million, which is strategically strong businesses. I am pleased a year on year increase of 33 per cent. to say that we are broadly at the end of the major disposal process and today 86 per Special dividend cent of Wolseley revenue comes from The Board is committed to a progressive businesses which are either number one dividend policy. or number two in their markets. We have also continued to place a great deal of During the year, cash proceeds from the sale emphasis on strong cash generation and of businesses and other assets amounted to our balance sheet remains one of the £317 million. These proceeds are surplus to strongest in the industry. During the year we the reinvestment requirement of the Group completed the deleveraging of the business and therefore, in line with the Company’s policy, we are proposing a special dividend

Our strategy is unchanged and our core focus remains on delivering shareholder value.” Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 07

to shareholders of £350 million which is At this time, we have one woman on the expected to be paid in December. The Board, Tessa Bamford, due to the recent special dividend and associated share departure of Karen Witts. In light of her consolidation will be subject to shareholder recent appointment as Finance Director of Our clear strategy, approval at the AGM on 29 November 2012. Kingfisher plc, Karen stepped down from focused set of the Board in order to avoid any risk of a Governance, Board conflict of interest. We thank her for her market leading contribution to the Board and wish her well businesses and composition and changes in her new role. strong balance Central to the effective management of the As a result, there are likely to be further business and maintaining the confidence changes to the Board through 2012 and sheet will enable of our shareholders are high standards of further progress.” 2013. We will continue to refresh the team corporate governance. As Chairman, I seek to ensure it operates with a broad and to ensure that the Board is as effective as diverse range of complementary skills and possible and I believe strongly that this is specialised knowledge to take the Company the case. An externally facilitated Board forward. We shall always consider the evaluation was conducted this year, in line benefits of greater diversity while ensuring with the requirements of the UK Corporate that the best person is recruited to the Governance Code. This year’s third party relevant role. review indicated that the Board and its Committees are operating effectively to high People standards of governance. It found that the Board had an open and transparent style It is important to thank all our employees of discussion, with good engagement and whose tremendous hard work has been contribution from all members, particularly the driving force behind our performance. on strategic planning and risk management. Wolseley is very much a people business A more detailed overview of the evaluation and success is absolutely a team effort. process, together with details of the As you will see in the following pages, the outcomes and actions to be taken, overall theme of this year’s annual report is are discussed further on page 72. ‘Best customer service, every day’ and the strong service ethic of our people and their During the year, the Board and I (through dedication to serving our customers well is the Nominations Committee) gave a great central to the delivery of our strategy. deal of attention to its future composition, with an emphasis both on executive and As we look to the future, concerns over non-executive succession planning. This the health of many of the world’s major took into account the tenure of Andrew Duff, economies continue. It is difficult to predict our Senior Independent Director and how strong these economic headwinds Remuneration Committee Chairman, which could become, but we approach 2012/13 we expect will come to an end in 2013. with the confidence that our clear strategy, We have identified the balance of skills, focused set of market leading businesses experience, capabilities, independence, and strong balance sheet will enable further diversity and knowledge required on the progress. I believe that challenges will Board and its Committees against which present opportunities and that Wolseley future appointments will be made. is well placed to make the most of them. The Board composition today provides a balance of operational expertise, deep knowledge of our principal end markets, and City and financial experience. As mentioned last year, we welcomed the findings and recommendations of Lord Gareth Davis Davies’ report, “Women on Boards”. Chairman

Corporate governance See page 62 Wolseley plc 08 Annual Report and Accounts 2012 Chief Executive’s review

In summary… In a year of slowing economic in the USA. Trading profit of £665 million growth and considerable (2010/11: £622 million), which included Like-for-like revenue £7 million (2010/11: £26 million) growth of 3.8 per cent. uncertainty in the Eurozone, from businesses sold or held for sale, I am pleased to report that was 7 per cent higher than last year. Further improvements 2011/12 was another decent year During the year we continued to manage in customer service. for Wolseley. Underpinning this the balance sheet conservatively. Cash was tightly controlled enabling us to increase were three main factors: better capital expenditure to £135 million (2010/11: Trading margin customer service by our increased from 4.6 per £93 million) to ensure organic expansion of cent to 5.0 per cent. business units; continued like- the business. We continue to place a great for-like revenue growth trends deal of emphasis on driving strong cash generation with a particular focus on working Reduction in net debt particularly in the USA and capital discipline. Operating cash flow by £568 million in Canada; and our ongoing continued to be strong at £747 million the year. focus on operational efficiency (2010/11: £16 million). which has delivered further Group strategy and improvements in the trading business model margin of 40 basis points, despite challenging markets. Our strategy remains unchanged. We will continue to extend our position in plumbing and heating and building materials Results distribution. These are generally fragmented The Group delivered a good overall result markets and the structural growth against a backdrop of continued weak opportunity is significant. Our process demand in Continental Europe and of top-down resource allocation to those steady market conditions in the USA businesses which have or can achieve and Canada. The Group generated revenue market leadership will give us the best in the ongoing businesses of £12,716 million returns. In addition, through bottom-up (2010/11: £12,061 million), 3.8 per cent detailed business unit strategies we want ahead of last year on a like-for-like basis. to make sure we grow our best businesses The ongoing gross margin was slightly lower faster than the competition. This parallel principally due to commodity price deflation path of resource allocation and performance and a one-off supplier rebate settlement management is outlined in our value creation model opposite.

Over the medium term we will progressively move our business to a local service common process model as we standardise core processes to achieve beneﬁts of scale and productivity.” Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 09

There is an important correlation in our geographies, so that we can integrate business between building scale and our these acquisitions rapidly with our strong ability to make attractive returns. During businesses and deliver attractive returns. the year we have continued to exit those This year we made nine small bolt-on The Group delivered businesses where we do not see a path acquisitions, including a Blended Branches a good overall result to market leadership, which included Build business in Chicago, a Waterworks business Center, Bathstore and Encon in the UK, in California, a PVF distributor in Louisiana against a backdrop Brossette in France, and our remaining and several single branch businesses in of continued minority holding in Stock in the USA. In Denmark and Sweden. weak demand in addition, we announced in July our intention to review the strategic options for our Implementing our strategy – Continental Europe remaining businesses in France. and steady market driving productivity and growth We want to drive profitable growth in each conditions in the business unit and during the monthly Now that we have focused the portfolio USA and Canada.” performance reviews we review like-for-like on a strong set of business units, we are revenue growth, balancing this with a focus continuing to evolve our business unit on protecting gross margin. Given the tough strategies and in doing so we are economic backdrop in many of our markets increasingly reviewing the business models we are keeping a keen eye on operating employed by each. Here our objective is costs to ensure that we convert revenue always to have the most efficient, lowest growth strongly into trading profit. Finally, cost platform in the industry and to drive over the past three years we have continuous improvement by better process deleveraged the balance sheet and this has management. Over the past three years, been achieved through driving strong cash certain processes and activities (for example generation. You can see several examples strategy review, people development, of the progress we have made in driving finance and IT) have already been mandated profitable growth in the operating reviews as common across all business units and on pages 26 to 37. we have benefited greatly from this as a Group. In addition, we have ensured that While organic growth remains the key every business unit, and in turn every priority, over the last two years we have branch, measures customer service – invested over £50 million in selected small because we know that high customer bolt-on acquisitions. Our strong preference service scores correlate to strong financial is to expand in this way in our existing performance.

Value creation model

How we drive proﬁtable growth How we drive value in each across the Group business unit

Gain share of existing customers and gain Gain new customers market share

Best Best Preferred Expand Proﬁtable Improve customer branch vendor gross margins productivity service staff relationships growth

Improve Most efﬁcient operating model returns and cash Learn how we are doing this across all regions See pages 26 to 37 Wolseley plc 10 Annual Report and Accounts 2012

Chief Executive’s review continued

Focusing on overall quality of service See pages 12–13

Focusing on rate and speed of service See pages 14–15

Focusing on product availability See pages 16–17

Focusing on relationships with employees See pages 18–19

We are now evaluating the best core Best customer service processes in our most successful business units to see how we can derive further The central theme of this year’s annual report benefits from a more common approach is “Best customer service, every day”. It is a We will continue to across our business units. For example, critical element of our value creation strategy since we deliver for our customers through extend our position we have developed a single platform for business to consumer (“B2C”) internet our people every day – we want highly in plumbing and businesses based on our successful engaged employees at the front line and in heating and Build.com business in the USA. This year the support functions, who work together building materials we have successfully deployed this model to deliver excellent customer service. distribution and in the UK and are now evaluating other We are making progress in improving markets for suitability. In addition, we have customer service in our businesses, aim to deliver now established in all business units a which is something we measure growth ahead critical level of SKUs (“stock keeping units”) systematically. The overall scores have of the markets.” to be maintained in the branch with 100 per continued to improve across the majority of cent fill rates – high levels of availability of our businesses and you can see our scores a wide range of SKUs is critical to our this year for our biggest business – Blended customers’ businesses. While the top Branches in the USA – above. The elements SKUs are therefore immediately available of service that are valued by our customers in branches, the remaining SKUs are readily are reasonably consistent throughout available from hubs or distribution centres. our business units and geographies. Over the medium term we will progressively move to a local service common process Clearly, we have some real strengths and business model as we standardise core the surveys we see show us that we deliver processes to achieve benefits of scale great service in many of our branches. and productivity – but these will be executed However, they also show us areas for at the right level and location in each improvement down to specific branches and business unit. customers, which is data we can really act upon. The feedback has also reinforced the Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 11

message that “price” as a choice factor strong values and behaviours compared Our values… continues to rank relatively low on many with best in class companies. Equally as We act with integrity customers’ priorities behind product important though are areas where we know availability, staff knowledge, next day we can improve, such as diversity and We conduct all our delivery and breadth of the product range – workforce planning, and we have set up activities with fairness, showing that some customers are willing to best practice teams in order to address honesty and integrity. pay more for these benefits. This gives me these important issues. great confidence that as we continue to We drive for results improve service we can also incrementally Priorities and improvement improve gross margins. We have seen We listen and respond similar customer responses in many other As we look forward we remain optimistic to the needs of our markets. On pages 12 to 19, for each about the opportunities to grow and develop customers, then exceed of the major elements of service, we have the business. Whilst the current economic their expectations; we are demonstrated how we are working across uncertainty is likely to put ongoing pressure not happy with the status the Group to make improvements. on like-for-like sales volumes in parts of the quo, and constantly strive business, the opportunities to grow the to improve. business remain very positive and Wolseley Corporate Responsibility is well placed to take advantage of this given The Board and Executive Committee the strength of our balance sheet. Our We value our people believes that the integration of Corporate flexible cost base will enable us to respond We understand, respect Responsibility (“CR”) across the Group quickly and effectively to any economic and value personal and and the inclusion of broader social and headwinds which we may face in the year cultural differences; we environmental issues into our decision ahead. We will also continue to drive our are open and honest making will help Wolseley to achieve our productivity initiatives to ensure that we in all our dealings with business goals, act as a building block for operate the lowest cost platform in the our people. growth in shareholder value and benefit the industry underpinning our expectation of communities in which we operate. We are further improvement in the trading margin now in our third year of measuring our over the medium term. Strong cash flows progress and our drive for continuous should enable us to continue to reward improvement is set out on pages 48 to 61. shareholders and invest in organic growth as well as value-creating bolt-on acquisitions. The elements of our CR programme are really part of the way we do business. Finally I would like to build on Gareth’s The new initiatives we have developed are comments about our employees. It is an intrinsically linked to improving productivity. enormous privilege to lead this Company For example, we have focused on and I would like to take this opportunity to improving health and safety performance, thank all our employees worldwide for their in part by reducing lost work days; we are dedication and commitment. People are the delivering better customer service through lifeblood of our business – it is through them a commitment to staff training and that we deliver the exceptional customer development; and for the first time this service I so often see in our branches. year we are setting Group-wide targets to reduce energy and fuel consumption which in turn will reduce costs. Given the importance of people to our business, a major accomplishment over the past year was the creation of our first People Strategy covering all Wolseley employees worldwide. Our analysis showed Ian Meakins that we have high levels of engagement, Chief Executive Wolseley plc 12 Annual Report and Accounts 2012 Focusing on overall quality of service Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 13

To measure the consistency of customer service, Ferguson implemented a secret shopper programme simulating customers shopping at selected showrooms across the country. The programme was quickly expanded to include counters, which are secret shopped by experienced trade professionals. Each location is rated on all aspects of the visit, such as the entrance, interior, merchandising, sales process and overall experience. To date, in 2011/12, Ferguson has completed 1,700 showroom shops and 702 counter shops. The secret shopper programme is a valuable tool in benchmarking and consistently measuring customer service. It also identiﬁes areas for improvement as well as recognising employees who are providing world-class customer service.

I strive to ‘wow’ my customers from the moment that they enter the showroom.” Jennifer Leo Showroom Consultant Wolseley plc 14 Annual Report and Accounts 2012 Focusing on rate and speed of service

Will Call saves me time as I can call ahead my order.” Bill Nikie Michael and Son Services

Providing world-class customer service to customers when they visit a counter is a key part of Ferguson’s strategy. In 2010/11, we introduced the one hour “Will Call” service to help counters provide better service to the customer, manage labour and therefore gain market share. The “Will Call” service enables customers to phone in their orders and have them ready for pick up within one hour. The beneﬁts of “Will Call” are that customers spend less time waiting. It also frees up our branches and reduces overall wait times particularly at peak periods. Due to its success, “Will Call” has been rolled out across the Ferguson Blended Branches business and has grown to represent more than 20 per cent of total counter sales. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 15 Wolseley plc 16 Annual Report and Accounts 2012 Focusing on product availability Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 17

Spending less time sourcing parts gives me more time to get on with the job.” Tom Chambers Chambers Plumbing and Heating Getting what our customers want, when they want it is what sets us apart from our competition. Plumb Center in the UK recognises the importance of this and in October 2011 introduced a new and improved trade price guide. The trade price guide is issued quarterly to all customers so that they always have up to date information about our product availability and pricing. Our installers need to plan their working week and the new price guide indicates whether any of the 18,000 product lines are in branch that day, are available within 24 hours, 48 hours or for special orders advises them to check with their local branch. This is done through a simple colour coding system so that installers can easily ﬁnd out the availability of a product. This saves the customer time as they do not need to travel from branch to branch or make a phone call to ﬁnd out. Plumb Center has improved branch product availability to over 99 per cent through making various supply chain improvements over the last two years. Wolseley plc 18 Annual Report and Accounts 2012 Focusing on relationships with employees Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 19

They know me and my company and are always one step ahead.” Peter Berg Hammer Byg

Stark is the market leader for building materials distribution in Denmark. Having the best people is key to sustaining the number 1 market position. This is achieved through measuring staff engagement on a regular basis and making improvements to working environments and training so that our front line employees are engaged and deliver the best possible service to our customers. In 2011/12, we achieved a very high average employee engagement score of 76 per cent for all 2,844 Stark employees. This score was mainly due to more investment in online and on the job training and giving the branch managers more responsibility and autonomy to make decisions. “The way our employees service our customers is what makes the difference. This cannot be copied,” says Managing Director, Lars Hansen. Wolseley plc 20 Annual Report and Accounts 2012 Key performance indicators (KPIs)

Progress against our strategic goals Gain market share The Group has used the following indicators of performance to assess its development against Like-for-like revenue growth % its strategic and ﬁnancial objectives during the year. +3.8% The Group gives prominence to different indicators as the economic environment changes. +5.0 +3.8 –2.3 –6.0 –13.9 Gain market share 2008 2009 2010 2011 2012

Deﬁnition The Group expects changes in The total increase or decrease in like-for-like revenue in each of its revenue for the year, excluding the markets to exceed that achieved effect of currency exchange, trading by the remainder of the market. days, new acquisitions, disposals, Performance branch openings or closures in the Expand Improve Group like-for-like revenue growth Proﬁtable year, and the incremental effect of gross margins productivity was 3.8 per cent for the year, growth acquisitions, branch openings and compared to 5.0 per cent in branch closures in the prior year. the previous year.

Customer service USA (net promoter score) Improve % +3.3% returns and cash

59.4 62.7

Jul-11 Jul-12

Deﬁnition point from which progress can Different types of customer have be measured. different requirements, or different Performance priorities in ranking their requirements. Processes for tracking and reporting Each business unit needs to of customer service KPIs differ by understand what these requirements geography and by business unit. are and how its service performance An example is given for the USA, is perceived relative to the the largest region in the Group, competition. Regular customer where the net promoter score has surveys have been introduced in all improved through the year. Expand gross margins business units to establish a base

Gross margin Employee engagement, USA % –0.2% % +4.0%

27.7 27.4 27.2 27.7 27.5 82.3 86.3

2008 2009 2010 2011 2012 Jul-11 Jul-12

Definition Performance Definition Performance The ratio of gross profit, excluding Gross margin declined to 27.5 per All of our business units measure An example is given for the USA, the exceptional items, to revenue in the cent, of which 0.1 per cent was employee engagement levels on largest region in the Group, where ongoing businesses. Prior year due to a one-off charge in the a regular basis. periodically “pulse” surveys are sent numbers have been restated to USA relating to a supplier rebate to 3,000 employees at all levels reflect the ongoing businesses only. settlement. A continued focus on of the company. In response to improving customer service and the question “how satisfied are you product mix has offset much of that Ferguson is a good company the pressure of competitive to work for?”, Ferguson’s rating market conditions. improved by 4 per cent in the year. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 21

Improve productivity Improve returns and cash

Labour costs as % of gross proﬁt Trading margin % 0.1% % +0.3% improvement

5.9 4.9 5.2 3.9 47.1 50.9 51.4 49.3 49.2 4.1

2008 2009 2010 2011 2012 2008 2009 2010 2011 2012

Definition Performance Definition Performance Total labour cost as a percentage Labour cost as a percentage The ratio of trading profit to revenue Group trading margin increased of gross profit in the ongoing of gross profit improved to in the ongoing businesses. Over the from 4.9 per cent to 5.2 per cent businesses, excluding exceptional 49.2 per cent from 49.3 per cent cycle, the Group seeks to achieve a as the Group kept operating expense items and restructuring costs. Prior in the previous year, after growth in trading profit higher than growth lower than the increase in year numbers have been restated to the reinstatement of pension the growth in revenue as a result of gross profit. reflect the ongoing businesses only. contributions in the USA, and a return increasing the efficiency of operations to normal share-based payment and benefiting from its economies of charges. scale and strong market positions. Prior year numbers have been restated to reflect the ongoing businesses only.

Lost workday rate Return on gross capital employed Workdays lost per 100 employees 7.0% % +2.0% improvement

12.5 12.6 62.3 62.5 58.1 10.6 6.9 7.1

2010 2011 2012 2008 2009 2010 2011 2012

Definition Performance Definition Performance Total working days lost to work- Workdays lost per 100 employees Return on gross capital employed Return on gross capital improved related injuries per 100 employees. improved by 7 per cent in the year. is the ratio of trading profit to the from 10.6 per cent to 12.6 per cent. The number of days lost is the total Significant efforts have been made average year-end aggregate of number of calendar days that the by our businesses to reduce shareholders’ funds, adjusted net injured person was out of the work-related injuries and the related debt, and cumulative goodwill workplace (but only including the lost workdays. See page 54 for written off. days that the injured person was further information. scheduled to work) irrespective of the number of hours that would normally have been worked each day.

Supply chain Average cash-to-cash days There are numerous supply chain initiatives around the Group. Some are Number of days 1 day monitored by financial measures, such as annualised savings in transportation improvement costs, and others by non-financial measures such as inventory turns and, for the Group’s distribution centres, the fill rate achieved. This is the proportion of orders that can be fulfilled from inventory on hand at the time of the order. 50 53 50 54 53

2008 2009 2010 2011 2012 Old calculation method

Definition Performance Cash-to-cash days are defined as A change in calculation method the average number of days from took place in 2011 to include rebates payment for items of inventory to receivable and net (rather than receipt of cash from customers. gross) trade receivables within the The Group uses the 12 month calculation. Average cash-to-cash average number of cash-to-cash days improved by one day in 2012 days, to monitor working capital to 53 days. efficiency throughout the year. Wolseley plc 22 Annual Report and Accounts 2012

The business model

How we source See page 23 Wolseley is a distributor, bridging the gap between approximately

How we distribute 100,000 vendors and approximately 1 million customers by See page 24 bringing together a wide range of products from different vendors

How we sell that our customers need and providing our vendors with access See page 25 to these customers cost effectively.

Around Around 100,000 Source Distribute Sell 1 million € vendors customers

Business and management The business model offers opportunities for synergies to be achieved by being part of structure the Group. These include: The Group’s business falls into six • management synergies such as sharing geographic regions – the United States, best practice, management development Canada, United Kingdom, France, the and corporate finance; and Nordics and Central Europe. • operating synergies in the areas of joint Revenue split by region sourcing, own label development and the Total ongoing Group revenue £12.7 billion sharing of costs and infrastructure. Central Europe 6% France Business unit strategies 10% Business unit strategies are aligned with strategy models as outlined on pages 8 to 11. USA Each business unit aims to grow profitability Nordic 48% region faster than the competition through gaining 16% a greater share of its existing customers’ business and through attracting new customers. To achieve this each business UK 13% unit focuses on achieving: Canada 7% • best customer service; Within each geography the Group operates • best branch employees; and a number of distinct business units with strong trading identities, including many • preferred vendor relationships. with market leading positions in their Underlying this, Wolseley aims to operate local markets. the most efficient operating model in the The Group has strong management teams industry, ensuring its distribution activities in each region. Business units report on benefit from national scale and an efficient operational performance and strategic supply chain. progress through regular performance The business units drive operational value review meetings with senior executives. through gaining market share, improving productivity, expanding gross margins and improving returns and cash. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 23

Market overview Vendor relationships The markets for plumbing and heating and Our vendors need distributors who can give building materials are directly exposed to them access to many smaller customers Our vendors need macroeconomic cycles. The Group delivered cost effectively. Our relationships with these good overall financial results against a vendors are key to our success; we want to distributors who backdrop of weak demand in Continental build strong relationships and grow our can give them Europe and improved market conditions business with them. in USA and Canada. Further detail by access to many Key vendors are manufacturers with market geography is provided in the regional leading brands, usually focused on the needs smaller customers performance reviews on pages 26 to 37. cost effectively.” of local markets. We work in partnership with Although our markets are cyclical, the our key vendors to offer market breadth and business model is strong and it is penetration and to collaborate on promotions underpinned by demographic trends towards and incentive programmes. We aim to derive ageing populations and smaller households benefit from national scale. Whilst the vendor and by the ageing of housing stocks. base is predominantly based on national geographies, some international sourcing Our businesses sell to customers ranging benefits exist, for example across Europe across the residential, commercial and and for the sourcing of private label industrial sectors. The exposure to each products. The Group continues to work market differs by geography and by with low cost, high quality manufacturers business unit. to supply our private label product ranges. Revenue by market sector % of total 2011/12 revenue Products Civil infrastructure The Group sources and supplies a broad 8% range of products. The main product Non-residential categories are as follows: new Residential construction RMI 37% 15% Plumbing, heating and air conditioning • Baths, showers and accessories. Residential • Sanitaryware. new • Brassware. construction 18% Non-residential • Bathroom furniture. RMI 22% • Boilers and burners. • Radiators and valves. We source a wide range • Hot water cylinders and flues. of products efficiently and responsibly, bringing • Control equipment. Source together the mix of • Heating and cooling equipment. products from different • Solar equipment. vendors that our • Plastic pipes and fittings. customers need. • Copper tubing and fittings.

What differentiates Wolseley Building materials • Over 100,000 trade vendors supplying a • Insulation. broad mix of products including own label • Plaster and plasterboard. ranges. • Rooﬁng materials. • Strong vendor relationships and use of • Bricks, blocks and aggregates. preferred vendor programmes. • Tiles and ﬂooring. • Timber products. • Scale advantages in sourcing are a key • Doors and frames. competitive advantage. • Beams, trusses and frames. • Commitment to responsible sourcing • Hardware and tools. practices. • Work wear. Wolseley plc 24 Annual Report and Accounts 2012

The business model continued

Civils/waterworks, industrial and We distribute products commercial efficiently to our branches and customers, allowing • Drainage pipes, associated supplies Distribute us to provide great product Our objective is to and covers. • Underground pressure pipes. availability levels for our operate the lowest • Small bore pressure pipes and fittings. customers. cost, most efficient • Carbon and stainless steel pipes, operating model valves and fittings. What differentiates Wolseley in our industry.” • Other pipes, valves and fittings. • Branch network of over 3,000 branches. • Large scale network of distribution centres Other supporting the plumbing and heating • Services, including installation, businesses. maintenance and management • Market leading levels of product availability of customer inventory. across a broad range of products. • Fire and fabrication products. The proportion of Group revenue derived Distribution network from each product category is shown in the Distribution centres are a key competitive chart below. advantage for Wolseley, allowing the Group to purchase in bulk and better serve Product mix by category % of total 2011/12 revenue customers through reduced delivery times, broader product selection, increased fill Other Civils/ 1% rates and improved product availability, waterworks, Plumbing, as well as enabling the Group to better heating industrial manage inventory. and and air commercial conditioning 41% The Group has a large network of 31% distribution centres which serve branches for our plumbing and heating businesses. By contrast the majority of products in our building materials businesses are delivered directly to our branches or customers. Building materials 27% Our objective is to operate the lowest cost, most efficient operating model in our industry, Product integrity ensuring that our distribution activities benefit from national scale and an efficient supply The Group is committed to responsible chain. The Group has invested significantly in sourcing and has a range of policies and supply chain technology to manage inventory procedures in place related to product safety in our distribution centres and branches in and ethical sourcing practices. Our Group- order to maximise efficiency. wide product integrity policy and the associated business unit procedures will Product availability improve the way that we procure products of the right quality from vendors that The availability of a wide range of products adhere to our expected ethical standards. to our customers is fundamental to the Product integrity is a core element of our Wolseley business model. Our distribution corporate responsibility programme and network is key to allowing us to outperform further detail is provided on page 59. the competition in this area. Each distribution centre aims to maximise the fill rate that it achieves, which is the proportion of orders that can be fulfilled from inventory on hand at the time of order. The distribution centres operate with fill rates that are substantially better than those we receive from our vendors, filling the gap between vendor fill rates and fill rates to our branches. At a branch level, product ranges are focused on the fastest moving products, with the distribution centres able to quickly deliver a wide range of other products as required. A number of our businesses have introduced service guarantees whereby if a top selling product Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 25

is not available we award points or give For example, Wolseley UK has recently refunds to our customers. introduced www.tapoutlet.co.uk which is a B2C website based on our Build.com site Branches in North America. E-commerce is a With over 3,000 branches across 18 countries, rapidly growing Wolseley is an international business but Customers sales channel also a local business, with the majority of The Group has a wide range of customers for the Group.” the Group’s customers travelling less than operating in different industry sectors, 20 miles to a branch. We rely on the strength ranging from individual plumbers and of our brands in their local markets, and the builders through to national contractor local knowledge of our employees in the chains and house builders. Wolseley’s branches to meet our customers’ needs. primary customer focus is on professional contractors, who constituted 88 per cent of Transport the Group’s customer base during the year ended 31 July 2012. The Group uses a range of transport solutions in each of its businesses including Customer mix both owned and leased fleet and third party % of total 2011/12 revenue delivery. The Group uses fleet management systems and backhauling arrangements Heating, ventilation and air conditioning to maximise the efficiency of its transport 6% network and minimise its environmental Utilities Building impact. Further detail on the environmental 10% contractors impact of our transport requirements and Mechanical 23% contractors actions taken to minimise CO2 emissions is 10% given in the Corporate Responsibility report on pages 56 to 58. End users 12% We sell through a variety of channels including Plumbing and Industrial branches, call centres and heating engineers Sell 15% 24% € online, with a strong focus on providing excellent customer service. Customer service What differentiates Wolseley Wolseley is a relationship business and our focus is to meet our customers’ needs better • Continued focus on customer service than the competition, ensuring we deliver the measured through regular customer right products, at the right price, at the right surveys. time, on every occasion they do business with • Investment in employee training us. We use regular customer surveys in all of programmes and tools to allow our our business units so that we can take actions branch employees to deliver the to improve our performance, both nationally best customer service. and within each branch operation. See pages • Investment in online sales channels 10 and 11 to read more about how we to drive organic growth. measure customer service. Channels Branch employees Sales to customers are made over the In order to achieve the best customer service counter at our branches, through supply in the industry we need to have the right talent contracts which are managed centrally, with relevant training, skills and knowledge in or through orders that can be placed with our locations. Within each of the business units branches, into call centres, or via the there is a strong focus on ensuring that training internet. In some regions we also operate programmes and tools are available for our a network of showrooms which enables people so they are equipped to give the best us to showcase our product range. service in the industry. Employee engagement is measured in each business unit at least E-commerce is a rapidly growing sales annually and the results are used to make channel for the Group and we continue to improvements in working practices and invest in our business-to-business (“B2B”) environments. and B2C websites across the Group. Wolseley plc 26 Annual Report and Accounts 2012

Regional performance USA

Business unit portfolio contractors. The business has been diversifying its customer base into private and profile water companies and treatment plants, and In the USA we operate six business units. expanding its product range into new areas Ferguson is the primary operating brand such as metering technologies. although a number of other brands have The HVAC business distributes heating, been retained to service specific markets. ventilation, air conditioning and refrigeration The business operates in all 50 states equipment to specialist contractors, and is served by 10 distribution centres predominantly in the residential and across the country that provide next day commercial sectors. Branded dealerships product availability, a key competitive of high quality equipment are an important advantage. Ferguson predominantly serves feature of this market. Most revenue is the RMI markets with relatively low exposure generated by providing equipment and parts to the residential new construction market. for the repair and replacement market. The Ferguson Blended Branches business The Industrial business distributes pipes, sells to customers across the residential, valves and fittings, including specialty commercial and industrial sectors for new high-density polyethylene pipes, to industrial construction and RMI projects through its customers across all sectors including oil national branch network. In smaller markets Overview and gas, mining and power generation. that may not justify a stand alone presence It is a project driven business that has Performance for Heating, Ventilation and Air Conditioning historically performed strongly over the (“HVAC”) and Waterworks, a blended Revenue economic cycle. The Industrial business location can also provide the products also offers maintenance, repair and and services for these customers. £6,168m operations services (“MRO”) and integrated (48% of Group) The Waterworks business distributes pipes, services, off-site integrated supply with valves, hydrants, fittings and meters to centralised procurement, storeroom and Trading profit residential, commercial and municipal commodity management. £389m

Trading margin Regional KPIs Business unit revenue 6.3% % of total 2011/12 revenue 2012 2011 Other Like-for-like revenue growth +8.4% +8.6% 5% Blended Key highlights Industrial branches 12% Acquisition of four Trading margin 6.3% 5.7% 61%

businesses for total HVAC Five year performance £m 7% consideration of Revenue £29 million. Trading proﬁt

Waterworks Opening of 29 new 15% branches during the year. 5,820 6,168 5,613 5,174 5,500 Operations Business units Revenue by market sector 389 309239 314 389 % of total 2011/12 revenue • Blended Branches 2008 2009 2010 2011 2012 • Waterworks • HVAC Quarterly like-for-like revenue growth % • Industrial Civil infrastructure • Fire and Fabrication 15% Residential RMI • B2C 15% Non-residential 27% 11.4 new construction 10.0 10.2 Branches 9.4 14% 7.4 7.4 1,274 6.0 6.7

Employees Residential new construction 0% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 14% Non-residential RMI 30% 18,245 2011 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 27

Our Fire and Fabrication business unit Gross margins declined slightly as Gain market supplies fire protection systems to contracted business became increasingly share commercial contractors. competitive, copper prices fell and also as a result of the one-off supplier settlement In the Blended Branches Our B2C business (Build.com) supplies to of £11 million in the first half. Operating business in the USA we consumers via websites using the product expenses were 6 per cent higher in constant have improved our market range and distribution network of the Blended currency, including £15 million of costs to share in the majority of Branches business. This is a particularly reinstate 401k pension contributions and states this year. This has fast growing area of the US business. been driven by a strong share-based payment charges, principally focus on customer service in the first half. Nevertheless trading profit and knowledgeable branch Market position and was 24 per cent ahead. employees. High levels competitive environment Blended Branches continued to grow well. of product availability and Ferguson is the market leading distributor of The business protected gross margins high fill rates have driven plumbing supplies in the USA. The market which contributed to good profit flow quality and share gains. positions of the main business units are through. The Waterworks and Industrial estimated as follows: businesses grew strongly though Industrial growth was restricted in the fourth quarter Market position as demand weakened in the oil and gas Blended Branches 1 sectors. The Heating, Ventilation and Air Waterworks 2 Conditioning business remained subdued due to the removal of government tax HVAC 3 incentives last year. Build.com, our Industrial 4 consumer internet business, continued to grow strongly and achieved a very good Ferguson has no direct competitor that operating result. operates across all its markets, and each Four acquisitions were completed in the business unit has its own competitors. year, two in our Blended Branches business These range from large national players, and one in each of the Waterworks and including professional sales from the national Industrial businesses, and acquisitions home improvement chains, to single branch accounted for 1.3 per cent of revenue operations. The market remains fragmented growth in the region. Since the end of the with a large number of small and regional year we have completed the acquisition of distributors making up the majority Power Equipment Direct, an online retailer of the market. of generators and power equipment with Ferguson has continued to gain market revenue of £53 million in its last financial year. The RMI segment share in the year, growing sales significantly We opened 29 new branches principally in remained resilient ahead of the market. the Waterworks and Industrial segments. and the modest Headcount at 31 July 2012 was 764 higher recovery in levels Operating performance at 18,245, half from acquired businesses. The USA trading margin was 6.3 per cent of new residential Revenue in the USA was 8 per cent ahead (2010/11: 5.7 per cent). construction of last year on a like-for-like basis. This includes the impact of price inflation which is As at the date of this statement no significant continued.” estimated at about 2 per cent at the start of claims have arisen from the unintentional the year, though lower towards the year-end supply of mislabelled gaskets notified to partly as a result of falling copper prices. customers in December 2011. The RMI segment remained resilient and the modest recovery in levels of new residential construction continued. The major business units of Blended Branches, Waterworks and Industrial continued to gain market share.

Risk management and internal control See page 42 Wolseley plc 28 Annual Report and Accounts 2012

Regional performance Canada

Business unit portfolio The Industrial business serves industrial and municipal contractors. The most and profile significant customer base exists in oil, Wolseley Canada is a wholesale distributor gas and mining operations in Canada. of plumbing, heating, industrial and ventilation products, servicing residential, Market position and commercial and industrial sectors both in the RMI and new build markets. competitive environment Synergies with the USA include non-facing The market positions of the main business customer activities, specifically supply units are estimated as follows: chain and sourcing. Market position The Blended Branches business mainly Blended Branches 2 supplies plumbing equipment to residential and commercial contractors, with the Waterworks 1 branch network being supported by the Industrial 3 national distribution centre in Milton, Ontario. The Waterworks business serves residential, Wolseley Canada is estimated to be the commercial and municipal contractors. largest national distributor in the Waterworks Its market leadership is based on strong business and the second largest in Blended Overview relationships with core contractors and Branches. However, its market position Performance North American and international vendors. varies by region. Revenue The HVAC business supplies a wide range of heating, ventilation, air conditioning and £850m refrigeration products and parts from leading (7% of Group) manufacturers to both residential and commercial contractors. Trading profit £49m Regional KPIs Business unit revenue Trading margin % of total 2011/12 revenue

2012 2011 5.8% Industrial Like-for-like revenue growth +4.5% +2.0% 15% Key highlights Blended Trading margin 5.8% 4.8% Branches Reduction in average HVAC 61% Five year performance £m 10% cash-to-cash days Revenue of 10 days during Trading proﬁt the year. Waterworks

Increased utilisation 14% of new distribution centre in Milton, 765 811 850 684 700 Ontario.

Revenue by market sector 39 3241 39 49 Operations % of total 2011/12 revenue 2008 2009 2010 2011 2012 Ongoing business units • Blended Branches • Waterworks Quarterly like-for-like revenue growth % Residential RMI Non-residential 8% • HVAC new construction • Industrial 10% 7.9 35% 7.4 Non-residential 4.9 4.5 3.7 RMI 23% Branches 1.7 (0.4) (2.2) 220 0%

Employees –10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Residential new construction 34% 2,607 2011 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 29

Improve Operating performance returns and cash In Canada revenue was 5 per cent ahead on a like-for-like basis including price inflation of During 2011/12 Canada approximately 1 per cent. New residential Gross margins were has reduced average markets remained buoyant and infrastructure cash-to-cash days by spending continued to grow. ahead of last year 10 days, through a with operating cost combination of improving Gross margins were ahead of last year with accounts receivable operating cost growth restricted to 1 per growth restricted processes, managing cent in constant currency and net staff to 1 per cent.” supplier relationships more numbers were reduced by 86 to 2,607. effectively and optimising This led to strong flow through to trading the inventory supply chain. profit of £49 million, which was £10 million higher than last year and included £1 million of one-off restructuring costs. Blended Branches grew modestly and improved profitability. Industrial continued to grow strongly. Waterworks and HVAC traded slightly lower against very strong comparators due to reductions in government infrastructure investment. The trading margin was 5.8 per cent (2010/11: 4.8 per cent).

Risk management and internal control See page 42 Wolseley plc 30 Annual Report and Accounts 2012

Regional performance UK (Ongoing)

Business unit portfolio environment and continues to look for opportunities to improve customer service and profile and grow revenue. The UK is focused on its core, strong Pipe and Climate Center distribute pipes, businesses with market leading positions valves, fittings, air conditioning and in plumbing and heating and adjacent refrigeration products. The business has businesses. a sound track record of profitability, and The majority of the UK’s revenue is volumes are driven by non-residential new generated from the RMI market, with the build projects. public sector accounting for around 35 per Drain Center is a specialist in above and cent of revenue. below ground drainage. Integrated Services Plumb and Parts Center is a leading offers outsourced inventory management distributor of plumbing and heating and procurement services for maintenance products. The business operates through activities on a long-term contract basis, a national branch network and can deliver mainly to public institutions such as superior fill rates and a wide range of housing associations. products through its distribution centres. During the year ended 31 July 2012, Build The business also supplies a wide range Center, Encon and Bathstore were disposed of spares and replacements. Efficiencies of in line with the Group’s strategy of focusing arise from purchasing volumes, from on businesses with significant scale opportunities to cross-sell and from shared and leading market positions. Overview sites. The business has delivered a strong Performance financial performance in a tough trading Revenue £1,670m (14% of Group)

Trading proﬁt Regional KPIs Business unit revenue £92m % of total 2011/12 revenue

Trading margin 2012 2011 Drain Integrated services Center 4% Like-for-like revenue growth (0.8%) +3.0% 6%

5.5% Trading margin 5.5% 5.3% Pipe and Climate Key highlights Five year performance £m Center Revenue 17% Gained market Trading proﬁt share in major business units. Plumb and Parts Center 73% Launch of online B2C 1,745 business. 1,592 1,603 1,655 1,670

Operations Revenue by market sector 129 8475 89 92 % of total 2011/12 revenue Ongoing business units 2008 2009 2010 2011 2012 • Plumb and Parts Center • Pipe and Climate Center Civil • Drain Center Quarterly like-for-like revenue growth % infrastructure Non-residential 2% • Integrated Services new construction • B2C 17% 10% 10.1

Ongoing branches 4.9 Residential 3.5 new 0.5 (2.9) (3.3) (2.4) (0.4) construction 919 0% 9%

Ongoing employees Non-residential Residential RMI RMI 14% –10% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 58%

5,913 2011 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 31

Market position and Despite strong competition and some copper Improve price deflation, the ongoing gross margin productivity competitive environment was well ahead of last year due to favourable Pipe and Climate Center The market positions of the main business sales mix and a sharp focus on pricing and has grown revenue by units are estimated as follows: procurement. Operating expenses were 3 per cent higher including £4 million of 14 per cent over the Market position last two years without restructuring costs and staff costs were well increasing its headcount. Plumb and Parts Center 1 controlled as headcount was reduced by This has been achieved Pipe and Climate Center 2 321 to 5,913. Trading profit for the ongoing through efficiencies such business of £92 million was £3 million ahead as removing management There are a number of large national players of last year after restructuring charges. layers, multi-skilling branch and significant competition is also provided In addition, we invested £2 million in a new employees, and optimising by numerous small local businesses. e-commerce platform. customer deliveries. Plumb and Parts Center achieved a good Operating performance performance in lacklustre markets and increased gross margins despite strong Revenue in the ongoing UK business competition. Pipe and Climate Center declined 1 per cent on a like-for-like basis. continued to perform well, generating good However, the business made excellent growth and higher trading profits. Activity progress in replacing the volumes levels in Drain Center slowed in the second represented by the previously announced half and the business protected gross large contract loss in April 2011. Demand in margins. On 1 August 2012 we launched the heating market declined throughout the our consumer internet business for the UK year, although demand for other product market – www.tapoutlet.co.uk using the categories performed better. There is no infrastructure of our successful Build.com evidence yet of improving market conditions business in the USA. and therefore growth will only come from market share gains in the short term. The trading margin for the ongoing Price inflation in the ongoing businesses UK business was 5.5 per cent (2010/11: was approximately 1 per cent. The major 5.3 per cent). business units of Plumb and Parts Center, Pipe and Climate Center and Drain Center gained market share.

The major business units of Plumb and Parts Center, Pipe and Climate Center and Drain Center gained market share.”

Risk management and internal control See page 42 Wolseley plc 32 Annual Report and Accounts 2012

Regional performance Nordics (Ongoing)

Business unit portfolio Starkki is a Finnish chain of builders’ merchants with a format based on large and profile stores and well-trained specialist staff. Wolseley’s Nordic segment operates in Whilst local building contractors are the Denmark, Finland, Sweden and Norway. largest single customer segment, consumers and small retail stores Stark is the leading distributor of heavy generate nearly 40 per cent of its revenue. building materials, tools, hardware, timber Starkki has a strong record of excellent and panels in Denmark. Stark’s customers profitability based on a very low cost base. include both professional contractors and DIY builders with around half of stores Silvan is a DIY and retail chain in Denmark, having a dedicated DIY section. Stark’s focused on serving customers with building market leadership and its efficiencies materials for the RMI market. The majority of scale have historically delivered strong of Silvan’s product range overlaps with results. During the year we made two small other businesses in the Nordic region and acquisitions and Stark continued to focus therefore the business delivers significant on growing its market share. synergies by taking advantage of these economies of scale. Overview Beijer is the leading distributor of building Performance materials in Sweden. About half its revenue Smaller business units in the region include comes from local building contractors and Neumann Bygg, a distributor of building Revenue another third from retail consumers. As the materials in Norway, and Cheapy, a DIY Swedish market is very fragmented, Beijer’s chain in Sweden. £2,062m reach is valuable to vendors, and by (16% of Group) maintaining efficiencies of scale and working capital management it delivers strong Trading profit trading results. £96m

Trading margin

Regional KPIs Business unit revenue 4.6% % of total 2011/12 revenue Key highlights Sweden 2012 2011 Norway (DIY) Appointment of (building 2% Like-for-like revenue growth +1.1% +3.6% materials) Denmark new CEO, Ole Trading margin 4.6% 5.5% 8% (building Mikael Jensen. materials) Denmark 36% Five year performance £m (DIY) Acquisition of ﬁve Revenue 9%

businesses for total Trading proﬁt

consideration of £17 million. Finland (building materials) Operations 22% Sweden (building 2,206 2,060 2,062 materials) 23% Ongoing business units 2,041 1,944 • Building materials Revenue by market sector – Denmark 160 10399 113 96 % of total 2011/12 revenue – Finland 2008 2009 2010 2011 2012 – Sweden – Norway Civil Quarterly like-for-like revenue growth % infrastructure • DIY Non-residential 2% – Denmark new construction 11% – Sweden 10% 6.6 6.0 4.2 Ongoing branches 3.4 1.6 2.3 Residential (1.7) (2.9) new 0% construction 264 22% Ongoing employees Residential RMI –10% Non-residential Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 51% RMI 14% 6,340 2011 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 33

Market position and in the Nordics performed in line with the Improve market overall. productivity competitive environment During the second half gross margins The market positions of the main business Electronic billing has been declined as a result of competitive pressure, units are estimated as follows: available at Stark for several particularly in Denmark and cost control years. However the number Market position measures in the second half were not of customers using this Denmark (building materials) 1 sufficient to prevent profits declining. During service was low. In order to the year operating expenses increased by encourage more customers Sweden (building materials) 1 3 per cent in constant currency, of which to move to electronic billing, Finland (building materials) 2 £4 million was due to the impact of some improvements to the acquisitions and investment in nine new service have been made Denmark (DIY) 2 branches. Trading profit for the ongoing and a fee was introduced business declined by £17 million to £96 million, to charge customers for The Stark and Beijer brands are market including £1 million of restructuring costs. paper invoices. Almost leaders in Denmark and Sweden 1.6 million invoices have respectively, with Silvan the number two DIY The building materials business in Denmark been sent electronically retailer in Denmark and Starkki the second increased revenue although gross margins since November 2011, largest builders’ merchant in Finland. were lower as a result of pricing pressure and a higher level of lower margin direct enabling cost savings to Each country in the Nordic region is a be passed to customers business. The DIY business in Denmark distinct market with its own national, regional performed better with tight cost control and substantial and local competition. However, there are environmental benefits. leading to an improved performance. several major competitors operating across Revenue was slightly lower in Finland and the region in the building materials and DIY Sweden and despite tight control of costs markets. The markets in the Nordics tend trading profit was lower. In Norway conditions to be fragmented and there are significant were more stable with revenue and gross opportunities to consolidate our market margins ahead although trading profit was positions across the region. slightly lower due to investment. In light of current weak market conditions we are Operating performance planning further cost reductions in the region. After a reasonable first half construction We completed five small acquisitions in markets in the Nordics deteriorated sharply the year including two bolt-on acquisitions with weak consumer confidence also in Denmark, two in Sweden and one affecting RMI markets across most of the in Norway. region. Like-for-like revenue growth was The trading margin for ongoing Nordic 1 per cent in the year, principally due businesses was 4.6 per cent (2010/11: to price inflation. We believe the businesses 5.5 per cent).

