2009 Annual Report and Accounts a D N a S T N U O C C

TRAVIS PERKINS PLC T A R s i v

e p K R s n i

c l p A 9 0 0 2 u n n A L R o p e R

T 2009 Annual Report and Accounts A d n A s t n u o c c

T RA v i s p e RK i n s p l c L o d g e W ay H o u s e h A R l e s t o n e R o a d N o r t h a m p t o n n n 5 7 u g

T elephone 01604 752 424 A leader in builders merchanting and home improvement retailing WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433

17334 proof 3 1/4/10 This document is important and requires your immediate attention. If you are in any doubt as to what action you should take, you are recommended to seek your own financial advice from your stockbroker or other independent adviser authorised under the Financial Services and Markets Act 2000. If you have sold or transferred all of your shares in Travis Perkins plc, please forward this document, together with the accompanying documents, as soon as possible either to the purchaser or transferee or to the Printed on revive 25 – a paper containing 25% recycled waste and 75% virgin fibre, sourced from well managed forests. person who arranged the sale or transfer so they can pass these documents to the person who now holds the shares. Produced at a mill with ISO 14001 environmental certification. The pulp is bleached using an elemental chlorine free (“ECF”) process. DESIGNED BY RWH DESIGN CONSULTANTS · PHOTOGRAPHY BY CALVIN HEWITT AND CHARLES WARD · PRINTED BY JONES AND PALMER WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433

17334 proof 3 1/4/10 CONTENTS

OVERVIEW Highlights of 2009 2 Who we are 4

REPORTS Chairman’s statement 8 Chief Executive’s review of the year 10 Chief Operating Officer’s review of the year 25 Finance Director’s review of the year 36

GOVERNANCE Directors and professional advisers 44 Corporate responsibility statement 46 Corporate governance 47 Audit committee report 49 Health & safety report 51 Directors’ remuneration report 53 Nominations committee report 64 Directors’ report 65 Statement of directors’ responsibilities 70 Independent auditors’ report 71

FINANCIAL STATEMENTS Income statements 72 Statements of comprehensive income 73 Balance sheets 74 Statements of changes in equity 76 Cash flow statements 78 Notes to the financial statements 79 Five year record 118

SHAREHOLDER INFORMATION Notice of Annual General Meeting 120 Notes to the notice of Annual General Meeting 122 Directions to the Annual General Meeting 124 Other shareholder information 125 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 CONTENTS 1

17334 proof 3 1/4/10 HIGHLIGHTS OF 2009

Financial highlights

· Group revenue down 8% at £2,931m

· Adjusted operating profit down 17% to £225m

· Adjusted profit before tax of £180m

· Adjusted EPS down 22% to 75p

· Gross operating cost savings of £60m achieved ahead of target

· Retail operating profit up 19% with increased operating margin

· Free cash flow £294m, up 59% (note 35)

· Capital base strengthened through rights issue with net debt more than halved to £467m

OPERATING highlights

· Like-for-like headcount reduced by 13% since start of recession

· Operating focus shifted to cost and debt reduction

· Merchanting business rated top amongst national merchants

· Successful Wickes marketing campaign delivered market share gain WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 2 HIGHLIGHTS OF 2009

17334 proof 3 1/4/10 HIGHLIGHTS OF 2009

2009 2008 £m % £m

Revenue 2,930.9 (7.8) 3,178.6

Adjusted:*

Operating profit (note 5a) 224.6 (17.3) 271.5 Profit before taxation (note 5b) 180.0 (11.1) 202.5 Profit after taxation (note 5b) 133.9 (6.9) 143.9 Basic earnings per ordinary share (pence) (note 12b) 75.2 (22.4) 96.9

Statutory:

Operating profit 257.3 19.5 215.3 Profit before taxation 212.7 45.4 146.3 Profit after taxation 157.4 54.5 101.9 Basic earnings per ordinary share (pence) 88.4 28.9 68.6

Total dividend declared per ordinary share (pence) (note 13) - - 14.5

* With effect from 1 December 2009 the Company and the Trustee of the Travis Perkins’ defined benefits pension scheme agreed to cap future pensionable salary increases at a maximum of 3% per annum. This created a curtailment event. The resulting exceptional reduction in the benefit obligation of £32.7m has been included in other operating income. In 2008 the Group incurred an exceptional charge of £56.2m associated with the severe downturn in the construction market. Throughout these financial statements the term “adjusted” has been used to signify that the effect of these exceptional items has been excluded from the disclosure being made.

REVENUE (£M) ADJUSTED PROFIT ADJUSTED BASIC BEFORE TAXATION (£M) EARNINGS PER SHARE (PENCE) Restated for impact of rights issue 2,640.8 2,848.8 3,186.7 3,178.6 2,930.9 206.7 220.3 261.4 202.5 180.0 92.1 100.4 118.1 96.9 75.2

2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 2005 2006 2007 2008 2009 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 HIGHLIGHTS OF 2009 3

17334 proof 3 1/4/10 WHO WE ARE

Travis Perkins, a major plc, is a main supplier to the building and The origins of Sandell Perkins can be traced back over 200 years construction market, one of the largest industries in the UK. to 1797 when a carpentry company was first established in London; The present day Company was formed in 1988 out of a merger Travis and Arnold was initially formed as a partnership in 1899. During between Travis and Arnold plc, a company with strong Midlands and the early to mid 20th century both businesses expanded before even- Northern based business, and Sandell Perkins plc, a company with an tually becoming listed public companies, Travis and Arnold was the first equivalent strength in the South of England. to the market in 1964, followed 22 years later by Sandell Perkins.

Andrew Pike Carol Kavanagh Martin Meech Robin Proctor Norman Bell Company Secretary Group Human Group Property Director Supply Chain Director Category Management and Lawyer Resources Director Director

OUR GROUP MISSION Our Group Vision “Continue to deliver better returns by... putting in place To ensure that anyone in Britain who wants to access and growing the best businesses, with outstanding any kind of building materials through any form of supply people and operations, providing comprehensive building channel will have a Travis Perkins group operation as material solutions, to everyone creating, maintaining, their first or first alternative choice. repairing or improving the built environment,… helping to build Britain”.

Our Group Values At Travis Perkins, we: Know our customers – we understand their needs, beat Like to deliver – we enjoy being the best; we know their expectations, treat them with respect, and know our exactly what each of us is expected to achieve; we focus major customers personally. on getting results, simply. Talk and listen – we say what we mean clearly and Work together – we actively work with each other; when honestly, we listen carefully; we respond objectively, we something goes wrong, the first thing we will do is fix the explain our decisions. problem; not look for someone to blame. Are with you, not against you – we seek mutual benefits Always try to get better – we constructively challenge with all stakeholders; we think about the impact of our how we work; we look for fresh ideas that are different; actions; we search for similarities. we only have rules where they are necessary because we Know how to do our jobs – not just today, but for the use our common sense. next job; we equip ourselves with the skills needed to Are proud to be here – this is a great company; everyone perform and be confident we can perform. working with us is welcome; we make work enjoyable for everyone. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 4 W H O W E A R E

17334 proof 3 1/4/10 RETAIL DIVISION

The retail division comprises two businesses Wickes, a national chain The Managing Director of Wickes is Jeremy Bird who joined Wickes of DIY retail outlets and Tile Giant a ceramic tile merchant acquired seventeen years ago and has fulfilled various roles including that of in 2007. Commercial Director. Wickes stores are designed to appeal to tradesmen, who undertake In 2007 Travis Perkins acquired its seventh brand, Tile Giant whilst general repairs, maintenance and improvement projects for house- in 2008 this business acquired Tile Magic, a 17 store chain and Tile it holds and small businesses and to serious DIY customers, who carry All a 16 store chain. In 2009 Travis Perkins acquired Tile HQ an internet out more complete DIY projects. These customers are more demanding based retailer of ceramic and stone tiles. The brand is now trading from in terms of service, quality and price. a total of 86 stores. The Company meets these expectations by offering a focussed Under the leadership of Mo Iqbal, the Managing Director of Tile Giant, range of high quality primarily own brand, competitively priced home the brand offers a strong pipeline for further expansion. improvement products, such as timber, building materials, tools and decorative materials. In addition, Wickes stores offer a range of kitchens ToolStation and bathrooms, which are sold through in-store showrooms. In 2008, the Group invested in a 30% share of a direct retailer of light- Wickes, which opened its first store in the UK in 1972 at Whitefield in side products. This multi-channel business has a strong internet and Manchester was acquired by Travis Perkins in 2005 and the Company catalogue based business and a rapidly expanding store network which now operates from 195 stores nationwide. had extended to 59 stores throughout Great Britain by the end of 2009.

Jeremy Bird Mo Iqbal Divisional Chairman MD Tile Giant and MD Wickes WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 W H O W E A R E 5

17334 proof 3 1/4/10 Merchanting DIVISION

The merchanting division of Travis Perkins plc supplies building mate- replace him Andrew Popple, who had been a regional director for over rials to specialist and generalist professional tradesman throughout 10 years, was promoted to Managing Director in October 2009. Great Britain. The customers of the four general merchanting regional businesses The core businesses of Travis and Arnold plc and Sandell Perkins are primarily professional tradesmen, ranging from sole traders to plc formed, following the merger in 1988, what is now the general national housebuilders, whose key requirements are product range merchanting business within the merchanting division. It trades and availability, competitive pricing and customer service. nationally through the Travis Perkins brand and comprises four indi- The strategy of the general merchanting business aims to increase vidual businesses. market share through implementation of our Best Practice programme Joe Mescall, who has been with the Group since 1974, leads the and ongoing branch network expansion. The Best Practice programme is business in his role as Divisional Chairman. The Managing Directors designed to enhance our overall service to trade customers and covers of the four regional businesses are Ian Church (Travis Perkins all of their key requirements: even though all four general merchanting Midlands), Phil Gransden (Travis Perkins South East), Andrew Popple businesses are already operating to high standards in these areas they (Travis Perkins Northern) and Mark Nottingham (Travis Perkins South have stretching targets in place to deliver further improvements. West). During the year Norman Bell, formerly Managing Director of Network expansion will be concentrated on Local Authority and Travis Perkins South West, was appointed to the new role of Category Housing Association store projects in the short term; potential exists to Management Director with Mark Nottingham, formerly Managing double the number of such outlets over the next few years. Director of Travis Perkins Northern moving to the South West. To

Joe Mescall Ian Church Phil Gransden Andrew Popple Mark Nottingham Divisional Chairman MD Midlands MD South East MD Northern MD South West WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 6 W H O W E A R E

17334 proof 3 1/4/10 Merchanting DIVISION

The specialist merchanting business of the merchanting division and heating market. The Company offers high quality products and consists of four separate businesses trading under the following brands: expert service to the trade. The Managing Director of City Plumbing Keyline, City Plumbing Supplies, CCF and Benchmarx. It is led by the Supplies is John Frost who joined the Travis Perkins group in 1983. Divisional Chairman, Arthur Davidson. He has worked in merchanting During 2009, City Plumbing Supplies established a new heating spares for over thirty years having joined Keyline prior to its acquisition by the business under a leader who previously performed a similar role with a Travis Perkins group. competitor of the group. In preparation for any market upturn, the businesses have strength- CCF is a leading supplier of interior building products to the construc- ened and re-organised their external selling resources to focus on tion industry. It operates throughout the UK, offering a one-stop-shop market growth sectors. This initiative is being led by the Division’s to its customers from its nationwide branch network. CCF’s Managing Commercial Sales Director, David Stewart, who has been with the Group Director is Kieran Griffin who joined the Group in 1995 and progressed for 23 years and who was formerly Managing Director of Keyline. via its management training scheme, branch management and regional Andrew Harrison, formerly Managing Director of Benchmarx, has management roles, to the position of Managing Director. been with the Group since 1989. He became Managing Director of In 2006 Benchmarx became the first group brand to be created as Keyline in succession to David Stewart, in July 2009. Keyline is a a completely new business within a market adjacent to the markets specialist merchant supplying heavy building materials and civils and already served by the Group. Based mainly in the South East, the busi- drainage solutions to the construction industry throughout the UK. ness is a leading supplier of kitchen and joinery products to the trade Keyline is known for its knowledgeable staff and excellent delivery through its competitive pricing, quality products and knowledgeable service. staff. Benchmarx is led by Chris Larkin, formerly a regional director City Plumbing Supplies is a major nationwide plumbing and heating within Travis Perkins South East, who became Managing Director in merchant serving both the contract market and the general plumbing succession to Andrew Harrison in July 2009.

Arthur Davidson Andrew Harrison John Frost Kieran Griffin Chris Larkin Divisional Chairman MD Keyline MD City Plumbing MD CCF MD Benchmarx WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 W H O W E A R E 7

17334 proof 3 1/4/10 CHAIRMAN’S STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009

Like many other company chairmen, my report this year is set against a background of the most difficult trading conditions your Company has faced in recent memory. During 2009, our sector, along with the rest of the UK economy, was impacted by the worst recession in 80 years. This resulted in our markets becoming even more competitive, and made our decision to take pre-emptive action to reduce costs and conserve cash of even greater importance.

RESULTS Group revenue for 2009 fell by 7.8% to £2,930.9m, whilst adjusted profit before tax (i.e. on an underlying basis) declined by 11.1% and adjusted earnings per share were down by 22.4% after restating for the effect of the rights issue. Overheads were reduced by approximately £60m during the year through a combination of careful cost control and improved productivity. Peak to trough headcount was reduced by 13%. A combination of the mid-year rights issue, which raised £300m after expenses, and strong free cash flow, resulted in underlying net debt reducing by £550m to £467.2m. Gearing is now 28%, having fallen 62% during 2009. Net expenditure on capital and acquisitions was £8.8m compared with £105m in 2008. In addition we provided a further £12.9m of funds to our associate company ToolStation, to fund its continuing expansion. In December the Company and the Pension Scheme Trustee implemented a 3% cap on future pensionable salary increases for members of the Group’s final salary pension scheme. This resulted in a one off Tim Stevenson, Chairman pension liability curtailment gain of £32.7m, which is treated as exceptional in the income statement.

“The Group has DIVIDEND Although the Company has performed well during 2009 and exits the delivered another year in a strong position, the Board has concluded that there remains too much economic uncertainty for it to be able to recommend to market leading shareholders the reinstatement of the dividend at this time. We expect to resume dividend payments once improved prospects for our markets performance in a are visible. BOARD OF DIRECTORS year that saw the I am pleased to welcome both Philip Jansen and Robert Walker onto our Board of Directors. Philip joined the Board in April 2009, following most difficult trading a search, which I referred to last year, to replace Mike Dearden who retired in November 2008. Philip’s marketing experience and current conditions in the executive responsibilities are already enabling him to add much to our Board discussions. Robert joined us in September 2009, following a Group’s history” search specifically to identify a new Chairman for the business: he will succeed me as Chairman after the AGM on 17 May. He brings a wealth of experience to the Group gained over many years whilst working for a number of major companies. He already has great knowledge of both the retail and builders merchanting sectors and I am confident that in the coming years he will make a valuable contribution to the continuing success of the business. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 8 CHAIRMAN’S STATEMENT

17334 proof 3 1/4/10 I step down as Chairman of your Company after more than 8 years in post. It has been a privilege to lead the Board during that period. I leave with regret: working with Travis Perkins, and board colleagues of very high calibre, has been a major highlight of my business career. But it is right to move on, and certainly good to be doing so at a point where I am totally confident that the business and its future are in such good hands. Throughout the 8 year period of varied economic conditions, the business has consistently demonstrated its underlying strength and the depth and quality of its management – and that is particularly true of the way in which the business has been managed through the recent period of deep recession by the exceptionally able management team.

EMPLOYEES During 2009 the recession has made huge demands on all of the people employed by the Group. At a time of great uncertainty they have risen magnificently to the challenge of controlling overheads, maximising revenues and generating cash. On behalf of both the Board and of Shareholders I would like to thank them all.

OUTLOOK Our markets appear to have stabilised following a sharp decline at the start of the recession. However, much uncertainty remains about the condition of the UK economy and the prospects for construction markets. We are prepared for a long period of probable low growth and difficult trading conditions before we can anticipate a return to growth in our markets. Whilst the long-term prospects for construction remain strong, particularly when considering the ever rising demand for better environmental performance from buildings, the affordability of many types of industry investment remains weak. Against this relatively unpromising background, the condition of your Company remains remarkably strong. The Group has delivered another market leading performance in a year that saw the most difficult trading conditions in the Group’s history. Management has taken decisive and resolute action to deal with the impact of the downturn and in doing so has maintained Travis Perkins as one of the strongest operators in the sector. Our core strengths have been retained whilst costs have been reduced. Our profitability, although lower than in pre-recession conditions compares well with our competitors. Having managed effectively through the recession the Group’s strategy is to focus on organic growth in this low growth environment. Our stable and experienced management team has a proven track record of driving organic growth in these market conditions.

Tim Stevenson Chairman 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 CHAIRMAN’S STATEMENT 9

17334 proof 3 1/4/10 chief eXECUTIVE’S REVIEW OF THE YEAR

FOR THE YEAR ENDED 31 DECEMBER 2009

INTRODUCTION In 2009 the Group’s priorities were almost exclusively focussed on dealing with the unprecedented downturn in construction activity. Our principal focus was on cutting costs and trading profitably to deal with a predicted 25% fall in activity levels, and on taking a range of actions aimed at reducing net debt. Whilst our overall forecast of activity levels for 2009 proved broadly correct, the retail market held up much better than expected following actions taken by monetary authorities to boost consumer sentiment. In contrast, the trade market fared a little worse than expected. The Group, in comparison with competitors with a more narrow focus, has benefited from its breadth of business activities across these two segments of the building materials market. This benefit was further boosted in 2009 by the success of Wickes’ refreshed commercial strategy, which led to market share gains, profit growth, and operating margin expansion.

PERFORMANCE Summary The Group’s results reflect the impact of the early action taken to prepare for the recession, the divergent fortunes of our two divisions, and the successful rights issue completed in the first half of 2009. Throughout this annual report, consistent with our approach last year, the term “adjusted” has been used to signify that the effects of exceptional items have been excluded from the disclosures being made. Before adjusting for the effect of exceptional items in both years, the Geoff Cooper, Chief Executive Group recorded an increase of 45% in PBT to £212.7m and an increase of 29% in earnings per share to 88.4 pence. Including the effect of our £300.3m rights issue, shareholders’ funds increased by £442.2m. The Group incurred an exceptional charge of £56.2m in the “Our businesses prior year as a result of actions taken in response to the downturn in construction markets. In 2009 the exceptional item related to a have strong brands, £32.7m pension scheme curtailment gain which arose in December when future increases in pension scheme members’ pensionable sala- experienced ries were capped. For 2009, the Group reported revenue down £247.7m at £2,930.9m (2008: £3,178.6m). This revenue decline drove adjusted operating management teams profit down 17% to £224.6m (2008: £271.5m), adjusted profit before tax down 11% to £180.0m (2008: £202.5m), and adjusted earnings and market leading per share down by 22.4% to 75.2 pence (2008: 96.9 pence). The revenue decrease of 7.8% comprised a decline of 8.6% in like-for-like financial performance” (“LFL”) sales, with network expansion accounting for growth of 1.0% and a reduction in trading days accounting for 0.2%. Adjusted group operating margin fell by 0.88% to 7.66% (2008: 8.54%) (note 5c). Whilst adjusted operating margin in the retail division improved by 0.7% to 5.81%, merchanting division adjusted operating margin fell by 1.29% to 8.76%, reflecting the challenge of in reducing fixed costs in line with the significant fall in volume experienced by the market. The actions we implemented in late 2008 ahead of the expected WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 10 chief e XECUTIVE’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 sharp downturn in construction activity in 2009 served us well. We lower operating margins, appear to have increased their market share exceeded our original target for cost savings, with the 2009 cost at the expense of national merchants, with our trend of LFL sales now base of the Company being over £60m lower than in 2008, against very similar to other national merchants. We judge our trading stance in an original target of £50m, having made additional headcount and the recession to have been successful, particularly when compared to distribution savings. These savings would have been higher were it the operating profit and margin trends of most competitors. not for our initiatives to invest in opportunities to grow revenue in the retail market. Our cost reduction programme combined with initiatives Retail Division to improve stock ratios and constrain capital expenditure, have helped The retail division enjoyed relatively stronger market conditions as boost cash flow. The Group generated free cash flow of £294.4m in consumers found their discretionary spending power increasing mate- 2009, a 58.9% increase on last year. Overall, including net proceeds rially following cuts in mortgage costs, utility bills and other elements from the rights issue of £300.3m, net debt was reduced to £467.2m. of their non-discretionary spend. This meant that despite the general For covenant purposes net debt was £413.1m, giving a net debt / economic uncertainty, the value of the DIY retail market increased by EBITDA ratio of 1.47 times and interest cover of 10.7 times. an estimated 3%, over 2009, considerably better than expected. Retail As expected, with less construction work available, competition in division total sales were up by 4.3% to £980.7m, with sales from new merchanting intensified during the course of 2009, with a related dete- branch openings contributing 1.2%, LFL sales increasing by 3.2% rioration in pricing conditions. Product cost and price inflation continued (3.8% price inflation and a 0.6% volume decrease) and a reduction in to be relatively strong by historical standards. In these circumstances, trading days accounting for a decline of 0.1%. we sought to trade flexibly, preferring to protect our gross margin rather LFL sales for the full year of Wickes’ core products were down only than fill our capacity with low margin work, and re-doubled our efforts slightly, by 0.8%, and on the same basis K&B sales were ahead by to obtain favourable input prices through a range of procurement initia- 27.7%. Wickes’ strong K&B sales performance reflects Wickes’ initiatives. We estimate these actions helped to offset over half of the fall tive to capture market share following the withdrawal from the market in gross margins in the merchanting market. In contrast, the pricing in late 2008 of a significant K&B competitor. Wickes enjoyed great environment in retail remained relatively benign as competitors sought success with this initiative, exceeding its targets for share gain and to restore their low operating margin and achieve an economic return. taking more share than its overall market presence. Overall, the gross margin percentage for the Group decreased slightly, mainly reflecting a decline in the merchanting division margin. MARKETS For the 7 weeks to 20 February the Group LFL sales performance Overall was down 2.7%, with our merchanting division down by 2.8% and our Evidence of stabilisation in our markets emerged in the second half retail division down by 2.4% with our core and kitchen and bathrooms, of the year. Shortly after the outset of the downturn we estimated that (“K&B”) down 8% and up 23.3% respectively. in response to the underlying difficult economic circumstances in the UK, volumes in our markets would fall from their peak in late 2008 by Merchanting Division about 25% and reach a low point in mid 2009. Our view of 2009 now Our merchanting division continued its work to ensure we offer superior points to an overall trough of 25%, but the trough in merchanting, of a services and products to customers. Our research continues to indicate little over 30%, occurred a few months later than we forecast whilst the the success of this strategy, and overall merchant customer satisfac- retail trough, of around 15%, occurred in first quarter of 2009. Again, tion improved in 2009. Our merchanting branch network is rated as here we have seen the benefit of our spread of businesses across the a preferred source of building materials amongst national merchants retail and merchanting segments of the market. in 8 out of the top 13 criteria used by customers when selecting a Although the recession has broadly followed our forecasts, there provider of materials. Whilst this is lower than in 2008, the differences have been a few noteworthy differences from our predictions. The retail mainly relate to our pricing stance, where we chose not to seek low market performed more strongly boosted by good weather and surviving margin work. operators benefited from the exit of a competitor from the showroom Merchanting division sales fell by 12.9%, with sales from new market. By contrast the merchanting market performed less well due branch openings contributing 1.0% and LFL sales falling by 13.5% to exposure to the heavier end of the market serving large construction and a reduction in trading days accounting for a further decline of projects, where the reduction in activity has been more severe. 0.4%. The LFL decline comprised 3.6% of price inflation offset by a 17.1% decline in volume. Given our trading stance on low margin work, Retail Market we estimate that both our general and specialist merchanting opera- As noted above, consumers found themselves better off as a result of tions recorded a LFL performance behind the market, with LFL sales falling housing and related costs. Although savings rates climbed and in general merchanting falling by 14.1% and specialist merchanting mortgage equity withdrawal turned negative, consumers were prepared falling by 12.6%. Independent merchants, who traditionally accept to spend more in a few selected markets – such as improving their WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief e XECUTIVE’S REVIEW OF THE YEAR 11

17334 proof 3 1/4/10 A: Ian Biddle, Driver B: Bob Webb, P&H Manager A B C: Mathew Plumridge, Yard Superviser D: Jose Diaz, Assistant Branch Manager A C E: Adam Bennett, P&H Product Leader

D E

RETAIL PRODUCTIVITY homes. In addition, the moribund nature of the housing market meant PER EMPLOYEE (£k) many householders were spurred to improve their existing home in pref- erence to extending their borrowings to acquire a new home. In addition, worry about jobs and a search for value seems to have boosted the proportion of householders ‘doing it themselves’, with less use of small building firms. This category of trade customer is important to both Wickes and Travis Perkins. Also, Wickes has little presence in seasonal categories, such as outdoor living, for which sales were increased by the generally benign weather in 2009. Compared to other DIY retailers, Wickes were therefore faced with additional challenges without the relief to revenue trends available from seasonally sensitive products. Although the decline in retail markets followed our expectations at the beginning of the year, the boost to consumers’ spending power meant we saw a steady improvement in rates of decline over the year, with the market returning to growth in the fourth quarter. Overall we estimate the DIY shed market over the year as a whole was down in volume by 3.5%, and up in value by 3% 189 197 186 200 Merchanting Market 2006 2007 2008 2009 Markets for our merchanting businesses, including Travis Perkins, fared less well. We estimate that nearly 60% of the merchant-supplied part of the construction materials market comprises repair, maintenance and improvement (“RMI”) activity, with new housing and new commercial / public sector construction each taking up roughly half of the remainder. With little exposure to consumers purchasing directly from merchants, and a greater reliance on the small building firms referred to above, the MERCHANTING merchant supplied part of the RMI market suffered the full force of the recession. Whilst this segment of the market is normally quite resilient PRODUCTIVITY since many building jobs are non-discretionary, we estimate that activity PER EMPLOYEE (£k) levels fell by 11% – an unprecedented level of volatility. This fall would have been much worse had it not been for the expansion of public sector refurbishment work, such as programmes to upgrade social housing. New construction fared even worse than RMI activity. Much attention has been given to the very sharp – we estimate some 50 to 60% peak to trough – dip in new housing activity. However, new construction of retail, commercial and industrial buildings suffered an even sharper and deeper decline. Again, an expansion of public sector work softened the blow, with a continuation of the hospitals programme, expansion of the schools and colleges programme, and extra investment in infrastructure. This latter category sources most of its material requirements directly from manufacturers, and only specialist civils merchants, like our own Keyline business, derive any significant benefit from this additional spend. After taking into account the differential level of penetration of merchant-sourced supplies into the various segments of the market, and the annualisation of the month-on-month peak to trough trend, we estimate that the merchant market declined by 12% in value and 15% 206 220 216 215 2006 2007 2008 2009 in volume for the year as a whole compared to 2008. 2006 2007 2008 2009 Again, the impact of this decline was softened by the closure of some competitor businesses and branches. We now estimate that since the WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 12 chief e XECUTIVE’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief e XECUTIVE’S REVIEW OF THE YEAR 13

17334 proof 1/4/10 start of the recession, around 500 merchant branches have closed, MANAGING THROUGH THE DOWNTURN taking 5% of capacity out of the market, allowing for the transfer of In last year’s report to shareholders we described the actions we had business to surviving branches where competitors have consolidated taken in 2008, and our priorities for 2009, to deal with the downturn branches. In our own case we have only closed 3 merchant branches in our markets – as shown below, the analysis indicates the extent to over the year, with our greater profitability sustaining branch contribu- which we have been successful in these plans: tion levels despite falling volumes.

MANAGING THROUGH THE DOWNTURN

Actions and priorities Achievements and performance

Management Focus: ● Scale back development activities; ● All but key projects terminated; ● Prioritise short pay back projects; ● Cash projects ahead of plan; ● Boost service levels; ● Higher customer ratings recorded; ● Increase branch supervision; ● Field management prioritised; ● Reduce central function headcount. ● Peak to trough central function headcount down by 9%.

Market Share Gains: ● Generate sector leading performance; ● Share lost in merchanting due to margin, stance, retail share up by 0.3%; ● Increase penetration of growing customer segments. ● Further gains in social housing, cash based builders, major contractors and interiors.

Gross Margin Protection: ● Increase common and direct sourcing; ● Increased our direct purchases by 50% and added c.30bps to our margin; ● Extend use of new pricing tools; ● Over 15 bps margin gained in the merchanting division; ● Sustain higher price inflation; ● Full year 1.7% ahead of plan; ● Overall, seek to compensate for anticipated market price pressure. ● Group gross margin percentage down slightly.

Cost Reduction: ● Sustain the late 2008 cuts in headcount; ● Peak to trough headcount down by 13%; ● Reduce transport costs; ● Delivery cost to sales ratio lower than 2008; ● Achieve £50m net reduction in overhead cost ● Cost reduced by over £60m compared to 2008, after absorbing inflation. (i.e. after absorbing inflation on the cost base).

Working Capital Efficiency:

■ Manage any supplier pressures from the difficult credit ● All suppliers maintained trading on normal terms, with average creditor insurance market; days improving by 5 days; ● Use new supply chain capabilities to reduce stock by £20m. ● Stock (like-for-like adjusting for inflation) reduced by £34m from initiatives; ● Limit the deterioration of debtor and bad debt ratios; ● Debtor days improved by 3 days and bad debt ratio improved by 0.11% (0.92% to 0.81%).

Property Realisations: ● Generate in excess of £16m of cash; ● £19m of cash generated from 17 property projects; ● Contribute in excess of £10m to EBIT as a ‘steady stream’; ● 2009 profits before taxation of £11m; ● Maintain the quality of the freehold estate. ● Freeholds (incl. long leaseholds) maintained at 30% of the estate.

Reduce Capital Expenditure: ● Constrain 2009 capex to £37m, limiting new works; ● Capex kept to £28m, with all essential works completed; ● Target £60m capex for 2010. ● Capex forecast for 2010 of £60m.

Further Cost and Cash Actions: ● Reduced energy, transport and waste costs. ● These costs reduced by £4m (within total noted above). WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 14 chief e XECUTIVE’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 Overall we succeeded in achieving the majority of the challenges we cards and active trading accounts. By the end of 2009 we had achieved set ourselves when plotting a course through the difficult market condi- a 7% uplift. tions we faced. This demonstrated yet again the strength of our opera- We have successfully trialled a new tool that better enables the tional management when executing difficult change programmes. external sales force to target new and dormant customers, which will be rolled out across the business during the first few months of DEVELOPMENT 2010. This tool, together with the team of territory managers we are The onset of the recession altered dramatically our stance on expan- currently building, will further increase the sales opportunities avail- sion, with the cancellation of many projects and withdrawal from able to the business. acquisition negotiations. We continued brownfield expansion at Tile Stock availability and control remain at the core of our efforts. We Giant in 2009, where new stores enjoy a good cash payback profile, have trialled ‘Branch Select’ to our larger or more specialist branches, and ToolStation, under the terms of our development agreement. Most which for them is an extension of our already successful company- development work in other brands in 2009 therefore involved a range wide mandated stock requirement, where all branches have to main- of projects to evolve our offer to customers. tain certain stocks in project quantities. In addition we have introduced auto-replenishment of planed square edged timber and mouldings Wickes from our timber supply centres. This improves colleague productivity There was limited network expansion in 2009 with total retail selling and helps optimise branch stock quantities and availability. space expanded by 0.4%. Only stores under contract opened in the year and as a result we launched a net 2 new stores having relo- Keyline cated our Oldham, Reading and Slough stores and rebuilt our store at Our 83 branch heavy building materials and civils and drainage Chadwell Heath, destroyed by fire in 2008. At 31 December, we traded specialist, is the most exposed of our brands to new construction from 195 stores. activity, since it specialises in serving ground workers and civil engi- We continued to invest in new products and new formats during the neering contractors. year, we opened our smallest ever full range store with an extended After a difficult start to the year, Keyline found its markets stabilising multi-channel offer reflecting our continued view that the lower fixed in Q3. Whilst we have therefore chosen to constrain its expansion, its costs of smaller stores, backed by the efficiency of smarter supply longer-term prospects are positive, linked to a recovery in housing and chains, are right for the future. Several stores were refitted or relocated continued good prospects for investment in infrastructure. In 2009 giving a net improvement in the quality of the estate during the year. we appointed a new Managing Director, Andrew Harrison, to Keyline. We completed a successful refresh of our showrooms, eliminating Andrew is a very experienced Managing Director, having previously led the poorly performing conservatory and bedroom categories, and CCF and Benchmarx. Upon arrival at Keyline, Andrew and the team expanding our bathroom offer. Showrooms are now dedicated to launched a new initiative to concentrate on refining its specialist offer kitchens and bathrooms. Use of this new space was supported by the under the “best in town” banner, which is aimed at demonstrating to employment of new design consultants and a strong television adver- customers that Keyline should be their first choice in civils products. tising campaign, which significantly improved both brand awareness Alongside this, it strengthened its sales team to enable it to make and recognition of the high quality of product we offer. further inroads into the infrastructure sector.

Travis Perkins City Plumbing Supplies Expansion for Travis Perkins was limited predominately to the opening City Plumbing Supplies (“CPS”), via its 194 branches, made good of 6 new sites to support local authority stores contracts won during progress during the year by adding sales from market share growth the year and 1 other branch. We had 25 managed stores, in partner- to compliment its well-managed overhead base. It focused on local ship with local authorities or their contractors by the end of 2009, out customers by offering an enlarged range of products supported by an of a total of 618 sites, of which 174 incorporated a tool-hire outlet. enhanced service from our distribution centre. An extension of the concept of stand alone stores that service With a newly refined and better balanced business model serving individual local authorities is ‘in-branch’ local authority contract point. plumbing contractors and the installed bathroom sector, CPS offers These meet the demands of individual authorities that do not require a good potential for expansion. Having held back any branch develop- stand alone branch, but still want the benefit of centralising purchases ments in 2009 CPS continues to trade from 194 locations. CPS is made by their employees and sub-contractors. In 2009 we established the smallest of 4 national businesses serving the plumbing heating 8 of these dedicated service points within existing branches and and ventilation market, and we have significant scope for growth once currently have secured agreement to open a further 3 in 2010. market conditions become more favourable. Development work in We continue introducing initiatives to secure new business. During CPS in 2009 focussed on trading ‘smartly’ to maximise the opportuni- the year we focussed on increasing the number of active trade cash ties available from this highly competitive market, with a number of WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief e XECUTIVE’S REVIEW OF THE YEAR 15

17334 proof 3 1/4/10 refinements to ranges, promotional schemes and supplier incentives. of Tile Giant, a 29-store chain operating mainly in the Midlands. This As an important addition to our customer offer, CPS has invested in business has subsequently been expanded rapidly through 2 acquisi- a management team to establish a heating spare parts business which tions, Tile Magic and Tile It All, and a number of brown-field open- will be led by Ian Tillotson, our Group Spares Director. ings, including 10 stores opened in 2009. It traded from 86 stores at the year-end and we have a good pipeline of further opportunities CCF to expand. Our dry-lining, screeding, ceilings and insulation specialist is more In 2009 we completed the rebranding of the businesses acquired exposed to late cycle trends. This means it enjoyed better volumes in during 2008 so all stores now trade under the Tile Giant banner. Our 2009 than the rest of the merchanting businesses. However, we are new stores are performing well and we plan to increase the rate of now seeing a similar sharp downturn in this specialist market, which openings in 2010. could well be longer and deeper than in the general trade market. We On 1 August 2009, we added a further channel to Tile Giant when are therefore holding back on any physical developments until we can we acquired Tile HQ, an internet-based seller of tiles and developed see better market prospects. This means the CCF business continued its range into natural stone products, a faster growing segment of the to operate from 33 branches at the end of the year. market, via the part acquisition of one of our key suppliers The Mosaic CCF’s market is now very largely held in the hands of major national Tile Company. This will enable us to improve the supply of natural stone or international distributors who have recently invested in the sector, products and so remain ahead of the market in this area. and with only a few suppliers of the key products, competitive condi- Using the acquired expertise we are completely redeveloping the Tile tions remained very tight. Despite this, CCF’s “one-stop shop” offer Giant website and aim to relaunch it as a fully transactional offering in to contractors means it enjoys a good reputation and indeed it was the first quarter of 2010. accredited as best distributor by the influential Federation of Plastering and Dry Lining Contractors, by coming first in seven out of eight service ToolStation categories. In April 2008, the Group acquired a 30% equity interest in ToolStation, Re-invigorated commercial activities resulted in CCF gaining a rapidly growing direct retailer of lightside products. Since then, under significant market share. It established a new flooring division and a development agreement, the Group has funded a rapid roll-out of 47 in addition, invested resources in partitions, and acoustics to good new stores. effect, whilst improving its overall overhead management. ToolStation added an additional 25 stores in the year, bringing the total trading at the end of the year up to 59. In July 2009 it opened a Benchmarx new distribution centre at Redditch to support its plans to rapidly grow 2009 was another year of improved trading performance. A new its footprint across the UK. This enabled the Bridgwater distribution managing director, Chris Larkin, a former Travis Perkins regional centre to return to its originally designed function of servicing the mail director, was appointed in mid 2009 to Benchmarx, our specialist order and internet businesses. kitchen and joinery business for the trade which was launched in ToolStation’s development in 2009 has created 175 new jobs 2006. Prior to Chris’ arrival, we had spent time refining the Benchmarx in the UK which means that since Travis Perkins became a share- business model to improve new branch breakeven volumes and holder Toolstation has created 381 new jobs, and with its rate of LFL cash payback profile. Chris and his team have built on this platform sales growth significantly outstripping its peers, we are confident of by improving the sales and marketing focus, and have succeeded in further growth. increasing Benchmarx’ customer base and revenues. The Group has an option to acquire the outstanding portion of We took further market share, improved our doors range through ToolStation’s equity, under certain conditions, in 2012. centralisation of distribution and established a contract sales presence to service the social housing sector. We also developed a successful ORGANISATIONAL CAPABILITIES implant branch model for use within the wider merchant network Under a strategy of cost reduction in response to the recession, our affording us a low cost route to expansion. organisational capabilities were shrunk in 2009, leaving us with not Benchmarx’ 29 kitchen & joinery branches serve a market with much more than the essential requirements to continue running the attractive returns and growth characteristics and our offer has scored business. However, we have been careful to maintain the core capabili- very highly with our new customers in this market. We plan further ties of the Group, for example by retaining key staff but re-deploying branch openings and we remain committed to creating a business with them as a substitute for bought in services, allowing us to cut back on a significant market share in this sector. the costs of using these external providers. This leaves us well posi- tioned to take advantage of opportunities that may arise when volume Tile Giant growth returns. We entered the retail tile market at the end of 2007 via the acquisition As well as the re-deployment of staff, we have streamlined manage- WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 16 chief e XECUTIVE’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 A: Hubert Pawlowski, Warehouse Assistant B B: Nigel Lemon, Warehouse Supervisor A C: Jeffrey Whitbread, Warehouse Assistant C B D: Steven Greenen, Business Development Manager

C B D WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief e XECUTIVE’S REVIEW OF THE YEAR 17

17334 proof 1/4/10 ment structures, eliminated some departments, cut discretionary confirmed our intention to go beyond demonstrable compliance, and expenditures and reduced headcount required in activities related to in some cases best practice. Our plans take into account commercial the volume of business we handle. We expect to make a number of opportunities available and regard the environment as a stakeholder in these changes permanent, having proved we can operate satisfactorily the long-term survival of the business. Our objectives remain broadly with fewer resources in a number of aspects of the Group. However, the same and cover:

in 2010 we will also selectively invest in new resources to support ● Responsible procurement;

improvement of our customer offer in our businesses. This will involve ● Carbon management;

some new activities in market research, marketing, sales, multi-channel ● Resource efficiency;

operations, IT and supply chain. ● Local pollution prevention. In 2009 we took specific actions aimed at maintaining morale and We have invested in capital projects and in systems in pursuit of these employee engagement in difficult trading conditions. This included priorities in 2009 with the aim of seeking a quantified commercial removing less engaged colleagues as we reduced costs, improving remu- return and environmental benefit. neration for the remaining employees, increasing internal communication activities and removing unnecessary and burdensome procedures. Continuous Improvement As we reported last year, our senior management group experi- We monitor, review and improve our environmental performance via an enced an increased and unusual level of turnover at the end of 2008 environmental management system certified to the ISO 14001 stan- as we cut costs. In 2009 stability returned, with only 11 departures – dard. All our timber purchasing, tracking and resale activity, across all 10 planned and 1 unplanned and undesirable. After promotions and divisions, is governed by our Chain of Custody procedures, certified restructuring to support our streamlining of management structures, the to external standards. This allows us to bring FSC and PEFC certified management group now comprises 187 executives. In addition to the product to market. appointment of new Managing Directors to Keyline (Andrew Harrison, In this environmental review we present our latest quantitative an experienced MD of a number of our businesses) and Benchmarx and qualitative measures of performance. Lloyds Register of Quality (Chris Larkin, a successful TP South East regional director) described Assurance have examined how we have calculated and estimated our above, we made 3 further changes to responsibilities. Norman Bell, our performance and have commented on the completeness and materi- Managing Director of Travis Perkins in the South West was promoted ality of this review. Their assurance statement can be found on our web to the Executive Committee to spearhead further development of our site – www.travisperkinsplc.co.uk/environment. product offer. Norman’s role was taken up by Mark Nottingham, our Performance trends can be seen by examining the graphs in this Managing Director for Travis Perkins in the North, and Andrew Popple, report. The final indicators are a combination of measured, averaged a Regional Director in the North was promoted to replace Mark. and estimated performance. Wherever possible we have used stan- The action we have taken to deal with the contraction in our markets dardised data collection and reporting techniques and we continue to and to pursue our stretched targets has increased the demands on work to improve the accuracy of the measures reported. our people. The effect of seeking to reduce variable costs in line with We have adjusted historical data, as noted below, in order to increase sales trends, seize opportunities from failing competitors and continue reporting accuracy. In 2010 we expect to improve further our accuracy to serve customers well has manifested itself in an increased and by installing automatic meter reading equipment in many sites. The more diverse workload for many of our people. They have responded equipment will improve our reporting of carbon emissions and will superbly. In 2009 I continued my programme of regular visits to our allow us to improve our targeting of consumption at site level.

branches, stores, distribution centres and offices and by the end of the ● Historic carbon dioxide emissions, from utility consumption, have year had seen 470 sites since joining the Company. I also continued to been amended to take into account increased data accuracy from meet with all colleagues in our support functions over a rolling series of the annual apportionment of kWh consumption. This has resulted in communication and feedback sessions during the year. I am continually a minor change (under 1%), to previously reported carbon dioxide impressed by the dedication and commitment of my colleagues and tonnage data;

would like, on behalf of the Board, to express my thanks to all of them ● The natural gas carbon dioxide emissions factor has changed from for all their hard work. net calorific value to gross calorific value basis, in accordance with the “2009 Guidelines to Defra / DECC’s GHG Conversion Factors for ENVIRONMENT Company Reporting”. (Version 2, 30/09/2009); With the help of our Non Executive Environmental Advisory Panel ● The waste tonnage charts reported in the 2008 environment (“NEEAP”), we took a more active stance in 2009 to the development, report incorrectly showed total waste produced and the amount scope and pace of our environmental activity. Therefore, in a year recycled. The charts should have shown waste sent to landfill littered with government and ministerial announcements and consulta- and the amount recycled. The chart has been corrected for the 2009 tions about initiatives designed to reduce environmental harm, we have report; WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 18 chief e XECUTIVE’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 ● Estimated 2008 packaging tonnage of 64,041 is adjusted to 63,332 As well as listening to the views of our stakeholders, we also due to increased data accuracy; contribute to debate and seek to influence opinion about business’

● The 2008 water consumption baseline has been revised from role in environmental issues. In particular we are active in environ- 403,779 m3 to 349,390 m3 due to increased data accuracy. mental forums in the Construction Product Association, British Retail Consortium and the WWF Forest and Trade Network. Engagement Information about our environmental performance is accessible by a Dialogue with stakeholders is an important part of our approach to wide range of stakeholders via our web site. We also provide detailed environmental improvement. In 2009, in addition to consulting with reports to rating agencies such as the Carbon Disclosure Project and our NEEAP (see the box below), we consulted with over 60 groups or Forest Footprint Disclosure Project, disclose much detail on our timber individuals about aspects of our performance to help us to set priori- buying to the WWF through the Forest and Trade Network and are ties on environmental issues. Customers and regulators were the most involved in sector performance agreements and reporting such as the well represented stakeholder groups in our consultations. Our financial BRC’s “A better Retailing Climate”. stakeholders were least well represented. In 2009, via Wickes, we signed the Waste Reduction Action Programme (“WRAP”) voluntary home improvement sector commit- Statement of the Activities of the Travis Perkins Non Executive ment to optimise packaging. Through this we expect to make progress Environmental Advisory Panel. Approved by the Panel. over the next few years. The Travis Perkins Group values the contribution made by its Non We expect our NEEAP to become more influential in framing our Executive Environmental Advisory Panel. This panel, representative internal decision making about our environmental objectives. We have of the main stakeholders of the Group, meets twice a year and is rejoined the Timber Trade Federation, partly for the opportunity to influ- chaired by the CEO, Geoff Cooper. The Panel’s role is to inform and ence the responsible sourcing debate. guide the Group’s environmental objectives and to help Travis Perkins We will continue to engage in dialogue with a wide selection of identify a clear response to environmental issues which can generate groups and individuals but in particular will concentrate on our heat but with inadequate light. The panel is particularly encouraged employees, an under-represented group. Both our employees’ enthu- to examine emerging issues and areas where clear government envi- siasm to adopt new and better environmental practice, and their ronmental policy or best practice doesn’t yet exist. ability to generate improvements and to come up with ideas is largely The Panel currently has 5 independent members drawn from the untapped. financial, construction product manufacture, house building, repair and maintenance and environmental regulatory sectors. Each panel Responsible Timber Trading member offers a different perspective on the issues, the solutions We estimate that in 2009 we purchased 84% by value of timber and the driving forces behind the solutions. products from material that came from certified well managed and The Panel has so far reviewed the approach taken by Travis controlled forests. This continues our record of consistent improvement Perkins and offered comment on the objectives of the Group in light in recent years and suggests that we will achieve our 90% interim of emerging practice and the response in the finance market and the target by 2011. We do best in those categories with the shortest supply construction and retail industry. The Panel has significantly helped chains between us and the forest, and those where we are the importer Travis Perkins to understand its role in the supply chain and the contri- and distributor for a large amount of the category volume. bution to improved environmental sustainability that it might make in Last year we successfully introduced important and significant fulfilling this role. The Panel has particularly encouraged the Group to changes to our timber product Chain of Custody procedures in the adopt a clearer environmental vision that encompasses this. merchant and retail divisions. These have ensured that certified The Panel’s role is exclusively forward looking and it does not product remains on offer in all branches and stores that sell timber provide any kind of assurance or verification to Travis Perkins’ – over 800 sites. The changes support our efforts to enhance the current environmental performance. Travis Perkins will continue to robustness of chain of custody as responsible sourcing comes under use a credible 3rd party to verify the accuracy of its environmental increased scrutiny. Revisions to public procurement standards and reporting. Travis Perkins will also continue to draw on all its experi- building codes now require an increase in the demand for demon- ence of the market and on other sources of information on policy strably certified product. and good and emerging sustainable practice when considering In 2010 we will focus on increasing certified product purchases its environmental position. The Panel complements the Group’s from the harder to influence product categories such as flooring and understanding of environmental policy and best practice. It also doors. In these product categories, the supply chain between ourselves enhances the Group’s dialogue with the broadest range of stake- and the forest tends to be longer and be filled with small intermedi- holders ensuring that their views are considered by Travis Perkins in aries. This raises the need to adopt a stewardship role over the whole determining its environmental objectives. supply chain. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief e XECUTIVE’S REVIEW OF THE YEAR 19

17334 proof 3 1/4/10 TIMBER CERTIFICATION Carbon Management 2005 data excludes Wickes timber figures. In 2009 we emitted 154,818 tonnes of carbon – 8% less than in 2008. Timber purchased (£). The biggest contributor to this reduction was lower emissions from our consumption of gas. Our carbon dioxide emissions from burning gas were down 7% over 2008 despite the 2009 winter being colder. We attribute this reduction in emissions to the work we have done in installing heating controls in Wickes – our highest consumer of gas. The work started in 2008 and all stores had been fitted with these 26% controls by Autumn 2009. OCS OCS OCS OCS OCS 26%

24% In the supply chain we have had some success in improving effi- 28% ciencies from customer deliveries and these also contributed to our

34% absolute carbon reduction. On average, on a like-for-like basis, carbon dioxide emissions from branch to customer deliveries were 4% lower for 2009 than for the 2005 baseline year. The monitoring capability of our fleet management process, has helped to achieve these efficiencies over 2009 and indicates that there are more savings to be made. Unfortunately, the negative operating leverage effect of falling market 48% 54% 36% 58% 90% 49% volumes has meant that our measured carbon footprint of 59.1 tonnes FSC FSC FSC FSC FSC FSC AND OCS per million pounds of inflation adjusted turnover does not reflect these 2005 2006 2007 2008 2009 2011 Target efficiency gains. However, our average emissions per occupied building FSC: Forest Stewardship Council, OCS: Other Certified Schemes have been falling year on year over the last 5 years and our 2009 rate of 125 tonnes of carbon dioxide per site is 24% less than it was in the baseline year of 2005. We do not believe that our emissions per site will rise significantly as turnover starts to grow and, while we may miss our interim 15% reduction target in 2010, we still expect to achieve our 20% reduction in emissions per million pounds of adjusted sales by 2013. In 2010 we will concentrate much of our effort in establishing the ability to monitor electricity consumption at a site level more accu-

CO2 EMISSIONS rately. In turn, this will allow us to engage the site management and Corrected data and OECD sales deflated figures. target reduced consumption. Both of these activities will increase our efficiency and also allow us to enter into the Carbon Reduction Tonnes CO2 per £m Group Sales Commitment Energy Efficiency Scheme with an early adoption credit and a reducing emission trend. We also intend to continue to deliver carbon efficiencies in the supply chain and to examine how we can quantify this more accurately by including the parts of the distribution chain that are currently outside of our direct control. 26.9

27.1 26.5 Waste Management 27.6 TRANSPORT TRANSPORT TRANSPORT TRANSPORT TRANSPORT

25.6 In 2009, we sent 29,148 tonnes of waste to landfill, some 35% less than in 2008 and 41% less than our baseline year of 2005. We believe that this rate of improvement in performance will be sustained and will allow us to deliver, by 2013, the target we have set ourselves of a 50% reduction in landfill. Much of the success we have had in reducing waste to landfill last year has stemmed from the gradual removal of large open skips 32.3 50.8 32.6 31.9 32.6 27.8

ENERGY because these do not encourage reduction, re-use or recycling. In ENERGY ENERGY ENERGY ENERGY ENERGY ANDTRANSPORT 2010 we intend to pursue this with greater vigour with many sites 2005 2006 2007 2008 2009 2010 Target being reduced to 1,100 litre “wheelie bins”. We have also provided WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 20 chief e XECUTIVE’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 branches with simple, lower cost alternative waste recycling options, WASTE TONNAGE both via backhaul through our internal supply chain for packaging and Corrected data and OECD sales deflated figures. cardboard and through specialist partners for other materials. Since Tonnes waste per £m yard and core sales (excludes sales from direct deliveries) July 2009 all of our 7 distribution centres have collected bagged up waste plastic and cardboard from our stores and branches. We have bailers installed at each distribution centre to enable us to compact and then sell the waste. Over the half year we have picked up, bailed 1.0 3.1 and sold on to the reprocessing market, 2,139 tonnes of material and 1.7 2.8 estimate that we have reduced the demand for general waste capacity in branch and store skips by up to 30%. Our recycling rate in 2009 3.6 RECYCLING RECYCLING RECYCLING RECYCLING RECYCLING was almost 30%. In 2010, we will increase the segregation of our waste at source and expect to take advantage of our distribution network to accumulate sorted waste. We have made a promising start in 2010 already and all pallets, including damaged ones, can now be returned via our distribution network for re-use or recycling.

Packaging In 2009, we estimate that we sold 59,484 tonnes of packaging. This is 6% down on our revised 2008 estimate of 63,332 tonnes. On a like-for-like basis, this equates to 20.7 tonnes per million pounds of 10.9 18.0 18.4 13.3 21.9 19.6 sales in 2009 compared to 19.9 in 2008. We have spent some time WASTE WASTE WASTE WASTE WASTE WASTETO LANDFILL in 2009 consulting with WRAP, particularly about retail packaging. 2005 2006 2007 2008 2009 2013 Target Wickes was the first business to sign up to WRAP’s home improvement sector commitment. We have also been vocal in the Construction Product Association (“CPA”) about packaging reduction. Both the WRAP agreement and CPA packaging reduction forum will be important in delivering our packaging reduction ambitions which are split between improving packaging specification for our own branded products and influencing propriety branded suppliers to reduce packaging for the ENVIRONMENTAL INCIDENTS branded product we sell. AND COMPLAINTS Work on packaging specification changes will start in 2010 to deliver a 3-year programme aimed at achieving a 20% reduction in tonnes of packaging per million pounds of adjusted sales by the end of 2013.

Water In 2009, we estimate that we used 330,086 m3 of water. On a consumption to real turnover basis our 2009 consumption is slightly up on 2008. We have done some work on improving the accuracy of billing but have not yet addressed water efficiency. This is not a priority area for us in 2010 although the target of reducing water consumption COMPLAINTS COMPLAINTS COMPLAINTS COMPLAINTS COMPLAINTS 10

by 5% per million pounds of adjusted sales by 2013 remains. 5 10 17 6 Pollution Prevention 6 5 5 4 We reported 3 incidents of high level hazardous waste fly tipping at 3 INCIDENTS INCIDENTS INCIDENTS INCIDENTS INCIDENTS our sites to environmental regulators in 2009. In addition, we recorded 3 minor spills of fuel, but these were not notified to regulators as the 2005 2006 2007 2008 2009 spills were prevented from entering any water courses. We had no prosecutions for any environmental offence in 2009. However, we did receive one enforcement notice from a regulator to WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief e XECUTIVE’S REVIEW OF THE YEAR 21

17334 proof 3 1/4/10 clean up one of our sites. We also entered into a dialogue with three 11 charities – Breast Cancer Campaign, Children’s Hospices UK, The regulators who were seeking confirmation about possible statutory Prostate Cancer Charity, Childline, Happy Days, CLIC Sargent, Donna nuisances and a failure to meet essential packaging requirements. We Louise Hospice, Keech Hospice Care for Children, Warwickshire and do not believe that there is any planned action by any regulator relating Northamptonshire Air Ambulance and Whiz-Kidz. Wickes will continue to these incidents, which we have recorded as complaints. to support Leukaemia and Lymphoma Research as they celebrate 50 In addition, we received 2 complaints from neighbours about noise years as a charity. and in each case have worked to resolve the complaint by either In 2009, we continued our role as main sponsor of Northampton changing working hours or installing white noise beepers on vehicles. Saints rugby club and continued to involve our Northamptonshire Even though the level of complaint and incidents in 2009 was at colleagues in joint community activities including Sportsmatch – the a 5 year low, we remain committed to improving our performance. Government-funded scheme that gives local primary schools rugby We have a target of zero incidents and complaints and will remain coaching sessions, assembly visits and class-based Tag Rugby compe- diligent in our site operations. In 2010 we will continue to communicate titions. Our “1,000 Projects…” initiative continues to forge and develop with our branches and stores to ensure that the site noise level control relationships with local communities in the towns and cities in which adequately reflects the environmental impact and environmental risk. we trade. More than 700 local projects, schools, charities and ameni- ties across the UK have benefited from the time and talent, and often COMMUNITY ACTIVITIES materials, donated by our employees. Our relationships with local communities and the public at large are Each project involves our teams giving their own time and working deeply embedded in our heritage and culture, and are strongly high- with suppliers, local customers and community organisations to deliver lighted through our work with charities. The partnerships with our a building project of real value to the communities in the towns and chosen charities continue to thrive through a variety of activities across cities where we trade. Some recent examples include:

all of our 1,238 stores and branches in the UK. As a Group, we have ● Wood Green School in Walsall, where the local Travis Perkins raised over £1.8m over the last three years for our chosen charities. branches joined forces with sixth form students for a 5-day project to This year, Wickes became the first of our businesses to succeed in create a leisure area within the school. Their remit was to construct raising more than £1 million for its nominated charity, Leukaemia and the leisure area from sustainable or recycled materials to provide a Lymphoma Research. Since the partnership with Leukaemia Research safe and interesting environment for them to meet and socialise;

began 3 years ago, the enthusiasm and support of colleagues has been ● Our Travis Perkins’ Vauxhall branch are supporting a local care home overwhelming, and reaching the £1 million mark is a testament to the by repainting a relaxation area to brighten it up for residents;

dedication of all employees in our retail stores and teams. In October ● Employees from our Keyline Morley branch are donating materials 2009, a group of Wickes colleagues successfully climbed Mount and building a sensory garden for disabled children at Northowram Kilimanjaro, raising over £75,000. Primary School, West Yorkshire;

Wickes colleagues play a vital role in organising many local fund- ● The team at Travis Perkins in Colchester, led by their Branch raising events such as football tournaments and golf competitions, Manager, Steve Bareham, completed no less than 6 projects as part as well as in-store events such as fancy dress days and car washes. of our “1,000 Projects…” initiative, and raised thousands of pounds They also participate in larger public events including marathons, for our nominated charities. In recognition, the team were rewarded triathlons and ‘bikeathons’. Our top fund raising store last year raised at the prestigious Colchester and District Business Awards earlier over £9,000. in 2009 for successfully incorporating community and fundraising Despite more difficult trading conditions, the rest of the Group raised projects into their everyday working lives. over £850,000 for Action for Children (formally NCH) and Mencap (with Year on year, the “1,000 Projects…” initiative proves to be instru- its sister charity ENABLE in Scotland) over a three-year period. mental in helping our branch teams cultivate and develop relationships In 2009, the merchanting businesses and our Northampton Head with the local community, to develop team morale and ‘togetherness’, Office raised over £230,000 through a variety of fundraising activities. and gain excellent local publicity. 63 employees from our Travis Perkins business and Head Office took on a “Beat the Moon” challenge, which saw them cycle, walk, ride and INVESTORS canoe over 31 miles in one day, raising £43,000 through this achieve- The rights issue in May removed the market uncertainty about the ment. Two of our Travis Perkins’ businesses both held a charity ball robustness of the Group’s balance sheet and spurred a lot of activity in raising almost £70,000 between them. trading of the Group’s shares. From 2010, each of our businesses will adopt its own nominated Responsibility for communications with shareholders and debt charity or charities. This will enable further worthwhile causes to benefit providers rests directly with me and Paul Hampden Smith, our Finance from the fundraising efforts and generosity of our employees. This Director, with support and advice from the Company’s brokers. We do means that starting in 2010, the Group as a whole will be supporting not employ an investor relations manager. The Company Chairman and WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 22 chief e XECUTIVE’S REVIEW OF THE YEAR

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17334 proof 1/4/10 Senior Independent Director attend a selection of investor meetings sub-economic levels. However, there is always a risk of sporadic price throughout the year, and the Company Chairman attends the meetings aggression from less disciplined operators. at which we present the Group’s interim and preliminary results to buy- We also expect a contraction in the merchanting market, although side and sell-side analysts. In addition to these meetings, at least one it will be slight, and will simply reflect the annualisation of the trough. day per month is set aside to meet investors and analysts. Although there will be significant variations in the fortunes of the This regular programme is supplemented with one trip per year to various segments of the market, increased activity in housing construc- meet with investors in Eire, Canada and the USA, and we host a visit for tion, albeit from a low base, and expanded public sector investment in analysts to a selection of our businesses once per year. the built environment will provide a ‘floor’ to activity levels. In 2009 we conducted nearly 155 meetings with investors. Activity In an anticipated period of low growth our focus is shifting to driving levels, again boosted by the rights issue, increased in 2009. As part of organic performance. each exercise to present interim and preliminary results, we typically Against the fragile market background, we remain vigilant, keeping meet shareholders representing around 60% of the shares outstanding. a tight control on our core operating costs and looking to maintain This includes a ‘family lunch’ where we meet with representatives of gross margins wherever possible. The structural improvements in our the Travis and Perkins families. overhead base will be sustained, with no re-instatement of management posts removed in late 2008, and cash generation will continue STRATEGY as a priority through pursuit of supply chain initiatives. We will adopt a We have developed our strategy to respond to three distinct phases flexible stance to: expansion of our successful retail marketing invest- of the recession: managing the downturn; stabilisation; and exploiting ments; credit extended to trade customers; and sales prospecting opportunities. Our priorities in managing the downturn are described activity in trade markets, seeking to match the costs of these against above, and we have now turned our attention to the prospects for our the strength of activity levels. markets in this next phase, of stabilisation. Whilst remaining vigilant, we have made provision in our cost plans in Although forecasts are particularly problematic in this recession, we 2010 to selectively invest in a number of new activities that have direct estimate our markets are now stabilising, having fallen sharply from benefits to customers in the form of a steadily more attractive offer. the third quarter of 2008. We are now in a phase of stabilisation, which Until we can see signs of a recovery in our markets, we do not presents its own difficulties, with no growth, some exaggerated short think it worthwhile to comment on, or further develop, our strategy for term volatility in market trends, continued intense competition and exploiting opportunities. The outline of these strategies can be defined, business failures, and the potential for material shortages following the but it is difficult to determine, in present conditions, when they are large cuts in manufacturing capacity implemented by manufacturers. likely to become relevant. At this stage there is no clear indication of when our markets might Our businesses have strong brands, experienced management return to growth again. Although we believe this might be evident by teams and market leading financial performance. These strengths the end of 2010, we are also wary of the probable ‘false starts’ that mean we remain confident of our ability to position the Group to take we expect to see. advantage of further opportunities we believe will arise when our sector Whilst our markets are no longer exhibiting the abrupt declines in returns to growth. volume that characterised the start of the recession, activity levels remain fragile. We are concerned in particular about weak consumer spending trends in 2010 as inflation rises and the cushion of falling mortgage costs annualises out. We expect the home improvement market to contract further in 2010, but with only limited benefit from competitors going out of business in contrast to the large capacity Geoff Cooper reductions seen in 2009. Against this background, we expect pricing Chief Executive discipline to be maintained since returns for most operators remain at 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 24 chief e XECUTIVE’S REVIEW OF THE YEAR

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FOR THE YEAR ENDED 31 DECEMBER 2009

Introduction We entered 2009 with sharply declining markets in both the merchanting and retail sides of our business. We cut overheads early and swiftly in the latter part of 2008 which helped mitigate the effect of a difficult start to 2009. The themes of tight overhead control, capital expenditure and working capital control present in 2008 were repeated in 2009. We have the strongest and most experienced operational management team in our sector and we implemented a significant number of self-help initiatives across our business to enable us to weather the recession better than most; we now look to build on this position when better times return.

Our People Our vision – to create a ‘people first’ environment that facilitates high performance and provides the opportunity for career progression, while celebrating and rewarding success. Through this vision we encourage everyone to play their part in making the Travis Perkins Group both a great place to work, and a safe place to work. Writing these words is easy – we try hard to ensure we take concrete steps to put our vision into action, allocating personal responsibility to individuals to make this happen.

Putting our Vision into Action In delivering this Vision engaging our people, in the progress and development of the business and their part in it, is paramount. More than ever before, our achievements in 2009 relied on our people and their John Carter, Chief Operating Officer close working relationships with customers, suppliers and each other, at all levels in the business. We always actively encourage colleague engagement with the business as we believe it directly contributes to high morale, to their well-being and to healthy operating margins “We have the strongest and returns. However, in response to the difficult market conditions we have faced, in 2009 we re-doubled our efforts to maintain this and most experienced engagement. In support of this, we enhanced incentive schemes to enable every colleague in the Group to have the opportunity to share operational management in our ongoing success. Throughout the year, and against a recessionary backdrop, our people demonstrated yet again their never-ending ability to find team in our sector new ways to improve our business through working in collaboration with colleagues across the organisation. This resulted in a year of and we implemented outstanding achievements, some of which are detailed below, which we were delighted to celebrate internally. Many of these were, to our a significant number further delight, recognised externally.

● Our teams have delivered over 80 new sales and customer service of self-help initiatives initiatives;

● Despite the tough markets our group productivity levels were close across our business to to their highest in recent years; ● In our retail division, Wickes developed a new kitchen and bathroom enable us to weather the sales training programme, the roll out of which resulted in a significant growth in sales. This tremendous achievement was recognised by a recession” “Now is the Time” external national training award; WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief OPERATING OFFICER’S REVIEW OF THE YEAR 25

17334 proof 3 1/4/10 A: Michael Hunt, FLT Driver B B: Michael Derrig, Advisor A D C C: Asim Akram, Customer Assistant D: Matthew Hayes,Trade Specialist E: Andrew Beckett, Merchandise Supervisor F: Mulisha Nshinka, Cashier C E F

● A joint training initiative between our Toolhire division and Stocken ● Sharing delivery vehicles between merchant branches and Wickes Prison which helped to re-habilitate prisoners, and was recognised stores. by an external “Partnership” training award; In the extremely challenging environment in which we operated, our

● Recognition in late 2009 by external observers of the quality of our central functions continued to give excellent support to our branches work on this topic by the Group’s inclusion in “Britain’s Top Employers and stores. They also looked for innovative ways of giving that 2010” run by the Corporate Research Foundation in conjunction with support:

The Daily Telegraph and independently audited by Grant Thornton. ● Price guidance systems were created, increasing the information All of these achievements are a tribute to the dedicated people in our available to support and speed-up local decision-making;

Group who design, promote, and execute each programme. ● In Wickes, we developed a system to enable the introduction of “My The start of 2009 saw a very different trading landscape for all of Card”, our loyalty card, which is an important step in developing our people. For many of them it was the first time they had expe- customer relationships;

rienced a steep decline in trading, rather than growth. Furthermore, ● We installed GPS trackers to our vehicles allowing us to increase our about 2,000 of their colleagues across the Group had left the business customer service offering through more effective routing;

as we re-aligned staffing levels to meet reduced construction activity ● New tailored sales and pricing system training programmes were in the market. Nevertheless, throughout the whole of 2009, the depth written to help support new ways of working. and strength of our people’s engagement and their pride in the Group Our central functions are highly regarded throughout the organisation ensured that it retained and enhanced its strong position within the and work hand-in-hand with each of our businesses to provide excep- British merchanting and retail sectors. tional service to our customers. Pride is a cornerstone of our “Building People, Building As we move further into 2010, the challenges of improving the Britain”employment brand, and that pride is evident in all our branches Group’s performance in an extremely testing trading period remain. and stores and in our central functions – pride in working for the To help us meet these challenges, we will look to build on the innova- organisation, in their collective contribution to the organisation and in tion and collaboration that has been developed during this recession. their individual efforts to ensure continued success. Our focus will be on ensuring that we offer a compelling service to Managing costs was important for all our businesses, and as a our customers – from every part of the business, through whatever result of involving our people and communicating with them about the channel. This will ensure our continued differentiation of the Travis changing nature of the business and their role within it, they ‘bought Perkins Group from its competitors. Most importantly, equipping our into’ the changes that needed to be made. More importantly, they people with new skills and knowledge to succeed personally and continued to look for, and achieve, new ways to serve our customers collectively, will form a key focus for all of our leadership teams. and to provide them with the products and services that they needed. Some examples of new employee-driven initiatives were: Training and Developing for Success

● Broadening our product range and raising the level of availability of This year has seen a wide range of significant initiatives in training and product throughout our network; development across the Group. We have demonstrated an ability to

● Improved direct marketing campaigns, tailoring products and provide quality training that delivers tangible business benefits. Having services to customer segments; reviewed our costs and priorities, investment in training and develop-

● A more efficient delivery solution for our major contractor business; ment has been aligned with key business priorities. Our focus has been

● The ‘proud’ internal engagement communication (“Wickes – it’s on training for sales and basic job-skills, including product knowledge got our name on it”) which supported the Wickes’ advertising and customer service. This approach is designed to reinforce our campaign; very high standards of customer relationship management and sales

● Instant feedback via customer text messages (“SMS”) on the service delivery. Reflecting the trading environment being faced, we developed provided by our branches. and delivered “Train the Trainer” workshops to equip a greater number Great collaboration also resulted in: of our people to be able to provide training across the Group in a very

● The successful transfer of 683 colleagues from our out-sourced cost effective way. We plan to extend this in 2010. delivery partner, Lloyd Fraser, all of whom we are delighted to We are delighted that the Travis Perkins Group gained the two pres- welcome to the Travis Perkins Group; tigious National Training Awards described earlier.

● Numerous global product sourcing initiatives; With our focus on training for basic job-skills and product knowledge,

● Local teams volunteering to work more flexible hours to meet varied and with a view to developing our own pipeline of quality people for the demand volumes, which in turn ensured continued employment for future, we were pleased to be awarded a government funding contract their colleagues and reduced our costs; for an apprenticeship programme within Wickes. This programme,

● The trial of local delivery ‘hubs’ to improve service to Wickes launched in January 2010, provides all new employees within Wickes customers; the opportunity to gain a Level 2 Retail Apprenticeship. We are looking WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 26 chief OPERATING OFFICER’S REVIEW OF THE YEAR

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17334 proof 1/4/10 to extend the opportunities for apprenticeships to other parts of our ● Pension plans;

business during 2010. ● Life assurance cover;

Our training and development team play a pivotal role in the ● Private health care;

progress of the Group. This team gives support to our businesses by ● Salary exchange scheme – childcare vouchers, Cycle2Work, Give As aligning our work to three key priorities: the development of leadership You Earn, Small Change Big Difference;

and management potential; sales improvement; and improving core ● Enhanced annual leave;

skills for the benefit of customers. These will remain our priorities ● Loyalty awards;

for 2010. ● Employee assistance programme;

Our Management Trainee scheme has continued to deliver quality ● Flexible working options;

people, with 79 of our 80 trainees securing positions within the busi- ● Share Save scheme;

ness on completion of their training. Our current trainees are in the ● Recognition awards – Getting It Right, branch / store manager of the second year of their programme in preparation for appointment in the year in each business unit, management trainee of the year, special summer of 2010. A decision was taken not to recruit for the scheme achievement awards and the CEO award for manager of the year. in 2009 and to take the opportunity to thoroughly review the content in line with our changing business needs. The revised programme will be Engagement and Communication – Building on Our Success agreed early in 2010 with the aim of recruiting trainees in 2011. A direct relationship exists between the level of engagement of our people and their retention in the business. Our own data is confirmed Rewarding and Recognising Success by external research, which shows that highly engaged employees are Annual bonus and long term incentive plans are now in place to ensure more than twice as likely to be top performers and will have 40% fewer that all colleagues have the potential to share in the Group’s success. days off work due to illness. We aligned all bonus plans to reflect our priority of driving current Our belief in the link between colleague involvement and business results. Despite the challenging trading environment in 2009, as a performance continues to drive our approach to people policies and result of the achievements of our people in our general and specialist practises in the business. We recognise that the high standards of divisions, almost 40% of branches will receive a bonus payment under service we provide are dependent on the contribution, application and the “All Colleague Bonus Plan”. loyalty of our people. The “Great Place to Work” people strategy now All Wickes employees will receive a special bonus payment in March implemented in Wickes is based on what our colleagues have told us 2010 to reflect their outstanding performance during 2009, in addition about working in the business. Over the past 3 years we have developed to a reward payment made to each of them in April 2009. During the a suite of programmes, initiatives and policies to build and maintain year, and following the successful example in the merchanting division, their engagement. These are now an integral part of our culture and we designed a new bonus scheme for Wickes based on a “balanced way of working: for example, the introduction of our Bright Sparks initia- scorecard” approach. The scheme will reward colleagues in stores who tive in Wickes; and the “Skip Spotters” initiative across the Group. In achieve high performance against financial and non-financial targets. 2010, we plan to introduce an innovation recognition scheme – IDEAS, In Wickes, a new commission plan was introduced for kitchen and aimed at encouraging and rewarding new ideas across the Group. This bathroom design consultants. The scheme rewards exceptional perfor- will be supported by an investment of up to £1 million in cash prizes. mance and we are delighted that a number of our high performers The Building Britain Award programme is now well established and shared in the success of the kitchen and bathroom business in 2009. provides annual recognition of those colleagues who consistently deliver Our Reward Gateway scheme goes from strength to strength. It excellence in their roles. Our loyalty award programme continues to enables employees to take advantage of a number of voluntary provide the opportunity for the Group to demonstrate that the contribu- benefits together with discounts on everyday items bought from high tion of long serving colleagues will always be valued. Over 20 of our street stores, and provide assistance with their household finances. people were recognised in 2009 for achieving 40 years of service with An increasing number of employees are taking advantage of the the Group. One, Brian Ward reached an outstanding 50 years of dedi- discounts available. cated service and this was recognised by us organising a celebratory In the interests of the welfare of our people, in 2009, we introduced trip he had always wanted to complete on the Orient Express. life assurance cover to all employees who do not participate in a Our special achievement awards, part of our “Building Britain pension plan – where life assurance is already provided – giving peace Awards” initiative, continues to showcase those colleagues, as nomi- of mind to all colleagues and their families. nated by their peers, who have gone that ’extra mile’ by excelling in Our approach to reward remains to enhance our position as an customer service or by championing our values. The additional work- employer of choice by continuing to offer a range of attractive pay and load generated by the recession brought out the best in our people and benefits packages to our people including: this made judging these awards exceedingly difficult. Nevertheless we

● Staff discount – Reward Gateway and purchases from group brands; are proud to again showcase: WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 28 chief OPERATING OFFICER’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 ● Jan Atkins from Travis Perkins who proved a real winner despite worked) and a 29% reduction in the lost time injury severity rate (days the downturn in trade, turning enquiries into healthy sales and lost per thousand hours worked). These significant achievements have championing our Trade Cash Card with new customers; been made possible by each of our business leaders embracing our

● Chris Thompson, who focused his attention on delivering the best health & safety vision, collaborating to share ideas and involving and customer service by ensuring their experience and standards at his engaging colleagues at all levels. branch were the best they could possibly be; I, and my senior operating team, remain absolutely committed to

● Dan Brookes from City Plumbing also focussed his attention on our Stay Safe programme, designed to ensure that all colleagues, customers, consistently delivering first class service to trade account customers and contractors who deal with the Travis Perkins group holders and cash customers, often in his own time; return home safely at the end of every working day.

● Non-customer facing colleagues were recognised too. In Wickes, caretaker Ian Miller is often referred to as an ‘unsung hero’, always Operational Performance on hand to keep the offices in perfect working order, and Debbie Merchanting Division Sweeney continues to organise highly profitable fundraising activities The Travis Perkins brand remains the cornerstone of the Group’s activi- for the Group’s nominated and other charities. ties and comprises 4 discreet business units, namely South East, South Our commitment to ensuring regular, two-way communications with our West, Midlands, and Northern, each with its own managing director and people continued in 2009 through regular head office, site and store management team. It is a generalist mixed merchant, trading across briefings by our business leaders. We launched a quarterly Colleague the main product groups offering a ‘best in class’ service to small and Liaison Forum in our head office campus enabling employees to have mid-sized builders and contractors, as well as larger contractors and an opportunity to discuss business issues. The liaison forum concept housebuilders across many segments of the building sector. is already well established in Wickes and we will seek opportunities to Throughout the year we continued to focus on product availability, extend it further through our estate in 2010. customer service and pricing systems. Our focus on engagement extends to the way we go about charity Availability was improved to over 96% while overstocks were signifi- fundraising, when we continue to find ways of capturing our people’s cantly reduced, releasing working capital. We realigned our external imagination through different initiatives. In 2009, these included the sales-force to deal with the changed market conditions, and promoted landmark expedition of Group and Wickes colleagues, led by Jeremy our trade cash card offer. This meant we actually ended the year with Bird, Managing Director of Wickes, to the summit of Mount Kilimanjaro; 7% more trading customers than the previous year-end. and also the launch of a monthly colleague lottery with more than 70% Across all four businesses, gross margin was maintained at the of colleagues taking part and 50% of monies raised being pledged to previous year’s level, due in part to mix benefits from lower direct to our nominated charities. site sales, but also to the efforts of the business unit management Through our colleague attitude survey work in recent years, we teams to protect margin in a tight market, including extended use of have established a strong correlation between colleague engagement new pricing tools. and labour turnover. We are extremely encouraged by the significant Overheads were tightly controlled throughout the year. Our work- increase in group labour retention, from 82% in 2008 to 89% in 2009. force was reduced by a further 5% on top of a 13% reduction in 2008, Despite the recession, we see this as evidence and confirmation that and with the aid of our vehicle tracking system and utilisation data we the people policies outlined above are having a really positive impact succeeded in reducing distribution expenses by a further 15% (well on our people and on business performance. We will be conducting in excess of the decline in delivered sales) without compromising our another colleague survey in 2010. delivery service. Capital expenditure was tightly controlled, except for We are pleased that during such a tough trading period, our focus on health & safety issues where we continued to invest for the wellbeing continuing to be a great place to work has been recognised through our of our colleagues and customers. Overall annualised overhead savings selection as one of Britain’s top ten employers for 2010. of over £21m were achieved against the previous year. Although not a separate business unit in its own right, tool hire is Keeping Our People Safe embedded within the branch network and has its own management Such is the profile and importance of health & safety throughout the structure, led by Richard Dey. Throughout the year a number of initia- Group, we have created its own section within these accounts on tives were undertaken to enhance customer service. Tool utilisation pages 51 to 52. levels increased versus 2008 and a further repair facility was intro- However, on a personal note, I am pleased to report a strong duced in collaboration with the prison service; this particular initiative performance from all parts of the business in supporting our vision of has received positive feedback from the relevant authorities and the “making injuries rare”. team has won a national training award as a result. Across the Group in 2009, we have achieved a 12% reduction in During the year our management teams within the four specialist busi- the lost time injury frequency rate (lost time injuries per million hours nesses continued to devote their activities towards cost containment, WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief OPERATING OFFICER’S REVIEW OF THE YEAR 29

17334 proof 3 1/4/10 GEOGRAPHICAL SALES cash generation and customer capture. This proved to be an effective strategy. Capital expenditure, both for replacement and development, % of total 2009 annual sales was cancelled unless health & safety related. Further refinement of MERCHANTING product ranges enabled us to improve stock availability and release cash, some of which was re-invested to take advantage of pre-price- increase buying, which supported gross margins. Credit management teams performed well in testing circumstances and maintained good 31% 17% cash collection standards throughout the year. Management focused on keeping morale high among our people despite the need to implement further headcount reductions, carefully made to avoid cutting into the muscle of our businesses. We rolled out the benefits of vehicle tracking 27% into CCF and Keyline, enabling us to reduce fleet size and the average age of the remaining fleet. We strengthened our selling capability 25% through the appointment of David Stewart as the Division’s Commercial North Sales Director. In order to accelerate customer capture, sales teams Midlands were re-trained and linked to in-house sales tracking systems, all to RETAIL good effect. Marketing resource was focused on re-activating dormant South East and low-spending accounts and on attracting new accounts using the 19% South West strength of group brands. 26% National Sales Effort, and Managed Services The Group’s dedicated national sales team manages relationships with major house builder and construction customers, as well as a number of other customers with significant geographic coverage. We restructured our team in late 2008 and have successfully in- 16% 39% creased our share of business with a number of contractors working in buoyant markets such as infrastructure, health, social housing, education and facilities management. Having secured new long-term framework agreements we have continued to enhance the team and widen our customer base, ultimately delivering more sales for our merchant brands. The team is structured to allow flexibility and alignment with NUMBER OF BRANCHES key publicly funded projects as they are released as well as reacting to trends in the private sector. In 2010 we are also focussing more resource on customers operating in the retail and leisure sectors. Towards the end of 2009 we started to see early signs of increased activity from national house builders. Albeit at lower levels than before the recession, factors such as the change in mix away from apartments to traditional housing provide us with additional opportunities. Our Managed Services team has continued to target opportunities within the affordable housing repair, maintenance and improvement (“RMI”) sector, delivering and managing bespoke supply chain solutions to organisations and their partners operating within the social housing market throughout the UK. During 2009 we experienced further significant sales growth, with stores exclusively supplying local authorities, housing associations, and contractors increasing from 20 in 2008 to 27 during 2009. Additionally, the Group is now servicing in excess of another 50 similar clients through its existing branch network. Whilst we anticipate public expenditure will come under pressure during 783 1,022 1,125 1,223 1,238 the course of 2010 and beyond, we believe that the drive for greater 2005 2006 2007 2008 2009 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 30 chief OPERATING OFFICER’S REVIEW OF THE YEAR

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17334 proof 1/4/10 efficiencies within this sector should result in more outsourcing oppor- label products, which is a key source of differentiation and featured the tunities for the Group. line “It’s got our name on it”. Research has shown that this campaign In 2009 we maintained our merchanting marketing focus on retaining has resulted in strong positive shifts in brand equity and econometric customers and growing our share of their spend, driving footfall into modelling has shown a very strong sales impact and resultant high our branches and increasing our number of trading accounts. Direct rates of return on investment. marketing played a major and increasing part of our activity during the The television campaign was one element of a radical overhaul of year and we continued to give priority to improving the quality of our our customer communication strategy. At the same time we launched customer data. As business became tougher for our customers they a new multi-channel catalogue to run alongside our fast growing online focussed increasingly on value for money. In response we accelerated business and introduced increased delivery options for customers. the development of our own brand offering to give our customers a The year also saw the launch of a new customer relationship great deal on quality products. We continued to develop our Iflo and management (“CRM”) strategy including the introduction of “MyCard”. 4Trade own label product range, offering professional quality alterna- With small Tradesmen being a key target for Wickes, our ability to tives to branded products at lower prices. develop strong relationships with our customers is important. MyCard Our sponsorships of the Travis Perkins plc Senior Masters at rewards loyalty and provides valuable data relating to individual Woburn Golf Club and the Northampton Saints Rugby Club continue. customers’ shopping behaviour. Initial results suggest a positive impact This helps build customer relationships through hospitality, increase on shopping behaviour and CRM will be a key element of the Wickes’ awareness of our corporate and business brands and promote our marketing strategy going forward. product and service offering to current and potential customers. As a Market downturns usually favour those with strong value credentials major Northamptonshire employer, we also work with The Saints in the and we gained market share for the third consecutive year in 2009 local community to provide rugby coaching to primary, secondary and as more customers discovered the great quality and value proposition special schools promoting issues including motivation, healthy living offered by the Wickes own brand products. and education. As Wickes has continued to strengthen its marketing capability, significant share gains have been achieved in a number of product Retail Division categories. This is most notable in K&B where we have achieved more All indicators led us to expect that the economy would remain weak than our fair share of the opportunity presented by the failure of MFI throughout 2009 and that the only growth prospects for Wickes would due to investment in bathroom displays, strong ranging and competi- be from self-help activity and a gain in market share. Whilst the market tive pricing. was stronger than we anticipated, the work done before the end of We believe that we have one of the strongest brands, the best 2008 to remodel our cost structure for a recession paid off from the management and the greatest long-term scope for growth anywhere in start of the year. the sector. These things leave us best placed to outperform the industry Favourable weather and slightly better than expected DIY consumer in difficult economic conditions as well as in any recovery. activity, probably driven by the significant drop in housing transactions Tile Giant had another year of growth although the rate of growth and subsequent home improvement projects, led to stronger than was reduced from 2008. Whilst business has been tough, we per- anticipated sales, particularly in the first half. formed ahead of the market throughout the year and the teams in our The loss of a principal competitor at the beginning of the year led to stores deserve credit for the way they have applied themselves during considerable gains in kitchens and bathrooms (“K&B”). In anticipating this time. this event we made substantial investment in new products and in Investing in our people is important at Tile Giant and we have taken refurbished showrooms, putting us in a unique position to be able to significant steps forward in terms of new joiner inductions, manager capitalise on the available market. training and product knowledge. We adopted an entirely new marketing strategy in 2009 designed to increase awareness, differentiate the brand from competitors and drive ToolStation footfall into stores. At the heart of the new strategy was a shift in invest- ToolStation continued to expand its branch network across the country, ment from the Wickes Booklet, which had served the business well for increasing it by a third. Expanding the branch network has helped to many years, but had reduced in effectiveness, to TV advertising. Scale grow overall sales by 69% with the established branches and mail economies from our own growth in recent years and the reduced costs order operations seeing LFL growth of 27%. of broadcast media meant that television advertising became viable. Exceptional value for money combined with very high levels of avail- We launched a highly successful campaign designed by Wickes’ new ability and customer service have enabled ToolStation to increase its Marketing Director, Rob Murray, that ran throughout the year in support market share in difficult trading conditions. of a number of product categories and of the brand as a whole. In The ToolStation catalogue contains approximately 10,000 products this first year the TV campaign focused on the quality of Wickes own which are stocked and available in all of the branches. During the WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 32 chief OPERATING OFFICER’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 year it introduced to its range a selection of Wickes doors. These are physical infrastructure and solutions that now put us at the forefront shipped through the Wickes delivery network on a next day service of supply chain thinking in our sector. The foundations are now well directly to ToolStation customers. rooted within our business and supply chain will continue to be an area of increased investment and focus to ensure that we remain first Supply Chain choice for our customers with the most reliable, service led offer within Supply chain management is now a well established new function in our respective markets. our group, and yet has significant development potential. Our investment, over the last three years, in skills and physical resources is Quality Assurance (“QA”) and Corporate Social generating significant returns through customer focused, sales based Responsibility (“CSR”) projects such as product availability improvements and cost based The prime responsibility of the Group Quality Assurance Department innovation like delivery vehicle utilisation tracking. The most tangible continues to be to protect all of the Group’s brands with two key objec- example of how timely an investment this has been was our ability, tives to ensure that Travis Perkins companies only: in the challenging 2009 market, to not only maintain availability of ● Use Suppliers who have acceptable control of their manufacturing, product for customers, but improve it while reducing our stock holding environmental, ethical and health & safety processes; by £34m before inflation. ● Stock product that conforms to national and international regulations, We supported over 30 initiatives across the Group last year is safe, fit-for-purpose and conforms to required specifications. including: During 2009 we have continued to invest in the QA department with

● The launch of a new door warehouse operation that has transformed additional resource to meet the demands of our growth in direct sourcing our availability for this product group by giving customers access to (particularly relating to product quality) and our packaging reduction over 700 products within a 48 hour order to delivery time. Customers programme. In addition, a major IT project was initiated to introduce an have responded and our sales have improved significantly as a on-line QA management system, due for launch early 2010. result; By the end of 2009 we used just over 400 primary suppliers

● The implementation of an improved fleet management process supplying in excess of 130,000 product lines. Within the supplier base for our 2,000 strong fleet, which supported a reduction of over there are 1,470 known manufacturing sites of own brand or own label 100 vehicles and ensured that where vehicles were removed, our products, of which 622 are based in Asia – an increase of 10% and service levels were maintained. This creates a platform for customer 14% respectively against 2008. This was slightly lower than the growth service initiatives that will further improve our “on time in full” (OTIF) we saw in 2008. The increase in the number of factories in Asia was performance for years to come; almost entirely due to our increased global sourcing activities.