Construction markets in the Nordics deteriorated sharply with weak consumer conﬁdence also affecting RMI markets.”

Risk management and internal control See page 42 Wolseley plc 34 Annual Report and Accounts 2012

Regional performance France (Ongoing)

Overview Performance Revenue £1,252m (10% of Group) Regional KPIs Business unit revenue Trading proﬁt % of total 2011/12 revenue £30m 2012 2011 Import and wood solutions Like-for-like revenue growth (1.4%) +4.9% 18% Building Trading margin Trading margin 2.4% 3.5% materials 82% 2.4% Five year performance £m Revenue Key highlights Trading proﬁt Disposal of Brossette (plumbing and heating business). 1,405 1,415 1,294 1,317 1,252 Commencement of strategic review. Revenue by market sector 86 3637 46 30 % of total 2011/12 revenue Operations 2008 2009 2010 2011 2012 Ongoing business units Quarterly like-for-like revenue growth % • Building materials Non-residential • Import and wood new construction solutions 9.1 16% 10% Residential RMI 5.6 33% 3.6 4.4 Ongoing branches 2.5 1.7 (6.1) (5.6) 313 0%

Ongoing employees Residential new construction –10% Non-residential Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 40% RMI 11% 5,293 2011 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 35

Improve Business unit portfolio Operating performance productivity and profile Revenue in France declined by 1 per cent on Wolseley France now operates two divisions; a like-for-like basis, including approximately The import and wood 3 per cent inflation. New construction solutions business in building materials and import and wood solutions. markets weakened substantially in the France has recently second half. Government incentives put in implemented Lean The building materials division comprises place in the last two years are ending and Management practices. Réseau Pro, the number two integrated demand is expected to continue to decline Groups of between 12 distributor in France, selling building in the current year. and 20 employees, led by materials, roofing, insulation, timber and a team manager, work flooring, and Panofrance, focused on timber, Réseau Pro, our building materials business, together to complete panels and interior design. These businesses increased revenue whilst Wood Solutions required tasks and take have efficiencies in both sourcing and was lower as activity slowed in the second individual responsibility shared services. half. Overall gross margins were slightly for areas such as health lower. and safety or quality The import and wood solutions division includes Softwood, the market leader in Full year operating expenses in the ongoing management. Team businesses were 1 per cent higher at managers are appointed specialist sawn and processed woods, and the structural wood business constant currency than last year, including through an assessment £9 million of restructuring charges. process and team workers which manufactures trusses and other carpentry systems. Labour costs were lower as headcount receive training, coaching was reduced by 128 to 5,293. Trading profit and support to transition As announced in July 2012 the Group is for the ongoing business was £30 million to the Lean Management currently reviewing the future strategic (2010/11: £46 million) including restructuring approach. This method options for the business in France. charges. Given the continued weak market has improved productivity conditions in France we are evaluating ways and has engaged and to reduce the cost base further. empowered employees Market position and in the running of the competitive environment The trading margin in the ongoing business. The market positions of the two core businesses in France was 2.4 per cent divisions in France are estimated as follows: (2010/11: 3.5 per cent).

Market position Import and wood solutions 1 Building materials 2

In addition to a number of large national distributors (including Wolseley France) there are also a number of buying groups that operate in France, accounting for a large proportion of the market.

Given the continued weak market conditions in France we are evaluating ways to reduce the Risk management and internal control cost base further.” See page 42 Wolseley plc 36 Annual Report and Accounts 2012

Regional performance Central Europe (Ongoing)

Overview Performance Revenue £714m (6% of Group)

Trading proﬁt Regional KPIs Business unit revenue £30m % of total 2011/12 revenue 2012 2011 Luxembourg 5% Trading margin Like-for-like revenue growth +0.8% (2.3%) Trading margin 4.2% 4.3% Austria 4.2% Netherlands 35% 25% Five year performance £m Key highlights Revenue Trading proﬁt Appointment of new managing director.

Reduced working Switzerland 728 35% capital days by 665 717 718 714 four days.

Revenue by market sector 91718 3130 Operations % of total 2011/12 revenue 2008 2009 2010 2011 2012 Ongoing business units • Austria Civil • Switzerland Quarterly like-for-like revenue growth % infrastructure 4% • Netherlands Non-residential Residential RMI • Luxembourg 5% new construction 27% 30% 2.2 Ongoing branches 0.6 0.5 0.7 (4.7) (4.4) (0.3) (0.1) 142 0% Non-residential Ongoing employees RMI 8% Residential –5% Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 new construction 31% 2,023 2011 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 37

Expand Business unit portfolio Operating performance gross margins and profile In Central Europe like-for-like revenue was Wolseley operates in four countries in the 1 per cent ahead of last year. In Switzerland, During the year Tobler has price deflation as a result of the appreciation continued to increase its region; Switzerland, Austria, Netherlands and Luxembourg. of the Swiss Franc was offset by volume gross margin. The growth. We generated decent growth in business recently reviewed In Switzerland, Tobler is a distributor of Austria, while revenue was slightly lower its pricing strategy to heating and plumbing products. It operates in the Netherlands as a result of exiting ensure fair and consistent a national distribution centre and has unprofitable business. Management focus customer discounts and invested significantly in e-commerce, remains on improving profitability in Austria, product group rebates. generating a significant proportion of its including the reorganisation of distribution sales online. centre facilities, similar to the successful The Austrian business, ÖAG, sells plumbing, project in Switzerland two years ago. heating and sanitary products as well as The gross margin in the period was ahead pipes and valves to industrial and municipal of last year. Operating cost growth of customers. 4 per cent in constant currency included In the Netherlands, Wasco is a distributor of investment in new sales staff and products heating, plumbing and ventilation equipment. which are expected to generate good Boilers and spares account for about half growth in the future. Trading profit in the of its revenue, and the customer base ongoing businesses was £30 million is weighted towards large regional and (2010/11: £31 million) after £2 million of national contractors. restructuring costs. In Luxembourg, CFM is a distributor of The trading margin in the ongoing sanitaryware, heating and appliances. businesses was 4.2 per cent (2010/11: 4.3 per cent). Market position and competitive environment The market positions of the main business units are estimated as follows:

Market position Switzerland 1 Austria 2 Netherlands 3

Management focus remains on improving proﬁtability in Austria, including the reorganisation of Risk management and internal control distribution facilities.” See page 42 Wolseley plc 38 Annual Report and Accounts 2012

Financial review

In summary… Income statement Like-for-like revenue Ongoing Ongoing Group Group 2012 2011 2012 2011 growth of 3.8 per cent. £m £m £m £m Trading margin of the Revenue 12,716 12,061 13,421 13,558 ongoing business Cost of sales (9,724) (9,776) increased from 4.9 per Gross profit 3,697 3,782 cent to 5.2 per cent. Operating costs (3,032) (3,160) Net cash of £45 million Trading profit 658 596 665 622 at 31 July 2012. Exceptional operating items (40) (51) Amortisation and impairment of acquired Dividend increased intangible assets (413) (114) by 33 per cent. Exceptional profit on disposal of associate 16 – Net finance costs (30) (66) Profit before tax 198 391 Tax expense (138) (110) Loss from discontinued operations (3) (10) Profit attributable to equity shareholders 57 271 Dividends paid (142) (42) Retained (loss)/profit (85) 229 Headline earnings per share 168.4p 142.9p Basic earnings per share 21.2p 99.4p Trading margin 5.2% 4.9% 5.0% 4.6%

The Group continues to place a strong emphasis on generating cash.” Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 39

Revenue and operating profit Finance costs Group revenue was 1 per cent below last year as a result Net finance charges in the year amounted to £30 million of disposals, but like-for-like revenue was ahead by 3.8 per (2010/11: £66 million). £9 million of the charge relates to the cent, and the total revenue of the ongoing business was unwind of discounts on pensions and provisions (2010/11: 5.4 per cent ahead including acquisitions and new branches. £18 million). The reduction in the remaining charge from Gross margins were lower than last year in aggregate. £48 million to £21 million primarily reflects lower average This reflected changes in business mix and copper price levels of debt and reduced charges for arrangement fees. deflation earlier in the year, and the competitive pricing environment in the Nordic region along with a shift in volumes Tax towards lower margin direct and large contract sales. Canada, UK and Central Europe continued to make good The Group incurred a tax charge on profit before discontinued progress with their gross margin enhancement initiatives operations of £138 million. Tax in relation to amortisation resulting in their gross margin being ahead of last year. and impairment of acquired intangibles and exceptional items Operating costs before exceptional items were £128 million amounted to £20 million. After adjusting for these items the below last year. Trading profit of £665 million (2010/11: £622 underlying tax rate was 24.9 per cent (2010/11: 27.3 per cent). million) was 7 per cent ahead. This represents a trading margin of 5.0 per cent (2010/11: 4.6 per cent). 2012 2011 Tax charge 138 110 Disposals Tax credits relating to exceptional items, Revenue of £705 million and trading profit of £7 million arose amortisation and impairment of acquired from businesses which have been disposed of or are held intangibles 20 22 for sale at 31 July 2012 (2010/11: £1,497 million of revenue Non-recurring provision movements – 20 and £26 million of trading profit). The Group received £256 million from the disposal of businesses including Underlying tax charge 158 152 Build Center, Encon and Bathstore in the UK and Brossette Effective tax rate 24.9% 27.3% in France. An additional £61 million was received from other asset disposals. Discontinued operations Exceptional items The loss of £3 million from discontinued operations (2010/11: Exceptional charges of £40 million were incurred during the loss of £10 million) results from movements in tax, provisions year (2010/11: £51 million). The disposal of Bathstore resulted and other items arising from the disposal of Stock Building in a loss of £33 million, and losses from the disposal, closure Supply in 2009. or revaluation of assets held for sale of other businesses were £7 million. In addition an exceptional gain of £16 million Earnings per share was realised on the disposal of the Group’s remaining Headline earnings per share, which is earnings per share holding in Stock Building Supply. before exceptional items, the amortisation and impairment of acquired intangibles and non-recurring tax credits, amounted Amortisation and impairment to 168.4 pence (2010/11: 142.9 pence). The increase reflects of acquired intangibles the increase in trading profit, the reduction in finance charges, and a lower tax rate. Basic earnings per share from Amortisation of £60 million (2010/11: £75 million) represents continuing operations was 21.2 pence (2010/11: 99.4 pence) the normal charge relating to the Group’s intangible assets. after reflecting the impairment charge. In addition, in accordance with accounting standards, the Group has reviewed the carrying value of goodwill and other intangible assets and concluded that an impairment charge of £353 million is appropriate. £133 million of this charge relates to France and £220 million to the Nordic region, reflecting the continued difficult trading conditions in these markets. Wolseley plc 40 Annual Report and Accounts 2012

Financial review continued

Dividends Cash flow The Group paid an interim dividend of 20 pence per share 2012 2011 (2010/11: 15 pence per share) amounting to £57 million in £m £m May 2012. A final dividend of 40 pence per share, equivalent Trading profit 665 622 to £115 million, is proposed, 33 per cent ahead of last year. The total dividend for the year of 60 pence (2010/11: 45 pence) Depreciation and amortisation 125 153 is covered 2.8 times by headline earnings per share. EBITDA 790 775 The Board expects to grow the dividend over time taking Working capital movements 52 (639) into account the significant opportunities for investment in profitable organic growth and selected bolt-on acquisitions. Provisions and other movements (95) (120) Cash flow from operations 747 16 Special dividend Interest (19) (50) Following receipts from disposals during the year the Board Tax (86) (162) believes that the Group has cash balances which are surplus to its current investment needs. In line with the Group’s Acquisitions and disposals 215 110 stated strategy the Board is proposing the return of Capital investment (135) (93) £350 million to shareholders by way of a special dividend to be accompanied by a share consolidation to preserve Asset disposals 61 67 the reference share price and earnings per share. Dividends (142) (42) Liquidity Foreign exchange and other items (73) (23) Movement in debt 568 (177) The Group maintains sufficient borrowing facilities to finance all investment and capital expenditure included in its Net debt brought forward (523) (346) strategic plan, with an additional margin for contingencies. Net cash/(debt) carried forward 45 (523) The maturity profile of the Group’s borrowings and committed undrawn facilities at 31 July 2012 is as follows: The Group continues to place a strong emphasis on Drawn Undrawn Capacity generating cash. Capital investment has continued to be Maturity date £m £m £m well controlled, net interest paid has reduced and the Group has increased the level of dividends paid. Less than one year 106 50 156 1–2 years 14 – 14 Pensions 2–3 years 52 – 52 The Group’s net pension obligations under IAS 19 at 31 July 3–4 years 209 – 209 2012 were £358 million (2010/11: £360 million). The Group made a one-off contribution of £60 million into the UK 4–5 years 19 761 780 pension scheme following completion of the disposal of After 5 years 387 – 387 Build Center, which has compensated for actuarial losses Committed facilities at 31 July 2012 787 811 1,598 due to lower discount rates. All of the Group’s companies are now reviewing their pension arrangements and this may lead to further cash contributions in the year ahead in the Net cash/(debt) range of £100 million to £150 million. Net cash at 31 July 2012 was £45 million (2010/11: net debt of £523 million). Operating lease commitments The Group’s level of net cash or debt at 31 July is affected As at 31 July 2012 the Group had total operating leases by the working capital cycle as well as cash conversion. commitments of £842 million (2010/11: £1,126 million). Net debt at 31 July 2012 would have been approximately Management continues to believe that there is substantial £100 million after having taken into account the timing capacity for revenue growth utilising the existing of year-end supplier payment runs. infrastructure and will remain cautious when considering new lease commitments in the foreseeable future. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 41

Other financial matters Other financial risks Financial risk management The nature of the Group’s business exposes it to risks which are partly financial in nature. Counterparty risk is the risk that The Group is exposed to risks arising from the international banks and other financial institutions which are contractually nature of its operations and the financial instruments which committed to make payments to the Group may fail to do so. fund them. These instruments include cash, liquid Convertibility risk is the risk that euro-denominated assets investments and borrowings, and also items such as trade and contracts may be redesignated into an alternative receivables and trade payables which arise directly from currency, and that there may be restrictions on realisation operations. The Group also enters into selective derivative of assets. Credit risk is the risk that customers who have transactions – principally interest rate swaps and forward made purchases on credit may fail to pay in full. Commodity foreign currency contracts – to reduce uncertainty about risk is the risk that, in order to satisfy its service commitments the amount of future committed or forecast cash flows. to customers, the Group may purchase commodities which The policies to manage these risks have been applied subsequently fall in value. consistently throughout the year. It is Group policy not to undertake trading in financial instruments or speculative The Group manages counterparty risk by setting credit and transactions. settlement limits for a panel of approved counterparties, which are approved by the Treasury Committee and Capital structure monitored regularly. The Group manages convertibility The Group’s sources of funding currently comprise cash risk by limiting its overnight exposure to euro assets. flows generated by operations, equity contributed by The management of credit and commodity risk is considered shareholders, and borrowings from banks and other financial to be the responsibility of operational management and, institutions. To assess whether the capital structure is in respect of these risks, the Group does not prescribe appropriate for current and forecast trading, the Group’s a uniform approach across the Group. principal measures are the appraisal of the Group’s credit Further information on risk management and internal control rating by an appropriate independent credit assessment can be found on pages 42 to 47. agency and the ratio of net debt to EBITDA. The Group aims to operate with investment grade credit metrics and Financial reporting maximum net debt of 1x to 2x EBITDA. These financial statements have been prepared under IFRS. Foreign currency The Group’s accounting policies are set out on pages 137 to The Group has significant overseas businesses whose 143. There have been no changes to the Group’s accounting revenue is mainly denominated in the currencies of the policies during the year ended 31 July 2012. countries in which the operations are located. The Group does not normally hedge profit translation exposure. Going concern The Group’s policy is to adjust the currencies in which its The Directors are confident, on the basis of current financial debt is denominated to materially match the currencies projections and facilities available, and after considering in which its trading profits are generated. sensitivities, that the Company and the Group has sufficient resources for its operational needs and will enable the Group Interest rates to remain in compliance with the financial covenants in its During the year the Group entered into interest rate bank facilities for at least the next 12 months. Accordingly the contracts to swap private placement bonds with a par value Directors continue to adopt the going concern basis in of £424 million at 31 July 2012 from floating rates to a preparing the financial statements. weighted average fixed rate of 2.5 per cent until maturity. The Group’s portfolio of swap contracts had a fair value of £72 million at 31 July 2012, and any charges in fair value until maturity will be taken to profit or loss.

John Martin Chief Financial Ofﬁcer Wolseley plc 42 Annual Report and Accounts 2012 Risk management and internal control

Strategic clarity – a focus on the risks What has this meant in practice this year? that matter The Board (Level 4) formally reviewed its strategic plans Wolseley’s strategy remains unchanged. Our process of and objectives in May and subsequently approved Group top-down resource allocation to those businesses which are company budgets and strategies in light of these. It regularly capable of market leadership will give us the best returns. monitors the implementation of strategy and the financial Detailed business unit strategies, built from the bottom up, performance of the Group. will help our best businesses to grow faster than the On behalf of the Board, the Audit Committee reviews key competition. We will focus on customer service, operational risks and controls in March and September each year. efficiency, developing employees, and our vendor This year, the Audit Committee added a further review of relationships and expanding gross margins. the Group’s risk management practices to its programme. This top-down and bottom-up approach to strategy is The Committee receives frequent reports regarding the mirrored in our risk management processes. We have a clear findings from internal audits. More information on the view at Board and Executive level of the principal risks facing activities undertaken by the Board and its Committees, the Group, combined with information from the business including the Audit Committee, are contained in the units on the most significant risks affecting each region. Governance section on page 62. During the year under review, Internal Audit (Level 3) has Our risk management reviewed and tested controls in a number of financial and framework – four levels of defence non-financial risk areas. These include health and safety compliance and the robustness of health and safety data; The four levels of defence against which we review significant the accuracy of aspects of monthly financial reporting; risks are shown below: compliance with the UK Bribery Act (in the UK), contract compliance and the governance and financial control at Level 1 the Company’s “captive” insurance company. Front line business operations managing risk on Corporate functions (Level 2) are continually improving their a daily basis. oversight of risk in several areas in support of our corporate goals. Examples in the year under review include: Level 2 • the use of monthly financial reporting checklists by Finance Corporate oversight functions monitoring performance teams to highlight areas of non-compliance to business and risk. unit Finance teams; • a comprehensive survey of product integrity in all areas of the business was undertaken by the Group Legal team, Level 3 quality assurance and sourcing experts; Independent assurance and testing that controls are working as planned, e.g. internal or external audit. • health and safety performance is monitored quarterly by the Executive Committee and the Board. Front line business operations (Level 1) take preventative Level 4 action to mitigate operational risks on a daily basis Oversight and direction from the Board and its throughout the year. Specific activities this year have Committees. included: • self-assessments of health and safety in all branches; • employee engagement surveys completed for a second year in all businesses; • improvements made to physical infrastructure and properties following over 20 audits of key sites and locations around the Group; and • testing and exercising of business continuity and IT disaster plans in the United States and the United Kingdom, including faster recovery times for key IT systems in the United States. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 43

Risk Conference 2012 – bringing it all together Significant risks facing the business This year’s event was hosted by Ferguson at its The nature of the industry in which we operate and our headquarters in Virginia, and focused on product integrity, chosen strategy expose the Company to a number of risks. health and safety, treasury, bribery, corruption and There are areas of the Group’s business where it is property risks. necessary to take risks to achieve a satisfactory return for shareholders. The Board has considered the nature and The UK business introduced its successful health and extent of the significant risks it is willing to take in achieving safety self-assessment system, known as “Go Green, the Group’s strategic objectives. These key risks, their level Stay Green”. The Ferguson security team outlined and trend are summarised in the table below. improvements in their data mining capability, which has recovered a significant amount of lost revenue in the first 73 Market conditions few months of operation. Treasury teams from around the Group reviewed new practices in commodity and credit 73 Margin erosion risk management. The business continuity and insurance 73 Litigation teams at Ferguson provided real-life experiences of recovering from two tornados in 2011. 73 Employee motivation and retention Board members and the Group CEO provided a 73 Systems and infrastructure capabilities top-down view on risk. Members of the Internal Audit team and resilience highlighted how their risk-based audits linked to the work Governmental regulations undertaken by risk specialists attending the conference. Inherent risk level (before controls) p High inherent risks p Medium inherent risks p Low inherent risks 1 Risk is rising 73 Risk is stable 5 Risk is falling

The materialisation of these risks could have an adverse effect on the Group’s results or financial condition. If more than one of these risks occur, the combined overall effect of such events may be compounded. Various mitigation strategies are employed to reduce these inherent risks to an acceptable level – these are summarised on the following pages. This year, “liquidity and funding” risks have been removed from the list of principal risks in light of the Group’s strengthened financial performance, net debt levels and funding arrangements. “Capital expenditure and return on investment” risks have also been removed in light of lower risk levels and stronger controls. Some risk factors remain beyond the direct control of the Company and the risk management programme can only provide reasonable but not absolute assurance that key risks are managed to an acceptable level. The Company faces many other risks which, although important and subject to regular review, have been assessed as less significant and are not listed here. These include, for example, treasury or health and safety related risks. Further information on financial risks and their management is contained on page 41. More information on health and safety can be found on page 53. Wolseley plc 44 Annual Report and Accounts 2012

Risk management and internal control continued

Inherent risk and trend Definition Mitigation Market conditions 73 The Group’s results depend on the levels The Company believes it has effective measures in place of activity in new construction and to respond to market conditions. Our mitigation strategy Inherent risk level property repair and remodelling markets. is to reinforce existing measures in place. These include: In light of the debt levels in Europe and – High • resource allocation processes; concerns about the USA recovery, Trend – Stable there continues to be a risk that markets • planning, budgeting and forecasting processes; may fluctuate rapidly or experience • debt reduction and refinancing; further downturns. Factors influencing this risk include: • cost reduction, pricing and gross margin management initiatives, including a focus on • the general rate of GDP growth; customer service and productivity improvement; • consumer confidence; • diversification into the sectors, such as commercial • the availability of credit to finance and industrial, which have proved more robust; and customer investment; • improvements in monthly management information. • mortgage and other interest rates; Measures introduced in the last 12 months include the • the level of government initiatives to disposal of businesses where the Company cannot stimulate economic activity; establish a market leading position in attractive markets. Such operations included Bathstore and Build Center • inflation; and in the UK and Brossette in France. The Company has • unemployment. also announced its intention to explore strategic options for its other businesses in France. These factors are out of the Group’s control and are difficult to forecast. The quality of monthly management information has been improved to enable businesses to better identify Traditional processes for producing and respond to changes in the business environment. management information may need enhancing to enable the Company to respond to such rapidly-changing markets.

Margin erosion 73 Market conditions continued to increase The Company continues to reinforce the mitigation competition during the period under actions in place. Gross margin improvement initiatives Inherent risk level review, which, if not mitigated, could remain a priority for all businesses. lead to downward pressure on sales – High We believe that high levels of customer service and prices and proﬁt margins. Trend – Stable product availability play a fundamental role in maintaining There is a risk that such competitive competitive advantage. The Group has continued with pressures will continue and could be its programme of work to improve levels of customer exacerbated by factors such as levels service and inventory. of economic activity, customer or supplier A number of local initiatives have been undertaken by consolidation, manufacturers shipping Wolseley businesses in the last 12 months, including: directly to customers, other changes in the route to market, and changes • improved analysis of monthly margin performance in technology. at Group and business unit level; • dedicated gross margin initiatives and expense reduction programmes in Canada; • improved transparency on performance and incentives in the USA through the use of an innovative software tool; • improved claims management in the UK businesses; and • improved supplier pricing terms in the Nordic region. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 45

Inherent risk and trend Deﬁnition Mitigation Litigation 73 The international nature of Wolseley’s Levels of litigation are monitored by individual operating operations exposes it to the potential for companies and by Group functions. litigation from third parties, and such Inherent risk level To reduce its exposure to product-related claims, the exposure is considered to be greater – Medium/high Company has this year launched a major “Product in the USA than in Europe. Trend – Stable Integrity” programme. This included a refreshed policy Wolseley’s strengths include its employees, and set of requirements to which all businesses must its products and the terms it negotiates adhere, as well as a programme of risk assessments with its suppliers. It is in these areas and KPIs for major product categories. Further where the potential risk of litigation may information is provided on page 59. be greatest. The Company has been reviewing and improving Although the number of claims made its working practices especially in the United States against the Company has increased and France in light of the more complex labour laws slightly during the year, there has been in those countries. no material change in the level of exposure In the case of claims related to exposure to asbestos, to the Group. For more information on Wolseley employs independent professional advisers speciﬁc litigation affecting the Company, to actuarially determine its potential gross liability. see pages 104, 125, 136 and 157. Wolseley has insurance which exceeds the current estimated liability relating to asbestos claims. This year the Company has also improved the general liability insurance cover it procures.

Employee motivation and retention 73 Wolseley’s ability to provide leadership An updated, comprehensive People Strategy was and products and services to customers approved by the Board in 2011. This sets out key Inherent risk level depends on retaining sufficiently qualified, principles and practices for people management, which – Medium experienced and motivated personnel. operating companies will implement in their businesses. Specific examples of activity in business units includes: Trend – Stable In order to increase productivity, and be able to take growth opportunities when • reviews of succession planning and improved markets improve, Wolseley must maintain interview processes in Canada; and the skills and experience of its existing • a new leadership skills programme in Wolseley UK. management and continue to develop the managers of the future. Effective personal performance management underpins this strategy. The quality of individuals’ performance While staff turnover rates are stable at reviews is being monitored and improved in all areas present the current difficult conditions of the business. experienced in certain markets, and the Group’s response to them, may The Company monitors voluntary turnover rates demotivate remaining staff. and employee engagement scores. Further metrics will be put in place in the coming year. Succession planning exercises are undertaken each year, along with a review of the Company’s most talented and promising individuals. Career mobility has been increased, providing more staff with the opportunity to work in different areas of the Group. The Group continues to invest in development programmes for senior leadership, managers and all other staff. Wolseley plc 46 Annual Report and Accounts 2012

Risk management and internal control continued

Inherent risk and trend Definition Mitigation Systems and infrastructure capabilities and resilience 73 The Group can only carry on business as Core IT systems and data centres for the Nordics, long as it has the information technology USA and UK have documented disaster recovery plans Inherent risk level and the physical infrastructure to do so. which are tested annually. – Medium The safe and continued operation of such In the United States, significant improvements have Trend – Stable systems and infrastructure is threatened been made in the recovery times for core systems and by natural and man-made perils and is our business there has been certified as Payment Card affected by the level of investment Industry compliant. available to improve them. For example: External reviews have been conducted of data centres • some of the Company’s physical assets in the UK and Denmark, and recommendations for are located in areas exposed to natural improvement are being addressed. catastrophe risks; The Company operates an IT governance framework • we remain reliant on a number of including dedicated IT security policies. Specific different technology systems across operational controls for IT security include intrusion the Group, some of which have been prevention and detection, penetration testing, wireless operating for many years; remediation of issues, log and configuration management and in-flight projects to reduce the • to optimise costs and supply chain likelihood of an incident. efficiency, some companies within the Wolseley Group have also centralised The Company has made initial investments in software their distribution network and are to improve its ability to identify and recover data. therefore reliant on a smaller number The loss of a physical site is naturally hedged by of larger distribution centres; and the diversified nature of our locations, customers • the level and sophistication of IT security and suppliers. threats are increasing. The Company has formally documented and tested plans for those distribution centres, head office buildings and data centres where the risk is deemed to be greatest. A comprehensive insurance programme is purchased, including coverage for “cyber” risks. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 47

Inherent risk and trend Deﬁnition Mitigation Governmental regulations The Group’s operations are affected by The Group monitors regulations across its markets various statutes, regulations and laws to ensure that the effects of changes are minimised Inherent risk level in the countries and markets in which it and that compliance with all applicable regulation – Medium/low operates. The amount of such regulation is continually sought. and the penalties can change. Trend – Rising During the course of the year, a number of initiatives While the Group is not engaged in a highly were undertaken to respond to new or updated laws regulated industry, it is subject to the laws and regulations. These include, for instance, the governing businesses generally, including continual review and improvement of anti-fraud laws relating to competition, international and anti-bribery procedures. trade, corruption and fraud, land usage, The Company has been monitoring the progress of the zoning, the environment, health and safety, EU Late Payment Directive. Initial analysis has been transportation, labour and employment completed and the Company is well prepared to adapt practices (including pensions), data if necessary. protection, payment terms and other matters. The Group’s compliance with laws to prevent anti-competitive behaviour and to combat bribery and corruption remain a priority. Building codes or particular tax treatments may affect the products Wolseley’s customers are allowed to use and, consequently, changes in these may affect the saleability of some Wolseley products. Wolseley plc 48 Annual Report and Accounts 2012 Corporate responsibility

Sustaining our proﬁtable, CR programme component long-term growth People Development Our Corporate Responsibility (“CR”) programme is intrinsically linked to the long-term, proﬁtable growth of the Company. For example, reducing the Health and Safety number of days lost through injury improves productivity. A well-trained and motivated workforce delivers exceptional customer service and strengthens the Company’s Ethics Programme and market share. Reduced fuel and energy Legal Compliance consumption lowers our cost base and expands our margins. The way in which each of our CR programme components Environmental underpins our business strategy is detailed Performance over the following pages, along with our progress and objectives for the year 2012/13. More information on each programme component is provided in the pages that Product Integrity follow, with further case studies available on our website www.wolseley.com.

Sustainable Construction

Community Engagement

Gain market share

Expand Proﬁtable Improve gross margins growth productivity

Improve returns and cash Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 49

Overview Governance of Corporate Responsibility Early in the financial year the CR programme was discussed and reviewed comprehensively with each business unit and Who has overall accountability and sets direction? with the Board. It was found to continue to provide a suitable The overall programme is agreed by the Board and reviewed framework and included the elements that were important annually to ensure its ongoing relevance to business for the improvement of the business and its competitiveness. strategy, stakeholder expectations and broader national and During the year, greater emphasis has been given to international sustainability agendas. The Group’s Company improving the processes for the sourcing and testing of Secretary and General Counsel is responsible to the Board our products (“Product Integrity”) and to our increasing for the overall corporate responsibility programme and for involvement in the supply chain for sustainable construction. maintaining regular dialogue with business units to drive The seven key themes are shown opposite. These were performance. Individual programme components receive identified by business unit management as those which could more frequent review and input by the Board and the make the greatest contribution to operational improvement. Executive Committee. The essential principle with all programme components is that they are integral to the way we do business. Who implements the strategy set by the Board? With direction from the Board, business units define and Key developments in the year execute local action plans. Business unit plans differ according to their own particular level of development and “People Strategy” updated and approved by the Board. the greatest opportunities for progress in line with strategy. Recognising the business benefit of sustainable performance, All branches reassessed for health and safety a dedicated Group Risk and Sustainability Manager performance. was recruited in February 2012 to oversee implementation. Health and safety systems across the Group reviewed and improved. Are targets and objectives set? Objectives and, in some cases, quantified targets are set Ethics programme and Code of Conduct further for all of our CR programme components. For some of our embedded into the business. focus areas, Group-wide KPIs have been defined. This is Controls relating to bribery, fraud, corruption and not the case for all elements of our programme as it is not anti-trust further strengthened. always practical to bring distinct local practices and reporting methods under one unified metric. Improved performance Environmental improvement targets set for all Wolseley is our primary goal. Unified processes and measures are businesses. implemented where there is benefit in doing so. We will continue to review the potential for further Group-wide Greater accuracy in environmental data reporting with performance metrics for future reporting. reduced reliance on estimates. How is performance monitored? Product Integrity programme launched and Group-wide Product Integrity policy and operating framework adopted. Performance is measured by different teams for each programme component but performance is monitored Ethical sourcing policies and practices strengthened. across all CR programme components by the Group Risk and Sustainability team, according to each component’s Increased customer training in sustainable construction specific objectives and targets. This year our internal audit products. teams have tested compliance with policy and adherence to procedures for a number of our programme components, Continued increase in Wolseley backhauling of product including our health and safety and ethics programmes. from suppliers, reducing supplier emissions. Where comparable data is available we benchmark our performance against industry standards.

How are risks assessed and mitigated? Non-ﬁnancial as well as ﬁnancial risks are assessed as part of the Group’s wider risk management process. These include fraud, corruption, product quality, health and safety and environmental compliance. For further information on the Group’s risk management programme, see pages 42 to 47. A dedicated corporate responsibility risk assessment will be conducted in 2012/13 to ensure that our efforts are appropriately focused. Wolseley’s climate-related risks are also thoroughly reviewed and documented each year as part of our submission to the Carbon Disclosure Project. Wolseley plc 50 Annual Report and Accounts 2012

Corporate responsibility continued

Focus area Principle Supporting Group Strategy People We value our people and are committed to The development and retention of our people Development train and develop all of our employees. will lead to increased productivity and We understand, respect and value personal motivation, improved quality of operations and and cultural differences. customer service, and a lowered cost base.

Health and Safety We will provide a safe and healthy working Protecting the health and safety of our people environment and we will not compromise helps us to gain and maintain their trust and the health and safety of any individual. loyalty. It also ensures that we protect the skills and experience that are used to serve our customers. In addition, maintaining our physical assets minimises the risk of injury, helps us to preserve the integrity of our operations, improves efﬁciency, lowers our costs and improves the quality of our customer service.

Ethics Programme We are committed to observing both the spirit Conducting business responsibly and with and Legal Compliance and the letter of the laws of all jurisdictions in integrity minimises risks related to fraud and which we operate, and to complying with our corruption and strengthens our reputation. It Code of Conduct. also makes our business more efﬁcient because we avoid costly disruptions. Compliance programmes strengthen our internal controls.

Environmental We will run efﬁcient operations that consume Measuring our environmental performance in Performance less energy and fuel, produce less waste and chosen areas will enable us to become more reduce any negative effect of our business efﬁcient, reduce operational costs and reduce activities on the environment. our impact on the environment. We will explore opportunities to reduce the environmental impacts of our suppliers and customers.

Product We will work with our suppliers to maintain Improving productivity and improving customer Integrity excellent standards of product quality service. Compliance with our product integrity and safety. policy reduces risks of litigation, claims and We expect our vendors, contractors and agents disruption. to adhere to our Code of Conduct and to adopt similar standards.

Sustainable We will be a positive link in the sustainable Gain market share – by exploiting opportunities Construction construction supply chain. of this new market and by attracting and maintaining customers through new customer services.

Community We will be a responsible member of the Building closer relationships with the Engagement communities in which we work. communities in which we operate helps us to promote our business, attract high quality recruits and gain a greater understanding of our customers, vendors and employees. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 51

What did we achieve this year? What are our objectives for next year? • Performance reviews were conducted for all • To improve the diversity of the workforce. Further information See page 52 employees at all levels. • To improve workforce productivity. • Every business conducted employee • To assess senior leadership development. engagement surveys on a regular basis and set improvement targets based on the output from those surveys. • Robust talent review and succession plan process in place in all clusters and at a Group level.

• Improved health and safety performance • To set business unit and Group targets Further information throughout the Group. based on the three Group metrics for the See page 53 • Set targets at business unit and Group level. coming year. • Element of management bonuses dependent on improvement of health and safety performance.

• Continued training of employees. • To complete training. Further information See page 55 • Undertook anti-corruption risk assessment • To assess major suppliers and business in certain business units. partners. • To run advanced face-to-face competition law training for relevant employees.

• Thoroughly reviewed our environmental • To reduce tCO2e (carbon emissions) by 7.5%.* Further information See page 56 efﬁciency programme, shared best practice • To reduce waste to landﬁll by 15%.* and set targets at business unit and Group * both relative to £million revenue, achievable by 31 July level. 2014 and measurable against a 2011/12 baseline) • To further improve data accuracy by reducing reliance on estimates.

• Made progress in ensuring contract terms with • To conduct risk assessments against all of Further information existing and new key business partners meet our major product categories. See page 59 the standards of our ethics programme. • To measure performance against Product • Adoption of Product Integrity policy and Integrity KPIs. operating framework. • Development of Product Integrity KPIs.

• Assessed the scope and potential for our • To monitor the market opportunities and Further information sustainable product offering. share best practice around the Group. See page 60

• Continued our support of the Impetus Trust • To maintain and strengthen our businesses’ Further information and the Prince’s Foundation for Building links with their communities. See page 61 Community, and supported a great number of charity and community events. Wolseley plc 52 Annual Report and Accounts 2012

Corporate responsibility continued

People Development What did we achieve in 2011/12? We provided skills training for front-line employees. This has remained a strategic priority for the Group. How does “People Development” Training programmes have been executed in all businesses. underpin our strategy? Wolseley Canada launched “Sales Effectiveness” training It is a business imperative to nurture and develop employees. and “Driving a Culture of Customer Service Excellence” A skilled and engaged workforce delivers excellent training, completed by over 400 employees. Ferguson customer service, develops strong vendor relationships, provides specific sales training each month via a web-based and maximises operational efficiencies. New and more FastTrain module on its intranet. Wolseley UK has launched productive ways of working can be identified by a motivated an online training academy as part of a customer service and creative workforce. and employee development drive, offering a broad range of modules. Around 1,000 courses are completed each month. What does “People Development” entail? All employees received a detailed performance review Our “People Strategy” was developed during 2011/12 and feedback from their manager. and was approved by the Board. The results of these reviews inform their individual development plans and objectives for the next year. Leadership We offered people development training to managers. Performance management This is to ensure that high quality performance reviews and Training and development development discussions are held with all of our employees. For the second consecutive year, we conducted Talent management engagement surveys in all of our business units. Reward We are pleased to report that scores have increased in all businesses compared to the previous year and remain very Organisation high when compared to industry averages in all countries of operation. At Ferguson, we are conducting quarterly Pulse Surveys on employee job satisfaction. This allows Ferguson leaders and the HR team to react quickly to current employee concerns. We continued to manage an in-depth talent review and People development is fundamental to our People Strategy succession planning process for our senior leaders. – four of the six key components of the strategy relate directly to it and are described in more detail below. This took place with the Executive Committee and the Board. We have upgraded our succession planning process Leadership by making objective assessment an integral part of any senior internal appointment or external recruitment. This includes running leadership and management development programmes, succession and promotion from within, modelling the right values and behaviours, and leadership in health and safety.

Performance management This includes embedding basic people management skills, performance review and appraisal, coaching and mentoring, honest feedback and increasing productivity.

Training and development This includes the provision of training skills for front-line employees, focusing on sales force productivity, branch manager development, functional standards and skills development, and induction.

Talent management This includes the development of a pipeline of talent, succession planning, development plans and career pathing, targeted recruitment, objective assessment, movement of talent through international assignments and improving workforce diversity. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 53

What are our objectives, how did we perform in 2011/12 and what are our targets for 2012/13? Health and Safety

2011/12 objectives Performance 2012/13 objectives How does “Health and Safety” underpin To conduct Complete Diversity our strategy? performance We will prioritise reviews for all workforce diversity A robust health and safety programme and a positive health employees at at all levels of the and safety culture improve productivity by reducing the all levels. organisation. number of days lost to injury. It helps to protect profitability by reducing our liabilities and helps to gain market share where contracts require strong health and safety credentials. To conduct Complete Workforce employee productivity What does “Health and Safety” entail? engagement In 2012/13, major surveys on a emphasis will be put Our businesses are continuously improving the systems in regular basis and on productivity and place to manage the health and safety of our employees, set improvement operational efficiency customers and others with whom we come into contact. targets based across the business. These systems include policies stating our approach and on the results. intent, and tools such as risk assessments, documented safe working practices and self-assessments. At a Group To put in place Complete Senior leadership level we measure and report injury rates, lost workday rates a robust talent development and collision rates. For many of our businesses, additional review and We will assess our business or country specific measures are in place. succession plan senior leadership in all clusters and development What did we achieve in 2011/12? at a Group level. programmes and We improved performance against our three health redesign as appropriate and safety metrics. to ensure that they align with our strategy. Our performance metrics are injury rate, lost workday rate and fleet collision rate. These are shown on page 54. We assessed the maturity of our health and safety Ferguson focus on customer service management systems. This year some of Ferguson’s well-established customer Business units scored themselves on a maturity matrix service training programmes were targeted to specific in the following categories: culture and values; policies high-impact roles, such as counter sales associates. and standards; governance and director competence; The counter training programme focuses on several areas organisational structures, roles and responsibilities; including the inventory mix, stock levels, merchandise management systems; performance management; and displays, the floor plan and layout, building customer monitoring and audit. The results were benchmarked relationships, and sales training. Feedback and findings against publicly available information on our competitors and from the secret shopper programme were integrated into other companies regarded as leaders in health and safety the training and used as a teaching tool, to recognise management. Whilst there were areas of very good practice, outstanding associate behaviour and to identify we found some aspects of our processes to be below the opportunities for improvement. standards we aspire to and we have worked hard to improve our performance over the last year (see the table overleaf). We repeated the self-assessment in August 2012 to gauge our progress and to identify key areas for improvement in the coming year. Our aim remains to demonstrate good practice in all categories and in all parts of the Group. Health and safety has more prominence on Executive Committee and Board agendas. The Executive Committee and the Board conduct quarterly reviews of health and safety performance. A comprehensive Board review of health and safety performance and programmes takes place once a year. Operational branch audits were completed in all major businesses by December 2011. Self-assessments for the UK, USA, Denmark, Sweden, Finland, Austria, Switzerland, France and Canada are complete. Action plans are being implemented to deliver against the audit recommendations. Wolseley plc 54 Annual Report and Accounts 2012

Corporate responsibility continued

Internal audits have been conducted in a number Fleet collision rate of our businesses to assess health and safety compliance and the accuracy of reported data. Internal audits of health and safety compliance have been Third-party vehicle collisions per 100 vehicles completed in the USA, France, the UK, Canada, and most Nordic and Central European businesses. Internal audits of the KPI reporting process have been completed in each region. 20.1 17.3 16.6 Employee surveys on health and safety were completed in most business units. 2009/10 2010/11 2011/12 Where possible, speciﬁc health and safety questions were integrated into the employee engagement survey process. Lost workday rate Also, Ferguson dedicated one of their quarterly employee surveys to health and safety, gaining input on attitudes from over 1,000 employees. The UK business integrated Workdays lost per 100 employees health and safety questions into its “Have your say” engagement survey. Health and safety specialists across the Group regularly share best practice. 62.5 Health and safety specialists from each region participate 62.3 58.1 in a quarterly best-practice call. Health and safety specialists met at the Wolseley Risk 2009/10 2010/11 2011/12 Conference in April 2012 where they had dedicated Injury rate workshops on performance improvement. Per 100,000 hours worked What are our metrics, how did we perform in 2011/12 Per 100 employees and what are our targets for 2012/13? At-work injuries requiring medical treatment

2011/12 metrics Performance 2012/13 targets

Fleet collision rate 17% improvement To set business unit Lost workday rate 7% improvement and Group 3.4 1.4 1.5 targets based 3.0 3.1 on the three Injury rate 5% deterioration Group metrics. 2009/10 2010/11 2011/12 Reducing injuries in Canada We are pleased to report a reduction in our collision rate (17% improvement) and lost work day rate (7% improvement) Wolseley Canada has reduced work-related injuries by over across the Group. Our injury rate has increased (5% 40 per cent and lost workdays by over 67 per cent in the deterioration) attributable to improved data and an increase last five years as a result of the ongoing implementation of in the number of new employees. Each business unit has the Occupational Health and Safety Management System improvement targets in place for the coming year. (OHSMS) 18001. The process involved a detailed gap analysis, new policy development, best-practice sharing The charts that follow show our performance over the past initiatives, job hazard analysis and a commitment to three years. Following a review of the three Group KPIs, ownership by branch management. A bi-annual health we decided to report injuries per 100,000 hours worked and safety Facility Self-Assessment was initiated in the last instead of per 100 employees. We have done this in order financial year to continuously self-evaluate branch safety to move our reporting metrics more in line with industry performance. A financial reward is given to those branches standard reporting practices to allow us to benchmark that achieve 90 per cent conformance to the OHSMS 18001 our performance more effectively. The injury rate per 100 Assessment. To date, over 80 per cent of the branches employees has been presented in the chart this year for in the programme have a score of 90 per cent or better. consistency purposes as we transition to the new metric. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 55

An online competition law refresher course is Ethics Programme and in the process of being introduced throughout Legal Compliance our businesses. This supplements the full online training course that is provided every two to three years. Advanced face-to-face How does the “Ethics Programme and Legal competition law training is being developed and will be Compliance” underpin our strategy? provided to relevant employees during 2012/13. Compliance with the letter and the spirit of the law and a commitment to high ethical standards protects our business We continue to encourage our employees to from unforeseen liabilities and strengthens our reputation report any incidences of non-compliance through with stakeholders; it nurtures trust across our customer our Group-wide confidential reporting system, and supplier base; it gives reassurance to our shareholders; “Speak Up!”. and it instils confidence in our workforce. Employees can disclose information in any language, What does the “Ethics Programme and Legal confidentially and anonymously via an international hotline, voicemail or web message. The confidential reports are Compliance” entail? investigated and, where necessary, actions are taken to Our Ethics Programme and Code of Conduct aim to rectify any weakness in our systems that may have been strengthen our core values (see page 11) by setting out identified. These actions, and the overall integrity of the in clear terms the standards and behaviour expected of reporting system, are subject to regular scrutiny by the our employees and, in some cases, our business partners. Audit Committee. It sets out the high ethical standards which Wolseley expects from its employees and others carrying out its business, What are our objectives, how did we perform in focusing on compliance with the law, in particular avoiding 2011/12 and what are our objectives for 2012/13? bribery, corruption and fraud, maintenance of gifts and hospitality registers, preservation of confidential information, 2011/12 objectives Performance 2012/13 objectives managing conflicts of interest, treating customers and To train In progress. Complete vendors fairly, engaging in fair competition, maintaining high relevant Training being provided anti-bribery standards of corporate governance, providing a safe and employees in all businesses. and corruption healthy working environment, running efficient operations, on anti- training. minimising waste and limiting our environmental impact, bribery and and developing our employees and valuing diversity. corruption. What did we achieve in 2011/12? To improve In progress. Assessment of Our Code of Conduct was further embedded into due diligence We started to identify major suppliers the business following its introduction in the last procedures. and categorise our and business financial year. business partners in partners. order to prioritise All new joiners are required to complete training on our Code Delivery of due-diligence efforts. of Conduct, competition law and anti-bribery and corruption, advanced tailored to their role and seniority. competition Our controls for the prevention of bribery, fraud and law training. corruption were strengthened over the year. Employees most at risk were identified and a programme of training is in place. Internal audits were carried out in the UK and further audits are planned for the next financial year. Areas for improvement have been identified and action plans developed. Businesses are also planning to assess their suppliers to review their compliance with bribery and corruption policies, and are conducting risk assessments of bribery and corruption risks. Wolseley plc 56 Annual Report and Accounts 2012

Corporate responsibility continued

Environmental Average water consumption per employee

Performance Cubic metres

How does “Environmental Performance” underpin our strategy?