● The improved efficiency through direct engagement of 683 We rank all our manufacturing sites through site audits and our colleagues by removing a 3rd party distribution operation from policy is to terminate relationships if they do not meet our exacting our four Wickes’ warehouses. This removed management fees criteria. We consider all Asia operations to be ‘High Risk’ and will not and creates an environment where we can develop our own, more commit to supply until our team have audited a site. We continue to efficient distribution culture and identity with colleagues; maintain a Group QA Asia office based in Shenzhen, southern China,

● Stronger relationships with suppliers through supplier engagement to fully support the Asia supplier base, in addition to the Group QA UK programme. A programme of shared resources sees supplier offices in the merchanting and retail divisions. 2009 saw an exten- colleagues work as an integral part of our supply chain team to sion of our activities directly relating to our growth in direct sourcing improve availability and cost management within their respective increasing factory assessments in Asia and product compliance audits product sets; in both the UK and Asia.

● Reduced lost sales and improved availability for customers through We also increased our activity in customer product returns and initiatives to centralise more of our product set in the merchant product quality improvement. As a result of this work carried out during business (1,800 products in 2009) and reduce our minimum order 2009 we now have greater visibility of product quality levels and the constraints from our internal timber milling operations and external framework for continuous product improvement. suppliers. Objectives for 2010 include continuing focus on product failure and Over the last three years we have focused our efforts on integrating customer returns and continuing development of the QA strategy for supply chain measures with our day to day business operations. Each direct sourcing. supply chain initiative uses a ‘language of profit’ rather than supply chain terminology to engage our teams and drive improved perfor- Global Sourcing mance. We measure our availability of products through ‘lost sales’ Direct sourced products doubled in 2009 from $15m to $31m and are and our vehicle performance through ‘lost profit’ rather than ‘SKU forecast to grow to $55m in 2010. The number of direct sourced prod- Percentages’ and ‘average cube per load’. We have also invested in ucts increased from 250 in 2008 to 1,100 in 2009 and will increase WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief OPERATING OFFICER’S REVIEW OF THE YEAR 33

17334 proof 3 1/4/10 A: Antony Beldham, Driver and Sales Assistant A B: Narinder Singh, Assistant Manager C B C: Dave Gurling, Branch Manager D: Paul Hinchey, Warehouse Supervisor D E: Andrew Parsons, Designer

to 3,000 by the end of 2010. The main focus on product is within We will further develop our purchasing strategy in 2010 by sourcing plumbing and heating, with great success in brassware and sanitary- more product directly from manufacturers and expanding our supplier ware, but direct sourcing has also expanded considerably in hardware relationships. This will result in a significant increase, year on year, in and decorative accessories. the number of products we buy direct. We will continue to focus on our drive for full availability in store and Merchanting Suppliers at the same time develop innovative ways to drive out costs within the During the year we have continued to focus on building relation- supply chain, utilising different methods of distribution to get the product ships with our key branded suppliers. Whilst we have a large number to our customers. One such development of this is the use of our hub of suppliers to support the local needs of our business, these are and spoke network of stores. In this instance we are able to optimise managed into 3 supplier categories.100 suppliers represent 70% of the cost of distributing product to customers using our store network our merchanting spend. We have worked closely with them and our more effectively and ultimately continue to maximise availability. internal supply chain to improve availability within our branch network: 2 key initiatives were undertaken in 2009: Total merchanting business* 2009 2008

● Lowering the minimum order quantity that our branches needed to Number of product suppliers 7,372 7,050 reorder; Total purchases represented by the top 50 59% 59% ● Centralising more of our stock into central distribution. This has the dual benefit of improving availability to our customers and reducing Wickes non-trading traffic in our branch network. Number of product suppliers 181 179 In these difficult times for the industry we challenged ourselves and Total purchases represented by the top 50 86% 86% suppliers on 3 specific areas of risk:

● Product availability – we have reviewed the production capacity of *Includes Tile Giant our suppliers to meet our needs and considered alternative sources in the event of a supplier ceasing to trade for any reason; And Finally... ● Financial stability – twice per year each strategic supplier is reviewed 2009 has been a tough year, but our smaller operating teams have with a 3rd party credit provider to confirm their ability to trade; risen to the challenge and improved service standards as perceived

● CSR requirement – with our quality assurance team, the suppliers’ by our customers. This is a tremendous achievement and I express my ability to conform to our stringent requirements were reaffirmed, continued thanks to all our colleagues for their excellent performance resulting in 2 suppliers being temporarily de-listed. in such an unprecedented year.

Retail Suppliers Despite lower volume in the sector as a whole, we experienced fewer supplier business failures than we feared might happen, and expect 2010 to be similarly stable. We have continued to develop strategic John Carter relationships with key suppliers. The successful development of our Chief Operating Officer K&B business in 2009 partly depended on this approach. 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 34 chief OPERATING OFFICER’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 chief OPERATING OFFICER’S REVIEW OF THE YEAR 35

17334 proof 1/4/10 FINANCE DIRECTOR’S REVIEW OF THE YEAR

FOR THE YEAR ENDED 31 DECEMBER 2009

INTRODUCTION The actions we implemented in 2008 to prepare the Group for the sharp downturn in construction activity worked well, with all main financial targets achieved or bettered. In 2009 we have realised substantial cost savings, improved our productivity ratios and significantly boosted cash flows. In May we restructured our interest rate derivative portfolio to improve our interest cover ratio and in June the over-subscribed rights issue yielded net proceeds of £300.3m which significantly strengthened our balance sheet whilst giving us greater flexibility. As a result of these actions we enter 2010 in a strong financial position. During the year we have taken steps to reduce the Group’s final salary pension scheme deficit. In April employee contribution rates were increased by 1%, in December future pensionable salary increases were capped at 3% and before the year-end we agreed a revised schedule of payments with the Scheme Trustee that is expected to eliminate the ongoing funding deficit over 8 years. From 2009 additional payments, in excess of ongoing funding commitments, of £20.4m p.a. are being made to the scheme (2008: £11.5m). As a result of introducing the pensionable salary cap the pension scheme gross deficit at 31 December 2009 has been reduced by a one-off £32.7m curtailment gain. This gain has been credited to the income statement, but due to its magnitude it is disclosed as an exceptional item.

FINANCIAL OBJECTIVES Despite the difficult trading conditions during late 2008 and throughout Paul Hampden Smith, Finance Director 2009 the Directors of the Group remain committed to the long-term creation of shareholder value, which they believe is achieved through:

● Increasing the Group’s market share via a combination of like- for-like sales growth and targeted expansion through acquisitions, “In 2009 we have brownfield openings and in-store development; ● Improving profitability with a medium term target for profit growth in realised substantial percentage terms exceeding that for sales; ● Investing in projects and acquisitions where the post-tax return on cost savings, capital employed exceeds the weighted average cost of capital of the Group by a minimum of 4%;

● Generating sufficient free cash flow to enable the Group to expand improved our its operations whilst funding attractive returns to shareholders, reducing its debt and pension deficit;

productivity ratios ● Operating an efficient balance sheet, by structuring sources of capital to minimise the Group’s weighted average cost of capital and significantly consistent with maintaining an investment grade financial profile with the ratio of net debt to EBITDA being between one and two and boosted cash flows” a half times;

● Maintaining long-term dividend cover at between two and a half and three and a half times earnings. Whilst the above are appropriate long-term objectives, our short-term objectives continue to give priority to maximising cash generation. To ensure the business is focused on the achievement of appropriate targets, a series of key financial performance indicators are monitored WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 36 FINANCE DIRECTOR’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 FINANCIAL REVIEW Results 2009 2008 2007 2006 Revenue (decline) / growth (7.8) (0.3)% 11.9% 7.9% Like-for-like revenue (decline) / growth (8.6) (4.5)% 8.1% 1.4% Adjusted operating profit to sales ratio 7.7% 8.5% 10.0% 9.8% Profit before tax growth / (decline) 45.4% (44.0)% 12.7% 12.2% Adjusted profit before tax (decline) / growth (11.3)% (22.5)% 18.7% 6.6% Net debt to adjusted EDITDA 1.5x 2.8x 2.5x 2.4x Adjusted interest cover (note 10) 10.7x 4.3x 5.4x 4.9x Adjusted return on capital (note 36) 10.9% 12.9% 15.9% 14.6% Adjusted free cash flow (note 35) £294.4m £185.3m £157.8m £216.6m Adjusted dividend cover (note 13) - 8.5x 3.3x 3.4x throughout the business. A selection are shown in the table above. Cash Flow Where indicated, for 2009 these measures are stated on an adjusted Despite the difficult trading conditions, which have resulted in adjusted basis stripping out the effects of an exceptional pension curtailment operating profits falling 17.3%, strong cash control has enabled the gain and for 2008 the exceptional reorganisation costs. Group to generate £319.8m of cash from operations (2008: £337.6m), Adjusted earnings before interest, tax, depreciation and amortisa- a decrease of only 5.3%. tion (“EBITDA”) (note 37) were £280.8m (2008: £330.3m), a decrease Free cash flow, (calculated before, expansionary capital expendi- of 15.0%. ture, additional pension contributions, exceptional reorganisation costs In May 2009, as part of our efforts to increase interest cover, we spent and dividends) was £294.4m (note 35), 58.9% higher than for 2008. £28.7m exiting 7 interest rate swaps and a cap and collar arrangement Most of the free cash generated has been retained by the Group as with a combined average fixed rate of 4.8% at that point, and replaced part of its debt reduction programme. As a result, expansion capital them with 8 new fixed interest rate swaps with an average interest expenditure in existing businesses was significantly curtailed at £11.1m rate of 1.5% at inception. The £28.7m payment is being amortised (2008: £53.5m) and whilst there were no branch acquisitions during against profits over the original remaining lives of the cancelled swaps. the year (2008: £22.5m), further small investments totalling £13.9m Overall, lower interest rates combined with significantly lower borrow- were made, particularly in the Group’s associate company ToolStation ings have reduced our net finance charges, excluding other finance (2008: £21.0m). income and charges associated with the pension scheme, by £31.8m (43.1%). The average interest rate during the year was 3.7% (2008: Pensions 4.9%) whilst adjusted interest cover (note 10), was approximately 10.7 During the year the triennial actuarial valuation of the pension times (2008: 4.3 times). scheme determined that the deficit on an ongoing funding basis at 30 Adjusted group profit before tax (note 5b) was £22.5m or 11.1% September 2008 was £132.0m. Negotiations with the Scheme Trustee lower than last year at £180.0m (2008: £202.5m). about the level of future funding rates were concluded in December The tax charge was £55.3m, an effective rate of 26.0% compared with the result that the Group has agreed to eliminate the funding with £44.4m (30.3%) in 2008. The effective rate is lower than the deficit over 8 years through increasing contributions by £10.3m p.a. standard UK corporation tax rate principally due to property profits, to £20.4m. which are not chargeable to tax. At 31 December 2009, the gross accounting deficit of the pension Profit after tax was £157.4m an increase of 54.5%. Adjusted scheme was £43.0m (31 December 2008: gross accounting deficit profit after tax (note 5b) was £133.9m, a decrease of £10.0m (6.9%) £69.9m). The net deficit after allowing for deferred tax was £31.0m compared to 2008. (2008: net deficit £50.4m). After allowing for the effect of the rights issue, basic earnings per The deficit has fallen as a result of a £32.7m curtailment of pension share were 88.4 pence (2008: 68.6 pence). Adjusted earnings per liabilities following the introduction of an annual 3% cap on the increase share (note 12b) were 75.2 pence (2008: 96.9 pence) a reduction of in pensionable salaries for active scheme members. The combination 22.4%. There is no significant difference between basic and diluted of lower yields on corporate bonds and a higher projected inflation earnings per share. The weighted average number of shares in issue rate resulted in scheme liabilities increasing by £121m, but these were was 178.0m (2008: 148.5m). largely offset by returns on investments, which increased in value by WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCE DIRECTOR’S REVIEW OF THE YEAR 37

17334 proof 3 1/4/10 £90.1m, and £25.1m of company contributions in excess of current would need to be £58m, the same as was achieved in 2009. service costs. Whilst the Directors consider that their assumptions are realistic, it The scheme is now 92% funded (2008: 86%) with the net deficit is possible an impairment might occur if any of the above key assump- representing approximately 2% (2008: 12%) of the Company’s market tions were changed significantly. capitalisation at 31 December 2009. The net book value of goodwill and other intangibles in the balance sheet is £1,515.3m (2008: £1,513.9m). Equity The rights issue which was completed in June 2009 resulted in the PRINCIPAL RISKS AND UNCERTAINTIES issue of 86m new shares at £3.65 each, raising £300.3m of new Going Concern equity, net of costs of £13.2m. A review of the Group’s business activities, together with the factors Total equity at 31 December 2009 was £1,460.4m. After allowing for likely to affect its future development, performance and position are the rights issue the £141.9m increase in equity arose from £157.4m set out on pages 10 to 24 of the Chief Executive’s review of the year. of retained profits, partially offset by a net £20.4m of actuarial loses The financial position of the Group, its cash flows, liquidity position and arising in respect of the pension scheme and changes in the value of borrowing facilities are shown in the balance sheet, cash flow state- cash flow hedges. ment and accompanying notes in the financial statements. Further The Group’s adjusted return on capital in 2009 (note 36) was 10.9% information concerning the Group’s objectives, policies and processes (2008: 12.9%), which remains higher than the Group’s weighted average for managing its capital; its financial risk management objectives; cost of capital. details of its financial instruments and hedging activities; and its expo- During the year, the daily closing share price (restated for the rights sures to credit risk and liquidity risk can be found below. issue) ranged between 880 pence and 228 pence. At the year-end the The Board of Directors is currently of the opinion that having reviewed share price was 852 pence (2008: 268 pence restated for the rights the Group’s cash forecasts and revenue projections, and after taking issue) and the market capitalisation £1.8bn (2008: £0.4bn), repre- account of reasonably possible changes in trading performance, the senting 1.2 times (2008: 0.4 times) shareholders’ funds. Group should be able to operate within its current facilities and comply with its banking covenants for the foreseeable future. In arriving at its Properties conclusion, the Board was mindful of the:

At 31 December 2009, the carrying value of the Group’s 336 freehold ● Group’s robust policy towards liquidity and cash flow management;

and 57 long leasehold property portfolio, which was last revalued in ● Group’s abilities to manage its business risks successfully during 1999 on an existing use basis, was £247.2m (2008: £257.3m). periods of uncertain economic outlook and challenging macro economic conditions;

Goodwill and Other Intangibles ● The committed facilities available to the Group to early 2013;

At the year-end, a series of tests were undertaken to determine whether ● £300.3m of equity raised during the year, which has significantly there had been any impairment to the balance sheet carrying values of reduced the Group’s indebtedness. goodwill and other intangible assets. The key assumptions behind the After reviewing the Group’s forecasts and making other enquiries, the calculations are as follows: Directors have formed a judgement at the time of approving the financial

● Cash flow forecasts, were derived from the most recent financial statements, that there is a reasonable expectation that the Company budgets and plans for the four years ending 2013, which were and the Group have adequate resources to continue in operational exis- approved by the directors. Cash flows for 2014 were extrapolated tence for the foreseeable future. For this reason, they continue to adopt from cash flows for 2013 using similar assumptions to those used the going concern basis in preparing the financial statements. in determining the 2013 projections;

● The weighted average cost of capital (“WACC”) of the Group of 8.6%; Financial Risk Management

● Long-term forecast growth rates of 2.5% in line with the average Financial risk management is an integral part of the way the Group is long-term GDP growth trend applied from 2015 onwards. managed. In the course of its business, the Group is exposed primarily In summary, the tests indicated that despite the economic conditions, to liquidity risk, interest rate risk, foreign exchange risk, credit risk, the value of discounted future cash flows exceeded the carrying values capital risk and tax risk. The overall aim of the Group’s financial risk of goodwill and intangible assets, which meant there was no write off management policies is to minimise potential adverse effects on finan- for impairment required. cial performance and net assets. The Group manages the principal Approximately 58% of the carrying value of the Group’s goodwill and financial risks within policies and operating parameters approved by the intangible assets is allocated to the Wickes cash-generating unit. On Board of Directors and does not enter into speculative transactions. the basis of the assumptions stated above, the calculations show that Treasury activities, which fall under the day-to-day responsibility of for there to be no impairment, the minimum profit for Wickes in 2014 me as Finance Director, are managed centrally under a framework of WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 38 FINANCE DIRECTOR’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 A: Andrew Burns, Branch Manager B: Stephen Reynolds, Senior Administrator A B C: David Dowell, Boiler Spares Supervisor

C WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCE DIRECTOR’S REVIEW OF THE YEAR 39

17334 proof 1/4/10 policies and procedures approved by and monitored by the Board. The Facilities policies in respect of interest and currency hedging, the investment of The Group has a £1bn syndicated credit facility provided by 15 banks. surplus funds and the quality and acceptability of financial counterpar- £525m of the facility is in the form of a fully drawn amortising term ties were reviewed and re-approved by the Board during the year. loan, the remainder being a revolving credit facility, which can be drawn The treasury department is not a profit centre. Its objectives are down as required. In addition the Group had access to a £40m uncom- to protect the assets of the Group and to identify and then manage mitted overdraft facility at 31 December 2009. financial risk. In applying these policies, the Group will utilise derivative Liquidity headroom was increased during the year by the rights instruments, but only for risk management purposes. issue. After careful consideration the Board decided that it was in The Board receives monthly reports on cash flows, debt levels and the Group’s best interests to maximise the Group’s spending flexibility covenant compliance with comparisons to budgets and forecasts. by retaining as much cash in the business as possible. As a result the In addition, all derivative related activity is reported to the Board at Group’s revolving credit facility was repaid in full, the £525m term the immediate next board meeting. As described in the Corporate loan was retained and at the year-end the Group had £347.2m of Governance Report on page 48, the Board receives regular reports cash invested. on specific areas of risk. As part of these risk reviews papers are Liquidity headroom is expected to remain high with the term loan presented on areas such as budgeting and planning, debt strategy due to be repaid in six £35m tranches each half year, commencing (including derivative policy) and banking relations and working April 2010, with the balance falling due in April 2013. The revolving capital control. credit facility is available to the Group until April 2013. Tranches of the syndicated facility can be drawn down for weekly, Liquidity and Net Debt (Note 24) monthly, three monthly and six monthly terms, with the actual dura- Liquidity Risk tion of draw downs being dependent upon management’s interest rate The Group’s policy on liquidity risk is to ensure that sufficient cash is expectations. For all of 2009, due to the high differential between 6 available to fund on-going operations. The Board manages exposure to month LIBOR and weekly and monthly LIBOR the Group has drawn liquidity risk by maintaining adequate facilities to meet the future needs funds on a weekly and monthly basis. of the business. Those needs are determined by continuously moni- In early 2006 the Group issued $400m fixed rate guaranteed toring forecast and actual cash flows taking into account the maturity unsecured notes (the ‘Notes’) with a broad range of US financial of financial assets and liabilities included in the balance sheet. institutions. The debt comprises $200m of Notes repayable in 2013 The Group’s principal borrowing facilities are provided by a group of and the remainder in 2016. At inception, the fixed interest rate net core relationship banks in the form of a term loan and a revolving credit proceeds were swapped into Sterling 6-month LIBOR determined facility and by US institutions in the form of US$ denominated notes. variable rate debt. The quantum of committed borrowing facilities available to the Group is reviewed regularly and is designed to comfortably exceed forecast Debt peak gross debt levels. As at 31 December 2009 the Group had net debt of £467.2m (2008: £1,017.4m) (note 33). However, if the currency retranslation effect Liquidity Management caused by the changes to the Sterling US dollar exchange rates is The Group’s treasury team are responsible for monitoring the Group’s eliminated debt at 31 December would have been £426.7m, a reduc- short and medium term liquidity requirements using a combination tion of £510.5m over the year. The Notes are fully hedged and so by of annual budgets which have been analysed on a daily basis using the dates they are redeemable in 2013 or 2016, the exchange effects historic trends, quarterly trading and cash flow re-forecasts and short will have fully reversed. term forecasts adjusted for actual events as they occur. They are then The peak and minimum levels of daily borrowings on a cleared charged with drawing down sufficient funds to meet those needs whilst basis during the year ended 31 December 2009 were £1,083m and minimising borrowing costs and reducing the incidences of investing £438m respectively (2008: £1,112m and £945m). The maximum surplus funds. month end cleared borrowings were £1,035m (2008: £1,043m). Medium term borrowing and hedging requirements (up to 5 years) At 31 December 2009 the Group had undrawn facilities of £515m are determined from the Group’s annual budget and three-year plan, (2008: £353m). which are prepared to show monthly trading, cash flows and debt requirements for the entire period, and are updated and approved by Operating Leases the Board each year. Note 30 gives details about the Group’s operating lease commit- To ensure the Board takes pre-emptive action where necessary, the ments, most of which relate to properties occupied by the Group for Group re-forecasts profits and cash flows on a quarterly basis. trading purposes. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 40 FINANCE DIRECTOR’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 Covenant Compliance The Group settles its currency related trading obligations using a The Group’s borrowings are subject to covenants set by the lenders. combination of currency purchased at spot rates and currency bought Covenant compliance is measured semi-annually using financial results in advance on forward contracts. Its policy is to purchase forward prepared under IFRS extant at 31 December 2007. contracts for between 30% and 70% of its anticipated requirements The key financial covenants are the ratio of net debt to earnings twelve months forward. At 31 December 2009 the nominal value of before interest tax, depreciation and amortisation “EBITDA” which must currency contracts, most of which were $US denominated, was $40m be less than 3.5 times, and the ratio of earnings before interest, tax and and €2m. At 31 December 2009, based upon forecast currency amortisation “EBITA” to net interest which must be above 3.5 times. At requirements for 2009, a US$10c change in the exchange rate would 31 December 2009 the Group achieved a net debt to EBITDA ratio of impact costs, before any corresponding selling price amendment, by 1.5x (note 37) and interest cover of 10.7x (note 10). approximately £1m. In addition to these financial covenants the Group’s borrowing agreements include general covenants and potential events of default. Credit Risk At the date of this report there had been no breaches of the financial Financing covenants and the Group had complied in all other respects with the Credit risk refers to the risk that a counterparty will default on its terms of its borrowing agreements. contracted obligations resulting in a loss to the Group. It arises on financial instruments such as trade receivables, short-term bank Interest Rate and Currency Derivatives (Note 25) deposits, banking facilities, interest rate derivatives and foreign Interest rate risk currency hedging transactions. To reduce the risk of loss arising from One of the principal risks facing the Group is an exposure to interest counterparty default, the Group has a policy of dealing with credit- rate fluctuations. The Group has borrowed in Sterling at floating rates, worthy counterparties. The Group has policies and procedures to whilst its US$ denominated Notes have fixed rates of interest. ensure that customers have an appropriate credit history and that The Group’s hedging policy is to generate its preferred interest rate account customers are given credit limits appropriate to their circum- profile, and so manage its exposure to interest rate fluctuations, through stances, which are regularly monitored. the use of interest rate derivatives. Currently the policy is to maintain The Group does not have any significant credit risk exposure to any between 33% and 75% of drawn borrowings at fixed interest rates. single counterparty or any group of counterparties having similar char- The Group has entered into a number of interest rate derivatives acteristics (other than banks providing banking facilities, interest rate designed to protect it from fluctuating interest and exchange rates on derivatives and cross currency swaps). The Group defines counterpar- its borrowings. At the year-end, the Group had nine interest rate deriva- ties as having similar characteristics if they are connected entities. The tives fixing interest rates on approximately 66% of the Group’s cleared credit risk in liquid funds and derivative financial instruments is limited debt. The maturity of the Group’s derivatives is as follows: because the counterparties used are banks with high credit-ratings assigned by international credit-rating agencies. Notional At the year-end, the Group had open currency hedging contracts Derivative Term Maturity value with four banks, open interest rate derivative contracts with 8 banks Vanilla interest rate swaps Amortising May 2011 £430m and had 15 banks within its banking syndicate. There were 19 compa- Vanilla interest rate swaps Bullet May 2011 £100m nies holding the Group’s US$ denominated Notes, of which the largest held 21% by value. All currency hedging contracts (with the exception Cancellable swap Bullet October 2013 £50m of one with a member of a previous syndicate group) and swaps are held with members of the banking syndicate. On 23rd February 2010, Currency risk the Group’s banking counterparties had ratings of: Having taken out 4 cross currency swaps, to protect it from exchange rate fluctuations, in respect of its $400m fixed rate guaranteed Amount of Notional value Notional value unsecured notes, the Group is not exposed to significant foreign Number UK bank of interest rate of cross exchange risk. Rating of banks facilities derivatives currency swaps Whilst the majority of purchases of goods and services are invoiced No. £m £m $m in Sterling, goods acquired from overseas either directly from manufac- AA+ to AA- 8 707 365 290 turers or through UK based distributors continue to increase. Overseas A+ to A- 6 224 130 110 originated purchases currently approximate to 40% of group purchases Below A- 1 64 85 - and so adverse movements in Sterling, could, to the extent they cannot Not rated 1 5 - - be passed on to customers, affect profitability. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCE DIRECTOR’S REVIEW OF THE YEAR 41

17334 proof 3 1/4/10 Customer Credit To minimise compliance risk the Group utilises qualified in-house Within the Group’s merchanting division, one of the key aspects of expertise and takes external advice when making judgements about service is the provision of credit to customers, with the Group carrying the amount of tax to be paid and the level of provisions required. the associated credit risk. Future tax charges and payments could be affected by changes in Trade receivables consist of a large number of customers, none legislation and accounting standards beyond the control of the Group. of which represents more than 0.5% of sales, spread across diverse industries and geographical areas. However, the nature of the industry Market Conditions and Competitive Pressures is such that there is a risk that some of these customers will be unable The Group’s products are sold to tradesmen and retail customers to pay outstanding balances. for a broad range of end uses in the built environment. The perfor- Ongoing evaluation of the financial condition of accounts receivable mance of the market is affected by general economic conditions and and reviews of the total credit exposure to all customers is performed a number of specific drivers of construction and DIY activity, including monthly, using external credit risk services where necessary. Increased housing transactions, net disposable income, house price inflation, credit levels are approved by both operational and financial manage- consumer confidence, interest rates and unemployment. The Board ment with personal guarantees being obtained, where appropriate, conducts an annual review of strategy, which includes an assess- before credit is advanced. Whilst day-to-day credit control is the ment of likely competitor activity, market forecasts and possible future responsibility of the centrally based teams, the Group also operates trends in products, channels of distribution and customer behaviour. an in-house debt recovery team, headed by a qualified solicitor, that is Significant events including those in the supply chain that may affect responsible for recovering debt that remains unpaid. The Group does the Group are monitored by the Executive Committee and reported to not have credit insurance. the Board monthly by the Group CEO. Market trends and competitor During the recession of 1990/91, the Group experienced bad debt performance are also tracked on an ongoing basis and reported to levels of up to 1.35% of credit sales. Over the past 10 years, the bad the Board each month. debt charge has averaged below 0.5%, however, during the latter part of 2008 and the first half of 2009, the Group experienced an increasing Product Availability and Product Prices level of bad debts, however the situation improved in the second half of Security of supply of products and product quality are monitored by 2009 with the bad debt charge for the year averaging 0.8% of credit product category directors in the trade and retail businesses. Supplier sales (2008: 0.9%). financial strength, product quality and service levels are monitored on Debtor days at 31 December 2009 were 54 days (2008: 57 days). a continuous basis. An annual risk assessment with recovery plans is An increase in one debtor day at 31 December would have reduced prepared for the major suppliers across the Group. The Group is not cash flow by approximately £5m. significantly exposed to one supplier or product type with no supplier accounting for more than 7% of total goods purchased in 2009. An Capital Risk established QA process is in place throughout the business. The Group manages its capital risk by ensuring it has a capital struc- However, the ability to pass on price increases to customers is ture appropriate to the ongoing needs of the business that ensures it affected by competitor activity and the economic climate. An inability to remains within the covenant limits that apply to its banking arrange- raise selling prices could reduce margins. ments. The capital structure of the Group consists of debt, which The market price of products distributed by the Group, particularly includes the borrowings disclosed in note 24, cash and cash equiva- commodity products, can vary significantly and affect operating results. lents and equity attributable to equity holders of the parent, comprising The Group’s businesses actively take steps to protect themselves from issued capital, reserves and retained earnings as disclosed in notes anticipated price rises. 21 to 23. Any restrictions on third party credit insurance available to suppliers The capital structure is formally reviewed by the Board as part of its could result in them reducing their own credit exposure to the Group. annual strategy review, but it is kept under review by me throughout If this were to occur, it could adversely impact the Group’s working the year. As necessary, the Company will rebalance its capital structure capital and therefore it’s debt levels. through raising or repaying debt, issuing equity or paying dividends. Acquisitions and Other Expansion Tax Risk Growth by acquisition continues to be an important part of the long- The Group seeks to efficiently manage its tax affairs whilst at the term strategy of the Group. Significant risk can arise from acquisitions same time complying with the relevant laws and disclosure obligations in terms of the initial valuation, the integration programme and the placed upon it. However, the complexity of tax legislation means that ongoing management of the acquisition. Detailed internal analysis of there will always be an element of uncertainty when determining its the market position of major acquisition targets is undertaken and tax liabilities. valuations are completed using discounted cash flow financial models. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 42 FINANCE DIRECTOR’S REVIEW OF THE YEAR

17334 proof 3 1/4/10 Independent advisors are used to comment on the strategic implica- influence its day to day operations. tions and the assumptions in valuation models for larger acquisitions. A The Group has an in-house legal team, headed by the Group rolling programme of post acquisition audits is completed and reviewed Company Secretary, together with health & safety and environmental by the Board each year. experts, who monitor changes in legislation that affect the Group and enable it to take timely action to ensure any impacts are reduced. Human Resources The ability to recruit and retain staff at all levels of the Group is an Environmental important driver of our overall performance. Salaries and other Failure to operate within the highest environmental standards may benefits are benchmarked annually to ensure that the Group remains reduce the Group’s profitability if such action causes it to come into competitive. A recruitment toolkit is available for both merchanting conflict with legislative requirements. Furthermore, with heightened and retail outlets. A wide-range of training programmes are in place environmental awareness, companies that fail to meet environmental to encourage staff development and management development standards may find their ability to trade or gain access to capital programmes are used to assist those identified for more senior posi- markets reduced. tions. The Group Human Resources Director monitors staff turnover The Group has accreditation for its environmental management by job type and reports to the Board annually. Succession plans are system to the ISO 14001 standard. Further details of the Group’s envi- established for the most senior positions within the Group and these ronmental policies and performance are given in the Chief Executive’s are reviewed annually. review of the year. However, to mitigate the potential environmental risks, the Group undertakes comprehensive reviews across all its Information Technology and Business Continuity businesses involving independent external advisers. External verifica- The operations of the Group depend on a wide range of IT systems to tion of environmental performance is undertaken and repeated on an operate efficiently. An IT strategy committee reviews performance levels annual basis. of the key systems and prioritises development work. Maintenance is undertaken on an ongoing basis to ensure the resilience of group Pensions systems and escalation procedures are in place to resolve any perfor- The risks in this area relate to the potential for contributions required mance issues at an early stage. Our two data centres mirror each other to meet the benefits promised in the final salary scheme rising to a with data processing switched from one to the other on a regular basis. level that restricts other corporate activity. The Scheme Trustee and the An IT disaster recovery plan exists and is tested regularly together with Group obtain independent actuarial advice and formal valuations are the business continuity plan with arrangements in place for alterna- carried out at least every three years. The Trustee receives reports on tive data sites for both trade and retail businesses. Off-site back-up the investment performance quarterly. The Travis Perkins’ final salary routines are in place. scheme was closed to all new members in April 2006 and in 2009 The Group distributes products from seven major warehouses in pensionable salary inflation was capped at 3% per annum. Great Britain. The loss of any single warehouse through fire or other The accounting deficit at 31 December 2009 is £43m. The Group major incident could have a material effect on the availability of product currently has arrangements in place to eliminate the deficit over a in the trade and retail outlets. Each warehouse has fire detection and period of 8 years. Any deterioration in the scheme’s funding position alarm systems and a business continuity plan. could impact the Group’s liquidity.

Legislation The Group is affected, both positively and negatively, by the legislative environment within which it operates. Planning and building legislation impacts its customers, and consequently the Group, whilst health Paul Hampden Smith and safety, employment, environmental and competition laws together Finance Director with the rules of the Financial Services Authority and the Listing Rules 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCE DIRECTOR’S REVIEW OF THE YEAR 43

17334 proof 3 1/4/10 DIRECTORS AND PROFESSIONAL ADVISERS

Tim Stevenson O.B.E. Geoff Cooper Paul Hampden Smith John Carter

CHAIRMAN CHIEF EXECUTIVE Tim Stevenson O.B.E. (aged 61) joined the Board in September 2001 Geoff Cooper (aged 55) joined the Company in February 2005 and and became Chairman on 1 November 2001. He is a barrister and held was appointed Chief Executive on 1 March 2005. He is a chartered a number of senior positions in Burmah Castrol plc between 1975 and management accountant and worked in management consultancy 2000, including Chief Executive from 1998. He is also non-executive before joining Gateway (now Somerfield plc) as Finance Director in Chairman of Morgan Crucible plc, and Lord Lieutenant of Oxfordshire. 1990. In 1994 he became Finance Director of UniChem plc, subse- He is Chairman of the Nominations Committee and a member of the quently Alliance UniChem plc (which later became part of Alliance Remuneration and Health and Safety Committees. He will be retiring Boots plc), where he was appointed Deputy Chief Executive in 2001. from the board after the AGM on 17 May 2010. He is non-executive Chairman of Dunelm Group Plc.

FINANCE DIRECTOR CHIEF OPERATING OFFICER Paul Hampden Smith (aged 49) is a chartered accountant and joined John Carter (aged 48) joined Sandell Perkins as a management Sandell Perkins in 1988. Following the merger with Travis & Arnold, he trainee in 1978. He held a number of regional management posi- was appointed regional finance director. In 1992, he became Finance tions, before being appointed Managing Director, Operations in 1996, Director of Travis Perkins Trading Company Limited and was appointed and a director of Travis Perkins plc in July 2001. He became Chief Finance Director of Travis Perkins plc in 1996. He is a non-executive Operating Officer in February 2005, and is a member of the Health director of Redrow plc. and Safety Committee.

COMMITTEES AND PROFESSIONAL ADVISERS

Secretary: A. S. Pike. J. Bird (Managing Director, Wickes), A. J. Davidson (Chairman, Specialist Audit Committee: C. J. Bunker (Chairman), J. Coleman, P. Jansen. Merchanting), C. Kavanagh (Group HR Director), M. R. Meech (Group Property Remuneration Committee: A. H. Simon (Chairman), C. J. Bunker, J. Coleman, Director), J. Mescall (Chairman, General Merchanting), A. S. Pike (Company T. E. P. Stevenson. Secretary & Lawyer), R. D. Proctor (Supply Chain Director). Nominations Committee: T. E. P. Stevenson (Chairman), C. J. Bunker, Investment Bankers/Advisors: HSBC Bank plc; Nomura International plc. J. Coleman. Corporate Broker: Citibank. Health and Safety Committee: A. H. Simon (Chairman), J. P. Carter, Bankers: The Royal Bank of Scotland plc; Barclays Bank plc. T. E. P. Stevenson. Solicitors: Linklaters LLP, London; Clifford Chance LLP, London; Executive Committee: G. I. Cooper (Chief Executive and Committee Hewitsons, Northampton. Chairman), J. P. Carter (Chief Operating Officer), P. N. Hampden Smith (Finance Auditors: Deloitte LLP, Birmingham. Director), N. Bell (Category Management Director), Registrars: Capita Registrars, Huddersfield. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 44 DIRECTORS AND PROFESSIONAL ADVISERS

17334 proof 3 1/4/10 NON-EXECUTIVE DIRECTORS

Chris Bunker (aged 63) was appointed as a non-executive director in 2004. He is a chartered management accountant and was Finance Director of Thames Water plc, from 2000 until March 2004. He was previously Finance Director of Tarmac PLC and Westland Group PLC. He is a non-executive director of D S Smith Plc and formerly was a non-executive director of Mowlem plc, Baltimore Technologies plc and Xansa PLC. He is the Senior Independent Director and Chairman of the Audit Committee and a member of the Nominations and Remuneration Committees.

John Coleman (aged 57) was appointed as a non-executive director in 2005. He is a chartered management accountant and Chairman Chris Bunker John Coleman of AGA Rangemaster Group plc. He was Chief Executive of House of Fraser plc from 1996 to 2006 and previously Chief Executive of Texas Homecare and of a number of businesses within Burton Group PLC. He is a member of the Remuneration, Audit and Nominations Committees.

Philip Jansen (aged 43) was appointed as a non-executive director in April 2009. He is Group Chief Operating Officer and Chief Executive of Europe for Sodexo, having joined that company in 2004 as Chief Executive, UK and Ireland. He was previously Chief Operating Officer of My Travel plc and Managing Director, Consumer Division of TeleWest Communications PLC, and also held senior positions with Proctor & Gamble and Dunlop Slazenger Group. He has also been a non- executive director of the Professional Cricketers’ Association. He is a member of the Audit Committee. Philip Jansen Andrew Simon O.B.E.

Andrew Simon O.B.E. (aged 64) was appointed as a non-executive director in 2006. He is a non-executive director of Finning International Inc., Management Consulting Group plc and SGL Carbon AG, and also served as non-executive chairman of Dalkia plc until the end of 2009. He was previously Chairman and / or Chief Executive of Evode Group plc from 1980 to 1993, and has also held non-executive directorships with Severn Trent Plc, Ibstock PLC, Laporte Plc, Associated British Ports Holdings PLC, and Brake Bros Holdings Ltd. He is chairman of the Remuneration and the Health and Safety Committees.