The reduced consumption of energy, fuel and water and 19.4 21.2 18.5 19.1 production of waste lessens our environmental impact whilst reducing cost, improving our operational efficiencies and expanding our gross margins. Responsible environmental 2008/09 2009/10 2010/11 2011/12 management helps to protect our reputation, as increasingly customers assess our environmental credentials through Our performance statistics and examples of how our pre-qualification questionnaires. businesses have improved their environmental performance are detailed in the greenhouse gas emissions, in the waste What does “Environmental Performance” entail? and water sections that follow, with further examples available on our website www.wolseley.com. Environmental performance concerns the management and reduction of our greenhouse gas emissions, our waste All of our businesses now have environmental targets and our water consumption. Where possible, we work in place. with our suppliers to reduce their environmental impacts. The environmental impacts that are most material to Wolseley For example, we reduce supplier transport emissions by are vehicle fuel consumption, electricity consumption and “backhauling” product from their factories when our trucks waste production. All businesses now have reduction would otherwise return empty to our distribution centres. targets in place for their two biggest carbon contributors This reduces the mileage and related CO2 emissions of our (i.e, fuel and energy) and waste to landfill. Local targets suppliers whilst also reducing Wolseley’s costs and number differ according to local business objectives, ensuring of “empty miles” on the road. that performance targets are owned by and remain the responsibility of each business unit. The Group-level targets What did we achieve in 2011/12? are an aggregation of the targets set by each of our We reduced our absolute greenhouse gas businesses. emissions (12% improvement), waste production We have improved the reliability of our (6% improvement) and water consumption environmental data. (6% improvement). Significant efforts have been made to gain visibility of actual We reduced the intensity of greenhouse gas emissions consumption data and to rely less on estimates. The level of and waste production (per £million of revenue). data derived from estimates has dropped from 60 per cent Water consumption (per employee) increased slightly. to 36 per cent in our greenhouse gas reporting, from 74 per Emissions per £m of revenue cent to 23 per cent in our waste reporting and from 83 per cent to 25 per cent in our water reporting. Future years will see the estimation level drop further as we challenge old tCO2e (tonnes of CO2 equivalent) processes and work with our suppliers and branches to improve data accuracy and completeness. The valuable knowledge of our environmental experts is now shared across the Group. Knowledge sharing sessions have been run to develop best 61.7 59.3 54.2 50.2 practices and facilitate achievement of targets.

2008/09 2009/10 2010/11 2011/12 The following pages describe our future targets and Waste per £m of revenue historical performance. Future targets have been set Non-hazardous against a relative measure, e.g. per £million revenue. Hazardous Historical performance shown in the charts on pages Tonnes 57 and 58 show absolute ﬁgures.

7.9 6 5.5 5.4 0.1 0.1 0.08 0.05 2008/09 2009/10 2010/11 2011/12 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 57

What are our metrics, how did we perform in As a Group, our biggest contributors to carbon emissions 2011/12 and what are our targets for 2014? are vehicle fuel (64.4 per cent of total tCO2e, including both commercial and company car fleets), and electricity (25.7 per Relative cent). Fuel consumption for operations (i.e, gas, oil and 2011/12 metrics performance 2014 targets district heating consumption) represents 8.2 per cent of our 1. Greenhouse 7.3% -7.5% carbon footprint. Refrigerant leakage and business travel gas emissions improvement account for 0.4 per cent and 1.3 per cent respectively. As in previous years, tCO2e emissions have been reported in (tCO2e per £m revenue) accordance with the Greenhouse Gas Protocol (“GHG 2. Waste 0.5% -15% Protocol”). Wolseley reports on its Scope 1 and Scope 2 Non-hazardous improvement (waste emissions, as defined by the GHG Protocol, and aims to (tonnes per £m revenue) to landfill) report on its Scope 3 emissions wherever possible. The chart in the previous column therefore includes selected Waste 40.1% No Group Scope 3 emissions (those arising from business travel). Hazardous improvement level target. (tonnes per £m revenue) Local initiatives that have driven reductions in our tCO2e emissions from our commercial vehicle fleet include the 3. Water 3.1% No Group phased switch towards higher-efficiency vehicles, the (cubic metres per deterioration level target. monitoring of idling time for trucks, and route optimisation employee) programmes. Company car fleets are increasingly low-carbon as businesses transition their fleets to more fuel-efficient The Group-level targets presented above are relative to vehicles. Regarding fuel use for operations, solutions have £million revenue. The targets are against a 2011/12 baseline, included the installation of building-management systems, with a target date of 31 July 2014. heating system upgrades and fuel-switching (i.e, oil to gas heating) where possible. Reductions in electricity consumption Performance figures are based on precise data rather than have been achieved through the use of energy-efficient lighting, the rounded data shown in the charts. Where environmental data centre consolidation and various behavioural initiatives. data has not been included due to business disposals, More detailed case studies are available on our website. the relative measures (revenue and employees) have been recalculated to ensure a like-for-like comparison. Greening of Ferguson The Group has lowered its relative impact for both greenhouse Ferguson has established standards to quantify its gas emissions and waste production. Absolute figures environmental impact, and created a dashboard to track reduced across all three metrics. Improved data accuracy progress. The company’s six initial areas of focus are: significantly influenced these figures as businesses reported recycling; fuel usage; utilities; landfill; water consumption; more actual data and relied less on estimations. Additionally, and distribution centre transportation (or reducing “empty new data has been captured that was not included in miles”). A recent pilot programme to retrofit lighting in previous years’ reporting. Ferguson’s distribution centres has delivered significant 1. Absolute greenhouse gas emissions (tCO2e) savings, while also reducing carbon emissions by 3,383 tCO2e per annum. The new fixtures utilise motion sensors Absolute greenhouse gas emissions (tCO2e) to provide on-demand lighting and are much brighter, Refrigerant leakage Fuel use: transportation of goods Business travel: air and rail Fuel use: operations creating a better work environment. In addition to lighting Business travel: vehicles Electricity use upgrades, the company is raising awareness and exploring

Absolute tonnes of CO2 equivalent (000s) many options to reduce its environmental impacts through 2 activities such as replacing aerators on faucets, installing 8 3 low-ﬂush toilets, and advancing recycling efforts. 88 5 97 3 8 247 245 82 3 8 198 85

334 118 105 101

394 360 346 53

167

2008/09 2009/10 2010/11 2011/12

Greenhouse gas emissions are reported as tonnes of CO2 equivalent (abbreviated as tCO2e), based on the Global Warming Potential (“GWP”) of each of the “basket of six” greenhouse gases, as deﬁned by the Kyoto Protocol. The GWP of CO2 is 1 (1 tonne CO2 = 1 tonne CO2e). For other greenhouse gases in the “basket of six”, including refrigerants, the GWP is relative to the CO2 over a 100-year time horizon (e.g. one tonne of the refrigerant R407C is equivalent to 1,526 tonnes of CO2 in terms of its potential impact on climate change). Wolseley plc 58 Annual Report and Accounts 2012

Corporate responsibility continued

Additionally, we reduced our suppliers’ emissions through “backhauling”. 80 per cent less waste sent to landfill at Beijer Byggmaterial Wolseley UK estimates that it saved at least 1,512,245 supplier kms in 2011/12, equating to 1,376 tonnes of avoided Beijer Byggmaterial in Sweden is ISO14001 certified at all supplier transport emissions. In the USA, Ferguson also 65 branches and waste management is a core part of the carries out backhauling for suppliers through its carrier, UPS. environmental management system. Over the past ten Ferguson filled 38 per cent of its distribution centre backhaul years Beijer has reduced the level of waste sent to landfill “empty miles” in 2011/12, versus 35 per cent for the 2010/11. from 100 per cent to less than 20 per cent of total waste produced. Beijer started by setting up recycling stations 2. Waste management at branches and signing agreements with local waste Wolseley moves large volumes of product through its supply contractors. Since work began in 2001, the legal chain, generating non-hazardous packaging waste and some requirements in Sweden have tightened and waste damaged or obsolete stock. The Group’s businesses also create management has improved even further. Efforts to improve smaller quantities of hazardous waste. Definitions vary from waste management are continuous, and Beijer target an country to country: hazardous waste may include items such as additional 25 per cent reduction on waste to landfill over batteries, paint and electronic equipment; non-hazardous waste the next two years. The cost of sending waste to landfill is typically includes materials such as paper, plastic and metal. high and efforts to reduce the impact of waste produced also serves to protect the bottom line. Non-hazardous waste (absolute) Incinerated Land-filled Recycled Tonnes (000s)

46 40 43 23 23 15 20 16 7 10 12 2008/09 2009/10 2010/11 2011/12

Hazardous waste (absolute) Incinerated Land-filled 3. Water use Recycled The majority of the Group’s water consumption is related Tonnes (000s) to normal operational and sanitary use. Although water consumption is not as material a factor in our operations as it 1.28 would be for a manufacturer, we have continued to measure 1.10 water consumption throughout the Group in an effort to 0.79 monitor our water consumption and identify opportunities to 0.49 increase our water efficiency. Some of our local businesses have targets in place for reduced water consumption but 0.25 0.19 0.17 0.04 0.08 0.10 0.07 0.06 targets are not required for all businesses and a Group-level 2008/09 2009/10 2010/11 2011/12 target has not been set. Absolute water consumption In 2011/12, 10 per cent of hazardous waste and 22 per cent of non-hazardous waste was recycled. This compares with 7 per cent and 27 per cent respectively for the previous year. Cubic metres (000s) The remaining waste was sent to landfill or incinerated. Whilst total waste tonnage decreased by 6 per cent, non-hazardous waste sent to landfill increased by 8 per cent. This is largely due to improved data accuracy, not worsening 984 1,002 831 786 performance. Our business units strive to increase the proportion of total waste that is recycled, and reduction targets for waste to landfill will help in achieving this.

Wolseley UK’s Leamington Spa site, comprising the Wolseley 2008/09 2009/10 2010/11 2011/12 Center, the National Distribution Center (NDC) and the Sustainable Building Center now sends zero waste to direct landﬁll, after the three buildings all reached industry-leading This year, our absolute water use decreased by 6 per cent. waste targets. Following a complete change in the way waste However, the average water consumption per employee is handled, 99.8 per cent of waste at the NDC and 97.5 per increased by 3.1 per cent, largely due to improved accuracy cent of waste from the Wolseley Center is now recyclable, in our data reporting. meaning that just 2.7 per cent of the site’s entire waste is compacted and sent for incineration to generate electricity. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 59

Product Integrity What are our objectives, how did we perform in 2011/12 and what are our objectives for 2012/13? Metrics 2012/13 objectives How does “Product Integrity” underpin our strategy? Product integrity metrics To conduct risk will begin to be reported assessments against At Wolseley, product integrity means ensuring that we during 2012/13. These will all of our major product source and supply safe products that are of suitable quality focus on improving the categories. as efficiently as possible. In doing so we improve the reliability of our suppliers, To measure our Product efficiency of our processes, aim to improve our margins, reducing the value lost Integrity performance avoid liability arising from defective products and maintain or through defective products against agreed metrics. grow market share through enhanced customer satisfaction supplied to us, and and confidence. ensuring that we have sound contract procedures What does “Product Integrity” entail? in place throughout our Product integrity includes: businesses. • ensuring that our products are reliable and robust, and safe when used for their intended purpose; and UK Awarded ISO9001 Certification • understanding our business partners, the quality of their The UK business has achieved ISO9001:2008 certification, systems and how they conduct their business and provide an internationally recognised standard for Quality their services; and Management Systems. Its nationwide branch network • ensuring compliance with legal standards. comprising Plumb and Parts Center, Pipe and Climate Center, Integrated Services and Drain Center, as well as its What did we achieve in 2011/12? distribution centres, are now certified under the standard, which is independently assessed by an accredited third We issued a Group-wide Product Integrity policy. party. ISO9001 certification demonstrates that Wolseley This is supported by a standard operating framework, has implemented an effective Quality Management System to improve the integrity of the products we source. throughout its business which satisfies all of the requirements for the products and services it provides Business units have begun to implement more to customers. However large or small the purchase, structured procedures for the evaluation of suppliers customers can be confident that Wolseley has the and products. necessary policy, systems, processes and procedures Some already conduct more systematic risk assessments in to manage resources and training, the placement of quality accordance with the new policy. This activity will continue assured products on the market and the preservation through the next financial year. and handling of product. We continued to strengthen our timber sourcing policies and procedures. In March 2013, the EU Timber Regulation (EUTR) will come into effect. The regulation introduces obligations for confirming the integrity and source of products on the operator and/or importer of the timber products. Operators must implement a due diligence process which enables them to trace timber products at every stage in the chain of custody and to confirm their legality at the place of harvest. Wolseley has already been assessing its timber products for a number of years and, working with a specialist business partner, has developed a system which we expect will meet the requirements of the EUTR. Efforts to improve our commitment to product integrity are continuous. In addition to the introduction of greater consistency in our processes, there is now closer collaboration amongst our sourcing and quality assurance and quality control specialists within the Group to ensure that best practices are shared more effectively. Wolseley plc 60 Annual Report and Accounts 2012

Corporate responsibility continued

We publish tailored sustainable-product guides in a number Sustainable of markets to assist customers in identifying better products. Beijer, in Sweden, has developed a product label called Construction “Green Choice” which helps its customers to select products that enable improved energy-efficiency and How does engagement in the “Sustainable reduced carbon emissions. Construction” supply chain underpin our strategy? Where relevant our businesses are engaging with policy makers with regard to building regulations and retrofit energy The requirement for sustainable construction is growing efficiency policy. In particular, Wolseley UK has actively at differing rates in our markets and, where the market participated in government consultation processes for the opportunity exists, we can gain market share by stocking “Green Deal”, the UK’s flagship energy efficiency policy due sustainable construction products and by offering training for launch in autumn 2012. In addition, individuals contribute and advice to our traditional customer base. their time and expertise in the development of briefing documents and in otherwise contributing to consultations What does engagement in the “Sustainable and legislative proposals. Construction” supply chain entail? There is no standard definition of what “Sustainable What are our objectives, how did we perform in Construction” products are. In general terms they include 2011/12 and what are our targets for 2012/13? products that: The Board reviewed our approach to the market opportunity • improve the thermal efficiency of a building (i.e, insulation for sustainable construction products during 2011/12. products, draft-proofing); or The Company will not set prescriptive actions or targets in this area at a Group level due to varying levels of market • increase the efficiency of a building’s systems (i.e, heating development and differing business strategies. Business controls, energy-efficient lighting, water-efficient showers); units will continue to regularly monitor the market opportunity or for these products and will share expertise and best practice • generate clean energy (i.e, solar thermal or ground-source across the Group to facilitate market entry or increased heat pumps). market share. The sustainability of a product also refers to its impact over its life-cycle and takes into account the scarcity of the materials Wolseley UK engages with the “Green Deal” that go into its fabrication, the environmental impact arising Plumb Center, in the UK, is developing its plans to engage from its production, and the waste impact at end of use. in the “Green Deal” from autumn 2012. The Green Deal is Each of our businesses develops their product and service the UK Government’s policy to achieve carbon savings offerings according to local market conditions. Engagement in from existing buildings. The basis of the Green Deal is to the supply chain for these products can include the stocking provide capital to allow building owners to carry out energy and promoting of relevant products, and offering training efficiency work and then repay the cost of the work over and advice to both customers and our own employees. an extended period through their electricity bills. Plumb Center, together with training partners Sevenoaks Energy Academy, is providing certified training and qualifications What did we achieve in 2011/12? for customers wanting to become Green Deal Advisors We worked to engage our customers in sustainable and Installers. The first of Plumb Center’s Green Deal construction Workshops took place on 14 June and was attended and endorsed by the Energy and Climate Change Minister, We recognise the need for traditional plumbing and heating Greg Barker. Plumb Center is positioning itself as a key link engineers to be familiar with new renewable products in the Green Deal supply chain by providing their customers and solutions, and have developed facilities that allow with the products, skills and tools required to deliver customers to experience the products first hand. In 2008, Green Deal measures. Wolseley UK opened the Sustainable Building Center, the UK’s first commercial showcase for sustainable building products and construction methods. It has since opened a number of renewables showrooms around the UK. Wasco in the Netherlands and ÖAG in Austria have also opened specialist energy showrooms to showcase the latest energy-efficient or sustainable products. Training is a key element of the customer proposition in this sector, with some Wolseley businesses developing comprehensive training courses and opening training centres to encourage the industry to get on board. Equipping our own employees with the necessary expertise to sell into this market is equally important. France launched its “Eco Chantiers” renewables model in 2010, training over Head of Sustainability, Tim Pollard (left) flanked by (l–r) Energy and Climate 300 of their employees to be energy-efficiency and Change Minister Greg Barker; Keith Jones, MD Plumb Center & Parts Center; Darran Rickards, Product, Process & Logistics Director; and Simon Allan, renovation experts. Director of Renewables, at the Sustainable Building Center, Leamington Spa. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 61

In the UK, we are a member of the Corporate Community Engagement Partnerships Programme of the Prince’s Foundation for Building Community. How does “Community Engagement” underpin During the year, the Prince’s Foundation for the Built our strategy? Environment re-oriented its strategy towards the improvement of communities. With its new name – the Prince’s Foundation By engaging with the communities in which we operate for Building Community – it focuses on the impact that we promote our business, attract high quality recruits and community building can have on people’s lives. This year gain a greater understanding of our customers, vendors Wolseley enhanced its support by joining the Corporate and employees. Community or charitable events serve to Partnerships Programme. enhance employee skills and increase employee engagement. Ferguson helps the homeless What does “Community Engagement” entail? Ferguson associates at their headquarters in Newport Our businesses seek to be contributing members to the News, Virginia, recently participated in the Peninsula 50 communities in which they operate. We also support a campaign to identify and secure housing for the most number of charitable organisations both at a Group and a vulnerable homeless individuals and families in its business unit level. Our principal areas for charitable support community. The local campaign is part of state and continue to be the alleviation of homelessness, the provision nationwide efforts to find permanent homes for 100,000 of training for the homeless or marginalised in order to allow of the country’s most vulnerable homeless persons by them to return to work, and the improvement of the quality of July 2014. Associates from Ferguson’s headquarters the built environment. Our businesses have also supported volunteered their time from 4 to 7am for three days, logging numerous other charitable causes, including support for names, phone numbers, health information and housing neglected and vulnerable children and provision of care for history, to identify those most vulnerable to premature sufferers of cancer or other illnesses. death because of homelessness. In addition to volunteer services, Ferguson has also given financial support to the Who is responsible? Greater Virginia Peninsula Homelessness Consortium Community engagement is, by its very nature, a local activity which brings together numerous non-profit organisations and our corporate head offices and individual businesses working to secure housing and services for the area’s manage their own activities in this area to suit their own homeless population. preferences and locations. We encourage all of our employees to engage in charitable or community activities outside the workplace and we recognise the value that this brings to communities and the personal reward and new skills it can bring to our employees.

What did we achieve in 2011/12? Our employees engaged in a great number of community and charity events. For examples of the events and schemes our employees and businesses have supported over the last year please visit our website www.wolseley.com. We are in the third year of our partnership with Impetus Trust. Impetus works to break the cycle of poverty by investing in ambitious charities and social enterprises that ﬁght economic disadvantage through helping people to gain education, skills and jobs. It uses a highly effective venture philanthropy model, consisting of management support from the Impetus investment team, pro bono specialist expertise and strategic More information on our funding, to accelerate the growth of those organisations. CR programme, including This has led to impressive growth rates in charities Impetus further case studies, has supported, on average increasing their annual income statistics and examples of by 31 to 40 per cent. Included in the Impetus portfolio is our practices, our employee training programmes, Blue Sky Development and Regeneration – see our website awards and community for more details. engagement can be found on the Wolseley plc website at http://www.wolseley. com/corporate- responsibility.aspx. Further business unit information is also available on the websites of our subsidiary companies. Wolseley plc 62 Annual Report and Accounts 2012 Governance

Dear Shareholder Through my leadership, I support the work which the Nominations Committee, the Board and the Company At Wolseley we are always committed to high standards as a whole are currently undertaking in relation to diversity of corporate governance. Your Board provides strong and succession planning. The Report has given us an leadership to the Company and has effective and opportunity to consider a drive for change. The terms constructive relationships with the management team of reference for the Nominations Committee have been and shareholders. amended ahead of the proposed changes to the UK Corporate Governance Code to include specific reference Your Board for the Board to consider diversity when selecting candidates The relationships within the Board have developed well for Board and senior management positions. during this financial year and the culture in the Wolseley boardroom is one where all Directors are invited to speak Refreshment of the Board and succession freely and raise difficult questions. I believe that this results planning in the Company in a collaborative and conscientious Board. I encourage contribution from all Directors and we conduct our meetings I have worked with the Nominations Committee to consider in an environment where ideas can be both questioned our aspirations in relation to diversity and review the evolution and developed. This results in better quality decisions, of the composition of the Board and its Committees. made the right way. We have also anticipated that the tenure of Andrew Duff (our Senior Independent Director and Remuneration Your Non Executive Directors all continue to be independent Committee Chairman) will come to an end in 2013. We have and objective and play an essential role in the composition identified the balance of skills, experience, capabilities, of our Board due to the skills and expertise they bring. independence, diversity and knowledge of the Company An externally-facilitated Board evaluation was conducted required on the Board and its Committees against which this year in line with the requirements of the UK Corporate future appointments will be made. Governance Code. The evaluation indicated that the Board As noted by Ian in his Chief Executive’s review, there are and its Committees are operating effectively and to high areas where we know we can improve, including diversity standards of governance, and that the skills of the Board and workforce planning. The Board and senior management are balanced. The evaluation process, together with the place great importance on the way we develop the talent conclusions and the recommendations for improvement, of our employees and we recognise this as an area that we are discussed further on page 72. can continue to improve. We already have high quality development plans which provide solid career path Remuneration opportunities that can ultimately lead to progression to senior management and Board positions. We recognise that there Remuneration has been a significant issue for shareholders is an opportunity for more women to hold senior roles (both of many UK companies during the last year. Although operational and functional) in Wolseley. We are conscious Wolseley is a Jersey incorporated company, we continue that for the Company as a whole, much more needs to be to consider it appropriate to provide you with the safeguards done to improve the diversity of our workforce. The benefits you would expect to apply to a UK registered company. that diversity brings are well recognised and our recruitment We have monitored and contributed to consultations during and development policies take into account the need to the year and we will adapt our remuneration policy and consider a variety of factors, not only the gender of the practices to meet the standards of any new legislation candidate or employee. Diversity of background, outlook that is introduced. and experience are all important to us, and at any level – The Remuneration Committee and Board are fully aware of the Board included – the principal criterion has to be the current climate and commend the Board (both Executive and remains that of excellence. and Non Executive Directors) and the Executive Committee During the next financial year, we will prioritise workforce who will all take a salary pay freeze in the next financial year. diversity at all levels of the organisation. In addition, we will We are also fully informed of our shareholders’ views on all assess our senior leadership development programmes and aspects of remuneration and all correspondence is given redesign them as appropriate to ensure that they align with proper consideration. I believe that the work of the our business strategy and leadership profile. Your Board will Remuneration Committee and the Board shows us to have continue to monitor this across the Group on a regular basis been responsive and responsible in our approach. and it is part of our ongoing HR strategy. Further response to the Davies Report I look forward to leading the Board through this period of development and overseeing the changes ahead to further As mentioned last year, we welcomed the findings and strengthen your Board. recommendations of Lord Davies’ report, “Women on Boards” (the “Report”). As at the date of this annual report, we have one woman on the Board, Tessa Bamford, due to the departure of Karen Witts during the year. Karen stepped down from the Board in light of her appointment as Finance Director of Kingfisher plc, in order to avoid any risk of a conflict of interest. In her short tenure at Wolseley, Karen made a valuable contribution to the Board and its Committees. Nevertheless, we still expect the diversity of the Board to Gareth Davis meet the recommendations set out in the Report by 2015. Chairman Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 63 Governance overview

Compliance with the Code Leadership We confirm that throughout the financial year, the Even closer focus on strategy and its execution. Company applied all of the principles set out in sections A to E of the UK Corporate Governance Code for the Read more See page 68 period under review and has complied with the detailed provisions set out therein. The Company’s auditors, PricewaterhouseCoopers LLP, are required to review Accountability whether the above statement reflects the Company’s Close scrutiny of risks and controls. compliance with the nine provisions of the UK Corporate Governance Code specified for their review by the Listing Read more See page 70 and Risk management and internal control report on page 42 Rules of the UK Listing Authority and to report if it does not reflect such compliance. No such report has been made. Effectiveness A strong, open and effective Board.

Read more Committees of the Board See page 71 Details of the Wolseley plc Board and Committee governance structure are set out below. The formal terms Relations with shareholders of reference for each of the Committees of the Board, Open engagement with shareholders. which have been approved by the Board and comply with the Code, are available from the Group Company Read more Secretary and General Counsel and can also be found See page 73 on the Wolseley plc website at www.wolseley.com. Remuneration Membership and activities of the various committees are summarised on the following pages. Prudent oversight of executive remuneration. Read more See page 84

Wolseley’s governance structure

Board and Committees of the Board Meetings held in Switzerland or outside the UK. Board These take decisions of a strategic or substantive nature.

Major Audit Remuneration Nominations Announcements Committee Committee Committee Committee

Other committees Meetings may be held in the UK. These implement strategic decisions Executive Treasury Disclosure and executive or administrative matters. Committee Committee Committee

Geographic regions Group functions

USA and Canada France Nordics and Central Europe UK IT Legal HR Finance Wolseley plc 64 Annual Report and Accounts 2012 Board of Directors Directors in ofﬁce as at 31 July 2012

Gareth Davis Ian Meakins John Martin Chairman Group Chief Executive Chief Financial Officer Appointment Appointment Appointment Appointed to the Board on 1 July 2003 and Appointed to the Board on 13 July 2009. Appointed to the Board on 1 April 2010. became Chairman on 21 January 2011. Key strengths Key strengths Key strengths Broad international board and general Extensive operational and financial management Extensive international board and general management experience in brand, retail and experience. Mr Martin has significant experience management experience, having served on wholesale distribution management; strategic at cost control, driving productivity, and leading various company boards for many years. vision and extensive operational leadership. business expansion projects, acquisitions, disposals, capital efficiency, tax, treasury and Experience Experience compliance activities. Mr Davis spent 38 years in the tobacco industry Mr Meakins was, until April 2009, Chief Executive and was Chief Executive of Imperial Tobacco of Travelex Holdings Ltd, the international foreign Experience Group plc from its incorporation in 1996 until exchange and payments business. Previously he Mr Martin, a chartered accountant, joined the May 2010. Age 62. was Chief Executive Officer of Alliance UniChem Company in February 2010. He was previously plc until its merger with Boots in July 2006 and a partner at the private equity group Alchemy External appointments prior to that, between 2000 and 2004, was Partners and prior to that was Chief Financial Chairman of William Hill PLC and Chairman of President, European Major Markets and Global Officer of Travelex Holdings Ltd and Hays plc, DS Smith Plc, the international packaging Supply for Diageo plc, spending over 12 years the business services group. Mr Martin started manufacturer. with the company in a variety of international his career at Arthur Andersen before joining management positions. Age 56. The Stationery Office Group, on its privatisation, where he was Group Controller. Age 46. External appointments Director of the Impetus Trust and Non Executive External appointments Director of Centrica plc. None.

Michael Clarke Tessa Bamford Richard Shoylekov Non Executive Director Non Executive Director Group Company Secretary Appointment Appointment and General Counsel Appointed to the Board on 22 March 2011. Appointed to the Board on 22 March 2011. Appointment Key strengths Key strengths Appointed on 9 November 2007. Considerable board and executive management Extensive City experience having held senior Responsibilities experience within global businesses with strong advisory roles in both the UK and USA across Mr Shoylekov, a solicitor, has responsibility finance, marketing and distribution capabilities. a range of sectors. for the Group’s legal affairs, risk management Experience Experience and corporate responsibility programme. Mr Clarke, a qualified accountant, spent his early Ms Bamford was formerly a Director of Cantos Age 47. career in South Africa and Hong Kong working for Communications, the online communications External appointments Deloitte. He joined Reebok International in 1991 service provider from 2001 to 2011. Previously None. and served as Vice President of South Asia/ she was a Director of J Henry Schroder & Co Pacific. Between 1996 and 2008 he held various where she worked for 12 years in a number of roles at The Coca-Cola Company including roles between 1986 and 1998. Prior to that, President of South Pacific and Korea, and Ms Bamford worked in corporate finance for President of North West Europe and Nordics. Barclays de Zoete Wedd. Age 53. Until August 2011, he was President of Kraft External appointments Foods Europe, headquartered in Zurich. Age 48. Consultant at Spencer Stuart. Non Executive External appointments Director of Barratt Developments plc, a Governor Chief Executive Officer of Premier Foods Plc. of the British Institute of Florence and a member of the board trustees of Jo’s Cervical Cancer Trust. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 65

Frank Roach Andrew Duff Michael Wareing CMG Chief Executive Officer, North America Non Executive Director Non Executive Director Appointment Appointment Appointment Appointed to the Board on 16 December 2005. Appointed to the Board on 1 July 2004. Appointed to the Board on 1 October 2009. Key strengths Key strengths Key strengths Strong business and operational leadership; Broad knowledge of international business; Comprehensive board and financial management management of subsidiaries and joint ventures. strategic management and strong customer experience; significant commercial and Business development and wide ranging service experience. international experience having served in various sales experience. advisory roles. Experience Experience Mr Duff spent 16 years at BP plc before he joined Experience Mr Roach is responsible for all the North American National Power in 1998. In 2000 he was appointed Mr Wareing was International Chief Executive of businesses. He first joined Ferguson Enterprises to the board of Innogy plc upon its demerger from KPMG from 2005 until he retired in September Inc. in 1976 and has held a number of business National Power and its listing on the LSE. In 2003 2009, having previously been Chief Executive of roles. In 2005, Mr Roach was appointed as Senior Mr Duff became CEO of npower and a member KPMG’s Europe, Middle East and Africa region. Vice President of the Wolseley North America of the RWE Group Executive Committee. He was Throughout his career Mr Wareing has been management team, playing a key part in further appointed Non Executive Chairman of RWE closely involved with a number of charities/public developing and expanding the Group’s North npower until his retirement in December 2010. bodies, including his appointment in 2007 as American businesses. Age 61. Age 53. the Prime Minister’s Special Envoy for the reconstruction of Southern Iraq and Chairman of External appointments External appointments the Basra Development Commission. He was also None. Chairman of Severn Trent Plc and Severn Trent previously a Board member of Business in the Water Ltd. Member of the CBI President’s Community, CSR 360 and Business Action on committee. A fellow of the Energy Institute. Homelessness Boards. Age 58. Member of the board of trustees of Macmillan Cancer Support. Member of the board of trustees External appointments of the Earth Trust. Non Executive Director and Chairman of Audit Committee at Cobham plc. Non Executive Director, Chairman of Audit Committee and Senior Independent Director at Intertek Group plc. Economic Development Adviser to the Government of Afghanistan.

Audit Remuneration Nominations Major Announcements Committee Committee Committee Committee* Page 75 Page 84 Page 78 Page 79 Gareth Davis p 1 Ian Meakins 1 John Martin p Frank Roach Andrew Duff 1 p 1 Michael Wareing p 11 Michael Clarke 111 Tessa Bamford 111 Richard Shoylekov 11111 * Mark Fearon p Chairman (Group Communications and 1 Member Investor Relations Director) 1 is also a member of this Secretary Committee. Wolseley plc 66 Annual Report and Accounts 2012 Executive Committee

The Executive Committee addresses Current members (as at the date of this report) operational issues and is responsible I Meakins Group Chief Executive (Chairman) for implementing Group strategy and policies, day-to-day management S Ashmore Managing Director, UK and monitoring performance. T England Group Chief Information Officer Additional biographical details for each P Gardies Managing Director, France member of the Committee can be found on the Wolseley plc website O M Jensen* Chief Executive Officer, Nordic and CE Region at www.wolseley.com J Martin Chief Financial Officer B Morrison Group HR Director F Roach Chief Executive Officer, North America R Shoylekov Group Company Secretary and General Counsel * Ole Mikael Jensen was appointed to the Executive Committee as of 1 August 2012 following the retirement of Steen Weirsøe.

Ian Meakins Steve Ashmore Tony England Key strengths Key strengths Key strengths Broad international board and general Considerable experience of construction materials Extensive international experience in senior IT management experience in brand, retail and distribution sector; strong international operational leadership roles across the pharmaceutical, wholesale distribution management; strategic experience; logistics and supply chain banking and wholesale distribution industries. vision and extensive operational leadership. management skills.

Philippe Gardies Ole Mikael Jensen John Martin Key strengths Key strengths Key strengths Strong management experience including Strong international operational experience, Extensive operational and financial management in production planning and business units, together with financial, construction, distribution experience. Mr Martin has significant experience especially of heavyside, import and timber and sourcing experience. at cost control, driving productivity, and leading solutions business. business expansion projects, acquisitions, disposals, capital efficiency, tax, treasury and compliancep activities.

Bob Morrison Frank Roach Richard Shoylekov Key strengths Key strengths Key strengths Solid human resources and operations experience Strong business and operational leadership; Extensive management of legal affairs and and executive search ﬁrm experience; a strong management of subsidiaries and joint ventures. corporate governance; development and Leadership Development focus. Business development and wide ranging implementation of risk management and legal sales experience. and ethics compliance systems. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 67 Corporate and governance structure of the Group

Where does Wolseley plc carry on Audit Committee business and which rules apply to it? Chaired by Michael Wareing Wolseley plc is a public company limited by shares and Number of meetings in the year: 4 incorporated in Jersey with registered number 106605. It is tax resident in Switzerland. The Company has a Role of the Committee premium listing on the London Stock Exchange, and is The Audit Committee has responsibility for overseeing therefore subject to the Listing Rules of the UK Listing and monitoring the Company’s financial statements, Authority. The Company complies with the provisions accounting processes, audit (internal and external), of the UK Corporate Governance Code (the “Code”) controls and matters relating to fraud and whistleblowing and relevant institutional shareholder guidelines. are monitored. It was a decision at the time of redomiciliation in November For more information on the Audit Committee 2010 that, although the Company (being Jersey incorporated) and the Audit Committee Report is not subject to the UK Companies Act, the Board wished See page 75 to retain its existing standards of governance and corporate responsibility. It therefore continues to provide shareholder safeguards which are similar to those that apply to a UK Remuneration Committee registered company. Chaired by Andrew Duff Under Wolseley plc, the Wolseley Group carries on its Number of meetings in the year: 5 businesses across 18 countries through a number of operating companies. The Group is made up of six Role of the Committee geographic regions led by four Chief Executives for: USA The Committee review and recommends to the Board and Canada, UK, France, and Nordics and Central Europe. the framework and policy for the remuneration of the They are Executive Committee Members and report directly Chairman, the Executive Directors and the Executive to Ian Meakins. Committee. The remuneration of the Non Executive Directors is determined by the Chairman and the Executive Directors. The Committee takes into account What is Wolseley’s governance structure? the business strategy of the Group and how remuneration See page 63 for a diagram of the governance structure. policy should reflect and support that strategy. The Major Announcements Committee is also a Committee For more information on the Remuneration Committee and the Remuneration Committee Report of the Board. By its nature and as anticipated by its terms See page 84 of reference, it would usually meet only in exceptional circumstances where information has come to light which is of an unexpected, non-routine, and material nature. Nominations Committee There were no meetings in the year. Chaired by Gareth Davis How do we ensure good governance Number of meetings in the year: 2 throughout the Group? Role of the Committee Wolseley’s Group-wide policies and procedures provide a The Nominations Committee regularly reviews the framework for governance and are underpinned by the structure, size and composition of the Board and its Group’s core values and Code of Conduct. Through the Committees. It identifies and nominates suitable Group’s core values we expect and ensure that: candidates to be appointed to the Board (subject to Board approval) and considers succession generally. • We act with integrity For more information on the Nominations Committee • We value our people See page 78 • We drive for results and improvement The role and activities during the year of the Board and its Committees are set out on the following pages. Wolseley plc 68 Annual Report and Accounts 2012 Leadership

Who is on our Board? In addition to the scheduled meetings, two unscheduled meetings were convened at short notice to deal with urgent As at 31 July 2012, the Board was made up of eight members issues that needed to be considered before the next consisting of the Chairman, three Executive Directors and scheduled meeting. Some of the Directors were unable four Non Executive Directors. Biographical details for each of to attend these unscheduled meetings due to prior the Directors in office as at 31 July 2012 are shown on pages commitments which could not be rearranged. In each case 64 to 65. Karen Witts was appointed as a Non Executive the matters decided at those unscheduled meetings had Director during the financial year, but stepped down from the already been discussed in detail by the full Board at previous Board on 2 July following her appointment as Group Finance meetings. Of those two unscheduled meetings, the first was Director of Kingfisher plc. attended by Messrs Davis, Meakins and Roach and the The Chairman and Non Executive Directors are each second by Messrs Davis, Martin and Meakins. considered by the Board to be independent and free of any As noted on page 67, the Company is Jersey registered relationship which could materially interfere with the exercise and remains tax resident in Switzerland. During the year all of their independent judgement. meetings of the Board and Committees of the Board were held in Switzerland and all other meetings requiring decisions When and where does the Board meet? of a strategic or substantive nature were also held outside the United Kingdom. The Board met regularly during the year, with Board and Committee meetings scheduled over two-day periods. In order to provide the Board with greater visibility of the There were six scheduled meetings and details of Group’s operations and exposure to senior management, attendance are shown in the table below. the Board intends to visit at least one of the Group’s business unit locations each year. Such visits allow the Membership of the Board as at 31 July 2012 Board to gain a deeper understanding of local market Meeting attended/eligible: dynamics and they are able to assess management performance and potential. G Davis 5/61 T Bamford 6/6 In January 2012, the Board and Committee meetings were held near Zurich and provided an opportunity for executives M Clarke 6/6 from Tobler to meet the Board and discuss the business in A Duff 6/6 Switzerland in more detail. This was followed by a tour of Tobler’s distribution centre at Däniken in central Switzerland. J Martin 6/6 In addition, members of the Board periodically visit business I Meakins 6/6 units and management around the Group. F Roach 6/6 Who attends Board meetings? M Wareing 6/6 Each Director is required to attend all meetings of the Board Members who stepped down in the year or Committees of which they are a member. In addition, K Witts 4/42 senior management from across the Group and advisers attend some of the meetings for the discussion of specific 1 Due to personal circumstances, Mr Davis was unable to attend the March items in greater depth. Board meeting. This exposure to the members of senior management from 2 Karen Witts was appointed 1 November 2011 and stepped down on 2 July 2012. She attended all meetings which she was eligible to attend. across the business has been of vital importance to the Board this year. It has further enhanced their understanding of the business, the implementation of strategy and the changing dynamics of the market in which the business units operate. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 69

How does the Board operate and how are What has our Board done during the year? decisions made? The Board had an agenda programme which ensured that Certain strategic decision-making powers and authorities items relating to strategy, finance, operations, corporate of the Company are reserved as matters for the Board. governance and compliance were covered in its meetings. The formal schedule of matters reserved for its decision Having identified the areas which the Board focused on was updated during the year to incorporate provisions during the year, set out below are some highlights of its relating to diversity for both Board and senior appointments. activities. This is not an exhaustive list but provides some The principal matters reserved for the Board are set out in key highlights. the table below. Day-to-day operational decisions are managed by the Executive Committee, led by Ian Meakins. Strategy Setting the overall strategic direction and oversight of the The Board continued its discussion of the evolution of the management of Wolseley Group Company’s strategy and business models at each meeting. In addition, a full strategy review was undertaken through a Approval of major changes to the Wolseley Group’s dedicated Board Strategy Day in May 2012. Management corporate structure from all Clusters presented their proposals for the strategic development of their businesses and there was detailed Recommending or declaring dividends analysis of some specific future initiatives. More information on our strategy can be found on pages 8 to 11. Approval of the Group and Company financial statements Operations Maintaining sound systems of internal controls and At least once in each year, the Board will review in detail risk management the operational performance of each region. Approval of tax and treasury items and policy (outside the Every Board meeting features a discussion of a specific remit of the Treasury Committee) operational example of best practice that has been developed and shared amongst the businesses. Approval of major corporate transactions and These examples are chosen from matters discussed by commitments senior management representatives on regular webinars, led by Ian Meakins. Items covered during the year included Succession planning and appointments to the Board employment practices, pricing strategies, gross margin and senior management improvements and best use of technology. All information is readily available to senior managers across the Group Determining and setting Board and senior through a centrally maintained portal. executive remuneration People Review of the Group’s overall corporate governance There was continued focus on the composition and arrangements and reviewing the performance of the Board succession of the Board, Executive Committee and senior and its Committees annually management team. In March 2012, the Board reviewed the leadership roles across the Group with the Group HR Approval of the delegation of authority between the Director as part of its regular review process. The Board Chairman and the Group Chief Executive and the terms of believes the talent and succession planning processes to be reference of all Committees of the Board of a high standard and are familiar with the plans across the leadership team. As noted in the Chairman’s foreword on Approval of all key policies, including the Code of Conduct, page 62, there is further work to be done in this area during Health and Safety and Environmental policies the coming year.