Robert Walker (aged 65) was appointed as a non-executive director in September 2009. It is intended that he will succeed Tim Stevenson as Chairman after the AGM on 17 May 2010. He is chairman of W H Smith PLC and Americana International Holdings Ltd and a non-executive director of Tate & Lyle PLC. He has previously been chairman of Robert Walker Williams Lea Group Ltd and BCA Europe Ltd, Chief Executive of Severn Trent Plc and held a number of senior posts with Pepsi Co Inc. He has also been a non-executive director of BAA plc, Signet Group Plc, Thomson Travel Group Plc and Wolseley plc. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS AND PROFESSIONAL ADVISERS 45

17334 proof 3 1/4/10 CORPORATE RESPONSIBILITY STATEMENT

FOR THE YEAR ENDED 31 DECEMBER 2009

The Company has not produced a separate corporate responsibility statement in the report and accounts since it believes these matters are sufficiently important to receive the personal attention of individual directors, rather than risking less focus through the exercise of collective responsibility. Instead full details of those areas normally covered by such a report are contained either in the reports of the directors responsible for such matters, or in a separate report, as explained below:

Environment Chief Executive’s review of the year Health & Safety Health & safety report on pages 51 and 52 Supply chain Chief Operating Officer’s review of the year Employees Chief Operating Officer’s review of the year Community relations Chief Executive’s review of the year

The Board takes into account, environmental, social and governance matters in its conduct of the Company’s business. The Board believes that it has adequate information to identify and assess the major environmental, social and governance risks and as part of the system of internal control receives reports on the risks associated with these matters. The Board has received briefings on such matters during 2009. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 46 CORPORATE RESPONSIBILITY STATEMENT

17334 proof 3 1/4/10 CORPORATE GOVERNANCE

FOR THE YEAR ENDED 31 DECEMBER 2009

COMBINED CODE if necessary. The Company maintains directors & officers’ insurance in The London Stock Exchange first issued the Combined Code on respect of the risk of claims against directors. Corporate Governance (“the Code”) in 1998 and it was revised most The Board has an induction process for new directors, which is recently in June 2008. Section 1 of the Code is applicable to compa- facilitated by the Company Secretary. The Chairman ensures that nies. A statement explaining how the Company has applied the prin- all directors receive appropriate training on appointment and then ciples and the extent to which it has complied with the provisions of subsequently as required, taking into account the need to update their the Code appears below. The Code contains fourteen main principles of skills and their knowledge of the Company’s business. They are also governance, which are divided into the following four areas: regularly provided with information on forthcoming legal and regulatory changes and corporate governance developments, and briefings 1. Directors on the key risks facing the Company, including those identified in the The Company is controlled through a board of directors, which presently Corporate Responsibility statement on page 46. comprises the Chairman, three executive and five non-executive direc- The Board has established five committees: the Audit Committee, the tors. Tim Stevenson is Chairman and Geoff Cooper is Chief Executive. Remuneration Committee, the Nominations Committee, the Health and Chris Bunker is the Senior Independent Director. John Coleman, Philip Safety Committee and the Executive Committee, which operate within Jansen (who was appointed on 9 April 2009), Andrew Simon and Robert defined terms of reference, which are available on the Company’s Walker (who was appointed on 30 September 2009) are also independent website or may be obtained from the Company Secretary. The minutes non-executive directors. It is intended that Tim Stevenson will retire from of committee meetings are available to all the directors. The reports the board after the AGM on 17 May, and that Robert Walker will succeed of the Audit Committee, Health & Safety Committee, Remuneration him as Chairman. Appointments of new directors are made by the Board Committee and Nominations Committee are on pages 49 and 50, 51 on the recommendation of the Nominations Committee. All directors will and 52, 53 to 63 and 64 respectively. submit themselves for re-election at least every three years. The Executive Committee members are listed on page 44. Other The Board has a formal schedule of matters reserved to it and meets executives are invited to attend from time to time in relation to specific at least ten times a year. It is responsible for overall group strategy, matters. The principal purpose of the Committee is to assist the execu- policy on corporate governance matters, acquisition policy, approval tive directors in the performance of their duties in relation in particular to: of major capital expenditure and consideration of significant financial ● Strategy, operational plans, policies, procedures and budgets; and operational matters. It monitors the exposure to key business ● The monitoring of operational and financial performance; risks and reviews the strategy of the trading subsidiaries, their annual ● The assessment and control of risk; budgets and progress towards the achievement of those budgets and ● The prioritisation and allocation of resources. their capital expenditure programmes. It also considers legislative, The number of board and committee meetings attended by each environmental, health and safety and employment issues. The Board director (in whole or in part) during the year was as follows: has approved a written statement of the division of key responsibilities between the Chairman and the Chief Executive. The Chairman leads the Board, ensuring that each director is able

to make an effective contribution. He also monitors the information PLC Board Audit Remuneration Nomination Health & Safety Executive provided to the Board to ensure it is sufficient, timely and clear, and No. of meetings 11 5 9 - 2 11 from time to time, the Board reviews the adequacy of this information. Attendances The Board held eleven meetings during 2009, one of which was by conference telephone call. One meeting dealt with consideration of the C. J. Bunker 10 5 8 - - - Company’s long-term strategy and 5 meetings either included visits to J. P. Carter 10 2 - - 2 11 parts of the Company’s operations or included presentations by senior J. Coleman 11 5 9 - - - executives on their areas of responsibility. Individual visits to operational sites by non-executive directors also occurred. In addition to the G. I. Cooper 11 - 6 - - 11 regular board meetings, key financial information is circulated to direc- P. N. Hampden Smith 11 4 1 - - 11 tors outside of meetings. The Chairman has regular direct contact with P. Jansen1 6 1 - - - - the executive directors and keeps the non-executive directors informed A. H. Simon2 11 - 8 - 2 - of material developments between board meetings. The Chairman held two meetings during the year with all the non-executive directors, T. E. P. Stevenson 11 5 9 - 2 - without the executive directors being present. R. Walker3 2 - 2 - - - All directors have direct access to the Company Secretary and may 1 Appointed to the Board April 2009 and to the Audit Committee June 2009. take independent professional advice in the furtherance of their duties 2 Stood down from Audit Committee in June 2009. 3 Appointed to the Board September 2009. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 CORPORATE GOVERNANCE 47

17334 proof 3 1/4/10 If a director was unable to attend a meeting of the Board or a effectiveness of the system is regularly reviewed by the Board in a committee of which he is a member, the Chairman discussed the process that accords with the Turnbull Guidance. The Board and the meeting papers with him to obtain his views prior to the meeting. Executive Committee receive regular reports on specific areas of risk. If During the year, the Board undertook an evaluation of its performance appropriate, these reports include recommendations for improvement and the performance of its committees and the individual directors. in controls or for the management of those risks. Measures to integrate This consisted of interviews by the Chairman with each other director risk management processes into the Group’s operations, to extend and the Company Secretary separately, focussing on the operation of awareness of the importance of risk management and to ensure that the Board and, its committees and in particular on those matters identi- recommended improvements are implemented, are regularly reviewed fied in 2008 where measures were taken to enhance performance. and refreshed. Senior executives are asked, twice a year, to confirm the These interviews formed the basis of a report by the Chairman that was adequacy of internal controls in their areas of responsibility, identify any the subject of a discussion by the Board, which was satisfied that the control weaknesses, and to confirm the accuracy and completeness of process showed that the Board and its committees worked effectively. information given to the directors and to the external auditors. However, it agreed a number of measures, in particular relating to the In conjunction with the Audit Committee, the Board has carried out presentation of board business, the format of its meetings, and the an annual review of the overall effectiveness of the system of internal process for its consideration of risks faced by the Group, aimed at control and risk management procedures, during the year and up until further enhancing its performance. A board evaluation process will be the date of approval of this annual report. carried out in 2010. Audit Committee and Auditors 2. Directors’ Remuneration The report of the Audit Committee is set out on pages 49 and 50. The Remuneration Committee consists of the Chairman and three independent non-executive directors, and meets at least four times a year. 4. Relations with Shareholders Its responsibilities include remuneration policy, a review of the perfor- The Company encourages two-way communication with both its mance of executive directors prior to determining their remuneration institutional and private investors and responds promptly to all enqui- and the approval of incentive arrangements, including performance ries received. During the year the Chairman, the Senior Independent criteria. The remuneration of the non-executive directors is determined Director and the executive directors, either separately or together, by the Board as a whole, except that the Remuneration Committee attended a number of meetings with analysts, and with shareholders makes a recommendation in respect of the Chairman’s salary. No representing circa 60% of the issued share capital. The Chairman and director plays a part in the discussion about his own remuneration. executive directors report to the Board on any meetings with share- The Remuneration Report is set out on pages 53 to 63. holders or analysts. In addition, written reports about the Company by analysts or brokers are circulated to all directors. 3. Accountability and Audit As well as sending the annual report to shareholders, during the year, A review of the performance of the Group’s trading subsidiaries and the Company published its interim results on its website, issued two the financial position of the Group is included in the Chief Executive’s interim management statements and sent a circular to shareholders in review of the year, in the Chief Operating Officer’s review of the year May 2009 concerning its rights issue. All shareholders receive at least and in the Finance Director’s review of the year set out on pages 10 to twenty working days notice of the Annual General Meeting at which all 43. The Board uses them, together with the Chairman’s statement on directors are available for questions and a short business presentation pages 8 and 9 to present a full assessment of the Company’s position takes place. Each substantive issue is the subject of a separate resolu- and prospects. The Directors’ responsibilities for the financial state- tion. The numbers of proxy votes for and against each resolution are ments are described on page 70. announced at the meeting, after the voting has taken place, and are subsequently published on the Company’s website. Internal control The Board is responsible for the Group’s system of internal control GOING CONCERN and for reviewing its effectiveness. In designing the system of internal This matter is dealt with on page 38 of the Finance Director’s review control, consideration is given to the significant risks to the business, of the year. the probability of these risks manifesting themselves and the most cost effective means of controlling them. The system is designed to manage CORPORATE GOVERNANCE COMPLIANCE rather than eliminate risk and therefore can only provide reasonable, STATEMENT and not absolute, assurance against material misstatement or loss. The Company is pleased to report that it has complied throughout the The day-to-day operation of the system of internal control has been year ended 31 December 2009 with the provisions set out in Section delegated to executive directors and senior management, but the 1 of the Code. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 48 CORPORATE GOVERNANCE

17334 proof 3 1/4/10 AUDIT COMMITTEE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2009

ROLE OF THE AUDIT COMMITTEE Chairman held a number of meetings with the Group Head of Business The Audit Committee is responsible for: Risk and Assurance and with the external auditors, all without manage-

● The integrity of the financial statements of the Company and ment being present. any formal announcements relating to the Company’s financial performance, and reviewing significant financial reporting judgments MAIN ACTIVITIES OF THE COMMITTEE contained therein; DURING THE YEAR ● Reviewing the Company’s internal financial controls and, unless At its meeting in February, the Committee reviewed the annual finan- expressly addressed by the Board itself, the Company’s internal cial statements of the Company and received reports from the internal control and risk management systems; auditors on internal control matters and from the external auditors on

● Monitoring and reviewing the effectiveness of the Company’s internal the conduct of their audit, their review of accounting policies, areas of audit function; judgment and the financial statements and their comments on state-

● Reviewing the audit plans of the external auditors and for monitoring ments concerning risk and internal control. A similar review was under- the conduct of the audit; taken at its July meeting when the interim statements were considered.

● Reviewing the external auditors’ independence and objectivity and At these and its other meetings the Committee also reviewed:

the effectiveness of the audit process, taking into consideration ● An evaluation of its work carried out as part of the Board evaluation relevant UK professional and regulatory requirements; process referred to on page 48, and reported to the Board on this

● Reviewing the Company’s policy on the engagement of the external evaluation;

auditors to supply non-audit services, taking into account relevant ● The Committee’s terms of reference; no changes were recommended guidance regarding the provision of non-audit services by an to the Board;

external audit firm; ● Any comments received on its 2008 report from institutional investor

● Making a recommendation to the Board, for a resolution to be put bodies;

to the shareholders for their approval in general meeting, in relation ● The effectiveness of the system of internal financial control and the to the appointment and remuneration of the external auditor. system for monitoring and reporting on risks faced by the Group;

The Audit Committee is required to report its findings to the Board, ● The strategy, staffing, processes and effectiveness of the internal identifying any matters in respect of which it considers that action or audit department and recommended to the Board minor changes to improvement is needed, and make recommendations as to the steps the terms of reference of that department; to be taken. ● The work carried out by the internal audit department and its The Committee’s full terms of reference are available on the external advisor, Grant Thornton, to monitor risks specifically related Company’s website, or on request to the Company Secretary. to information technology;

● The status of actions taken in response to recommendations arising COMPOSITION OF THE AUDIT COMMITTEE from internal and external audit work; Chris Bunker was Chairman and John Coleman was a member of ● The operation of the Group’s “whistleblowing” policy; the Committee throughout 2009. Andrew Simon was a member until ● The policy on engagement of the external auditor for non-audit work, 29 June 2009 when he was replaced by Philip Jansen. All members as referred to below, and its policy on the employment of anyone of the Committee are considered to be independent. The Company previously employed by the external auditor;

Secretary, Andrew Pike, is secretary to the Committee. The Board ● The plans presented by the external auditor for conduct of the considers that Chris Bunker has the recent and relevant financial year-end audit including terms of engagement, fees and letters of experience required by the Combined Code (see also the Board representation; profiles on pages 44 and 45). ● The effectiveness, independence, and objectivity of the external auditors, taking into account written assurances provided by Deloitte MEETINGS AND ATTENDANCE LLP with regard to its quality and independence controls, and its The Committee met five times during 2009 to consider inter alia, the ethical standards; annual and interim results. Attendance at the meetings is shown on page ● The Group’s accounting policies, forthcoming changes to International 47. The Chairman of the Committee also invited the Group Chairman, Financial Reporting Standards and other regulatory changes and the Finance Director, the Chief Operating Officer, the Group Financial various guidance notes issued by the Financial Reporting Council;

Controller, the Group Head of Business Risk and Assurance and the ● The Group’s policies and processes for fraud prevention; external auditors to attend four of the meetings. When present, the ● The Group’s tax planning. external auditors and the Group Head of Business Risk and Assurance were given the opportunity to talk with the Committee without the EXTERNAL AUDITORS presence of management. In addition, during the year, the Committee The Company places great importance on the effectiveness and WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 AUDIT COMMITTEE REPORT 49

17334 proof 3 1/4/10 independence of its external auditors and together with them is careful Value of Work to ensure their objectivity is not compromised. At its November meeting, Non audit services require approval as follows:

the auditors presented to the Committee their plans for the forthcoming ● Up to £5,000 – no formal approval required provided the work is audit together with details of their proposed fees and how they ensure permitted under the list referred to above;

that their objectivity and independence are not compromised. ● £5,000 to £25,000 – Group Finance Director;

Deloitte LLP (or its predecessor firms) a leading international audit ● £25,000 to £50,000 – Group Finance Director and Committee partnership, was first appointed as auditor to Group companies more Chairman;

than 30 years ago. There are no contractual restrictions on the Group ● £50,000 and above – Group Finance Director and Committee with regard to their appointment. In accordance with professional stan- Chairman following a competitive tender. dards, the partner responsible for the audit is changed every 5 years, Formal Committee approval is also required if the aggregated level and will change in 2010. of forecast fees for non-audit services exceeds 50% of the statutory Following its February 2010 meeting, the Committee recommended audit fee. to the Board that a resolution be put to shareholders at the Annual General Meeting for the re-appointment of the external auditors, and to Reporting authorise the Directors to fix their remuneration. The Group Finance Director reports twice yearly to the Committee on It is the role of the Committee to ensure compliance with the Board’s fees for non-audit services payable to the auditors. policy in respect of services provided by, and fees paid to, the auditors. During the year the Auditors were paid £414,311 for work they were Audit fees, which are regularly compared with peer companies by the required by the Listing Rules to undertake in respect of the Group’s Committee, are negotiated by the Finance Director and approved by rights issue. Other non-audit related fees paid to the Auditor totalled the Audit Committee. The policy in relation to other services that could £107,834 (2008: £487,300). be provided by the external auditors was revised during the year. The revised policy, which was subsequently approved by the Board, can be INTERNAL AUDIT summarised as follows: As well as its reviews of the internal audit department’s strategy and processes, as described above, during its meetings in 2009, the General Principles Committee received presentations from the Group Head of Business There is a presumption against the external auditors providing non- Risk and Assurance, about the results of work undertaken by the audit services and they should only be selected for such work where department, and approved its plans for work in 2010. The Committee its nature makes it more timely and cost effective to select advi- was satisfied with the overall effectiveness of the department. sors who have a good understanding of the Group or the work is of a particularly confidential or specialist nature. The external auditors OVERVIEW should not provide non-audit services where either the nature of the As a result of its work during the year, and taking into account the result work or the extent of such services might impair their independence or of the Board and Committee evaluation process described on page 48, objectivity. Any assignment to the external auditors of non-audit work the Committee has concluded that it has acted in accordance with its with a fee over £25,000 requires the approval of the Chairman of the terms of reference and has ensured the independence, objectivity and Committee. effectiveness of the external and internal auditors. The Chairman of the Committee will be available at the Annual General Areas of Work Meeting to answer any questions about the work of the Committee. The policy lists certain non-audit services where it would be usual to engage the auditors, such as regulatory reviews and certain tax services, and those where their engagement is not permitted, such as work that would conflict with ethical guidance to auditors, or work relating to the design of financial information systems. The Committee Chairman is consulted in relation to any proposed work not covered Chris Bunker by the list. Chairman, Audit Committee 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 50 AUDIT COMMITTEE REPORT

17334 proof 3 1/4/10 Health & Safety Report

FOR THE YEAR ENDED 31 DECEMBER 2009

Health & safety (“H&S”) is a group priority, integrated into everything levels across the business; we do, from the Group Board to every colleague in every branch, store, ● Collection of colleague feedback on the Personal Protective warehouse or office. Our underlying philosophy is that all injuries Equipment (“PPE”) provided across the Group, including gloves, are avoidable, however, we do not under-estimate the challenge of footwear and hard hats. This resulted in the launch of improved cut achieving this in a Group with 1,300 branches, making in excess of resistant gloves and a new design of hard-hat, providing side impact 6 million deliveries per annum. We aim to be industry leaders in our protection and an improved fastening mechanism, that negates the sector for the reduction and elimination of injuries. need for a chinstrap. In addition to improving personal protection, During 2009, we have continued improving our standards, with the (50% reduction in cuts to the hand), both items provided a clear leaders in each of our businesses owning and driving our Stay Safe demonstration to all colleagues of our increased commitment to culture change programme. Stay Safe requires effective leadership, a their safety. The launch of the new PPE during 2009 was supported focus on the eight key risks in our business and the desire to have by a poster campaign following a competition across the Group. The everyone return home safely at the end of each working day. We recog- winning entry, from Mercedes Gully, aged 7, whose father is the nise that we are still in the early stages of our Stay Safe programme, Branch Manager of the Keyline branch in Cowbridge, was a simple but we have already made considerable progress in achieving our request that struck a chord with everyone in the business; vision of making injuries a rare occurrence. The involvement of every colleague, customer and supplier is essential since working together is the only way to truly make injuries rare. Our electronic accident reporting system has proved useful in recording a much more accurate representation of our true H&S performance, but we continue to encourage reporting of all minor incidents and near misses.

Health & Safety Performance and Initiatives The 2009 H&S performance was considerably improved when compared to 2008, with significant reductions in both the frequency and severity of lost time injuries, measured according to industry standards. The group frequency rate of 10.6 lost time injuries per million hours worked is a 12% improvement on 2008, whilst the group severity rate ● Improved training programmes, including: two e-learning packages of 0.17 days lost per thousand hours worked shows a 30% improve- for fire safety; online quizzes to test learning following internal ment on the 2008 level. Despite these significant improvements, we briefings; implementation of the Setting Foundations induction recognise that this is very much the start of a long journey to make programme in the specialist merchant businesses; updating of the injuries rare, and we intend to reduce further both frequency and Master Programme training scheme in Wickes; establishment of a severity rates over the next five years. driver CPC ongoing training programme; bespoke training for yard External inspections of branches by enforcement officers continued colleagues and drivers on safe handling of products during loading; to show a favourable improvement in performance and standards: and unloading and banksman training on the public highway;

● Regular briefings for senior managers and directors, on topics such EHO Notices 2009 2008 2007 2006 as Visible Felt Leadership and legislative updates; No. No. No. No. ● Incorporating the quarterly newsletter, ‘Your Safety Matters’ into Prohibition - - 8 7 the centre pages of the group internal magazine, ‘the Bridge’ has Improvement 4 8 9 29 increased its circulation to 15,000 and subsequent interest in the Stay Safe messages and competitions. The reductions were achieved as a result of numerous initiatives under the Stay Safe development programme. These included: Continuous Improvement to Travis Perkins Group Vehicle ● Analysis of injury data from 2008 and 2009, which has enabled us Standards to make accurate, measured decisions based on risk and historical In 2009, we introduced to new vehicles further changes to provide data, to prevent further injuries. Stressing the personal impact of safer access for the driver. These designs featured in a Health & Safety injuries to individuals, and predicting future injuries across the Executive case study on working at height, to showcase the innova- business if we continue at the current level, have proven extremely tive solutions businesses were adopting to reduce the possibility of the effective at increasing personal commitment and buy-in at all driver falling from height. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 H ealth & S afety R eport 51

17334 proof 3 1/4/10 Improved Driver - Working Practices Feedback from Branch Colleagues on the H&S Messages We recognise the need to ensure our drivers can Stay Safe at all times, and Notices and this has resulted in a change in our approach to Staying Safe This has resulted in the development of a Stay Safe communication during deliveries. ‘Keep Your Feet on the Ground’ is our new Stay Safe board in 2009, to be launched to all businesses in early 2010. Rather initiative for 2009/10, and is centred on vehicle loading and unloading than simply having a board to display notices, the communication techniques, designed to minimise or remove the need for the driver to board is designed to be an interactive means of communication in access the vehicle bed. The simple principles, behind ‘Keep Your Feet the branches. The primary purpose of these boards is to provide a On the Ground’, like many of the best ideas, are suggestions from our focal point for communicating local issues and hazards, based on the own drivers. 8 key risks behind Stay Safe. During trials, the Board has received a This project will allow the majority of our deliveries to be made with really positive response, to support the branches that are living health the driver’s feet on the ground, and will remove one of our most signifi- & safety every day. cant hazards – working at height on the vehicle bed. Quarterly H&S committee meetings, held in each branch, with the PLC Board Health & Safety Committee agenda set by the H&S team, supplemented by local issues. This forum The Board’s H&S Committee was established in November 2007 and to drive the Stay Safe message in the branch has proved to be increas- continues to encourage and assist the Group’s executive management ingly effective during 2009, with regional directors attending many of in its drive towards achieving and maintaining industry-leading stan- the meetings to lead from the front. This forum was also utilised in dards in health & safety. The Committee is responsible for reviewing 2009 to brief colleagues on updates to several risk assessments in the H&S policies, practices and group performance to ensure they meet H&S manual along with a revised fire risk assessment procedure. or exceed legal obligations and contribute to the achievement of the Group’s H&S objectives. LOST TIME INJURY FREQUENCY RATE Chaired by me, with Tim Stevenson and Chief Operating Officer John Carter as permanent members, the Committee also invited the Group Lost time injuries per million man hours HR Director and Group Head of H&S to attend both its meetings during the year. The Committee is authorised by the Board to investigate, using the resources of the Group Head of H&S, any activity relating to its purpose and role. The full terms of reference of the H&S Committee are available on the Company’s website, or, on request from the Company Secretary.

Trading Board Health & Safety

8.5 12.5 11.6 6.5 11 7.3 6.5 12 10.6 Committee MERCHANTING RETAIL GROUP The terms of reference and membership of the Trading Board H&S 2007 2008 2009 2007 2008 2009 2007 2008 2009 Committee were revised in March 2008, so as to reflect the increasing commitment to achieving industry leading performance. Membership throughout 2009 comprised the Chief Operating Officer, John Carter, LOST TIME INJURY SEVERITY RATE as Chairman, together with the Group HR Director, business unit Days lost per thousand man hours managing directors, divisional chairmen and the Group Head of H&S. The Committee met 4 times during 2009 to review performance and to continue the development of the Stay Safe programme. This committee is leading the drive to fully engage with the hearts and minds of all colleagues.

Andrew Simon 0.23 0.24 0.19 0.1 0.2 0.12 0.2 0.24 0.17 MERCHANTING RETAIL GROUP Chairman, plc Board Health & Safety Committee 2007 2008 2009 2007 2008 2009 2007 2008 2009 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 52 H ealth & S afety R eport

17334 proof 3 1/4/10 DIRECTORS’ REMUNERATION REPORT

FOR THE YEAR ENDED 31 DECEMBER 2009

INTRODUCTION This report sets out the Group’s remuneration policies for its directors and senior executives and describes how those policies are applied in practice. The style of this report is designed to be more informal than previous years to take account of shareholders’ feedback.

UNAUDITED INFORMATION Highlights of 2009:

● Stretching annual performance targets achieved, resulting in bonus payments being made to our strong management team;

● 25% of annual bonus deferred for three years held in the form of shares and executive directors have voluntarily invested another 25% of annual bonus in shares;

● No payments made under maturing long term incentive plans, reflecting the downturn in returns resulting from the recession;

● Same base salary percentage increases applied to all levels, including executive directors, for the third year in succession;

● All employees are now able to share in the Group’s success through participation in short term incentive plans and longer term share plans;

● Two programmes of consultations with principal shareholders;

● Additional share award with stretching performance conditions made to our COO, John Carter.

Remuneration COMMITTEE Chairman’s Statement Shareholders will not be surprised to learn that 2009 was one of the most challenging years for the Remuneration Committee and necessitated the Committee convening more times than in any previous year. The major challenge facing us at the beginning of 2009 was around how to maintain a balance of incentives based on an appropriate set of performance measures in a volatile economic environment, which was unprecedented. (It is sometimes hard to imagine that at the time of writing last year’s report in early 2009, the share price was hovering at around 250p compared to the 750.5p today). We also needed to consider how we could recognise the unique contribution of our COO, John Carter, to our future business growth and, in turn, the creation of increased shareholder value. In striving to ensure the alignment of both shareholders’ and employees’ interests, while addressing these challenges, our principal shareholders were consulted twice during the course of the year. We believe that the changes we have already communicated to those shareholders (and which are confirmed below) were more appropriate as a result of the consultation process. Our remuneration principles for all employees remain the same:

● Remuneration should be competitive and contribute to the delivery of short and long-term shareholder value;

● Remuneration should contain performance related incentive elements whose proportion increases with seniority;

● All employees should share in the success of the Group through participation in both annual bonus schemes and longer term share plans.

Remuneration Policy for Executive Directors Our incentive structure is designed to support the group goal of consistently outperforming in our markets. In order to attract, motivate and retain high quality executives to achieve this goal, we continue to focus our efforts on ensuring that we have the right mix of fixed and variable pay. More than 50% of potential remuneration (excluding pensions and benefits) is performance related. In addition, we encourage our most senior executives to build up a shareholding in the Company over a five-year period via formal shareholding guidelines which were described in detail in last year’s Annual Report. The target shareholding for the executive directors is 100% of salary. Senior executives are aware that the Remuneration Committee may scale back future long-term incentive awards for individuals who have not consistently met the target level. Share options which have vested, but not been exercised, count towards this target. Whilst the rights issue affected the absolute level of individual shareholdings, as at 31 December 2009, all three executive directors had a shareholding valued in excess of 100% of their salary.

Base Salaries and Benefits Base salaries are reviewed annually for each director and are normally set with reference to individual performance, experience and contribution together with developments in the relevant employment market, internal relativities and reference to the general economic environment; it should be no surprise to shareholders that it is this last point which has outweighed all others in determining pay awards for 2009 and 2010. Whilst the majority of employees were awarded an RPI linked 2.5% base pay increase in January 2009, the salaries for the executive directors were frozen for 11 months due to the level of uncertainty facing both the business and the wider economy at that time. On 1 December 2009, following the Group’s successful handling of the rapid turn down into recession, the same 2.5% award was applied for the executive directors (but not backdated). For 2010, a 1% base salary increase has been made with effect from 1 January, the normal review date, for all employees including executive directors. This means that for the third successive year the same salary increase percentage has been applied to all employee levels. In WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS’ REMUNERATION REPORT 53

17334 proof 3 1/4/10 addition to their basic salary, directors receive a benefits package which includes a car or car allowance, private medical insurance, life assurance, an incapacity benefits scheme and membership of a company pension scheme or a cash allowance in lieu. From 1 January 2010, the executive directors’ salaries are: John Carter: £375,025; Geoff Cooper: £535,755; Paul Hampden Smith: £375,025.

In regard to pension arrangements, Geoff Cooper elected in 2006 to receive a cash allowance in lieu of being a member of the final salary scheme. This is calculated with regard to the cost the Company would have incurred in providing continuing pension accrual. Paul Hampden Smith and John Carter are both members of the Group’s defined benefits pension scheme. As a result of a major review of the costs of the Company’s final salary pension scheme in 2009, increases in members’ pensionable salaries after 1 December 2009 will be capped at 3% per annum, irrespective of any future salary increases which may, at some time, exceed 3%. The cumulative result of this cap and the decisions made in relation to base pay increases over the course of 2009, mean that all employees across the Group have been treated in exactly the same way irrespective of their position. There have been no changes in the basis of directors’ pension entitlements during the year other than the introduction of the cap on increases to pensionable salaries. Where an executive receives a cash allowance in lieu of pension benefits, this is not taken into account for the purposes of bonuses or other benefits. There are no unfunded pension commitments or similar arrangements for directors.

Annual Bonus Executive directors are eligible for an annual bonus. The Remuneration Committee sets targets linked to board approved annual budgets. Maximum bonus payments are only awarded when performance for the year in question significantly exceeds the agreed annual budget targets. The maximum bonus levels remain unchanged for 2009 and 2010 at 120% of salary for the Chief Executive and 100% of salary for the Finance Director and the Chief Operating Officer.

2009 Annual Bonus Whilst no bonus was earned in 2008 as the relevant targets were not met, as a result of strong cost, debt and margin control, the excellent performance of the Wickes retail business, the relatively strong performance of our other businesses compared with their competitors and the successful timing of our rights issue (all described in the CEO’s report), all group financial and individual business related targets have been exceeded as outlined in the table below. Consequently, and as a reflection of this sector leading annual performance, bonus payments at maximum levels have been approved for 2009. Furthermore, as part of our executive directors’ commitment to the longer term success of the business and in addition to the mandatory 25% bonus deferment into shares, each director has voluntarily committed to invest a further 25% of their bonus award into the 2010-2013 Share Matching Scheme award. This means that as a minimum, 50% of each director’s 2009 bonus will be invested in shares for a further 3 years. The targets and achievement in relation to the 2009 bonus scheme are below:

Performance Maximum bonus Achieved Element Purpose measure Proportion target (rights restated)* actual

Rewards achievement of annual EPS 50% 70.8p 75.2p Annual Bonus financial and personal Interest cover 30% 5.1x 10.7x performance targets Personal objectives** 20% 20% 20%

*The EPS and interest cover targets were restated to take account of the rights issue in line with the advice of our external advisors. ** The main personal objectives which were achieved covered the following areas:

● Company’s financial stability and security;

● Investors’ confidence;

● Senior management capability, engagement and stability;

● Health & safety;

● Operating margin;

● Outperforming our major competitors;

● Global sourcing initiatives. The Remuneration Committee assessed the specific achievements against these objectives by reviewing the detailed measures attached to each one. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 54 DIRECTORS’ REMUNERATION REPORT

17334 proof 3 1/4/10 2010 Annual Bonus For 2010, reflecting the different challenges facing the business when compared with 2009, Return on Capital Employed replaces the Interest Cover bonus element. Relative weightings and the potential bonus maxima (as a percentage of salary) remain unchanged.

CEO Plan COO / FD Plans Measure Weighting Maximum On target Maximum On target EPS 50% 60% 30% 50% 25% ROCE 30% 36% 18% 30% 15% Individual objectives 20% 24% 0-24% 20% 0-20% Total 100% 120% 48-72% 100% 40-60%

Long Term Incentive Plans In contrast to the annual bonus targets for 2009, the performance measures attached to the long term incentives made in 2006 were not achieved resulting in no awards vesting under these schemes in 2009. Looking ahead, it is anticipated that the 2007 awards will also not vest. These disap- pointing outcomes reflect the unprecedented economic conditions in which the Group was operating.

Performance Share Plan (“PSP”) Following consultation with our principal shareholders, the performance conditions for the 2009 awards and those that are proposed for the 2010 awards were amended as outlined below. These changes were designed to take account of the prevailing business environment and ensure that the vesting of the PSP awards would be based on a more rounded view of performance.

PSP Element Rationale Weighting Aggregate cashflow Key measure to take account of the importance of cash generation in the current climate 40% Relative Total Shareholder Return (“TSR”) External measure of shareholder value creation 40% EPS growth Profits generated for shareholders 20%

The targets set for the 2009 and proposed for the 2010 PSP awards are as follows:

EPS No change to the current EPS growth targets as set out below.

EPS Growth % of EPS element that vests RPI + 10% p.a. 100% RPI + 3% p.a. 30%

These targets will prove exceptionally stretching in the current climate.

Relative Total Shareholder Return The Company’s TSR will be measured against the TSR of the constituent companies of the FTSE 250 Index.

Travis Perkins plc TSR relative to FTSE 250 Index % of TSR element that vests Upper quartile (Top 25%) 100% Median (Top 50%) 30% Straight-line vesting between these points

A three month averaging period at the start and end of the performance period will be used to calculate TSR. The Committee carefully considered the merits and potential weaknesses of using a specific comparator group rather than a broad index. On balance, the Committee considered that it would be difficult to construct an appropriate comparator group based on the Company’s peers as the Group operates in both the retail and industrial supplies sectors, and therefore the constituents of a broad market index will be used as a benchmark for performance. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS’ REMUNERATION REPORT 55

17334 proof 3 1/4/10 Aggregate Cashflow – To reflect the importance of effective working capital management and of generating cash from assets, three-year aggregate cash flow targets will apply, based on the Company’s three-year plan. The Committee will, if appropriate, adjust for the impact of items such as major capital investments or disposals. The target range for this PSP element in the 2009 award is £350m – £470m with 0% vesting at less that £350m and 100% of this element vesting at £470m on a straight line basis. The equivalent thresholds for the 2010 award are £470m – £520m. These proposed measures and targets apply to awards made in 2009 and those proposed for 2010. For future awards, the Committee will review annually whether the performance targets and their percentage weightings described above remain appropriate and challenging, or whether they should be recalibrated taking into account economic expectations, the industry’s outlook and shareholder interests. The maximum PSP award level for all executive directors is 150% of basic salary. However, for awards made in 2009 and those proposed for 2010 the maximum award is restricted to 120% for the CEO and 100% of salary for the other executive directors.

Share Matching Scheme The maximum personal investment in the Share Matching Scheme in 2009 and 2010 is 50% of post tax salary. The performance targets for the matching share awards are based on Cash Return On Capital Employed (“CROCE”). The targets for awards made in 2009 and planned for 2010 are set by the Remuneration Committee and determined by the Company’s three-year business plan. 30% of the matching award (0.6 for 1) vests if the target set is met with a straight line increase required above target for a 2 for 1 match. The target range for the 2009 award is 6.43% – 8.82% where none of the matching award will vest over the 3 year period unless the average CROCE is at least 6.43% and the whole of the matching award will vest if the average CROCE is 8.82% or more. The target range planned for the 2010 award is 7.5% – 9.0%. The proposed targets for 2010 are considered to be appropriately stretching in the current environment, with the target range for matching awards being significantly higher than that attached to the 2009 awards.

Overall Remuneration The following chart shows the percentage split of total remuneration of the executive directors (excluding pensions and benefits) based on the achievement of 50% of all performance measures, and the remuneration structure proposed for 2010.

2010 POTENTIAL EARNINGS based on ‘on target’ Bonus and Long Term Incentives

Key Performance Criteria

24% 22% PSP EPS / TSR / Aggregate cashflow 40% 43% SMS CROCE CEO COO/FD 12% 13% Deferred bonus EPS / ROCE / Personal objectives Cash Bonus EPS / ROCE / Personal objectives 6% 5% 18% 17% Basic annual salary

Share Award for John Carter As discussed with our principal shareholders in 2009, the Committee considers that the Chief Operating Officer will make a significant contribution to the long-term success of the business. Following careful consideration, an additional long term award was made to him in 2009, which was directly focussed on value creation for shareholders over the longer term. The award was structured as a nil cost share option over 47,612 shares, representing 100% of salary, vesting in equal tranches after completion of years four, five and six, the first year of measurement being 2009.

Earliest vest / exercise Proportion vesting

Year 4 1/3 Year 5 1/3 Year 6 1/3 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 56 DIRECTORS’ REMUNERATION REPORT

17334 proof 3 1/4/10 The award is linked directly to procurement improvement initiatives agreed annually and measured at the end of each financial year. Performance will be measured against an agreed aggregate target of a reduction in the cost of goods, equivalent to a 25 basis points improvement each year. The Committee will monitor the cumulative monetary benefit that this improvement is set to deliver in assessing the extent to which the target has been met at the end of years 4, 5, and 6. To qualify for any part of the award, John Carter must also have delivered his objectives as part of Travis Perkins’ strategic plan, approved by the Committee, in terms of:

● Agreed strategic initiatives (for example, establishing category management, supply chain initiatives);

● Development of new business channels. The Remuneration Committee must also be satisfied at each stage about the underlying performance of the business, and they will retain the right of veto.

All-employee Share Plans The Company also operates two all employee share schemes: the Sharesave Scheme and a Share Incentive Plan called the Travis Perkins Buy As You Earn Plan.

Non-executive Directors The policy of the Board is to recruit non-executive directors of the highest calibre, with a breadth of skills and experience appropriate for the Company’s business. Non-executive directors are appointed for a period of three years, at the end of which the appointment may be renewed by mutual agreement. It is the Board’s policy that non-executive directors should generally serve for six years (two three year terms) and that any term beyond this should be subject to a rigorous review. This review would take into account both the need for progressive refreshing of the Board, and the particular requirements of the Company at the time of the possible extension. Non-executive directors do not have a service contract, but each has received a letter of appointment expiring on the following dates: Chris Bunker: January 2012; Andrew Simon: February 2012; John Coleman: February 2011; Tim Stevenson: September 2010; Philip Jansen: April 2012; Robert Walker: September 2012. The letters of appointment will be available for inspection at the Annual General Meeting. The remuneration of the non-executive directors is determined by the Board (in the case of the Chairman, on the recommendation of the Remuneration Committee). Each non-executive director receives an annual fee. In addition, Chris Bunker and Andrew Simon receive an additional fee for, in the case of the former, the role of Senior Independent Director and for chairing the Audit Committee and, in the case of the latter, for chairing the Remuneration Committee. Fees were reviewed at the end of 2009 and it was decided that with the exception of Chris Bunker who was awarded an increase of £8,000 per annum (backdated to 1st April 2009) to reflect his additional responsibilities as senior independent director, to make no other increases in 2010. This means that, apart from the fees relating to Chris Bunker, non-executive directors’ fees have not increased since January 2007. The increase applied in January 2007 has been the only standard increase to non-executive directors’ fees for five years, and the Board intends to review fees for non-executive directors during the course of 2010. Non-executive directors do not receive any other benefits and are not eligible to join a company pension scheme. No compensation is payable on termination of their employment, which may be without notice from the Company. They cannot participate in any of the Company’s share schemes.

Committee Details The Committee comprises Andrew Simon (Chairman), Tim Stevenson, Chris Bunker and John Coleman, all of whom are independent non-executive directors. It met nine times in 2009. The Committee is responsible for the broad policy on directors’ and senior executives’ remuneration. It deter- mines all aspects of the remuneration packages of the executive directors and reviews, with the Chief Executive, the remuneration packages of other senior executives. It also oversees the administration of the share schemes. The Committee’s terms of reference, which are available on our website or from the Company Secretary, require it to give due regard to the best practice contained in the Code. The Committee keeps itself fully informed of relevant developments and best practice in remuneration matters and seeks advice where appropriate from external advisors. Hewitt New Bridge Street and Deloitte LLP have provided advice to the Committee on the structure of executive remuneration and share schemes in the past year. They were appointed by the Committee. Deloitte also provide audit and taxation services to the Company. In addition, Geoff Cooper (Chief Executive), Paul Hampden Smith (Finance Director), Andrew Pike (Group Company Secretary), Carol Kavanagh (Group Human Resources Director) and Stella Girvin (Group Pensions & Share Scheme Manager) have assisted the Committee in its work, but never in respect of their own remuneration. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS’ REMUNERATION REPORT 57

17334 proof 3 1/4/10 Total Shareholder Return As required by the Companies Act, the graph below shows total shareholder return for Travis Perkins’ shares over the last five years, relative to the FTSE 250 Index. Total shareholder return is defined as a combination of growth in the Company’s share price and dividends paid to shareholders. The FTSE 250 Index has been chosen as a comparable broad equity market index because the Company has been a member of it for the five year period.

200% Travis Perkins plc FTSE 250

150%

100%

50%

0% 2004 2005 2006 2007 2008 2009

AUDITED INFORMATION Contracts of Executive Directors Each of the executive directors has a service contract, the date of which is shown below, which will be available for inspection at the Annual General Meeting. These contracts provide for six month’s notice from the directors and 12 month’s notice from the Company. They do not specify any particular level of compensation in the event of termination or change of control. John Carter: 6 August 2001 Geoff Cooper: 1 February 2005 Paul Hampden Smith: 8 October 1996 It is the Company’s policy to allow each executive director to hold one non-executive directorship in another company (and to retain the fee payable).

Amount of Directors’ Emoluments Part of each executive director’s remuneration may consist of benefits in kind not payable in cash, such as the provision of a company car, a fuel card, and private healthcare insurance. No director receives an expense allowance, which is chargeable to tax. Details of directors’ remuneration are set out in the table below.

Basic salary Annual bonus Benefits in kind Total remuneration 2009 2008 2009 2008 2009 2008 2009 2008 £’000 £’000 £’000 £’000 £’000 £’000 £’000 £’000

Executive Geoff Cooper1 750 748 636 - 26 29 1,412 777 Paul Hampden Smith2 377 376 371 - 1 1 749 377 John Carter 363 362 371 - 29 30 763 392 Non-executive Tim Stevenson 180 180 - - - - 180 180 Chris Bunker 52 46 - - - - 52 46 John Coleman 38 38 - - - - 38 38 Philip Jansen3 28 - - - - - 28 - Andrew Simon 46 46 - - - - 46 46 Robert Walker4 25 - - - - - 25 -

1,859 1,796 1,378 - 56 60 3,293 1,856 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 58 DIRECTORS’ REMUNERATION REPORT

17334 proof 3 1/4/10 Notes: 1. Highest paid director – Basic salary includes a salary supplement of £231,167 (2008: £230,000) which replaced continuing pension accrual from April 2006. This does not count when calculating annual bonus and granting share incentives. Geoff Cooper also received, and retained, in 2009, £84,840 (2008: £82,000) in respect of his non-executive chairmanship of Dunelm Group Plc. 2. Basic salary includes a £12,000 “cash for car” allowance and a £1,500 fuel allowance, which do not count when calculating annual bonus and granting share incentives. Paul Hampden Smith also received, and retained, in 2009, £16,558 (2008: £nil) in respect of his non-executive directorship of Redrow plc. 3. Appointed 9 April 2009. 4. Appointed 30 September 2009.

Directors’ Pension Entitlements Pension entitlements of the executive directors during the year were as follows: John Carter Paul Hampden Smith Geoff Cooper Age at 31 December 2009 48 49 55

£’000 £’000 £’000 Accrued pension at 31 December 2008 253 61 5 Accrued pension at 31 December 2009 260 72 5

Increase in accrued pension in 2009 7 11 0

Real increase in accrued pension in 2009 11 12 0

Transfer value of the real increase in accrued pension net of member’s contributions 126 144 7 Value of increase in accrued benefit 158 176 7

Member’s contributions towards pension 32 32 0 Increase in transfer value net of member’s contributions 456 242 19 Transfer value of benefits accrued at 31 December 2008 3,586 830 89

Transfer value of benefits accrued at 31 December 2009 4,074 1,104 108

Notes: 1. Only base salary is pensionable for service from 1 December 2004. 2. Geoff Cooper ceased future accrual on 5 April 2006, but benefits up to that date retain a link to current salary (subject to the Earnings Cap, which applied up to April 2006). This was cost neutral for the Company. 3. Salary Sacrifice was introduced for member contributions in April 2006. The figures above include the sacrificed amounts. 4. Any pensions paid on early retirement are subject to abatement.

Travis Perkins’ Share Price Information 2009 2008

Mid-market price at the year end 852p 340p Highest mid-market price during the year 880p 1,191p Average mid-market price during the year 592p 721p Lowest mid-market price during the year 229p 223p

The 2008 share price information has not been restated for the impact of the 2009 rights issue. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS’ REMUNERATION REPORT 59

17334 proof 3 1/4/10 Directors’ Shareholdings The Directors’ holdings of ordinary 10p shares of Travis Perkins plc at 31 December 2009 and 2008 were as follows:

2009 2008 Director Interest No. No.

Chris Bunker Beneficial owner 11,900 7,000 John Carter Beneficial owner 45,510 42,618 John Coleman Beneficial owner 2,465 1,450 Geoff Cooper Beneficial owner 135,904 57,996 Paul Hampden Smith Beneficial owner 186,593 87,878 Philip Jansen Beneficial owner - - Andrew Simon Beneficial owner 3,400 2,000 Tim Stevenson Beneficial owner 21,080 12,400 Robert Walker Beneficial owner 25,000 -

Between 31 December 2009 and the date of this report, the only change to the above Directors’ shareholdings is to Paul Hampden Smith’s whose shareholding had increased to 186,625 because of his monthly contribution to the Travis Perkins’ Buy As You Earn Plan.

Share Matching Scheme Participation by directors is as follows: Outstanding Granted Lapsed Rights issue Outstanding 1 Jan 2009 during year during year adjustment 31 Dec 2009 No. No. No. No. No.

Geoff Cooper 2 April 2007 Deferred shares 6,017 - - 1,617 7,634 Deferred matching shares 6,017 - - 1,617 7,634 Investment matching shares 12,636 - - 3,395 16,031 1 April 2008 Investment matching shares 48,216 - - 55,7721 103,988 19 May 2009 Investment matching shares - 73,160 - 84,6251 157,785 Paul Hampden Smith 2 April 2007 Deferred shares 4,109 - - 1,104 5,213 Deferred matching shares 4,109 - - 1,104 5,213 Investment matching shares 10,319 - - 2,772 13,091 1 April 2008 Investment matching shares 33,750 - - 39,0371 72,787 19 May 2009 Investment matching shares - 51,213 - 59,2371 110,450 John Carter 2 April 2007 Deferred shares 4,109 - - 1,104 5,213 Deferred matching shares 4,109 - - 1,104 5,213 Investment matching shares 8,424 - - 2,263 10,687 1 April 2008 Investment matching shares 15,526 - (15,526)2 - - 19 May 2009 Investment matching shares - 29,663 - 34,3111 63,974 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 60 DIRECTORS’ REMUNERATION REPORT

17334 proof 3 1/4/10 Notes: 1. Includes matching award on rights taken up on investment shares. 2. Exchanged for 2009 award. 3. Vesting is on the third anniversary of the grant date. 4. Award / purchase prices (restated for the rights issue) are: 2 April 2007, 1,586p, 1 April 2008, 840p, 19 May 2009, 553p. 5. Performance criteria apply. For share matching shares granted in 2007 vesting is at 33 1/3% if EPS exceeds inflation by 4% a year, pro rata between 100% & 33 1/3% if EPS exceeds inflation by between 8% and 4%, and 100% if EPS exceeds inflation by 8%. For investment matching shares granted in 2008 and 2009 a condition based on a three year average of cash return on capital employed (“CROCE”) applies as described on page 56. For 2008 the target range was 11.5% – 12.5%.

Performance Share Plan Participation by directors is as follows: Outstanding Rights issue Granted during Outstanding 1 Jan 2009 adjustment year 31 Dec 2009 No. No. No. No.

Geoff Cooper 5 March 2008 57,553 15,462 - 73,015 23 June 2009 - - 131,289 131,289 Paul Hampden Smith 5 March 2008 33,572 9,019 - 42,591 23 June 2009 - - 76,585 76,585 John Carter 5 March 2008 33,572 9,019 - 42,591 23 June 2009 - - 76,585 76,585

Notes: 1. Vesting is on the third anniversary of the grant date. 2. Award prices (restated for the rights issue) are: 5 March 2008, 850p, 23 June 2009, 473p. 3. Performance criteria apply. For performance shares granted in 2008, vesting is at 33 1/3% if EPS exceeds inflation by 3% a year, pro rata between 100% & 33 1/3% if EPS exceeds inflation by between 3% and 10%, and 100% if EPS exceeds inflation by 10%. Performance conditions for the 2009 award are described on page 55.

Deferred Share Bonus Plan Participation by directors is as follows: Outstanding Rights issue Outstanding 1 Jan 2009 adjustment 31 Dec 2009 No. No. No.

Geoff Cooper 5 March 2008 10,692 2,872 13,564 Paul Hampden Smith 5 March 2008 6,104 1,639 7,743 John Carter 5 March 2008 6,104 1,639 7,743

Notes: 1. Vesting is on the third anniversary of the grant date. 2. The award price (restated for the rights issue) for 5 March 2008 was 998p. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS’ REMUNERATION REPORT 61

17334 proof 3 1/4/10 Share Award for John Carter Outstanding Granted Outstanding 1 Jan 2009 during year 31 Dec 2009 No. No. No.

10 November 2009 - 47,612 47,612

Notes: 1. Vesting and performance conditions are described on pages 56 and 57.

Executive Share Options Participation by directors in the 2001 Executive Share Option Scheme is as follows:

Outstanding Rights issue Lapsed Outstanding Exercise price 1 Jan 2009 adjustment during year 31 Dec 2009 (rights restated) Exercise period No. No. No. No.

Geoff Cooper 14,173 3,807 - 17,980 1,320.0p Anytime until 31/3/15 57,262 - (57,262) - 1,611.0p 50,761 13,638 - 64,399 1,553.0p From 22/3/10 until 21/3/17 Paul 39,351 10,572 - 49,923 596.0p Anytime until 3/7/11 Hampden Smith 31,031 8,337 - 39,368 845.0p Anytime until 9/4/12 40,983 11,011 - 51,994 841.0p Anytime until 10/4/13 18,750 5,037 - 23,787 1,033.0p Anytime until 15/3/14 8,268 2,221 - 10,489 1,320.0p Anytime until 31/3/15 34,217 - (34,217) - 1,611.0p 31,091 8,353 - 39,444 1,553.0p From 22/3/10 until 21/3/17 John Carter 29,398 7,898 - 37,296 845.0p Anytime until 9/4/12 32,786 8,808 - 41,594 841.0p Anytime until 10/4/13 17,387 4,671 - 22,058 1,033.0p Anytime until 15/3/14 8,267 2,220 10,487 1,320.0p Anytime until 31/3/15 34,217 - (34,217) - 1,611.0p 31,091 8,353 - 39,444 1,553.0p From 22/3/10 until 21/3/17

Notes: 1. Performance conditions apply. For the grant still to vest, 25% of the options vest at EPS growth of RPI plus 9% and full vesting requires EPS growth plus 15%. 2. Exercise prices have been restated in respect of the rights issue. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 62 DIRECTORS’ REMUNERATION REPORT

17334 proof 3 1/4/10 Sharesave Options Participation by directors in the 2002 Travis Perkins’ Sharesave Scheme is as follows: Outstanding Rights issue Outstanding 1 January 2009 adjustment 31 Dec 2009 No. No. No.

Geoff Cooper 2,895 775 3,670 Paul Hampden Smith 2,895 775 3,670 John Carter 2,895 775 3,670

Notes: 1. No performance conditions apply. 2. All options are exercisable from 1 December 2013 to 31 May 2014 at a price of 442p (rights restated).

Share Dilution At 31 December 2009, shares under grant for executive share schemes over a 10 year period represented 1.82% of issued share capital and shares under grant for all employee share schemes over the previous 10 years represented 5.22%. There were 6,711,548 (3.2% of issued share capital) unallocated shares and 289,142 allocated shares (0.14%) held in the employee trust.

Shareholders’ Approval The directors confirm that this report has been drawn up in accordance with the requirements of the Companies Act 2006 and the Combined Code on Corporate Governance. The shareholders will be invited to approve the remuneration policy set out in this report at the Annual General Meeting, at which the Chairman of the Committee will be available to answer any questions. Approved by the Board and signed on its behalf by:

Andrew Simon Chairman, Remuneration Committee 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 DIRECTORS’ REMUNERATION REPORT 63

17334 proof 3 1/4/10 NOMINATIONS COMMITTEE REPORT

FOR THE YEAR ENDED 31 DECEMBER 2009

The principal role of the Nominations Committee is to identify and ● In January, the Committee began a process to find a new Chairman- nominate for Board approval, candidates to fill board vacancies as and designate, to succeed Tim Stevenson who planned to step down when they arise. It is required to prepare a description of the role, and during 2010. This process was chaired by Chris Bunker, as Senior capabilities required, for any appointment, and to maintain contact with Independent Director, and following consultation with major major shareholders about appointments to the Board. It also keeps shareholders, Robert Walker was appointed in September. the structure, size and composition of the Board under review, and For both of these appointments, the Committee members and other considers succession planning for both executive and non-executive directors had the opportunity to contribute to the specification for the directors and for other senior executive posts. The terms of reference post and to meet with candidates. During the process all directors of the Committee are available on the Company’s website or from the were kept fully informed about the progress of the recruitment. In both Company Secretary. cases, the Committee was assisted in its search by executive recruit- During the year, the Committee members were Tim Stevenson ment consultants, Russell Reynolds Associates. (Chairman), together with Chris Bunker, and John Coleman, both of The Chairman of the Nominations Committee will be available at whom are independent non-executive directors. the Annual General Meeting to answer any questions about the work Although the Committee did not meet formally during 2009, a large of the Committee. number of discussions were held between Committee members, in relation to two appointments:

● In the early part of the year, the Committee completed its search for a new non-executive director to replace Mike Dearden, who retired Tim Stevenson in November 2008, and this resulted in the appointment of Philip Chairman, Nominations Committee Jansen in April; 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 64 NOMINATIONS COMMITTEE REPORT

17334 proof 3 1/4/10 DIRECTORS’ REPORT

FOR THE YEAR ENDED 31 DECEMBER 2009

The Directors present their annual report and audited accounts for the Walker, Chris Bunker and John Coleman continue to be effective in, and year ended 31 December 2009. committed to, their roles as non-executive directors, and in particular that Robert Walker is suitably qualified to succeed him as Chairman. PRINCIPAL ACTIVITIES Directors and officers of the Company are entitled to be indem- Travis Perkins is one of the largest builders merchants and home nified out of the assets of the Company in respect of any liability improvement retailers in the UK. The principal activities of the Group incurred in relation to the affairs of the Company, or any associate are the sale of timber, building materials, and plumbing and heating company, to the extent the law allows. In this regard, the Company is products, and the hiring of tools, to the building trade, industry gener- required to disclose that under article 146 of the Company’s Articles ally and the general public, within the United Kingdom. The Directors of Association, the Directors have the benefit of an indemnity, to the are not aware, at the date of this report, of any likely major changes in extent permitted by the Companies Act 1985 and the Companies Act the Group’s activities in the next year. 2006 against liabilities incurred by them in the execution of their duties and exercise of their powers. This indemnity is currently in force. In ENHANCED BUSINESS REVIEW addition, if proceedings against Directors are instituted subsequent A review of the Group’s position, developments and future prospects to any person acquiring control of the Company, the Company has is contained in the Chairman’s statement on pages 8 and 9, the Chief agreed with each of the Directors that pursuant to article 146(D) of Executive’s review of the year on pages 10 to 24, the Chief Operating the Company’s Articles of Association, the Company shall provide a Officer’s review of the year on pages 25 to 34 and the Finance Director with funds (subject to certain restrictions) to meet expenditure Director’s review of the year on pages 36 to 43. A review of the Group’s incurred by that director in defending any criminal or civil proceedings. environmental performance is contained in the Chief Executive’s review A copy of the Company’s Articles of Association (which contains this of the year on pages 10 to 24. indemnity) is available for inspection at the Company’s registered office during normal business hours and will be available for inspection at RESULTS AND DIVIDENDS (and during the period of 30 minutes prior to) the Company’s forth- The Group results for the year ended 31 December 2009 are set out coming Annual General Meeting. on page 72. The Board is not recommending the payment of a dividend None of the Directors had an interest in any contract to which the for 2009 Company or any of its subsidiaries was a party during the year. The Company has undertaken to comply with the best practice BALANCE SHEET AND POST BALANCE on approval of directors’ conflicts of interests in accordance with the SHEET EVENTS Company’s Articles of Association. Under the Companies Act 2006, a The balance sheet on pages 74 and 75 shows the Group’s finan- director must avoid a situation where he has, or can have, a direct cial position. No significant events have occurred since the balance or indirect interest that conflicts, or possibly may conflict, with the sheet date. Company’s interests. The disclosable interests of Directors at 31 December 2009, including PRINCIPAL RISKS AND UNCERTAINTIES holdings, if any, of wives and of children aged under 18, were as detailed A review of the Group’s principal risks and uncertainties are contained in the Directors’ Remuneration Report on pages 60 to 63. in the Finance Director’s review of the year on pages 38 to 43. SUBSTANTIAL SHAREHOLDINGS DIRECTORS AND THEIR INTERESTS As at 23 February 2010, the Company had received notification under The names of the Directors at 31 December 2009, together with their the Disclosure Transparency Rules that the holdings and voting rights biographical details, are set out on pages 44 and 45. All of those exceeding the 3% notification threshold were as follows: Directors held office throughout the year except Robert Walker and Number % Philip Jansen who were appointed non-executive directors on 30th AXA 14,816,798 7.10 September 2009 and 9 April 2009 respectively. In accordance with Sprucegrove Investment Management 9,768,326 4.68 the Company’s Articles of Association, Robert Walker, Chris Bunker, Legal and General Investment Management 8,293,429 3.98 John Coleman and Geoff Cooper will retire and, being eligible, will offer Investec Asset Management 7,967,886 3.82 themselves for re-election at the forthcoming Annual General Meeting. E.R.A.Travis* 7,757,047 3.72 Geoff Cooper has a rolling 12 month notice period in his contract. The Travis Perkins Employee As non-executive directors, Robert Walker, Chris Bunker and John Share Ownership Trust 7,000,690 3.36 Coleman do not have service contracts. In the light of the evaluation C.M. Travis* 6,993,138 3.35 of their performances as a result of the process described on page 48, Ignis Asset Management 6,783,735 3.25 Tim Stevenson, Chairman, confirms on behalf of the Board that Robert WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 D I R E C T O R S ’ R E P O R T 65

17334 proof 3 1/4/10 *C. M. Travis and E. R. A. Travis have each disclosed their voting rights STATEMENT ON DISCLOSURE OF over the same 3,735,446 ordinary shares in aggregate, by virtue of INFORMATION TO AUDITORS each of them being a trustee of the same Travis family trusts which Each of the persons who is a director at the date of approval of this held ordinary shares. report confirms that:

● So far as the Director is aware, there is no relevant audit information CLOSE COMPANY STATUS of which the Company’s auditors are unaware; and The close company provisions of the Income and Corporation Taxes Act ● The Director has taken all reasonable steps that he ought to have 1988 do not apply to the Company. taken as a director in order to make himself aware of any relevant audit information and to establish that the Company’s auditors are EMPLOYEES AND CHARITABLE DONATIONS aware of that information. Statements on these matters are contained in the Chief Operating This confirmation is given and should be interpreted in accordance with Officer’s review of the year on pages 25 to 29 and in the Chief the provisions of s.418 of the Companies Act 2006. Executive’s review of the year on page 22, respectively. Details of the number of employees and related costs can be found SHARE CAPITAL AND CHANGE OF CONTROL in note 7 to the financial statements. As at 31 December 2009 the Company had an authorised share capital The Company is committed to equality of opportunity and recognises of 400,000,000 ordinary shares of 10 pence each, with an aggregate the benefit of diversity within its workforce. It has an equal opportuni- nominal value of £40,000,000 and an allotted and fully paid share ties policy aimed at ensuring that employment decisions are based on capital of 208,631,466 ordinary shares of 10 pence each, with an ability and potential regardless of gender, race, colour, ethnic origin aggregate nominal value of £20,863,147 (including shares owned by or sexual orientation, age or disability. In particular, applications for the employee share ownership trust). The ordinary shares are listed on employment by disabled persons are always fully considered, bearing the London Stock Exchange. All the shares rank pari passu. The rights in mind the aptitudes of the person concerned. In the event of a and obligations attaching to the shares are set out in the Company’s member of staff becoming disabled, every effort is made to ensure Articles of Association. Fully paid shares in the Company are freely that their employment with the Group continues and that appropriate transferable. There are no persons that hold securities carrying special training is arranged. It is the policy of the Company that the training, rights with regard to the control of the Company. Details of the structure career development and promotion of disabled persons should, as far of the Company’s share capital and changes in the share capital during as possible, be identical to that of other employees. the year are also included in note 21 to the financial statements. The Group’s policies and practices have been designed to keep The Travis Perkins Employee Share Ownership Trust owns 7,000,690 employees informed on matters relevant to them as employees through shares in the Company (3.36%) for use in connection with the Company’s regular meetings and newsletters. Employee representatives are share schemes. Any voting or other similar decisions relating to those consulted regularly on a wide range of matters affecting their interests. shares would be taken by the trustees, who may take account of any All employees with more than three months’ service are eligible to recommendation of the Company. participate in the Company’s Sharesave and Buy as You Earn plans. There are no restrictions on voting rights attaching to the Company’s ordinary shares. The Company is not aware of any agreements between POLITICAL DONATIONS holders of securities that may result in restrictions on the transfer of The Group did not give any money for political purposes in the UK nor securities or on voting rights. did it make any donations to EU political organisations or incur any EU The rules governing the appointment and replacement of board political expenditure during the year. members and changes to the Articles of Association accord with usual English company law provisions. The powers of the Company’s SUPPLIER PAYMENT POLICY Directors are set out in the Company’s Articles of Association. In The Group’s policy is to pay all of its suppliers in accordance with particular, the Board has the power to purchase its own shares and established terms. Group trade creditors at 31 December 2009 repre- is seeking renewal of that power at the forthcoming Annual General sented 52 days (31 December 2008: 47 days) of average purchases Meeting within the limits set out in the notice of that meeting. of goods and services. The Company’s trade creditors at 31 December There are a number of agreements to which the Company is a 2009 represented 30 days (2008: 30 days). party that may take effect, alter or terminate upon a change of control following a takeover bid. None of these agreements is considered to be AUDITORS significant in the context of the Company as a whole. A resolution to re-appoint Deloitte LLP as the Company’s auditors There are no agreements providing for compensation for directors and to authorise the Directors to fix the auditors’ remuneration will be or employees on a change of control of the Company. As set out in proposed at the Annual General Meeting. the Directors’ Remuneration Report on page 58, service contracts for WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 66 D I R E C T O R S ’ R E P O R T

17334 proof 3 1/4/10 executive directors do not specify any particular level of compensation Resolution 9: Limited Authority to Allot Shares for Cash in the event of termination following change of control of the Company. This resolution would give the Directors the authority to allot ordinary As noted above, the Company has agreed with each of the Directors shares (or sell any ordinary shares which the Company elects to hold in that it shall provide a Director with funds (subject to certain restric- treasury) for cash without first offering them to existing shareholders in tions) to meet expenditure incurred in defending any criminal or civil proportion to their existing shareholdings. proceedings if such proceedings are instituted subsequent to any Except as provided in the next paragraph, this authority would be person acquiring control of the Company. limited to allotments or sales in connection with pre-emptive offers and offers to holders of other equity securities if required by the rights ANNUAL GENERAL MEETING SPECIAL of those shares or as the board otherwise considers necessary, or BUSINESS otherwise up to an aggregate nominal amount of £1,043,188 (repre- The Annual General Meeting of the Company will be held at Northampton senting 10,431,878 ordinary shares). This aggregate nominal amount Rugby Football Club, Franklin’s Gardens, Weedon Road, Northampton, represents approximately 5% of the issued ordinary share capital of NN5 5BG on Monday 17 May 2010 at 11.45 a.m. A buffet lunch will the Company as at 23 February 2010, the latest practicable date be available. The following items are to be proposed at the forthcoming prior to publication of this Notice. In respect of this aggregate nominal Annual General Meeting as items of special business, and the Board amount, the Directors confirm their intention to follow the provisions of recommends that shareholders vote in favour of all resolutions put the Pre-Emption Group’s Statement of Principles regarding cumulative before the Annual General Meeting. usage of authorities within a rolling 3-year period where the Principles provide that usage in excess of 7.5% should not take place without Resolution 7: Directors’ Remuneration Report prior consultation with shareholders. In accordance with the Directors’ Remuneration Report Regulations Allotments made under the authorisation in paragraph (b) of resolu- 2002, this resolution seeks shareholders’ approval of the Directors’ tion 8 would be limited to allotments by way of a rights issue only Remuneration Report as set out on pages 53 to 63. (subject to the right of the board to impose necessary or appropriate limitations to deal with, for example, fractional entitlements and regula- Resolution 8: Renewal of Authority to Allot Shares tory matters). Paragraph (a) of this resolution would give the Directors the authority The authority will expire at the earlier of 30 June 2011 (the last date to allot ordinary shares up to an aggregate nominal amount equal to by which the Company must hold an annual general meeting in 2011) £6,954,585 (representing 69,545,850 ordinary shares of 10 pence and the conclusion of the annual general meeting of the Company held each). This amount represents approximately one-third of the issued in 2011. Any issue of shares for cash will, however, still be subject to ordinary share capital of the Company as at 23 February 2010, the the requirements of the UK Listing Authority. latest practicable date prior to publication of this Notice. In line with guidance issued by the Association of British Insurers Resolution 10: Notice of Meetings (the “ABI”), paragraph (b) of this resolution would give the Directors Under the Shareholders’ Rights Regulations 2009 (the “Shareholders’ authority to allot ordinary shares in connection with a rights issue in Rights Regulations”), the notice period for general meetings of a favour of ordinary shareholders up to an aggregate nominal amount company has been extended to 21 days unless certain requirements equal to £13,909,170 (representing 139,091,700 ordinary shares of are satisfied. The Company has met the requirements and accordingly 10p each), as reduced by the nominal amount of any shares issued this resolution is proposed to allow the Company to continue to call under paragraph (a) of this resolution. This amount (before any reduc- general meetings on 14 clear days’ notice. The Directors believe it is tion) represents approximately two-thirds of the issued ordinary share in the best interests of the shareholders of the Company to preserve capital of the Company as at 23 February 2010, the latest practicable the shorter notice period and accordingly are putting this resolution date prior to publication of this Notice. If this authority is exercised, to the meeting. The shorter notice period would not be used as a the Directors intend to follow ABI guidance issued from time to time matter of routine for general meetings, but only where the flexibility (including as to the re-election of directors). is merited by the business of the meeting and is thought to be to the The authorities sought under paragraphs (a) and (b) of this resolu- advantage of shareholders as a whole. The approval will be effec- tion will expire at the earlier of 30 June 2011 (the last date by which tive until the Company’s Annual General Meeting in 2011, when it the Company must hold an annual general meeting in 2011) and is expected that a similar resolution will be proposed. It should also the conclusion of the annual general meeting of the Company held be noted that the changes to the Companies Act 2006 mean that, in in 2011. order to be able to call a general meeting on less than 21 clear days’ The Directors have no present intention to exercise either of the notice, the Company must make a means of electronic voting avail- authorities sought under this resolution, except, under paragraph (a), to able to all shareholders. satisfy options under the Company’s employee share option schemes. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 D I R E C T O R S ’ R E P O R T 67

17334 proof 3 1/4/10 Resolution 11: Authority to Purchase Own Shares i. The Company’s objects The authority for the Company to purchase its own shares of 10 pence The provisions regulating the operations of the Company are each granted at last year’s Annual General Meeting will expire on the currently set out in the Company’s Memorandum of Association (the date of the forthcoming Annual General Meeting. The Directors wish “Memorandum”) and the Current Articles. The Memorandum contains, to renew this authority and a special resolution, will be proposed to among other things, the objects clause which sets out the scope of the give the Company the authority to purchase its own ordinary shares activities the Company is authorised to undertake. This is drafted to in the market as permitted by the Companies Act 2006. The authority give a wide scope. limits the number of shares that could be purchased to a maximum of The Act significantly reduces the constitutional significance of 20,863,756 (representing 10% of the issued ordinary share capital a company’s memorandum of association. The Act provides that a of the Company as at 23 February 2010) and sets minimum and memorandum will record only the names of the subscribers and the maximum prices. This authority will expire no later than 30 June 2011. number of shares each subscriber has agreed to take in the company. The Directors consider that it is in the best interests of the Company Under the Act, the objects clause and all other provisions which are to have available this authorisation, in case of circumstances when it contained in a company’s memorandum of association, for existing would be appropriate to use it. They would only use it after consider- companies at 1 October 2009, are deemed to be contained in the ation of the effect on earnings per share and the longer term benefit for company’s articles of association, but the company can remove these the Company and shareholders generally. The fact that such authorisa- provisions by special resolution. tion is being sought should not be taken to imply that shares would be Further, the Act states that unless a company’s articles provide purchased at any particular price or indeed at all. Any ordinary shares otherwise, a company’s objects are unrestricted. This abolishes the purchased pursuant to this authority may either be held as treasury need for companies to have objects clauses. For this reason the shares or cancelled by the Company, depending on which course of Company is proposing to remove its objects clause together with all action is considered by the Directors to be in the best interests of other provisions of its Memorandum which, by virtue of the Act, are to shareholders at the time. be treated as forming part of a Company’s Articles of Association as As at 23 February 2010, there were options over 12,619,902 ordi- of 1 October 2009. As the effect of the proposed resolution will be to nary shares in the capital of the Company, (including 30,664 Deferred remove the statement currently in the Memorandum regarding limited Shares, 30,664 Deferred Matching Shares, 1,168,844 Investment liability, the New Articles also contain an express statement regarding Matching Shares, 88,183 Deferred Bonus Share Plan shares and the limited liability of shareholders. 1,344,324 Performance Share Plan shares – these are described in the Remuneration Report on pages 54 to 56), which represent 6.05% ii. Authorised share capital and unissued shares of the Company’s issued ordinary share capital (excluding any treasury The Act abolishes the requirement for a company to have an authorised shares). If the authority to purchase the Company’s ordinary shares share capital and the New Articles reflect this. Directors will still be were exercised in full, these options would represent 6.72% of the limited as to the number of shares they can at any time allot because Company’s issued ordinary share capital (excluding any treasury allotment authority continues to be required under the Act, save in shares). As at 23 February 2010, the Company did not hold any trea- respect of employee share schemes. sury shares in the Company and no warrants over ordinary shares in the capital of the Company existed. iii. Redeemable shares Under the Companies Act 1985, if a company wished to issue redeem- Resolution 12: Amendment of Articles of Association able shares, it had to include in its articles of association the terms and Resolution 12 proposes certain amendments to the Company’s manner of redemption. The Act enables directors to determine such current Articles of Association (the “Current Articles”). The Articles matters instead, provided they are so authorised by the articles. The of Association as amended (the “New Articles”) contain revi- New Articles contain such an authorisation. The Company has no plans sions primarily to take account of changes in English law brought to issue redeemable shares, but if it did so the Directors would need about by the full implementation of the Companies Act 2006 (the shareholders’ authority to issue new shares in the usual way. “Act”), the Shareholder Rights Regulations and amendments to the Uncertificated Securities Regulations 2009. The principle changes iv. Suspension of registration of share transfers are summarised below. Other changes, which are of a minor or The Current Articles permit the Directors to suspend the registration of technical nature, have not been noted below. As noted at the end of transfers. Under the Act, share transfers must be registered as soon as this section, the New Articles showing all the changes to the Current practicable. The power in the Current Articles to suspend the registra- Articles are available for inspection. tion of transfers is inconsistent with this requirement. Accordingly, this power has been removed in the New Articles. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 68 D I R E C T O R S ’ R E P O R T

17334 proof 3 1/4/10 v. Authority to purchase own shares, consolidate and xi. Directors’ interests sub-divide shares, and reduce share capital Saving provisions included in the Current Articles prior to the coming Under the Companies Act 1985, a company required specific enabling into force of certain parts of the Act have been removed in the New provisions in its articles to purchase its own shares, to consolidate or Articles now that the Act is in full force. sub-divide its shares and to reduce its share capital or other undis- tributable reserves as well as shareholder authority to undertake the xii. Use of seals relevant action. The Current Articles include these enabling provisions. Under the Companies Act 1985, a company required authority in its Under the Act, a company will only require shareholder authority to do articles of association to have an official seal for use abroad. Under the any of these things and it will no longer be necessary for articles to Act, such authority will no longer be required. Accordingly, the relevant contain enabling provisions. Accordingly, the relevant enabling provi- authorisation has been removed in the new Articles. sions have been removed in the New Articles. xiii. Articles which duplicate statutory provisions vi. Special business Provisions in the Current Articles which replicate provisions contained in Under the Act, as amended by the Shareholders’ Rights Regulations, the Act are, in the main, removed in the New Articles. This is in line with a company is required to state the general nature of all business to be the Company’s approach to the implementation of the Act to date. dealt with at a meeting. The New Articles remove provisions relating to special business in order to reflect this. xiv. Directors’ Indemnity The Act allows a company to indemnify a director of a company that is vii. Voting record date a trustee of an occupational pension scheme against liability incurred Under the Act, as amended by the Shareholders’ Rights Regulations, in connection with the Company’s activities as trustees of the scheme. the Company must determine the right of members to vote at a general The New Articles include such an indemnity. meeting by reference to the register not more than 48 hours before the time for the holding of the meeting, not taking account of days xv. General which are not working days. The New Articles reflect this requirement Generally, the opportunity has been taken to update references, excluding non-working days. cross-references and language to bring the New Articles in line with the implementation of the last parts of the Act, the coming into force viii. Voting by proxies on a show of hands of the Shareholders’ Rights Regulations and amendments to the The Shareholders’ Rights Regulations have amended the Act so that Uncertificated Securities Regulations 2001. it now provides that each proxy appointed by a member has one vote on a show of hands, unless the proxy is appointed by more than one A copy of the Current Articles, a copy marked to show the differences member, in which case the proxy has one vote for and one vote against between the Current Articles and the New Articles as proposed to be if the proxy has been instructed by one or more members to vote for the amended pursuant to resolution 12 and a copy of the New Articles resolution and by one or more members to vote against the resolution. incorporating such amendments, will be available for inspection from The New Articles reflect these changes. the date of this notice up to the time of the Annual General Meeting at the registered office of the Company during usual business hours ix. Proxies to vote in accordance with instructions and at the place of the Annual General Meeting for at least 15 minutes Under the Act, as amended by the Shareholders’ Rights Regulations, before and during the meeting. Representatives of the Company’s proxies are required to vote in accordance with instructions given by Solicitors, Clifford Chance LLP, will be available at the Annual General the shareholder by whom the proxy is appointed. The New Articles state Meeting to answer any questions. that the Company is not required to confirm that a proxy has followed instructions and a failure to vote as instructed does not invalidate the proceedings on the resolution. x. Chairman’s casting vote By order of the Board The New Articles remove the provision giving the Chairman a casting Andrew Pike vote in the event of an equality of votes as this is no longer permitted Company Secretary under the Act. 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 D I R E C T O R S ’ R E P O R T 69

17334 proof 3 1/4/10 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

FOR THE YEAR ENDED 31 DECEMBER 2009

The Directors are responsible for preparing the Annual Report and for safeguarding the assets of the Company and hence for taking the financial statements in accordance with applicable law and reasonable steps for the prevention and detection of fraud and other regulations. irregularities. Company law requires the Directors to prepare financial statements The Directors are responsible for the maintenance and integrity of for each financial year. Under that law the Directors are required to the corporate and financial information included on the Company’s prepare the group financial statements in accordance with International website. Legislation in the United Kingdom governing the preparation Financial Reporting Standards (“IFRSs”) as adopted by the European and dissemination of financial statements may differ from legislation in Union and Article 4 of the IAS Regulation and have also chosen to other jurisdictions. prepare the Parent Company financial statements under IFRSs as adopted by the EU. Under company law the Directors must not approve Responsibility statement the accounts unless they are satisfied that they give a true and fair We confirm that to the best of our knowledge:

view of the state of affairs of the Company and of the profit or loss of ● The financial statements, prepared in accordance with International the Company for that period. In preparing these financial statements, Financial Reporting Standards, give a true and fair view of the assets, International Accounting Standard 1 requires that directors: liabilities, financial position and profit or loss of the Company and the

● Properly select and apply accounting policies; undertakings included in the consolidation taken as a whole; and

● Present information, including accounting policies, in a manner ● The management report, which is incorporated into the directors’ that provides relevant, reliable, comparable and understandable report, includes a fair review of the development and performance of information; the business and the position of the Company and the undertakings

● Provide additional disclosures when compliance with the specific included in the consolidation taken as a whole, together with a requirements in IFRSs are insufficient to enable users to understand description of the principal risks and uncertainties that they face. the impact of particular transactions, other events and conditions on the entity’s financial position and financial performance; and By order of the Board

● Make an assessment of the Company’s ability to continue as a going concern. The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the Company’s transactions and disclose with reasonable accuracy at any time the financial position G. I. Cooper P. N. Hampden Smith of the Company and enable them to ensure that the financial state- Chief Executive Finance Director ments comply with the Companies Act 2006. They are also responsible 23 February 2010 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 70 STATEMENT OF DIRECTORS’ RESPONSIBILITIES

17334 proof 3 1/4/10 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF TRAVIS PERKINS PLC

FOR THE YEAR ENDED 31 DECEMBER 2009

We have audited the financial statements of Travis Perkins plc for the Separate opinion in relation to IFRSs as year ended 31 December 2009 which comprise the Group and Parent issued by the IASB Company Income Statements, the Group and Parent Company Balance As explained in note 1 to the group financial statements, the Group Sheets, the Group and Parent Company Cash Flow Statements, the in addition to complying with its legal obligation to apply IFRSs as Group and Parent Company Statement of Comprehensive Income, the adopted by the European Union, has also applied IFRSs as issued by Group and Parent Company Statements of Changes in Equity and the the International Accounting Standards Board (“IASB”). related notes 1 to 37. The financial reporting framework that has been In our opinion the group financial statements comply with IFRSs as applied in their preparation is applicable law and International Financial issued by the IASB. Reporting Standards (“IFRSs”) as adopted by the European Union. This report is made solely to the Company’s members, as a body, Opinion on other matters prescribed in accordance with Chapter 3 of Part 16 of the Companies Act 2006. by the Companies Act 2006 Our audit work has been undertaken so that we might state to the In our opinion: Company’s members those matters we are required to state to them ● The part of the Directors’ Remuneration Report to be audited has in an auditors’ report and for no other purpose. To the fullest extent been properly prepared in accordance with the Companies Act permitted by law, we do not accept or assume responsibility to anyone 2006; and other than the Company and the Company’s members as a body, for ● The information given in the Directors’ Report for the financial year our audit work, for this report, or for the opinions we have formed. for which the financial statements are prepared is consistent with the financial statements. Respective responsibilities of directors and auditors Matters on which we are required As explained more fully in the Directors’ Responsibilities Statement, the to report by exception Directors are responsible for the preparation of the financial statements We have nothing to report in respect of the following: and for being satisfied that they give a true and fair view. Our responsi- Under the Companies Act 2006 we are required to report to you if, in bility is to audit the financial statements in accordance with applicable our opinion: law and International Standards on Auditing (UK and Ireland). Those ● Adequate accounting records have not been kept by the Parent standards require us to comply with the Auditing Practices Board’s Company, or returns adequate for our audit have not been received (“APB’s”) Ethical Standards for Auditors. from branches not visited by us; or ● The Parent Company financial statements and the part of the Scope of the audit of the financial Directors’ Remuneration Report to be audited are not in agreement statements with the accounting records and returns; or An audit involves obtaining evidence about the amounts and disclo- ● Certain disclosures of directors’ remuneration specified by law are sures in the financial statements sufficient to give reasonable assur- not made; or ance that the financial statements are free from material misstatement, ● We have not received all the information and explanations we require whether caused by fraud or error. This includes an assessment of: for our audit. whether the accounting policies are appropriate to the Group’s and the Under the Listing Rules we are required to review: Parent Company’s circumstances and have been consistently applied ● The Directors’ statement contained within Finance Director’s Review and adequately disclosed; the reasonableness of significant accounting of the Year in relation to going concern; and estimates made by the Directors; and the overall presentation of the ● The part of the Corporate Governance Statement relating to the financial statements. Company’s compliance with the nine provisions of the June 2008 Combined Code specified for our review. Opinion on financial statements In our opinion:

● The financial statements give a true and fair view of the state of the Group’s and of the Parent Company’s affairs as at 31 December 2009 and of the Group’s and the Parent Company’s profit for the year then ended; Stephen Griggs (Senior Statutory Auditor)

● The financial statements have been properly prepared in accordance for and on behalf of Deloitte LLP with IFRSs as adopted by the European Union; Chartered Accountants and Statutory Auditors

● The financial statements have been prepared in accordance with the Birmingham, United Kingdom requirements of the Companies Act 2006 and, as regards the group 23 February 2010 financial statements, Article 4 of the IAS Regulation. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 INDEPENDENT AUDITORS’ REPORT 71

17334 proof 3 1/4/10 INCOME STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2009

T h e G r o u p —————————————————————————————————————————————————————— 2009 2009 2009 2008 2008 2008 £m £m £m £m £m £m Pre-exceptional Exceptional Pre-exceptional Exceptional items items Total items items Total Notes (Note 5) (Note 5)

Revenue 4 2,930.9 - 2,930.9 3,178.6 - 3,178.6

Operating profit / (loss) 5 224.6 32.7 257.3 271.5 (56.2) 215.3 Finance income 10 5.6 - 5.6 7.7 - 7.7 Finance costs 10 (50.2) - (50.2) (76.7) - (76.7)

Profit / (loss) before tax 180.0 32.7 212.7 202.5 (56.2) 146.3 Tax 11 (46.1) (9.2) (55.3) (58.6) 14.2 (44.4)

Profit / (loss) for the year 133.9 23.5 157.4 143.9 (42.0) 101.9

Earnings per ordinary share 12 Basic 88.4p 68.6p Diluted 86.2p 67.8p

Total dividend declared per ordinary share 13 - 14.5p

T h e C O M P ANY ———————————— 2009 2008 Notes £m £m

Revenue 4 129.3 55.0

Operating profit 5 112.6 36.0 Finance income 10 4.9 2.8 Finance costs 10 (43.9) (71.8)

Profit / (loss) before tax 73.6 (33.0) Tax 11 15.1 20.4

Profit / (loss) for the year 88.7 (12.6)

All results relate to continuing operations. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 72 FINANCIAL STATEMENTS

17334 proof 3 1/4/10 STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEAR ENDED 31 DECEMBER 2009

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m

Profit / (loss) for the year 157.4 101.9 88.7 (12.6) Cash flow hedges: Gains / (losses) arising during the year 14.7 (17.1) 14.7 (17.1) Transferred to income statement 0.4 (3.6) 0.4 (3.6)

15.1 (20.7) 15.1 (20.7) Actuarial losses on defined benefit pension scheme (28.3) (70.3) - -

(13.2) (91.0) 15.1 (20.7) Unamortised cash flow hedge cancellation payment (14.0) - (14.0) - Tax relating to components of other comprehensive income 12.5 19.6 4.6 -

Other comprehensive (loss) / income for the year (14.7) (71.4) 5.7 (20.7)

Total comprehensive income / (loss) for the year 142.7 30.5 94.4 (33.3) WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCIAL STATEMENTS 73

17334 proof 3 1/4/10 BALANCE SHEETS

AS AT 31 DECEMBER 2009

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 Notes £m £m £m £m ASSETS Non-current assets Property, plant and equipment 16 499.0 534.5 0.1 0.2 Goodwill 14 1,352.8 1,351.4 - - Other intangible assets 15 162.5 162.5 - - Derivative financial instruments 25 44.7 80.3 44.7 80.3 Investment property 17 3.3 3.4 - - Interest in associates 18 31.7 19.6 36.3 21.0 Available-for-sale investments 18 1.5 2.0 - - Investment in subsidiaries 18 - - 1,895.1 1,801.4 Deferred tax asset 27 12.0 19.5 9.0 0.7

Total non-current assets 2,107.5 2,173.2 1,985.2 1,903.6

Current assets Inventories 312.7 321.9 - - Trade and other receivables 19 375.4 386.2 50.8 56.8 Derivative financial instruments 25 - 2.4 - 2.4 Cash and cash equivalents 20 347.2 7.7 317.0 -

Total current assets 1,035.3 718.2 367.8 59.2

Total assets 3,142.8 2,891.4 2,353.0 1,962.8 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 74 FINANCIAL STATEMENTS

17334 proof 3 1/4/10 BALANCE SHEETS continued

AS AT 31 DECEMBER 2009

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 Notes £m £m £m £m EQUITY AND LIABILITIES Capital and reserves Issued capital 21 20.9 12.3 20.9 12.3 Share premium account 23 471.2 179.5 470.1 178.4 Other reserve 23 21.3 23.8 - - Hedging reserve 23 (12.1) (17.8) (12.1) (17.8) Own shares 23 (83.7) (83.7) (83.7) (83.7) Accumulated profits 23 1,042.8 904.1 178.7 87.2

Total equity 1,460.4 1,018.2 573.9 176.4

Non-current liabilities Interest bearing loans and borrowings 24 739.1 1,007.3 717.1 983.9 Derivative financial instruments 25 6.1 25.8 6.1 25.9 Retirement benefit obligation 8 43.0 69.9 - - Long-term provisions 26 43.7 47.8 - - Amounts due to subsidiaries - - 958.5 653.6 Deferred tax liabilities 27 62.8 74.7 - -

Total non-current liabilities 894.7 1,225.5 1,681.7 1,663.4

Current liabilities Interest bearing loans and borrowings 24 71.5 13.9 74.0 103.8 Unsecured loan notes 24 3.8 3.9 3.8 3.9 Trade and other payables 28 638.7 582.2 19.6 15.3 Tax liabilities 28.1 9.1 - - Short-term provisions 26 45.6 38.6 - -

Total current liabilities 787.7 647.7 97.4 123.0

Total liabilities 1,682.4 1,873.2 1,779.1 1,786.4

Total equity and liabilities 3,142.8 2,891.4 2,353.0 1,962.8

The financial statements of Travis Perkins plc, registered number 824821, were approved by the Board of Directors on 23 February 2010 and signed on its behalf by:

G. I. Cooper P. N. Hampden Smith Chief Executive Finance Director 23 February 2010 23 February 2010 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCIAL STATEMENTS 75

17334 proof 3 1/4/10 STATEMENTS OF CHANGES IN EQUITY

T h e G r o u p ——————————————————————————————————————————————— Issued Share share premium Revaluation Hedging Own Retained Total capital account reserve reserve shares earnings equity £m £m £m £m £m £m £m

At 1 January 2008 12.3 178.9 24.2 2.9 (83.9) 902.5 1,036.9 Profit for the year - - - - - 101.9 101.9 Cash flow hedge losses - - - (20.7) - - (20.7) Actuarial losses on defined benefit pension scheme - - - - - (70.3) (70.3) Tax relating to comprehensive income - - - - - 19.6 19.6

Total comprehensive income for the year - - - (20.7) - 51.2 30.5 Dividends paid - - - - - (52.5) (52.5) Issue of share capital - 0.6 - - - - 0.6 Difference between depreciation of assets on a - historical basis and on a revaluation basis - (0.4) - - 0.4 - Own shares - - - - 0.2 (0.2) - Credit to equity for equity-settled share based payments - - - - - 2.7 2.7

At 31 December 2008 12.3 179.5 23.8 (17.8) (83.7) 904.1 1,018.2 Profit for the year - - - - - 157.4 157.4 Cash flow hedge gains - - - 15.1 - - 15.1 Actuarial losses on defined benefit pension scheme - - - - - (28.3) (28.3) Unamortised cash flow hedge cancellation payment - - - (14.0) - - (14.0) Tax relating to comprehensive income - - - 4.6 - 7.9 12.5

Total comprehensive income for the year - - - 5.7 - 137.0 142.7 Issue of share capital 8.6 304.9 - - - - 313.5 Cost of issuing shares - (13.2) - - - - (13.2) Realisation of revaluation reserve in respect of property disposals - - (2.1) - - 2.1 - Difference between depreciation of assets on a historical basis and on a revaluation basis - - (0.4) - - 0.4 - Debit to equity for equity-settled share based payments - - - - - (0.8) (0.8)

At 31 December 2009 20.9 471.2 21.3 (12.1) (83.7) 1,042.8 1,460.4 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 76 FINANCIAL STATEMENTS

17334 proof 3 1/4/10 STATEMENTS OF CHANGES IN EQUITY continued

T h e C O M P A N Y ———————————————————————————————————————— Issued Share share premium Hedging Own Retained Total capital account reserve shares earnings equity £m £m £m £m £m £m

At 1 January 2008 12.3 177.8 2.9 (83.9) 152.6 261.7 Profit for the year - - - - (12.6) (12.6) Cash flow hedges - - (20.7) - - (20.7)

Total comprehensive income for the year - - (20.7) - (12.6) (33.3) Dividends paid - - - - (52.5) (52.5) Issue of share capital - 0.6 - - - 0.6 Own shares - - - 0.2 (0.2) - Credit to equity for equity-settled share based payments - - - - (0.1) (0.1)

At 31 December 2008 12.3 178.4 (17.8) (83.7) 87.2 176.4 Profit for the year - - - - 88.7 88.7 Cash flow hedges - - 15.1 - - 15.1 Tax relating to comprehensive income - - 4.6 - - 4.6 Unamortised cash flow hedge cancellation payment - - (14.0) - - (14.0)

Total comprehensive income for the year - - 5.7 - 88.7 94.4 Issue of share capital 8.6 304.9 - - - 313.5 Cost of issuing shares - (13.2) - - - (13.2) Credit to equity for equity-settled share based payments - - - - 2.8 2.8

At 31 December 2009 20.9 470.1 (12.1) (83.7) 178.7 573.9 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FINANCIAL STATEMENTS 77

17334 proof 3 1/4/10 CASH FLOW STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2009

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m

Operating profit before exceptional items 224.6 271.5 112.6 36.0 Adjustments for: Depreciation and impairment of property, plant and equipment 58.7 63.0 0.1 0.1 Other non cash movements (1.5) 4.6 2.1 0.5 Impairment of investment 0.5 - - - Losses of associate 3.2 1.4 - - Write down of value of investments - - 4.1 8.3 Gain on disposal of property, plant and equipment (12.0) (6.0) - - Operating cash flows before movements in working capital 273.5 334.5 118.9 44.9 Decrease in inventories 9.2 13.3 - - Decrease in receivables 12.4 32.3 19.7 79.1 Increase / (decrease) in payables 52.3 (22.5) 308.8 60.5 Payments on 2008 exceptional items (2.5) (8.5) - - Payments to the pension scheme in excess of the charge to profits (25.1) (11.5) - - Cash generated from operations 319.8 337.6 447.4 184.5 Interest paid (30.5) (63.0) (28.9) (61.0) Swap cancellation payment (28.7) - (28.7) - Income taxes paid (27.3) (66.0) - - Net cash from operating activities 233.3 208.6 389.8 123.5 Cash flows from investing activities Interest received 1.5 0.3 1.0 0.2 Acquisition of shares in unit trust and subsidiaries - (0.3) (101.3) (141.3) Proceeds on disposal of property, plant and equipment 20.8 14.9 - - Purchases of property, plant and equipment (28.6) (97.3) - - Interest in associate (12.9) (20.7) (12.9) (20.7) Acquisition of businesses net of cash acquired (note 29) (1.0) (22.5) - - Net cash used in investing activities (20.2) (125.6) (113.2) (161.8) Financing activities Net proceeds from the issue of share capital 300.3 0.6 300.3 0.6 Bank facility finance charges - (14.7) - (14.7) Payment of finance lease liabilities (1.5) (2.1) - - Repayment of unsecured loan notes (0.1) (11.5) (0.1) (11.5) Decrease in bank loans (160.0) (33.7) (160.0) (33.7) Dividends paid - (52.5) - (52.5) Net cash from financing activities 138.7 (113.9) 140.2 (111.8) Net increase / (decrease) in cash and cash equivalents 351.8 (30.9) 416.8 (150.1) Cash and cash equivalents at beginning of year (4.6) 26.3 (103.8) 46.3 Cash and cash equivalents at end of year 347.2 (4.6) 313.0 (103.8) WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 78 FINANCIAL STATEMENTS

17334 proof 3 1/4/10 NOTES TO THE FINANCIAL STATEMENTS

FOR THE YEAR ENDED 31 DECEMBER 2009

1. General information

Overview Travis Perkins plc is a company incorporated in the United Kingdom under the Companies Act 2006. The address of the registered office is given on page 125. The nature of the Group’s operations and its principal activities are set out in the Chief Executive’s review of the year, the Chief Operating Officer’s review of the year and the Finance Director’s review of the year on pages 10 to 43. These financial statements are presented in pounds sterling, the currency of the primary economic environment in which the group operates.