Where appropriate, matters are delegated to a Committee Finance which will consider them in accordance with its terms of reference. Details of each Committee’s terms of The Board regularly monitored the Group’s ﬁnancial reference are available on the Wolseley plc website at performance. All ﬁnancial statements to the market were www.wolseley.com discussed and reviewed. The 2012/13 budget was reviewed and approved at the July 2012 meeting. Wolseley plc 70 Annual Report and Accounts 2012

Leadership continued

What are the Board’s priorities Why should you vote to re-elect for 2012/13? your Board? The Board’s priorities for the year lie in the following areas: The Board contains a broad range of experience and skills from a variety of industries and advisory roles, which fully 2012/13 Objectives complement each other and will be strengthened through Strategy Strategy to be refined regularly and further appointments over the next year. to incorporate details of the external As noted on page 71, all the Directors including the landscape. Chairman continue to allocate sufficient time to discharge Annual strategy review. their duties and are fully committed to their roles. In accordance with Provision B.7.1 of the UK Corporate People and Regular progress review to include Governance Code, all Directors will stand for re-election at Succession succession planning of the Board, the 2012 Annual General Meeting (“AGM”). Full biographies Planning Executive Committee and leadership for the Directors can be found on pages 64 and 65 and in teams in all the regions. the Notice of AGM. Implement succession plan for Remuneration Committee Chairman/ Accountability Senior Independent Director due to step down in 2013. How does the Board approach risk Appointment of at least one other management? Non Executive Director. The Board is responsible for determining the nature and Board visibility Schedule site visits and Board level extent of the significant risks it is willing to take in achieving and engagement interaction with senior management of its strategic objectives and for maintaining sound risk all regions at Board meetings and at management and internal control systems. They also review other times of the year. the effectiveness of these systems through the work of the Audit Committee. There is Group-wide standard framework in place which supports the Group’s risk management programme and allows the Board to manage risk through its strategic planning and performance monitoring processes. The key risks which the Board has focused on this year are set out in the Risk management and internal control section of this report on pages 42 to 47. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 71 Effectiveness

How do we maintain an effective Board? There was detailed planning throughout the year, with the assistance of the Group Company Secretary and General Board relationships Counsel, to consider and review the Board’s 12-month rolling agenda programme. This ensured that all matters reserved The effective working of the Board, through strong and open for the Board and other strategic issues were discussed at working relationships between the Directors, Group Chief the appropriate time. Executive and Senior Independent Director, is crucial to the long-term prospects and strategic aims of the Company. Refreshment and development of the Board The roles of the Chairman, Group Chief Executive and Senior Independent Director are agreed and set out in writing. As noted on page 68, Karen Witts was appointed as a A short summary of their roles and division of responsibilities Non Executive Director during the year with effect from is set out below. 1 November 2011. As a new Director, Karen was provided with a comprehensive induction programme which we Roles and division of responsibilities implement for all new Directors, details of which are Chairman summarised below. The Directors receive regular updates on governance, legal and regulatory matters, as well as • Responsible for overall leadership and governance of opportunities for further development and training following the Board (including induction, development and their induction. During the year, the Chairman discussed a performance evaluation) development plan with each Director. • Ensures that the Directors have an understanding of the At Board meetings and over dinner, the Board also receive views of the Company’s major shareholders detailed briefings from advisers on a variety of topics, which are then discussed in the context of the Group and its • Ensures a healthy culture of challenge and debate at strategy. The annual formal review of governance provides Board and Committee meetings the Board with an opportunity to assess the effectiveness of their role as Directors. Group Chief Executive The Board believes that there are significant benefits for both • Responsible for the effective leadership of the Company the Board and an individual if an Executive Director holds • Strong and focused management and development an external non executive directorship on the board of a of the Group non-competitor company. Ian Meakins continues to hold his non executive position at Centrica plc; details of payments • Implementation of the Company’s objectives and received in respect of this appointment are set out on page strategy agreed by the Board 92. No other Executive Directors hold any external • Maintaining good relationships and communications appointments. with investors Induction programme • Working closely with the Chief Financial Officer to ensure prudent financial controls When appointed, a new Director is provided with a tailored induction programme based on their experience • Developing and implementing policies relating to Health as a director of a listed company and knowledge of the and Safety and Corporate Responsibility industry sector. The programme includes: Senior Independent Director • Provision of relevant current and historical information about the Company and the Group; • Available for approach by or representations from investors and shareholders, where communications • Specific details about the duties of Directors and the through the Chairman or Executive Directors may not Company’s rules of residence (in light of its registration seem appropriate in Jersey and tax residence in Switzerland); • A sounding board for the Chairman and an intermediary • Meetings with major shareholders and advisers; for the other Directors when necessary • Visits to operations around the Group; and • Available to chair the Board in the absence of the • One-to-one meetings with members of the Executive Chairman Committee and other senior executives in the • Conducts consultations with shareholders on businesses and in corporate functions. remuneration matters Time commitment The Chairman regularly discusses the way the Board functions, and broad governance matters, with the Senior All Directors are aware, from the time of appointment, of the Independent Director and Group Company Secretary and need to allocate sufficient time to the Company to discharge General Counsel. The Senior Independent Director has their responsibilities effectively. The Board monitors the chaired a meeting of the Board in Gareth Davis’ absence, extent of interests and any conflicts on a continuing basis as and separately has also held informal discussions with detailed on page 80. During the year, it was announced that the Non Executive Directors, with and without the presence Gareth Davis had become the chairman of DS Smith Plc. of the Chairman. He has also led consultations with As this was to be Gareth’s third chairmanship, the shareholders on remuneration matters. implications of this appointment were considered carefully by the Board, the Group Company Secretary and General Wolseley plc 72 Annual Report and Accounts 2012

Effectiveness continued

Counsel and the Company’s advisers. It was a role which The Board review undertaken by Dr Long included a review Gareth had already been fulfilling on a temporary basis and of the effectiveness of each of the Committees and of each he had shown that his commitments were well managed Director and the Company Secretary and the findings were and that he was able to dedicate the necessary time and presented to the Chairman. Each was found to perform attention to Wolseley. Since his formal appointment to that effectively and no material concerns were raised. role, Gareth Davis’ commitment and availability have not Also, during the year, the Non Executive Directors, led by been affected. the Senior Independent Director, undertook the performance evaluation of the Chairman for which they are responsible. Board support Such evaluation took into account the views of the The Board and its Committees are provided with sufficient Executive Directors. resources to undertake their duties. The Group Company Secretary and General Counsel, Richard Shoylekov, was What were the key findings Secretary to the Board and its Committees during the year. and improvement actions? Prior to each set of meetings, he ensured that the papers and other information were delivered sufficiently in advance The review concluded that the Board was highly effective of the meeting date so that all Directors were provided and focused on the clarification of Wolseley’s strategy and with necessary time and resources to fulfil their duties. its implementation. Dr Long praised the quality of financial This information is published in advance via a secure web information provided to the Board, noting that it had improved portal, allowing remote access by Directors using an iPad. and that a strong Audit Committee was increasing the As well as meeting support, support was also provided attention given to risk management and internal controls. by the Company Secretariat department and other Group It was noted that the size and composition of the Board functions in relation to induction, training and development encouraged open and robust debate. The Chairman was of the Directors. commended for his experienced and supportive approach; and the Group Chief Executive was commended for providing In addition to regular briefings throughout the year on strong operational leadership. The culture and contribution of consultations, governance, legal and regulatory matters, the Board to the Company’s development were recognised a reading room was added to the software on the iPad as strengths. No critical issues were identified but a number which provided access for all Directors to a library of of areas were identified for further improvement which are relevant information about the Company, the Group and summarised below. As at the date of this report, the Board Board procedures. has already begun to implement a number of these action The Board has an established procedure for Directors, if points into its processes and procedures. deemed necessary, to take independent professional advice Action Responsibility at the Company’s expense in furtherance of their duties. This is in addition to the direct access that every Director Greater focus on Board has to the Group Company Secretary and General Counsel competitive benchmarking, for his advice and services. monitoring customer trends and strengthening How is the performance of the Board supply chain and the Directors evaluated? Enhance Board oversight Audit Committee and The Board undertakes a formal review of its performance of risk by way of Internal Audit and that of its Committees each year, with an external further improvements evaluation every three years. to the Internal Audit function and all Directors How did we review effectiveness this year? to participate in Audit Committee deliberations An externally facilitated review was conducted this year in where risk is discussed accordance with the Code. The review was conducted by Dr Tracy Long of Boardroom Review. Neither Dr Long nor Further improvement of the HR Boardroom Review has any connection with the Company. talent development process Dr Long attended the March 2012 Board and Committee in addition to the scheduled meetings and conducted in-depth confidential interviews six-monthly review with each of the Directors and the Group Company Secretary and General Counsel. The review considered the Address future gaps in the Board and way in which the Board defines its role and approaches its composition of the Board Nominations Committee work (strategy, risk and control, performance management, and communication); and the way in which the Board works Maximise the use of the Chairman and together (culture and dynamics), and whether it optimises Board’s time together, Company Secretary its use of time and its contribution to the Company. with more management briefings and site visits Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 73 Relations with shareholders

Communication with shareholders Shareholder concentration We are fully committed to engaging with all shareholders, Individual and other private investors including employee shareholders, and this is reflected in our 0.7% annual investor relations programme. In our interactions with shareholders, we ensure that we act professionally, provide accurate data, are timely with our disclosure of information to the market and are at all times accessible. Our Group Communications and Investor Relations Director is the senior executive who has day-to-day responsibility for all investor relations matters and for contact with shareholders (institutional and private), as well as with Institutional investors financial analysts and the media. He reports to 99.3% the Chief Financial Officer and Group Chief Executive. All investor communication is governed by written guidelines to ensure the appropriate governance of the processes Geographical breakdown for engaging with shareholders and financial analysts is of shareholder base maintained. In addition, these guidelines govern the prompt disclosure of inside information which could affect the Company’s share price. United Kingdom Asia 51.5% Who are our major shareholders? North America 3.6% 26.6% Europe As at 31 July 2012, the Company had received notification (excluding UK) of the following material shareholdings pursuant to the 18.1% Disclosure and Transparency Rules (“DTRs”) of the UK Listing Authority.

Number of Percentage of Rest of World shares held issued voting 0.2% Name (millions) share capital Blackrock, Inc 43,006,855 15.03% Cevian Capital II GP Limited 14,690,088 5.17% How do we engage with all of our Fidelity 14,070,947 4.96% shareholders? Capital Research and Management Company 13,155,308 4.62% During the year, an extensive communications programme was followed. We maintained regular dialogue with AXA S.A 13,065,225 4.60% institutional shareholders and financial analysts. Many of Legal & General Group Plc 11,234,843 3.96% these meetings and conversations closely involved the Group Chief Executive and Chief Financial Officer. We As at the date of the report, the Company had received the released quarterly updates of the financial performance of following further notifications in accordance with the DTRs. the Group incorporating revenue, profitability by region, net debt and appropriate commentary on key business trends. Blackrock, Inc now holds 42,756,860 shares which is equivalent to 14.93 per cent of the issued voting share capital. We also ensured that contact was maintained, when appropriate, with shareholders to discuss overall Top 100 investors concentration remuneration plans and policies. In June 2012, the Company consulted with its major shareholders and proxy advisory Others voting services on the proposals to introduce replacement 15.3% Top 5 investors new long-term incentive plans for senior executives. The 34.0% plans will be subject to shareholder approval at the 2012 Rest of AGM. Further details can be found in the Notice of AGM. top 100 investors As our shareholder base is mainly institutional, it is difficult 16.6% to engage with our private shareholders using the same direct engagement model. We hold periodic meetings with the UK Shareholders Association and respond to all Rest of top 30 investors communications with individual shareholders. In an effort to 34.1% ensure that all shareholders have equal access to information we make all documents presented at investor events available on the Wolseley plc website. There is also a shareholder information section on the Wolseley plc website at www.wolseley.com and at the end of this report on page 163. Wolseley plc 74 Annual Report and Accounts 2012

Relations with shareholders continued

Who did we meet during the year? What are the AGM procedures Through our investor relations programme, many different and resolutions? events take place each year. The 2012 AGM will be held on 29 November 2012 at The allocation of time spent in UK, Continental Europe Parkhotel, Industriestrasse 14, CH-6304, Zug Switzerland and North America is reflective of the distribution of our with an audio-visual link to Deutsche Bank, Winchester shareholders as highlighted on page 73. House, 1 Great Winchester Street, London, EC2N 2DB. Full details of the AGM are contained in the Notice of AGM. During the year ended 31 July 2012, there were a total of 227 meetings. Ian Meakins and John Martin (together with As required by the Code and to allow transparency, the the Group Communications and Investor Relations Director) terms and conditions of appointment of all Directors are attended 109 meetings collectively. Frank Roach and the available for inspection at the registered office in Jersey, at Chief Financial Officer, North America collectively attended the corporate headquarters in Switzerland and its Group 24 meetings. In addition, the investor relations function met services office in the United Kingdom, and will be available with institutions compromising of a further 94 meetings, for inspection at the 2012 AGM. conferences and site visits. All shareholders are invited to the Company’s AGM, at The Chairman often meets with the larger institutional which they have the opportunity to put questions to the shareholders and attended Full Year and Half Year results Board. All Directors will attend and be available in person presentations. He also ensures that the Board as a whole to answer questions. maintains an appropriate dialogue with shareholders. Some questions may not be answered at the meeting, The Group Communications and Investor Relations Director should they not be in the interests of the Company, involve gives an annual presentation to the Board on Investor the disclosure of confidential information or if it would not be Relations strategy and the Board is regularly apprised of to the good order of the meeting. The Chairman may also shareholder views and key issues. The Non Executive nominate a Company representative to answer a specific Directors are encouraged to attend presentations of the question after the AGM or may refer to a response on the Full Year and Half Year results. Wolseley plc website. The proxy votes received for and against each resolution, What are our plans for engagement as well as abstentions which may be recorded on the proxy in 2012/13? form accompanying the Notice of AGM, are counted before A similar Investor Relations programme will be run during the the AGM and the results of all votes are made available next financial year. We will also be holding an Investors Day shortly after the meeting. The results are also announced to in October 2012 in Washington, D.C. to focus on the the London Stock Exchange via Regulatory News Service progress and opportunities in our US business. This will and are published on the Wolseley plc website. include branch visits and a tour of the Front Royal distribution The resolutions to be proposed at the AGM to be held on centre in Virginia. In addition, the Investor Relations team will 29 November 2012, together with explanatory notes, appear be meeting with the UK Shareholders Association prior to in the Notice of AGM which is posted to each shareholder in the AGM in November 2012. advance of the meeting. This document is available on the AGM Wolseley plc website. The 2011 AGM was held on 29 November 2011 at Parkhotel in Zug, Switzerland with an audio-visual link to The Lincoln Centre, London, UK. The link allowed active two-way participation by persons physically present in both Switzerland and the UK. The Board is collectively committed to the constructive use of the AGM to meet with shareholders, hear their views and answer their questions. All Directors attended and answered a wide range of questions from shareholders. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 75 Audit Committee Including the report from the Audit Committee

objectivity within the context of applicable regulatory requirements and professional standards; • Review the effectiveness of the internal audit function; • Review of litigation, contingent liabilities and tax matters, including compliance with statutory tax obligations; and • Monitor fraud reports and the operation of the Company’s whistleblowing policy. Michael Wareing Chairman Set out below is the Report of the Audit Committee for the financial year ended 31 July 2012. Members and attendance (eligibility) at meetings held during the year ended Dear Shareholder 1 31 July 2012 It has been a busy year for the Audit Committee and much Meetings during the year 4 has been reviewed and reported from across the Group. We have kept abreast of the current EU consultations Current members: relating to audit reform and the FRC’s proposals to update M Wareing (Chairman) 4(4) Section C of the Code and the Guidance on Audit Committees. We welcome the FRC’s proposals and have T Bamford 4(4) reviewed and updated the Committee’s terms of reference M Clarke 4(4) in detail in order to reflect some of their proposals in advance of these becoming mandatory. A Duff 4(4) Members who stepped down during the year: The EU proposals on audit reform have also been considered and we are monitoring the outcome of that process. We will K Witts 3(3) give further thought to these proposals and prepare for any 1 As at 31 July 2012, the Committee is made up of four Non Executive consequent changes and the other developments that are Directors. The Board considers that the Chairman and each member of the being considered. Committee is independent within the definition set out in the Code and that each of them has relevant financial experience. Each member of the Committee brings relevant experience at a senior executive level. In addition, I was International Responsibilities Chief Executive of KPMG until I retired in September 2009 and now also chair the Audit Committee of two other FTSE • Assist the Board to fulfil its responsibilities relating to companies. This provides the Board with further assurance external financial reporting and associated announcements that the Audit Committee has the appropriate skills and including: the Half Year and Full Year financial statements, experience and that it meets the Code requirements that including the requirements for financial reporting; and the at least one member of the Committee has significant, Half Year and Annual Full Year results announcements recent and relevant financial experience. The expertise made to the London Stock Exchange; and experience of each member of the Committee are • Review key accounting and auditing issues; summarised on pages 64 and 65. • Review the effectiveness of the Company’s internal control At the 2012 AGM, I shall be available to respond to any and risk management procedures; questions shareholders may raise on this report or any of the Committee’s activities. • Report regularly to the Board on compliance in relation to the business activities for which it has responsibility What has the Committee done during within its terms of reference; the year? • Ensure that it has an agenda which is linked to events in the Company’s financial calendar; The Committee met four times during the financial year. In addition to the members of the Committee, the Chairman, • Review the Company’s policies and procedures relating to the Group Chief Executive, the Chief Financial Officer, the governance, risk and control and, in addition to the regular Group Financial Controller, the Head of Internal Audit and items, each member of the Committee may request the Group Company Secretary and General Counsel, reports on matters of interest; together with senior representatives of the Company’s • Develop, implement and monitor the Company’s policy external auditors, attended and received papers for on external audit; each meeting. Other senior executives were also invited to certain meetings to present and discuss specific items. • Monitor independence, objectivity and compliance The Committee periodically meets separately with the with ethical and regulatory requirements in relation Head of Internal Audit and the external auditors without to external audit; the presence of executive management and also separately • Review the effectiveness of the external auditor; with the Chief Financial Officer. • Recommend the appointment and reappointment of the Key issues covered by the Committee are reported to the Company’s external auditors; subsequent meeting of the Board and the Board also receives copies of the minutes of each meeting. • Review at least annually a formal letter provided by the external auditors confirming their independence and As usual, our activities included reviews of external and internal audits, internal controls, financial reporting, risk Wolseley plc 76 Annual Report and Accounts 2012

Audit Committee continued

management systems, and issues relating to fraud and 31 July 2012 can be found in note 3 to the consolidated whistleblowing. Set out below is a review of our work in financial statements on page 109. relation to each of these areas. Fees Non-audit fees Finacial Audit fees Non-audit paid as a percentage External audit and external auditors year (total) fees (total) (total) of audit fees 1 During the year, PricewaterhouseCoopers LLP (“PwC”) 2012 £3.4 million £2.1 million £5.5 million 61.8% undertook both external audit and certain non-audit work. 2011 £3.7 million £3.9 million2 £7.6 million 105.4% The Lead Audit Partner and other senior members of the audit team from PwC attended as representatives of the 1 £1.9 million of the non-audit fees related to taxation work and £0.2 million external auditors at each Audit Committee meeting and at the of the non-audit fees related to other services. AGM. They provided the Committee with relevant reports on 2 £1 million of the non-audit fees were pursuant to work required in relation the financial statements and controls, reviews, information to the Group’s proposed change in corporate structure and domicile. and advice. During the year, PwC provided non-audit services to the In November 2011, the Committee reviewed and approved Company. Compared to previous years the fees for such the terms, areas of responsibility and scope of the 2012 work are much lower and we expect this level to be audit as set out in the external auditors’ engagement letter. maintained or to decrease. The non-audit services related During the year, PwC provided audit-related services such as mainly to assistance on tax matters and certain due diligence regulatory and statutory reporting. During the year, PwC are reviews. These services were provided within the constraints expected to report to the Committee any material departures of the APB Ethical Standards on Auditing and were assessed from Group accounting policies and procedures that they on a case-by-case basis so that the best placed adviser was identify during the course of their audit work. None were retained. Under our policy, the external auditors cannot be found or reported in the financial year. engaged to perform any of the following services: PwC’s 2012 Year End External Audit Plan was approved • book-keeping services related to accounting records or in March 2012 and has been successfully completed at the financial statements; date of this report. • design and implementation of financial information systems; • appraisal or valuation services, fairness opinions and Financial Reporting and significant contributions in kind reports; financial judgements • actuarial services; The Committee reviews whether suitable accounting policies have been adopted, whether management has made • internal audit outsourcing services; appropriate estimates and judgements and also seeks • management functions including human resources; support from the external auditors to assess them. The main issues reviewed in the year ended 31 July 2012 • broker or dealer, investment adviser or investment banking are set out below: services; or • The Committee reviewed the carrying amount of goodwill • legal and other expert services unrelated to audit work. and intangible assets throughout 2011/12. The Committee In relation to the non-audit services provides by PwC during agreed with management’s assessment that impairment the year, the Committee reviews and approves management’s charges had arisen and further details can be found in reasons for selecting PwC as the best placed adviser on a note 12 of the financial statements. case by case basis. This decision was typically based on the • The Committee monitored the various businesses around existing knowledge of the Company which PwC had and its the Group which were disposed of or held for sale and were importance in relation to the advice sought on each relevant satisfied that these were correctly classified at the time transaction. This added value and saved fees in the process. of reporting. At each Committee meeting the Committee considered all requests for, and engagements of, non-audit work to be • The Committee reviewed the provisions held and performed by PwC for the Company. The Committee follows settlements made relating to litigation disputes and potential its agreed policy regarding such services to ensure that the product liability and considered the judgements made by objectivity or independence of the external auditors is not management. It was satisfied that these were reasonable impaired. In accordance with this policy, any non-audit work and appropriate, and that the disclosures made which would exceed a level (set by the Committee) required were appropriate. prior approval of the Committee. • The Committee reviewed the carrying value of working capital, including trade receivables, inventory and rebates Independence and effectiveness of the auditors receivable from vendors and were satisfied that provisions Although PwC have been the Company’s auditors for a for impairment recorded were reasonable and appropriate. number of years, the Committee continues to be satisfied with their independence. The policies and procedures in PwC’s audit and non-audit fees place ensure that independence and objectivity is not impaired. In addition the Committee monitors PwC to ensure The total fees paid to PwC in the year ended 31 July 2012 that they adhere to a rotation policy based on best practice (together with a comparison of fees paid in the year ended and ethical standards, in accordance with UK regulations. 31 July 2011) are set out in the following table. Further disclosure of the non-audit fees paid during the year ended As a new lead audit partner was appointed in 2010, there are currently no matters of concern. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 77

In November 2011, the Committee undertook its annual investment and the Company’s assets and depends on review of the effectiveness of the external auditors. regular evaluation of the extent of the risks to which the A questionnaire was sent to the Finance Directors of each Company is exposed. The way in which the processes of operating company, which provided us with an overall view external audit, internal audit and internal controls overlaps across the Group. From this questionnaire and further and complement each other was reviewed in May 2012. discussions in the meeting, the Committee is satisfied that The Committee is assured that the Company’s systems PwC continues to provide an effective audit service. comply with the guidance set out in the Turnbull Report Based on the details above, this year the Committee did not “Internal Control: Guidance for Directors on the Combined consider it necessary to conduct a tender process for the Code”. At each meeting, the Committee has in-depth appointment of the Company’s auditors, although as noted discussions about the internal controls with the managers above, we continue to keep this under review and are responsible for their implementation. The Committee can monitoring the current debate and proposals from the FRC confirm that the Company’s systems and their effectiveness and EU. have been in place for the full financial year and up to the date on which the financial statements were approved, Internal audit and are regularly reviewed by the Board. During the year, prior to each of the four scheduled The Chairman of the Committee reported any matters to the Committee meetings the Chairman of the Committee met Board which arose from the Committee’s review of the way with the Head of Internal Audit. He attended each Committee in which the risk management and internal control processes meeting where he presented an internal audit report which were applied and on any breakdowns in, or exceptions to, was fully reviewed and discussed. these processes. There were no significant failings or weaknesses identified. These processes have been in place At each Committee meeting, the Committee considered the throughout the year ended 31 July 2012 and have continued results of the audits undertaken by the Group’s Internal Audit to the date of this report. function and considered the adequacy of management’s response to matters raised, including the time taken to Full details of how the business implements its risk management resolve any such matters. In March 2012, the Committee and controls on a Group-wide basis are set out in Risk undertook the annual review of the effectiveness of the management and internal control section on pages 42 to 47. Group’s Internal Audit function, including its terms of reference, its audit plans, its general performance and its Whistleblowing and fraud relationship with the external auditors. This review was The Committee received reports at each Committee meeting undertaken using guidance issued by the Institute of providing details of matters reported to the Group’s Chartered Accountants in England and Wales and the international confidential telephone reporting lines and secure Institute of Internal Auditors – UK. website reporting facility, which are operated on its behalf by an independent third party. All matters reported are Risk management and internal controls investigated by the relevant operating company and, where Risk management reports, prepared by the Group Head appropriate, reported to the Committee, together with details of Risk, were submitted to the Committee in March and of any corrective action taken. September 2012. These reports summarise submissions The Committee also received reports at each Committee from all areas of the business which the Executive Committee meeting providing details of fraud losses in each quarter. and senior management have reviewed. They identify the significant risks to the Group and highlight the tolerance levels The Wolseley Group’s whistleblowing policy, which supports that the Executive Committee is prepared to accept. the Group-wide Code of Conduct, is also monitored by the Committee. During the year the Committee monitored and reviewed the effectiveness of the Group’s internal control systems, accounting policies and practices, standards of risk What are the priorities for 2012/13? management and risk management procedures and • Continue to progress the efforts of the Committee’s total compliance controls, as well as the Company’s statements assurance efforts, including Internal Audit, External Audit on internal controls, before they were agreed by the Board and ACE, over the Company’s key risks and controls. for this Annual Report. • Continued vigilance over the effects of the economic The Group’s internal control systems are designed to downturn on the Company and on its financial position. manage rather than eliminate business risk. They provide • Prepare for the implementation of the final requirements reasonable but not absolute assurance against material arising from the current FRC and EU debate on audit rotation mis-statement or loss. and other governance matters, once these are known. As management is responsible for establishing and maintaining adequate internal control over financial reporting for the Group including the consolidation process, we received regular updates at each meeting on the work undertaken by the Advanced Control Environment (“ACE”) Michael Wareing CMG team, whose focus is on internal controls to ensure the accuracy of financial reporting. The Committee agrees that on behalf of the Audit Committee the Company has a well-designed system of internal control. Such a system is necessary to safeguard shareholders’ A copy of the Group’s Code of Conduct is available on the Wolseley plc website at www.wolseley.com Wolseley plc 78 Annual Report and Accounts 2012 Nominations Committee

Dear Shareholder

What has the Committee done during the year? The Committee has continued to review the composition and experience of the Board, mindful of the potential need to refresh its membership in the next 12 to 18 months. In particular, we finalised the appointment of Karen Witts Gareth Davis Chairman as a Non Executive Director who was appointed as of 1 November 2011. Following the departure of Karen (as detailed on page 68), the Committee is considering Members and attendance (eligibility) the appointment of a replacement Non Executive Director at meetings held during the year ended to the Board. 31 July 2012 In accordance with our procedure for selecting and recruiting Meetings during the year 2 Directors, the Committee retained an external search agency which has no connection to the Company to assist in the Current members: process of identifying potential candidates for nomination G Davis (Chairman)1 1(2) to the Board. T Bamford 2(2) During the year, the Committee (in recognising the impact of the Davies Report) ensured that skills, experience, potential M Clarke 2(2) and overall balance of the Board – as well as diversity A Duff 2(2) including gender – were, and will be, fully considered in M Wareing 2(2) relation to recent and future appointments. Members who stepped down during the year: The Committee can confirm that, in accordance with the Code, any Non Executive Director with a term beyond six K Witts 1(1) years has been subject to a particularly rigorous review. As noted here and on page 62, it is expected that Andrew Duff, 1 Due to personal circumstances, Mr Davis was unable to attend one Committee meeting. the Senior Independent Director and Chairman of the Remuneration Committee, will step down in 2013 as his tenure draws to an end. This will provide an opportunity Responsibilities to refresh the Board, and the Committee is already in the • Review the structure, size and composition of the Board process of a search for suitable additional Non Executive and its Committees; Directors. • Make recommendations with regard to any changes that At the 2012 AGM, I shall be available to respond to any are considered necessary, both in the identification and questions shareholders may raise on this report or any of the nomination of new Directors and the continuation of Committee’s activities. existing Directors in office; What are the priorities for 2012/13? • Evaluate the balance of skills, knowledge and experience • Continue the search for at least one new Non Executive on the Board and its diversity, including gender, and, Director; in light of that evaluation, prepare the description of the relevant role and capabilities required of prospective • Review the balance, experience and skills of the Board, candidates; recognising the expected departure of the Senior Independent Director and Chairman of the Remuneration • Make its recommendations to the Board, after a rigorous Committee; and interview process for shortlisted candidates; • Monitor the Company’s progress in developing its • Retain external search consultants for appointments to diversity policies. the Board; and • Advise the Board on succession planning for Board appointments, although the Board itself has overall responsibility for succession generally.

Gareth Davis Chairman of the Nominations Committee Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 79 Other committees

Major Announcements Committee Treasury Committee Members during the year ended 31 July 2012 Members during the year ended 31 July 2012 J Martin (Chairman) J Martin Chief Financial Officer (Chairman) G Davis I Meakins Group Chief Executive M Fearon R Shoylekov Group Company Secretary I Meakins and General Counsel R Shoylekov M Verrier Group Treasurer M Webb1 Group Financial Controller The Committee has no meetings scheduled, and it was not required to meet during the year. 1 Matt Webb was appointed to another position within the Group and therefore was replaced on the Committee by the new Group Financial Controller, Simon Gray, with effect from 1 August 2012. Other ad hoc committees As required by the demands of business, the Board may Responsibilities appoint ad hoc committees to facilitate the implementation • Considers treasury policy, including financial structures of its decisions or to consider specific matters in further and investments, tax and treasury strategy, policies and detail between scheduled meetings. The Board may certain transactions on behalf of the Group; delegate matters of a substantive nature to a special purpose Committee. If it does so it will generally have already • Reviews the performance and compliance of the tax and considered the matter in depth at a full Board meeting but treasury function, within a framework delegated by the may require further review prior to final approval. Board; and During the year, a number of committees were appointed for • Makes recommendations to the Board in matters such as the specific purpose of implementing decisions of the Board overall financing structure and strategy and currency in relation to approved acquisitions, the development of exposure. projects or the release of announcements. What has the Committee done during the year? Executive Committee The Committee met periodically during the year and considered cash pooling, counterparty exposure and Members during the year ended 31 July 20121 guarantees, interest rate risk, currency denomination of debt, I Meakins (Chairman) counterparty credit limits, overdraft facilities, US receivables S Ashmore financing, and euro-denominated cash balances. T England Disclosure Committee P Gardies Members during the year ended 31 July 2012 J Martin J Martin Chief Financial Officer (Chairman) B Morrison M Fearon Group Communications and Investor Relations F Roach Director R Shoylekov I Meakins Group Chief Executive S Weirsøe2 R Shoylekov Group Company Secretary and General Counsel 1 Full details of this committee can be found on page 66. 2 Steen Weirsøe retired 31 July 2012 and was replaced by Ole Mikael Jensen with effect from 1 August 2012. Responsibilities • Meets as required to deal with all matters relating to public Responsibilities announcements of the Company and, in particular, the • Addresses operational business issues; Company’s obligations under the Listing and Disclosure and Transparency Rules of the UK Listing Authority; and • Responsible for implementing Group strategy and policies; • Assists in the design, implementation and periodic evaluation • Day-to-day operational management of the business; and of the Company’s disclosure controls and procedures. • Monitors business performance. • However, any announcements relating to any matters which the Board has designated as reserved matters, or What has the Committee done this year? matters of a substantive or strategic nature, are dealt with Management matters were addressed by the Committee by the Board or by the Major Announcements Committee. and other committees to whom specific authority has What has the Committee done during the year? been delegated to implement Board strategy or policy. The Committee met 11 times during the year and these The Committee met periodically during the year to consider meetings usually took place prior to Board meetings. specific matters that had been identified as needing consideration. Wolseley plc 80 Annual Report and Accounts 2012 Other disclosures

Authority to allot shares Change of control (significant agreements) At the Annual General Meeting held in November 2011, The Company is not party to any significant agreements authority was given to the Directors to allot new 10 pence that take effect, alter or terminate upon a change of ordinary shares up to a nominal value of £18,994,968. control following a takeover except for the €750,000,000 The Directors intend to propose at the Annual General multicurrency revolving credit facility agreement dated Meeting in November 2012 to seek authority to allot and 18 July 2011 and US$270,000,000 revolving credit facility grant rights to subscribe for or to convert securities into agreement dated 21 July 2011, which could become shares up to an aggregate nominal amount of £19,087,512, repayable following a relevant change of control. representing approximately two-thirds of the Company’s There are no agreements between the Company and issued share capital as at the date of this report, but of that any Director that would provide compensation for loss amount, £9,543,756 may only be allotted pursuant to a fully of office or employment resulting from a change of control pre-emptive rights issue. If approved, this authority will following a takeover bid, except that provisions of the expire at the conclusion of the Annual General Meeting Company’s share schemes may cause options and awards to be held in December 2013. granted under such schemes to vest in those circumstances. All of the Company’s share schemes contain provisions Subject to the terms of the authority noted above, the relating to a change of control. Outstanding options and Directors will also recommend that they be empowered to awards would normally vest and become exercisable for a allot equity securities for cash other than pro rata to existing limited period of time upon a change of control following a shareholders, until the Annual General Meeting to be held takeover, reconstruction or winding up of the Company (not in December 2013. This authority shall be limited to the being an internal reorganisation), subject at that time to rules allotment of equity securities for cash up to an aggregate concerning the satisfaction of any performance conditions. nominal amount of £1,431,563 being 5 per cent of the ordinary share capital issued at the date of this report. The Directors currently have no intention to issue ordinary Charitable donations shares, other than pursuant to the Company’s employee The Group’s charitable donations in 2012 totalled £1,389,000 share schemes and any share dividend alternatives. (2011: £1,457,000). Donations to charitable organisations from the businesses across the Group range from small to Authority to purchase shares substantial amounts. The charitable organisations which received donations of more than £10,000 per annum from In certain circumstances, it may be advantageous for the Wolseley and other details of charitable donations made in Company to purchase its own ordinary shares and a special the year are referred to in the Corporate responsibility report. resolution will be proposed at the Annual General Meeting in November 2012 to renew the Directors’ limited authority, last granted in November 2011, to purchase the Company’s Conflicts of interest ordinary shares in the market. The authority will be limited Processes and procedures are in place which require to a maximum of 28,630,755 ordinary shares (being Directors to identify and declare actual or potential approximately 10 per cent of the Company’s issued share conflicts of interest, whether matter-specific or situational. capital at the date of this report) and sets the minimum These notifications are made by a Director prior to or and maximum prices which may be paid. The Directors at a Board meeting, or in writing. All Directors have a will use this authority to purchase shares only after careful continuing duty to update any changes. consideration, taking into account market conditions, other investment opportunities, appropriate gearing levels and The Board may authorise potential conflicts which can be the overall financial position of the Company. The authority limited in scope, in accordance with the Company’s Articles will enable the Directors to continue to be able to respond of Association. These authorisations are regularly reviewed. promptly should circumstances arise in which they consider During the year, all conflict management procedures were that such a purchase would result in an increase in earnings adhered to and operated efficiently. per share and would be in the best interests of the Company. In accordance with the Company’s Articles the Company is Creditor payment policy allowed to hold shares purchased by it to be held as treasury shares that may be cancelled, sold for cash or used for the All Group companies are responsible for establishing terms purpose of employee share schemes. As at the date of and conditions of trading with their vendors. It is the this report, the Company holds no shares in treasury but Company’s policy that payments to vendors are made within the Directors currently intend that any shares which are agreed terms and are, where applicable, consistent with purchased will be held in treasury. The authorities to be The Prompt Payment Code, which is sponsored by the UK sought by each of the resolutions noted above are intended Department for Business Innovation & Skills (“BIS”). Copies to apply equally to shares to be held by the Company of this Code can be obtained from BIS. At 31 July 2012, as treasury shares and to the sale of treasury shares. the Company had no trade creditors (2011: nil). The amount The Directors consider it desirable for these general of trade creditors for the Group as at 31 July 2012 was authorities to be available to provide flexibility in the equivalent to 63 days (2011: 64 days) of trade purchases. management of the Company’s capital resources. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 81

CREST • the Performance review contained in the report of the directors includes a fair review of the development and The Company’s ordinary shares are in CREST, the performance of the business and the position of the Group, settlement system for stocks and shares. together with a description of the principal risks and uncertainties that it faces. Directors’ responsibilities statement The Directors are responsible for preparing the Annual Employees Report, the Directors’ Remuneration Report and the financial The Group actively encourages employee involvement statements in accordance with applicable law and and places particular importance on keeping employees regulations. The Directors have prepared the Directors’ regularly informed on the Company’s activities and financial Remuneration Report as if the Company were required performance and on matters affecting them individually to do so in accordance with the UK Companies Act 2006. and the business generally. This can be through informal Companies (Jersey) Law 1991 requires the Directors to bulletins, in-house publications and briefings, as well as via prepare Group financial statements for each financial year. the Company’s intranet sites. The Group operates on a Under that law the Directors have prepared the Group largely decentralised basis with a rigorous control framework financial statements in accordance with International exercised by a small team at the Group Services Office. Financial Reporting Standards (IFRSs) as adopted by This allows for greater autonomy and accountability at a local the European Union. The Directors are also responsible level and provides encouragement for the development of for preparing parent company financial statements entrepreneurial flair. Local management is responsible for in accordance with United Kingdom Accounting Standards, maintaining high standards of health and safety and for and for being satisfied that the Group and parent company ensuring that there is appropriate employee involvement financial statements give a true and fair view of the state of in decision-making. affairs of the Group and the Company and of the profit or A European Works Council (“EWC”) has been operating loss of the Company and Group for that period. In preparing since 1996 to provide a forum for informing and consulting these financial statements, the Directors are required to: employees in Europe on such matters as significant • select suitable accounting policies and then apply developments in the Group’s operations, management’s them consistently; plans and expectations, organisational changes within the Group and also for employee representatives to consult • make judgements and accounting estimates that Group management about concerns over any aspect of are reasonable and prudent; the Group’s operations. At the date of this report, there • state whether IFRSs as adopted by the European Union were 18 EWC representatives of which 12 were employee and applicable UK Accounting Standards have been representatives and six were management representatives. followed, subject to any material departures disclosed Employee representatives are appointed from each and explained in the Group and parent company financial European country in which Wolseley operates. All employees statements respectively; are offered a range of benefits depending on their local environment. Where possible, they are also encouraged to • prepare the financial statements on the going concern build a stake in the Company through the ownership of basis unless it is inappropriate to presume that the shares through participation in the Company’s employee company will continue in business. share schemes. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain Employment policies the Company’s transactions and disclose with reasonable accuracy at any time the financial position of the Company Our employment policies aim to attract the very best people and the Group and enable them to ensure that the Group and we believe that a diverse and inclusive culture is a key financial statements comply with the Companies (Jersey) factor in being a successful business. The Group remains Law 1991 and Article 4 of the IAS Regulation. They are also committed to equality of opportunity in all of its employment responsible for safeguarding the assets of the Company practices. It is the Group’s policy that the selection of and the Group and hence for taking reasonable steps for employees for appointment, career development and the prevention and detection of fraud and other irregularities. promotion be determined solely on the skills and attributes which are relevant to the job and which are in accordance The Directors are responsible for the maintenance and with the laws of the country concerned, and it will integrity of the Company’s website. Jersey legislation and progressively promote diversity. Ongoing training of United Kingdom regulation, governing the preparation employees and the continued development of their skills is of and dissemination of financial statements, may differ from prime importance to the Group. These policies also cover the legislation in other jurisdictions. continuation of employment and appropriate retraining for Each of the Directors, whose names and functions are employees who become disabled during their employment. listed on pages 64 and 65, confirm that, to the best of their knowledge: • the Group financial statements, which have been prepared in accordance with IFRSs as adopted by the EU, give a true and fair view of the assets, liabilities, financial position and profit of the Group; and Wolseley plc 82 Annual Report and Accounts 2012

Other disclosures continued

Indemnities and insurance Restrictions on transfer of shares The Company indemnifies the Directors in respect of There are no restrictions on the voting rights attached to the liabilities incurred as a result of their office in accordance with Company’s ordinary shares or on the transfer of securities in Articles of Association and to the maximum extent permitted the Company. No person holds securities in the Company by Jersey law. Qualifying third party indemnity provisions (to carrying special rights with regard to control of the Company. the maximum extent permitted by English law) were granted The Company is not aware of any agreements between to all Directors in office and to the Group Company Secretary holders of securities that may result in restrictions on the by Wolseley plc (now known as Wolseley Limited) and these transfer of securities or on voting rights. The Company’s remain in force as at the date of this report. When Wolseley Articles of Association may be amended by a special plc (a Jersey registered company) became the new holding resolution of the Company’s shareholders. company, additional third party indemnity provisions were granted by the Company and have been granted to all Share capital and voting rights Directors appointed since November 2010 in accordance with Jersey law. Details of the authorised and issued share capital, together with any movements in the issued share capital during the There is appropriate insurance coverage in respect of legal year, are shown at note 26 of the consolidated financial action against the Directors and officers. Neither the statements. As at 31 July 2012 there were 286,281,635 fully Company’s indemnities nor insurance would provide any paid ordinary shares of 10 pence each in issue and listed coverage to the extent that a Director is proved to have acted on the London Stock Exchange. fraudulently or dishonestly. Subject to the provisions of Companies (Jersey) Law 1991 and without prejudice to any rights attached to any existing Independent Auditors shares or class of shares, any share may be issued with and audit information such rights and restrictions as the Company may by ordinary PricewaterhouseCoopers LLP (“PwC”) are willing to continue resolution determine or as the Board shall determine. as auditors of the Company and resolutions concerning their Copies of the Company’s Articles of Association, can be reappointment and the determination of their remuneration obtained from Companies Registry, Jersey or by writing to will be proposed at the next Annual General Meeting. the Group Company Secretary and General Counsel. The Directors in office at the date of this report confirm that, The Company also has a Level 1 American Depositary so far as they are each aware, in respect of the consolidated Receipt (“ADR”) programme in the US for which Deutsche financial statements for the financial year ended 31 July 2012, Bank Trust Company Americas acts as Depositary. there is no relevant audit information of which PwC are The American Depositary Shares (“ADS”) which are unaware and each Director has taken all the steps that ought evidenced by ADRs are traded on the US over-the-counter to have been taken as a Director to be aware, in respect of market, where each ADS represents one-tenth of a Wolseley the consolidated financial statements for the financial year plc ordinary share. ended 31 July 2012, of any relevant audit information and to establish that PwC are aware of that information. Share options Political donations During the financial year ended 31 July 2012, options were exercised pursuant to the company’s share option schemes At each of the Annual General Meetings held since 2002, resulting in the allotment of 1,370,676 ordinary 10 pence shareholders have passed a resolution, as a precaution, shares. A further 29,859 ordinary 10 pence shares have to approve donations to political organisations and to incur been allotted under these schemes since the end of the political expenditure (as such terms are now defined in financial year to the date of this report. Details of shares sections 362 to 379 of the Companies Act 2006). Each issued during the year are set out in note 26 to the year, the Board has confirmed that it operates a policy of financial statements. not giving any cash contribution to any political party in the ordinary meaning of those words and that it has no intention of changing that policy. In previous years this resolution related to the provisions of the Companies Act 2006. The Company has ensured that, although Jersey registered, it will continue to apply the same standards and has such provisions incorporated into its Articles of Association. The Directors propose to seek, once more, authority for the Group to make political donations and/or incur political expenditure for amounts not exceeding £125,000 in a total aggregate, which they might otherwise be prohibited from making or incurring under the provisions of Article 12 of the Company’s Articles of Association and which would not amount to “donations” in the ordinary sense of the word. This authority would last until the Company’s next Annual General Meeting. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 83

UK pension schemes Wolseley currently has two pension schemes in respect of UK employees: (1) Defined Benefit Scheme – the Wolseley Group Retirement Benefits Plan is a trust-based defined benefits scheme. It consists of two sections: the Wolseley Section and the William Wilson Section. Both sections have been closed to new entrants since 31 May 2009. The two sections are as a result of two pension schemes merging on 1 January 2010. The Wolseley section contains all members in the Wolseley Group Retirement Benefits Plan as at 31 December 2009 and the William Wilson Section contains all members in the William Wilson Group Pension Scheme as at 31 December 2009. There are three trustees consisting of an independent trustee, a member-nominated trustee and a corporate trustee. The corporate trustee consists of six trustee directors and, save for Mr David Illingworth (chairman of the trustees) and Ian Percy, CBE, all of the other trustee directors are employees of the Group. (2) Defined Contribution Scheme – the Wolseley Group Defined Contribution Plan is a trust-based defined contribution pension scheme with three Company nominated trustees, one of whom is an independent trustee and two who are UK-based employees of the Group. In addition, up to three member-nominated trustees may be appointed. Following an election process in January 2012, there are no member nominated trustees. There was one member-nominated trustee in the year, but as he was an Encon employee he resigned after the Encon business was sold out of the Group in October 2011. The chairman of the trustees is Wayne Phelan of PS Independent Trustees Limited. On behalf of the Board

Richard Shoylekov Group Company Secretary and General Counsel 1 October 2012

Index to principal Directors’ report disclosures elsewhere in the report Dividends Page 40 Going concern Page 41 Proﬁt Page 38 Wolseley plc 84 Annual Report and Accounts 2012 Remuneration report For the year ended 31 July 2012

a provision to allow for the “clawback” of awards in certain circumstances. Further details regarding the new plans are set out in the Notice of Annual General Meeting (“AGM”). As part of this consultation we also took the opportunity to meet with investors and shareholder representative bodies to discuss the business and executive remuneration more widely. The Committee’s aim is to have an ongoing and open dialogue with investors. As with last year, during 2011/12 there were very few This report sets out the remuneration policy for the Directors changes to the compensation of senior executives in of Wolseley plc and discloses the amounts paid to them for the Company. The senior leadership team salary increases the year ending 31 July 2012. were below inflation, and were consistent with pay discipline throughout the Company during the year. Further, as a result Dear Shareholder of the continuing tough trading conditions, the senior I am pleased to present the Directors’ Remuneration Report leadership team will be accepting a pay freeze for the for Wolseley plc. forthcoming year. Although the financial year 2011/12 was a demanding year We believe that this Remuneration Report provides helpful for the sector, especially within Europe, the Company context and explanation of our policies and practical maintained its good performance, broadly achieving the considerations that influence our decisions. We hope challenging financial objectives set in the business plan to receive your support at our AGM to be held on agreed by the Board for the year. This performance has 29 November 2012. resulted in bonus payments for the Executives being broadly in line with targets. I am very aware of the increased focus on executive pay over the last 12 months and the Committee has been monitoring the Government’s proposals for change to the reporting and decision making process in respect of executive remuneration. The Committee has carefully considered and responded to all of the proposals set out in the consultation paper from the Andrew Duff Chairman of the Remuneration Committee Department for Business, Innovation and Skills. We have endeavoured to anticipate some of these changes and will continue to respond to further developments. Our aim is Introduction always to provide clear and transparent reporting regarding This report, approved by the Board, has been prepared in our pay policy and we will continue to do this. accordance with the requirements of the Listing Rules of the During the year, we reviewed the operation of the Company’s Financial Services Authority. Although it is not a requirement two long-term incentive plans since their introduction nearly of Jersey company law to have the Directors’ remuneration 10 years ago. Share awards and options have delivered report approved by shareholders, the Board believes that as value to executives when the Company has achieved high a Company whose shares are listed on the London Stock performance and not rewarded in years of poor Exchange, it is good corporate governance for it to do so. performance. During the last three and five years the Accordingly, a resolution to approve this report will be Executive Share Option Plan (“ESOP”) and the Long Term proposed at the forthcoming AGM. Furthermore, the Board Incentive Scheme (“LTIS”) respectively did not meet the has also applied the principles of good governance relating performance conditions and the awards subsequently to Directors’ remuneration contained within the UK Corporate lapsed. However, due to the stronger performance more Governance Code (the “Code”) which came into effect in recently under new management the ESOP and LTIS awards June 2010. Those parts of the report which have been granted in 2009 are expected to vest at least in part later this subject to audit are clearly marked. year. With continued performance in line with our business expectations, vesting of share awards over the next few Remuneration Committee years is expected to increase share ownership among the Executive leadership to the levels sought by the Committee, Responsibilities reinforcing alignment with shareholders. The Committee reviews and recommends to the Board Under the ESOP rules the Committee has discretion to set the framework and policy for the remuneration of the tougher performance conditions as it sees fit, and it has Chief Executive, the Chairman, the Executive Directors used this discretion in recent years, especially when setting and members of the Executive Committee, while taking EPS targets under the ESOP. into account the business strategy of the Group and how I mentioned last year that the Company’s long-term incentive the Company’s remuneration policy reflects and supports plans would expire later this year. We have concluded our that business strategy over the short and medium term. consultation with shareholders regarding replacement plans, The objective of the policy is to ensure that individuals which we propose will be in substantially the same form as are provided with appropriate incentives to encourage the current plans. They will also take account of new enhanced performance and are, in a fair and responsible developments in market practice, for example by including manner, rewarded for their individual contributions to the success of the Company. The full terms of reference for Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 85

the Committee can be found on the Wolseley plc website at What has the Committee done during the year? www.wolseley.com. The Committee met five times during the year at scheduled Key responsibilities of the Committee are: meetings. There was also one unscheduled meeting in • to determine the specific remuneration packages for each January 2012 to consider the retirement of a member of of the Executive Directors, the Chairman and the Group the Executive Committee which all members attended. Company Secretary and General Counsel; During 2011/12 the Committee considered, amongst other things, the following: • to determine the remuneration, based on proposals from the Group Chief Executive, of the members of the Meeting date Matters arisen Executive Committee; September Executive Committee performance • to review, design and implement share incentive plans for 2011 and objectives. all levels of employees; Executive remuneration proposals. The remuneration report for the year • to review the overall remuneration policy for employees ended 31 July 2011. below executive level; Introduction of new employee share plans. • to determine the service agreements for the Executive November Review of remuneration advisers. Directors and the scope of pensions arrangements and 2011 Review of discretionary share plans. other benefits, and to review and approve the terms of any The Committee’s annual agenda termination payments and mitigation thereof; programme. • to ensure that contractual terms on termination, and the March 2012 Renewal of the Company’s executive share payments made, are fair and that failure is not rewarded; option and long term incentive plans. • to oversee major changes in employee benefits structures May 2012 Bonus structure for the financial year throughout the Group. 2012/13. The Chairman and the Executive Directors determine the Review of terms of reference. remuneration of the Non Executive Directors. Review of the effectiveness of the Committee. To reach informed decisions on executive remuneration, the Committee obtains detailed external research on market July 2012 Shareholder consultation of new data and trends from experienced independent consultants. discretionary share plans. The Committee takes external advice from New Bridge Discussion of BIS consultation on Street, now part of Aon plc. Whilst the Aon group itself remuneration reporting. provides other services to the Company (pensions advice Vesting of executive share options and insurance services) these other services are not and long term incentive awards. provided by New Bridge Street, which only provides services Share headroom in accordance with ABI to the Company in relation to remuneration activities. Guidelines. Chairman’s fees. Who are the Committee members? Draft remuneration report for the annual report and accounts 2012. The table below lists the independent Non Executive Directors who were members of the Committee during Components of remuneration 2011/12 and shows their attendance at meetings during the year. Karen Witts attended all meetings between the date for Executive Directors of her appointment to the Committee and her resignation on 2 July 2012. The Company’s remuneration policy

Members Attendance In considering its policy and the levels of remuneration of the senior executives, the Committee takes account of the Andrew Duff (Chairman) 5/5 market, the wider economic environment, pay policy of the Tessa Bamford 5/5 workforce generally, good corporate governance practices and its responsibilities to its shareholders. The Company’s Michael Clarke 5/5 policy is to provide remuneration to its senior executives Michael Wareing 5/5 reflecting their contribution to the business, the performance of the Group, the size and complexity of the Group’s Karen Witts 4/4 operations and the need to attract, keep, treat fairly and The Group Chief Executive, Ian Meakins, the Chairman, incentivise executives of the highest quality. Gareth Davis, and the Group HR Director, Bob Morrison, The Committee seeks to provide remuneration packages are usually invited to attend the meetings. They are asked which are simple, clear and transparent. The Committee to respond to specific questions raised by members of the recognises that remuneration needs to be easily understood Committee. This specifically excludes matters concerning by both executives and shareholders. the details of, and any discussions relating to, their own remuneration. Wolseley plc 86 Annual Report and Accounts 2012

Remuneration report continued

The Committee seeks to align the interests of its senior executives with those of shareholders in developing the long-term growth of the business through the variable pay components of their packages and its choice of performance measures. In setting targets for the variable elements of the executives’ packages the Committee strives to align the interest of the executives with those of the Company’s shareholders. The Committee sets appropriate and demanding targets in the context of the Company’s trading environment and strategic objectives. The Committee aims to maintain an appropriate balance between ﬁxed and variable pay, rewarding high performance while taking into account the importance of good risk management. None of the variable elements of remuneration are pensionable.