Basis of accounting The financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board. The financial statements have also been prepared in accordance with IFRS adopted by the European Union and therefore the group financial statements comply with Article 4 of the EU IAS Regulations.

Basis of preparation The financial statements have been prepared on the historic cost basis, except that derivative financial instruments are stated at their fair value. The consolidated financial statements include the accounts of the Company and all entities controlled by the Company (its subsidiaries) (together referred to as “the Group”) from the date control commences until the date that control ceases. Control is achieved where the Company has the power to govern the financial and operating policies of an investee entity so as to obtain benefits from its activities. As such, the results of subsidiaries acquired during the year are included in the consolidated income statement from the effective date of acquisition. In the current financial year, the Group has adopted IFRS 8 “Operating Segments”, IAS 1 “Presentation of Financial Statements (revised 2007)”, IFRS 7 “Improving Disclosures about Financial Instruments”, IFRIC 13 “Customer Loyalty Programmes” and IFRIC 14 IAS 19 “The Limit on a Defined Benefit Asset”. The adoption of IFRIC 13 and IFRIC 14 has not led to any changes in the Group’s accounting policies. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. As a result the segmental information included in note 6 is presented in accordance with IFRS 8. IAS 1 (revised) requires the presentation of a statement of changes in equity as a primary statement, separate from the income statement and the statement of comprehensive income. As a result a consolidated statement of changes in equity has been included in the primary statements showing the changes in each component of equity for each period presented. IFRS 7 now requires that an entity should classify its financial instruments using a fair value hierarchy that reflects the significance of the inputs used in measuring the fair value of those instruments. The additional disclosures are included in note 25. At the date of authorisation of these financial statements, the following Standards and Interpretations, which have not yet been applied in these financial statements, were in issue, but not yet effective:

● Amendments to various standards arising from annual improvements issued in April 2009;

● IFRS 2 (issued June 2009) – Share based payments cash settled transactions;

● IAS 24 (issued November 2009) – Related party Disclosures;

● IAS 27 (revised 2008) – Amendments arising from amendments to IFRS 3;

● IAS 31 (revised 2008) – Amendments arising from amendments to IFRS 3;

● IAS 32 (revised 2009) – Amendments relating to classification of rights issues;

● IFRS 9 (issued November 2009) – Financial Instruments. The Directors anticipate that adoption of these Standards and Interpretations in future periods will have no material impact on the financial statements of the Group. The Directors are currently of the opinion that the Group’s forecasts and projections, show that the Group should be able to operate within its current facilities and comply with its banking covenants. The Group is, however, exposed to a number of significant risks and uncertainties which could impact on the Group’s ability to meet the Directors’ forecast and projections and hence its ability to meet its banking covenants. The Directors believe that the Group has the flexibility to react to changing market conditions and is adequately placed to manage its business risks successfully despite the current uncertain economic outlook and challenging macro economic conditions. A detailed consideration of going concern, risks and uncertainties is provided on page 38 of the Finance Director’s review of the year. After making enquiries, the Directors have formed a judgement at the time of approving the financial statements, that there is a reasonable expectation that the Company and the Group have adequate resources to continue in operational existence for the foreseeable future. For this reason, they continue to adopt the going concern basis in preparing the financial statements. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 79

17334 proof 3 1/4/10 2. SIGNIFICANT ACCOUNTING POLICIES

The principal accounting policies adopted in preparing the financial statements are set out below.

Revenue recognition Revenue is recognised when goods or services are received by the customer and the risks and rewards of ownership have passed to them. Revenue is measured at the fair value of consideration received or receivable and represents amounts receivable for goods and services provided in the normal course of business, net of discounts and value added tax.

Exceptional items Exceptional items are those items of income and expenditure that by reference to the Group are material in size and unusual in nature or incidence, that in the judgement of the Directors, should be disclosed separately on the face of the financial statements (or in the notes in the case of a segment) to ensure both that the reader has a proper understanding of the Group’s financial performance and that there is comparability of financial performance between periods. Items of income or expense that are considered by the Directors for designation as exceptional items include, but are not limited to, such items as significant restructurings, onerous contracts, write-downs or impairments of current and non-current assets, the costs of integrating acquired businesses, gains or losses on disposals of businesses, investments or individual assets, re-measurement gains or losses arising from changes in the fair value of derivative financial instruments to the extent that hedge accounting is not achieved or is not effective and pension scheme curtailment gains.

Business combinations and goodwill All business combinations are accounted for using the purchase method. The cost of an acquisition represents the cash value of the consideration and/or the fair value of the shares issued on the date the offer became unconditional, plus expenses. The acquiree’s identifiable assets, liabilities and contingent liabilities that meet the conditions for recognition under IFRS 3 are recognised at their fair value at the acquisition date. It is this fair value, which is incorporated into the consolidated accounts. Goodwill arising on acquisition represents the excess of the cost of acquisition over the share of the aggregate fair value of identifiable net assets (including intangible assets) of a business or a subsidiary at the date of acquisition. All material intangible fixed assets obtained on acquisition have been recognised separately in the financial statements. Goodwill is initially recognised as an asset and allocated to cash generating units, then at least annually, is reviewed for impairment. Any impairment is recognised immediately in the income statement and is not subsequently reversed, as such, goodwill is stated in the balance sheet at cost less any provisions for impairment in value. Goodwill arising on acquisitions before the date of transition to IFRS (1 January 2004) has been retained at the previous UK GAAP amounts subject to being tested for impairment at that date. Goodwill written off to reserves under UK GAAP prior to 1998 has not been reinstated and is not included in determining any subsequent profit or loss on disposal.

Investments in associates An associate is an entity over which the Group is in a position to exercise significant influence, but not control or joint control through participation in the financial and operating policy decisions of the investee. The results and assets and liabilities of associates are incorporated in these financial statements using the equity method of accounting. Investments in associates are carried in the balance sheet at cost as adjusted by post acquisition changes in the Group’s share of the net assets of the associate, less any impairment in the value of individual investments.

Intangible assets Intangible assets identified as part of the assets of an acquired business are capitalised separately from goodwill if the fair value can be measured reliably on initial recognition. Intangible assets are amortised to the income statement on a straight-line basis over a maximum of 20 years except where they are considered to have an indefinite useful life. In the latter instance they are reviewed annually for impairment.

Investment properties Investment properties, which are held to earn rental income or for capital appreciation or for both, are stated at deemed cost less depreciation. Properties are depreciated to their estimated residual value on a straight-line basis over their estimated useful lives, up to a maximum of 50 years. Rental income from investment property is recognised in the income statement on a straight-line basis over the term of the lease.

Non-current assets held for sale Non-current assets held for sale are measured at the lower of carrying amount and fair value less costs to sell.

Property, plant and equipment Property, plant and equipment is stated at cost or deemed cost less accumulated depreciation and any impairment in value. Assets are depreciated to their estimated residual value on a straight-line basis over their estimated useful lives as follows:

● Buildings – 50 years or if lower, the estimated useful life of the building or the life of the lease

● Plant and equipment – 4 to 10 years

● Freehold land is not depreciated WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 80 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 Assets held under finance leases are depreciated over their expected useful lives on the same basis as owned assets, or where shorter, the term of the relevant lease. The gain or loss arising on the disposal or retirement of an asset is determined as the difference between the sale proceeds net of expenses and the carrying amount of the asset in the balance sheet and is recognised in the income statement. Where appropriate, the attributable revaluation reserve remaining in respect of properties revalued prior to the adoption of IFRS is transferred directly to accumulated profits.

Leases Finance leases, which transfer to the Group substantially all the risks and benefits incidental to ownership of the leased item, are capitalised at the inception of the lease at the fair value of the leased asset or, if lower, at the present value of the minimum lease payments. Lease payments are apportioned between the finance charges and reduction of the lease liability so as to achieve a constant rate of interest on the remaining balance of the liability. Finance charges are charged directly against income. Capitalised leased assets are depreciated over the shorter of the estimated useful life of the asset or the lease term. Leases where the lessor retains substantially all the risks and benefits of ownership of the asset are classified as operating leases. Operating lease rental payments are recognised as an expense in the income statement on a straight-line basis over the lease term. Reverse lease premia and other incentives receivable for entering into a lease agreement are recognised in the income statement over the life of the lease.

Impairment of tangible and intangible assets excluding goodwill The carrying amounts of the Group’s tangible and intangible assets other than investment properties, deferred tax assets and inventories are reviewed at each balance sheet date to determine whether there is any indication of impairment. If such an indication exists, the asset’s recoverable amount is estimated and compared to its carrying value. Where the asset does not generate cash flows that are independent from other assets, the Group estimates the recoverable amount of the cash-generating unit (“CGU”) to which the asset belongs. Where the carrying value exceeds the recoverable amount a provision for the impairment loss is established with a charge being made to the income statement. For intangible assets that have an indefinite useful life the recoverable amount is estimated at each annual balance sheet date. Impairment losses recognised in respect of a CGU are allocated first to reduce the carrying amount of any goodwill allocated to the CGU and then to reduce the carrying amount of the other assets in the unit on a pro-rata basis.

Inventories Inventories, which consist of goods for resale, are stated at the lower of average weighted cost and net realisable value. Cost comprises direct materials and, where applicable, direct labour costs and those overheads that have been incurred in bringing the inventories to their present location and condition. Net realisable value is the estimated selling price less the estimated costs of disposal.

Financial instruments Financial assets and liabilities are recognised in the balance sheet when the Group becomes a party to the contractual provisions of the instrument.

Trade receivables Trade receivables are measured at amortised cost which is carrying amount less provision for irrecoverable amounts. Allowances for the estimated irrecoverable amounts are made in the income statement when the receivable is considered to be uncollectible.

Impairment of financial assets Financial assets are treated as impaired when in the opinion of the Directors, the likelihood of full recovery is diminished either by events or change of circumstance.

Cash and cash equivalents Cash and cash equivalents comprise cash balances and call deposits with an original maturity of three months or less.

Bank and other borrowings Interest bearing bank loans and overdrafts, loan notes and other loans are recognised in the balance sheet at amortised cost. Finance charges associated with arranging a bank facility are recognised in the income statement over the life of the facility. All other borrowing costs are recognised in the income statement in the period in which they are incurred.

Trade payables Trade payables are measured at amortised cost.

Foreign currencies Transactions denominated in foreign currencies are recorded at the rates ruling on the date of the transaction. At the consolidated balance sheet date, unhedged monetary assets and liabilities denominated in foreign currencies are translated at the rate of exchange ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 81

17334 proof 3 1/4/10 Derivative financial instruments and hedge accounting The Group uses derivative financial instruments to hedge its exposure to interest rate and foreign exchange risks arising from financing activities. The Group does not enter into speculative financial instruments. In accordance with its treasury policy, the Group does not hold or issue derivative financial instruments for trading purposes. Derivative financial instruments are stated at fair value. The fair value of derivative financial instruments is the estimated amount the Group would receive or pay to terminate the derivative at the balance sheet date, taking into account current interest and exchange rates and the current creditworthiness of the counterparties. Changes in the fair value of derivative financial instruments, that are designated and effective as hedges of the future variability of cash flows, are recognised directly in equity and the ineffective portion is recognised immediately in the income statement. For an effective hedge of an exposure to changes in the fair value of a hedged item, the hedged item is adjusted for changes in fair value attributable to the risk being hedged with the corresponding entry in the income statement. For derivatives that do not qualify for hedge accounting, any gains or losses arising from changes in fair value are taken to the income statement as they arise. Derivatives embedded in commercial contracts are treated as separate derivatives when their risks and characteristics are not closely related to those of the underlying contracts, with unrealised gains or losses being reported in the income statement. The fair value of hedged derivatives is classified as a non-current asset or non-current liability if the remaining maturity of the hedge relationship is more than 12 months, otherwise they are classified as current. Foreign currency forward contracts are not designated effective hedges and so are marked to market at the balance sheet date, with any gains or losses being taken through the income statement.

Financial assets and financial liabilities Financial assets are classified into the following specified categories: financial assets at “fair value through profit or loss” (“FVTPL”), “available-for-sale” (“AFS”) financial assets and “loans and receivables”. The classification depends on the nature and purpose of the financial assets and is determined at the time of -ini tial recognition. The Group has defined the classes of financial assets to be other financial assets, cash and borrowings and derivative financial instruments. Financial liabilities are classified as either financial liabilities “at FVTPL” or “other financial liabilities”. Financial assets and financial liabilities are classified as at FVTPL where the financial asset or the financial liability is either held for trading or it is designated as FVTPL. A financial asset or financial liability is classified as held for trading if:

● It has been acquired principally for the purpose of selling or of disposal in the near future; or

● It is a part of an identified portfolio of financial instruments that the Group manages together and has a recent actual pattern of short-term profit-taking; or

● It is a derivative that is not designated and effective as a hedging instrument. Financial assets and financial liabilities at FVTPL are stated at fair value, with any resultant gain or loss recognised in the income statement unless it is an effective cash flow relationship. The net gain or loss recognised in the income statement incorporates any interest earned or paid on the financial asset and financial liability respectively.

Loans and receivables Trade receivables and other receivables that have fixed or determinable payments that are not quoted in an active market are classified as loans and receivables. Loans and receivables are measured at amortised cost using the effective interest method, less any impairment. Interest income is recognised by applying the effective interest rate, except for short-term receivables which applies to all amounts owed to the Group when the recognition of interest would be immaterial.

Other financial liabilities Other financial liabilities, including borrowings, are initially measured at fair value, net of transaction costs. Other financial liabilities are subsequently measured at amortised cost using the effective interest method, with interest expense recognised on an effective yield basis. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense over the relevant period. The effective interest is the rate that exactly discounts estimated future cash payments through the expected life of the financial liability, or, where appropriate, a shorter period.

Derecognition of financial assets and financial liabilities The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire; or it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. The Group derecognises financial liabilities when, and only when, the Group’s obligations are discharged, cancelled or they expire.

Taxation The tax expense represents the sum of the tax currently payable and the deferred tax. The tax currently payable is based on taxable profit for the year. Taxable profit differs from net profit as reported in the income statement because it excludes items of income and expense that are taxable or deductible in other years and it further excludes items which are never taxable or deductible. The WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 82 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 Group’s liability for current tax is calculated using tax rates that have been enacted or substantially enacted by the balance sheet date. Deferred tax is the tax expected to be payable or recoverable on differences between the carrying amounts of assets and liabilities in the financial statements and the corresponding tax bases used in the computation of taxable profit. This is accounted for using the balance sheet liability method. Deferred tax liabilities are generally recognised for all taxable temporary differences and deferred tax assets are recognised to the extent that it is probable that taxable profits will be available against which deductible temporary differences can be utilised. Such assets and liabilities are not recognised if the temporary difference arises from goodwill or from the initial recognition (other than in a business combination) of other assets and liabilities in a transaction that affects neither the tax profit nor the accounting profit. Deferred tax is calculated at the tax rates that are expected to apply in the period when the liability is settled or the asset realised. Deferred tax is charged or credited in the income statement, except when it relates to items charged or credited directly to equity, in which case the deferred tax is also dealt with in equity.

Pensions and other post-employment benefits For defined benefit schemes, operating profit is charged with the cost of providing pension benefits earned by employees in the period. The expected return on pension scheme assets less the interest on pension scheme liabilities is shown as a finance cost within the income statement. Actuarial gains and losses arising in the period from the difference between actual and expected returns on pension scheme assets, experience gains and losses on pension scheme liabilities and the effects of changes in demographics and financial assumptions are included in the statement of comprehensive income. Recoverable pension scheme surpluses and pension scheme deficits and the associated deferred tax balances are recognised in full in the period in which they occur and are included in the balance sheet. Obligations for contributions to defined contribution pension plans are recognised as an expense in the income statement as incurred.

Employee share incentive plans The Group issues equity-settled share-based payments to certain employees (long term incentives, executive share options and Save As You Earn), which do not include market related conditions. These payments are measured at fair value at the date of grant by the use of the Black Scholes option-pricing model taking into account the terms and conditions upon which the options were granted. The cost of equity-settled awards is recognised on a straight-line basis over the vesting period, based on the Group’s estimate of the number of shares that will eventually vest. No cost is recognised for awards that do not ultimately vest.

Provisions A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are measured at the Directors’ best estimate of the expenditure required to settle the obligation at the balance sheet date, and are discounted to present value where the effect is material.

Equity instruments and own shares The Group has applied the requirements of IFRS 2 – Share Based Payments. In accordance with the transitional provisions, IFRS 2 has been applied to all grants of equity instruments after 7 November 2002 that were unvested at 1 January 2005. Equity instruments represent the ordinary share capital of the Group and are recorded at the proceeds received, net of directly attributable incremental issue costs. Consideration paid by the Group for its own shares is deducted from total shareholder equity. Where such shares vest to employees under the terms of the Group’s share options or the Group’s share save schemes or are sold, any consideration received is included in shareholders’ equity.

Dividends Dividends proposed by the Board of Directors and unpaid at the period end are not recognised in the financial statements until they have been approved by shareholders at the Annual General Meeting.

3. CRITICAL JUDGEMENTS AND KEY SOURCES OF ESTIMATION AND UNCERTAINTY

These consolidated financial statements have been prepared in accordance with IFRS as issued by the IASB. The preparation of financial statements requires the Directors to make estimates and assumptions about future events that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities. Future events and their effects cannot be determined with absolute certainty. Therefore, the determination of estimates requires the exercise of judgement based on various assumptions and other factors such as historical experience, current and expected economic conditions. The Directors constantly re-evaluate these significant factors and makes adjustments where facts and circumstances dictate. The Directors believe that the following accounting policies are critical due to the degree of estimation required and / or the potential material impact they may have on the Group’s financial position and performance:

Inventory valuation Inventories are stated at the lower of cost and net realisable value. Provisions for excess or obsolete inventory are recorded based upon assumptions about future demand and market conditions. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 83

17334 proof 3 1/4/10 The level of inventory provisioning required is sensitive to changes in the forecast sales of particular products which is dependent on changes in conditions in the Group’s markets. If changes in actual market conditions are less favourable than those projected, additional inventory provisions may be required; similarly if changes in actual market conditions are more favourable than predicted, it may be possible to release a proportion of the inventory provision.

Debtor recoverability The Group provides credit to a significant number of its customers. At each period end an assessment is made of the extent to which those customers may not pay amounts due to the Group and a doubtful debt provision is established accordingly. Determining the likelihood of the Group incurring bad debts requires the Directors to exercise judgement. To the extent this judgement ultimately proves to be inaccurate it would change the profit for the period.

Provisions for returns and warranty claims The products sold by the Group are covered by warranties given to it by the suppliers from whom the goods are bought. Should any of those suppliers cease to trade then any liabilities for product warranties would rest with the Group. In such circumstances the Directors would have to estimate the value of any provision required to meet the obligations of the Group. At the balance sheet date the Directors have estimated that there is no need for any material warranty and product guarantee provisions to be made. While the Directors believe that the Group’s warranty provisions are adequate and that the judgements applied are appropriate, the ultimate cost of product warranty could differ materially from the estimates.

Income taxes The Group is subject to the income tax laws of the United Kingdom. These laws are complex and subject to different interpretations by taxpayers and tax authorities. When establishing income tax provisions, the Directors make a number of judgements and interpretations about the application and interaction of these laws. Changes in these tax laws or in their interpretation could impact the Group’s effective tax rate and the results of operations in a given period. The process of estimating the Group’s tax position requires an assessment of temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in the recognition of deferred tax assets and liabilities. Deferred tax assets are included within the consolidated balance sheet to the extent that we believe they are recoverable. In recognising deferred tax assets, the Group considers profit forecasts including the effect of exchange rate fluctuations on sales and external market conditions. The Directors’ judgement is required in determining the provision for income taxes, deferred tax assets and liabilities. Deferred tax assets have been recognised where the Directors believe there are sufficient taxable temporary differences or convincing other evidence that sufficient taxable profit will be available in future to realise deferred tax assets. Although the deferred tax assets which have been recognised are considered realisable, actual amounts could be reduced if future taxable income is lower than expected. This can materially affect the Group’s reported net income and financial position.

Goodwill In testing for impairment, the Directors have made certain assumptions concerning the future development of the business that are consistent with its annual budget and three-year plan. Whilst the Directors consider these assumptions are realistic should these assumptions regarding the growth in profitability be unfounded then it is possible that goodwill included in the balance sheet could be impaired. Further details concerning the impairment of goodwill and intangibles are given in note 14.

Pension liabilities The Group has chosen to adopt assumptions that Directors believe are in line with the median. If the future return on equities is lower than anticipated, or if the difference between actual inflation and the actual increase in pensionable salaries is greater than that assumed, or if the average life expectancy of pensioners increases, then the pension deficit would be greater than currently stated in the balance sheet.

Property leases The Group is party to a number of leases on properties that are no longer required for trading. Whilst every effort is made to profitably sub-let these properties, it is not always possible. Where a lease is onerous to the Group, a provision is established for the difference between amounts contractually payable to the landlord and amounts contractually receivable from the tenant (if any) for the period up until the point it is judged that the lease will no longer be onerous. The Directors believe that their estimates, which are based upon the current state of the UK property market, are appropriate. However, it is possible that it may take longer to dispose of leases than they anticipate. As a result the provisions may be understated, but in the opinion of the Directors this is unlikely to be material.

Insurance provisions The Group has been substantially self-insured since 2001. The nature of insurance claims is that they frequently take many years to fully crystalise, therefore the Directors have to estimate the value of provisions to hold in the balance sheet in respect of historic claims. Under the guidance of the Group’s insurance advisors, the value of incurred claims is estimated using the Generalised Cape Cod Method. The provision is determined by deducting the value of claims settled to date from the estimated level of claims incurred. Whilst the Generalised Cape Cod Method is an insurance industry standard methodology, it relies on historic trends to determine the level of expected claims. To the extent that the estimates are inaccurate the Group may be underprovided, but in the opinion of the Directors any under-provision is unlikely to be material. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 84 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 4. Revenue

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Sale of goods 2,930.9 3,178.6 - - Management charges - - 6.9 7.3 Dividends from subsidiaries - - 122.4 47.7

2,930.9 3,178.6 129.3 55.0 Other operating income 48.8 11.2 - - Finance income 5.6 7.7 4.9 2.8

2,985.3 3,197.5 134.2 57.8

Included in other operating income is an exceptional gain of £32.7m arising from the cap on future pensionable salary increases.

5. Profit

(a) Operating profit T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Revenue 2,930.9 3,178.6 129.3 55.0 Cost of sales (1,944.4) (2,080.3) - -

Gross profit 986.5 1,098.3 129.3 55.0 Selling and distribution costs (649.8) (728.1) - - Administration expenses (125.0) (164.7) (16.7) (19.0) Other operating income 48.8 11.2 - - Share of results of associate (3.2) (1.4) - -

Operating profit 257.3 215.3 112.6 36.0 Exceptional items (32.7) 56.2 - -

Adjusted operating profit 224.6 271.5 112.6 36.0

With effect from the 1 December 2009 the Company and the Trustee of the Pension Scheme agreed to amend the terms of the Travis Perkins defined benefits scheme to include a cap on future pensionable salary increases of 3% per annum This has been treated as a curtailment event and the resulting exceptional reduction of £32.7m in the benefit obligation has been included in other operating income. In 2008 the Group incurred an exceptional charge of £56.2m associated with the severe downturn in the construction market. The total charge of £56.2m includes a cost of redundancy and re-organisation (£10.5m) onerous property lease provisions (£39.5m) and asset write offs (£6.2m). £40.4m and £15.8m were included in selling and distribution costs and administration expenses respectively. To enable readers of the financial statements to obtain a clear understanding of underlying trading, the Directors have shown separately the exceptional items in the group income statement. Operating profit has been arrived at after charging / (crediting): T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 Provisions against inventories (0.4) 6.0 - - Cost of inventories recognised as an expense 1,944.8 2,074.3 - - Depreciation of property, plant and equipment 58.7 63.0 0.1 - Staff costs (excluding pension costs) 360.3 364.5 8.9 4.5 Pension costs in administration expenses 2.8 4.2 0.2 0.4 Pension costs in selling and distribution costs 6.2 7.7 - - Gain on disposal of property, plant and equipment (12.0) (6.0) - - Rental income (4.9) (5.8) - - Hire of vehicles, plant and machinery 13.6 14.7 - - Other leasing charges – property 132.4 125.7 - - Auditors’ remuneration for audit services 0.3 0.4 0.1 0.1 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 85

17334 proof 3 1/4/10 5. Profit continued

During the year the Group incurred the following costs for services provided by the Company’s auditors:

T h e G r o u p ———————————— 2009 2008 £000 £000 Fees payable to the Company’s auditors for the audit of the Company’s annual accounts 104 139 Fees paid the Company’s auditors for other services: The audit of the Company’s subsidiaries pursuant to legislation 234 245 Other services pursuant to legislation 18 12 Other services relating to taxation – compliance - 5 – advisory 85 386 Corporate finance transactions – rights issue 414 - Corporate finance transactions – other - 153 Other services 5 10

860 950

Other services pursuant to legislation includes £9,000 (2008: £9,000) which was paid to the auditors by the Travis Perkins Pension and Dependents Benefit Scheme. A description of the work of the Audit Committee is set out in the Audit Committee report on pages 49 to 50, and includes an explanation of how auditor objectivity and independence is safeguarded when non-audit services are provided by the auditors.

(b) Adjusted profit before and after tax T h e G r o u p ———————————— 2009 2008 £m £m Profit before tax 212.7 146.3 Exceptional items (32.7) 56.2

Adjusted profit before tax 180.0 202.5

T h e G r o u p ———————————— 2009 2008 £m £m Profit after tax 157.4 101.9 Exceptional items (32.7) 56.2 Tax effect of exceptional items 9.2 (14.2)

Adjusted profit after tax 133.9 143.9

Merchanting Retail Unallocated Group ——————————— ——————————— ——————————— ——————————— 2009 2008 2009 2008 2009 2008 2009 2008 £m £m £m £m £m £m £m £m Revenue 1,950.2 2,237.9 980.7 940.7 - - 2,930.9 3,178.6

Operating profit 203.5 206.5 57.0 10.2 - - 260.5 216.7 Share of associate losses - - - - (3.2) (1.4) (3.2) (1.4) Exceptional items (32.7) 18.3 - 37.9 - - (32.7) 56.2

Adjusted segment result 170.8 224.8 57.0 48.1 (3.2) (1.4) 224.6 271.5

Adjusted operating margin 8.76% 10.05% 5.81% 5.11% - - 7.66% 8.54%

The segmental results for merchanting and retail are shown in note 6. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 86 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 6. Business and Geographical Segments

The Group has adopted IFRS 8 “Operating Segments” with effect from 1 January 2009. IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Executive to allocate resources to the segments and to assess their performance. In contrast, the predecessor Standard (IAS 14 “Segment Reporting”) required the Group to identify two sets of segments (business and geographical) using a risk and returns approach. For management purposes, the Group is currently organised into two operating divisions – Merchanting and Retail, both of which operate entirely in the United Kingdom. These divisions are the basis on which the Group reported its primary segment information under IAS 14 and following a review are the segments that are most appropriate to be reported under IFRS 8. Segment profit represents the profit earned by each segment without allocation of share of losses of associates, finance income and costs and income tax expense.

There are no significant inter-segment sales.

During 2009 and 2008 there were no impairment losses or reversals of impairment losses recognised in profit or loss or in equity in either of the reportable segments.

2009 ———————————————————————————————————————————————— Merchanting Retail Unallocated Eliminations Group £m £m £m £m £m Revenue 1,950.2 980.7 - - 2,930.9

Result Segment result 203.5 57.0 - - 260.5

Share of associate losses - - (3.2) - (3.2) Finance Income - - 5.6 - 5.6 Finance costs - - (50.2) - (50.2)

Profit before taxation 203.5 57.0 (47.8) - 212.7 Taxation - - (55.3) - (55.3)

Profit for the year 203.5 57.0 (103.1) - 157.4

Segment assets 2,234.5 1,438.8 524.5 (1,055.0) 3,142.8

Segment liabilities (725.7) (237.5) (1,774.2) 1,055.0 (1,682.4)

Consolidated net assets 1,508.8 1,201.3 (1,249.7) - 1,460.4

Capital expenditure 16.0 16.1 - - 32.1 Depreciation 44.1 14.6 - - 58.7

WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 87

17334 proof 3 1/4/10 6. Business and Geographical Segments continued

2008 ———————————————————————————————————————————————— Merchanting Retail Unallocated Eliminations Group £m £m £m £m £m Revenue 2,237.9 940.7 - - 3,178.6

Result Segment result 206.5 10.2 - - 216.7

Share of associate losses - - (1.4) - (1.4) Finance Income - - 7.7 - 7.7 Finance costs - - (76.7) - (76.7)

Profit before taxation 206.5 10.2 (70.4) - 146.3 Taxation - - (44.4) - (44.4)

Profit for the year 206.5 10.2 (114.8) - 101.9

Segment assets 2,081.6 1,345.6 327.6 (863.4) 2,891.4

Segment liabilities (756.6) (185.9) (1,794.1) 863.4 (1,873.2)

Consolidated net assets 1,325.0 1,159.7 (1,466.5) - 1,018.2

Capital expenditure 82.6 15.9 - - 98.5 Depreciation 47.4 15.6 - - 63.0

7. Staff Costs

(a) The average monthly number of persons employed (including executive directors)

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 No. No. No. No. Sales 11,196 12,264 - - Distribution 1,885 1,561 - - Administration 1,447 1,589 37 41

14,528 15,414 37 41

(b) Aggregate remuneration T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Wages and salaries 329.6 329.8 6.0 3.6 Share based payment (1.5) 4.6 2.1 0.5 Social security costs 32.2 30.1 0.8 0.4 Other pension costs (note 8) 9.0 11.9 0.2 0.4

369.3 376.4 9.1 4.9

During the year 683 employees were transferred from an outsourced distribution operation raising staff costs by £13.2m. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 88 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 8. Pension Arrangements

Defined benefit scheme During the year, the Group operated a final salary scheme; the Travis Perkins Pensions and Dependants Benefit Scheme (“the Scheme”), which is a 1/60th scheme. The Scheme is funded by contributions from group companies and employees. Contributions are paid to the Trustees on the basis of advice from an independent professionally qualified actuary who carries out a valuation of the Scheme every three years. Employees are entitled to start drawing a pension, based on their membership of the Scheme, on their normal retirement date. If employees choose to retire early and draw their pension, then the amount they receive is scaled down accordingly. A full actuarial valuation of the Scheme was carried out on 30 September 2008. The IAS 19 valuation has been based upon the results of the 30 September 2008 valuation, then updated to 31 December 2009 by a qualified actuary. The present values of the defined obligations, the related current service costs and the past service costs for the Scheme were measured using the projected unit method.

(a) Major assumptions used by the actuary at the balance sheet date (in nominal terms) At At 31 December 31 December 2009 2008 Rate of increase in pensionable salaries 2.5% 4.0% Rate of increase of pensions in payment 2.4% 2.3% Discount rate 5.7% 6.2% Inflation assumption 3.5% 3.0%

In respect of longevity the valuation adopts the PMA/PFA92 tables with improvements in life expectancy to continue in the medium term, with base year appropriate to the member’s date of birth. This results in the following life expectancies at illustrative ages: Weighted average life expectancy for mortality tables used to determine pension liability at 31 December 2009:

Male Years Female Years Member age 65 (current life expectancy) 21.6 24.8 Member age 45 (life expectancy on reaching age 65) 23.4 26.7

(b) Amounts recognised in income in respect of the defined benefit scheme 2009 2008 £m £m Current and past service costs charged to operating profit in the income statement 5.8 8.9 Interest cost 30.4 31.8 Effect of curtailment (32.7) - Expected return on scheme assets (27.8) (36.6)

Total pension (income) / costs (24.3) 4.1

The total charge to the profit and loss account disclosed in note 7 of £9.0m (2008: £11.9m) comprises defined benefit scheme current and past service costs of £5.8m (2008: £8.9m) and £3.2m (2008: £3.0m) of contributions made to the defined contribution schemes (note 8j). The Company and Trustee agreed to amend the benefits of the TP scheme with effect from 1 December 2009 to include a cap on future pensionable salary increases of 3% per annum. This has been treated as a curtailment event and the resulting reduction in the benefit obligation has been included as a curtailment gain in 2009 (note 5). The directors have agreed with the Scheme Actuary and the Trustee to pay contributions of £20.4m in excess of the forecast charge to the income statement. Note 5 shows where pension costs have been charged in the income statement. Actuarial gains and losses have been included in the Statement of Comprehensive Income. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 89

17334 proof 3 1/4/10 8. Pension Arrangements continued

(c) Assets and liabilities in the Scheme and the expected rate of return (net of allowance for administration expenses) AT 31 DECEMBER 2009 AT 31 DECEMBER 2008 ———————————––––––––––––– ———————————––––––––––––– Expected Fair value Expected Fair value return £m return £m Equities 8.05% 328.2 7.40% 243.6 Bonds, gilts and cash 4.30% - 6.30% 152.3 3.65% - 6.00% 132.6 Property 6.30% 47.6 5.65% 44.5

Total fair value of assets 528.1 420.7 Actuarial value of liability (571.1) (490.6)

Deficit in the Scheme (43.0) (69.9) Related deferred tax asset 12.0 19.5

Net pension liability (31.0) (50.4)

2009 2008 ———————————–––– ———————–––––––––––– £m % £m % Actual returns on scheme assets 90.1 21.4 (120.6) (22.6)

(d) The amount included in the balance sheet arising from the Group’s obligations in respect of its defined benefit schemes and the movement during the year 2009 2008 £m £m At 1 January (69.9) (16.0) Income / (expense) recognised in the income statement 24.3 (4.1) Contributions received by the Scheme 30.9 20.5 Actuarial losses recognised in the statement of recognised income and expenditure (28.3) (70.3)

At 31 December (43.0) (69.9)

(e) Movements in the present value of defined benefit obligations in the current period 2009 2008 £m £m At 1 January (490.6) (549.9) Service cost (5.8) (8.7) Past service cost - (0.2) Interest cost (30.4) (31.8) Contributions from scheme members (5.4) (5.3) Curtailment gain 32.7 - Actuarial (losses) / gains (90.6) 86.9 Benefits paid 19.0 18.4

At 31 December (571.1) (490.6) WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 90 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 8. Pension Arrangements continued

(f) Movements in the present value of fair value of scheme assets in the current period 2009 2008 £m £m At 1 January 420.7 533.9 Expected return on scheme assets 27.8 36.6 Actuarial gains / (losses) 62.3 (157.2) Contributions from sponsoring companies 30.9 20.5 Contributions from scheme members 5.4 5.3 Benefits paid (19.0) (18.4)

At 31 December 528.1 420.7

(g) Cumulative actuarial gains and losses recognised in equity 2009 2008 £m £m At 1 January (169.7) (99.4) Net actuarial losses recognised in the year (28.3) (70.3)

At 31 December (198.0) (169.7)

(h) History of experience gains and losses 2009 2008 2007 2006 2005 Fair value of scheme assets (£m) 528.1 420.7 533.9 500.5 431.6 Present value of scheme obligations (£m) (571.1) (490.6) (549.9) (581.3) (574.4)

Deficit in the Scheme (£m) (43.0) (69.9) (16.0) (80.8) (142.8)

Experience adjustments on scheme liabilities Amounts (£m) - 13.4 - - 9.0

Percentage of scheme liabilities (%) - 2.7% - - 1.6%

Experience adjustments on scheme assets Amounts (£m) 62.3 (157.2) (13.5) 14.7 42.2

Percentage of scheme assets (%) 11.8% (37.4%) (2.5%) 2.9% 9.8%

(i) Sensitivities We have estimated the effects of changing the key assumptions (discount rate, inflation and life expectancy) on the IAS19 balance sheet position as at 31 December 2009 and on projected amounts to be recognised in the income statement for 2010.

Effect on 2009 Effect on 2010 Assumption balance sheet (deficit) income statement

Discount rate Increase of 1.0% 103.7 (4.1) Decrease of 1.0% (135.7) 4.5 Inflation Increase of 1.0% (86.9) 5.1 Decrease of 1.0% 69.6 (4.2) Longevity Increase of 1 year (12.8) 0.9 Decrease of 1 year 13.0 (0.9) WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 91

17334 proof 3 1/4/10 8. Pension Arrangements continued

(j) Defined contribution scheme There are two defined contribution schemes in the Group. The pension cost, which represents contributions payable by the Group, amounted to £3.2m (2008: £3.0m).

9. SHARE-BASED PAYMENTS

The following disclosures relate to share option and SAYE grants made after 7 November 2002. The Black-Scholes option-pricing model is used to calculate the fair value of the options and the amount to be expensed. No performance conditions were included in the fair value calculations. The inputs into the model expressed as weighted averages are as follows:

2009 2008 ———————————————————— ——————————————————— Executive Nil price Executive Nil price options SAYE options options SAYE options Share price at grant date (pence) Group 653 794 619 586 702 790 Option exercise price (pence) Group 663 636 - 589 562 - Share price at grant date (pence) Company 653 794 619 589 702 790 Option exercise price (pence) Company 663 636 - 589 562 _ Volatility (%) Group and Company 61.0% 50.7% 60.1% 21.3% 21.4% 21.3% Option life (years) Group and Company 3.0 3.5 3.0 4.0 3.8 3.0 Risk-free interest rate (%) Group and Company 2.2% 2.1% 2.4% 3.6% 4.2% 3.9% Expected dividends as a dividend yield (%) Group and Company 1.6% 2.0% 1.6% 2.4% 2.1% 2.4%

Volatility was based on historic share prices over a period of time equal to the vesting period. Option life used in the model has been based on options being exercised in accordance with historical patterns. For executive share options the vesting period is 3 years. If options remain unexercised after a period of 10 years from the date of grant, these options expire. Options are forfeited if the employee leaves the Group before options vest. SAYE options vest after 3 or 5 years and expire 3½ or 5½ years after the date of grant. The risk-free interest rate of return is the yield on zero-coupon UK Government bonds on a term consistent with the vesting period. Dividends are based on actual dividends where data is known and future dividends estimated using a dividend cover of 3 times. The expected life used in the model has been adjusted, based upon the Directors’ best estimate, for the effect of non-transferability, exercise restrictions and behavioural considerations.

The number and weighted average exercise price of share options is as follows:

The Group

2009 2008 ———————————————————— ——————————————————— Weighted Number Weighted Number average Number of nil average Number of nil exercise of price exercise of price price options options price options options In thousands of options p No. No. p No. No. Outstanding at the beginning of the year 935 8,190 790 1,494 4,823 168 Rights issue adjustment (187) 1,885 467 - - - Forfeited during the year 1,001 (2,073) (246) 1,300 (1,990) (59) Exercised during the year 583 (8) - 943 (36) (15) Granted during the year 645 1,621 1,948 570 5,393 696

Outstanding at the end of the year 680 9,615 2,959 935 8,190 790

Exercisable at the end of the year 1,056 763 - 1,345 716 -

Share options were exercised on a regular basis throughout the year. The weighted average share price for options exercised during the year was 796 pence (2008: 603 pence rights restated).

WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 92 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 9. SHARE-BASED PAYMENTS continued

Details of the options outstanding at 31 December 2009 were as follows:

2009 2008 ————————————————————––––– –––––––——————————————————— Executive Nil price Executive Nil price options SAYE options options SAYE options Range of exercise prices (pence) 201 – 1,611 442 – 1,114 - 255 – 1,970 562 – 1,414 - Weighted average exercise price (pence) 875 518 - 1,246 664 - Number of shares (thousands) 4,371 5,244 2,959 3,817 4,373 790 Weighted average expected remaining life (years) 1.9 2.7 2.2 2.4 3.4 2.3 Weighted average contractual remaining life (years) 7.6 3.2 9.2 8.4 3.9 9.3

The Company 2009 2008 ————————————————————––––– –––––––——————————————————— Weighted Weighted average Number of Nil price average Number of Nil price exercise price options options exercise price options options In thousands of options p No. No. p No. No. Outstanding at the beginning of the year 1,341 693 442 1,625 662 96 Rights issue adjustment (271) 148 283 - - - Forfeited during the year 1,550 (168) (133) 1,628 (130) (19) Exercised during the year - - - 1,156 (1) (7) Granted during the year 653 29 879 419 163 372 Transferred to other group companies 442 (1) - 1,202 (1) - Outstanding at the end of the year 980 701 1,471 1,341 693 442

Exercisable at the end of the year 1,018 239 - 1,446 101 -

There were no share options exercised during the year. Details of the options outstanding at 31 December 2009 were as follows:

2009 2008 ————————————————————––––– –––––––——————————————————— Executive Nil price Executive Nil price options SAYE options options SAYE options Range of exercise prices (pence) 201 – 1,611 442 – 1,114 - 255 – 1,970 562 – 1,414 - Weighted average exercise price (pence) 1,021 970 - 1,390 598 - Number of shares (thousands) 649 52 1,471 651 42 442 Weighted average expected remaining life (years) 1.2 3.5 2.1 2.4 3.4 2.3 Weighted average contractual remaining life (years) 6.5 4.0 9.1 8.4 3.9 9.3

The Group and the Company Executive options were granted on 23 June 2009 and 17 November 2009. SAYE options were granted on 1 December 2009. The aggregate of the estimated fair values of the options granted on those dates is £5.4m for the Group and £0.2m for the Company. Shares were granted under the share matching scheme on 19 May 2009. The estimated fair value of the shares at that date was £5.7m for the Group and £2.6m for the Company. Shares were granted under the performance share plan on 23 June 2009. The estimated fair value of the shares at that date was £4.2m for the Group and £0.9m for the Company. Shares were granted under the deferred share bonus plan on 3 March 2009. The estimated fair value of the shares at that date was £0.1m for the Group. The performance conditions in respect of the 2006, 2007, and March 2008 executive share options, the 2007 share matching awards and the 2008 performance share plan awards have not been, or are unlikely to be, met and consequently the charges in respect of these schemes totalling £6.1m have been reversed in the year. The Group credited £1.5m (2008 charge: £4.6m) and the Company charged £2.1m (2008: £0.5m) to the income statement in respect of equity-settled share-based payment transactions. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 93

17334 proof 3 1/4/10 10. NET FINANCE COSTS

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Interest on bank loans and overdrafts* (29.1) (64.6) (28.5) (62.9) Interest on unsecured loans (0.2) (0.2) (0.2) (0.2) Interest payable to group companies - - (2.7) - Interest on obligations under finance leases (1.3) (1.6) - - Other finance charges – pension scheme (2.6) - - - Unwinding of discounts in provisions (3.8) (1.6) - - Amortisation of cancellation payment for swaps accounted for as cash flow hedges (8.7) - (8.7) - Cancellation of swaps measured at fair value (0.8) - (0.8) - Net loss on re-measurement of derivatives at fair value (3.7) (8.7) (3.0) (8.7)

Finance costs (50.2) (76.7) (43.9) (71.8)

Net gain on re-measurement of derivatives at fair value - 2.4 - 2.4 Other finance income – pension scheme - 4.8 - - Interest receivable 5.6 0.5 4.9 0.4

Finance income 5.6 7.7 4.9 2.8

Net finance costs (44.6) (69.0) (37.0) (69.0)

Adjusted interest cover 10.7x 4.3x

*Includes £2.9m (2008: £2.2m) of amortised bank finance charges. Adjusted interest cover is calculated by dividing adjusted operating profit of £223.3m (2008: £268.7m) (operating profit of £224.6m (2008: £271.5m) less £1.3m (2008: £2.8m) of IFRS adjustments) by the combined value of interest on bank loans and overdrafts (excluding amortised bank finance charges), unsecured loans, and interest on bank deposits, which total £20.8m (2008 £62.1m). The unwinding of discounts charge arises principally from the exceptional property provisions created in 2008.

11. TAX

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Current tax UK corporation tax - current year (47.3) (42.0) 12.2 20.4 - prior year 0.9 0.6 - (0.2)

Total current tax (46.4) (41.4) 12.2 20.2

Deferred tax - current year (8.9) (3.1) 2.9 - - prior year - 0.1 - 0.2

Total deferred tax (8.9) (3.0) 2.9 0.2

Total tax (charge) / credit (55.3) (44.4) 15.1 20.4 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 94 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 11. TAX continued

The differences between the total tax charge shown above and the amount calculated by applying the standard rate of UK corporation tax to the profit before tax are as follows:

The Group 2009 2008 ———————————— ———————————— £m % £m % Profit before tax 212.7 146.3

Tax at the UK corporation tax rate of 28.0% (2008: 28.5%) (59.6) 28.0 (41.7) 28.5 Tax effect of credits / (expenses) that are not taxable / not deductible in determining taxable profit 1.9 (0.9) (2.6) 1.8 Depreciation of non-qualifying property (1.5) 0.7 (2.0) 1.3 Property sales 3.0 (1.4) 1.2 (0.8) Prior period adjustment 0.9 (0.4) 0.7 (0.5)

Tax expense and effective tax rate for the year (55.3) 26.0 (44.4) 30.3

The Company 2009 2008 ———————————— ———————————— £m % £m % Profit / (loss) before tax 73.6 (33.0) Intercompany dividends (122.4) (47.8)

Loss before tax and dividends received (48.8) (80.8)

Tax at the UK corporation tax rate of 28.0% (2008: 28.5%) 13.7 28.0 23.0 28.5 Tax effect of credits / (expenses) that are not taxable / not deductable in determining taxable profit 1.4 2.9 (2.6) (3.2)

Tax credit and effective tax rate for the year 15.1 30.9 20.4 25.3

12. EARNINGS PER SHARE

The Group and the Company

(a) Basic and diluted earnings per share 2009 2008 £m £m Earnings Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company 157.4 101.9

Number of shares No. No. Weighted average number of shares for the purposes of basic earnings per share pre-rights issue adjustment 117,034,434 117,004,114 Rights issue adjustment 61,001,501 31,474,107

Weighted average number of shares for the purposes of basic earnings per share revised 178,035,935 148,478,221 Dilutive effect of share options on potential ordinary shares 4,427,564 1,715,810

Weighted average number of ordinary shares for the purposes of diluted earnings per share 182,463,499 150,194,031

At 31 December 2009, 3,913,130 (2008: 4,680,005) share options had an exercise price in excess of the market value of the shares on that day. As a result, for 2009, these share options were excluded from the calculation of diluted earnings per share. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 95

17334 proof 3 1/4/10 12. EARNINGS PER SHARE continued

(b) Adjusted earnings per share Adjusted earnings per share are calculated by excluding the effect of the exceptional items in 2009 and 2008 from earnings. 2009 2008 £m £m Earnings for the purposes of basic and diluted earnings per share being net profit attributable to equity holders of the Parent Company 157.4 101.9 Exceptional items (32.7) 56.2 Tax on exceptional items 9.2 (14.2)

Earnings for adjusted earnings per share 133.9 143.9

Adjusted basic earnings per share 75.2p 96.9p

Adjusted diluted earnings per share 73.4p 95.8p

13. DIVIDENDS

The Group and the Company Amounts were recognised in the financial statements as distributions to equity shareholders as follows:

2009 2008 £m £m Final dividend for the year ended 31 December 2008 of nil p (2007: 30.4p) per ordinary share - 35.5 Interim dividend for the year ended 31 December 2009 of nil p (2008: 14.5p) per ordinary share - 17.0

Total dividends recognised during the year - 52.5

The Company is not proposing a final dividend in respect of the year ended 31 December 2009. Restated dividend cover for 2008 of 8.5x is calculated by dividing adjusted basic earnings per share (note 12) of 96.9 pence by the restated for the rights issue total dividend for the year of 11.43 pence. There are no income tax consequences in respect of the dividends declared, but not recognised in the financial statements. The dividends declared for 2009 at 31 December 2009 and for 2008 at 31 December 2008 were as follows:

2009 2008 Pence Pence Interim paid - 14.5 Final proposed - -

Total dividends declared for the year - 14.5 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 96 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 14. GOODWILL

The Group Retail Merchanting Group —————————————————————— £m £m £m Cost At 1 January 2008 958.1 371.6 1,329.7 Recognised on acquisitions during the year 11.8 9.9 21.7

At 1 January 2009 969.9 381.5 1,351.4 Recognised on acquisitions during the year - 1.4 1.4

At 31 December 2009 969.9 382.9 1,352.8

Goodwill arising on the acquisition of businesses during the year was allocated to those cash generating units (“CGU”) that are expected to benefit from those acquisitions. With the exception of the Wickes’ business no individual CGU is significant in comparison with the total carrying amount of goodwill. At 31 December 2009, before impairment testing, goodwill and intangibles (note 15) of £882.4m million was allocated to Wickes, £26.8m to Tile Giant and £606.1m to the Merchanting business. On the acquisition of the Wickes’ business, £250m of goodwill, which represented synergies arising from the acquisition, was allocated to the merchanting CGU. The Group tests goodwill annually for impairment, or more frequently if there are indications that goodwill might be impaired. The recoverable amounts of the CGUs are determined from value in use calculations. The key assumptions for the value in use calculations are those regarding the discount rates, growth rates and expected changes to selling prices and direct costs during the period. These assumptions have been reviewed during the year in light of the current economic environment which has resulted in more conservative estimates about the future and the changing capital structure of the Company. Management estimates discount rates using pre-tax rates that reflect current market assessments of the time value of money and the risks specific to the CGUs. As a result of these deliberations the discount rate has been amended to reflect changes in the capital structure arising from the rights issue. The turnover growth rates in each CGU are based on the Directors’ expectations for the next 5 years. Growth is predicted to be lower than in previous years as a result of the difficult economic conditions that are directly affecting the construction and related industries. Changes in selling prices and direct costs used in the calculations are based on past practices and expectations of future changes in the market. It is anticipated that like-for-like sales volumes which fell during 2009, will flatten out for a period before resuming growth at a point in 2010. At the beginning and end of the financial period the fair value of goodwill and intangibles in both segments was in excess of its book value. The Directors’ calculations have shown that no impairments have occurred. The key assumptions applied in the value in use calculations were:

● Cash flow forecasts which were derived from the most recent financial budgets and plans for the three years ending 2013, which were approved by the directors. Cash flows for the following year are extrapolated from cash flows for 2013 using similar assumptions to those applied to 2013;

● The weighted average cost of capital (“WACC”) of the Group of 8.6%;

● Long-term forecast growth rates of 2.5% in line with the average long-term GDP growth trend applied from 2014 onwards. Whilst the Directors believe the assumptions are realistic, it is possible an impairment would be identified if any of the above key assumptions were changed significantly. For instance factors which could cause an impairment are:

● Significant underperformance relative to the forecast results;

● Changes to the way the assets are used or our strategy for the business;

● A deterioration in the industry or the economy. The impairment review calculations are based upon anticipated discounted future cash flows. These calculations are sensitive to changes in future cash flows, the discount rate applied and the terminal growth rate. The Directors believe the assumptions used are appropriate, but have conducted a sensitivity analysis to determine the assumptions that would result in an impairment to goodwill and intangibles of £100m:

Merchanting Wickes ———————————————— Weighted average cost of capital 23.2% 13.5% Long term growth rate reduction (29.0)% (4.3)%

The Company has no goodwill. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 97

17334 proof 3 1/4/10 15. OTHER INTANGIBLE ASSETS

T h e G r o u p ———————————— 2009 2008 £m £m Cost At 1 January and at 31 December 162.5 162.5

The Wickes brand is not amortised. As a leading brand in the DIY sector, with significant growth prospects, it is considered to have an indefinite useful life and is reviewed annually for impairment. Details of impairment testing are given in note 14. No impairments were identified in either year.

The Company has no intangible assets.

16. PROPERTY, PLANT AND EQUIPMENT

T h e G r o u p T h e C o m p a ny —————————————————————————————————————————— ————————— Long Short Plant and Plant and Freehold leases leases equipment Total equipment £m £m £m £m £m £m

Cost or valuation At 1 January 2008 245.1 24.7 95.9 377.2 742.9 0.5 Additions 18.0 - 12.2 64.6 94.8 0.1 Additions from acquired businesses 1.8 0.7 - 1.2 3.7 - Disposals (0.5) - (4.2) (33.8) (38.5) (0.1)

At 1 January 2009 264.4 25.4 103.9 409.2 802.9 0.5 Additions 2.1 - 12.0 18.0 32.1 - Reclassification 0.4 (0.4) - - - - Disposals (8.8) - (2.1) (16.0) (26.9) -

At 31 December 2009 258.1 25.0 113.8 411.2 808.1 0.5

Accumulated depreciation At 1 January 2008 24.7 3.2 25.5 184.5 237.9 0.3 Charged this year 4.2 0.5 6.8 51.4 62.9 0.1 Disposals (0.1) - (2.0) (30.3) (32.4) (0.1)

At 1 January 2009 28.8 3.7 30.3 205.6 268.4 0.3 Charged this year 4.0 0.6 6.8 47.2 58.6 0.1 Disposals (1.2) - (2.0) (14.7) (17.9) -

At 31 December 2009 31.6 4.3 35.1 238.1 309.1 0.4

Net book value At 31 December 2009 226.5 20.7 78.7 173.1 499.0 0.1

At 31 December 2008 235.6 21.7 73.6 203.6 534.5 0.2 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 98 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 16. PROPERTY, PLANT AND EQUIPMENT continued

The cost element of the fixed assets carrying value is analysed as follows:

T h e G r o u p T h e C o m p a ny —————————————————————————————————————————— ————————— Long Short Plant and Freehold leases leases equipment Total Total £m £m £m £m £m £m At valuation 69.1 6.1 1.9 - 77.1 - At cost 189.0 18.9 111.9 411.2 731.0 0.5

258.1 25.0 113.8 411.2 808.1 0.5

Those freehold and leasehold properties included at valuation in the consolidated balance sheet were revalued at their open market value on an existing use basis. The valuations were performed as at 31 December 1999 by an independent professional valuer, Lambert Smith Hampton, Consultant Surveyors and Valuers. Included within freehold property is land with a value of £94.7m (2008: £98.8m) which is not depreciated.

The carrying amount of assets held under finance leases is analysed as follows:

T h e G r o u p T h e C o m p a ny ———————————————————————————————— ——————––––––– Long Short Plant & leases leases equipment Total Total £m £m £m £m £m 2009 0.8 13.1 1.9 15.8 -

2008 0.8 14.4 2.6 17.8 -

Comparable amounts determined according to the historical cost convention: T h e G r o u p T h e C o m p a ny —————————————————————————————————————————— ——————––––––– Long Short Plant & Freehold leases leases equipment Total Total £m £m £m £m £m £m Cost 252.4 23.7 122.4 411.2 809.7 - Accumulated depreciation (48.2) (5.6) (40.7) (238.1) (332.6) -

Net book value At 31 December 2009 204.2 18.1 81.7 173.1 477.1 -

At 31 December 2008 211.0 18.7 76.7 203.6 510.0 - WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 99

17334 proof 3 1/4/10 17. INVESTMENT PROPERTY

T h e G r o u p ———––——— £m Cost At 1 January 2008,1 January 2009 and at 31 December 2009 3.9

Accumulated depreciation At 1 January 2008 0.4 Provided in the year 0.1

At 1 January 2009 0.5 Provided in the year 0.1

At 31 December 2009 0.6

Net book value At 31 December 2009 3.3

At 31 December 2008 3.4

Investment property rental income totalled £0.2m (2008: £0.3m). In addition, the Group also receives income from subletting all or part of 88 ex-trading and trading properties, the amount of which is not material. As no external valuation has been performed, the Directors have estimated that the fair value of investment property equates to its carrying value. As such, it is not material to the Group’s balance sheet. The Company has no investment property.

18. INVESTMENTS

(a) Interest in associates T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Equity investment 5.4 5.2 5.4 5.2 Loan facility 28.0 15.5 28.0 15.5 Interest on loan facility 2.9 0.3 2.9 0.3 Share of losses (4.6) (1.4) - -

31.7 19.6 36.3 21.0

On 4 April 2008 Travis Perkins plc acquired a 30% investment in ToolStation Limited for a total consideration of £5.2m. In addition Travis Perkins plc has provided a non-revolving loan facility totalling £28.0m. In the twelve month period to 31 December 2009 ToolStation recognised total revenues of £41.0m and a loss before tax of £10.6m. At 31 December 2009 total aggregate assets were £22.5m and total aggregate liabilities (including the loan facility provided by Travis Perkins plc) were £42.5m. On 1 December 2009 Travis Perkins plc acquired a 49% investment in the Mosaic Tile Company Limited for a total consideration of £0.2m. In the seven month period to 31 December 2009 The Mosaic Tile Company Limited recognised total revenues of £5.3m and a profit before tax of £0.1m. At 31 December 2009 total aggregate assets were £3.4m and total aggregate liabilities were £2.9m.

(b) Shares in group undertakings T h e C o m p any ———————————— 2009 2008 £m £m Cost at 1 January 1,814.3 1,673.0 Additions 97.8 141.3

Cost at 31 December 1,912.1 1,814.3 Provision for impairment (17.0) (12.9)

Net book value at 31 December 1,895.1 1,801.4 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 100 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 18. INVESTMENTS continued

The principal operating subsidiaries of the Group and Company at 31 December 2009 are as follows:

Subsidiary Registered Office Travis Perkins Trading Company Limited* Builders merchants Lodge Way House, Harlestone Road, Northampton NN5 7UG Keyline Builders Merchants Limited* Builders merchants Southbank House, 1 Strathkelvin Place, Kirkintilloch, Glasgow G66 1HX Wickes Building Supplies Limited DIY retailers Lodge Way House, Harlestone Road, Northampton NN5 7UG City Plumbing Supplies Holdings Limited Plumbers merchants Lodge Way House, Harlestone Road, Northampton NN5 7UG CCF Limited* Ceiling and dry lining distribution Lodge Way House, Harlestone Road, Northampton NN5 7UG Travis Perkins (Properties) Limited* Property management company Lodge Way House, Harlestone Road, Northampton NN5 7UG Benchmarx Kitchens and Joinery Limited Specialist distribution Lodge Way House, Harlestone Road, Northampton NN5 7UG Tile Giant Limited Ceramic tile merchants Lodge Way House, Harlestone Road, Northampton NN5 7UG *Held directly by Travis Perkins plc The Directors have applied s409 to s410 of the Companies Act 2006 and therefore list only significant subsidiary companies. All subsidiaries are 100% owned. All companies are registered and incorporated in England and Wales, other than Keyline Builders Merchants Limited and 8 dormant companies, which are registered and incorporated in Scotland, City Investments Limited, which is registered and incorporated in Jersey and 2 dormant companies registered and incorporated in Northern Ireland.

(c) Available-for-sale investments T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Fair value investment 1.5 2.0 - -

The investment represents a minority holding in a unit trust that acquired properties from the Group in 2006. The investment presents the Group with an opportunity to generate returns through both income and capital gains. The Directors consider that the carrying amount of this investment approximates its fair value.

19. OTHER FINANCIAL ASSETS

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Trade receivables 279.5 295.2 - - Allowance for doubtful debts (34.5) (32.3) - -

245.0 262.9 - - Amounts owed by subsidiaries - - 49.0 36.9 Other receivables, prepayments and accrued income 130.4 123.3 1.8 19.9

Trade and other receivables 375.4 386.2 50.8 56.8

The Group’s principal financial assets are trade and other receivables, which for the Group at the balance sheet date comprise principally of amounts receivable from the sale of goods, together with amounts due in respect of rebates and sundry prepayments. The Directors consider the only class of asset containing significant credit risk is trade receivables. The average credit term for sales of goods is 54 days (2008: 57 days). The amounts presented in the balance sheet are net of allowances for doubtful debts of £34.5m (2008: £32.3m), estimated by the Group’s management based on prior experience and their assessment of the current economic environment. The Directors consider the carrying amount of trade and other receivables approximates their fair values. No interest is charged on the trade receivable from the date of the invoice until the date the invoice is classified as overdue according to the trading terms agreed between the Group and the customer. Thereafter, the Group retains the right to charge interest at 4% above the National Westminster Bank base rate per annum on the outstanding balance. The Group has provided fully for all receivables outstanding over 90 days beyond agreed terms. Trade receivables not receivable for up to 90 days are specifically provided for based on estimated irrecoverable amounts. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 101

17334 proof 3 1/4/10 19. OTHER FINANCIAL ASSETS continued

Movement in the allowance for doubtful debts

T h e G r o u p ———————————— 2009 2008 £m £m At 1 January 32.3 21.5 Amounts written off during the year (10.2) (6.0) Increase in allowance recognised in profit and loss 12.4 16.8

At 31 December 34.5 32.3

In determining the recoverability of the trade receivables, the Group considers any change in the credit quality of the trade receivable from the date credit was initially granted up to the reporting date. The concentration of credit risk is limited due to the customer base being large. Accordingly, the Directors believe that no further credit provision is required in excess of the allowance for doubtful debts. Included in the Group’s trade receivable balance are unprovided debtors with a carrying amount of £20.9m (2008: £28.9m) which are past due at the reporting date for which the Group has not identified a significant change in credit quality and as such, the Group considers that the amounts are still recoverable. Except for some instances of personal guarantees the Group does not hold any collateral over these balances.

Ageing of past due but not impaired receivables

Days overdue T h e G r o u p ———————————— 2009 2008 £m £m 0 – 30 days 16.0 22.7 31 – 60 days 3.3 3.5 61 – 90 days 1.6 2.7

20.9 28.9

Included in the allowance for doubtful debts are specified trade receivables with a balance of £20.4m (2008: £18.7m) which have been placed into liquidation. The impairment represents the difference between the carrying amount of the specific trade receivable and the amount it is anticipated will be recovered. None of the Company’s debts are overdue. The directors do not consider there to be any significant credit risk, as the majority of the debt is due from subsidiaries.

20. CASH AND CASH EQUIVALENTS Cash and cash equivalents comprise cash held by the Group and Company and short-term bank deposits. The carrying amount of these assets approximates their fair value. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 102 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 21. SHARE CAPITAL

T h e G r o u p AND T h e C O M P ANY ————————————————————————————————————— Authorised Issued and fully paid ———————————————— ———————————————— Ordinary shares of 10p No. £m No. £m At 1 January 2008 135,000,000 13.5 122,641,849 12.3 Allotted under share option schemes - - 77,265 -

At 1 January 2009 135,000,000 13.5 122,719,114 12.3 Allotted on rights issue 265,000,000 26.5 85,903,379 8.6 Allotted under share option schemes - - 8,973 -

At 31 December 2009 400,000,000 40.0 208,631,466 20.9

On 12 June 2009, Travis Perkins plc issued 85,903,379 ordinary shares at an issue price of £3.65 pursuant to a rights issue offering of 7 new shares for every 10 existing shares. The total gross proceeds were £313.5m with issue costs of £13.2m. The issue costs have been charged to the share premium account. The Company has one class of ordinary share that carries no right to fixed income. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Company. All shares rank equally with regard to the Company’s residual assets.

22. OWN SHARES

The Group and the Company 2009 2008 No. No. At 1 January 5,684,680 5,698,300 Acquired during the year through the rights issue 1,316,010 - Re-issued during the year - (13,620)

At 31 December 7,000,690 5,684,680

Allocated to grants of executive options 289,142 289,142 Not allocated to grants of executive options 6,711,548 5,395,538

7,000,690 5,684,680

The own shares are stated at cost and held by the Employee Share Ownership Trust to satisfy options under the Group’s share incentive schemes. All rights attaching to own shares are suspended until the shares are re-issued. On the 12 June 2009 the Employee Share Ownership Trust acquired 1,316,010 shares by partially taking up its entitlement to participate in the Travis Perkins plc rights issue. The acquisition of these shares was funded by the sale of nil paid rights.

23. RESERVES

Details of all movements in reserves for both the Group and Company are shown in the Statement of Changes in Equity. A description of the nature and purpose of each reserve is given below. The other reserve represents the revaluation surplus that has arisen from property revaluations in 1999 and prior years. The hedging reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedging instruments related to hedged transactions that have yet to occur. The own shares reserve represents the cost of shares purchased in the market and held by the Employee Share Ownership Trust to satisfy options under the Group’s share option schemes. The cumulative total of goodwill written off directly to reserves for acquisitions from December 1989 to December 1998 is £40.1m. The aggregate information for the accounting periods prior to this period is not available. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 103

17334 proof 3 1/4/10 24. BORROWINGS

A summary of the Group policies and strategies with regard to financial instruments can be found in the Finance Director’s review of the year on pages 36 to 43. At 31 December 2009 all borrowings were made in Sterling except for the unsecured senior notes (note 24 (i)).

(a) Summary T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Unsecured senior notes 271.7 311.4 271.7 311.4 Bank loans (note 24c)* 525.0 685.0 525.0 685.0 Bank overdraft* - 12.3 4.0 103.8 Finance leases (note 24d) 23.5 25.0 - - Loan notes (note 24e) 3.8 3.9 3.8 3.9 Finance charges netted off bank debt* (9.6) (12.5) (9.6) (12.5)

814.4 1,025.1 794.9 1,091.6

Current liabilities 75.3 17.8 77.8 107.7 Non-current liabilities 739.1 1,007.3 717.1 983.9

814.4 1,025.1 794.9 1,091.6

*These balances together total the amounts shown as bank loans in note 24(b). 4. BORROWINGS continued

(b) Analysis of borrowings

The Group Bank loans and overdrafts Other borrowings ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Borrowings repayable On demand or within one year 70.0 12.3 5.3 5.5 More than one year, but not more than two years 70.0 70.0 1.5 1.5 More than two years, but not more than five years 375.4 602.5 140.6 159.1 More than five years - - 151.6 174.2

515.4 684.8 299.0 340.3

The Company Bank loans and overdrafts Other borrowings ————————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Borrowings repayable On demand or within one year 74.0 103.8 3.8 3.9 More than one year, but not more than two years 70.0 70.0 - - More than two years, but not more than five years 375.4 602.5 135.9 155.7 More than five years - - 135.8 155.7

519.4 776.3 275.5 315.3 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 104 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 24. BORROWINGS continued

(c) Facilities At 31 December 2009, the Group had the following bank facilities available: T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Drawn facilities 5 year term loan 525.0 525.0 525.0 525.0 5 year revolving credit facility - 160.0 - 160.0 Unsecured senior notes 271.7 311.4 271.7 311.4 Bank overdraft - 12.3 4.0 103.8

796.7 1,008.7 800.7 1,100.2

Undrawn facilities 5 year revolving credit facility 475.0 315.0 475.0 315.0 Bank overdraft 40.0 37.7 - -

515.0 352.7 475.0 315.0

The disclosures in note 24(c) do not include finance leases, loan notes, or the effect of finance charges netted off bank debt.

(d) Obligations under finance leases

Present value The Group Minimum of minimum lease payments lease payments ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Amounts payable under finance leases: Within one year 2.8 3.1 1.5 1.6 In the second to fifth years inclusive 10.7 10.9 6.3 6.1 After five years 26.2 28.7 15.7 17.3

39.7 42.7 23.5 25.0 Less: future finance charges (16.2) (17.7) - -

Present value of lease obligations 23.5 25.0 23.5 25.0

Less: Amount due for settlement within 1 year (shown under current liabilities) (1.5) (1.6)

Amount due for settlement after 1 year 22.0 23.4

As a result of the introduction of IAS 17 – “Leases”, the Group considers certain properties to be subject to finance leases. Excluding 999 year leases, the average loan term for these properties is 49 years and the average borrowing rate has been determined at the inception of the lease to be 8.9%. In addition the Group leases certain fixtures and equipment under finance leases, the obligations for which are secured by the lessors’ charges over the leased assets. The average lease term is 3-4 years. For the year ended 31 December 2009, the average implicit borrowing rate was 13.4% (2008: 14.9%). Interest rates are fixed at the contract date. All lease obligations, which are denominated in Sterling, are on a fixed repayment basis and no arrangements have been entered into for contingent rental payments.

(e) Loan notes Included in borrowings due within the year are £3.8m (2008: £3.9m) in respect of loan notes issued as consideration for the acquisition of two groups during 1999 and 2000. The loan notes of £0.3m issued in 1999 to acquire Sharpe and Fisher can be redeemed on 31 January and 31 July each year, the final redemption date being 31 January 2010. The £3.5m of loan notes issued for the acquisition of the business of Broombys Limited are redeemable on 30 June and 31 December each year until the final redemption date of 30 June 2015.

WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 105

17334 proof 3 1/4/10 24. BORROWINGS continued

(f) Interest The weighted average interest rates paid were as follows: 2009 2008 % % Unsecured senior notes 5.8 5.8 Bank loans and overdraft 2.2 6.3 Other borrowings 5.4 5.1

Bank term loans and revolving credit facilities of £1,000m (2008: £1,000m) were arranged at variable interest rates. The $400m unsecured senior notes were issued at fixed rates of interest and swapped into variable rates. This exposes the Group to fair value interest rate risk. As detailed in note 25, to manage the risk the Group enters into interest rate derivatives arrangements, which for the first four months of 2009, fixed interest rates on an average of £635m of borrowings and for the last eight months fixed interest rates on an average of £630m of borrowings. For the year to 31 December 2009 this had the effect of increasing the weighted average interest rates paid by 2.0%. In respect of income earning financial assets and interest bearing financial liabilities, the following table indicates their effective interest rates at the balance sheet date and the periods in which they reprice.

The Group 2009 2008 ———————————————— ———————————————— 6 months or less 6 months or less Effective Total Effective Total interest rate £m interest rate £m Unsecured senior notes 5.8% 271.7 5.8% 311.4 Unsecured variable rate bank facilities 1.8% 525.0 3.6% 685.0 Loan notes 5.6% 3.8 6.0% 3.9 Bank overdraft 2.3% - 2.8% 12.4

800.5 1,012.7

The Company 2009 2008 ———————————————— ———————————————— 6 months or less 6 months or less Effective Total Effective Total interest rate £m interest rate £m Unsecured senior notes 5.8% 271.7 5.8% 311.4 Unsecured variable rate bank facilities 1.8% 525.0 3.6% 685.0 Loan notes 5.6% 3.8 6.0% 3.9 Bank overdraft 2.3% 4.0 2.8% 103.8

804.5 1,104.1

(g) Fair values For both the Group and the Company the fair values of financial assets and liabilities have been calculated by discounting expected cash flows at prevailing rates at 31 December. There were no significant differences between book and fair values on this basis and therefore no further information is disclosed. Details about the fair values of derivatives are given in note 25.

(h) Guarantees and security There are cross guarantees on the overdrafts between group companies. The companies listed in note 18, with the exception of Benchmarx Kitchens and Joinery Limited and Tile Giant Limited, together with Wickes Limited are guarantors of the following facilities advanced to Travis Perkins plc:

● £525m term loan;

● £475m revolving credit facility;

● $400m unsecured senior notes (note 24(i));

● Interest rate and currency derivatives, (note 25). The group companies have entered into other guarantee and counter-indemnities arrangements in respect of guarantees issued in favour of group companies by the clearing banks amounting to approximately £13.7m (2008: £13.2m). WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 106 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 24. BORROWINGS continued

(i) Unsecured senior notes On 26 January 2006 the Group finalised a US private placement that resulted in it receiving $400m. $200m of the unsecured senior notes is repayable in January 2013 and $200m in January 2016. The US borrowings carry fixed rate coupons of between 130 bps and 140 bps over US treasuries. As described in note 25, to protect itself from currency movements and bring interest rate exposures back into line with the Group’s desired risk profile the Group entered into five cross currency swaps.

25. FINANCIAL INSTRUMENTS

Significant accounting policies Details of the significant accounting policies and methods adopted, including the criteria for recognition, the basis of measurement and the basis on which income and expenses are recognised, in respect of each class of financial asset, financial liability and equity instrument are disclosed in note 2 to the financial statements.

The carrying value of categories of financial instruments

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Financial assets Designated as fair value through profit and loss (FVTPL) - 2.4 - 2.4 Derivative instruments in designated hedge accounting relationships 44.7 80.3 44.7 80.3 Loans and receivables (including cash and cash equivalents) 671.8 341.9 367.8 56.8 Available-for-sale 1.5 2.0 - -

718.0 426.6 412.5 139.5

Financial liabilities Designated as fair value through profit and loss (FVTPL) 3.5 8.1 3.5 8.1 Derivative instruments in designated hedge accounting relationships 2.6 17.7 2.6 17.7 Borrowings at amortised cost (note 24a) 814.4 1,025.1 794.9 1,091.6 Trade and other payables at amortised cost (note 28) 638.7 582.2 19.6 15.3

1,459.2 1,633.1 820.6 1,132.7

Loans and receivables exclude prepayments of £50.8m (2008: £52.0m) The carrying amount of financial assets recorded in the financial statements, which is net of impairment losses, represents the Group’s maximum exposure to credit risk.

Fair value of financial instruments The fair values of financial assets and financial liabilities are determined as follows:

● Foreign currency forward contracts are measured using quoted forward exchange rates.

● Interest rate swaps are measured at the present value of future cash flows estimated and discounted based on the applicable yield curves derived from quoted interest rates.

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which the fair value is observable:

● Level 1 fair value measurements are those derived from quoted prices (unadjusted) in active markets for identical assets or liabilities;

● Level 2 fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

● Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs). There were no transfers between levels during the year. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 107

17334 proof 3 1/4/10 25. FINANCIAL INSTRUMENTS continued

Included in assets T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Level 1 Foreign currency forward contracts at fair value through profit and loss - 2.4 - 2.4 Level 2 Cross currency interest rate swaps designated and effective as hedging instruments carried at fair value 44.7 80.3 44.7 80.3

44.7 82.7 44.7 82.7

Current assets - 2.4 - 2.4 Non-current assets 44.7 80.3 44.7 80.3

44.7 82.7 44.7 82.7

Included in non-current liabilities Level 2 Interest rate cap and floor options at fair value through profit and loss - 2.1 - 2.1 Interest rate swaps at fair value through profit and loss 3.5 6.0 3.5 6.0 Interest rate swaps designated and effective as cash hedging instruments 2.6 17.7 2.6 17.7

6.1 25.8 6.1 25.8

Interest risk management The Group is exposed to interest rate risk as entities in the Group borrow funds at both fixed and floating interest rates. The risk is managed by the Group by maintaining an appropriate mix between fixed and floating rate borrowings, by the use of interest rate swap contracts and forward interest rate contracts. Hedging activities are evaluated regularly to align with interest rate views and defined risk appetite, ensuring optimal hedging strategies are applied, by either positioning the balance sheet or protecting interest expense through different interest rate cycles. The Group’s exposures to interest rates on financial assets and financial liabilities are detailed in the liquidity risk management section of this note.

Interest rate swaps The Group adopts a policy of ensuring that its exposure to changes in interest rates on borrowings is either on a fixed rate basis or is subject to movements within pre-defined limits. To achieve its desired interest rate profile the Group uses interest rate swaps. As part of their interest rate management processes, in respect of the facilities described in note 24, the Group and the Company at the commencement of the year, were parties to two amortising interest rate swaps, four non-amortising interest rate swaps, two non-amortising interest rate swaps with a call option, one amortising interest rate floor option and an amortising interest rate cap option. In May 2009 the Group and the Company paid £28.7m to exit from all the above swaps and options with the exception of one non-amortising interest rate swap with a call option. In May 2009, as part of their interest rate management processes, in respect of the facilities described in note 24, the Group and Company entered into four amortising swaps each with an initial notional value of £100m, two amortising swaps with an initial notional value of £50m and two non-amortising swaps each with a notional value of £50m. Contracts with notional values of £530m are designated as cash flow hedges with fixed interest payments at an average rate of 1.51% for periods up until May 2011 and have floating interest receipts equal to 1 month LIBOR. The non-amortising interest rate swap with a call option has a notional value of £50m with fixed interest payments at a rate of 4.595% for periods up until October 2013 and has floating interest payments equal to 6 month LIBOR. At 31 December 2009 the fair value of interest rate derivatives, all of which terminate between one year and five years from the balance sheet date, to which the Group and the Company were parties, was estimated at £6.1m (2008: £(25.8)m). This amount is based on market values of equivalent instruments at the balance sheet date. Interest rate swaps excluding those with a call option are designated and effective as cash flow hedges and the fair value thereof has been deferred in equity. A credit of £4.7m (2008: £(8.7)m charge) in respect of the fair value movement on interest rate swaps with a call option has been taken to the income statement through net finance charges as the Company has not applied hedge accounting.

Interest rate swap contracts Under interest rate swap contracts, the Group agrees to exchange the difference between fixed and floating interest rate amounts calculated on agreed notional principal amounts. Such contracts enable the Group to mitigate the risk of changing interest rates on the fair value of issued fixed rate debt held and the cash flow exposures on the issued variable rate debt held. The fair value of interest rate swaps at the reporting date is determined by discounting the future cash flows using the yield curves at the reporting date and the credit risk inherent in the contract, and is disclosed below. The average interest rate is based on the outstanding balances at the end of the financial year. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 108 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 25. FINANCIAL INSTRUMENTS continued

The following tables detail the notional principal amounts and remaining terms of interest rate swap contracts as at the reporting date:

Cash flow hedges – outstanding receive floating pay fixed contracts

Average contract Notional principle fixed interest rate amount Fair value ———————————— ———————————— ———————————— 2009 2008 2009 2008 2009 2008 % % £m £m £m £m 1 to 2 years 1.51% 4.95% 530.0 237.0 (2.6) (4.2) 2 to 5 years - 5.02% - 200.0 - (13.5)

530.0 437.0 (2.6) (17.7)

The interest rate swaps settle on a monthly basis. The floating rate on the interest rate swaps is 1 month LIBOR. The Group will settle the difference between the fixed and floating interest rate on a net basis. All interest rate swap contracts exchanging floating rate interest amounts for fixed rate interest amounts are designated as cash flow hedges in order to reduce the Group’s cash flow exposure resulting from variable interest rates on borrowings. The interest rate swaps and the interest rate payments on the loan occur simultaneously and the amount deferred in equity is recognised in the income statement over the period that the floating rate interest payments on debt impact profit or loss.

Currency swaps In order to eliminate the currency risk associated with the $400m unsecured senior notes described in note 24(i) the Group and the Company have entered into five cross currency swaps in varying amounts between £23m and £63m to fix the exchange rate at £1 equal to $1.73 for the entire lives of the unsecured loan notes, although there is a mutual break clause on each swap on 1 December 2010. The forward options fix the notional amount receivable and payable in respect of the unsecured senior notes to £231m as well as fixing the exchange rate applicable to future coupon payments. The currency swaps manage the Group’s and the Company’s exposure to the fixed interest rate on the US dollar denominated borrowing arising out of a private placement on 26 January 2006. There are two interest rate swaps each of £58m that convert the borrowing rate on $200m of debt from 5.77% to a variable rate on 6 month LIBOR plus a weighted average basis point increment of 81.9. At 26 January 2006 the variable rates were both at 5.43%. A further three interest rate swaps of £29m, £23m and £63m convert the borrowing rates on US$50m, US$40m and US$110m of debt from 5.89% to a variable rate based on six month LIBOR plus basis point increments of 86.5, 86.7 and 86.05 respectively. At 26 January 2006 the variable rates were at 5.47 weighted average %. At 31 December 2009 the fair value of currency derivatives was estimated at £44.7m (2008: £80.3m). All of these currency swaps are designated and effective as fair value hedges.

Fair value hedges – outstanding receive fixed pay floating contracts

Average contract Notional principle fixed interest rate amount Fair value ———————————— ———————————— ———————————— 2009 2008 2009 2008 2009 2008 % % £m £m £m £m 2 to 5 years 2.9% 6.6% 115.6 115.6 21.6 35.8 Greater than 5 years 2.9% 6.6% 115.6 115.6 23.1 44.5

231.2 231.2 44.7 80.3

The interest rate swaps settle on a half yearly basis. The floating rate on the interest rate swaps is 6 months LIBOR. The Group will settle the difference between the fixed and floating interest on a net basis. Interest rate swap contracts exchanging fixed rate interest for floating rate interest are designated and effective as fair value hedges in respect of interest rates. During the period, the hedge was 100% effective in hedging the fair value exposure to interest movements and as a result, the carrying amount of the loan was adjusted by £39.7m (2008: £108.2m), which was included in the income statement at the same time that the fair value of the interest rate swap was included in the income statement. The Group acquires goods for sale from overseas, which when not denominated in Sterling are paid for principally in US dollars. The Group has entered into forward foreign exchange contracts (all of which are less than one year in duration) to buy US dollars to hedge the exchange risk arising from these anticipated future purchases. At the balance sheet date the total notional value of contracts to which the Group was committed was US$40m (2008: US$46m). The fair value of these derivatives is £0m (2008: £2.4m). These contracts have not been designated as hedges and accordingly the fair value movement has been reflected in the income statement. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 109

17334 proof 3 1/4/10 25. FINANCIAL INSTRUMENTS continued

The following table details the Group’s liquidity analysis for its derivative financial instruments. The table has been drawn up based on the undiscounted net cash inflows / (outflows) on the derivative instrument that settle on a net basis and the undiscounted gross inflows / (outflows) on those derivatives that require gross settlement. When the amount payable or receivable is not fixed, the amount disclosed has been determined by reference to the projected interest and foreign currency rates as illustrated by the yield curves existing at the reporting date.

2009 —————————————————————————————————————————— 0-1 year 1-2 years 2-5 years 5+ years Total £m £m £m £m £m Gross settled Interest rate swaps - receipts 14.5 14.5 157.4 135.4 321.8 Interest rate swaps - payments (3.7) (4.5) (132.4) (122.9) (263.5)

10.8 10.0 25.0 12.5 58.3 Foreign exchange forward contracts (26.8) - - - (26.8)

Total gross settled (16.0) 10.0 25.0 12.5 31.5 Net settled Interest rate swaps (1.9) (6.0) (2.2) - (10.1)

Total derivative financial instruments (17.9) 4.0 22.8 12.5 21.4 Borrowings (note 24) (73.8) (70.0) (520.9) (135.8) (800.5) Other financial liabilities (note 28) (638.7) - - - (638.7) Finance leases (note 24d) (2.8) (2.8) (7.9) (26.2) (39.7)

Total financial instruments (733.2) (68.8) (506.0) (149.5) (1,457.5)

2008 —————————————————————————————————————————— 0-1 year 1-2 years 2-5 years 5+ years Total £m £m £m £m £m Gross settled Interest rate swaps - receipts 16.3 16.3 184.2 159.9 376.7 Interest rate swaps - payments (11.7) (6.2) (141.9) (129.6) (289.4)

4.6 10.1 42.3 30.3 87.3 Foreign exchange forward contracts (30.5) - - - (30.5)

Total gross settled (25.9) 10.1 42.3 30.3 56.8 Net settled Interest rate swaps (3.9) (11.0) (11.5) - (26.4)

Total derivative financial instruments (29.8) (0.9) 30.8 30.3 30.4 Borrowings (note 24) (16.2) (70.0) (770.7) (155.7) (1,012.6) Other financial liabilities (note 28) (582.2) - - - (582.2) Finance leases (note 24d) (3.1) (3.1) (7.8) (28.7) (42.7)

Total financial instruments (631.3) (74.0) (747.7) (154.1) (1,607.1)

Interest rate sensitivity analysis The sensitivity analysis below has been determined based on the exposure to interest rates for both derivatives and non-derivative financial instruments at the balance sheet date. For floating rate liabilities, the analysis is prepared assuming the amount of liability outstanding at the balance sheet date was outstanding for the whole year. A 1.0% increase or decrease is used when reporting interest rate risk internally to key management personnel. If interest rates had been 1.0% higher / lower and all other variables were held constant, the Group’s:

● Profit before taxation for the year ended 31 December 2009 would have increased / decreased by £3m (2008: decreased / increased by £7m) including £2m (2008: £4m) of movement on interest rate swaps with options;

● Net equity would have increased / decreased by £6m (2008: decreased / increased by £11m) mainly as a result of the changes in the fair value of interest rate derivatives. The Group’s sensitivity to interest rates has decreased during the current period mainly due to the increase in the nominal value of interest rate derivatives. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 110 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 26. PROVISIONS

T H E G R O U P ————————————————————————————————— Property Insurance Other Total £m £m £m £m At 1 January 2009 58.1 27.7 0.6 86.4 Additional provision in the year 2.6 4.1 1.6 8.3 Utilisation of provision (6.2) (3.0) - (9.2) Unwinding of discount 3.8 - - 3.8

At 31 December 2009 58.3 28.8 2.2 89.3

Included in current liabilities 14.6 28.8 2.2 45.6 Included in non-current liabilities 43.7 - - 43.7

58.3 28.8 2.2 89.3

The Group has a number of vacant and partly sub-let leasehold properties. Where necessary provision has been made for the residual lease commitments after taking into account existing and anticipated sub-tenant arrangements. It is Group policy to substantially self insure itself against claims arising in respect of damage to assets, or due to employers or public liability claims. The nature of insurance claims means they may take some time to be settled. The insurance claims provision represents management’s best estimate, based upon external advice of the value of outstanding insurance claims where the final settlement date is uncertain. The following table details the Group’s liquidity analysis of its provisions. The table has been drawn up based on the undiscounted net cash outflows.