Key components of Executive Directors’ remuneration Fixed Remuneration Policy for 2012/13 Delivery in 2012/13 Base salary Base salary is set at market-median with the • Monthly in cash opportunity to exceed this level to reward sustained • Reviewed annually with any increases from individual high performance. Compensation provided 1 August should be commensurate with the executive’s contribution to the Company. The Committee intends to pay appropriately, based on skill, experience and performance achieved by the executive.

Benefits Benefits are provided on a market-competitive basis • Life assurance cover and follow the reward structure for all employees. • Private medical cover • Car benefit • All-employee share schemes (Save As You Earn) Pension For UK-based executives the aim is to provide a • Salary supplement in lieu of membership of the market-competitive benefit for retirement. Group Pension Scheme US-based executives participate in the Senior • Company contributions of up to 23% of salary paid Executive Retirement Plan which is age and into the Senior Executive Retirement Plan service related.

Variable remuneration Policy for 2012/13 Delivery in 2012/13 Annual To reward achievement of stretching financial and • Bonus potential for maximum performance of up bonus operational goals within the year, applying profitability to 140% of salary for Frank Roach, 120% salary and cash generating metrics and personal goals that for Ian Meakins and 100% of salary for John Martin are linked to strategic objectives. • 80% of bonus is based on Group financial performance (profit and cash) • 20% of bonus is based on personal objectives • Paid annually in October Long Term To incentivise the Executive Directors and other • Annual awards Share Plans members of the Executive Committee to deliver • Under the LTIS, and under the proposed new superior long-term performance in absolute terms rules, individual awards of up to 200% of salary and also relative to peer group companies. may be granted To provide a link between individual reward and the • Under the proposed new rules of the ESOP, long-term performance of the Company. individual awards of up to 300% of salary may To align executives’ interests with those of be granted shareholders and to retain key individuals. For awards under the LTIS, performance targets are • Awards may vest after three years subject to based on the Company’s Total Shareholder Return achievement of performance targets (“TSR”) over a three year performance period, relative to a comparator group of principally FTSE 100 companies. For awards under the ESOP vesting is conditional on earnings per share (“EPS”) growth targets over a three year performance period. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 87

Target and maximum levels of remuneration for 2012/13 The following charts show the total remuneration (base salary, bonus, long term incentive awards and executive share options) for the Executive Directors for 2012/13 at target and maximum performance.

Target performance Target performance Ian Meakins Other Executives LTIS LTIS 17% 16%

Base Base Options salary Options salary 9% 37% 10% 39%

Bonus Bonus 37% 35%

Maximum performance Maximum performance Ian Meakins Other Executives Base Base salary salary 15% 17%

LTIS LTIS 39% 38% Bonus Bonus 18% 20%

Options 28% Options 25%

Base salary Salaries for 2012/13 Policy The Committee reviewed the base salaries of the Executive Directors and agreed that there would be no change for Base salaries for individual Directors are reviewed annually 2012/13. However, market data suggests that the Executive and take effect from 1 August. The Committee considers Directors’ base salaries are beginning to fall behind that base salary reflects the level of responsibility of the competitive levels and therefore their pay will be formally Director, the relevant market in which he or she operates, reviewed next year. Current annual salaries for Executive and individual performance. Independent external advice Directors are shown in the Appointments and Contracts is taken to benchmark salaries with market data, derived table on page 92. from a group of companies selected on the basis of comparable size, geographic spread and business focus. Annual Bonus Scheme It is the Committee’s objective to set base salaries at or Policy around the market median, with the opportunity to go above this level in the event of sustained individual high Annual bonus arrangements for the Executive Directors are performance. In accordance with the core principles of the designed to encourage individual performance and generate Code, consideration has also been given to general pay and operating efficiencies and profitable growth. Stretching employment conditions across the Group. The Committee targets, determined by the Committee, are set for each continues to assess these and other matters, such as element of the bonus. The Committee also determines prevailing market conditions, when determining levels of the level of vesting at threshold, target and maximum remuneration for Executive Directors and members of the performance. The annual bonus awards are based on a mix Executive Committee. For new appointments, in particular of demanding financial targets, derived from the Company’s internal promotions, the policy is for base salary to progress long-term strategic business plan and annual budget, as well towards the median once expertise and performance has as market expectations. been proven and sustained. The payment of salaries at this level is considered appropriate for motivation and retention of the calibre of executive required to ensure the successful management of the Company in the challenging international business environment in which it operates. Wolseley plc 88 Annual Report and Accounts 2012

Remuneration report continued

2011/12 targets and bonus outturn 2012/13 Annual bonus scheme For the financial year 2011/12, 85 per cent of potential bonus Cash-to- Personal was driven by financial performance. The balance depended cash days objectives on specific strategic personal objectives which were set for 20% 20% each Executive Director and members of the Executive Committee. As part of the continued drive to improve the business, the performance measures at Group level were weighted as follows, giving an increased emphasis on trading profit:

2011/12 Annual bonus scheme Trading proﬁt Personal Cash-to- 60% cash days objectives 30% 15%

The Committee has determined that the following percentages of base salary will be payable as bonus, subject to the achievement of the threshold, on target and maximum levels of performance for each element Trading (with the percentages increasing on a linear basis for profit achievement between each level): 55% Director Threshold target On target Maximum target J Martin 40% 70% 100% Challenging targets for trading profit and balance sheet I Meakins 80% 100% 120% improvement were set for each geographical region and at F Roach 80% 110% 140% Group level. Ian Meakins and John Martin were eligible to receive a bonus of up to 100 per cent and 70 per cent of Pensions salary respectively for on target performance, with Frank Roach eligible for up to 110 per cent of salary. Frank Roach, who is a US citizen, participated in the defined contribution pension arrangements of Ferguson Enterprises, Ongoing trading profit for the year was 10.4 per cent ahead Inc., receiving contributions at the level of 23 per cent of his of the prior year. After adjusting for foreign exchange base salary. Bonus payments are not included in the movements and restructuring costs, trading profit was at calculation of Company pension contributions. target resulting in bonus levels at target for the Group element of performance. Good Group cash management delivered The cost of the Group’s contributions during the financial performance that exceeded the cash-to-cash days target year for Frank Roach was £148,000 ($233,700). For the year but fell short of the maximum target. Profit performance in ended 31 July 2011 the cost was £138,100 ($226,900). North America exceeded the target set at the start of the The exchange rate used to convert the dollar to sterling over year but did not reach the stretch (maximum) level, whereas the year to 31 July 2012 is $1.5792: £1 (2010/11: $1.6426: £1). the cash-to-cash performance exceeded threshold Brossette, a French subsidiary undertaking, was sold during (minimum) performance but fell short of target. No Director financial year 2011/12 and as part of the disposal the fully achieved the stretch levels for their personal objectives Company was released from its commitment as guarantor in the year. Bonus payments for each Director are set out to a pension entitlement of a former director of Brossette. in the table on page 94. Benefits in kind 2012/13 bonus awards Benefits in kind include the provision of healthcare insurance, For 2012/13, the threshold for bonus payments on trading a car and driver at the Company’s expense and/or a car profit will be set above the outturn for 2011/12 on a constant allowance. Both Ian Meakins and John Martin are provided currency basis. The year end result will again be adjusted for with the benefit of a car and driver. Frank Roach receives restructuring and foreign exchange movements. Although the benefit of a company provided car. market conditions remain challenging, the Company continues to gain market share and drive profitable growth. In addition, to ensure that executives are not disadvantaged To reflect this, profit targets for bonus awards will be set at as a result of paying personal tax in more than one a higher level than for 2011/12. In recognition of the difficult jurisdiction arising from the discharge of their duties, the trading conditions and the importance of focusing on trading Company meets the cost of any additional tax that they profit, the proportion of the bonus determined by trading would be obliged to pay. Ian Meakins and John Martin profit will be increased for 2012/13 to 60 per cent and the are taxed on their income in the United Kingdom and cash-to-cash days element reduced to 20 per cent. Specific Switzerland, and Frank Roach is taxed on his income strategic personal objectives will determine 20 per cent of in the United States and Switzerland. the bonus as illustrated in the following chart. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 89

Long term incentives The list of comparator companies for awards made under the LTIS in 2009 was based upon the constituent members Policy of the FTSE 100 as at the date of grant, excluding banks, With effect from November 2011 the Committee’s policy is that telecommunications, IT and utility companies but including only members of the Executive Committee (consisting of nine CRH plc and Travis Perkins plc, which compete in the same individuals) are eligible to receive grants under the Company’s sector as the Company. The list of comparator companies LTIS and the ESOP. The Wolseley Group Long Term Incentive for awards made under the LTIS from 2010 is based upon Scheme 2010 and the Wolseley Group Executive Share Option the full constituent members of the FTSE 100 at the Plan 2010 were approved upon the creation of the new respective date of grant, with no additions or exclusions. Wolseley plc holding company and were in effect extensions The LTIS is discretionary and it is the Committee’s current of the existing plans that were approved in 2002 and 2003 policy to make annual awards to Executive Directors and respectively. They will therefore expire in December 2012 and other members of the Executive Committee. Awards are November 2013 respectively. The Company has consulted made in shares unless there are material securities or tax with shareholders and intends to renew both plans in law constraints that would require awards in cash to be substantially the same form. The Company will take the considered. A total of 226,910 shares were conditionally opportunity to make changes to align the rules of the new granted under the LTIS in November 2011 to nine employees plans with market developments and accepted best practice (December 2010: 436,150 shares to 88 employees). (for example through the addition of a “clawback” mechanism). The new plans are subject to shareholder approval at the AGM The maximum amount that can be granted under the in November 2012 and a summary of their terms will be LTIS for each award remains at 200 per cent of base salary included in the Notice of the AGM. per annum. Each year the Committee continues to assess the relevant proportion of awards arising from both share The next levels of senior management are now eligible for options and long-term incentive awards. Existing awards are awards under the Wolseley Group Ordinary Share Plan 2011 subject to the achievement of performance conditions and (the “OSP”) which was introduced in November 2011. The vesting is only determined at the end of the performance grant of an award under the OSP is based upon individual period. In 2011/12, the highest award under the LTIS was criteria. Vesting of awards under the OSP typically happens 150 per cent, and only in exceptional circumstances after three years. Awards under the OSP are subject to would the maximum be awarded. continued employment with the Company. They are designed to act as a retention incentive whilst also encouraging Awards made and vesting as at 31 July 2012 participants to hold equity in the Company, thereby creating The table on page 94 sets out the number of shares a better alignment with the interests of shareholders. awarded to Executive Directors during the year under the Long Term Incentive Scheme (the “LTIS”) LTIS and unvested as at 31 July 2012. The purpose of the LTIS is to incentivise executives to deliver The following table sets out the percentage of each superior long-term performance and reward for relative award which has vested and the percentage of each outperformance of the Company against a deﬁned list of outstanding award that would vest based on performance comparator companies. The LTIS provides for awards of as at 31 July 2012: ordinary shares in the capital of the Company, subject to the Percentage vested on maturity or Company meeting TSR targets over separate three year Year of indicative vesting percentage based on periods. Awards are made to members of the Executive Year of award vesting performance as at 31 July 2012 Committee and are subject to the achievement of 2009 2012 75.9% (at 31 July 2012) performance conditions. TSR has been selected as the appropriate performance measure to ensure that the interests 2010 2013 100% (performance at 24 months) of the Executive Committee are closely aligned with those 2011 2014 94.2% (performance at 12 months) of the Company’s shareholders over the long term. Calculations of TSR are independently carried out and veriﬁed before being approved by the Committee. Performance conditions The following performance conditions apply for awards made under the LTIS: Percentage of award which Wolseley’s TSR position in the comparator group will vest Top decile 100% Between median and top decile 25%–100% At median 25% Below median 0% Awards vest on a straight-line basis between 25 per cent and 100 per cent. Wolseley plc 90 Annual Report and Accounts 2012

Remuneration report continued

Executive share options (the “ESOP”) Subject to shareholder approval, under the new ESOP rules it is proposed that the EPS performance conditions are set The purpose of the ESOP is to reward executives for at a level which enables the delivery of higher rewards for absolute EPS growth of the Company above UK inflation. higher EPS growth. The proposed criteria for achieving this Only members of the Executive Committee are now eligible higher performance are set out below. to receive grants under the ESOP. Participants continue to be selected by the Committee at its discretion and upon Proposed performance conditions for awards to be made the recommendation of the Group Chief Executive. The in 2012/13 Committee considers annually the size of each grant, Value of shares under option Total margin of growth over UK determined by individual performance, the ability of as a multiple of salary inflation after three years (RPI) each individual to contribute to the achievement of the performance conditions, and market levels of remuneration. First 50% of salary 9% Under the existing plan, awards may not exceed an amount Next 150% of salary 12% equal to five times salary for US based executives and three Next 50% of salary 15% times salary for European based executives, although the Committee may, if it so determines, also use the five times Greater than 200% of salary 15%–21% salary limit in exceptional circumstances. Under the new plan, a three times salary limit is proposed for all Executives. The Committee can also vary the terms of options to take In accordance with the rules of the plan, options may not account of any technical changes including, for example, be granted more than 10 years after the date on which the changes in accounting standards, provided that any amended plan was first approved by the Company’s shareholders. target would be materially no less challenging as a result of In 2011/12, no award to any executive under the 2010 any change. The Committee continues to believe that the Option Plan exceeded 250 per cent of salary and awards EPS condition is appropriate for share options since it significantly higher than this percentage would only be made requires substantial improvement in the Company’s in exceptional circumstances. underlying financial performance and complements the inherent requirement for share price growth for an option Performance conditions to have value. The extent to which options will be capable of exercise In November 2011, 365,359 options were granted under the depends on the satisfaction of a performance condition 2010 ESOP to nine employees (December 2010: 2,690,478 based on achieving growth in the Company’s EPS above UK options to 934 employees) at an option price of 1879 pence. inflation. The performance of the Company is measured over three financial years, starting with the financial year in which Awards granted in 2011/12 the grant takes place. For grants made since 2009 in the The table on page 95 sets out the number of share options event that the performance conditions are not fully met granted to Executive Directors during the year under the on the third anniversary of the date of grant, the unvested 2010 ESOP and outstanding as at 31 July 2012. options will lapse. Provided the performance condition has been satisfied, an option may be exercised at any time until it Dilution lapses, which is 10 years from the date of grant. No amount In accordance with the recommendations of the Association is payable on the grant of an option. The EPS performance of British Insurers (“ABI”), the number of new shares that conditions apply to the grants made in 2011/12, and the may be issued to satisfy options granted under all of the same performance condition is contained in the new Company’s employee share schemes is restricted to 10 per replacement plan that is subject to shareholder approval cent of the issued ordinary share capital of the Company at the AGM in November 2012. over any rolling 10-year period. Further, as set out in the ABI Under the plan rules, the Committee has the discretion principles and guidelines, the number of new shares that to set more challenging EPS targets for option awards. may be issued to satisfy executive options granted under This discretion has been utilised for awards made since the Company’s discretionary share schemes is restricted 2009, and the Committee has set the tougher EPS targets to 5 per cent of the issued ordinary share capital of the as detailed below. Company over any rolling 10-year period. The Company adheres to these requirements and continually monitors Performance Performance conditions applied the effect that awards made under the various employee conditions detailed to awards since and discretionary share plans have on these dilution limits. in plan rules 2009 At 31 July 2012, awards had been granted resulting in Value of shares under option Total margin of growth over UK shares being issued or capable of being issued during the as a multiple of salary inflation after three years (RPI) preceding 10 years under all of the Company’s employee share plans representing 4.78 per cent of the issued ordinary First 100% of salary 9% 9% share capital at that date and 1.26 per cent of the issued Second 100% of salary 12% 15% ordinary share capital under the Company’s executive share Next 50% of salary 15% 21% plans. Options may be satisfied by either the issue of new shares or by shares purchased in the market. Awards under Greater than 250% of salary 15%–21% 21% the OSP cannot be satisfied by new issue shares and therefore do not count towards the dilution limits. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 91

Business review Total return indices – Wolseley and FTSE 100 Wolseley return index In 2011/12 the Company achieved good growth in the USA FTSE 100 return index and Canada although this was partly offset by the difﬁcult trading conditions in Europe. Underlying gross margins have been under pressure and have declined slightly, though costs 125 have been kept under strong control to generate a trading proﬁt growth in the ongoing business of 10.4 per cent. 100

The Committee believes that the Executive Directors’ variable 75 remuneration is structured to deliver and reward the senior management team for business performance which in turn 50 delivers returns to shareholders. The financial results for this year and the reward delivered to the executives support this. 25 The Company’s trading profit growth has resulted in annual bonus payments at target, rewarding the executives for their 0 31/7/07 31/7/08 31/7/09 31/7/10 31/7/11 31/7/12 performance in a challenging year. With increased emphasis needed on trading profit, the Committee has increased for The second graph is required by Schedule 8 of the Large 2012/13 that part of the annual bonus which is linked to and Medium-sized Companies and Groups (Accounts and trading profit targets. Reports) Regulations 2008. It relates only to the performance of the new Wolseley plc holding company (created at the The long-term incentive awards granted in 2009 were time of the redomiciliation to Switzerland) from November measured against EPS and TSR. EPS growth was the 2010 to 31 July 2012. performance measurement for the ESOP and this condition has been met and the award will vest in full. TSR was used Total return indices – Wolseley and FTSE 100 to measure the performance of the LTIS award and Wolseley Wolseley return index achieved a ranking of 17th position against the comparator FTSE 100 return index group resulting in three quarters of the award vesting. Achievement against these performance conditions 140 demonstrates the strong alignment between corporate performance, executive reward and shareholder return. 130 The management team will continue to pursue operating efficiencies and remain focused on customer service, gaining market share and protecting gross margins. 120 Given the uncertain economic outlook in Europe the Company will maintain strong discipline over its cost 110 base while continuing to pursue growth initiatives in its more robust markets. 100 The Committee will continue to structure the Executives’ 31/7/10 31/7/11 31/7/12 remuneration to incentivise and reward them for further delivery of strong corporate performance. Board appointments and contracts Performance graphs Executive Directors’ service agreements The following graphs show Wolseley’s TSR performance All Executive Directors have service contracts that can be against the performance of the FTSE 100 Index. The FTSE terminated by the Company giving 12 months’ notice and by 100 Index has been chosen as being a broad equity market the employee giving six months’ notice, which reflects index consisting of companies comparable in size and current market practice. complexity to Wolseley. Termination of the contract of employment by the Company The following graph is for information and includes the in accordance with the terms of the service agreement performance of Wolseley for the five years from 31 July 2007 would result in a payment of a sum equal to the contractual to 31 July 2012. notice entitlement of 12 months’ salary, pension contributions made and specified benefits. The Company would seek to ensure that any termination payment is mitigated were the Executive to find alternative employment during his or her notice period. It remains the case that no additional remuneration has become payable to Executive Directors as a consequence of the Company’s tax residence in Switzerland. Wolseley plc 92 Annual Report and Accounts 2012

Remuneration report continued

Non Executive Directors The terms and conditions of appointment of the Non Executive Directors are available for inspection at the The Non Executive Directors have letters of appointment Company’s registered office in Jersey during normal rather than service agreements. Non Executive Directors business hours, the corporate head office and at the AGM. do not participate in any incentive plan, nor is any pension Details of each of the Non Executive Directors can be found payable in respect of their services as Non Executive on pages 64 and 65. Director. It remains the Board’s policy that Non Executive Directors are appointed for an initial term of three years, which is then reviewed and, if appropriate, extended for a Board changes further three year period. Appointments may be terminated Karen Witts who was appointed as a Non Executive Director upon six months’ notice by either party. There are no on 1 November 2011 and stepped down from the Board with provisions for compensation in the event of termination. effect from 2 July 2012. The remuneration of Non Executive Directors consists of a basic fee plus an additional fee where a Non Executive External directorships Director acts as chairman of either the Audit Committee or Executive Directors are permitted to take on external non Remuneration Committee or acts as Senior Independent executive directorships. In order to avoid any conflicts of Director. Details of all Non Executives Directors’ fees as interest, however, all such appointments are subject to the well as dates of appointment are shown in the Board approval of the Nominations Committee. The Committee Appointments and Contracts table shown below. The fees believes that taking up external non executive appointments are reviewed from time to time by the Chairman and the helps bring a wider perspective to the Company and also Executive Directors of the Board and were last increased in assists in the development of business skills and experience. July 2011. The Chairman is paid an annual fee, which has remained unchanged since his appointment. The Board and Ian Meakins is a non executive director of Centrica plc the Committee have agreed that for the next financial year and receives a fee of £65,000 per annum for his services the Non Executive Directors and the Chairman shall not (2010/11: £65,000). The Company allowed Mr Meakins to receive any increase in the fees. retain this fee for such external appointment.

Appointments and Contracts Salary/fee Date of Service Contract/ Notice period Annual base Additional increase from Director Letter of Appointment (Company/Executive) Salary/fee fee 2011/12 Chairman G Davis1 29 May 2003 12 months/6 months £360,500 – Executive Directors J Martin 25 January 2010 12 months/6 months £504,300 – I Meakins 8 June 2009 12 months/6 months £814,234 – F Roach 27 February 2006 12 months/6 months $1,016,236 – Non Executive Directors T Bamford 22 March 2011 6 months/6 months £63,000 – M Clarke 22 March 2011 6 months/6 months £63,000 – A Duff2 1 July 2004 6 months/6 months £63,000 £23,500 – M Wareing3 1 October 2009 6 months/6 months £63,000 £16,500 – K Witts4 1 November 2011 6 months/6 months £63,000 –

1 G Davis was appointed to Chairman on 21 January 2011. 2 A Duff receives an additional fee of £11,000 for his role as Senior Independent Director and £12,500 for his role as Remuneration Committee chairman. 3 M Wareing receives an additional fee of £16,500 for his role as Audit Committee chairman. 4 K Witts resigned with effect from 2 July 2012. All members of the Board are subject to annual re-election at the Company’s AGMs, in accordance with the Code. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 93

Directors’ share interests Other senior executives The members of the Executive Committee, who are not on Director share ownership the Board, are senior executives in the business who are A share ownership programme was introduced with effect considered to be able to significantly influence the ability of from 1 August 2004 and is designed to encourage all the Group to meet its strategic objectives. The Committee Directors and Executive Committee members to build up determines the level of remuneration for this group of a shareholding in value equivalent to the levels in the table individuals, based on proposals from the Group Chief below. The levels of share ownership have been reviewed Executive. Their total remuneration including salary and and the shareholding requirement for Executive Directors benefits, actual bonus, and the fair value of long-term has been increased to 1.5 times base salary for Executive incentives granted or awarded during the year ended Directors and to 2 times base salary for the Group Chief 31 July 2012 is summarised below: Executive for next year. Total remuneration 2011/12 (£000) Number in band (2010/11 in brackets) The table below shows each Director’s shareholding targets, 401–500 0 (1) and the extent to which they had reached those targets, at 31 July 2012. The increased shareholding targets apply 501–600 1 (0) from the new financial year starting 1 August 2012. 601–700 1 (1) Holding requirement Holding 701–800 2 (1) target as requirement target at 31 July 2012 Actual from 2012/13 801–900 1 (1) (multiple shareholding at (multiple Director of salary/fee) 31 July 2012 of salary/fee) 901–1,200 1 (1) G Davis 1 0.8 1 1,201–1,300 0 (0) J Martin 1 1.0 1.5 1,301–1,400 0 (1) I Meakins 1.5 2.4 2 F Roach 1 0.6 1.5 T Bamford 1 0.7 1 M Clarke 1 0.4 1 A Duff 1 1.3 1 M Wareing 1 1.5 1

For Executive Directors and Executive Committee members, share ownership may be achieved by retaining shares received as a result of participating in a Company share plan, after taking into account any shares sold to ﬁnance option exercises or to pay an income tax or National Insurance liability or overseas equivalent. These levels of shareholding are usually expected to be achieved within three to ﬁve years from the date on which the individual is included in the programme. The Committee reviews and notes progress made towards meeting these targets during the year. Directors’ current interests in shares are set out on page 96. Wolseley plc 94 Annual Report and Accounts 2012

Remuneration report continued

Audited section

Emoluments The emoluments for ﬁnancial year 2011/12 payable from 1 August 2011 for the Directors who served during the year are set out below. The total received by Frank Roach was paid in US dollars and this has been translated into sterling at the exchange rate $1.5792:£1 (2011: $1.6426:£1): 2012 2011 Salary and fees Additional fees Bonuses Beneﬁts Total Total Directors £000 £000 £000 £000 £000 £000 Chairman G Davis 360.5–––360.5 224.0 Executive Directors J Martin1 504.3 – 387.7 148.6 1,040.6 1,120.5 I Meakins2 814.2 – 833.1 319.3 1,966.6 2,010.9 F Roach 643.5 – 784.5 54.3 1,482.3 1,389.9 Non Executive Directors T Bamford 63.0–––63.0 22.5 M Clarke 63.0–––63.0 22.5 A Duff 63.0 23.5 – – 86.5 79.1 M Wareing 63.0 16.5 – – 79.5 77.8 K Witts3 42.3–––42.3 – Total 2,616.8 40.0 2,005.3 522.2 5,184.3 4,947.2 Pensions to former Directors ––––– 204 Pension contributions to money purchase plans ––––148 138 Aggregate gains on exercise of share options ––––– – Total ––––148 342

1 £126,075 of the figure for benefits relates to a cash supplement in lieu of payments to the Company’s pension scheme. The remainder relates to the car benefit and healthcare cover. 2 £260,554 of the figure for benefits relates to a cash supplement in lieu of payments to the Company’s pension scheme. The remainder relates to the car benefit and healthcare cover. 3 The fee amount received related to the date appointed to the Board on 1 November 2011 to the date of resignation on 2 July 2012.

Directors’ interests in long term incentive schemes Details of the awards conditionally made under the LTIS to the Executive Directors and the number of awards outstanding at 31 July 2012 are shown in the table below: Interests Interests in shares in shares held at August Interests awarded Interests lapsed held at Name of Director 2011 during the year1 during the year2 31 July 20123 J Martin 52,583 36,893 – 89,476 I Meakins 124,622 68,731 – 193,353 F Roach 115,858 46,538 48,999 113,397

1 The market value of awards made on 15 November 2011 was 1777 pence per share. 2 Awards granted in 2008 did not pass their TSR performance conditions and all such awards lapsed in October 2011. 3 The outstanding three-year performance periods are as follows: 2009 grant – 1 August 2009 to 31 July 2012; 2010 grant – 1 August 2010 to 31 July 2013; and 15 November 2011 grant – 1 August 2011 to 31 July 2014. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 95

Directors’ interests in share options Options Options Options Options Options Name of Director/ held at granted lapsed exercised held at Option Earliest date scheme Date of grant 31 July 2011 during year during year during year 31 July 2012 price (p) of exercise Expiry date J Martin Executive options 01.04.10 37,688 37,688 1592 01.04.13 31.03.20 09.12.10 35,805 35,805 1855 09.12.13 08.12.20 15.11.11 – 60,387 60,387 1879 15.11.14 14.11.21 UK Sharesave 28.04.11 957 957 1692 01.06.18 30.11.18 I Meakins Executive options 06.11.09 152,679 152,679 1269 06.11.12 05.11.19 09.12.10 98,493 98,493 1855 09.12.13 08.12.20 15.11.11 – 108,333 108,333 1879 15.11.14 14.11.21 UK Sharesave 22.04.10 1,277 1,277 1276 01.06.17 30.11.17 F Roach Executive options 04.11.02 3,156 3,156 2264 04.11.05 03.11.12 27.11.03 7,191 7,191 3098 27.11.06 26.11.13 04.11.04 4,162 4,162 3957 04.11.07 03.11.14 31.10.08 87,357 87,3571 – 1334 31.10.11 30.10.18 06.11.09 72,800 72,800 1269 06.11.12 05.11.19 09.12.10 54,523 54,523 1855 09.12.13 08.12.20 15.11.11 – 59,246 59,246 1879 15.11.14 14.11.21 Employee Share Purchase Plan (ESPP) 30.03.11 166 3 1632 – 1798 01.05.12 29.05.12 26.04.12 – 144 144 2003 01.05.13 28.06.13

1 Options lapsed on 1 November 2011 as the 2008 grant did not meet the relevant EPS performance conditions. 2 Under the ESPP, a total of 166 options were granted in March 2011. However, the exchange rate increased between the date of grant and the date of maturity in May 2012, which led to a lower number of options equating to total contributions being exercised. Accordingly the balance of options lapsed. The Company’s share price on the date of exercise was 2255 pence. Vesting of options is conditional on earnings per share growth targets over a three year period. The highest mid-market price of the Company’s ordinary 10 pence shares during the year was 2558 pence and the lowest was 1404 pence. The price of the Company’s ordinary 10 pence shares on 31 July 2012 was 2303 pence. Wolseley plc 96 Annual Report and Accounts 2012

Remuneration report continued

Directors’ interests in shares The UK-based Executive Directors may participate in the ISP and the US-based Executive Director may participate in the The interests of the Directors in office at 31 July 2012, and ESPP. Under the ISP, participants can enter into a savings of their connected persons, in the ordinary shares of the contract for three, five or seven years, up to a maximum level Company at the following dates were: of £250 per month (over all contracts) and are granted Ordinary shares options to subscribe for shares in the Company. Under the of 10 pence ESPP, a US Code 423 Plan which was also renewed in each held at Ordinary shares November 2011, US participants may enter into a one-year 31 July 2012 of 10 pence and at the date each held at savings contract to a maximum level of no more than of this report 1 August 2011 $400 per month. The Board may determine that the options granted under these schemes may be awarded at a discount. T Bamford 1,900 1,000 The maximum discount, which was applied to the 2012 M Clarke 1,000 1,000 awards, was 20 per cent for the ISP and 15 per cent for the G Davis 13,038 13,038 ESPP. A total of 231,595 options were granted in April 2012 to 3,500 employees in the United States and Canada under A Duff 5,023 5,023 the ESPP at an option price of 2003 pence. In the UK, a total J Martin 21,071 21,071 of 193,437 options were granted at an option price of 1956 pence per share to 1,320 employees. The table on page 95 I Meakins 84,410 63,490 sets out the number of share options granted to each F Roach 18,106 17,927 Executive Director during the financial year 2011/12 under the ISP and ESPP. M Wareing 5,288 5,288 The Remuneration Report has been received and adopted by shareholders at each of the Annual General Meetings Employee Benefit Trusts held since 2003. Shareholders will again be invited to The Wolseley plc 2004 Overseas Employee Benefit Trust, receive and adopt this report at the forthcoming AGM the Wolseley plc 2004 Employee Benefit Trust and the on 29 November 2012. Wolseley plc 2004 Directors’ Benefit Trust were established This report has been approved by the Board and is signed on in October 2004 in connection with the Wolseley Share its behalf by the chairman of the Remuneration Committee. Option Plan 2003 and the Wolseley plc 2002 Long Term Incentive Scheme, as well as the Wolseley Group Long Term On behalf of the Board Incentive Scheme 2010 and the Wolseley Group Share Option Plan 2010. The settlor of these trusts was Wolseley Limited, which was the old Wolseley plc. Upon incorporation of the new holding company it was therefore necessary for the new Wolseley plc to establish a new trust, the Wolseley Employee Trust 2011 (the “New Trust”). The assets of the old trusts were subsequently transferred into the New Trust, which then Andrew Duff assumed the obligations of the old trusts to satisfy historical Chairman of the Remuneration Committee share awards, and the old trusts have been wound up. 1 October 2012 The trustees of each of the Trusts have waived their rights to receive dividends on any shares held by them. At the date of this report, the New Trust holds 1,901,753 ordinary shares of 10 pence each and £570,801 in cash.

Savings related share option schemes The UK Savings Related Share Option Scheme (“UK Sharesave”) was renewed in November 2011 and incorporated as an appendix to the Wolseley Group International Sharesave Plan 2011 (the “ISP”). The rules are HMRC approved. The international section remains appropriate to our European employees. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 97 Index to ﬁnancial statements

Consolidated financial statements Company financial statements 98 Group income statement 154 Company profit and loss account 99 Group statement of comprehensive income 154 Company balance sheet 99 Group statement of changes in equity 155 Notes to the Company financial statements 100 Group balance sheet 155 1. Corporate information 101 Group cash flow statement 155 2. Company accounting policies 102 Notes to the consolidated financial statements 156 3. Fixed asset investments 102 1. Accounting policies and critical estimates and judgements 156 4. Debtors: amounts falling due within one year 105 2. Segmental analysis 156 5. Creditors: amounts falling due within one year 109 3. Operating costs 156 6. Share capital 110 4. Exceptional items 156 7. Share premium account 110 5. Finance costs 157 8. Profit and loss account 111 6. Taxation 157 9. Reconciliation of movements in shareholders’ equity 111 7. Discontinued operations 157 10. Share-based payments 111 8. Dividends 157 11. Contingent liabilities 112 9. Non-GAAP performance measures 157 12. Employees, employee costs and auditors’ remuneration 113 10. Earnings per share 157 13. Dividends 113 11. Employee information and Directors’ remuneration 157 14. Related party transactions 114 12. Intangible assets – goodwill 158 Independent auditors’ report to the members 115 13. Intangible assets – other of Wolseley plc 116 14. Property, plant and equipment 118 15. Deferred tax assets and liabilities 119 16. Trade and other receivables 120 17. Derivative financial instruments 120 18. Cash and cash equivalents 121 19. Assets and liabilities held for sale 121 20. Trade and other payables 122 21. Bank loans and overdrafts 123 22. Financial instruments and financial risk management 124 23. Obligations under finance leases 125 24. Provisions 126 25. Retirement benefit obligations 129 26. Share capital 130 27. Share-based payments 131 28. Shareholders’ equity and statement of changes in equity 133 29. Reconciliation of profit to cash generated from operations 134 30. Acquisitions 134 31. Disposals 135 32. Reconciliation of opening to closing net cash/(debt) 135 33. Related party transactions 136 34. Operating lease commitments 136 35. Contingent liabilities 136 36. Post balance sheet events 137 37. Additional information 153 Independent auditors’ report to the members of Wolseley plc Wolseley plc 98 Annual Report and Accounts 2012 Group income statement Year ended 31July 2012

2012 2012 2011 2011 Before Exceptional Before Exceptional exceptional items 2012 exceptional items 2011 items (note 4) Total items (note 4) Total Notes £m £m £m £m £m £m Revenue 2 13,421 – 13,421 13,558 – 13,558 Cost of sales (9,724) – (9,724) (9,776) – (9,776) Gross profit 3,697 – 3,697 3,782 – 3,782 Operating costs: amortisation of acquired intangibles (60) – (60) (75) – (75) impairment of acquired intangibles (353) – (353) (39) – (39) other (3,032) (40) (3,072) (3,160) (51) (3,211) Operating costs 3 (3,445) (40) (3,485) (3,274) (51) (3,325) Operating profit 2, 3 252 (40) 212 508 (51) 457 Finance income 2 – 2 7 – 7 Finance costs 5 (32) – (32) (73) – (73) Profit on disposal of associate – 16 16 – – – Profit before tax 222 (24) 198 442 (51) 391 Taxation 6 (144) 6 (138) (117) 7 (110) Profit from continuing operations 78 (18) 60 325 (44) 281 Loss from discontinued operations 7 – (3) (3) – (10) (10) Profit for the year attributable to shareholders of the Company 78 (21) 57 325 (54) 271 Earnings per share 10 Continuing operations and discontinued operations Basic earnings per share 20.1p 95.9p Diluted earnings per share 19.9p 95.1p Continuing operations only Basic earnings per share 21.2p 99.4p Diluted earnings per share 21.0p 98.6p

Non-GAAP performance measures 9,10 Trading profit 665 622 EBITDA before exceptional items 790 775 Profit before tax, exceptional items and the amortisation and impairment of acquired intangibles 635 556 Headline earnings per share 168.4p 142.9p Headline diluted earnings per share 166.7p 141.8p

The accompanying notes are an integral part of these consolidated financial statements.

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 99 Group statement of comprehensive income Year ended 31 July 2012

2012 2011 £m £m Profit for the year 57 271 Other comprehensive income: Exchange (loss)/gain on translation of overseas operations (143) 67 Exchange gain on translation of borrowings and derivatives designated as hedges of overseas operations 7 12 Cumulative currency translation differences on disposals recycled to income statement 2 1 Actuarial (loss)/gain on retirement benefit plans (84) 5 Valuation losses on cash flow hedges reclassified to income statement – 3 Tax on losses and gains not recognised in the income statement 26 (9) Other comprehensive (expense)/income for the year (192) 79 Total comprehensive (expense)/income for the year attributable to shareholders of the Company (135) 350

Group statement of changes in equity Retained earnings Share Share Translation Hedging Own Profit and Total capital premium reserve reserve shares loss account equity Year ended 31 July 2012 £m £m £m £m £m £m £m Total comprehensive (expense)/income – – (136) 2 – (1) (135) New share capital subscribed – 13 – – – – 13 Credit to equity for share-based payments – – – – – 21 21 Dividends paid – – – – – (142) (142) Net addition to/(reduction in) shareholders’ equity – 13 (136) 2 – (122) (243) Opening shareholders’ equity 28 6 380 (2) (78) 3,042 3,376 Closing shareholders’ equity 28 19 244 – (78) 2,920 3,133

Retained earnings Share Share Translation Hedging Own Profit and Total capital premium reserve reserve shares loss account equity Year ended 31 July 2011 £m £m £m £m £m £m £m Total comprehensive income – – 80 3 – 267 350 Reclassification on group reconstruction (213) 3,805 – – – (3,592) – Capital reduction – (4,961) – – – 4,961 – New share capital subscribed – 6 – – – – 6 Credit to equity for share-based payments – – – – – 3 3 Dividends paid – – – – – (42) (42) Net addition to/(reduction in) shareholders’ equity (213) (1,150) 80 3 – 1,597 317 Opening shareholders’ equity 241 1,156 300 (5) (78) 1,445 3,059 Closing shareholders’ equity 28 6 380 (2) (78) 3,042 3,376

The accompanying notes are an integral part of these consolidated financial statements. Wolseley plc 100 Annual Report and Accounts 2012 Group balance sheet As at 31 July 2012

2012 2011 Notes £m £m Assets Non-current assets Intangible assets: goodwill 12 860 1,236 Intangible assets: other 13 300 392 Property, plant and equipment 14 1,195 1,249 Financial assets: available-for-sale investments 3 3 Deferred tax assets 15 203 241 Trade and other receivables 16 144 131 Derivative financial assets 17 58 59 2,763 3,311 Current assets Inventories 1,606 1,596 Trade and other receivables 16 1,875 1,928 Current tax receivable 20 7 Derivative financial assets 17 14 5 Financial receivables: construction loans (secured) 6 33 Cash and cash equivalents 18 813 403 4,334 3,972 Assets held for sale 19 43 595 Total assets 7,140 7,878 Liabilities Current liabilities Trade and other payables 20 2,241 2,292 Current tax payable 98 82 Bank loans and overdrafts 21 106 197 Obligations under finance leases 23 10 10 Derivative financial liabilities 17 – 2 Provisions 24 82 98 Retirement benefit obligations 25 29 26 2,566 2,707 Non-current liabilities Trade and other payables 20 76 74 Bank loans 21 681 739 Obligations under finance leases 23 43 42 Deferred tax liabilities 15 140 166 Provisions 24 161 186 Retirement benefit obligations 25 329 334 1,430 1,541 Liabilities held for sale 19 11 254 Total liabilities 4,007 4,502 Net assets 3,133 3,376 Equity attributable to shareholders of the Company Share capital 26 28 28 Share premium account 28 19 6 Foreign currency translation reserve 28 244 380 Retained earnings 28 2,842 2,962 Shareholders’ equity 3,133 3,376 The consolidated financial statements on pages 98 to152 were approved by the Board of Directors on 1 October 2012 and were signed on its behalf by

Ian Meakins John Martin Group Chief Executive Chief Financial Officer The accompanying notes are an integral part of these consolidated financial statements.

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 101 Group cash ﬂow statement Year ended 31 July 2012

2012 2011 Notes £m £m Cash flows from operating activities Cash generated from operations 29 747 16 Interest received 2 7 Interest paid (21) (57) Tax paid (86) (162) Net cash generated from/(used by) operating activities 642 (196) Cash flows from investing activities Acquisition of businesses (net of cash acquired) 30 (41) (12) Disposals of businesses (net of cash disposed of) 31 256 115 Purchases of property, plant and equipment (123) (74) Proceeds from sale of property, plant and equipment and assets held for sale 45 67 Purchases of intangible assets (12) (19) Proceeds from disposals of investments 16 – Net cash generated from investing activities 141 77 Cash flows from financing activities Proceeds from the issue of shares to shareholders 28 13 6 Proceeds from new borrowings – 136 Repayments of borrowings and derivatives (122) (208) Finance lease capital payments (11) (20) Dividends paid to shareholders (142) (42) Net cash used by financing activities (262) (128) Net cash generated/(used) 521 (247) Cash of disposal groups transferred to held for sale (42) (11) Effects of exchange rate changes (37) 15 Net increase/(decrease) in cash, cash equivalents and bank overdrafts 442 (243) Cash, cash equivalents and bank overdrafts at the beginning of the year 32 332 575 Cash, cash equivalents and bank overdrafts at the end of the year 32 774 332

The accompanying notes are an integral part of these consolidated financial statements.