0-1 year 1-2 years 2-5 years 5+ years Total 2009 £m £m £m £m £m Property 13.7 9.3 23.2 31.8 78.0 Insurance 28.8 - - - 28.8 Other 2.2 - - - 2.2

44.7 9.3 23.2 31.8 109.0

2008 Property 10.6 8.5 24.3 37.0 80.4 Insurance 27.7 - - - 27.7 Other 0.6 - - - 0.6

38.9 8.5 24.3 37.0 108.7

The Company has no provisions. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 111

17334 proof 3 1/4/10 27. DEFERRED TAX

The following are the major deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior reporting periods.

The Group At Recognised Recognised At Recognised Recognised At 1 Jan 2008 in income in equity 31 Dec 2008 in income in equity 31 Dec 2009 Provided £m £m £m £m £m £m £m Capital allowances 14.6 (0.7) - 13.9 (2.3) - 11.6 Revaluation 12.1 - - 12.1 - - 12.1 Share based payments (0.5) - 0.5 - (3.0) (0.8) (3.8) Provisions (10.6) 0.2 - (10.4) (0.3) - (10.7) Derivatives - - - - - (4.6) (4.6) Business combinations 14.2 (1.1) 0.5 13.6 (0.9) - 12.7 Brand 45.5 - - 45.5 - - 45.5

Deferred tax liability 75.3 (1.6) 1.0 74.7 (6.5) (5.4) 62.8 Deferred tax asset (4.5) 4.6 (19.6) (19.5) 15.4 (7.9) (12.0)

Net deferred tax 70.8 3.0 (18.6) 55.2 8.9 (13.3) 50.8

At the balance sheet date the Group had unused capital losses of £59.3m (2008: £61.0m) available for offset against future capital profits. No deferred tax asset has been recognised because it is not probable that future taxable profits will be available against which the Group can utilise the losses. Other than disclosed above, no deferred tax assets and liabilities have been offset. The Group has recognised a deferred tax asset of £12m (2008: £19.5m) in respect of the deficit on its pension scheme. The Directors believe that the deferred tax asset will be realised as the deficit is reduced over the coming years.

The Company At Recognised Recognised At Recognised Recognised At 1 Jan 2008 in equity in income 31 Dec 2008 in income in equity 31 Dec 2009 Provided £m £m £m £m £m £m £m Share based payments (0.5) 0.5 - - (3.0) (0.8) (3.8) Derivatives - - - - - (4.6) (4.6) Provisions (0.5) - (0.2) (0.7) 0.1 - (0.6)

(1.0) 0.5 (0.2) (0.7) (2.9) (5.4) (9.0)

28. OTHER FINANCIAL LIABILITIES

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Trade payables 408.9 396.4 - - Other taxation and social security 33.7 35.8 - - Other payables 98.6 77.2 19.6 15.3 Accruals and deferred income 97.5 72.8 - -

Trade and other payables 638.7 582.2 19.6 15.3

The Group Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 52 days (2008: 47 days). The Directors consider that the carrying amount of trade payables approximates to their fair value. The Group has financial risk management policies in place to ensure that all payables are paid within the credit timeframe.

The Company Trade and other payables principally comprise amounts outstanding for trade purchases and ongoing costs. The average credit period taken for trade purchases is 30 days (2008: 30 days). The Directors consider that the carrying amount of trade payables approximates to their fair value. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 112 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 29. ACQUISITION OF BUSINESSES

During the year the Group acquired 1 limited company details of which are not material to the financial statements. It was accounted for using the purchase method of accounting.

2009 2008 ———————————————————————— ——————————————————————— Book Provisional Provisional Book Provisional Provisional value fair value fair value value fair value fair value acquired adjustments acquired acquired adjustments acquired £m £m £m £m £m £m Net assets acquired: Property, plant and equipment - - - 5.2 (1.5) 3.7 Inventories - - - 5.1 (0.3) 4.8 Trade and other receivables - 0.1 0.1 3.0 (0.1) 2.9 Cash and cash equivalents - - - 0.9 - 0.9 Trade and other payables - 0.4 0.4 (7.1) (0.4) (7.5) Tax liabilities - - - (0.4) - (0.4) Bank overdrafts and loans - (1.8) (1.8) (2.7) - (2.7)

- (1.3) (1.3) 4.0 (2.3) 1.7 Goodwill 1.4 21.7 Deferred consideration 0.9 -

Amount payable 1.0 23.4

Satisfied by: Cash 1.0 22.5 Cash and cash equivalents acquired - 0.9

1.0 23.4

The acquisition made in the period under review is not material to the Group in respect of turnover, profits or cashflows. Therefore, the results and cash flows of the Group, prepared on the basis that the acquisition was made on 1 January 2009, are not disclosed on the grounds of materiality. The turnover, result and cash flow effect of the acquired business is not sufficiently material to warrant separate disclosure.

Goodwill arising on acquisitions The goodwill arising on the acquisition made during the year is attributable to the anticipated profitability of this acquisition and the future operating synergies arising in the enlarged group. No intangible assets were acquired during the year.

Prior period acquisitions The provisional fair values ascribed to the net assets of acquisitions made during 2008 and disclosed in the 2008 financial statements were finalised during the year. There was a £1.3m reduction in the fair values disclosed last year.

30. OPERATING LEASE ARRANGEMENTS

The Group leases a number of trading properties under operating leases. The leases are typically 25 years in duration, although some have lessee only break clauses of between 10 and 15 years. Lease payments are reviewed every five years and increases applied in line with market rates. The Group also leases certain items of plant and equipment. The Company has no operating lease arrangements.

The Group as lessee 2009 2008 £m £m Minimum lease payments under operating leases recognised in income for the year 135.4 129.0 WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 113

17334 proof 3 1/4/10 30. OPERATING LEASE ARRANGEMENTS continued

At the balance sheet date, the Group had outstanding commitments for future minimum lease payments under non-cancellable operating leases, which fall due as follows: 2009 2008 £m £m Within one year 136.2 125.7 In the second to fifth years inclusive 489.9 471.4 After five years 1,086.8 1,078.1

1,712.9 1,675.2

The Group as lessor The Group sublets a number of ex-trading properties to third parties. Property rental income earned during the year in respect of these properties was £4.7m (2008: £5.7m). At the balance sheet date, the Group had contracts with tenants for the following future minimum lease payments: 2009 2008 £m £m Within one year 3.6 4.1 In the second to fifth years inclusive 12.6 12.9 After five years 15.8 18.1

32.0 35.1

31. RELATED PARTY TRANSACTIONS

The Group has a related party relationship with its subsidiaries and with its directors. Transactions between group companies, which are related parties, have been eliminated on consolidation and are not disclosed in this note. Transactions between the Company and its subsidiaries are disclosed below. In addition the remuneration, and the details of interests in the share capital of the Company, of the Directors, are provided in the audited part of the remuneration report on pages 58 to 63. The remuneration of the key management personnel of the Group is set out below in aggregate for each of the categories specified in IAS 24 Related Party Disclosures. 2009 2008 £m £m Short term employee benefits 6.6 4.8 Share based payments 2.3 2.4

8.9 7.2

The Company undertakes the following transactions with its active subsidiaries: · Providing day-to-day funding from its UK banking facilities; · Levying an annual management charge to cover services provided to members of the Group of £6.9m (2008: £7.3m); · Receiving annual dividends totalling £122.4m (2008: £47.8m). Details of balances outstanding with subsidiary companies are shown in note 19 and on the Balance Sheet on pages 74 and 75. There have been no material related party transactions with directors. Details of transactions with the Group’s associate company ToolStation are shown in note 18. Operating transactions with ToolStation during the year were not significant.

32. CAPITAL COMMITMENTS

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Contracted for but not provided in the accounts 4.2 1.7 - - WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 114 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 33. NET DEBT RECONCILIATION

T h e G r o u p T h e C o m p any ———————————— ———————————— 2009 2008 2009 2008 £m £m £m £m Net debt at 1 January (1,017.4) (941.0) (1,091.6) 891.0) Increase / (decrease) in cash and cash equivalents 351.8 (30.9) 416.8 (150.1) Cash flows from debt 161.6 47.3 160.1 45.2 Decrease / (increase) in fair value of debt 39.7 (108.2) 39.7 (108.2) Finance charges netted off bank debt (2.9) 12.5 (2.9) 12.5 Finance lease surrendered - 2.9 - -

Net debt at 31 December (467.2) (1,017.4) (477.9) (1,091.6)

34. GEARING

T h e G r o u p ———————————— 2009 2008 £m £m Net debt under IFRS (467.2) (1,017.4) IAS 17 finance leases 23.2 24.5 Fair value adjustment to debt 40.5 80.2 Movement in finance charges netted off bank debt (9.6) (12.5)

Net debt under covenant calculations (413.1) (925.2)

Total equity 1,460.4 1,018.2

Gearing 28.3% 90.9%

35. ADJUSTED FREE CASH FLOW

T h e G r o u p ———————————— 2009 2008 £m £m Net debt at 1 January (1,017.4) (941.0) Net debt at 31 December (467.2) (1,017.4)

Decrease / (increase) in net debt 550.2 (76.4) Dividends - 52.5 Net cash outflow for expansion capital expenditure 11.1 53.5 Net cash outflow for acquisitions - 22.5 Net cash outflow for acquisition of investments 1.0 0.3 Swap cancellation fee 28.7 - Cash impact of exceptional items 2.5 8.5 Interest in associate 12.9 20.7 Shares issued (300.3) (0.6) (Decrease) / increase in fair value of debt (39.7) 108.2 Movement in finance charges netted off bank debt 2.9 (12.5) Finance lease surrendered - (2.9) Special pension contributions 25.1 11.5

Adjusted free cash flow 294.4 185.3

WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 115

17334 proof 3 1/4/10 36. ADJUSTED RETURN ON EQUITY AND ADJUSTED RETURN ON CAPITAL

Adjusted return on equity T h e G r o u p ———————————— 2009 2008 £m £m Profit before tax 212.7 146.3 Exceptional items (32.7) 56.2

Adjusted profit before tax 180.0 202.5

Opening equity 1,018.2 1,036.9 Net pension deficit 50.4 11.5 Goodwill written off 92.7 92.7

1,161.3 1,141.1

Closing adjusted equity 1,460.4 1,018.2 Net pension deficit 31.0 50.4 Goodwill written off 92.7 92.7

1,584.1 1,161.3

Average net assets 1,372.7 1,151.2

Adjusted return on equity 13.1% 17.6%

Adjusted return on capital T h e G r o u p ———————————— 2009 2008 £m £m Operating profit 257.3 215.3 Exceptional items (32.7) 56.2

Adjusted operating profit 224.6 271.5

Opening net assets 1,018.2 1,036.9 Net pension deficit 50.4 11.5 Goodwill written off 92.7 92.7 Net borrowings 1,017.4 941.0 Exchange adjustment (80.2) 27.9

Opening capital employed 2,098.5 2,110.0 Closing net assets 1,460.4 1,018.2 Net pension deficit 31.0 50.4 Goodwill written off 92.7 92.7 Net borrowings 467.2 1,017.4 Exchange adjustment (40.5) (80.2)

Closing capital employed 2,010.8 2,098.5

Average capital employed 2,054.7 2,104.2

Adjusted return on capital 10.9% 12.9% WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 116 NOTES TO THE FINANCIAL STATEMENTS

17334 proof 3 1/4/10 37. ADJUSTED RATIO OF NET DEBT TO EARNINGS BEFORE INTEREST, TAX AND DEPRECIATION

Adjusted ratio of net debt to earnings before interest, tax and depreciation (“EBITDA”) is derived as follows: T h e G r o u p ———————————— 2009 2008 £m £m Profit before tax 212.7 146.3 Net finance costs 44.6 69.0 Depreciation and impairments 58.7 63.0

EBITDA under IFRS 316.0 278.3 Exceptional items (32.7) 56.2 Reversal of IFRS effect (2.5) (4.2)

Adjusted EBITDA under covenant calculations 280.8 330.3

Net debt under covenant calculations 413.1 925.2

Adjusted net debt to EBITDA 1.47x 2.80x WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE FINANCIAL STATEMENTS 117

17334 proof 3 1/4/10 FIVE YEAR RECORD

Consolidated income statement 2009 2008 2007 2006 2005 £m £m £m £m £m Revenue 2,930.9 3,178.6 3,186.7 2,848.8 2,640.8

Operating profit before exceptional items 224.6 271.5 319.9 278.0 268.0 Exceptional items 32.7 (56.2) - 11.6 -

Operating profit 257.3 215.3 319.9 289.6 268.0 Net finance costs (44.6) (69.0) (58.5) (57.7) (61.3)

Profit before tax 212.7 146.3 261.4 231.9 206.7 Income tax expense (55.3) (44.4) (76.1) (64.9) (65.9)

Net profit 157.4 101.9 185.3 167.0 140.8

Adjusted return on capital 10.9% 12.9% 15.9% 14.6% 14.8%

Adjusted return on equity 13.1% 17.6% 23.6% 21.8% 23.2%

Basic earnings per share (pence) 88.4p 68.6p 120.8p 108.7p 92.1p Adjusted earnings per share (pence) 75.2p 96.9p 118.1p 100.4p 92.1p

Dividend declared per ordinary share (pence) - 14.5p 44.9p 37.4p 34.0p

Branches at 31 December (No.) 1,238 1,223 1,125 1,022 983

Average number of employees (No.) 14,528 15,414 14,580 13,831 14,048

Basic and adjusted earnings per share have been restated for the impact of the rights issue.

Consolidated cash flow statement 2009 2008 2007 2006 2005 £m £m £m £m £m Cash generated from operations 319.8 337.6 303.9 323.3 310.8 Net interest paid (29.0) (63.0) (72.5) (59.0) (38.2) Swap cancellation payment (28.7) - - - - Income taxes paid (27.3) (66.0) (74.5) (57.3) (47.0) Net purchases of investments, property and plant (7.8) (82.4) (118.9) (13.5) (70.2) Interest in associates (12.9) (20.7) - - - Acquisition of businesses net of cash acquired (1.0) (22.5) (47.2) (10.9) (1,045.5) Proceeds from issuance of share capital 300.3 0.6 6.8 6.9 6.4 Dividends paid - (52.5) (48.1) (42.5) (38.6) Bank facility finance charges - (14.7) - - - Own shares acquired - - (76.0) - (8.1) Payment of finance lease liabilities (1.5) (2.1) (1.9) (2.8) (2.3) Repayment of unsecured loan notes (0.1) (11.5) (0.2) (0.3) (0.8) (Decrease) / increase in bank loans (160.0) (33.7) 98.6 (143.7) 872.7

Net increase / (decrease) in cash and cash equivalents 351.8 (30.9) (30.0) 0.2 (60.8) Net debt at 1 January (1,017.4) (941.0) (804.4) (982.4) (30.7) Non cash adjustments 36.8 (92.8) (2.4) - - Loan notes issued - - (7.7) - - Cash flow from debt and debt acquired 161.6 47.3 (96.5) 177.8 (890.9)

Net debt at 31 December (467.2) (1,017.4) (941.0) (804.4) (982.4) WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 118 FIVE YEAR RECORD

17334 proof 3 1/4/10 Consolidated balance sheet 2009 2008 2007 2006 2005 £m £m £m £m £m

Assets Non-current assets Property, plant and equipment 499.0 534.5 505.0 426.4 445.2 Goodwill and other intangibles 1,515.3 1,513.9 1,492.2 1,444.5 1,436.3 Derivative financial instruments 44.7 80.3 3.0 3.8 1.3 Interest in associate 31.7 19.6 - - - Investment property and other investments 4.8 5.4 5.5 5.9 4.1 Deferred tax asset 12.0 19.5 4.5 24.2 42.9 Current assets Inventories 312.7 321.9 330.2 294.4 263.2 Trade and other receivables 375.4 388.6 422.6 364.3 322.4 Cash and cash equivalents 347.2 7.7 26.3 56.3 56.1

Total assets 3,142.8 2,891.4 2,789.3 2,619.8 2,571.5

Issued capital 20.9 12.3 12.3 12.2 12.1 Share premium account 471.2 179.5 178.9 172.2 165.6 Own shares (83.7) (83.7) (83.9) (7.9) (8.1) Other reserves 9.2 6.0 27.1 29.3 23.1 Accumulated profits 1,042.8 904.1 902.5 727.3 565.3

Total equity 1,460.4 1,018.2 1,036.9 933.1 758.0

Non- current liabilities Interest bearing loans and borrowings 739.1 1,007.3 863.9 763.6 1,027.4 Derivative financial instruments 6.1 25.8 29.8 30.9 - Retirement benefit obligations 43.0 69.9 16.0 80.8 142.8 Long term provisions 43.7 47.8 13.7 13.1 13.2 Deferred tax liabilities 62.8 74.7 75.3 71.1 72.6 Current liabilities Interest bearing loans and borrowings 75.3 17.8 103.4 97.1 11.1 Derivative financial instruments - - - 0.2 5.1 Trade and other payables 638.7 582.2 585.0 565.2 482.3 Tax liabilities 28.1 9.1 32.3 34.2 33.3 Short-term provisions 45.6 38.6 33.0 30.5 25.7

Total liabilities 1,682.4 1,873.2 1,752.4 1,686.7 1,813.5

Total equity and liabilities 3,142.8 2,891.4 2,789.3 2,619.8 2,571.5

WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 FIVE YEAR RECORD 119

17334 proof 3 1/4/10 NOTICE OF ANNUAL GENERAL MEETING

Notice is hereby given that the forty-sixth Annual General Meeting of or grant rights to subscribe for or to convert any security into Travis Perkins plc will be held at Northampton Rugby Football Club, shares up to an aggregate nominal amount of £6,954,585; Franklin’s Gardens, Weedon Road, Northampton, NN5 5BG on Monday and 17 May 2010 at 11.45 a.m. (b) equity securities (as such phrase is to be interpreted in accordance with section 560 of the Companies Act 2006) up to an The Resolutions aggregate nominal amount of £13,909,170 (such amount to Resolutions 1 to 8 (inclusive) will be proposed as ordinary resolutions. be reduced by the aggregate nominal amount of shares allotted Resolutions 9 to 12 (inclusive) will be proposed as special resolutions. or rights to subscribe for or to convert any security into shares in the Company granted under paragraph (a) of this resolu- Ordinary business tion 8) in connection with an offer by way of a rights issue: 1. To receive the Company’s annual accounts for the financial year ended 31 December 2009, together with the directors’ report, and i. to ordinary shareholders in proportion (as nearly as may be the directors’ remuneration report and the auditors’ report on those practicable) to their existing holdings; and accounts and on the auditable part of the directors’ remuneration report. ii. to holders of other equity securities (as defined in section 560(1) of the Companies Act 2006) as required by the rights 2. To re-appoint Robert Walker as a non-executive director, who was of those securities or, subject to such rights, as the Directors appointed by the Board on 30 September 2009 pursuant to Article otherwise consider necessary, 71 of the Company’s Articles of Association. Biographical details of Robert Walker appear on page 45. and so that the Directors may impose any limits or restrictions and make any arrangements which they consider necessary 3. To re-appoint Chris Bunker as a non-executive director, who is or appropriate to deal with treasury shares, fractional entitle- retiring by rotation pursuant to Article 76 of the Company’s Articles ments, record dates, legal, regulatory or practical problems of Association. Biographical details of Chris Bunker appear on in, or under the laws of, any territory or any other matter page 45. such authorities to apply until the end of the Company’s next annual general meeting after this resolution is passed (or, if 4. To re-appoint John Coleman as a non-executive director, who is earlier, until the close of business on 30 June 2011) but, in retiring by rotation pursuant to Article 76 of the Company’s Articles each case, so that the Company may make offers and enter of Association. Biographical details of John Coleman appear on into agreements before the authority expires which would, page 45. or might, require shares to be allotted or rights to subscribe for or to convert any security into shares to be granted after 5. To re-appoint Geoff Cooper as a director, who is retiring by rotation the authority expires and the Directors may allot shares or pursuant to Article 76 of the Company’s Articles of Association. grant such rights under any such offer or agreement as if the Biographical details of Geoff Cooper appear on page 44. authority had not expired.

6. To re-appoint Deloitte LLP, Chartered Accountants, as auditors of 9. That, in substitution for all existing powers and subject to the the Company to hold office from the conclusion of this meeting passing of resolution 8, the Directors be generally empowered until the conclusion of the next general meeting of the Company at pursuant to section 570 of the Companies Act 2006 to allot equity which accounts are laid and to authorise the Directors to fix their securities (as such phrase is to be interpreted in section 560 of the remuneration. Companies Act 2006) for cash pursuant to the authority granted by resolution 8 and/or where the allotment constitutes an allotment Special Business of equity securities by virtue of section 560 (3) of the Companies 7. That the directors’ remuneration report for the financial year ended Act 2006, in each case free of the restriction in section 561 of the 31 December 2009 set out on pages 53 to 63 be approved. Companies Act 2006, such power to be limited:

8. That, in substitution for all existing authorities, the Directors be (a) to the allotment of equity securities in connection with an offer generally and unconditionally authorised in accordance with section of equity securities (but in the case of an allotment pursuant 551 of the Companies Act 2006 to exercise all the powers of the to the authority granted by paragraph (b) of resolution 8, such Company to allot: power shall be limited to the allotment of equity securities in (a) shares (as defined in section 540 of the Companies Act 2006) connection with an offer by way of a rights issue only): WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 120 NOTICE OF ANNUAL GENERAL MEETING

17334 proof 3 1/4/10 i. to ordinary shareholders in proportion (as nearly as may be (b) the minimum price (exclusive of expenses) which may be paid practicable) to their existing holdings; and for an ordinary share is its nominal value of 10 pence; ii. to holders of other equity securities, (as defined in section (c) the maximum price (exclusive of expenses) which may be 560(1) of the Companies Act 2006) as required by the rights paid for an ordinary share is an amount equal to 105% of the of those securities or, subject to such rights, as the Directors average of the middle market quotations for an ordinary share otherwise consider necessary, as derived from The London Stock Exchange Daily Official List for the five business days immediately preceding the day on and so that the Directors may impose any limits or restrictions which that ordinary share is purchased; and make any arrangements which they consider necessary (d) this authority expires at the conclusion of the next Annual or appropriate to deal with treasury shares, fractional entitle- General Meeting of the Company or 30 June 2011, whichever ments, record dates, legal, regulatory or practical problems in, is the earlier; and or under the laws of, any territory or any other matter; and (e) the Company may make a contract to purchase ordinary shares under this authority before the expiry of such authority, which (b) to the allotment of equity securities pursuant to the authority will or may be executed wholly or partly after the expiry of granted by paragraph (a) of resolution 8 and/or an allot- such authority, and may make a purchase of ordinary shares ment which constitutes an allotment of equity securities by pursuant to any such contract. virtue of section 560(3) of the Companies Act 2006 (in each case otherwise than in the circumstances set out in para- 12. That with effect from the end of the meeting: graph (a) of this resolution 9) up to a nominal amount of £1,043,188 calculated, in the case of equity securities which (a) the Articles of Association of the Company be amended by are rights to subscribe for, or to convert securities into, ordi- deleting all the provisions of the Company’s Memorandum of nary shares (as defined in section 560(1) of the Companies Association which, by virtue of section 28 of the Companies Act Act 2006) by reference to the aggregate nominal amount of 2006 are to be treated as provisions of the Company’s Articles relevant shares which may be allotted pursuant to such rights, of Assocation; and such power to apply until the end of the Company’s next annual general meeting after this resolution is passed (or, if earlier, (b) the Articles of Association produced to the meeting and initialled until the close of business on 30 June 2011); but so that the by the chairman of the meeting for the purpose of identification Company may make offers and enter into agreements before be adopted as the Articles of Association of the Company in the power expires which would, or might, require equity securi- substitution for, and to the exclusion of, the existing Articles of ties to be allotted after the power expires and the Directors may Association. allot equity securities under any such offer or agreement as if the power had not expired. By order of the Board

10. That a general meeting other than an annual general meeting may be called on not less than 14 clear days’ notice.

11. That the Company be and is hereby generally and uncondition- Andrew Pike ally authorised to make one or more market purchases (within the Company Secretary meaning of section 693(4) of the Companies Act 2006) of ordinary Lodge Way House, Harlestone Road, Northampton NN5 7UG shares of 10 pence each in the capital of the Company (“ordinary 23 February 2010 shares”), provided that: Registered in England No. 824821

(a) the maximum aggregate number of ordinary shares authorised Directions to Northampton Rugby Football Club can be found on page to be purchased is 20,863,756 (representing 10% of the 124. issued share capital of the Company as at 23 February 2010);

WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTICE OF ANNUAL GENERAL MEETING 121

17334 proof 3 1/4/10 NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING

1. A form of proxy is enclosed and instructions for its use are shown the procedures described in the CREST Manual. on the form. The appointment of a proxy will not prevent a member CREST personal members or other CREST sponsored members, and from subsequently attending, voting and speaking at the Meeting in those CREST members who have appointed a voting service provider(s) person, in which case any votes of the proxy will be superceded. should refer to their CREST sponsors or voting service provider(s), who will be able to take the appropriate action on their behalf. 2. A member of the Company is entitled to appoint a proxy to exer- In order for a proxy appointment made by means of CREST to be valid, cise all or any of his rights to attend, speak and vote at a general the appropriate CREST message (a “CREST Proxy Instruction”) must meeting of the Company. A member may appoint more than one be properly authenticated in accordance with Euroclear UK & Ireland proxy, provided that each proxy is appointed to exercise the rights Limited’s specifications and must contain the information required for attaching to different shares. A proxy need not be a member. such instructions, as described in the CREST Manual. The message, regardless of whether it constitutes the appointment of a proxy or an 3. To appoint more than one proxy, (an) additional proxy form(s) may amendment to the instruction given to a previously appointed proxy be obtained by contacting the Registrars or you may photocopy the must, in order to be valid, be transmitted so as to be received by the form. Please indicate in the box next to the proxy holder’s name the Company’s agent (ID RA10) by the latest time(s) for receipt of proxy number of shares in relation to which they are authorised to act appointments specified in the notice of meeting (11.45am on 13 May as your proxy. Please also indicate by ticking the box provided if 2010). For this purpose, the time of receipt will be taken to be the the proxy instruction is one of multiple instructions being given. All time (as determined by the timestamp applied to the message by the forms must be signed and should be returned together in the same CREST Application Host) from which the Company’s agent is able to envelope. retrieve the message by enquiry to CREST in the manner prescribed by CREST. After this time, any change of instructions to proxies appointed 4. The right to appoint a proxy under note 1 above does not apply to through CREST should be communicated to the appointee through persons whose shares are held on their behalf by another person other means. and who have been nominated to receive communication from the CREST members and, where applicable, their CREST sponsors and Company in accordance with Section 146 of the Companies Act voting service providers should note that Euroclear UK & Ireland Limited 2006 (“nominated persons”). Nominated persons may have a right does not make available special procedures in CREST for any particular under an agreement with the registered shareholder who holds messages. Normal system timings and limitations will therefore apply in shares on their behalf to be appointed (or to have someone else relation to the input of CREST Proxy Instructions. It is the responsibility appointed) as a proxy. Alternatively, if nominated persons do not of the CREST member concerned to take (or, if the CREST member is have such a right, or do not wish to exercise it, they may have a a CREST personal member or sponsored member or has appointed a right under such an agreement to give instructions to the person voting service provider(s), to procure that his CREST sponsor or voting holding the shares as to the exercise of voting rights. service provider(s) take(s)) such action as shall be necessary to ensure that a message is transmitted by means of the CREST system by any 5. To be effective, the instrument appointing a proxy and any particular time. In this connection, CREST members and, where appli- authority under which it is signed (or a notarially certified copy cable, their CREST sponsors or voting service providers are referred, in of such authority) for the Annual General Meeting to be held at particular, to those sections of the CREST Manual concerning practical Northampton Rugby Football Club, Franklins Gardens, Weedon limitations of the CREST system and timings. The CREST Manual can Road, Northampton, NN5 5BQ at 11.45 am on Monday 17 May be reviewed at www.euroclear.com/CREST. 2010 and any adjournment(s) thereof must be returned to Capita The Company may treat as invalid a CREST Proxy Instruction in Registrars, PXS, 34 Beckenham Road, Beckenham, Kent, BR3 4TU, the circumstances set out in Regulation 35(5)(a) of the Uncertificated by 11.45 am on 13 May 2010. Alternatively you may submit your Securities Regulations 2001. proxy form online by accessing the Shareholder portal at www. In each case the proxy appointments must be received by the capitashareportal.com, logging in and selecting the “Proxy Voting” Company not less than 48 hours before the time appointed for holding link. If you have not previously registered for electronic communica- the meeting or any adjournment thereof. tions, you will first be asked to register as a new user, for which you will require your investor code (which can be found on the enclosed 7. Only those members entered on the register of members of the proxy form, your share certificate or dividend tax voucher), family Company as at 6.00 pm on 13 May 2010 shall be entitled to attend name and post code (if resident in the UK). or vote at the meeting in respect of the number of shares registered in their name at that time. Changes to entries on the register of 6. CREST members who wish to appoint a proxy or proxies through members after that time shall be disregarded in determining the the CREST electronic proxy appointment service may do by using rights of any person to attend or vote at the meeting. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 122 NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING

17334 proof 3 1/4/10 8. Reference to the register means the Issuer register of members proxy appointment right or does not wish to exercise it, he/she may, and the Operator register of members maintained in accordance under any such agreement, have a right to give instructions to the with Regulation 20 of the Uncertificated Securities Regulations shareholder as to the exercise of voting rights. 2001. 12. The statement of the rights of members in relation to the appoint- 9. The following documents will be available for inspection at the ment of proxies in paragraphs 1 to 6 above does not apply to a Registered Office of the Company during usual business hours on Nominated Person. The rights described in these paragraphs can any weekday (Saturdays, Sundays and public holidays excluded) only be exercised by registered members of the Company. from the date of this Notice to the date of the meeting and at Northampton Rugby Football Club from 11.15 a.m. on the day of 13. Any corporation which is a member can appoint one or more corpo- the meeting until the conclusion of the meeting: rate representatives who may exercise on its behalf all of the same

● Copies of contracts of service of directors and non-executive powers as the corporation could exercise if it were an individual directors’ letters of appointment with the Company, or with any of member. its subsidiary companies.

● The register of directors’ interests kept by the Company 14. Shareholders and their proxies will have the opportunity to ask

● A copy of the Company’s Articles of Association. questions at the Meeting. When invited by the Chairman, if you

● A copy of the Articles of Association proposed to be adopted wish to ask a question, please wait for a Company representa- under Resolution 12. tive to bring you a microphone. It would be helpful if you could

● A statement giving particulars of directors’ relevant transactions. state your name before you ask your question. Questions may not be answered at the Meeting if they are deemed not to be in the 10. At 23 February 2010 (being the latest practicable date before interests of the Company, or the good order of the meeting, would publication of this notice) the issued share capital of the Company interfere unduly with the preparation of the meeting or involve the consisted of 208,637,557 ordinary shares, carrying one vote each. disclosure of confidential information, or if the answer has already Therefore, the total voting rights in the Company as at 23 February been given on a website. The Chairman may also nominate a 2010 were 208,637,557. Company representative to answer a specific question after the Meeting or refer the response to the Company’s website. 11. A person to whom this Notice is sent who is a person nominated under Section 146 of the Companies Act 2006 to enjoy information 15. A copy of this Notice, and other information required by section rights (a ‘Nominated Person’) may, under an agreement between 311A of the Companies Act 2006, can be found at www.travisper- him/her and the shareholder by whom he/she was nominated, kinsplc.com/investorcentre/ir.asp?page=home have a right to be appointed (or to have someone else appointed) as a proxy for the Meeting. If a Nominated Person has no such WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 NOTES TO THE NOTICE OF ANNUAL GENERAL MEETING 123

17334 proof 3 1/4/10 DIRECTIONS TO THE ANNUAL GENERAL MEETING

THE ANNUAL GENERAL MEETING IS TO BE HELD AT NORTHAMPTON RUGBY FOOTBALL CLUB

Franklin’s Gardens, Weedon Road, Northampton, NN5 5BG

The Travis Perkins AGM will be held in The Captains Lounge and The Rodber Suite. Parking is directly outside in the VIP Car Park (follow VIP Car park signs off Weedon Road).

From the South (via the M1) From Welford, Market Harborough Exit off motorway at junction 15A and follow the signs towards Sixfields. Aim towards the Kingsthorpe area of Northampton. Turn right at the At roundabout with TGI Fridays on the right and a BP petrol station major set of traffic lights (the Cock Hotel is on the corner), signposted on the left carry straight on up the hill. At Cineworld roundabout turn Sixfields. Continue on this road until you get to Cineworld roundabout right towards the Town Centre. Go straight over the next roundabout (approx 3 miles) then continue as from the South. (Sainsbury’s is on the left before the roundabout and Wickes on the right after the roundabout) and set of traffic lights. Continue on that road From the Railway Station (Weedon Road). The entrance to the Saints is on the right immediately Turn right out of the station. Continue past Thomas A Becket pub, after Beacon Bingo. Follow signs for VIP car park off Weedon Road. Church and Co. factory and bus station. At fork in road bear left and Franklin’s Gardens is on your left. Walk takes approx 15 minutes. From the North (via the M1) Exit off motorway at junction 16 and follow the A45 to Northampton. At Nearest Airports Cineworld roundabout continue straight on and follow directions from London Luton and Nottingham East Midlands. the South. Further Information From the East, Peterborough, Cambridge, Wellingborough For detailed directions you might want to try the following websites:

Follow A45 to M1 junction 15. Head north to junction 15A then follow ● Multimap (www.multimap.com);

directions from the South. ● The AA (www.theaa.com);

● The RAC (www.rac.co.uk). For further details about the venue:www.northamptonsaints.co.uk WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 124 DIRECTIONS TO the annual general meeting

17334 proof 3 1/4/10 OTHER SHAREHOLDER INFORMATION

SHAREHOLDER ENQUIRIES exception of the Wickes, Toolsinthepost and ToolStation sites which Shareholder enquiries should be directed to the Company Secretary at allow on-line ordering by secure card transaction. the Company’s registered office: Some of the sites provide information about branch locations and Lodge Way House, Lodge Way, Harlestone Road, allow access to prices and the product range available. Customers Northampton NN5 7UG are also able to construct their own price quotation that includes Telephone 01604 752424 any special price arrangements that have been negotiated with Email [email protected] the Group. or to the Company’s registrars: Capita Registrars ELECTRONIC COMMUNICATION Northern House, Woodsome Park, Fenay Bridge, In accordance with the Companies Act 2006 and the Company’s Articles Huddersfield, HD8 0GA of Association, the Company is allowed to use its website to publish Telephone 0871 664 0300 (8.30am to 5.30pm, Monday – Friday) statutory documents and communications to shareholders, such as (calls cost 10p per minute plus network extras) the Annual Report and Accounts and the Notice of the AGM. You can Email [email protected] therefore view or download a copy of the Annual Report and Accounts and the Notice of the AGM by going to our website at www.travis Should your query relate to a pensions matter please email perkinsplc.com (see section called “Investor Centre”). If you received [email protected] or if your query relates to a marketing a hard copy of this report in the post then you will not have consented matter please email [email protected] to this method of publication. Should you now wish to consent to this method of publication, you should contact: FINANCIAL DIARY Annual General Meeting 17 May 2010 Capita Registrars, Announcement of interim results July 2010 Freepost Plus RLYX-GZTU-KRRG, SAS, The Registry, Announcement of 2010 annual results February 2011 34 Beckenham Road, Beckenham BR3 9ZA

AGM – CATERING ARRANGEMENTS By reducing the number of communications sent by post, it will not It has always been the Company’s custom to provide a light luncheon only result in cost savings to the Company but also reduce the impact for shareholders following the A.G.M. and a buffet luncheon will be that the unnecessary printing and distribution of reports has on the available. (You need not notify the company in advance if you would environment. Please note that if you consent to website publication, like lunch). you will continue to be notified each time that the Company places a statutory communication on the website. This notification will be sent INTERNET to you by post. However, you may also choose to receive notifications There are sites on the internet that carry a range of information about by e-mail and we would encourage you to do so. If you wish to receive the Group and its principal brands, products and services at the these notifications by email, you should register at www.capitashare- following addresses: portal.com, and follow the instructions given below under the heading www.travisperkinsplc.com (investor relations site) “Accessing the Share Portal”. www.travisperkins.co.uk* Please telephone Capita Registrars on 0871 664 0391 (within the www.bmpublicsector.co.uk UK, calls cost 10p per minute plus network extras; lines are open www.cityplumbing.co.uk* 9.00am to 5.30pm, Monday – Friday) or +44 20 8639 3367 if calling www.ccfltd.co.uk* from outside the UK if you have any queries. www.toolsinthepost.co.uk* www.toolmart.co.uk Notes www.keyline.co.uk* 1. Before consenting to receive documents and communications via www.wickes.co.uk* the website, shareholders should ensure that they have a computer www.tilegiant.co.uk with internet access and the Adobe Acrobat reader facility. The www.benchmarxjoinery.co.uk Adobe Acrobat reader software may be obtained via the website www.iflo.co.uk free of charge. www.toolstation.co.uk* www.trademate.co.uk 2. If you elect to receive notifications of the publication of the docu- www.wickeskitchens.co.uk ments and communications on the website electronically, it will be www.4tradeproducts.co.uk your responsibility to notify our registrars, Capita, of any subsequent *These sites allow credit account holders to order on-line with the change in your e-mail address or other contact details. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 OTHER SHAREHOLDER INFORMATION 125

17334 proof 3 1/4/10 3. If you are not resident in the United Kingdom, it is your responsibility purpose you will require your unique investor code, which can be found to ensure that you may validly receive documents and communica- on your share certificate, proxy card or dividend tax voucher. tions electronically (either generally or in relation to any particular document or communication) without the Company being required Share Dealing Services to comply with any governmental or regulatory procedures or any Capita offers an on-line and telephone share dealing service which is similar formalities. The Company may deny electronic access available by logging on to www.capitadeal.com or telephoning 0871 to documents and communications relating to certain corporate 664 0346 (calls cost 10p per minute plus network extras; lines are open actions in respect of those shareholders who it believes are resident 8am to 4.30pm, Monday – Friday). For the on-line service, Capita’s in jurisdictions where it is advised that to provide such access would commission rates are 1% of the value of the deal (minimum £20.00, or may be a breach of any legal or regulatory requirements. maximum £75) and for the telephone service, Capita’s commission rates are 1.50% of the value of the deal (minimum £25.00, maximum 4. The Company’s obligation to provide shareholder documents to you £102.50). is satisfied when it transmits an electronic message. The Company is not responsible for any failure in transmission for reasons beyond Dividend Re-Investment Plan (“DRIP”) its control any more than it is for postal failures. In the event of the The Board has not proposed the payment of a final dividend for 2009. Company becoming aware that an electronic communication to you Nevertheless, shareholders may wish to know about this plan, which has not been successfully transmitted, a further two attempts will allows you to use your dividends to buy further shares in Travis Perkins. be made. If the transmission is still unsuccessful, a hard copy of the For any shareholders who wish to re-invest dividend payments in the relevant notification will be posted to your registered address. Company, a facility is provided by Capita IRG Trustees Ltd in conjunction with Capita Registrars. Under this facility, cash dividends are used 5. Your registration to receive electronic communications and your to purchase additional shares. Shares are bought on the dividend relevant contact address details will stand until such time as the payment date at the then current market price. Any cash left over Company receives alternative instructions from you by e-mail or in which is insufficient to purchase a whole share will be carried forward writing. and held without interest, in a Client Money bank account. Any shareholder requiring further information should contact Capita on 0871 6. The Company takes all reasonable precautions to ensure no 664 0381 (Calls cost 10p per minute plus any network extras from computer viruses are present in any electronic communication it within the UK; lines are open from 9am to 5.30 pm Monday – Friday.) transmits, but the Company shall not be responsible for any loss If calling from overseas +44 (0)208 639 3402. Fax 0208 639 1023. or damage arising from the opening or use of any e-mail or attach- Email [email protected] or visit www.capitaregistrars.com. ments sent by the Company or on its behalf. The Company recommends that shareholders subject all messages to computer virus Duplicate Share Register Accounts checking procedures. Any electronic communication received by or If you are receiving more than one copy of our report, it may be that on behalf of the Company, including the lodgement of an electronic your shares are registered in two or more accounts on our register of proxy form, that is found to contain any computer virus will not be members. If that was not your intention you might consider merging accepted. them into one single entry. Please contact Capita who will be pleased to carry out your instructions. 7. The Company reserves the right, irrespective of your election, to revert to sending hard copy documentation by post whenever it Overseas Shareholders considers it necessary or desirable to do so. Capita are now able to provide you with a service that will convert your sterling dividends into your local currency at a competitive rate. You can CAPITA REGISTRARS choose to receive payment directly into your bank account, or you can The Company’s registrars, Capita Registrars (“Capita”), provide a be sent a draft in your local currency. Further details are available from number of services that, as a shareholder, might be useful to you: Capita Registrars, Freepost Plus RLYX-GZTU-KRRG, SAS, The Registry, 34 Beckenham Road, Beckenham, Kent BR3 9ZA; telephone UK: 0871 Registrar’s On-Line Service 664 0385 (Calls cost 10 pence per minute plus network extras; lines By logging onto www.capitashareportal.com and following the prompts, are open to 9.00am to 5.30pm, Monday – Friday) or +44 20 8639 shareholders can view and amend various details on their account. 3405 (from outside the UK) or by logging on to www.capitaregistrars. Please note that you will need to register to use this service for which com/international. WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433 126 OTHER SHAREHOLDER INFORMATION

17334 proof 3 1/4/10 TRAVIS PERKINS PLC T A R s i v

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T RA v i s p e RK i n s p l c L o d g e W ay H o u s e h A R l e s t o n e R o a d N o r t h a m p t o n n n 5 7 u g

T elephone 01604 752 424 A leader in builders merchanting and home improvement retailing WorldReginfo - a5e6f667-86ae-4cf9-9b8c-3a5b18a56433

17334 proof 3 1/4/10