Wolseley plc 102 Annual Report and Accounts 2012 Notes to the consolidated ﬁnancial statements Year ended 31 July 2012

1. Accounting policies and critical estimates and judgements Basis of preparation The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) as adopted by the European Union, including interpretations issued by the International Accounting Standards Board (“IASB”) and its committees. The Company is incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. Accounting developments and changes There have been no changes to Group accounting policies during the year ended 31 July 2012. A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out in note 37 on pages 137 to 143. There are no IFRSs or IFRIC interpretation that are effective for the first time for the financial year beginning on or after 1 August 2012 that are expected to have a material impact on the Group. An amended standard on employee benefits, IAS 19, which will be mandatory for the Group for the financial year beginning 1 August 2013, requires the net funding cost of retirement benefits obligations to be calculated using the discount rate used to measure the defined benefit obligation. If the Group had adopted this amended standard in the year ended 31 July 2012 its financing costs would have been increased by approximately £10 million. There are no other new standards, amendments to and interpretations of existing standards that have been published that would be expected to have a material impact on the Group. Choices permitted by IFRS The Group has elected to apply hedge accounting to some of its financial instruments, and to recognise its liability for retirement benefit obligations in full. Critical accounting estimates and judgements Many of the Group’s accounting policies require management to make estimates and assumptions that affect reported amounts. The following areas are most sensitive to the accuracy of such estimates. Impairment of trade receivables A provision for impairment of trade receivables is made when management estimates that the expected present value of future cash flows recoverable in respect of these receivables is less than the carrying amount. Determining the amount of such provision requires estimating the amount and timing of such future cash flows, giving consideration to the financial condition of the debtor and the probability that the debtor will enter bankruptcy or financial reorganisation. The actual amounts of cash recovered may differ materially from the estimated amounts on which the provision is based. The amount relating to continuing operations charged to the income statement in 2012 in respect of impaired receivables represented 0.25 per cent of revenue (2011: 0.35 per cent). Wolseley held a provision for impairment of receivables at 31 July 2012 amounting to £46 million (2011: £47 million). Valuation of inventories Provisions are made against slow-moving, obsolete and damaged inventories for which the net realisable value is estimated to be less than the cost. Inventories which are damaged or obsolete are written down as identified. The risk of obsolescence of slow-moving inventory is assessed by comparing the level of inventory held to future sales projected on the basis of historical experience. The actual realisable value of inventory may differ materially from the estimated value on which the provision is based. The Group held allowances in respect of inventory balances at 31 July 2012 amounting to £116 million (2011: £126 million).

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 103

1. Accounting policies and critical estimates and judgements continued Impairment of assets The Group reviews assets that have an indefinite useful life at least annually to assess whether their recoverable amount exceeds their carrying value. The recoverable amount is defined as the higher of fair value less costs to sell and value in use, which in turn is the present value of the future cash flows expected to be derived from the asset. The recoverable amount of goodwill and acquired intangible assets is assessed on the basis of the value in use of the cash generating unit or group of cash generating units (“CGU”) to which they are attributed. The estimate of value in use, and hence the outcome of the impairment test, is sensitive to the assumptions made about the revenue growth, trading margin and the level of working capital required to support trading over the next five years, the long-term growth rate of their market, and the discount rate considered appropriate to reflect the time value of money and any risks specific to the CGU that are not reflected in the cash flows. As disclosed in notes 12 and 13, the Group has charged £353 million in respect of the impairment of goodwill and acquired intangibles assets at 31 July 2012 (2011: £42 million) after preparing value in use calculations on the basis of assumptions set out on page 140. A £220 million impairment has been incurred in the Nordic region and a £133 million impairment has been incurred in France. Following this impairment charge the Group’s two Danish businesses, Stark and Silvan, have goodwill and acquired intangible assets with a carrying value at 31 July 2012 of £142 million and £32 million respectively. There are no goodwill and acquired intangible assets remaining in France at 31 July 2012. If the long-term prospects for the Danish market or the competitive positions of Stark and Silvan are weaker than assumed in calculating their underlying value in use, then further impairment charges may be required against the carrying value of these assets. The estimated value in use of these businesses is most sensitive to the trading profit assumed in the final year of the cash flow forecast which reflects the latest estimate of the mid point in the business cycle. A reduction in trading profit of approximately 5 per cent would result in a further impairment of £25 million. Rebates receivable from vendors The Group enters into agreements with many of its vendors that provide for rebates of the cost of inventory purchased. Many of these agreements apply to purchases in a calendar rather than financial year, and under certain agreements the rebate rises as a proportion of purchases as higher quantities or values of purchases are made. The Group adjusts the cost of inventory purchased to reflect estimated rebates receivable, which can depend on the projected volume, value and mix of purchases from a vendor through to the end of the qualifying period. Actual rebates receivable from vendors may differ materially from the estimates on which the cost of inventory is based. Provisions for self-insured risks The Group retains layers of certain of its insurable risks, principally US casualty and global property damage, which are managed by a captive insurance company, Wolseley Insurance Limited. Certain of the retained risks are subject to an annual actuarial assessment. The provision for self-insured risks represents an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported. The actual cost of settling these liabilities may differ materially from the estimated amounts on which the provision is based. At 31 July 2012, the provision for claims arising from this insurance was £46 million (2011: £57 million). Wolseley plc 104 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

1. Accounting policies and critical estimates and judgements continued Provisions for legal, environmental and related exposures and contingent liabilities The Group makes provisions for known and potential legal claims and environmental and other matters, including asbestos related litigation and product liability claims, where an outflow of resources is considered probable and a reliable estimate may be made of the likely outcome of the dispute or matter. In establishing such provisions the Group takes into account the relevant facts and circumstances of each matter and considers the advice of its legal and other professional advisers. The ultimate liability for potential legal claims and other matters may be dependent upon the discovery of facts that are currently uncertain, the outcome of litigation proceedings and possible settlement negotiations, and the actual cost of settlement may differ materially from the estimated amounts on which the provisions are based. At 31 July 2012 legal, environmental and other provisions amounted to £149 million (2011: £164 million). Where the Group has insurance cover that it is virtually certain will settle a provision then it recognises an equivalent asset in trade and other receivables. The Group may also become involved in legal proceedings or commercial disputes in respect of which it is not possible to make a reliable estimate of the financial effect, if any, that will result from ultimate resolution of the proceedings or disputes. In these cases, where material, appropriate disclosure would be included in the financial statements but no provision would be made and no contingent liability can be quantified. Provisions for onerous leases When the present value of the future cash flows receivable from the operation of leased assets is less than the present value of the rental payments to which the Group is committed, the Group applies the shortfall firstly against the carrying amount of the assets (in the case of finance leases) and then provides for any further onerous element of the contract (for all leases). Determining the amount of such a provision requires estimating the future net cash flows receivable in respect of these assets, and in the particular case where the leased properties are vacant this requires assessing the likely period for which the property will remain vacant, the cost of any works required to enhance its marketability and the rental income receivable when the property is sublet. Actual cash flows paid and received may differ materially from the estimated amounts on which the provisions are based. At 31 July 2012, the provision for onerous leases was £39 million (2011: £54 million). Taxation Accruals for current tax are based on management’s interpretation of country-specific tax law, and require judgements about the likelihood that tax positions taken will be sustained. Where management considers it probable that the tax position will be sustained, each material tax benefit is reviewed to assess whether it should be recognised in full, or whether provision should be made for a potential settlement through negotiation. All such provisions are included in current liabilities. Any estimated exposure to interest on tax liabilities is provided for in the tax charge. Pensions and other post-retirement benefits The Group operates defined benefit pension schemes in the United Kingdom and in a number of overseas locations that are accounted for using methods that rely on actuarial assumptions to estimate costs and liabilities for inclusion in the financial statements. These actuarial assumptions include discount rates, assumed rates of return, salary increases and mortality rates, and are disclosed in note 25. While management believes that the actuarial assumptions are appropriate, any significant changes to those used would affect the balance sheet and income statement. The Group considers that the most sensitive assumptions are the discount rate and life expectancy. The Group has estimated that a decrease of 0.5 per cent in the discount rate would increase the liability by £141 million, an increase of 0.5 per cent would decrease the liability by £125 million. Increasing the estimate of life expectancy by one year would increase the liability by £36 million. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 105

2. Segmental analysis Wolseley’s reportable segments are the operating businesses overseen by distinct divisional management teams responsible for their performance. All reportable segments derive their revenue from a single business activity, the distribution of plumbing and heating products and building materials. The Group’s business is not highly seasonal half on half. The Group’s customer base is highly diversified, with no individually significant customer. Revenue by reportable segment is as follows: 2012 2011 £m £m USA 6,168 5,500 Canada 850 811 UK 1,898 2,404 Nordic 2,125 2,128 France 1,666 1,943 Central Europe 714 772 Group 13,421 13,558

Trading profit/(loss) (note 9) and operating profit/(loss) by reportable segment for the year ended 31 July 2012 are as follows: Amortisation and impairment of Trading Exceptional acquired Operating profit/(loss) items intangibles profit/(loss) £m £m £m £m USA 389 (2) (19) 368 Canada 49 – – 49 UK 93 (32) (1) 60 Nordic 94 (5) (257) (168) France 38 (1) (135) (98) Central Europe 30 – (1) 29 Central and other costs (28) – – (28) Group 665 (40) (413) 212 Finance revenue 2 Finance costs (32) Profit on disposal of associate 16 Profit before tax 198

Wolseley plc 106 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

2. Segmental analysis continued Trading profit/(loss)(note 9) and operating profit/(loss) by reportable segment for the year ended 31 July 2011 are as follows: Amortisation and impairment of Trading Exceptional acquired Operating profit/(loss) items intangibles profit/(loss) £m £m £m £m USA 314 2 (22) 294 Canada 39 – – 39 UK 109 (50) (46) 13 Nordic 113 (1) (43) 69 France 53 3 (2) 54 Central Europe 30 (2) (1) 27 Central and other costs (36) (3) – (39) Group 622 (51) (114) 457 Finance revenue 7 Finance costs (73) Profit before tax 391

The change in revenue and trading profit between the years ended 31 July 2011 and 31 July 2012 are analysed in the following tables into the effects of changes in exchange rates, disposals and acquisitions with the remainder being organic change. When entities are disposed in the year, the difference between the revenue and trading profit in the current year up to the date of disposal and the revenue and trading profit in the equivalent portion of the prior year is included in organic change. Organic 2011 Exchange Disposals Acquisitions change 2012 Analysis of change in revenue £m £m £m £m £m £m USA 5,500 64 – 73 531 6,168 Canada 811 (2) – – 41 850 UK 2,404 – (517) – 11 1,898 Nordic 2,128 (49) (1) 14 33 2,125 France 1,943 (55) (213) – (9) 1,666 Central Europe 772 (5) (53) – – 714 Group 13,558 (47) (784) 87 607 13,421

Organic 2011 Exchange Disposals Acquisitions change 2012 Analysis of change in trading profit (note 9) £m £m £m £m £m £m USA 314 3 – 1 71 389 Canada 39 – – – 10 49 UK 109 – (16) – – 93 Nordic 113 (2) – – (17) 94 France 53 (1) (9) – (5) 38 Central Europe 30 – 1 – (1) 30 Central and other costs (36) – – – 8 (28) Group 622 – (24) 1 66 665 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 107

2. Segmental analysis continued A number of Group entities have been disposed of or classified as held for sale in 2012 and 2011. The revenue and trading profit of the Group’s segments excluding those entities (“ongoing segments”) is analysed in the following table. The comparative figures for 2011 have been restated to reflect new disposals in 2012. This is non-GAAP information. Revenue Trading Profit 2012 2011 2012 2011 £m £m £m £m Ongoing segments USA 6,168 5,500 389 314 Canada 850 811 49 39 UK 1,670 1,655 92 89 Nordic 2,062 2,060 96 113 France 1,252 1,317 30 46 Central Europe 714 718 30 31 Central and other costs – – (28) (36) 12,716 12,061 658 596 Entities disposed of or classified as held for sale 705 1,497 7 26 Group 13,421 13,558 665 622 Other information on assets and liabilities by segment is set out in the tables below: 2012 2011 Segment Segment Segment Segment Segment Segment assets liabilities net assets assets liabilities net assets Segment assets and liabilities £m £m £m £m £m £m USA 2,517 (974) 1,543 2,288 (804) 1,484 Canada 384 (167) 217 382 (133) 249 UK 735 (666) 69 1,082 (853) 229 Nordic 1,465 (594) 871 1,878 (669) 1,209 France 592 (279) 313 1,095 (495) 600 Central Europe 297 (150) 147 345 (178) 167 Central and other costs 42 (99) (57) 93 (132) (39) Total 6,032 (2,929) 3,103 7,163 (3,264) 3,899 Taxation assets and liabilities 223 (238) (15) 248 (248) – Net cash/(debt) 885 (840) 45 467 (990) (523) Group assets/(liabilities) 7,140 (4,007) 3,133 7,878 (4,502) 3,376 Wolseley plc 108 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

2. Segmental analysis continued

2012 2011 Additions Additions Additions to non- Additions to to non- Additions to to acquired acquired property acquired property Additions intangible intangible plant and Additions intangible plant and to goodwill assets assets equipment to goodwill assets equipment £m £m £m £m £m £m £m USA 10 3 4 28 4 4 12 Canada – – – 4 – – 3 UK – – 4 13 – 6 17 Nordic 4 3 1 56 1 – 15 France – – 1 33 – 2 21 Central Europe – – 1 6 – 1 6 Central and other costs – – – – – 2 – Group 14 6 11 140 5 15 74

Depreciation Amortisation of property of non- Amortisation Impairment plant and acquired of acquired of acquired equipment intangibles intangibles intangibles Year ended 31 July 2012 £m £m £m £m USA 45 3 19 – Canada 4 – – – UK 13 1 1 – Nordic 21 – 37 220 France 23 – 2 133 Central Europe 7 2 1 – Central and other costs – 6 – – Group 113 12 60 353

Depreciation Amortisation Impairment of property of non- of non- Amortisation Impairment plant and acquired acquired of acquired of acquired equipment intangibles intangibles intangibles intangibles Year ended 31 July 2011 £m £m £m £m £m USA 54 2 – 22 – Canada 4 – – – – UK 21 – – 7 39 Nordic 21 – – 43 – France 30 – – 2 – Central Europe 9 2 – 1 – Central and other costs – 10 3 – – Group 139 14 3 75 39 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 109

3. Operating costs Amounts charged/(credited) in arriving at operating profit include: 2012 2011 £m £m Depreciation of property, plant and equipment 113 139 Amortisation of non-acquired intangible assets 12 14 Impairment of non-acquired intangible assets – 3 Loss on disposal and closure of businesses and revaluations of disposal groups 40 59 Profit on disposal of property, plant and equipment and assets held for sale (1) (13) Staff costs (note 11) 1,877 1,884 Amortisation of acquired intangible assets 60 75 Impairment of acquired intangible assets 353 39 Operating lease rentals: land and buildings 187 198 Operating lease rentals: plant and machinery 52 40 Amounts included in costs of goods sold with respect to inventory 9,574 9,643 Amounts (credited)/charged to write inventory down to net realisable value (5) 10 Trade receivables impairment 33 47 During the year the Group obtained the following services from the Company’s auditor and its associates: Fees for the audit of parent company and consolidated financial statements 0.8 0.7 Other services – Fees for the audit of the Company’s subsidiaries pursuant to legislation 2.6 3.0 – Taxation 1.9 3.9 – Other services 0.2 – Total fees payable to the auditors 5.5 7.6 Wolseley plc 110 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

4. Exceptional items Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the income statement to enable a full understanding of the Group’s financial performance. If provisions have been made for exceptional items in previous years, then any write-back of those provisions is shown as exceptional. Exceptional items included in operating profit from continuing operations are analysed by purpose as follows: 2012 2011 £m £m Staff redundancy write-back – 5 Asset write-downs, disposals and other property related restructuring credits – 6 Restructuring credits – 11 Impairment of software assets under construction – (3) (Loss)/gain on disposal of businesses (35) 5 Loss on closure of businesses and revaluations of disposal groups (5) (64) Total included in operating profit (40) (51)

Exceptional profit on disposal of associate: On 17 November 2011 the Group disposed of its remaining minority stake in its associate, Saturn Acquisition Holdings LLC (the holding company of Stock Building Supply), for a cash consideration of £16 million. The associate was held at nil carrying value at 31 July 2011 and as a result an exceptional profit on disposal of associate of £16 million was generated. Exceptional items relating to discontinued operations are detailed in note 7. 5. Finance costs 2012 2011 £m £m Interest payable – Bank loans and overdrafts 19 46 – Unwind of fair value adjustment to senior unsecured loan notes (10) – – Finance lease charges 3 3 Discount charge on receivables funding arrangements 1 7 Net pension finance cost (note 25) 8 15 Unwind of discount on provisions 1 3 Valuation (gains)/losses on financial instruments – Derivatives held at fair value through profit and loss (5) 1 – Loans in a fair value hedging relationship 15 (5) – Cash flow hedges reclassified from equity – 3 Total finance costs 32 73 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 111

6. Taxation 2012 2011 The tax charge for the year comprises: £m £m Current year tax charge 118 65 Adjustments to tax charge in respect of prior years (8) (3) Total current tax charge 110 62 Deferred tax charge: origination and reversal of temporary differences 28 48 Tax charge 138 110

The current tax prior year credit is £8 million. The overall prior year tax credit on continuing operations taking into account prior year movements in deferred tax is £2 million. 2012 2011 Tax on items credited to the statement of other comprehensive income: £m £m Deferred tax credit/(charge) on actuarial gain/loss on retirement benefits 1 (9) Current tax credit on actuarial gain/loss on retirement benefits 20 – Deferred tax credit on share-based payments 5 – Total tax on items credited to other comprehensive income 26 (9)

2012 2011 Tax reconciliation: % % Weighted average tax rate 20 28 Prior year amounts (2) (5) Non-deductible amortisation and impairment of acquired intangibles 56 4 Other non-deductible and non-taxable items (4) 1 Tax rate on profit before tax 70 28

The decrease in the weighted average tax rate is due to a fall in the relatively high tax profits in France and a full year impact of the redomiciliation in November 2010. 7. Discontinued operations The results from the discontinued operations, which have been included in the Group income statement, are as follows: 2012 2011 Before Before exceptional Exceptional exceptional Exceptional items items Total items items Total £m £m £m £m £m £m Loss on disposal – (3) (3) – (3) (3) Tax charge on loss on disposal – – – – (7) (7) Loss from discontinued operations – (3) (3) – (10) (10)

Amounts charged to discontinued operations are generated from movements in tax, provisions and other items arising from the sale of Stock Building Supply in 2009. 8. Dividends 2012 2011 Pence per Pence per £m share £m share Amounts recognised as distributions to equity shareholders: Interim dividend for the year ended 31 July 2011 – – 42 15p Final dividend for the year ended 31 July 2011 85 30p – – Interim dividend for the year ended 31 July 2012 57 20p – – Dividends paid 142 50p 42 15p

After the reporting date the Directors proposed a final dividend of £115 million (40 pence per share) and a special dividend of £350 million. These dividends are subject to approval by shareholders at the Annual General Meeting and therefore have not been included as a liability in these financial statements in accordance with accounting standards. Wolseley plc 112 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

9. Non-GAAP performance measures Trading profit is defined as operating profit before exceptional items and the amortisation and impairment of acquired intangibles. It is a non-GAAP measure. As explained on page 150, the Group considers that trading profit, and other performance measures based on it, including EBITDA before exceptional items, present valuable additional information to users of the financial statements. 2012 2011 £m £m Operating profit 212 457 Add back: amortisation and impairment of acquired intangibles 413 114 Add back: exceptional items in operating profit 40 51 Trading profit 665 622 Depreciation, amortisation and impairment of property, plant and equipment and software excluding exceptional items in operating profit 125 153 EBITDA before exceptional items 790 775 Profit before tax 198 391 Add back: amortisation and impairment of acquired intangibles 413 114 Add back: exceptional items in profit before tax 24 51 Profit before tax and exceptional items and the amortisation and impairment of acquired intangibles 635 556 Tax expense (138) (110) Add back: deferred tax credit on the amortisation and impairment of acquired intangibles (14) (15) Add back: tax credit on exceptional items (6) (7) Add back: non-recurring tax credit relating to prior years – (20) Adjusted tax expense (158) (152) Profit from continuing operations 60 281 Add back: amortisation and impairment of acquired intangibles after tax 399 99 Add back: exceptional items after tax 18 44 Less: non-recurring tax credit relating to prior years – (20) Headline profit after tax from continuing operations 477 404

Applying the adjusted tax expense of £158 million to the profit before tax, exceptional items and the amortisation of acquired intangibles of £635 million gives an effective tax rate of 25% (2011: 27%). Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 113

10. Earnings per share 2012 2011 Basic Diluted Basic Diluted earnings earnings earnings earnings Earnings per share per share Earnings per share per share £m Pence Pence £m Pence Pence Headline profit after tax from continuing operations 477 168.4 166.7 404 142.9 141.8 Exceptional items (net of tax) (18) (6.3) (6.3) (44) (15.6) (15.5) Amortisation and impairment of acquired intangibles (net of deferred tax) (399) (140.9) (139.4) (99) (35.0) (34.7) Non-recurring tax credit relating to prior years – – – 20 7.1 7.0 Profit from continuing operations 60 21.2 21.0 281 99.4 98.6 Discontinued operations (3) (1.1) (1.1) (10) (3.5) (3.5) Profit from continuing and discontinued operations 57 20.1 19.9 271 95.9 95.1

The weighted average number of ordinary shares in issue during the year, excluding those held by Employee Benefit Trusts, was 283.3 million (2011: 282.6 million). The impact of all potentially dilutive share options on earnings per share would be to increase the weighted average number of shares in issue to 286.2 million (2011: 285.0 million). 11. Employee information and Directors’ remuneration 2012 2011 Employee benefit costs £m £m Wages and salaries 1,606 1,631 Social security costs 179 193 Pension costs – Defined contribution schemes 44 38 Pension costs – Defined benefit schemes (note 25) 27 19 Share-based payments (note 27) 21 3 Total employee benefit costs 1,877 1,884

Details of Directors’ remuneration and share options are set out in the Remuneration report on pages 84 to 96, which form part of these financial statements. The aggregate emoluments for all key management are set out in note 33.

Average number of employees 2012 2011 USA 17,822 17,175 Canada 2,599 2,645 UK 7,018 9,352 Nordic 6,565 6,535 France 7,020 8,184 Central Europe 2,016 2,190 Central and other 130 165 Group 43,170 46,246 Wolseley plc 114 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

12. Intangible assets – goodwill 2012 2011 £m £m Cost At 1 August 1,732 1,969 Exchange rate adjustment (99) 59 Acquisitions 14 5 Disposal of businesses (30) (51) Reclassification as held for sale (14) (250) At 31 July 1,603 1,732 Accumulated impairment losses At 1 August 496 622 Exchange rate adjustment (51) 26 Impairment charge for the year 340 39 Disposal of businesses (28) (51) Reclassification as held for sale (14) (140) At 31 July 743 496 Net book amount at 31 July 860 1,236

The carrying value of goodwill by segment is as follows: 2012 2011 £m £m USA 405 377 Canada 98 98 UK 70 70 Nordic 239 493 France – 141 Central Europe 48 57 Group 860 1,236

As explained on page 140, impairment tests were performed for all of the Group’s cash generating units or groups of cash generating units (“CGUs”) during the year ended 31 July 2012. These impairment reviews have resulted in the recording of the following impairment charges.

Impairment charge Other acquired Goodwill intangibles Total CGU £m £m £m Stark 166 – 166 Silvan 34 6 40 Neumann 14 – 14 Nordic segment 214 6 220 France segment – PBM 126 7 133 Total 340 13 353

As highlighted in the Group’s announcement in July 2012, the businesses in Denmark have continued to experience challenging market conditions and this has been reflected in reduced expectations of future profitability in the value in use calculations for Stark and Silvan. The carrying value of the remaining goodwill and other acquired intangible assets relating to Stark, Silvan and Neumann was £142 million, £32 million and £27 million respectively at 31 July 2012. Market conditions have also been more challenging than expected in France and the outlook has become increasingly uncertain. As a result, expectations of profitability for PBM have been reduced resulting in the impairment of all its goodwill and acquired intangible assets. Pre-tax discount rates of between 11–12 per cent (2011: 10–12 per cent) and long-term growth rates of between 1.5-2.0 per cent have been used in the value in use models for the Nordic and France segments.

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 115

13. Intangible assets – other Acquired Intangibles Trade names Customer Software and brands relationships Other Total £m £m £m £m £m Cost At 1 August 2011 99 315 467 43 924 Exchange rate adjustment (2) (26) (17) – (45) Acquisitions – 1 4 1 6 Additions 11 – – – 11 Disposal of businesses (1) (1) (2) – (4) Disposals and transfers (4) – – – (4) Reclassified as held for sale – (6) – (8) (14) At 31 July 2012 103 283 452 36 874 Accumulated amortisation and impairment losses At 1 August 2011 69 115 316 32 532 Exchange rate adjustment (1) (9) (12) – (22) Amortisation charge for the year 12 21 36 3 72 Impairment charge for the year – 6 7 – 13 Disposal of businesses (1) (1) (2) – (4) Disposals and transfers (3) – – – (3) Reclassified as held for sale – (6) – (8) (14) At 31 July 2012 76 126 345 27 574 Net book amount at 31 July 2012 27 157 107 9 300

Acquired Intangibles Trade names Customer Software and brands relationships Other Total £m £m £m £m £m Cost At 1 August 2010 295 314 508 45 1,162 Exchange rate adjustment 1 17 8 – 26 Additions 15 – – – 15 Disposal of businesses (1) (1) (4) (2) (8) Disposals and transfers (211) – – – (211) Reclassified as held for sale – (15) (45) – (60) At 31 July 2011 99 315 467 43 924 Accumulated amortisation and impairment losses At 1 August 2010 262 97 308 30 697 Exchange rate adjustment 1 5 4 – 10 Amortisation charge for the year 14 23 48 4 89 Impairment charge for the year 3 – – – 3 Disposal of businesses (1) (1) (4) (2) (8) Disposals and transfers (210) – – – (210) Reclassified as held for sale – (9) (40) – (49) At 31 July 2011 69 115 316 32 532 Net book amount at 31 July 2011 30 200 151 11 392 Wolseley plc 116 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

14. Property, plant and equipment Land and buildings Operating Plant Finance leasehold machinery Freehold lease improvements equipment Total £m £m £m £m £m Cost At 1 August 2011 1,133 70 236 779 2,218 Exchange rate adjustment (57) (7) 3 (14) (75) Acquisitions 6 – – 1 7 Additions 52 – 15 73 140 Disposal of businesses – (3) (6) (22) (31) Disposals and transfers (6) (4) (2) (69) (81) Reclassified as held for sale (6) – (2) (4) (12) At 31 July 2012 1,122 56 244 744 2,166 Accumulated depreciation At 1 August 2011 205 15 160 589 969 Exchange rate adjustment (9) (1) 3 (8) (15) Depreciation charge for the year 28 1 17 67 113 Disposal of businesses – (2) (4) (20) (26) Disposals and transfers – (2) (1) (64) (67) Reclassified as held for sale (1) – – (2) (3) At 31 July 2012 223 11 175 562 971 Owned assets 899 – 69 155 1,123 Assets under finance leases – 45 – 27 72 Net book amount – 31 July 2012 899 45 69 182 1,195 Net book amount – 1 August 2011 928 55 76 190 1,249

At 31 July 2012, the book value of property, plant and equipment that had been pledged as security for liabilities was £582 million (2011: £602 million). Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 117

14. Property, plant and equipment continued Land and buildings Operating Plant Finance leasehold machinery Freehold lease improvements equipment Total £m £m £m £m £m Cost At 1 August 2010 1,214 97 259 869 2,439 Exchange rate adjustment 34 8 (3) 8 47 Acquisitions 3 – – 1 4 Additions 19 – 14 41 74 Disposal of businesses (6) (13) (9) (21) (49) Disposals and transfers (14) (16) (5) (31) (66) Reclassified as held for sale (117) (6) (20) (88) (231) At 31 July 2011 1,133 70 236 779 2,218 Accumulated depreciation At 1 August 2010 226 26 163 615 1,030 Exchange rate adjustment 4 1 (3) 3 5 Depreciation charge for the year 31 2 21 85 139 Disposal of businesses – (8) (5) (14) (27) Disposals and transfers (5) (3) (5) (31) (44) Reclassified as held for sale (51) (3) (11) (69) (134) At 31 July 2011 205 15 160 589 969 Owned assets 928 – 76 171 1,175 Assets under finance leases – 55 – 19 74 Net book amount – 31 July 2011 928 55 76 190 1,249 Net book amount – 1 August 2010 988 71 96 254 1,409 Wolseley plc 118 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

15. Deferred tax assets and liabilities The deferred tax assets and liabilities shown in the balance sheet are analysed as follows: 2012 2011 Deferred tax £m £m Deferred tax assets 203 241 Deferred tax liabilities (140) (166) 63 75 Current 34 61 Non-current 29 14 63 75

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting year: Goodwill Property, Retirement and Share-based plant and benefit Tax intangibles payment equipment obligations Inventory losses Other Total £m £m £m £m £m £m £m £m At 31 July 2010 (75) 7 (65) 141 (60) 104 96 148 Charge to income 19 2 13 (16) (10) (23) (40) (55) Charge to equity – – – (9) – – – (9) Disposal of businesses – – 2 – – (2) – – Exchange rate adjustment (5) – (5) (5) 5 (3) 4 (9) At 31 July 2011 (61) 9 (55) 111 (65) 76 60 75 Charge to income 13 5 (4) 2 (4) (35) (5) (28) Charge to equity – 5 – 1 – – – 6 Acquisitions (1) – – – – – – (1) Disposal of businesses – – (3) (1) – – – (4) Transfer between categories (2) (4) (3) (5) (1) – 15 – Exchange rate adjustment 7 – 10 – (4) – 2 15 At 31 July 2012 (44) 15 (55) 108 (74) 41 72 63

Deferred tax assets in the USA and UK have been recognised on the basis that both territories are forecast to have sufficient taxable profits in the future to enable these to be utilised. There are other potential deferred tax assets in relation to tax losses totalling £23 million (2011: £15 million) that have not been recognised on the basis that their future economic benefit is uncertain. The losses are in the UK, relating to capital disposals, and Sweden and do not expire. No deferred tax liability has been recognised in respect of temporary differences associated with investments in subsidiaries. However, tax may arise on £176 million (2011: £379 million) of temporary differences but the Group is in a position to control the timing of their reversal and it is probable that such differences will not reverse in the foreseeable future.

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 119

16. Trade and other receivables 2012 2011 Current £m £m Trade receivables 1,663 1,691 Less: provision for impairment (46) (47) Net trade receivables 1,617 1,644 Other receivables 79 71 Prepayments and accrued income 179 213 1,875 1,928

Non-current Other receivables 144 131

Movements in the provision for impairment of trade receivables are as follows: 2012 2011 £m £m At 1 August 47 60 Disposals and transfers (1) (17) Net charge for the year 33 47 Utilised in the year (30) (46) Exchange rate adjustment (3) 3 At 31 July 46 47

Provisions for impairment of receivables are made locally, and have two components comprising a provision for amounts that have been individually determined not to be collectible in full, because of known financial difficulties of the debtor or evidence of default or delinquency in payment, amounting to £37 million at 31 July 2012 (2011: £39 million); and a provision based on historic experience of non-collectability of receivables, amounting to £9 million at 31 July 2012 (2011: £8 million). Trade receivables can be aged with respect to the payment terms specified in the terms and conditions established with customers as follows: 2012 2011 £m £m Amounts not yet due 698 778 Past due not more than one month 649 586 Past due more than one month and less than three months 259 260 Past due more than three months and less than six months 12 18 Past due more than six months 8 10 Amounts individually determined to be impaired 37 39 1,663 1,691

Other receivables includes an insurance receivable of £52 million (2011: £44 million) relating to asbestos claims (note 24) which has been discounted at a rate of 2.2 per cent (2011: 3.8 per cent) due to the long-term nature of the receivable. The fair value of the remaining balances in trade and other receivables approximates to book value. Wolseley plc 120 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

17. Derivative financial instruments The Group uses interest rate swaps to manage its exposure to interest rate movements on its borrowings, and currency swaps to hedge cash flows in respect of committed transactions or to hedge its investment in overseas operations. The fair values of derivative financial instruments are as follows: 2012 2011 Non-current assets £m £m Interest rate swaps: fair value hedges – 59 Interest rate swaps: at fair value through profit and loss 58 – Derivative financial assets 58 59

2012 2011 Current assets £m £m Interest rate swaps: fair value hedges – 5 Interest swaps: at fair value through profit and loss 14 – Derivative financial assets 14 5

2012 2011 Current liabilities £m £m Interest rate swaps: at fair value through profit and loss – (2) Derivative financial liabilities – (2)

The Group’s accounting and risk management policies, and further information about the derivative financial instruments that it uses, are set out on pages 142 to 149. 18. Cash and cash equivalents 2012 2011 £m £m Cash 402 324 Short-term deposits 411 79 Total cash and cash equivalents 813 403 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 121

19. Assets and liabilities held for sale 2012 2011 £m £m Properties awaiting disposal 30 53 Assets of disposal groups held for sale 13 542 Assets held for sale 43 595

Liabilities of disposal groups held for sale 11 254

At 31 July 2012 the Group was in the process of disposing of its Woodcote business from the Nordic segment which it has therefore classified as a disposal group held for sale. The sale was completed on 21 August 2012. At 31 July 2011 the Build Center and Encon businesses in the UK and the Brossette business in France were classified as disposal groups held for sale. These businesses were sold in the year ended 31 July 2012. The assets and liabilities of disposal groups held for sale consist of: 2012 2011 £m £m Intangible assets – 54 Property, plant and equipment – 92 Inventories 5 164 Trade and other receivables 7 218 Cash and cash equivalents 1 14 Bank overdrafts – (3) Finance leases – (1) Payables and provisions (11) (250) 2 288

20. Trade and other payables 2012 2011 Current £m £m Trade payables 1,659 1,691 Bills of exchange payable 67 74 Tax and social security 79 88 Other payables 129 111 Accruals 298 318 Deferred income 9 10 Total trade and other payables 2,241 2,292

2012 2011 Non-current £m £m Other payables 76 74 Wolseley plc 122 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

21. Bank loans and overdrafts 2012 2011 Current £m £m Bank overdrafts 39 71 Bank loans 2 126 Senior unsecured loan notes 65 – Total bank loans and overdrafts 106 197

2012 2011 Non-current £m £m Bank loans 204 226 Senior unsecured loan notes 477 513 Total bank loans 681 739

£203 million of the bank loans are secured against the Group’s freehold property (2011: £223 million). At 31 July 2011 £123 million was secured against trade receivables. The non-current loans are repayable as follows: 2012 2011 £m £m Due in one to two years 14 52 Due in two to three years 52 9 Due in three to four years 209 36 Due in four to five years 19 216 Due in over five years 387 426 Total 681 739

Until 30 November 2011, certain tranches of the senior unsecured loan notes were hedged with interest rate swaps, such that the Group was effectively paying floating rate interest instead of a weighted average fixed interest rate of 5.1 per cent. At 30 November 2011 the notes were stated at an amount of £551 million, comprising a par value of £474 million and a fair value adjustment of £77 million, which was offset by the carrying value of interest rate swaps designated as fair value hedges of £79 million (2011: £513 million, £453 million, £60 million and £64 million respectively). During November 2011 the Group entered into a series of receive floating, pay fixed interest rate swaps over the remaining duration of the notes, such that the Group is now effectively paying a weighted average fixed interest rate of 2.5 per cent on the par value of the notes. This transaction is not eligible for hedge accounting, and accordingly the Group has de-designated the hedge relationship. The fair value adjustment to the carrying amount of the notes is being released to the income statement on an amortised cost basis over the period to maturity of the notes. At 31 July 2012 the carrying amount of the notes of £542 million comprised a par value of £475 million and a fair value adjustment of £67 million. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 123

22. Financial instruments and financial risk management There have been no significant changes during the year to the Group’s policies on accounting for, valuing and managing the risk of financial instruments. These policies are summarised on pages 142 to 149. Capital structure To assess the appropriateness of its capital structure to current and forecast trading, the Group’s principal measure of financial gearing is the ratio of net debt to EBITDA before exceptional items. The Group aims to operate with investment grade credit metrics and ensure this ratio does not exceed 1 to 2 times. The Group’s main borrowing facilities contain a financial covenant limiting the ratio of net debt to EBITDA before exceptional items to 3.5:1. In order to maintain or adjust the capital structure, the Group may pay a special dividend, return capital to shareholders, issue new shares or sell assets to reduce debt. Liquidity As at 31 July 2012, the Group had undrawn facilities maturing as follows: 2012 2011 £m £m Less than one year 50 50 Between four and five years 761 – After five years – 822 Total 811 872

Foreign currency Net cash at 31 July 2012 by currency was as follows: Cash, overdrafts Currency Interest Finance lease and bank bought/(sold) rate swaps obligations loans forward Total As at 31 July 2012 £m £m £m £m £m Sterling – (1) 284 (187) 96 US dollars 72 (5) (221) – (154) Euros, Danish kroner and Swedish kronor – (27) (64) 146 55 Other – (20) 27 41 48 Total 72 (53) 26 – 45

Net debt at 31 July 2011 by currency was as follows: Cash, overdrafts Currency Interest Finance lease and bank bought/(sold) rate swaps obligations loans forward Total As at 31 July 2011 £m £m £m £m £m Sterling – (1) (7) – (8) US dollars 64 (3) (494) – (433) Euros, Danish kroner and Swedish kronor (2) (24) (13) – (39) Other – (24) (19) – (43) Total 62 (52) (533) – (523) Wolseley plc 124 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

22. Financial instruments and financial risk management continued Interest rates The interest rate profile of the Group’s net cash/(debt) after including the effect of interest rate swaps is set out in the following tables. Floating Fixed Total As at 31 July 2012 £m £m £m Sterling 97 (1) 96 US dollars 271 (425) (154) Euros, Danish kroner and Swedish kronor 82 (27) 55 Other currencies 68 (20) 48 Total 518 (473) 45

Floating Fixed Total As at 31 July 2011 £m £m £m Sterling (7) (1) (8) US dollars (430) (3) (433) Euros, Danish kroner and Swedish kronor 75 (114) (39) Other currencies (19) (24) (43) Total (381) (142) (523)

Fixed rate borrowings at 31 July 2012 carried a weighted average interest rate of 2.7 per cent fixed for a weighted average duration of 5.7 years (31 July 2011: 4.7 per cent for 2.0 years). Floating rate net cash at 31 July 2012 carried a weighted average interest rate of 0.9 per cent (31 July 2011: 1.3 per cent). 23. Obligations under finance leases Gross Gross Net Net 2012 2011 2012 2011 £m £m £m £m Due within one year 13 14 10 10 Due in one to five years 31 31 25 23 Due in over five years 22 24 18 19 66 69 53 52 Less: future finance charges (13) (17) Present value of finance lease obligations 53 52 Current 10 10 Non-current 43 42 Total obligations under finance leases 53 52

It is the Group’s policy to lease certain of its property, plant and equipment under finance leases. Finance lease obligations included above are secured against the assets concerned. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 125

24. Provisions Environmental Wolseley Other and legal Insurance Restructuring provisions Total £m £m £m £m £m At 31 July 2010 67 55 139 85 346 Utilised in the year (8) (12) (66) (5) (91) Amortisation of discount – – 3 – 3 Charge/(credit) for the year 21 16 (7) 4 34 Disposal of businesses and reclassified as held for sale (1) – (7) 4 (4) Exchange differences (3) (2) 1 – (4) At 31 July 2011 76 57 63 88 284 Utilised in the year (26) (26) (28) (20) (100) Amortisation of discount 7 – 1 – 8 Charge for the year 6 13 11 3 33 Disposal of businesses and reclassified as held for sale (1) – 1 14 14 Exchange differences 3 2 – (1) 4 At 31 July 2012 65 46 48 84 243

Provisions have been analysed between current and non-current as follows: Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2012 £m £m £m £m £m Current 14 20 19 29 82 Non-current 51 26 29 55 161 Total provisions 65 46 48 84 243

Environmental Wolseley Other and legal Insurance Restructuring provisions Total At 31 July 2011 £m £m £m £m £m Current 32 18 20 28 98 Non-current 44 39 43 60 186 Total provisions 76 57 63 88 284

Wolseley Insurance provisions represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported on certain risks retained by the Group (principally US casualty and global property damage). The environmental and legal provision includes £52 million (2011: £44 million) for the estimated liability for asbestos litigation on a discounted basis using a long-term discount rate of 2.2 per cent (2011: 3.8 per cent). This amount has been actuarially determined as at 31 July 2012 based on advice from independent professional advisers. The Group has insurance that it currently believes is sufficient to cover the estimated liability and accordingly an equivalent insurance receivable has been recorded in other receivables. Based on current estimates, the amount of performing insurance cover available significantly exceeds the expected level of future claims and no material profit or cash flow impact is therefore expected to arise in the foreseeable future. There were 155 claims outstanding at 31 July 2012 (31 July 2011: 160). Restructuring provisions include provisions for staff redundancy costs and future lease rentals on closed branches. In determining the provision for onerous leases, the cash flows have been discounted on a pre-tax basis using appropriate government bond rates. The weighted average maturity of these obligations is approximately five years. Other provisions include the Group’s best estimate of the cost of potential product and service warranty claims arising in Stock Building Supply before its disposal on 6 May 2009, and other warranty and separation costs relating to businesses disposed. Other provisions also include rental commitments on vacant properties other than those arising from restructuring actions, dilapidations on leased properties and warranties. The weighted average maturity of these obligations is approximately three years.

Wolseley plc 126 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

25. Retirement benefit obligations (i) Long-term benefit plans provided by the Group The Group has a defined benefit pension plan for certain of its UK employees. The Group operates a number of smaller schemes in other jurisdictions, providing pensions or other long-term benefits such as long service or termination awards. More information about the schemes operated by the Group is set out on pages 150 and 151. There have been no significant changes during the financial year. The Group currently expects to contribute £44 million to the UK defined benefit schemes and £12 million to the non-UK defined benefit schemes in the year ending 31 July 2013. All of the Group’s companies are now reviewing their pension arrangements and this may lead to further cash contributions in the range of £100 million to £150 million. (ii) Financial impact of plans 2012 2011 As disclosed in the balance sheet £m £m Current liability (29) (26) Non-current liability (329) (334) Total liability (358) (360)

2012 2011 Analysis of balance sheet liability £m £m Fair value of plan assets: UK 767 696 Non-UK 194 193 961 889 Present value of defined benefit obligation: UK (983) (946) Non-UK (336) (303) (1,319) (1,249) Net deficit recognised in balance sheet (358) (360)

2012 2011 Analysis of total expense recognised in income statement £m £m Current service cost 29 30 Curtailment (2) (11) Charged to operating costs 27 19 Interest on pension liabilities 64 61 Expected return on plan assets (56) (46) Charged to finance costs 8 15 Total expense recognised in income statement 35 34

2012 2011 Analysis of amount recognised in the statement of comprehensive income £m £m Actuarial (loss)/gain (84) 5 Taxation 21 (9) Total amount recognised in the statement of comprehensive income (63) (4)

The cumulative amount of actuarial losses recognised in the statement of comprehensive income have been £349 million (2011: £265 million). Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 127

25. Retirement benefit obligations continued The assets in the UK schemes and the expected rates of return were: 2012 UK 2011 UK Long-term Long-term rate of rate of return Value at return Value at expected at 31 July expected at 31 July 31 July 2012 31 July 2011 2012 £m 2011 £m Equities 6.8% 521 7.3% 483 Bonds 3.0% 203 4.4% 176 Other 2.8% 43 4.1% 37 Total market value of assets 5.6% 767 6.4% 696

The assets in the non-UK schemes and the expected rates of return were: 2012 Non-UK 2011 Non-UK Long-term Long-term rate of rate of return Value at return Value at expected at 31 July expected at 31 July 31 July 2012 31 July 2011 2012 £m 2011 £m Equities 7.9% 75 8.0% 75 Bonds 4.2% 80 4.2% 73 Property 4.1% 14 4.2% 15 Other including insurance policies 1.3% 25 3.1% 30 Total market value of assets 5.2% 194 5.7% 193

The expected long-term rates of return for equities are long-term assumptions and were set after taking actuarial advice. The expected equity returns can be considered as a risk free rate of return (determined by reference to government bond rates in the countries in which the plans are based) plus a risk premium to reflect the additional risks associated with equities. For the UK scheme the expected return implies a premium of 3.9 per cent per year as at 31 July 2012 (2011: 3.1 per cent) over the expected return from government bonds. For the principal overseas schemes in the USA, Canada and Switzerland a similar approach has been adopted with returns set by reference to long-term bond rates after taking actuarial advice.

UK Non-UK Total UK Non-UK Total 2012 2012 2012 2011 2011 2011 Fair value of plan assets £m £m £m £m £m £m At 1 August 696 193 889 593 131 724 Expected return on plan assets 45 11 56 38 8 46 Actuarial (loss)/gain (44) (4) (48) 38 1 39 Employer’s contributions 101 8 109 56 34 90 Participants’ contributions – 3 3 – 3 3 Reclassification – – – – 15 15 Benefits paid (31) (8) (39) (29) (12) (41) Currency translation – (9) (9) – 13 13 At 31 July 767 194 961 696 193 889 Actual return on plan assets 1 7 8 76 9 85

Wolseley plc 128 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

25. Retirement benefit obligations continued UK Non-UK Total UK Non-UK Total 2012 2012 2012 2011 2011 2011 Present value of defined benefit obligation £m £m £m £m £m £m At 1 August 946 303 1,249 897 259 1,156 Current service cost 22 7 29 24 6 30 Curtailment and settlement (2) – (2) (11) (1) (12) Interest cost 51 13 64 48 13 61 Participants’ contributions – 3 3 – 3 3 Disposal of businesses – – – – (2) (2) Reclassified as held for sale – – – – (15) (15) Benefits paid (32) (11) (43) (27) (16) (43) Reclassification – – – – 15 15 Actuarial (gain)/loss (2) 38 36 15 19 34 Currency translation – (17) (17) – 22 22 At 31 July 983 336 1,319 946 303 1,249

2012 2011 Analysis of present value of defined benefit obligation £m £m Amounts arising from wholly unfunded plans 71 77 Amounts arising from plans that are wholly or partly funded 1,248 1,172 1,319 1,249

(iii) Valuation assumptions The financial assumptions used to estimate defined benefit obligations are: 2012 2011 UK Non-UK UK Non-UK Discount rate 4.6% 3.3% 5.4% 4.1% Inflation rate 2.9% 1.9% 3.7% 1.9% Increase to deferred benefits during deferment 1.9% 2.0% 2.7% 2.0% Increases to pensions in payment 2.8% 2.0% 3.6% 1.8% Salary increases 3.9% 2.6% 4.7% 2.6%

The life expectancy assumptions used to estimate defined benefit obligations are: 2012 2011 UK Non-UK UK Non-UK Current pensioners (at age 65) – male 22 20 22 20 Current pensioners (at age 65) – female 24 22 24 22 Future pensioners (at age 65) – male 25 21 25 21 Future pensioners (at age 65) – female 27 23 26 23

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 129

26. Share capital Authorised numbers Allotted and issued numbers 2012 2011 2012 2011 Number of ordinary 10 pence shares in the Company (million) 500 500 286 285 Total number of shares (million) 500 500 286 285 Nominal value of ordinary 10 pence shares in the Company (£ million) 50 50 28 28 Total nominal value of shares (£ million) 50 50 28 28

All the allotted and issued shares, including those held by Employee Benefit Trusts, are fully paid or credited as fully paid. From 1 August 2011 to 31 July 2012, shares were issued to satisfy options exercised under the Group’s share schemes. A summary of the movements in the year is detailed in the following table: 2012 2011 Number of 10 pence ordinary shares in Old Wolseley in issue at 1 August – 284,399,824 Exercise of executive share options – 2,877 Exercise of savings related share options – 31,868 Group reconstruction – (284,434,569) Number of 10 pence ordinary shares in Old Wolseley in issue at 31 July – – Initial subscriber shares issued 28 September 2010 – 2 Number of 10 pence ordinary shares in the Company in issue at 1 August 284,910,959 – Group reconstruction – 284,434,569 Redemption of initial subscriber shares – (2) Exercise of executive share options 25,602 292,122 Exercise of savings related share options 1,345,074 184,268 Number of 10 pence ordinary shares in the Company in issue at 31 July 286,281,635 284,910,959

On 23 November 2010 pursuant to the Scheme of Arrangement under Part 26 of the UK Companies Act 2006 between Old Wolseley (the former holding company of the Group) and the Old Wolseley shareholders, and as sanctioned by the High Court, all the issued 10 pence ordinary shares in Old Wolseley were cancelled and the same number of new shares were issued to the Company in consideration for the allotment to shareholders of one ordinary 10 pence share in the Company for each ordinary 10 pence share in Old Wolseley held at the scheme record date of 19 November 2010. The Old Wolseley deferred shares had no voting rights, no entitlement to a dividend and could not be traded. On 24 November 2010 the Old Wolseley deferred shares were transferred from their current holders to the Company for no consideration and were then repurchased and cancelled by Old Wolseley. Wolseley plc 130 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

27. Share-based payments 2012 2011 Analysis of profit and loss charge/(credit) £m £m Executive Option Schemes 11 (4) Ordinary Share Plan 3 – Employee Saving Option Schemes 4 4 LTIS and RSP 3 3 21 3 On 28 September 2011 the Remuneration Committee approved the Wolseley Group Ordinary Share Plan 2011 (the “Ordinary Share Plan”). Under the Ordinary Share Plan, employees can be granted a variable number of awards in any form or combination of options, restricted share awards, conditional share awards or phantom share awards up to a maximum of 100 per cent of their current salary. The vesting period is three years and there are no performance measures other than retained employment. The first awards were granted on 15 November 2011. There have been no other significant changes to the Group’s share-based payment plans, which are summarised on page 152. Awards granted under the Executive Option Schemes are subject to a condition such that they may not be exercised unless the growth in headline earnings per share over a period of three consecutive financial years exceeds the growth in the UK Retail Price Index over the same period by at least 9 per cent. When management expect that there is no realistic probability that this condition for a particular award to vest will be attained, amounts charged in previous periods in respect of that award are credited to the income statement. No such credit has been recorded in 2012. In 2011 £13 million was credited to the income statement in respect of the 2008 award. The number of outstanding and number of exercisable share options and share awards are detailed below. 2012 2011 Number of Number of shares/options shares/options 000’s 000’s Outstanding at 1 August 16,274 16,474 Granted 1,992 3,685 Options exercised or shares vested (1,393) (507) Surrendered or expired (6,142) (3,378) Outstanding at 31 July 10,731 16,274 Exercisable at 31 July 648 770 £ £ Weighted average fair value per share/option granted during the year 11.81 7.18 At 31 July 2012 9,983,000 (2011: 12,849,000) of the shares and options outstanding had an exercise price which was below the market price. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 131

28. Shareholders’ equity and statement of changes in equity Retained earnings Share Share Translation Hedging Own Profit and Total capital premium reserve reserve shares loss account equity For the year ended 31 July 2012 £m £m £m £m £m £m £m Profit for the year attributable to shareholders of the company – – – – – 57 57 Exchange loss on translation of overseas operations – – (145) 2 – – (143) Exchange gain on translation of borrowings and derivatives designated as hedges of overseas operations – – 7 – – – 7 Cumulative currency translation differences on disposals recycled to income statement – – 2 – – – 2 Actuarial loss on retirement benefits – – – – – (84) (84) Tax on gains and losses not recognised in the income statement – – – – – 26 26 Total comprehensive (expense)/income – – (136) 2 – (1) (135) New share capital subscribed – 13 – – – – 13 Credit to equity for share-based payments – – – – – 21 21 Dividends paid – – – – – (142) (142) Net reduction in shareholders’ equity – 13 (136) 2 – (122) (243) Opening shareholders’ equity 28 6 380 (2) (78) 3,042 3,376 Closing shareholders’ equity 28 19 244 – (78) 2,920 3,133

Total retained earnings, which are the sum of the hedging reserve, own shares reserve and profit and loss account, were £2,842 million at 31 July 2012 (2011: £2,962 million). Wolseley plc 132 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

28. Shareholders’ equity and statement of changes in equity continued Retained earnings Share Share Translation Hedging Own Profit and Total capital premium reserve reserve shares loss account equity For the year ended 31 July 2011 £m £m £m £m £m £m £m Profit for the year attributable to shareholders of the company – – – – – 271 271 Exchange gain on translation of overseas operations – – 67 – – – 67 Exchange gain on translation of borrowings and derivatives designated as hedges of overseas operations – – 12 – – – 12 Cumulative currency translation differences on disposals recycled to income statement – – 1 – – – 1 Actuarial gain on retirement benefits – – – – – 5 5 Valuation losses on cash flow hedges reclassified to income statement – – – 3 – – 3 Tax on gains and losses not recognised in the income statement – – – – – (9) (9) Total comprehensive income – – 80 3 – 267 350 Reclassification on group reconstruction (213) 3,805 – – – (3,592) – Capital reduction – (4,961) – – – 4,961 – New share capital subscribed – 6 – – – – 6 Credit to equity for share-based payments – – – – – 3 3 Dividends paid – – – – – (42) (42) Net addition to shareholders’ equity (213) (1,150) 80 3 – 1,597 317 Opening shareholders’ equity 241 1,156 300 (5) (78) 1,445 3,059 Closing shareholders’ equity 28 6 380 (2) (78) 3,042 3,376

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 133

29. Reconciliation of profit to cash generated from operations Profit for the year is reconciled to cash generated from operations as follows: 2012 2011 £m £m Profit for the year 57 271 Net finance costs 30 66 Profit on disposal of associate (16) – Tax expense 138 110 Loss on disposal and closure of businesses and revaluation of disposal groups 43 69 Depreciation and impairment of property, plant and equipment 113 139 Amortisation and impairment of non-acquired intangibles 12 17 Profit on disposal of property, plant and equipment and assets held for sale (1) (13) Amortisation and impairment of acquired intangibles 413 114 Increase in inventories (60) (165) Decrease/(increase) in trade and other receivables 33 (300) Decrease in construction loan receivables 23 – Increase/(decrease) in trade and other payables 79 (174) Decrease in provisions and other liabilities* (138) (121) Share-based payments 21 3 Cash generated from operations 747 16

Trading profit is reconciled to cash generated from operations as follows: 2012 2011 £m £m Trading profit 665 622 Exceptional items in operating profit (40) (51) Loss on disposal and closure of businesses and revaluation of disposal groups 40 59 Depreciation and impairment of property, plant and equipment 113 139 Amortisation and impairment of non-acquired intangibles 12 17 Profit on disposal of property, plant and equipment and assets held for sale (1) (13) Increase in inventories (60) (165) Decrease/(increase) in trade and other receivables 33 (300) Decrease in construction loan receivables 23 – Increase/(decrease) in trade and other payables 79 (174) Decrease in provisions and other liabilities* (138) (121) Share-based payments 21 3 Cash generated from operations 747 16

* includes payments to retirement benefit plans that were £85 million higher than the pension cost charged to operating and trading profit (2011: £65 million). Wolseley plc 134 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

30. Acquisitions The Group acquired the following businesses in the year ended 31 July 2012 and accounted for the transactions by the purchase method of accounting. Country of Date incorporation % acquired Bygg 24 1 August 2011 Norway 67% Louisiana Chemical Pipe, Value & Fitting Inc 31 August 2011 USA 100% S G Supply 28 September 2011 USA 100% Groeniger & Co 7 November 2011 USA 100% Tra & Bygg i Karuna and Tra & Bygg i Gallivare 9 January 2012 Sweden 100% Printz 1 March 2012 Denmark 100% Arvika 22 March 2012 Sweden 100% Tommerup 10 April 2012 Denmark 100% Reese Kitchen Inc 23 April 2012 USA 100% These businesses were acquired for £46 million, including deferred consideration of £5 million, and total net assets acquired were £26 million. An amount of £6 million has been recorded in intangible assets for the value placed on customer relationships and brands, and £14 million of goodwill has been recognised. The acquisition of these businesses has not had a material effect on the financial statements. The net outflow of cash in respect of the purchase of businesses is as follows: 2012 2011 £m £m Purchase consideration 41 8 Deferred and contingent consideration paid in the year 1 1 Cash consideration 42 9 Cash, cash equivalents and bank overdrafts acquired (1) 3 Net cash outflow in respect of the purchase of businesses 41 12

31. Disposals In the year ended 31 July 2012 the Group’s UK segment disposed of Encon, Build Center and Bathstore and its France segment disposed of Brossette. Details of assets and liabilities disposed of, transaction costs and consideration received in respect of these and other immaterial disposals are provided in the following table. 2012 Assets disposed of £m Intangible assets 2 Property, plant and equipment 5 Inventories 24 Receivables 8 Assets and liabilities held for sale 332 Cash, cash equivalents and bank overdrafts 5 Payables and provisions (16) Deferred tax 4 Total 364 Cash consideration received (361) Deferred consideration and adjustments to consideration (11) Disposal costs and provisions 41 Cumulative currency translation loss recycled from reserve 2 Loss on disposal 35

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 135

31. Disposals continued The net inflow of cash in respect of the disposal of businesses is as follows: 2012 £m Cash consideration received 361 Cash, cash equivalents and bank overdrafts disposed (5) Disposal costs paid (25) Settlement of trade payables of Build Center which were not transferred as part of the sale (64) Payments to settle liabilities for prior year divestments (11) Net cash inflow in respect of the disposal of businesses 256

32. Reconciliation of opening to closing net cash/(debt) Reclassified Fair value New finance as held for and other Exchange At 1 August Cash flows leases sale adjustments movement At 31 July For the year ended 31 July 2012 £m £m £m £m £m £m £m Cash and cash equivalents 403 813 Bank overdrafts (71) (39) 332 521 – (42) – (37) 774 Derivative financial instruments 62 – – – 5 5 72 Bank loans (865) 122 – – (5) – (748) Obligations under finance leases (52) 11 (19) – – 7 (53) Net cash/(debt) (523) 654 (19) (42) – (25) 45

Acquisitions Reclassified Fair value and as held for and other Exchange At 1 August Cash flows disposals sale adjustments movement At 31 July For the year ended 31 July 2011 £m £m £m £m £m £m £m Cash and cash equivalents 665 403 Bank overdrafts (90) (71) 575 (247) – (11) – 15 332 Derivative financial instruments 68 – – – (3) (3) 62 Bank loans (914) 72 (2) – (47) 26 (865) Obligations under finance leases (75) 20 9 1 – (7) (52) Net debt (346) (155) 7 (10) (50) 31 (523)

Fair value and other adjustments include the transfer of £52 million of construction loans payable to bank loans. 33. Related party transactions There are no related party transactions requiring disclosure under IAS 24, “Related Party Disclosures” other than the compensation of key management personnel which is set out in the following table. 2012 2011 Key management personnel compensation (including Directors) £m £m Salaries, bonuses and other short-term employee benefits 8 9 Termination and post-employment benefits – 1 Share-based payments 4 1 Total compensation 12 11

More detailed disclosures on the remuneration of the Directors are provided in the Remuneration report on pages 84 to 96. Wolseley plc 136 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

34. Operating lease commitments Future minimum lease payments under non-cancellable operating leases for the following periods are: 2012 2011 £m £m Within one year 209 245 Later than one year and less than five years 473 638 After five years 160 243 Total operating lease commitments 842 1,126

Operating lease payments mainly represent rent payable by the Group for certain of its properties. Some of these operating lease arrangements have renewal options and rental escalation clauses, though the effect of these is not material. No arrangements have been entered into for contingent rental payments. The commitments shown above include commitments for onerous leases which have already been provided for. At 31 July 2012 provisions include an amount of £39 million (2011: £54 million) in respect of minimum lease payments for such onerous leases net of sublease payments expected to be received. The total minimum sublease payments expected to be received under non-cancellable subleases at 31 July 2012 is £36 million (2011: £19 million). 35. Contingent liabilities Group companies are, from time to time, subject to certain claims and litigation arising in the normal course of business in relation to, among other things, the suitability of products, contract and commercial disputes and disputes with employees. Provision is made if, on the basis of current information and professional advice, liabilities are considered likely to arise. In the case of unfavourable outcomes the Group may benefit from applicable insurance recoveries. Certain claims arise as a result of the unintentional supply of defective products and these claims are usually the responsibility of the manufacturer, though defence and other costs may also be incurred by the Group. Mislabelled gaskets In December 2011 the Group’s US business wrote to a number of customers in the USA and Canada in relation to the unintentional supply of gaskets which were mislabelled by a former supplier, Lortech Rubber Inc. of Canada, as being non- asbestos. A number of customers had found asbestos in gaskets above the level at which they can be classified as non- asbestos. Independent expert advice confirmed that there was no health or safety risk arising from the handling, installation and use of the gaskets. Well-established protocols are maintained by the US Occupational Safety and Health Administration to ensure the safe removal of all types of gaskets. The performance of the gaskets is not affected and the expert advice is to leave the gaskets in place until the end of their lives. The supply of these products in the USA and Canada is legal. No significant product liability claims have arisen from this matter to date. Warranties and guarantees in relation to business disposals Following a review of the appropriate allocation of the Group’s resources in 2009 the Group has disposed of a number of non-core businesses and various Group companies have provided certain standard warranties and guarantees to acquirers and other third parties, including warranties regarding financial statements and taxation. Provision is made where the Group considers that a liability is likely to crystallise, though it is possible that claims in respect of which no provisions has been made could be received in the future. Group companies have also guaranteed certain property and other obligations which could be called in an event of default. As at the date of this report there are no significant outstanding claims in relation to business disposals. Outcome The outcome of claims and litigation to which Group companies are party cannot readily be foreseen as, in some cases, the facts are unclear, further time is needed to properly assess the merits of the case, or they are part of continuing legal proceedings. However, based on information currently available, the Directors consider that the cost to the Group of an unfavourable outcome arising from such litigation is not expected to have a material adverse effect on the financial position of the Group. 36. Post balance sheet events On 21 August 2012, the Group completed the disposal of the Woodcote Group for proceeds of £3.4 million. On 25 September 2012, the Group completed the acquisition of Power Equipment Direct, an online retailer of generators and power equipment, for a maximum consideration of £41 million. It had revenue of £53 million in its last financial year. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 137

37. Additional information Group accounting policies A summary of the principal accounting policies applied by the Group in the preparation of the consolidated financial statements is set out below. Basis of preparation The consolidated financial statements have been prepared under the historical cost convention as modified by the revaluation of available-for-sale investments and financial assets and liabilities held for trading. Exceptional items Exceptional items are those material items which, by virtue of their size or incidence, are presented separately in the income statement to enable a full understanding of the Group’s financial performance. These exclude impairments of acquired intangibles which are also presented separately in the income statement. Transactions which may give rise to exceptional items include restructurings of business activities and gains or losses on the disposal of businesses. Consolidation The consolidated financial information includes the results of the parent company and its subsidiary undertakings drawn up to 31 July 2012. The trading results of businesses other than discontinued operations acquired or sold during the year are included in profit on ordinary activities from continuing operations from the date of acquisition or up to the date of sale. Intra-group transactions and balances and any unrealised gains and losses arising from intra-group transactions are eliminated on consolidation. Discontinued operations When the Group has disposed of or intends to dispose of a business component that represents a separate major line of business or geographical area of operations it classifies such operations as discontinued. The post-tax profit or loss of the discontinued operations is shown as a single line on the face of the income statement, separate from the other results of the Group. Foreign currencies Items included in the financial statements of each of the Group’s subsidiary undertakings are measured using the currency of the primary economic environment in which the subsidiary undertaking operates (the “functional currency”). The consolidated financial statements are presented in sterling, which is the presentational currency of the Group and the functional currency of the parent company. The trading results of overseas subsidiary undertakings are translated into sterling using average rates of exchange ruling during the relevant financial period. The balance sheets of overseas subsidiary undertakings are translated into sterling at the rates of exchange ruling at the period end. Exchange differences arising between the translation into sterling of the net assets of these subsidiary undertakings at rates ruling at the beginning and end of the year are recognised in the currency translation reserve as are exchange differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets. Changes in the fair value and the final settlement value of derivative financial instruments, entered into to hedge foreign currency net assets and that satisfy the hedging conditions of IAS 39, are recognised in the currency translation reserve (see the separate accounting policy on derivative financial instruments). In the event that an overseas subsidiary undertaking is sold, the gain or loss on disposal recognised in the income statement is determined after taking into account the cumulative currency translation differences that are attributable to the subsidiary undertaking concerned. Foreign currency transactions entered into during the year are translated into sterling at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the income statement with the exception of differences on foreign currency borrowings to the extent that they are used to finance or provide a hedge against foreign currency net assets as detailed above. Wolseley plc 138 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Group accounting policies continued Business combinations The introduction of a new holding company in 2011 constituted a group reconstruction and was accounted for using merger accounting principles. In all other cases the Group has applied the purchase method in its accounting for the acquisition of subsidiaries. The cost of an acquisition is measured as the fair value of the assets given, equity instruments issued and liabilities incurred or assumed at the date of exchange. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date, irrespective of the extent of any minority interest. Acquisition related costs are expensed. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. If the cost of acquisition is less than the fair value of the Group’s share of the net assets of the subsidiary acquired, the difference is recognised directly in the income statement. Revenue Revenue is the amount receivable for the provision of goods and services falling within the Group’s ordinary activities, excluding intra-group sales, estimated and actual sales returns, trade and early settlement discounts, value added tax and similar sales taxes. Revenue from the provision of goods is recognised when the risks and rewards of ownership of goods have been transferred to the customer. The risks and rewards of ownership of goods are deemed to have been transferred when the goods are shipped to, or are picked up, by the customer. Revenue from services is recognised when the service provided to the customer has been completed. Customer loyalty credits are accounted for as a separate component of the sales transaction in which they are granted. A portion of the fair value of the consideration received is allocated to the loyalty credits and recognised over the period that loyalty credits are redeemed. Revenue from the provision of goods and services is only recognised when the amounts to be recognised are fixed or determinable and collectability is reasonably assured. Cost of sales Cost of sales includes purchased goods, the cost of bringing inventory to its present location and condition, and labour and overheads attributable to assembly and construction services. Vendor rebates The Group enters into arrangements with certain vendors providing for inventory purchase rebates. These purchase rebates are accrued as earned and are recorded initially as a reduction in inventory with a subsequent reduction in cost of sales when the related product is sold. Intangible assets Goodwill Goodwill represents the excess of the cost of an acquisition over the fair value of the Group’s share of the net identifiable assets of the acquired subsidiary undertaking at the date of acquisition. Goodwill on acquisitions of subsidiary undertakings is included in intangible assets. Goodwill is not amortised but is tested annually for impairment and carried at cost less accumulated impairment losses. Gains and losses on the disposal of an entity include the carrying amount of goodwill relating to the entity sold. All goodwill has arisen from business combinations. On transition to IFRS, the balance of goodwill as measured under UK GAAP was allocated to cash-generating units and groups of cash-generating units (“CGUs”). These are independent sources of income streams, and represent the lowest level within the Group at which the associated goodwill is monitored for management purposes, which may be at country, divisional, brand or regional level. Goodwill arising on business combinations after 1 August 2004 has been allocated to the CGUs that are expected to benefit from that business combination. No CGUs are larger than the reporting segments determined in accordance with IFRS 8 “Operating Segments”. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 139

37. Additional information continued Group accounting policies continued Other intangible assets An intangible asset, which is an identifiable non-monetary asset without physical substance, is recognised to the extent that it is probable that the expected future economic benefits attributable to the asset will flow to the Group and that its cost can be measured reliably. The asset is deemed to be identifiable when it is separable or when it arises from contractual or other legal rights. Intangible assets, primarily brands, trade names and customer relationships, acquired as part of a business combination are capitalised separately from goodwill and are carried at cost less accumulated amortisation and accumulated impairment losses. Amortisation is calculated using the reducing balance method for customer relationships and the straight-line method for other intangible assets. The cost of the intangible assets is amortised over their estimated useful lives as follows: Customer relationships 4 – 25 years Trade names and brands 1 – 15 years Other 1 – 4 years Computer software that is not integral to an item of property, plant and equipment is recognised separately as an intangible asset and is carried at cost less accumulated amortisation and accumulated impairment losses. Costs include software licences, consulting costs attributable to the development, design and implementation of the computer software and internal costs directly attributable to the development, design and implementation of the computer software. Costs in respect of training and data conversion are expensed as incurred. Amortisation is calculated using the straight-line method so as to charge the cost of the computer software to the income statement over its estimated useful life as follows: Software 3 – 5 years Software assets are generally either purchases from third parties or internally generated. Other intangible assets arise on business combinations. Property, plant and equipment (“PPE”) PPE is carried at cost less accumulated depreciation and accumulated impairment losses, except for land and assets in the course of construction, which are not depreciated and are carried at cost less accumulated impairment losses. Cost includes expenditure that is directly attributable to the acquisition of the items. In addition, subsequent costs are included in the asset’s carrying amount or recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. All other repairs and maintenance costs are charged to the income statement during the financial period in which they are incurred. Depreciation on assets is calculated using the straight-line method to allocate the cost of each asset to its residual value over its estimated useful life, as follows: Freehold buildings and long leaseholds 35 – 50 years Operating leasehold improvements over the period of the lease Plant and machinery 7 – 10 years Computer hardware 3 – 5 years Fixtures and fittings 5 – 7 years Motor vehicles 4 years The residual values and useful lives of PPE are reviewed and adjusted if appropriate at each balance sheet date. Borrowing costs directly attributable to the long-term construction or production of an asset are capitalised as part of the cost of the asset. Leased assets Assets held under finance leases, which are leases where substantially all the risks and rewards of ownership of the asset have transferred to the Group, are capitalised in the balance sheet and depreciated over the shorter of the lease term or their useful lives. The asset is recorded at the lower of its fair value and the present value of the minimum lease payments at the inception of the lease. The capital elements of future obligations under finance leases are included in liabilities in the balance sheet and analysed between current and non-current amounts. The interest elements of future obligations under finance leases are charged to the income statement over the periods of the leases and represent a constant proportion of the balance of capital repayments outstanding in accordance with the effective interest rate method. Leases where the lessor retains substantially all the risks and rewards of ownership are classified as operating leases. The cost of operating leases (net of any incentives received from the lessor) is charged to the income statement on a straight-line basis over the periods of the leases. Wolseley plc 140 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Group accounting policies continued Assets and disposal groups held for sale Assets are classified as held for sale if their carrying amount will be recovered by sale rather than by continuing use in the business. Where a group of assets and their directly associated liabilities are to be disposed of in a single transaction, such disposal groups are also classified as held for sale. For this to be the case, the asset or disposal group must be available for immediate sale in its present condition, and management must be committed to and have initiated a plan to sell the asset or disposal group which, when initiated, was expected to result in a completed sale within 12 months. Assets that are classified as held for sale are not depreciated. Assets or disposal groups that are classified as held for sale are measured at the lower of their carrying amount and fair value less costs to sell. Impairment of assets Assets that have an indefinite useful life, such as goodwill, are not subject to amortisation or depreciation and are tested annually for impairment and whenever events or changes in circumstance indicate that the carrying amount may not be recoverable. Assets that are subject to amortisation or depreciation and assets under construction are tested for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. The value in use is in most cases based on the discounted present value of the future cash flows expected to arise from the cash generating unit to which the goodwill relates, or from the individual asset or asset group. The value in use calculations in respect of CGUs use cash flow projections based on five year financial forecasts approved by management. The key assumptions for these forecasts are those regarding revenue growth, trading margin and the level of working capital required to support trading, which management estimates based on past experience, reflecting the cyclicality of earnings, and expectations of future changes in the market. To prepare value in use calculations, the cash flow forecasts are extrapolated after the five year period at an estimated average long-term nominal growth rate for each market (ranging from 1.0 per cent to 2.5 per cent), and discounted back to present value. The discount rate assumptions use an estimate of the Group’s post-tax weighted average cost of capital of 8.3 per cent, based on the five year historic volatility of Wolseley shares and on benchmark interest rates. The pre-tax discount rate which ranges from 11 per cent to 14 per cent (2011: 10 per cent to 13 per cent) has been applied to the risk adjusted cash flows of each CGU. The carrying amounts of goodwill and acquired intangibles for CGUs which have a significant proportion of the Group’s total are: Blended Branches (USA) £243 million, Beijer (Nordic) £152 million, Stark (Nordic) £142 million, Waterworks (USA) £105 million and Starkki (Nordic) £97 million. Inventories Inventories, which all comprise goods purchased for resale, are stated at the lower of cost and net realisable value. Cost is determined using the first-in, first-out (“FIFO”) method or the average cost method as appropriate to the nature of the transactions in those items of inventory. The cost of goods purchased for resale includes import and custom duties, transport and handling costs, freight and packing costs and other attributable costs less trade discounts, rebates and other subsidies. It excludes borrowing costs. Net realisable value is the estimated selling price in the ordinary course of business, less applicable variable selling expenses. Trade receivables Trade receivables are recognised initially at fair value and measured subsequently at amortised cost using the effective interest method, less provision for impairment. A provision for impairment of trade receivables is established when there is objective evidence that the Group will not be able to collect all amounts due according to the original terms of the receivables. Examples of such evidence include significant financial difficulties of the debtor, probability that the debtor will enter bankruptcy or financial reorganisation, and default or delinquency in payments. The amount of the provision is the difference between the asset’s carrying amount and the present value of estimated future cash flows, discounted at the original effective interest rate. The amount of the loss is recognised in the income statement. Trade receivables are written off against the provision when recoverability is assessed as being remote. Subsequent recoveries of amounts previously written off are credited to the income statement. Provisions Provisions for environmental restoration, restructuring costs, product and service warranties and legal claims are recognised when the Group has a present legal or constructive obligation as a result of past events, it is more likely than not that an outflow of resources will be required to settle the obligation, and the amount can be reliably estimated. Such provisions are measured at the present value of management’s best estimate of the expenditure required to settle the present obligation at the balance sheet date. The discount rate used to determine the present value reflects current market assessments of the time value of money. Provisions are not recognised for future operating losses. Provisions for insurance represent an estimate, based on historical experience, of the ultimate cost of settling outstanding claims and claims incurred but not reported at the balance sheet date on certain risks retained by the Group. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 141

37. Additional information continued Group accounting policies continued Retirement benefit obligations Contributions to defined contribution pension plans and other post-retirement benefits are charged to the income statement as incurred. For defined benefit pension plans and other retirement benefits, the cost is calculated annually using the projected unit credit method and is recognised over the average expected remaining service lives of participating employees, in accordance with the recommendations of independent qualified actuaries. The current service cost of defined benefit plans is recorded within operating profit. The total expected return from pension scheme assets less the total interest on pension scheme liabilities is recorded within finance revenue if a gain and finance costs if an expense. Past service costs resulting from enhanced benefits are recorded within operating profit and recognised on a straight-line basis over the vesting period, or immediately if the benefits have vested. Actuarial gains and losses, which represent differences between the expected and actual returns on the plan assets and the effect of changes in actuarial assumptions, are recognised in full in the statement of comprehensive income in the period in which they occur. The defined benefit liability or asset recognised in the balance sheet comprises the net total for each plan of the present value of the benefit obligation at the balance sheet date, less any past service costs not yet recognised, less the fair value of the plan assets, if any, at the balance sheet date. Where a plan is in surplus, the asset recognised is limited to the amount of any unrecognised past service costs and the present value of any amount which the Group expects to recover by way of refunds or a reduction in future contributions. Taxation Current tax represents the expected tax payable (or recoverable) on the taxable income for the year using tax rates enacted or substantively enacted at the balance sheet date and taking into account any adjustments arising from prior years. Deferred tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the consolidated financial statements. Deferred tax is not accounted for if it arises from initial recognition of an asset or liability in a transaction, other than a business combination, that at the time of the transaction affects neither accounting nor taxable profit or loss. Deferred tax is determined using tax rates (and laws) that have been enacted or substantially enacted by the balance sheet date and are expected to apply when the related deferred tax asset is realised or the deferred tax liability is settled. Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the temporary differences can be utilised. Deferred tax is provided on temporary differences arising on investments in subsidiaries except where the timing of the reversal of the temporary difference is controlled by the Group and it is probable that the temporary difference will not reverse in the foreseeable future. Share capital Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. Where any group company purchases the Company’s equity share capital (treasury shares), the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company’s equity holders. Wolseley plc 142 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Group accounting policies continued Share-based payments Share-based incentives are provided to employees under the Group’s executive share option, long-term incentive, employee share purchase and ordinary share plan schemes. The Group recognises a compensation cost in respect of these schemes that is based on the fair value of the awards, measured using Black-Scholes, Binomial and Monte Carlo valuation methodologies. For equity-settled schemes, the fair value is determined at the date of grant (including the impact of any non-vesting conditions such as a requirement for employees to save) and is not subsequently re-measured unless the conditions on which the award was granted are modified. For cash-settled schemes, the fair value is determined at the date of grant and is re-measured at each balance sheet date until the liability is settled. The fair value at the date of grant of options awarded during the year has been estimated by the binomial methodology for all schemes except the long term incentive scheme, for which a Monte Carlo simulation was used. The fair value of shares granted under the Ordinary Share Plan and Restricted Share Plan was calculated as the market price of the shares at the date of grant reduced by the present value of dividends expected to be paid over the vesting period. The principal assumptions required by these methodologies were: Long Term Incentive Executive Share Options Employee Share Options Schemes 2012 2011 2012 2011 2012 2011 Risk free interest rate 1.4% 2.55% 0.65% 1.57% 1.4% 1.31% Expected dividend yield 3.8% 1.84% 3.22% 1.80% 3.8% 1.93% Expected volatility 44.51% 42.14% 43.73% 44.04% 41% 53.2% Expected life 5.7 years 5.7 years 1–7 years 1–7 years 3 years 3 years Expected volatility has been estimated on the basis of historic volatility over the expected term, excluding the effect of extraordinary volatility due to the Group’s capital reorganisation and rights issue in 2009. Expected life has been estimated on the basis of historical data on the exercise pattern. The principal assumptions for the Ordinary Share Plan are expected dividend yield of 3.8 per cent and expected life of three years. Generally, the compensation cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to the failure to satisfy service conditions or non-market performance conditions. Dividends payable Dividends on ordinary shares are recognised in the Group’s financial statements in the period in which the dividends are approved by the shareholders of the Company (generally in the case of the final dividend) or paid (in the case of interim dividends). Cash and cash equivalents Cash and cash equivalents includes cash in hand, deposits held at call with banks, other short-term highly liquid investments with original maturities of three months or less, and bank overdrafts. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet to the extent that there is no right of offset and no practice of net settlement with cash balances. Derivative financial instruments Derivative financial instruments, in particular interest rate swaps and currency swaps, are used to manage the financial risks arising from the business activities of the Group and the financing of those activities. There is no trading activity in derivative financial instruments. At the inception of a hedging transaction entailing the use of derivative financial instruments, the Group documents the relationship between the hedged item and the hedging instrument together with its risk management objective and the strategy underlying the proposed transaction. The Group also documents its assessment, both at the inception of the hedging relationship and subsequently on an ongoing basis, of the effectiveness of the hedge in offsetting movements in the fair values or cash flows of the hedged items. Derivative financial instruments are recognised as assets and liabilities measured at their fair values at the balance sheet date. Where derivative financial instruments do not fulfil the criteria for hedge accounting contained in IAS 39, changes in their fair values are recognised in the income statement. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 143

37. Additional information continued Group accounting policies continued When hedge accounting is used, the relevant hedging relationships are classified as fair value hedges, cash flow hedges or net investment hedges. Where the hedging relationship is classified as a fair value hedge, the carrying amount of the hedged asset or liability is adjusted by the increase or decrease in its fair value attributable to the hedged risk and the resulting gain or loss is recognised in the income statement where, to the extent that the hedge is effective, it will be offset by the change in the fair value of the hedging instrument. If the hedge no longer meets the criteria for hedge accounting, the adjustment to the carrying amount of a hedged item for which the effective interest method is used is amortised to profit or loss over the period to maturity. Where the hedging relationship is classified as a cash flow hedge or as a net investment hedge, to the extent the hedge is effective, changes in the fair value of the hedging instrument arising from the hedged risk are recognised directly in equity rather than in the income statement. When the hedged item is recognised in the financial statements, the accumulated gains and losses recognised in equity are either recycled to the income statement or, if the hedged item results in a non-financial asset, are recognised as adjustments to its initial carrying amount. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the income statement. Borrowings Borrowings are recognised initially at the fair value of the consideration received net of transaction costs incurred. Borrowings are subsequently stated at amortised cost with any difference between the proceeds (net of transaction costs) and the redemption value being recognised in the income statement over the period of the borrowings using the effective interest method. Borrowings are classified as current liabilities unless the Group has an unconditional right to defer settlement of the liability for at least 12 months after the balance sheet date. Additional information about financial instruments Financial instruments by category The accounting policies for financial instruments have been applied to the following items: Cash Fair value and cash Loans and through Available- equivalents receivables profit or loss for-sale Total Assets at 31 July 2012 £m £m £m £m £m Financial assets: available-for-sale investments – – – 3 3 Trade and other receivables, excluding prepayments and accrued income – 1,840 – – 1,840 Derivative financial assets – – 72 – 72 Financial receivables: construction loans (secured) – 6 – – 6 Cash and cash equivalents 813 – – – 813 813 1,846 72 3 2,734 Impairment losses in the year – 33 – – 33

Other financial liabilities Total Liabilities as at 31 July 2012 £m £m Trade and other payables, excluding accruals, deferred income and tax and social security 1,931 1,931 Loans and overdrafts 787 787 Obligations under finance leases 53 53 2,771 2,771 Wolseley plc 144 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Additional information about financial instruments continued Cash Derivatives and cash Loans and used for Available- equivalents receivables hedging for-sale Total Assets at 31 July 2011 £m £m £m £m £m Financial assets: available-for-sale investments – – – 3 3 Trade and other receivables, excluding prepayments and accrued income – 1,846 – – 1,846 Derivative financial assets – – 64 – 64 Financial receivables: construction loans (secured) – 33 – – 33 Cash and cash equivalents 403 – – – 403 403 1,879 64 3 2,349 Impairment losses in the year – 47 – – 47

Fair value Other through financial profit or loss liabilities Total Liabilities as at 31 July 2011 £m £m £m Trade and other payables, excluding accruals, deferred income and tax and social security – 1,950 1,950 Loans and overdrafts – 936 936 Obligations under finance leases – 52 52 Derivative financial liabilities 2 – 2 2 2,938 2,940

Financial instruments by measurement basis Financial instruments in the categories “derivatives used for hedging”, “fair value through profit or loss” and “available-for-sale” are all measured in the balance sheet at fair value. Fair value measurements can be classified in the following hierarchy: • Quoted prices (unadjusted) in active markets for identical assets or liabilities (level 1); • Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly or indirectly (level 2); • Inputs for the asset or liability that are not based on observable market data (that is, unobservable inputs) (level 3). The following tables present the Group’s assets and liabilities that are measured at fair value at 31 July 2012 and 31 July 2011: Level 1 Level 2 Level 3 Total Assets at 31 July 2012 £m £m £m £m Financial assets: available-for-sale investments 3 – – 3 Derivatives at fair value through profit or loss – 72 – 72 Total assets 3 72 – 75

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 145

37. Additional information continued Additional information about financial instruments continued Level 1 Level 2 Level 3 Total Assets at 31 July 2011 £m £m £m £m Financial assets: available-for-sale investments 3 – – 3 Derivatives used for hedging – 64 – 64 Total assets 3 64 – 67

Level 1 Level 2 Level 3 Total Liabilities at 31 July 2011 £m £m £m £m Derivatives at fair value through profit and loss – 2 – 2 Total liabilities – 2 – 2

The fair value of financial instruments traded in active markets is based on quoted market prices at the balance sheet date. The fair value of financial instruments that are not traded in an active market (such as over-the-counter derivatives) is determined by using valuation techniques. The fair value of interest rate swaps is calculated as the present value of the estimated future cash flows based on observable yield curves. The fair value of currency swaps has been estimated as the cost of closing out the contracts using market prices at the balance sheet date. The Group’s other financial instruments are measured on bases other than fair value. Other receivables include an amount of £52 million (2011: £44 million) which has been discounted at a rate of 2.2 per cent (2011: 3.8 per cent) due to the long-term nature of the receivable. Because other current assets and liabilities are either of short maturity or bear floating rate interest, their fair values approximate to book values. The book values and fair values of categories including non-current assets and liabilities can be compared as follows: 2012 2012 2011 2011 Book value Fair value Book value Fair value £m £m £m £m Trade and other receivables, excluding prepayments and accrued income 1,840 1,840 1,846 1,846 Trade and other payables, excluding accruals, deferred income and other tax and social security 1,931 1,931 1,950 1,950 Bank loans 245 245 352 352 Senior unsecured notes 542 567 513 513 Finance lease obligations 53 53 52 52

Financial instruments: risk management policies The Group is exposed to market risks arising from its international operations, and the financial instruments which fund them. The main risks arising from the Group’s financial instruments are foreign currency risk, interest rate risk and liquidity risk. The Group has well defined policies for the management of interest rate, liquidity, foreign exchange and counterparty exposures, which have been consistently applied during the financial years ended 31 July 2011 and 31 July 2012. By the nature of its business the Group also has trade credit and commodity price exposures, the management of which is delegated to operating businesses. There has been no change since the year end in the major financial risks faced by the Group. Policies for managing each of these risks are regularly reviewed and are summarised below. When the Group enters into derivative transactions (principally interest rate swaps and forward foreign currency contracts), the purpose of such transactions is to hedge certain interest rate and currency risks arising from the Group’s operations and its sources of finance. It is, and has been throughout the period under review, the Group’s policy that no trading in financial instruments or speculative transactions be undertaken. Wolseley plc 146 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Additional information about financial instruments continued Capital risk management The Group’s sources of funding currently comprise cash flows generated by operations, equity contributed by shareholders and borrowings from banks and other financial institutions. In order to maintain or adjust the capital structure the Group may pay a special dividend, return capital to shareholders, issue new shares or sell assets to reduce debt. Liquidity risk The Group maintains a policy of ensuring sufficient borrowing headroom to finance all investment and capital expenditure included in its strategic plan, with an additional contingent safety margin. The Group has estimated its anticipated contractual cash outflows including interest payable in respect of its trade and other payables and bank borrowings on an undiscounted basis. The principal assumptions are that floating rate interest is calculated using the prevailing interest rate at the balance sheet date, and cash flows in foreign currency are translated using spot rates at the balance sheet date. These cash flows can be analysed by maturity as follows: Trade and other Interest on payables Debt debt Total As at 31 July 2012 £m £m £m £m Due in less than one year 1,855 92 29 1,976 Due in one to two years 7 1 28 36 Due in two to three years 5 40 28 73 Due in three to four years 5 200 23 228 Due in four to five years 5 7 19 31 Due in over five years 54 380 52 486 Total 1,931 720 179 2,830

Trade and Interest rate other Interest on and currency payables Debt debt swaps Total As at 31 July 2011 £m £m £m £m £m Due in less than one year 1,876 197 31 2 2,106 Due in one to two years 15 50 29 – 94 Due in two to three years 5 9 28 – 42 Due in three to four years 5 36 28 – 69 Due in four to five years 4 198 23 – 225 Due in over five years 45 386 68 – 499 Total 1,950 876 207 2 3,035

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 147

37. Additional information continued Additional information about financial instruments continued Foreign currency risk The Group has significant overseas businesses whose revenues are mainly denominated in the currencies of the countries in which the operations are located. Approximately 46 per cent of the Group’s revenue is in US dollars and 19 per cent in Euros. The Group does not have significant transactional foreign currency cash flow exposures. However, those that do arise may be hedged with either forward contracts or currency options. The Group does not normally hedge profit translation exposure since such hedges have only temporary effect. The Group’s policy is to adjust the currencies in which its debt is denominated to materially match the currencies in which its trading profit is generated. Details of average exchange rates used in the translation of overseas earnings and of year-end exchange rates used in the translation of overseas balance sheets, for the principal currencies used by the Group, are shown in the Five year summary on page 160. The net effect of currency translation was to reduce revenue by £47 million (0.3 per cent) (2011: decrease of £70 million, or 0.5 per cent) and to have no impact on trading profit (2011: decrease of £1 million, or 0.2 per cent). These currency effects reflect a movement of the average sterling exchange rate against US dollars, Euros and Canadian dollars as follows: 2012 2011 Strengthening/ Strengthening/ (weakening) (weakening) of sterling of sterling US dollars (1.2%) 1.7% Euros 2.8% 1.8% Canadian dollars 0.3% (3.6%) The Group has financial instruments denominated in foreign currencies which have been designated as hedges of the net investment in its overseas subsidiaries. The principal value of these financial instruments at the balance sheet date was £452 million (2011: £852 million). The gain on translation of these financial instruments into sterling of £7 million (2011: gain of £12 million) has been taken to the translation reserve. At 31 July 2012 the Group had the following short-term currency swaps and forward contracts which were designated and effective as hedges of overseas operations. 2012 Currency million £m Bought/(sold) forward CHF 64 41 DKK 1,380 146 GBP 187 (187) – At 31 July 2011 there were no open contracts. Wolseley plc 148 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Additional information about financial instruments continued The Group also has used forward contracts and currency swaps to hedge cash flows in respect of committed transactions and has classified these contracts as fair value through profit or loss. At 31 July 2012 there were no open contracts so classified. At 31 July 2011 the Group had entered into the following short-term forward contracts so classified: 2011 Currency million £m Bought/(sold) forward DKK 1,360 (160) SEK 1,415 137 EUR 25 22 USD 1 1 –

Interest rate risk To manage the Group’s exposure to interest rate fluctuations, the Group’s policy is normally that between 0 per cent and 50 per cent of projected borrowings required during the next two years should be at fixed rates. However, this percentage is regularly reviewed by the Board and 72 per cent of loans were at fixed rates at 31 July 2012. The Group borrows in the desired currencies principally at rates determined by reference to short-term benchmark rates applicable to the relevant currency or market, such as LIBOR. Rates which reset at least every 12 months are regarded as floating rates, and the Group then uses interest rate swaps to generate the desired interest rate profile. The Group reviews deposits and borrowings by currency at Treasury Committee and Board meetings. The Treasury Committee gives prior approval to any variations from floating rate arrangements. Interest rate swap contracts comprising fixed interest payable on notional principal of €100 million were held at fair value through profit and loss at 31 July 2011 and expired on 13 August 2011. These swap contracts were designated as cash flow hedges until 31 January 2010. As the cash flows which were the subject of the hedge relationship were still forecast to occur, valuation losses deferred in equity were recycled over the duration of the previous hedge relationship. During November 2011 the Group entered into interest rate swap contracts comprising fixed interest payable on $664 million of notional principal. The contracts expire between November 2015 and November 2020 and the fixed interest rates range between 1.51 per cent and 2.94 per cent. These contracts have been held since inception at fair value through profit or loss. With effect from 1 December 2011 interest rate swap contracts comprising fixed interest receivable on notional principal of $729 million have been classified as held at fair value through profit or loss. The contracts expire between November 2012 and November 2020 and the fixed interest rates range between 4.93 per cent and 5.32 per cent (2011: 4.93 per cent and 5.32 per cent). 2012 2011 At fair value through profit or loss £m £m At 1 August (2) (8) Transfer from hedge of fair value of fixed interest borrowings 79 – Settled 5 3 Valuation (losses)/gains (charged)/credited to income statement (12) 3 Exchange 2 – At 31 July 72 (2) Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 149

37. Additional information continued Additional information about financial instruments continued The Group’s private placement borrowings are at fixed rates. At 31 July 2011 interest rate swap contracts comprising fixed interest receivable on notional principal of $729 million were designated as hedges of the fair values of these borrowings. The movement in fair value of these interest rate swaps between 1 August 2011 and 30 November 2011 was analysed into a proportion that was effective as a hedge, and a proportion that was ineffective; both portions were charged to the income statement with the effective portion offsetting the change in fair value of the hedged borrowings (see note 5). With effect from 1 December 2011 the contracts were held at fair value through profit or loss. 2012 2011 Hedge of fair value of fixed interest borrowings £m £m At 1 August 64 71 Valuation gains/(losses) credited/(charged) to income statement 17 (4) Settled (5) – Transfer to fair value through profit or loss (79) – Exchange 3 (3) At 31 July – 64

Credit risk Wolseley provides sales on credit terms to many of its customers. There is an associated risk that customers may not be able to pay outstanding loan balances. At 31 July 2012 the maximum exposure to credit risk was £1,846 million (2011: £1,872 million) of which £6 million (2011: £33 million) is secured against properties under construction or completed properties awaiting sale. Each of the businesses have established procedures in place to review and collect outstanding receivables. Significant outstanding and overdue balances are reviewed on a regular basis and resulting actions are put in place on a timely basis. In some cases protection is provided through credit insurance arrangements. All of the major businesses use professional, dedicated credit teams, in some cases field-based. Appropriate provisions are made for debts that may be impaired on a timely basis. Concentration of credit risk in trade receivables is limited as the Group’s customer base is large and unrelated. Accordingly, management consider that there is no further credit risk provision required above the current provision for impairment. The Group has cash balances deposited for short periods with financial institutions, and enters into certain contracts (such as interest rate swaps) which entitle the Group to receive future cash flows from financial institutions. These transactions give rise to credit risk on amounts due from counterparties with a maximum exposure of £888 million (2011: £470 million). This risk is managed by setting credit and settlement limits for a panel of approved counterparties. The limits are approved by the Treasury Committee and ratings are monitored regularly. Market price risk The Group monitors its interest rate and currency risk by reviewing the effect on financial instruments over various periods of a range of possible changes in interest rates and exchange rates. The Group does not consider it has a material exposure to changes in interest rates. The Group has estimated that a weakening of sterling by ten per cent against all the currencies in which the Group does business would result in a charge to equity of £14 million (2011: £66 million), arising from the translation of borrowings denominated in foreign currency, and a credit of £8 million to the income statement, arising from the retranslation of interest rate swaps held at fair value through profit or loss (2011: no material effect). The Group does not require operating businesses to adhere to a formalised risk management policy in respect of trade credit risk or commodity price risk, and does not consider that there is a useful way of quantifying the Group’s exposure to any of the macro-economic variables that might affect the collectability of receivables or the prices of commodities. Wolseley plc 150 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Additional information about non-GAAP measures of performance Trading profit is defined as operating profit before exceptional items and the amortisation and impairment of acquired intangibles. It is a non-GAAP measure. Exceptional items are those material items which by virtue of their size or incidence are presented separately and are excluded from trading profit to enable a clear and consistent presentation of the Group’s financial performance. In addition, the current businesses within the Group have arisen through internal organic growth and through acquisition. Operating profit includes only the amortisation and impairment of acquired intangibles arising on those businesses that have been acquired subsequent to 31 July 2004 and as such does not reflect equally the performance of businesses acquired prior to 31 July 2004 (where no amortisation or impairment of acquired intangibles was recognised), businesses that have developed organically (where no intangibles are attributed) and those businesses more recently acquired (where amortisation and impairment of acquired intangibles is charged). The Group believes that trading profit provides valuable additional information for users of the financial statements in assessing the Group’s performance since it provides information on the performance of the business that local managers are more directly able to influence and on a basis consistent across the Group. The Group uses trading profit and certain key performance indicators, calculated by reference to trading profit, for planning, budgeting and reporting purposes and for its internal assessment of the operating performance of individual businesses within the Group. Additional information about pensions and other long-term employee benefits Description of plans The principal scheme operated for UK employees is the Wolseley Group Retirement Benefits Plan which provides benefits based on final or the average of the last five years of pensionable salaries. The assets are held in separate trustee administered funds. The scheme’s retirement benefits are funded by a salary sacrifice arrangement from employees with the balance being paid by Group companies. Employees’ salary sacrifice is either 5 per cent or 8 per cent of earnings depending on the level of benefits accruing. The Group contribution rate is calculated on the Projected Unit Method and agreed with an independent consulting actuary. This scheme was closed to new entrants in 2009. A defined contribution scheme is also operated. The principal schemes operated for US employees are defined contribution schemes, which are established in accordance with US 401k rules. Companies contribute to both employee compensation deferral and profit sharing plans. The Group also operates two defined benefit schemes in the United States which are closed to new entrants. One of the schemes is funded and the majority of assets are held in trustee administered funds independent of the assets of the companies. The closed plans now provide a minimum pension guarantee in conjunction with a defined contribution scheme. The contribution rate is calculated on the Projected Unit (credit) Method as agreed with independent consulting actuaries. In Canada defined benefit schemes and a defined contribution scheme are operated. Most of the Canadian defined benefit schemes are funded. The contribution rate is calculated on the Projected Unit (credit) Method as agreed with independent consulting actuaries. In Europe both defined contribution and defined benefit schemes are operated. Liabilities arising under defined benefit schemes are calculated in accordance with actuarial advice. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 151

37. Additional information continued Additional information about pensions and other long-term employee benefits continued Investment policy The Group’s investment strategy for its funded post employment plans is decided locally and, if relevant, by the trustees of the plan, and takes account of the relevant statutory requirements. The Group’s objective for the investment strategy is to achieve a target rate of return in excess of the increase in the liabilities, while taking an acceptable amount of investment risk relative to the liabilities. This objective is implemented by using specific allocations to a variety of asset classes that are expected over the long term to deliver the target rate of return. Most investment strategies have significant allocations to equities, with the intention that this will result in the ongoing cost to the Group of the post-employment plans being lower over the long term and within acceptable boundaries of risk. For the UK scheme, the policy is to invest approximately 75 per cent of the assets in equities and 25 per cent in other asset classes, principally bonds. The investment strategy is subject to regular review by the scheme trustees in consultation with the Group. For the overseas schemes the investment strategy involves the investment in defined levels of predominantly equities with the remainder of the assets being invested in cash and bonds. History of experience gains and losses 2012 2011 2010 2009 2008 History of experience gains and losses – UK schemes £m £m £m £m £m Fair value of plan assets 767 696 593 511 542 Present value of defined benefit obligation (983) (946) (897) (737) (693) Deficit in the plan (216) (250) (304) (226) (151)

Experience (loss)/gain to scheme assets Amount (44) 38 40 (87) (103) Percentage of scheme assets (6)% 5% 7% (17)% (19)% Experience (gain)/loss on scheme liabilities Amount (1) (5) – – – Percentage of the present value of scheme liabilities – (1)% – – –

2012 2011 2010 2009 2008 History of experience gains and losses – non-UK schemes £m £m £m £m £m Fair value of plan assets 194 193 131 129 130 Present value of defined benefit obligation (336) (303) (259) (244) (215) Deficit in the plan (142) (110) (128) (115) (85)

Experience (loss)/gain to scheme assets Amount (4) 1 4 (26) (14) Percentage of scheme assets (2)% 1% 3% (20)% (11)% Experience (gain)/loss on scheme liabilities Amount (1) (3) (2) 1 6 Percentage of the present value of scheme liabilities – (1)% (1)% – 3% Wolseley plc 152 Annual Report and Accounts 2012

Notes to the consolidated ﬁnancial statements continued Year ended 31 July 2012

37. Additional information continued Additional information about share-based payment plans The Group operates eight share option plans of which four are discretionary plans (collectively, the “Executive Option Schemes”) and four are all employee sharesave plans (collectively the “Employee Saving Option Schemes”). Four plans were adopted as part of the Company’s redomiciliation after approval by shareholders in November 2010. Awards granted under the Executive Option Schemes are subject to a condition such that they may not be exercised unless the growth in headline earnings per share over a period of three consecutive financial years exceeds the growth in the UK Retail Price Index over the same period by at least 9 per cent and consequently vest over a period of three years. Awards granted under the Employee Savings Option Schemes vest over periods ranging from three to seven years, except for awards granted under the US sharesave plan, which vest over a one-year period. The Group also operates a Long Term Incentive Scheme (“LTIS”) and the Wolseley Restricted Share Plan (“RSP”) for senior executives. Under the LTIS, executives are awarded a variable number of shares depending on the level of total shareholder return over the next three years relative to that of a number of comparator companies. The vesting period is three years. The maximum award under the LTIS is determined at grant date and then adjusted at vesting date in accordance with the market performance condition. Under the RSP, executives are granted free shares. The vesting period is three years and there are no performance measures other than retained employment. Since 28 September 2011 the Group has operated the Wolseley Group Ordinary Share Plan 2011 (the “Ordinary Share Plan”) for employees, not key management personnel, of the Group. Under the Ordinary Share Plan, employees can be granted a variable number of awards in any form or combination of options, restricted share awards, conditional share awards or phantom share awards up to a maximum of 100% of their current salary. The vesting period is three years and there are no performance measures other than retained employment. Additional information about employee benefit trusts Three Employee Benefit Trusts were established in October 2004 in connection with the Company’s discretionary share option plans and long term incentive plans. Upon its redomiciliation, the Company changed the trustees to Bedell Trust Company Limited (also registered in Jersey). No shares were purchased by the trusts during the year. The market value of the 1,934,869 shares held by the Employee Benefit Trusts at 31 July 2012 (2011: 1,947,259), which have a nominal value of £0.2 million, was £45 million (2011: £35 million). Dividends due on shares held by the Employee Benefit Trusts are waived in accordance with the provisions of the trust deeds. Additional information about the parent company of the Group The Company is incorporated in Jersey under the Companies (Jersey) Law 1991 and is headquartered in Switzerland. It operates as the ultimate parent company of the Wolseley Group. Its registered office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands. The Group’s principal subsidiary undertakings are set on page 162. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 153 Independent auditors’ report to the members of Wolseley plc

We have audited the Group Financial Statements of Wolseley plc for the year ended 31 July 2012 which comprise the Group Income Statement, the Group Balance Sheet, the Group Statement of Comprehensive Income, the Group Cash Flow Statement, the Group Statement of Changes in Equity and the related notes. The financial reporting framework that has been applied in their preparation is applicable law and International Financial Reporting Standards (IFRSs) as adopted by the European Union. Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 81, the Directors are responsible for the preparation of the Group Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Group Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with Article 113A of the Companies (Jersey) Law 1991 and for no other purpose. We do not, in giving these opinions, 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. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Group’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the Group Financial Statements: • give a true and fair view of the state of the Group’s affairs as at 31 July 2012 and of its profit and cash flows for the year then ended; • have been properly prepared in accordance with IFRSs as adopted by the European Union; and • have been properly prepared in accordance with the requirements of the Companies (Jersey) Law 1991 and Article 4 of the lAS Regulation. Opinion on other matters In our opinion: • the information given in the Directors’ Report for the financial year for which the Group Financial Statements are prepared is consistent with the group financial statements; and • the information given in the Corporate Governance Statement with respect to internal control and risk management systems and about share capital structures is consistent with the financial statements. Matters on which we are required to report by exception We have nothing to report in respect of the following: Under the Companies (Jersey) Law 1991 we are required to report to you if, in our opinion we have not received all the information and explanations we require for our audit. Under the UK Listing Rules we are required to review: • the Directors’ statement, set out in the Directors’ Report, in relation to going concern; • the part of the Corporate Governance Statement relating to the Company’s compliance with the nine provisions of the UK Corporate Governance Code specified for our review; and • certain elements of the report to shareholders by the Board on Directors’ remuneration. Other matter We have reported separately on the Parent Company Financial Statements of Wolseley plc for the year ended 31 July 2012.

Stuart Watson for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants and Recognized Auditor London, 1 October 2012

Wolseley plc 154 Annual Report and Accounts 2012 Company proﬁt and loss account Year ended 31 July 2012

2012 2011 £m £m Administrative expenses (10) (7) Operating loss (10) (7) Income from shares in Group undertakings 132 50 Profit on ordinary activities before interest 122 43 Interest receivable and similar income 10 – Interest payable and similar charges (1) – Profit for the financial year 131 43

The Company has no recognised gains and losses other than those included in the profit and loss account and therefore no separate statement of total recognised gains and losses has been presented. The prior period was from 28 September 2010 to 31 July 2011.

Company balance sheet At 31 July 2012 2012 2011 Notes £m £m Fixed assets Investments 3 4,992 4,990 4,992 4,990 Current assets Debtors: amounts falling due within one year 4 14 – Cash at bank and in hand 21 13 35 13 Creditors: amounts falling due within one year 5 (5) (4) Net current assets 30 9 Total assets less current liabilities 5,022 4,999 Capital and reserves Called up share capital 6 28 28 Share premium account 7 19 6 Profit and loss account 8 4,975 4,965 Total shareholders’ equity 9 5,022 4,999

The accompanying notes are an integral part of these Company financial statements. The Company financial statements on pages 154 to 157 were approved by the Board of Directors on 1 October 2012 and were signed on its behalf by

Ian Meakins John Martin Group Chief Executive Chief Financial Officer

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 155 Notes to the Company ﬁnancial statements Year ended 31 July 2012

1. Corporate information Wolseley plc (the “Company”) was incorporated and registered in Jersey on 28 September 2010 under the Jersey Companies Law as a public company limited by shares under the name Wolseley plc with registered number 106605. The principal legislation under which the Company operates is the Companies (Jersey) Law 1991, as amended, and regulations made thereunder. The address of its registered office is 26 New Street, St Helier, Jersey, JE2 3RA, Channel Islands. It is headquartered in Switzerland. The principal activity of the Company is to act as the ultimate holding company of the Wolseley Group of companies. 2. Company accounting policies Basis of accounting The separate financial statements of the Company are presented in compliance with the requirements for companies whose shares are traded on the London Stock Exchange’s main market. They have been prepared on a going concern basis and under the historical cost convention, and in accordance with the Companies (Jersey) Law 1991 and United Kingdom Generally Accepted Accounting Practice (“UK GAAP”). They are presented in pounds sterling as that is the functional currency of the Company. Note 8 (Dividends) on page 111, note 26 (Share capital) on page 129 and note 27 (Share-based payments) on page 130 of the Wolseley plc consolidated financial statements form part of these financial statements. Foreign currencies The cost of the Company’s investments in overseas subsidiary undertakings is translated into sterling at the rate ruling at the date of investment. Foreign currency transactions entered into during the year are translated into sterling at the rates of exchange ruling on the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies are retranslated at the rate of exchange ruling at the balance sheet date. All currency translation differences are taken to the profit and loss account. Investments Fixed asset investments are recorded at cost less provision for impairment. The Company assesses at each balance sheet date whether there is objective evidence that an investment or a group of investments is impaired. Cash at bank and in hand Cash at bank and in hand includes cash in hand and deposits held at call with banks. Bank overdrafts are shown within borrowings in current liabilities on the balance sheet to the extent that there is no right of offset and intention to net settle with cash balances. Share capital The Company has one class of shares, ordinary shares, which are classified as equity. Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from the proceeds, net of tax. Where the Company or the Company’s trust purchases the Company’s equity share capital, the consideration paid, including any directly attributable incremental costs (net of tax), is deducted from equity attributable to the Company’s equity holders until the shares are cancelled, reissued or disposed of. Where such shares are subsequently sold or reissued, any consideration received, net of any directly attributable incremental transaction costs and the related tax effects, is included in equity attributable to the Company’s equity holders. Share-based payments Share-based incentives are provided to employees under the Company’s executive share option, long-term incentive and share purchase and ordinary share plan schemes. The Company recognises a compensation cost in respect of these schemes that is based on the fair value of the awards, measured using Black-Scholes, Binomial and Monte Carlo valuation methodologies. For equity-settled schemes, the fair value is determined at the date of grant and is not subsequently re-measured unless the conditions on which the award was granted are modified. For cash-settled schemes, the fair value is determined at the date of grant and is re-measured at each balance sheet date until the liability is settled. Generally, the compensation cost is recognised on a straight-line basis over the vesting period. Adjustments are made to reflect expected and actual forfeitures during the vesting period due to the failure to satisfy service conditions or achieve non-market performance conditions. Dividends payable Dividends on ordinary shares are recognised in the Company’s financial statements in the period in which the dividends are approved by the shareholders of the Company (generally in the case of the final dividend) or paid (in the case of interim dividends). Wolseley plc 156 Annual Report and Accounts 2012

Notes to the Company ﬁnancial statements continued Year ended 31 July 2012

3. Fixed asset investments Cost £m At 1 August 2011 4,990 Additions 2 At 31 July 2012 4,992

All of the above investments are in unlisted shares. The Directors believe that the carrying value of the investments is supported by their underlying assets. The Company’s direct holdings in subsidiary undertakings as at 31 July 2012 were as follows: Percentage of ordinary Company Country of registration and operation Principal activity shares held Wolseley Finance sp.z o.o Poland Finance 100% Wolseley Limited England and Wales Investment 100% Wolseley Insurance Limited Isle of Man Insurance 100% Wolseley de Puerto Rico, Inc. Commonwealth of Puerto Rico Distributor of industrial products 100% Wolseley Finance (Switzerland) AG Switzerland Finance 100% Wolseley Holdings (Switzerland) AG Switzerland Investment 100% Details of the principal subsidiary undertakings of the Company, including those that are held indirectly, are listed on page 162 of the Annual Report. 4. Debtors: amounts falling due within one year 2012 2011 £m £m Amounts owed by Group companies 13 – Accrued bank interest income 1 – 14 –

The fair value of amounts included in debtors approximates to book value. Amounts owed by Group companies are not interest bearing and are payable on demand. 5. Creditors: amounts falling due within one year 2012 2011 £m £m Bank overdraft 5 1 Amounts owed to Group companies – 3 5 4

The fair value of amounts included in creditors approximates to book value. Amounts owed to Group companies are not interest bearing and are payable on demand. 6. Share capital Details of the Company’s share capital are set out in note 26, on page 129, to the Wolseley plc consolidated financial statements. 7. Share premium account £m At 1 August 2011 6 New share capital subscribed 13 At 31 July 2012 19

Details of new share capital subscribed are set out in note 26, on page 129, to the Wolseley plc consolidated financial statements.

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 157

8. Profit and loss account £m At 1 August 2011 4,965 Profit for the year 131 Dividends paid (142) Equity-settled employee share options 21 At 31 July 2012 4,975

9. Reconciliation of movements in shareholders’ equity 2012 2011 £m £m Opening shareholders’ equity/on incorporation 4,999 – Scheme of arrangement – 4,989 Share premium on new share capital subscribed 13 6 Profit for the year/period 131 43 Dividends paid (142) (42) Equity-settled employee share options 21 3 Closing shareholders’ equity 5,022 4,999

10. Share-based payments Details of share options granted by Group companies to employees, and that remain outstanding, over the Company’s shares are set out in note 27 on page 130 to the Wolseley plc consolidated financial statements. The Company recognised an equity- settled share-based payment charge of £nil in the year (2011: £nil). 11. Contingent liabilities Provision is made for the Directors’ best estimate of known legal claims and legal actions in progress. The Company takes legal advice as to the likelihood of success of claims and actions and no provision is made where the Directors consider, based on that advice that the action is unlikely to succeed or a sufficiently reliable estimate of the potential obligation cannot be made. In addition the Company has given certain banks authority to transfer at any time any sum outstanding to its credit against or towards satisfaction of its liability to those banks of certain subsidiary undertakings. The Company has also given indemnities and warranties to the purchasers of businesses from the Company and certain Group companies in respect of which no material liabilities are expected to arise. 12. Employees, employee costs and auditors’ remuneration The average number of employees of the Company in the year ended 31 July 2012 was one (2011: one). Other employees of Group companies were seconded or assigned to the Company in the period, in order to fulfil their duties or to carry out the work of the Company. Each of the Non Executive Directors of the Company has an appointment letter with the Company, and the Executive Directors and certain other senior managers of the Group have assignment letters in place with the Company. Total employment costs of the Company for the period, including Non Executive Directors and seconded employees, were £1 million (2011: £1 million). Fees payable to the auditors for the audit of the Company’s financial statements are set out in note 3, on page 109, to the Wolseley plc consolidated financial statements. 13. Dividends Details of the Company’s dividends are set out in note 8, on page 111, to the Wolseley plc consolidated financial statements. 14. Related party transactions The Company has taken advantage of the exemption available under FRS 8 “Related party disclosures” to dispense with the requirement to disclose transactions with fellow subsidiaries, all of whose voting rights are held within the Group, and which are included in the consolidated financial statements of Wolseley plc. Wolseley plc 158 Annual Report and Accounts 2012 Independent auditors’ report to the members of Wolseley plc

We have audited the Parent Company Financial Statements of Wolseley plc for the year ended 31 July 2012 which comprise the Company Profit and Loss Account, the Company Balance Sheet and the related notes. The financial reporting framework that has been applied in their preparation is United Kingdom Accounting Standards. Respective responsibilities of Directors and auditors As explained more fully in the Directors’ Responsibilities Statement set out on page 81 the Directors are responsible for the preparation of the Parent Company Financial Statements and for being satisfied that they give a true and fair view. Our responsibility is to audit and express an opinion on the Parent Company Financial Statements in accordance with applicable law and International Standards on Auditing (UK and Ireland). Those standards require us to comply with the Auditing Practices Board’s Ethical Standards for Auditors. This report, including the opinions, has been prepared for and only for the Company’s members as a body in accordance with the terms of our engagement and for no other purpose. We do not, in giving these opinions, 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. Scope of the audit of the financial statements An audit involves obtaining evidence about the amounts and disclosures in the financial statements sufficient to give reasonable assurance that the financial statements are free from material misstatement, whether caused by fraud or error. This includes an assessment of: whether the accounting policies are appropriate to the Parent Company’s circumstances and have been consistently applied and adequately disclosed; the reasonableness of significant accounting estimates made by the Directors; and the overall presentation of the financial statements. In addition, we read all the financial and non-financial information in the Annual Report to identify material inconsistencies with the audited financial statements. If we become aware of any apparent material misstatements or inconsistencies we consider the implications for our report. Opinion on financial statements In our opinion the Parent Company Financial Statements: • give a true and fair view of the state of the Company’s affairs as at 31 July 2012; and • have been properly prepared in accordance with United Kingdom Accounting Standards. Opinion on other matters In our opinion the information given in the Directors’ Report for the financial year for which the Parent Company Financial Statements are prepared is consistent with the Parent Company Financial Statements. At the request of the Directors, we have also audited the part of the Directors’ Remuneration Report that is described as having been audited. In our opinion, the part of the Directors’ Remuneration Report to be audited has been properly prepared in accordance with the Companies Act 2006. Other matter We have reported separately on the Group Financial Statements of Wolseley plc for the year ended 31 July 2012.

Stuart Watson for and on behalf of PricewaterhouseCoopers LLP Chartered Accountants London 1 October 2012 Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 159 Five year summary

2008 2012 2011 2010 2009 (restated) £m £m £m £m £m Revenue USA 6,168 5,500 5,174 5,820 5,613 Canada 850 811 765 700 684 UK 1,898 2,404 2,466 2,699 3,203 Nordic 2,125 2,128 2,012 2,124 2,299 France 1,666 1,943 1,937 2,144 2,116 Central Europe 714 772 849 954 899 Group 13,421 13,558 13,203 14,441 14,814 Trading profit USA 389 314 239 309 389 Canada 49 39 41 32 39 UK 93 109 91 55 176 Nordic 94 113 101 97 160 France 38 53 30 32 103 Central Europe 30 30 9 (1) (1) Central and other costs (28) (36) (61) (77) (79) Group 665 622 450 447 787 Amortisation of acquired intangibles (60) (75) (92) (105) (105) Impairment of acquired intangibles (353) (39) (223) (490) (57) Exceptional items (40) (51) (332) (458) (70) Operating profit/(loss) 212 457 (197) (606) 555 Net interest payable (30) (66) (77) (145) (156) Associate 16 – (54) (15) – Profit/(loss) before tax 198 391 (328) (766) 399 Tax (charge)/credit (138) (110) (38) 34 (157) Profit/(loss) on ordinary activities after tax from continuing operations 60 281 (366) (732) 242 (Loss)/profit from discontinued operations (3) (10) 26 (441) (168) Profit/(loss) attributable to equity shareholders 57 271 (340) (1,173) 74 Ordinary dividends (142) (42) – – (74) Net assets employed Intangible fixed assets 1,160 1,628 1,812 2,223 2,836 Property, plant and equipment 1,195 1,249 1,409 1,593 1,842 Other net assets, excluding liquid funds 733 1,022 184 519 1,150 3,088 3,899 3,405 4,335 5,828 Financed by Share capital 28 28 241 241 165 Share premium 19 6 1,156 1,152 949 Foreign currency translation reserve 244 380 300 228 (52) Profit and loss account 2,842 2,962 1,362 1,755 2,297 Shareholders’ equity 3,133 3,376 3,059 3,376 3,359 Net (cash)/debt (45) 523 346 959 2,469 Net assets employed 3,088 3,899 3,405 4,335 5,828 Wolseley plc 160 Annual Report and Accounts 2012

Five year summary continued

2008 Continuing operations (unless stated) 2012 2011 2010 2009 (restated) Like for like revenue growth 3.8% 5.0% (6.0)% (13.9)% (2.3)% Gross margin 27.5% 27.9% 27.7% 27.7% 28.2% Trading margin 5.0% 4.6% 3.4% 3.1% 5.3% Headline earnings per share (note 1) 168.4p 142.9p 74.1p 95.6p 240.3p Basic earnings/(loss) per share from continuing and discontinued operations (note 1) 20.1p 95.9p (120.6)p (558.0)p 41.0p Dividends per share (in respect of the financial year) (note 1) 60.0p 45.0p – – 40.8p Cover for ordinary dividends 2.8 3.2 – – 5.9 Net tangible assets per ordinary share (note 1) 689.9p 613.3p 438.5p 406.2p 286.6p Return on capital employed (note 2) 29.3% 25.4% 16.4% 14.4% 24.3% Return on gross capital employed (note 3) 12.6% 10.6% 7.1% 6.9% 12.5% Average number of employees 43,170 46,246 48,226 55,132 62,774 Number of shares in issue at year end (million) (note 1) 286 285 284 284 182 Number of branches at year end Continuing operations 3,160 3,837 4,118 4,394 5,025 Discontinued operations – – – – 285 Total branches 3,160 3,837 4,118 4,394 5,310 US dollar translation rate Income statement/profit and loss 1.58 1.60 1.57 1.57 2.00 Balance sheet 1.57 1.64 1.57 1.67 1.98 Canadian dollar translation rate Income statement/profit and loss 1.59 1.59 1.64 1.85 2.01 Balance sheet 1.57 1.57 1.61 1.80 2.03 Euro translation rate Income statement/profit and loss 1.19 1.16 1.14 1.16 1.35 Balance sheet 1.27 1.14 1.20 1.17 1.27

Note 1. Shares in issue and amounts per share for 2008 have been restated to reflect the Group’s capital reorganisation in 2009.

Note 2. Return on capital employed is the ratio of trading profit to the average year-end aggregate of shareholders’ funds and adjusted net debt excluding goodwill and other acquired intangible assets. Return on capital employed for 2012 has been calculated as follows:

Capital Capital Average employed employed capital Return on 2012 2011 employed Trading profit capital £m £m £m £m employed Net (cash)/debt (45) 523 Year-end working capital adjustment 145 114 Receivables factoring facilities – 68 100 705 Shareholders’ equity 3,133 3,376 Goodwill and other acquired intangibles (1,133) (1,598) Goodwill in assets held for sale – (54) 2,100 2,429 2,265 665 29.3%

Note 3. Return on gross capital employed is the ratio of trading profit to the average year-end aggregate of shareholders’ funds, adjusted net debt and cumulative goodwill and other acquired intangibles written off. The cumulative goodwill and other acquired intangibles written off balance at 31 July 2012 is £1,588 million (2011: £1,659 million) and average gross capital employed for 2012 is calculated as £5,281 million.

Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 161 Pro forma information in United States dollars

2008 2012 2011 2010 2009 (restated) $m $m $m $m $m Revenue USA 9,740 8,787 8,123 9,142 11,226 Canada 1,342 1,295 1,201 1,100 1,368 UK 2,998 3,840 3,871 4,240 6,406 Nordic 3,356 3,399 3,159 3,336 4,598 France 2,630 3,104 3,041 3,368 4,232 Central Europe 1,128 1,233 1,332 1,499 1,798 Group 21,194 21,658 20,727 22,685 29,628 Trading profit USA 615 501 375 485 778 Canada 78 62 64 50 78 UK 146 175 143 86 352 Nordic 148 181 159 152 320 France 60 85 47 50 206 Central Europe 48 48 14 (1) (2) Central and other costs (45) (57) (95) (121) (158) Group 1,050 995 707 701 1,574 Amortisation of acquired intangibles (95) (120) (144) (165) (210) Impairment of acquired intangibles (557) (63) (350) (770) (114) Exceptional items (62) (81) (521) (719) (140) Operating profit/(loss) 336 731 (308) (953) 1,110 Net interest payable (46) (106) (121) (228) (312) Associate 25 – (84) (24) – Profit/(loss) before tax 315 625 (513) (1,205) 798 Tax (charge)/credit (220) (175) (60) 53 (314) Profit/(loss) on ordinary activities after tax from continuing operations 95 450 (573) (1,152) 484 (Loss)/profit from discontinued operations (5) (17) 41 (693) (336) Profit/(loss) attributable to equity shareholders 90 433 (532) (1,845) 148 Ordinary dividends (224) (67) – – (148) Net assets employed Intangible fixed assets 1,819 2,673 2,842 3,716 5,625 Property, plant and equipment 1,874 2,051 2,210 2,663 3,654 Other net assets, excluding liquid funds 1,148 1,678 289 868 2,281 4,841 6,402 5,341 7,247 11,560 Financed by Share capital 45 47 378 403 327 Share premium 30 10 1,813 1,926 1,882 Foreign currency translation reserve 383 623 471 381 (103) Profit and loss account 4,453 4,864 2,136 2,934 4,557 Shareholders’ funds 4,911 5,544 4,798 5,644 6,663 Net (cash)/debt (70) 858 543 1,603 4,897 Net assets employed 4,841 6,402 5,341 7,247 11,560

The above information has been extracted from the five year summary on pages 159 and 160. Income statement figures have been translated using the relevant year’s income statement/profit and loss US dollar translation rate as set out on page 160. Balance sheet figures have been translated at the relevant year’s balance sheet US dollar translation rate as set out on page 160. Wolseley plc 162 Annual Report and Accounts 2012 Principal subsidiary undertakings and their directors

Country of operation Country of (if not country of Company name Principal activity incorporation incorporation) Address and Directors’ details Comptoir des Fers et Métaux SA Operating company Luxembourg L-1882, Luxembourg Directors: O M Jensen, E Walker, K Wingsted DT Group A/S Operating company Denmark Gladsaxe Møllevej, 5 DK-2860 Søborg, Denmark Directors: K Borregaard, O M Jensen, C Jørgensen, R Shoylekov, S Villsen Ferguson Enterprises, Inc. Operating company USA Newport News, Virginia 23602, USA Directors: L Byrd, J Cross, J Feltman, S Grosslight, T Hall, D Keltner, K Murphy, S Petock, J Posey, F Roach, S Roznowski, W Russell, D Strup, K VanderVennet, J Wilcox ÖAG AG Operating company Austria A-1110 Wien, Austria Director: P Headon. Supervisory Board: E Cihlar, O M Jensen, E Walker, K Wingsted, T Zwettler PB&M SAS Operating company France 92400 Courbevoie, France Président-directeur général: P Gardies Tobler Haustechnik AG Operating company Switzerland 8902 Urdorf, Switzerland Directors: O M Jensen, H Wiedmer, E Walker, K Wingsted Wasco Holding BV Operating company The Netherlands 7391 AL Twello, Netherlands Directors: O M Jensen, H A T van den Belt, K Wingsted, E Walker Wolseley Canada Inc Operating company Canada Burlington, Ontario, Canada Directors: G Petrin, F Roach, K VanderVennet, A Wighton Wolseley UK Limited Operating company England and Wales Leamington Spa, Warwickshire CV31 3HH, UK Directors: S Ashmore, D Harding, K Jones Wolseley Capital, Inc Financing company USA Wolseley Finance sp.z o.o * Financing company Poland Switzerland Wolseley (Group Services) Limited Service company England and Wales Wolseley Insurance Limited * ** Operating company Isle of Man Wolseley Investments North America, Inc Investment company USA Wolseley Limited * Investment company England and Wales

(1) The Wolseley Group comprises a large number of companies and it is not practical to include them all in this list. Therefore, this list includes only those subsidiaries which in the Directors’ opinion principally affect the ﬁgures shown in the Group Financial Statements. Address and directors’ details are only provided for the operating companies. Details of directors and ofﬁcers are reported as at 1 October 2012. (2) Shareholdings in companies marked * are held 100% directly by Wolseley plc. The proportion of the voting rights in the subsidiary undertakings held directly by Wolseley plc do not differ from the proportion of the ordinary shares held. All other shareholdings in the above mentioned companies are held by intermediate subsidiary undertakings. (3) All shareholdings in the above subsidiary undertakings are of ordinary shares or equity capital. In addition, companies marked ** have preference shares which are held 100% directly by Wolseley plc. (4) A full list of related undertakings of Wolseley Limited is included in its Annual Return submitted to the UK Registrar of Companies. (5) All subsidiary undertakings have been included in the consolidation. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 163 Shareholder information

This section provides all shareholders with key information to assist in the management of their shareholding. If you have any questions which are not answered below or on the Wolseley plc website at www.wolseley.com, you can contact Equiniti (our registrar) or Wolseley’s Investor Relations department at [email protected]. Financial Calendar Key dates for 2012/13 are set out below. Please note that such dates are based on current expectations and all future dates should be considered as provisional and subject to change. 29 November 2012 Wolseley plc 2012 Annual General Meeting 30 November 2012 2012 ﬁnal dividend payment date 26 March 2013 Announcement of Half Year results for the period ending 31 January 2013 1 May 2013 2013 proposed Interim dividend payment date 4 June 2013 Interim Management Statement released 31 July 2013 End of ﬁnancial year 2012/13 1 October 2013 Final results for the year ending 31 July 2013

Wolseley shares

Share price history Set out below is a graph showing the performance of Wolseley’s share price (using normalised share price data) compared to the FTSE 100 Index during the ﬁnancial year. FTSE 100 Index – Wolseley and FTSE 100 Wolseley LN Equity UKX Index

31 July 2012 150

125 31 July 2011

100

50 08/11 09/11 10/11 11/11 12/11 01/12 02/12 03/12 04/12 05/12 06/12 07/12 08/12

Recent share capital history Since 2009 there have been two events affecting the share capital of Wolseley plc: 2010 – Scheme of arrangement and redomiciliation. 2009 – Share capitalisation and rights issue. Further details can be found on the Wolseley plc website at www.wolseley.com.

Ordinary shares and ADRs Wolseley shares are listed on the London Stock Exchange using code “WOS”. Wolseley also has an ADR programme which trades under the symbol “WOSYY”. The ADRs are listed on the premier tier of the over-the-counter market “OCTQX”. For further information please contact the ADR Depositary: Deutsche Bank Trust Company Americas c/o American Stock Transfer & Trust Company Peck Slip Station PO Box 2050 New York, NY 10272-2050 Email enquiries: [email protected] Telephone: Within the US toll free: +1-866-249-2593 International: +1-718-921-8137 Website: www.adr.db.com Wolseley plc 164 Annual Report and Accounts 2012

Shareholder information continued

Dividend

Proposed Final Dividend

40 pence per share The Directors have recommended a ﬁnal dividend of 40 pence per share. Payment of this dividend is subject to approval at the 2012 AGM.

Key dates for this dividend Ex-dividend date 10 October 2012 Record date 12 October 2012 DRIP election date 9 November 2012 AGM (to approve ﬁnal dividend) 29 November 2012 Payment date 30 November 2012 DRIP certiﬁcates posted/CREST accounts credited 5/6 December 2012

Dividend History Details of dividends paid in the ﬁnancial years 2010/11 and 2011/12 are set out below. For details of other historical payments, please refer to the Wolseley plc website at www.wolseley.com under “Dividends” in the “Shareholder Centre” section. Dividend Amount Financial Year Dividend Period (pence per share) Record Date Payment Date DRIP Share price 2011/12 Interim 2012 20 10 April 2012 1 May 2012 £24.1377 2010/11 Final 2011 30 04 October 2011 30 November 2011 £18.9825 2010/11 Interim 2011 15 08 April 2011 31 May 2011 £20.7746

Dividend payment methods 1. Direct payment to your bank: You can choose to receive your dividend in a number of ways. You are encouraged to receive your dividends directly to your bank or building society account. This is more convenient and helps reduce the risk of cheques becoming lost or delayed in the post. The associated tax voucher will still be sent direct to your registered address. To switch to this method of payment you can download a dividend mandate form from the Shareview website (www.sharview.co.uk). Alternatively, you can contact Equiniti by telephone who will also be able to assist with any questions you may have. 2. Overseas payment service: If you live overseas, Equiniti offers an Overseas Payment Service which is available in certain countries. This may make it possible to receive dividends direct into your bank account in your local currency*. Further information can be found on the Wolseley plc website, Shareview website or you can contact Equiniti by telephone. 3. Dividend Reinvestment Plan (DRIP): The Company offers a DRIP which gives shareholders the opportunity to use their dividend to purchase further Wolseley shares. Instead of receiving cash, shareholders receive as many whole shares as can be bought with their dividend, taking into account related purchase costs. Any residual cash will be carried forward and added to their next dividend. If you wish to join the DRIP, you can download copies of the DRIP terms and conditions and the DRIP mandate form from the Shareview website. Simply complete the DRIP mandate form and return it to Equiniti. Should you have any questions on the DRIP or wish for a paper mandate form to be sent to you, please contact Equiniti on 0871 384 2934**. Please note that if you wish to join the DRIP in time for the 2012 ﬁnal dividend, our Registrars, Equiniti, must have received the instruction by 9 November 2012. Instructions received by Equiniti after this date will be applied to the next dividend. * Please note that a payment charge would be deducted from each individual payment before conversion into your local currency. ** Lines are open from 8.30am to 5.30pm, each business day. Calls to this number are charged at 8p per minute from a BT landline. Other telephony provider costs may vary. Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 165

Shareholder Communications Managing your shares

Annual General Meeting (“AGM”) Share Registration enquiries The AGM provides an opportunity each year for To manage your shareholding, please contact Equiniti. shareholders to ask questions about the business in the They will be able to assist you in various matters including: Notice of AGM and to raise matters about the business of • changing your registered name and address; Wolseley. Full details of the AGM can be found in the Notice of AGM. Brief details of venue locations are set out below. • consolidating share certiﬁcates; Zug venue • managing your dividend payments; Gubelstrasse • notifying the death of a shareholder; • registering a lost share certiﬁcate and obtaining Metallstrasse a replacement;

Bärenplatz Dammstrasse Zug Bahnhof • registering for electronic communications; and Rail station

Albisstrasse • transferring your shares.

Zug Bahnhofplatz You can contact Equiniti in writing, by telephone or online. Further contact details are set out below. Please use your Parkhotel shareholder reference number when contacting Equiniti. Baarerstrasse This can be found on your share certiﬁcate or dividend tax voucher. Kino Gotthard Industriestrasse If you are not already registered to view your shareholding online, you will need to register via Equiniti’s Shareview Metalliplatz website.

Venue: Parkhotel, Industriestrasse 14, CH-6304, Equiniti Zug, Switzerland Address: Equiniti (Jersey) Limited, 26 New Street, St Helier, London venue Jersey JE4 8PP Channel Islands. Telephone: 0871 384 2934* and from outside the UK Moorgate Liverpool Street +44 (0)121 415 7011 Website: www.equinti.com London W all e t a g Shareview website: www.shareview.co.uk/myportfolio s p Winchester House o H h ou t is n S d *Calls to these numbers are charged at 8 pence per minute from B s d d a itc a BT landline. Other telephony providers’ costs may vary. ro h B ld O Aldgate St edle Share dealing dne rea Th Ma Leadenhall St Bank Cornhill n s If you wish to buy or sell Wolseley shares and hold a share

e h L l l St o c M m r b certiﬁcate, you can do this: u i a n rd h S c o t t ri e S c rch es a hu r Fenc • by using the services of a stockbroker or high street bank; or G

Monument • through telephone or online services. Equiniti also offer a share dealing service to UK-based Venue: Deutsche Bank, Winchester House, 1 Great shareholders. Further details of their telephone, internet Winchester Street, London EC2N 2DB, United Kingdom and postal dealing services can be obtained from their Shareview website (www.shareview.co.uk/dealing) or by calling 0871 384 2020* (or if outside the United Kingdom Website +44 121 415 7560). See the inside back cover for further details about the Wolseley plc website. *Calls to these numbers are charged at 8 pence per minute from a BT landline. Other telephony providers’ costs may vary. Annual report Wolseley publishes an annual report every year. It is sent to shareholders through the post as a printed document unless the shareholder has chosen to receive e-communications (see below). E-communications The Company offers shareholders the opportunity to access shareholder documents, such as annual reports and notices of AGM, via e-communications rather than receiving printed documents in the post. You will be notiﬁed by email as soon as shareholder documents are available on the website. Wolseley plc 166 Annual Report and Accounts 2012 Group information

Company details Company contacts Investor relations ([email protected]) Registered Office Group Communications and Investor Relations Director – Wolseley plc Mark Fearon 26 New Street Company Secretariat St Helier Group Company Secretary and General Counsel – Jersey Richard Shoylekov JE2 3RA Channel Islands Company advisers Registration No. 106605 Jersey Auditors Wolseley Corporate Head Office PricewaterhouseCoopers LLP Wolseley plc Grafenauweg 10 Public Relations CH-6301 Zug Brunswick Switzerland Corporate Brokers Telephone: +41 (0) 41 723 2230 Fax: +41 (0) 41 723 2231 Deutsche Bank AG, London Branch Bank of America Merrill Lynch Wolseley Group Services Office Solicitors Parkview 1220 Arlington Business Park Freshfields Bruckhaus Deringer LLP Theale Reading RG7 4GA Telephone: +44 (0) 118 929 8700 Fax: +44 (0) 118 929 8701

Website www.wolseley.com Overview Performance Governance Financials Information

Wolseley plc Annual Report and Accounts 2012 167 Forward-looking statements

Certain information included in this Annual Report and Accounts is forward-looking and involves risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed or implied by forward- looking statements. Forward-looking statements cover all matters which are not historical facts and include, without limitation, projections relating to results of operations and financial conditions and the Company’s plans and objectives for future operations, including, without limitation, discussions of expected future revenues, financing plans, expected expenditures and divestments, risks associated with changes in market conditions and pressures on margins, changes in the level of litigation, employee motivation, the performance and resilience of the Company’s systems and infrastructure, the level of government regulation and financial risks (such as fluctuations in exchange and interest rates). Forward-looking statements can be identified by the use of forward-looking terminology, including terms such as “believes”, “estimates”, “anticipates”, “expects”, “forecasts”, “intends”, “plans”, “projects”, “goal”, “target”, “aim”, “may”, “will”, “would”, “could” or “should” or, in each case, their negative or other variations or comparable terminology. Forward-looking statements are not guarantees of future performance. All forward-looking statements in this Annual Report and Accounts are based upon information known to the Company on the date of this Annual Report and Accounts. Accordingly, no assurance can be given that any particular expectation will be met and readers are cautioned not to place undue reliance on forward-looking statements, which speak only at their respective dates. Additionally, forward-looking statements regarding past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Other than in accordance with its legal or regulatory obligations (including under the UK Listing Rules and the Disclosure and Transparency Rules of the Financial Services Authority), the Company undertakes no obligation to publicly update or revise any forward-looking statement, whether as a result of new information, future events or otherwise. Nothing in this Annual Report and Accounts shall exclude any liability under applicable laws that cannot be excluded in accordance with such laws. Wolseley plc 168 Annual Report and Accounts 2012 Notes Stay up to date This report is complemented by a range of online information and resources

Main corporate site Shareholder information Annual report site www.wolseley.com section annualreport2012.wolseleyplc.com Key sections include Our businesses, Visit our Investor and media centre on Visit our online annual report site. Investors and media and our corporate website to stay updated Each section of the annual report can Responsibility. There is also information on Wolseley’s results, financial calendar be downloaded in pdf format. on our strategy and links to our and latest press releases. Within the business unit websites. Site tools Investor and media centre you will find include information pack download, the Shareholder centre where you will alert services and an option to get find information on the AGM, dividends, content feeds. electronic communications, share price and managing your shares.

Credits Printing Designed and produced by Radley Yeldar Printed by Pureprint Group. The printing inks are www.ry.com made with non-hazardous vegetable oil from Board photography by Andy Wilson renewable sources. Over 90 per cent of solvents and Marcus Ginns and developers are recycled for further use and Location photography by Andy Wilson recycling initiatives are in place for all other waste associated with this production. Pureprint Group is FSC® with strict procedures in place to safeguard Paper the environment through all processes. This report is printed on Amadeus 50 Silk paper and cover board, with Amadeus 100 offset used The greenhouse gas emissions from the production in the financial section. Amadeus 50 Silk is made and distribution of this Annual Report and Accounts from 25% de-inked post-consumer waste, have been neutralised through The Gold Standard 25% unprinted pre-consumer waste and Basa Magogo offsetting project in South Africa. 50% virgin fibre. The first Gold Standard project of its kind in the Amadeus 100 offset is made from world, this innovative behaviour-change programme 100 per cent de-inked post teaches local communities in South Africa to burn consumer waste. Both products coal differently in order to be more fuel efficient, are fully biodegradable and thereby reducing carbon emissions. The technique, recyclable and produced called Basa Magogo, means “Light it up! in mills which hold IS0 9001 Grandmother” in Zulu. In addition to the emission and ISO 14001 accreditation. reductions, the Basa Magogo technique also improves visibility and reduces health risks by producing less smoke. Follow us on Twitter @wolseleyplc Wolseley plc Annual Report and Accounts 2012 www.wolseley.com Corporate Headquarters Grafenauweg 10 CH-6301 Zug Switzerland +41 (0)41 723 2230 Telephone Fax +41 (0)41 723 2231 Registration No. 106605 Jersey Registered Office Office Registered 26 New Street St Helier Jersey JE2 3RA Channel Islands Wolseley plc Wolseley